In Street Name
When stock initially became available to the public, it appeared in paper form. Known as a stock certificate, this piece of paper represented partial ownership in a company.[1] It often contained relevant details such as the name of the shareholder, a transaction date, number of shares, identification number, names of executives, and a unique graphical design that identified the company. If you were a shareholder, presentation of a stock certificate was the only way to prove that shares were held “in your name.”
With the advent of computers, the process of recording stock ownership and transfer changed to one known as book entry. Here, share activity is recorded electronically which eliminates the need to manipulate paper certificates. Even more, shares are held in the name of the brokerage firm (“in street name”) that acts on behalf of a shareholder. (The shareholder still maintains all ownership rights associated with the shares.) In essence, a stock transaction in the computer age is an accounting adjustment.
How exactly does this happen? Suppose that Marvin purchases 100 shares of Example Inc. Marvin’s brokerage firm, Securities Alive, puts the shares in their inventory rather than transferring Marvin’s name to a stock certificate. As a result, Example Inc. does not know that Marvin owns 100 shares of stock. It only knows that Securities Alive owns the shares. When Marvin decides to sell the shares, the brokerage firm will simply execute the transaction in a safe, convenient, and speedy manner.
One downside of owning shares in street name is that a shareholder will not receive reports or other communications directly from the company of interest. Instead, the shareholder must rely on a brokerage firm or financial advisor for this information.
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[1] Stock certificates have been in existence for over 400 years. The oldest known certificate dates to 1606 and was issued by the Dutch East Indies Company.