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Lesson · 6 min read + 5 checks

Street name, certificates and direct registration

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Whose name is on the issuer’s books? That one question sorts all three ways of holding a security.

The rule
  • Street name: registered to an intermediary, firm records the beneficial owner, firm sends statements and forwards issuer material.
  • Physical certificate: registered to the customer, paper issued.
  • Direct registration: registered to the customer in book-entry at the transfer agent, no certificate, issuer communicates directly.

Three ways to hold the same share

A customer who owns a share can hold it in one of three forms, and the difference between them is not the ownership. It is whose name the issuer sees. Street name puts an intermediary’s name on the issuer’s books; the other two put the customer’s own name there, and differ only in whether a piece of paper is produced.

Keep reading: 4 more paragraphs (about 2 min)

Many brokerage firms put securities into street name unless the customer asks to hold them in her own name. The security is registered on the issuer’s books in the name of an intermediary — the broker-dealer, a clearing agency, or a nominee affiliated with one of them — while the firm’s own records show the customer as the real, or beneficial, owner. Nothing about the customer’s economic position changes: the firm sends an account statement at least quarterly, credits dividends and interest, provides consolidated tax information, and makes sure issuer communications such as annual reports and proxy material reach them.

The catch is exactly the one you would predict from the definition. Because the customer’s name is not on the issuer’s books, the issuer typically will not write to them at all; it asks the broker-dealer to forward the material instead. Every duty the firm has to pass things on exists because of that single fact.

A physical certificate is the old form. The security is registered in the customer’s name on the issuer’s books and a paper certificate is issued as evidence of it. It has real costs: the certificate must be kept safe, it has to reach the broker in time for settlement when the shares are sold, which under T+1 may mean delivering it earlier than before, a firm might not accept it as collateral for a margin loan, and a firm cannot lend certificated shares to cover another customer’s short sale.

Direct registration is the modern version of the same idea. The security is registered in the customer’s own name on the issuer’s books and held for them in book-entry form by the transfer agent, with no certificate at all. Statements, dividends, annual reports and proxy material come from the issuer or its transfer agent directly, because the issuer knows who they are. Shares can be moved between direct registration and street name — but not held in both, because a share exists in only one place at a time. Treasury marketable securities go further still: they are issued only in book-entry form and held directly through TreasuryDirect or through the commercial book-entry system, so no certificate exists for them.

Exam terms (5)
Street name
Registered on the issuer’s books in an intermediary’s name, with the firm recording the customer as beneficial owner.
Beneficial owner
The person whose money is at risk, whatever name the issuer sees.
Physical certificate
Registered in the customer’s name, with paper issued as evidence.
Direct registration
Registered in the customer’s name in book-entry form at the transfer agent, with no certificate.
Transfer agent
The agent that keeps the issuer’s register and holds direct-registration positions.

Three forms, one share

Street namePhysical certificateDirect registration
Name on the issuer’s booksThe intermediary’sThe customer’sThe customer’s
Paper certificateNoneYesNone
Who sends statements and dividendsThe broker-dealerThe issuer or transfer agentThe issuer or transfer agent
Proxy materialForwarded by the broker-dealerSent directlySent directly
Margin and stock lendingAvailableCertificate may not be accepted as collateral and cannot be lent for a short saleNot held at the firm
The first row explains every other row.

Try it: For each of these, decide which form is being described before reading on: the annual report arrives from the company itself and no certificate was ever issued; the firm sends a quarterly statement and forwards a proxy card; the owner must deliver something physically to the firm before a sale can settle.

Check yourself

Try a question, then read the explanation to review the rule.

Opening your study record…

Worked example

A customer holds 500 shares in street name and asks what would change if she moved them into direct registration.

  1. Today her firm is the record holder, and the firm sends her statements, credits her dividends and forwards the proxy material the issuer sends it.
  2. After the move her own name is on the issuer’s books, and the issuer or its transfer agent sends her the statements, the dividends, the annual report and the proxy material.
  3. She receives no certificate either way, because direct registration is book-entry.
  4. The shares are not in both places. Once they are registered in her name they cease to be registered in street name.
  5. If she later wants to sell through her firm, she instructs it to pull the position back from direct registration into street name and then sells.

Same rule, new context

Opening your study record…

The closest contrast

Street name: the intermediary’s name on the register.

Both other forms: the customer’s name on the register.

This is why the forwarding duties exist only in the first case. An issuer that has the customer’s name writes to the customer; an issuer that has the firm’s name asks the firm to pass it on.

Summary

  • Street name registers the security on the issuer’s books in an intermediary’s name; the firm records the customer as beneficial owner.
  • The firm sends statements at least quarterly, credits dividends and interest, and forwards issuer communications.
  • A physical certificate and direct registration both register the security in the customer’s own name.
  • Direct registration is book-entry at the transfer agent and issues no certificate.
  • A security is registered in one place at a time; moving it to direct registration ends the street-name registration.

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