1.2.5.3 Transferring Book-Entry Securities
Today, bearer and registered securities have largely been supplanted by book-entry securities. Owners of a book-entry security do not receive a physical certificate. Instead, each issue has only one master certificate, which is kept at a securities depository. Ownership of book-entry securities is recorded by computer at a central depository, such as the Depository Trust Company.
Today, book-entry securities may be registered and held in one of two ways:
- 1. Street name registration. The security is registered on the issuer’s books in the name of the owner’s brokerage firm (thus, “street” name, referring to Wall Street), and the brokerage holds the security in book-entry form.
- 2. Direct registration. The security is registered on the issuer’s books in the owner’s name, and either the company or its transfer agent holds the security in book-entry form on the owner’s behalf.
Because the physical transfer of stocks is unwieldy in a market where millions of shares are traded every day, the ownership of physical stock certificates is being phased out. Today most common stock shares are held in street name.
Transferring street name securities. When securities are held in street name, the customer is said to be the beneficial owner, and the broker is the record owner, or nominal owner. The customer is called beneficial owner because she maintains all the benefits of ownership, such as transfer and voting rights. For securities held in street name, the broker-dealer maintains its own records of customers’ ownership. The issuer’s transfer agent forwards all interest and principal payments to the depository, which delivers them to the brokerage account.
Broker-dealers that hold securities in street name are required to forward all information they receive from the issuer (such as annual reports and information statements) to the beneficial owner or the beneficial owner’s investm