An Empirical Investigation of Street Registration for Banking

By Sullivan, Laura L.; James, Joe et al. | Journal of Commercial Banking and Finance, Annual 2006 | Go to article overview
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An Empirical Investigation of Street Registration for Banking


Sullivan, Laura L., James, Joe, Bexley, James, Journal of Commercial Banking and Finance


ABSTRACT

An empirical study was done to illustrate the dilemma that is faced by banks as a result of securities issued in nominee names. In addition, the study focuses on the level of awareness and concern of banks regarding street registration.

When the stock of a public company is issued in nominee names, the company breaks Securities and Exchange Commission ("SEC") regulations regarding disclosure of ownership when it files its public reports because the company cannot correctly disclose the actual owner of the shares. As the study illustrates, many banks are unaware that shares of its stock are held in nominee names. Therefore, they are unaware that they are breaking SEC regulations when filing required quarterly and annual reports.

This study was conducted by surveying two hundred and fifty banks in Texas with total assets of seventy-five million to determine their knowledge and/or awareness of this dilemma of nominee names. Large, super-regional banks such as Chase, Bank of America and Wells Fargo were not included in this survey. Of the two hundred and fifty surveys that were sent out, responses were received from sixty banks or twenty-four percent.

Although street registration can pose a significant problem for the banking industry, if our survey results are consistent with the industry, awareness of this relatively new potential hazard is minimal. Not only does street registration cause a bank to improperly disclose its ownership, but it can subject the bank to being bought out because significant shareholders can remain unknown to the bank. In addition, improper disclosure also subjects the bank to disciplinary action taken against it by the SEC even though the bank is unaware of the correct ownership. The goal of this empirical study of nominee names or street registration will stimulate further study into this potentially harmful practice.

INTRODUCTION

The Securities and Exchange Commission ("SEC") is an independent, quasi-judicial regulatory agency with responsibility for administering federal securities laws. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). Its mission is to administer federal securities laws and protect investors by issuing rules and regulations and ensuring the securities markets are fair and honest. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). To accomplish its mission, the SEC promotes adequate and effective disclosure of information to the investing public. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). The SEC was established in 1934 by the creation of "The Securities Exchange Act of 1934." (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997).

The SEC is relevant to the banking industry in several different ways. The SEC has jurisdiction over all interstate public offerings in the amount of $1.5 million or greater. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). Before going public, all newly issued securities must be registered with the SEC. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). Once registered, the SEC ensures that publicly traded companies, including banks, maintain current information (including financial and operating results) that is available to the public. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). This reporting requirement was established by the Securities Act of 1933, which is commonly referred to as the "truth in securities" law. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). This law aims to ensure that investors are provided with material information concerning securities for public sale and prevent misrepresentation, deceit and other fraud in the sale of securities. (Moyer, McGuigan, & Kretlow, 1992); ("The Work of the SEC," June 1997). The disclosure required provides the potential investor with adequate information to properly analyze the security being offered.

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