Why Stockbrokers Hold Stocks In Street Name

by Hank

stock certificate in street nameOver 95% of all shares of stock owned in America are held for investors by the stockbrokers and discount brokerage houses that they bought the shares through. Many investors do not realize that they still have the option to take physical possession of their shares of stock. But, should they put the shares in their own name?

What Does In Street Name Mean?

Investors must decide whether to leave their newly purchases shares of stock with their stockbroker or to actually take possession of the stock certificates. If an investor leaves the stock certificates in the care of their stockbroker’s firm for safekeeping, then that is called leaving the shares in street name. The brokerage that the investor purchases the shares from becomes the custodian of the securities for the investor. The stock is registered through the company that issued the shares in the name of the brokerage firm hence in the street name.

Benefits Of Leaving Stock In Street Name

Having the physical stock certificates in your hand is like having cash in your hand. If those stock certificates were lost or destroyed, it would be hard but not impossible to reissue them. Also, when you wanted to finally sell your shares of stock, you would have to return them to the brokerage house in order to execute the trade. When shares are held in street name, then you can easily trade the shares on the open market.

A Reason To Hold Your Own Stock Certificates

There are not too many good reasons to keep your own shares of stock in your name. The process of receiving the physical shares can be a pain. Other than their sheer beauty (stock certificates are literally a work of art in most cases), you may need to have at least one share in your own name and not in street name to begin a dividend reinvestment plan or DRIP. In you do receive your shares in your own name, they will come to you through the mail and will need to be cared for very carefully for example in a fireproof safe or in a safety deposit box.

Keeping shares in street name is an interesting tradition in stock investing. Many young investors have thought that keeping shares with the stock brokerage firm is the only way that shares of stock are sold to the public. While most brokerage firms want investors to keep their shares in street name, you can and may need to have your shares issued to you at one point or another.

(photo credit: Shutterstock)

{ 4 comments… read them below or add one }

Rick Roman January 17, 2011 at 4:18 pm

An interesting footnote to this article is the financial industry effort to eliminate paper stock certificates and use electronic registration instead. This is being done to save money. As of 1/1/2009, stock brokers can’t deliver paper stock certificates for most stock and charge huge disincentive fees $100-$500 for those where they can.

At http://www.giveashare.com you can buy one share of stock in over 100 companies in less than 2 minutes and get the real stock certificate. As you note in your article, owning one share allows one to qualify for participation in many company DRIP plans.

Kim McCaffrey January 18, 2011 at 10:28 am

While a military spouse can buy a house for the family with the military member deployed (difficult, but possible), it is not possible to sell the military member’s shares of stock (in order to have money for closing).

How do you solve this problem?

Hank January 18, 2011 at 10:42 am

@ Rick – You are absolutely right. I’ve used a company called oneshare.com for the same thing.

@Kim – It can be done. You need a specific power of attorney, not a general power of attorney. Contact the brokerage firm that the stock is held through to find out if they have a certain form they need notarized giving you power of attorney for your husband or if they will accept a generic specific power of attorney listing the sell of stock as its reason or function from his JAG. Even if he his deployed in the combat zone, his supporting JAG office can issue him a specific power of attorney.

My wife and I ran into a similar situation when we were selling our SUV. We didn’t realize that the specific power of attorney needed to list the VIN number of the vehicle authorizing my wife to sell it.

John Papers January 29, 2011 at 2:30 am

Great Post!
Thanks for the article..

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