What Is In Street Name?
In street name is a slang term used to describe a brokerage that holds securities on behalf of a client. The name that appears on the stock or bond certificate is that of the broker, even though the person who paid for the securities has all the ownership rights associated with them.
- In street name is a slang term used to describe a brokerage that holds ownership of securities on behalf of a client.
- The broker’s name appears on the stock or bond certificate, but the person who paid for the securities is registered as the beneficial owner.
- Having securities held electronically in street name does not diminish the beneficial owner's rights.
- Rather, it facilitates speedy trading, reduces costs, and limits the risk of potentially negative consequences in the event that the physical certificates are lost or destroyed.
How In Street Name Works
In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate, despite all the rights and benefits of owning the security belonging to you.
For example, if an investor purchases 100 shares of General Motor Co.’s (GM) stock from Morgan Stanley (MS), the broker will hold these stocks in its “street name,” rather than transferring the customer's legal name to the stock certificates. Morgan Stanley will not buy these shares from the market, but instead allocate them to the investor from its pre-existing inventory to make the trade quick and simple.
That does not mean that the investor does not own the shares he or she paid for, though. As part of the process, Morgan Stanley will assign all ownership rights to the investor by registering him or her as the beneficial owner. The broker will also send updates on how the investment is performing every month or quarter.
Following this procedure is not compulsory—an investor could request to register the GM shares in his or her own name. Doing so is not generally advisable though, as it does not change the beneficial owner's rights and makes trades more complicated and expensive—brokers will expect to be compensated for the inconvenience.
Advantages of In Street Name
Imagine the amount of work that would occur if your broker held stocks in your name. Every time you needed to sell them, 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 execute trades at a minimal cost.
The cost savings of registering securities in street name can be a material boost to investment returns.
If brokers were to hold the physical security certificates, there would be an increased risk of physical damage, loss, and theft. 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 payments. By holding the securities in street name, the broker is ensuring that they 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 took place.
Limitations of In Street Name
Holding securities in street name also comes with some caveats. Since your name is not on the record, you will not be apprised of important details from the company. This may include reports or any other corporate communications the company sends out. You will, therefore, be relying on your brokerage or advisor to pass on any and all of the information about your holdings to you.
Holding a physical certificate also gives you the power to use it as collateral for a loan or any other type of credit you may be seeking—anything other than a margin account, of course. If they are not registered in your name and are registered to your broker instead, you will not be able to use your security as collateral so freely.