Although the law is very fuzzy on the matter of who may trade U.S. securities and for what purpose, there is currently no citizenship requirement to owning U.S. stocks. The U.S. follows the common law system, which is based on precedent. It evolves to reflect changes in precedent-setting and newly passed laws.
Recent changes in the laws regarding foreign ownership and holding of U.S.-based assets have resulted in a situation where precedents do not necessarily exist for every circumstance that may occur. This lack of precedents means there are too many unknowns to easily answer this question.
First, let's be clear that the Securities and Exchange Commission and the U.S. government encourage foreign investment in the equities and debt markets that fund U.S. capital markets and the U.S. economy — non-U.S./foreign investors simply bring in too much cash to halt this practice. However, there is a lot of room for interpretation regarding who may own what assets and how they may hold them.
Restrictions on Opening a Brokerage Account
Some brokerage firms may require non-citizens to produce additional types of documentation to comply with their individual corporate policies. They may demand a non-citizen to produce visa information before they will open a new account. A broker may also ask for an applicant to provide a valid Social Security number, or even a Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (also known as a W-8BEN) if their residence is outside of the U.S.
Laws Against Terrorist Financing Activities
Foreign owners and holders of U.S.-based assets are subject to an array of U.S. laws intended to protect U.S. interests. With the passing of the Patriot Act in 2001 following the terrorist attacks of 9/11, the laws governing foreign ownership of U.S. securities have become even more unclear. The U.S. government has gone to great lengths to ensure that certain organizations that have been linked to terrorist activities, along with their members or suspected members, are not able to finance their operations through American capital markets in any way.
Without getting into a detailed discussion of this legislation, it's safe to say that if you are not involved in any illegal activities, or any activities that the U.S. government and its organizations may find offensive, you should be well within your rights to own stock in U.S.-based companies. Just make sure to plan for some additional obstacles you might need to overcome first before you can begin investing.
(To learn more about what it means to own shares in a company, check out our Stock Basics Tutorial.)