Who Is Holding Your Stocks?
June 30, 2009 by Tisa Silver
Filed under Finance
If securities in your account are held in street name, then the registered owner is your brokerage firm, not you.
There are two types of accounts you can open with a brokerage firm: cash and margin.
If you have a cash account, then you are the owner of the securities, because their purchase was funded entirely by you. However, if you have a margin account, your stocks will probably be held in street name.
Photo by matze_ott, courtesy of flickr
Why would the broker want to own the stocks in your account?
In the case of a margin account, some cash comes from you and the remainder of the funding comes in the form of a loan from the broker.
If the stocks in your account lose substantial value, then you could receive a margin call from the broker.
You may be asked to contribute more cash or liquidate other securities in order to improve your equity position.
If you can’t comply, having securities registered in street name allows your brokerage firm the right to go into your account and sell stock.
Selling stock will improve your equity position and guard against the possibility of the securities in your account being worth less than the value of your loan.
With margin accounts, your broker is wearing the hats of a broker and a lender. Holding stocks in street name helps the broker maintain safety as a lender, in case you do not comply with the terms of your margin account.
