What Does It Mean To Own Shares of Stock In a Street Name?
Technically, Your Brokerage Firm Owns the Shares
What does holding shares in street name mean and what makes it special? Whether you're reading old newspaper articles or watching your favorite high-class drama, you'll occasionally hear this phrase. Rightfully so, this is a commonly asked question, but one that can be easily explained.
Some investors hold physical stock certificates; pieces of paper with their name on them that represent their ownership in a corporation.
Other investors are invested in a DRIP, or dividend reinvestment program, and their shares are noted by the company’s registrar in an electronic journal; this is known as “book entry”. In both cases, the company can quickly and easily access the total number of shares you own and/or contact you directly.
The most popular holding form for most investors, however, is through a brokerage account or asset management account. When you buy shares of Coca-Cola or General Electric through your broker, they aren’t physically sitting in a vault with your name on them. Instead, the broker has them registered in its name; that is, Coke won’t know that you own the shares, it only sees that Charles Schwab or Fidelity (or any other broker) owns X number of shares. The stock brokers, in turn, track who owns what internally by adjusting their own accounting records.
This Risk of Holding All Your Stocks in Street Name
Holding stock in a street name is an accepted practice but you shouldn't keep a huge portion of your net worth in a brokerage account using this method, especially if your account value exceeds the SIPC insurance limits (for more information read, What Happens If My Broker Goes Bankrupt?).
You can avail yourself of the direct registration system were you so inclined. At the very least, if you are concerned about this, refuse to open a margin account and ask your broker to register your securities in your name. It's been said often that it might cost a little extra but it can be worth the peace of mind when and if the world falls apart.