If a client wants her shares held in street name, whose name will appear on the stock certificate?

Two questions arrive regularly on dealing with a stockbroker. First, should stocks be left in street name with a broker? Second, what recourse does the owner of stocks have when stocks left in street name are sold by a broker without the owner's permission or direction?

When a client leaves stocks with a broker in street name, the owner's name does not appear on certificates. Evidence of ownership is reported on a computer printout sent to the client. There is no question about who owns the stock. The purchaser is the sole owner, and the broker simply maintains the stock in his possession, often using it as collateral for a loan.

When stock is traded frequently, keeping shares in street name reduces the paper work, troubles, and possible risk of delivering signed certificates or unsigned certificates accompanied by a signed power of attorney. However, the owner who leaves shares in street name cannot easily sell those shares through another broker.

For most owners of stocks, asking for and keeping stock certificates is the conservative, no-nonense way of maintaining control. Some stockbrokers routinely order stock certificates for clients in each buy transaction. No extra charge should be levied for this service. When you keep your own certificates, you avoid the second problem -- selling shares without your permission.

Stocks you own may not be legally sold without your permission unless you have previously agreed to a discretionary relationship with your broker in writing. In this agreement you grant to your broker unrestricted right to buy and sell for your account at his discretion without your prior approval of each transaction.

If a client's shares held in street name are sold by the broker without permission, as apparently happened in the case of a Texas reader, the broker is liable for any losses sustained. As soon as the transaction is discovered, the owner should contact the broker and demand a correction. The broker must return the client to a whole condition by returning the stock. If the stock has increased in price, the broker will lose the difference. In any case, the owner is entitled to the stock without a change in basis.

If you should experience such a problem and the broker claims he cannot deliver your stock or indicates the sale was a mistake and refuses to correct it , contact the manager of the office. An individual stockbroker may attempt to bluff his or her way out of the situation, but the office manager or partner will recognize the firm's liability.

Should your discussion with the office manager not produce the desired results, you should contact either the New York or other stock exchange where the transaction occurred, the National Association of Securities Dealers (NASD), or the Securities and Exchange Commission. But before you take your case beyond the broker's office, be sure that you did not sign a discretionary account agreement in the flurry of paper work that sometimes accompanies the opening of a new account. In your complaint to the broker, ask to see any agreement purporting to give the broker discretionary authority. If there is none, you are free to carry your complaint elsewhere.

When you buy securities through a brokerage firm, most firms will automatically put your securities into "street name." This means your brokerage firm will hold your securities in its name or another nominee and not in your name, but your firm will keep records showing you as the real or "beneficial owner." You will not get a certificate, but will receive an account statement from your broker on at least a quarterly and annual basis showing your holdings.

To learn more about the different ways you can have your securities held or registered, please read "Holding Your Securities - Get the Facts." 

http://www.sec.gov/answers/street.htm

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As an individual investor, you have up to three choices when it comes to holding your securities:

This publication explains these choices in greater detail, by laying out the advantages and disadvantages of each and by answering  frequently asked questions. Depending on the type of security and where you purchase it, you may or may not have all these choices about how your securities are held. For example, not all companies offer direct registration, and some no longer issue physical certificates. You should ask your broker or the company what options you have.

Physical Certificate

When you buy a security, whether through your broker or from the company itself, you can ask to have the actual stock or bond certificates sent to you.  You may have to pay a nominal fee for the added expense of issuing a paper certificate.  It's important that you safeguard your certificates until you sell or transfer your securities. It can be difficult to prove that you once owned a certificate that has been lost, stolen, or destroyed. Your broker — or the company or its transfer agent — will generally charge a fee to replace a lost or stolen stock certificate. For more information on safeguarding your securities, please read our "Fast Answer" on Lost or Stolen Stock Certificates.

The advantages of holding a physical certificate include:

• The company knows how to reach you and will send all company reports and other information to you directly.
   
• You may find it easier to pledge your securities as collateral for a loan if you hold the certificates yourself in physical certificate form.

The disadvantages include:

• When you want to sell your stock, you will have to send the certificate to your broker or the company's transfer agent to execute the sale. This may make it harder for you to sell quickly.
   
• If you lose your certificate, you may be charged a fee for a replacement certificate.
   
