March 14, 2005
No matter how long you've been investing, you might be surprised to learn that your stocks are held by your brokerage not in your own name but in "street name." This isn't always the case, but it's often the case. So what does it mean?
First off, know that this is a routine, accepted practice. Shares registered under your broker's name can be traded electronically by phone or computer. Since the brokerage is in possession of the shares, they can be traded in a matter of minutes. The alternative involves requesting to receive your shares in your own name when you place a buy order -- or asking your broker to transfer street-name-held shares to your name (for which there may be a fee). If the shares are in your name and you hold the certificates, you'll have to keep them in a secure place, and when you want to sell them you'll have to mail them in or hand-deliver them to your broker. It's more convenient to simply let the shares be held in street name.
If your stocks are held in street name, that does not mean they aren't owned by you and aren't insured. It's merely an artificial classification designed to facilitate trading. Consider that, as of a few years ago, fewer than half of IBM's 1.4 million shareholders had shares registered in their own name. The rest owned shares through brokerages, banks, and other financial institutions.
Learn more about investing in companies in our Investing Basics area. You can also learn all about brokerages and find one that's right for you in our Broker Center.
Here are some additional informative articles on brokerages and choosing the best one for yourself: