In trading jargon, the terms street name, in street name and in a street name denote an arrangement in which securities are purchased by a broker on behalf of an investor, but are legally owned by the broker, clearing house or central securities depository rather than the investor. Securities which are held in the name of a broker on behalf of investors are known as street name securities.
This arrangement is commonly used by brokers because it facilitates management and trading of securities. Instead of a broker holding and administrating securities owned by many different clients, the broker legally owns all of the securities which it administrates. Rather than having to register each individual who buys securities at the share register offices of corresponding companies, the broker simply keeps a record of transactions while maintaining legal ownership of securities itself.
When one client “buys” securities from another client, the broker simply records the buyer as the new book owner of those securities, while the broker remains the legal owner. This allows for faster, more efficient transactions by brokers.
The securities belong to the broker, while the investor who “buys” the securities is simply a creditor to whom the broker owes the corresponding securities or their equivalent value. The practice of brokers holding securities in street name is similar to the practice of banks holding assets on behalf of depositors, where the bank balance simply represents a debt owed by the bank to the depositor. The difference is that, at least theoretically, brokers actually own the securities which they hold in their name on behalf of investors, while banks are only required to hold a small fraction of the book money making up depositors account balance in actual base money.
In the case of shares, the broker transfers dividends which it receives for securities to the book owners. The broker which legally owns the shares may transfer voting rights to book owners by appointing them as proxies to vote on its behalf in the annual general meetings of corresponding companies.
Brokers may automatically integrate distribution of dividends and appointment of book owners as voting proxies into their trading apps and online trading platforms. It can, in some cases, be very difficult for investors to know whether they legally own their securities, or whether securities are held in a street name – the name of their broker or yet another third-party broker which owns them on behalf of their broker. This is especially true when no physical stock certificates are issued and physically delivered to investors.
Holding securities in a street name can be disadvantageous to investors in the event that a broker goes bankrupt. While investors retain ownership of securities which they legally own if their custodian bank or broker goes bankrupt, the book entries for securities which are held in a street name simply represent debt claims against the broker.
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