• If you move, you will have to contact the company with your change of address so that you do not miss any important mailings.

Street Name Registration

You may have your security registered in street name and held in your account at your broker-dealer. Many brokerage firms will automatically put your securities into street name unless you give them specific instructions to the contrary. Under street name registration, your firm will keep records showing you as the real or "beneficial" owner, but you will not be listed directly on the issuer's books. Instead, your brokerage firm (or some other nominee) will appear as the owner on the issuer's books.

While you will not receive a certificate, your firm will send to you, at least four times a year, an account statement that lists all your securities at the broker-dealer. Your broker-dealer will also credit your account with your dividend and interest payments and will provide you with consolidated tax information. Your broker-dealer will send you issuer mailings such as annual reports and proxies.

The advantages of letting your brokerage firm hold your securities in "street name" include:

• Because your securities are already with your broker, you can place limit orders that direct your broker to sell a security at a specific price.
   
• Your brokerage firm is responsible for safeguarding your securities certificates so you don't have to worry about your securities certificates being lost or stolen.
   
• Your brokerage firm may keep you informed of important developments, such as tender offers or when bonds are called.
   
• It is easier to set up a margin account.

The disadvantages include:

• You may experience a slight delay in receiving your dividend and interest payments from your brokerage firm. For example, some firms only pass along these payments to investors on a weekly, bi-weekly, or monthly basis.
   
• Since your name is not on the books of the company, the company will not mail important corporate communications directly to you.

Direct Registration

If a company offers direct registration for its securities, you can choose to be registered directly on the books of the company regardless of whether you bought your securities through your broker or directly from the company or its transfer agent through a direct investment plan. Direct registration allows you to have your security registered in your name on the books of the issuer without the need for a physical certificate to serve as evidence of your ownership. While you will not receive a certificate, you will receive a statement of ownership and periodic account statements, dividends, annual reports, proxies, and other mailings directly from the issuer.

The advantages of direct registration include:

• Since you are "registered" on the books of the company as the shareholder, you will receive annual and other reports, dividends, proxies, and other communications directly from the company.
   
• If you want to sell your securities through your broker, you can instruct your broker to electronically move your securities via DRS from the books of the company and then to sell your securities. Your broker should be able to do this quickly without the need for you filling out complicated and time-consuming forms.
   
• You do not have to worry about safekeeping or losing certificates, or having them stolen.

The disadvantages include:

• If you choose to buy or sell registered securities through a company's direct investment plan, you usually will not be able to buy or sell at a specific market price or at a specific time. Instead, the company will purchase or sell shares for the plan at established times — for example, on a daily, weekly, or monthly basis — and at an average market price.

While it is solely your decision how to hold your securities, you should carefully review each of the alternative forms of security registration and should consult with your financial advisor or broker-dealer to determine which form is best for you.

Frequently Asked Questions

Q:  What is the Direct Registration System?

A:  The Direct Registration System, or DRS, is a system that enables an investor to electronically move his or her security position held in direct registration book-entry form back and forth between the issuer and the investor's broker-dealer.

Q:  After I make my decision on how I want to hold my security, what do I do?

A:  You should check with the issuer or your broker-dealer to find out if the issuer offers direct registration. If you are purchasing a security, tell your broker-dealer you want to hold your securities in direct registration. If you currently hold a certificate, you can mail or take your certificate either to the issuer or to your broker-dealer with instructions to change to direct registration. If you currently hold your security in street name registration, you can instruct your broker-dealer or the issuer to move your security position to the issuer for direct registration. In any situation, you will receive a statement of ownership from the issuer acknowledging your DRS book-entry position once the change has been made.

If you want a certificate or if you want to use street name registration, tell your broker-dealer your choice at the time of purchase. If you elect a certificate, one will be sent to you. If you choose street name registration, your broker-dealer will send you a confirmation and periodic account statements acknowledging your ownership. If you currently hold a certificate, you can deliver the certificate to your broker-dealer with instructions to change your registration to street name registration. If you currently hold in street name registration, you can tell your broker-dealer to obtain a certificate for you.

Q:  What do I have to do to sell my security?

