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Industry Update 900X330

Street Name vs. Registered Holdings – What’s the Difference to You as an Issuer and to Your Shareholders?

Tuesday, October 3, 2023

You may have heard people discuss stockholdings and using the terms Street Name and Registered Holdings. What does this really mean?

Beginning with street name, when an investor buys shares through their broker-dealer, the broker-dealer will almost always put those shares in street name by default. This means that the shares are held at the Depository Trust and Clearing Corporation (“DTCC”). At DTCC, the shares show in the name of the broker-dealer, while at your transfer agent, the shares show in the name of DTCC’s nominee, generally CEDE & Co. Therefore, you as the issuer do not know who the holders are when the shares are held in street name. In some cases, there are ways to identify with reasonable certainty who some of those shareholders may be, most often large shareholders.

The issuer doesn’t usually have direct communication with the shareholder who holds shares in street name. Communication with shareholders instead goes through DTCC and then the broker-dealer, who finally reaches the shareholder. The same process is repeated in the event of dividend payments which begin with the transfer agent, who goes through DTCC, followed by the broker-dealer, and only then do dividend payments reach each shareholder.

Conversely, a registered holder is someone who holds the shares in their own name directly on the books of your transfer agent. These are shareholders you can have direct communication with, whether investor communications, proxy voting, or dividend payments.

What are the benefits of being a registered shareholder?

The issuer’s register, maintained at their transfer agent, records the name of the shareholder directly on the register of the issuer. The shareholder is legally recognized as the direct owner of the shares. Most major transfer agents give registered shareholders access to their holdings through an online platform. The issuer has real time visibility of its shareholders and can communicate directly with them. Registered shareholders also have the right to transfer ownership of their shares to others, to receive dividends directly, to vote directly at annual meetings, and to inspect certain corporate documents.

What are the benefits of being a street name shareholder?

Street name shareholders access their investments, account balances and other information through their broker-dealer. Almost all broker-dealers have an online platform for their investors. Street name shares are held in electronic form through DTCC. Street name shareholders also have the right to sell their shares to others, generally in market transactions, to receive dividends through their broker-dealer, to vote at annual meetings, and can also inspect certain corporate documents.

Disadvantages of being a street name shareholder include that shares may be “lent” by the brokerage firm to cover other trading activity, such as short sells by others. The issuer has very little visibility of beneficial investors whose shares are held in "street name," and communications from the company are routed through the broker-dealer, usually after going through a third party. Dividend payments to your shareholders may also take longer to reach them, as they must be routed through DTCC and the broker-dealer before they reach your shareholder.

As an issuer, you may want to have registered shareholders so you know who owns your company. You can communicate more easily with your shareholders, you can reach out directly to your shareholders (for example, in the event of a proxy fight), and your shareholders often feel like they have a more significant and closer relationship with your company.

While there are advantages and disadvantages to both options for stockholdings, it is ultimately at the discretion of a company for which type best fits needs, both for them and their shareholders.

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