Street Name

An investor holds shares in book-entry form registered in her own name on the records of the transfer agent, with no certificate. She now wants the shares held in street name at her broker-dealer. What has to happen?

1. A.The transfer agent issues a physical certificate, which the customer then deposits with the firm.Wrong. Producing paper to undo a book-entry position adds the very step the system was designed to eliminate.
2. B.The firm records the shares on its stock record and notifies the transfer agent of the change in beneficial ownership.Wrong. Beneficial ownership does not change here at all; what changes is who appears as the registered holder.
3. C.The issuer cancels the book-entry position and reissues the shares to the nominee of the firm.Wrong. The issuer is not the actor, since the movement is executed between the transfer agent and the depository.
4. D.The position is moved from the transfer agent to the depository, where the firm holds it for her.Correct. That deposit is exactly the movement the transfer agent and depository link exists to perform.

Why: The Direct Registration System lets an investor be the registered holder of shares in book-entry form on the records of the transfer agent, without a certificate and without a broker-dealer holding the position. Moving such a position into street name means changing the registered holder: the shares leave the records of the transfer agent and are deposited at the depository, where the nominee of the firm becomes the registered holder and the firm carries the customer as beneficial owner. Deposit and Withdrawal at Custodian is the mechanism for that electronic movement between a transfer agent and the depository, and it works in either direction. No certificate is printed at any stage, which is the point of both arrangements.

A customer of Pemberton and Voss buys fund shares application way, so that the shares are held directly on the books of the fund. Where is that position recorded?

1. A.On the stock record of the firm in street name, like any other customer holding.Wrong. Street name requires the firm or its nominee to be the registered holder, which is exactly what this purchase method avoids.
2. B.On the transfer agent records of the fund in the name of the customer, and not on the stock record of the firm.Correct. The customer is the registered holder and the firm never takes the position onto its own books.
3. C.On the stock record of the firm with an ownership entry but no location entry.Wrong. A one-sided entry would break the balance the position record depends on, so nothing is ever recorded that way.
4. D.At the depository in the participant account of the firm, with the transfer agent shown as the location.Wrong. Depository custody and registration on the books of the fund are alternatives, not layers of one arrangement.

Why: Directly held mutual fund shares are registered on the books of the fund, maintained by the transfer agent of the fund, in the name of the customer. The broker-dealer arranges the purchase and forwards the money but never becomes the holder, so there is no position for the stock record to carry and no custody obligation attached to the shares. Confirmations and statements for those shares come from the fund. Had the same customer bought the fund in street name instead, the firm would hold the position for her, it would appear on the stock record, and the custody and possession-or-control duties of the firm would attach.

Corwin Estabrook wants his newly purchased shares recorded in his own name on the issuer's transfer agent books, with no physical certificate printed and no registration in his broker-dealer's name. Which arrangement is he describing?

1. A.Street name registration, the standard method for shares held at a broker-dealerStreet name registers the shares in the firm's nominee name. Corwin specifically wants his own name on the issuer's books.
2. B.Safekeeping, in which the firm holds the customer's certificates in its vaultSafekeeping involves the firm storing certificates registered in the customer's name. It presumes a certificate exists.
3. C.Direct registration, with electronic book entry ownership in his own name at the transfer agentCorrect. Direct registration puts the shares in the investor's own name electronically, with no certificate and no nominee.
4. D.Transfer and ship, in which the transfer agent registers the shares and delivers them to the ownerTransfer and ship also puts the shares in the owner's name, but it produces a physical certificate, which Corwin does not want.

Why: The Direct Registration System records ownership in the investor's own name on the issuer's books in electronic book entry form. The investor receives a statement from the transfer agent rather than a certificate and deals directly with the issuer for dividends and proxies, while shares can still be moved electronically to a broker-dealer for sale. Street name registers the shares in the firm's nominee name, and transfer and ship means a physical certificate is issued and mailed to the customer.

Hundreds of firms trade the same security among themselves during a single session. Because the certificates sit at a central depository, what actually happens when those trades settle?

1. A.Ownership changes are made by book entry at the depository, with the immobilised certificates never moving.Correct. Nothing physical travels, which is what allows settlement volume to scale without logistical limits.
2. B.The depository ships certificates overnight between the participating firms that bought and sold.Wrong. Immobilisation exists precisely to stop certificates from moving between participants.
3. C.Each firm receives newly printed certificates from the issuer's transfer agent for its net purchases.Wrong. Issuing fresh certificates for each session's trading would recreate the problem the depository solved.
4. D.The depository cancels the old certificates and records the new owners on the issuer's shareholder list.Wrong. Cancelling and reissuing certificates and maintaining the shareholder list are the transfer agent's functions.

Why: Holding securities at a central depository immobilises the certificates, so a change of ownership is effected by adjusting book-entry records rather than by moving paper between firms. Combined with the netting performed by the clearing corporation, this means a session's many trades in a security collapse into a small number of net positions, each settled by a ledger entry at the depository. The arrangement removes the physical handling that once made settlement slow, error-prone, and vulnerable to loss and theft of certificates. The underlying certificates typically remain registered in the depository's nominee name, which is why a customer holding in street name appears on the issuer's books only through a chain of intermediaries.