What does "in street name" mean, and why are securities held this way?
In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. The name that appears on the certificate is that of your broker, and this is referred to as being held "in street name". In fact, the broker usually doesn't even hold the physical certificates. Rather, the broker holds them in electronic form, in many computers. This is done for many different reasons, but here are the two main ones:
- Convenience - It is much more convenient for brokers to carry securities in their name as the securities can be easily and readily transferred between parties. Imagine the amount of work that would occur if your broker held stocks in your name. Every time you needed to sell stocks, the broker would have to find the exact stocks you own and deliver them to the buying party, who would then have to send the stocks back to the company to have the name on the certificates changed to the new owners' names. This would take a great deal of time and effort, not to mention the fact that you wouldn't collect payment until the stocks were physically received by the purchasing party. By holding the securities "in street name", the broker can avoid most delays associated with the transfer of ownership and quickly settle trades.
- Safety - If brokers were to hold the physical securities, there would be a possibility of physical damage, loss and theft of the certificates. By holding them in street name, brokerages are able to retain the securities electronically, effectively reducing the probability of anything negative occurring. This safety is also extended to the safety of payment. By holding the securities in street name, the broker is ensuring that a security will be delivered promptly when a transaction occurs. This removes any uncertainty that would exist if the customer were responsible for delivering the security every time a transaction occurred.