Proxy Voting: Street Name Registration and Issuer Expense Reimbursement
A retail customer holds 2,000 shares of common stock registered in 'Street Name' (in the name of the broker-dealer at the Depository Trust Company). When the issuing corporation holds its annual shareholder meeting to vote on a merger proposal, what is the broker-dealer's obligation under SEC Rule 14b-1?
Broker-dealers must promptly forward proxy materials to beneficial owners of street name shares. The issuing corporation is legally required to reimburse the broker-dealer for expenses.
Complete Analysis & Legal Rationale
Under SEC Rule 14b-1 and FINRA Rule 2251, when securities are registered in 'Street Name' (held in the name of the broker-dealer for customer convenience): (1) The beneficial owner (the customer) retains all voting rights; (2) The broker-dealer is legally required to promptly forward all proxy statements, voting cards, and financial reports to the beneficial owner; (3) The issuing corporation must reimburse the member broker-dealer for all out-of-pocket mailing, handling, and distribution expenses.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Broker-dealers must promptly forward proxy materials to beneficial owners of street name shares. The issuing corporation is legally required to reimburse the broker-dealer for expenses.
Fails to adhere to trade execution and settlement rules regarding B.
Fails to adhere to trade execution and settlement rules regarding C.
Fails to adhere to trade execution and settlement rules regarding D.
Official Standard: Under SEC Rule 14b-1 and FINRA Rule 2251, when securities are registered in 'Street Name' (held in the name of the broker-dealer for customer convenie