CRS-2 that exercises fiduciary powers, in contravention of such In order to carry out the requirements of this statute, the SEC has issued a regulation requiring brokers to forward proxies and other communications to the beneficial owners. The broker must also furnish to any inquiring issuer the names and addresses of customers holding street name accounts which contain the issuer's stock. The rule appears intended to make certain that a beneficial owner with a street name account does not lose voting rights or information from the issuer. The New York Stock Exchange (and, presumably, other national securities exchanges) also has a rule requiring its member organizations to forward promptly proxy materials and other communications from issuers to beneficial owners.6 The member organization may not vote the customer's stock on important issues without instructions from the customer, but on some relatively minor issues the member organization may be able to vote the stock without having received specific instructions form the customer.? The SEC's and the New York Stock Exchange's proxy rules do not answer the question of who actually owns stock held in a street name account. However, they indicate that, at least with respect to voting matters, the beneficial owner exercises a great deal of control, which may be one aspect of ownership. Other matters may not be so easily answered, and, thus, the question of ownership may depend upon such other factors as what percentage of the sales price the customer has paid for the stock. For example, if the beneficial owner has paid the full amount for the stock and, as a matter of convenience has kept it in a street name account, it would appear unquestionable that the beneficial owner is the real owner of the stock. Further, if the beneficial owner has paid only a certain percentage of the full amount for the stock, in other words has bought the stock on margin, it may be argued that the beneficial owner is not the owner of the stock for every purpose, since the beneficial owner may not be entitled to complete 6 Rules of the New York Stock Exchange, Rule 451, reprinted in CCH's New York Stock Exchange Guide ¶ 2451. 7 Rules of the New York Stock Exchange, Rule 452, reprinted in CCH's New York Stock Exchange Guide 1 2452. CRS-3 possession of the stock certificates. Yet, it may also be argued in this instance that the beneficial owner is the real owner of the stock and that the broker or whoever else has lent the money for the purchase of the stock merely has a lien on the stock. It must again be emphasized that these arguments are speculative because research did not result in a definite answer to this question. 8 As for the question of whether the broker may lend security positions to a third party, such as in a short sale transaction, again no definite answer was found. The answer to this question would likely depend upon who is determined to be the owner of the securities. If the customer has paid full price for the securities, it would seem unlikely that the broker could lend the securities without, at the least, authorization from the customer. If, on the other hand, the securities have been purchased on margin, perhaps the broker might have some right to lend the securities, but here, also, it might be argued that customer consent is required since the customer may actually be the owner of the securities with the broker as a lienholder. Michael V. Seitzinger "Short selling is a device whereby the speculator sells stock which he does not own, anticipating that the price will decline and that he will thereby be enabled to 'cover,' or make delivery of the stock sold, by purchasing it at the lesser price. If the decline materializes, the short seller realizes as a profit the differential between the sales price and the lower purchase or covering price." S. Rep. No. 1455, 73d Cong., 2d Sess. (1934), 50. |