Street Name Registration: An Antiquated Idea

“Street name registration” largely took root under emergency conditions stemming from a paperwork crisis during the 1960s, before networked computers were ubiquitous in trading markets. Immobilizing stock and registering it in the name Cede &Co., which was presumed by many to a temporary measure, now undermines our ownership culture.

Just as poker chips allow us to play under rules that often favor the house, those holding “security entitlements,” instead of registered stock, do not acquire the rights of real shareowners.

Street name registration, and the costs associated with shareowners learning each other’s identity, escalates the cost of proxy solicitations to hundreds of thousands of dollars—and that exorbitant cost is why entrenched boards routinely run unopposed. Eliminating street name registration, in favor of a direct registration system (DRS), could bring the cost of proxy solicitation down to a few thousand dollars. That could have a bigger impact on shareowner rights than the SEC’s proposed proxy access initiative.

Because DRS will facilitate corporation-shareholder and shareholder-shareholder communications, the volume of such communication is likely to increase. As this happens, appropriate steps should be taken to ensure communications are presented in a manner that is intelligible to and convenient for average investors. For example, shareholders have long sought integrated proxy solicitations that combine materials from all parties in a contested election. DRS would facilitate this.

An increased volume of communications would go hand-in-hand with an increase in the number of contested elections or issues. As average investors realize they were being offered opportunities to make real decisions, retail shareholder participation in corporate elections will likely rise. To further enhance this trend, technology and policies can allow shareholders to customize their participation, opting out of some types of communication, and controlling the form of media and style of presentation of others, much as users customize some news websites to deliver only the types of news that interest them.

However, it is key that legally vague “security entitlements” give way to real shareownership. That would help investors to think like owners with rights that would be better protected. SEC laws and regulations are written to protect shareholders, not those with security entitlements.

For example, Broadridge routinely interprets requirements that apply to proxies as not applicable to their “voter information forms.” Counting blank votes for management, with only a small font warning on the ProxyVote screen, and summarizing resolutions so voters can’t even guess the subject, are practices that would end with DRS and the use of actual proxies.

CorpGov.net and the United States Proxy Exchange have started a petition to the SEC to end “street name registration”, readers’ participation or comments are invited. More information is available here.