A:  To sell a security held in direct registration, you can:

1. instruct the issuer to sell your security (many issuers have programs in place to accommodate sale requests); or
    
2. instruct your broker-dealer or the issuer to electronically move your security to your broker-dealer for your broker-dealer to sell; or
    
3. request a physical certificate and deliver it to your broker-dealer to sell.

To sell a security held in street name registration, you can:

1. instruct your broker-dealer to sell your security; or
    
2. request a physical certificate and deliver it to another broker-dealer to sell; or
    
3. instruct your broker-dealer or the issuer to electronically move your security to the issuer for the issuer to sell (many issuers have programs in place to accommodate sale requests) or to electronically move to another broker-dealer to sell.

To sell a security for which you hold a physical certificate, you can:

1. deliver the certificate to your broker-dealer with your instructions to sell or
    
2. deliver the certificate to the issuer with your instructions (a) to change the registration to DRS and move the position to your broker-dealer to sell if your security is eligible for direct registration or (b) for the issuer to sell if the issuer has a program in place to accommodate sale requests.

When selling a security through the issuer, the issuer will sell your security under the terms and conditions in place for that issue. For example, some sell orders will be executed on the day the issuer receives them, and some orders are aggregated for frequent, but not daily, execution. (Note: you should ask the issuer if it offers a selling service and what the terms and conditions are.) Proceeds from the sale will be mailed to you three business days after the date of sale.

When selling through your broker-dealer, your instructions will be acted on immediately and in accordance with the guidelines it provides to you. Proceeds from the sale will be made available to you or credited to your account three business days after the date of sale.

Q:  Can I place a limit order? Market order? Stop order?

A:  Only a broker-dealer can execute a limit, market, or stop order. As a result, you can place any of these types of orders only if you use a broker-dealer to execute a transaction for securities held in direct registration, street-name, or in certificate form.

Q:  What about my relationship with my broker-dealer if I use direct registration?

A:  You can maintain your relationship with your broker-dealer regardless of your choice of registration.

• When you purchase a security to hold in direct registration, you can tell either your broker-dealer or the issuer to include pertinent broker-dealer information in the issuer's records.
   
• If you do not have your broker-dealer information included in the issuer's records at the time of purchase and later want to or if you want to change the broker-dealer information in the issuer's records, you may do so. You should contact either your broker-dealer or the issuer to obtain information on the procedures and the documents required for such actions.

Q:  If I hold certificates and there is a stock distribution, will I get a certificate for my additional shares?

A:  If the issue is eligible for direct registration, you will probably receive a statement of ownership instead of an additional certificate.

Q:  What are the fees associated with direct registration? With street name registration? With a certificate?

A:  There are no fees charged by an issuer for direct registration. However, because broker-dealers offer differing services and plans, you should contact your broker-dealer to learn what, if any, fees it charges.

Q:  If I opt for direct registration, what happens if I lose my statement of ownership?

A:  If you ever need a duplicate statement of ownership, you should contact the issuer. The issuer will mail you a new statement of ownership.

Q:  What happens if my physical certificate is lost or stolen?

A:  Brokerage firms, banks, transfer agents, and corporations have procedures in place to help investors replace lost or stolen certificates.  If your securities certificate is lost, accidentally destroyed, or stolen, you should immediately contact the transfer agent and request that a "stop transfer" be placed against the missing securities. Your broker may be able to assist you with this process.

The "stop transfer" helps to prevent someone from transferring ownership from your name to another's. The transfer agent or broker-dealer will report the certificates missing to the SEC's lost and stolen securities program.  For more information please read our "Fast Answer" on Lost or Stolen Stock Certificates.

Q:  How are my securities protected if I choose street name ownership?

A:  Nearly all broker-dealers are members of Securities Investor Protection Corporation ("SIPC"). As a result your securities and money held at your broker-dealer are protected up to $500,000 with a $100,000 limit for cash. Many broker-dealers also carry insurance in excess of SIPC's coverage. However, SIPC does not protect you against losses caused by a decline in the market value of your securities. For more information about SIPC coverage, please read our "Fast Answer" on the Securities Investors Protection Corporation.

What does it mean when shares are held in street name?

Should you hold your stocks in a brokerage under the street name?

What does my street name mean?

Who holds stock certificates?