Street name securities
The phrase street name securities or "nominee name securities" is used in the United States to refer to
In the US,
As well as the terminology differing between countries, the commercial practice also differs from country to country.
The popularity of nominee accounts, which have existed for over a century, has increased rapidly since the introduction of Internet share dealing in the late 1990s and in some cases stocks can only be held electronically, such as exchange-traded funds, but holding shares in this way can have disadvantages compared to other methods.
Holding methods
There are three principal ways of holding securities:
- Stock certificate Before the use of electronic technology, all shares were held in certificated form, either
- as registered shares, where the company maintained a register of owners of shares as well as issuing share certificates, and changes of ownership were registered, or
- as bearer shares The Swiss Stock Exchange where ownership was transferred simply by handing the bearer share certificate to the new owner.
- As a "direct" electronic registration in dematerialised form (Personal CREST account in the UK)[3]
- Street name or nominee account
As with direct electronic registration, nominee accounts make paperless telephone and internet trading possible with faster settlement periods and lower commissions than certificate deals. They often enable domestic small investors to gain access to derivatives such as warrants and contracts for difference, to exercise various types of order, and to buy shares on margin. There is no risk of loss or damage to certificates in the name of the beneficial owner. It is also possible to obtain an instant valuation of a whole portfolio.
Because the shares are held in the name of the stockbroker or bank or custodian the name of the beneficial owner does not appear on the
The anonymity of nominee accounts facilitates ownership of shares in controversial companies by individuals. For example, when
Legal framework
In the United States
Regarding nominees who are the registered owners of
Article 8 provides for a system of heavily intermediated securities holding where transfers are by book-entries and stock certificates are registered in the name of a designated nominee entity.
In the United Kingdom
It is not normal practice in the UK for nominees to arrange for copies of accounts and other shareholder communications to be sent to the beneficial owners of the shares. The UK Shareholders Association published a list of the perceived disadvantages for UK customers of nominee accounts compared with certificated ownership or direct electronic ownership (CREST).[8]
Because investment firms offering nominee services are the legal owners of the shares, there remains a risk of improper behavior causing the shares to be lost. For example, the investment firm may use the shares it holds for short selling transactions and be unable to replace the shares if the investment firm becomes insolvent. The UK Financial Services Compensation Scheme[9] compensates investors on the failure of an investment firm. However the limit in June 2015 stood at £50,000 per person per investment firm[10] and losses above this amount would not be covered. This risk of the shares being lost through malfeasance does not apply when the shares are held by the investor in certificated form.
See also
- Custodian bank
- Nominee trust
- Omnibus Customer Securities Accounts
- Passenger market
- Securities account
References
- ^ ISBN 9781567062762. Retrieved 8 January 2017.
- ISBN 9780980050851. Retrieved 8 January 2017.
- United States Securities and Exchange Commission, 03/04/2003. Retrieved 30 November 2006.
- ^ Policies - Share Certificates, Nominees and Crest, The United Kingdom Shareholders' Association. Retrieved 30 November 2006.
- ^ Oldham, G. (2006), Big deal for nominee shareholders, BBC News, 25 July 2006. Retrieved on 30 November 2006.
- ^ Glaxo investors ask for anonymity, BBC News, 22 May 2006. Retrieved on 30 November 2006.
- ^ Curry, D. (2001), Lab protestors target stockbroker, BBC News, 9 February 2001. Retrieved on 30 November 2006.
- ^ "Archived copy" (PDF). Archived from the original (PDF) on 26 June 2015. Retrieved 25 June 2015.
{{cite web}}
: CS1 maint: archived copy as title (link) - ^ "Find out when Deposit Insurance is Covered". Archived from the original on 29 June 2015. Retrieved 26 June 2015.
- ^ "Investment Limits - Find out if you are Eligible". Archived from the original on 28 June 2015. Retrieved 26 June 2015.