Bond Certificates
Bonds are normally issued in $1,000 denominations, and they may take several forms. Bearer bonds, also called coupon bonds, are bond certificates that have no name printed on them and have coupons attached. Anyone who possesses these highly negotiable instruments may present a coupon to receive an interest payment or present the bond itself for payment at maturity. In addition, the owner can receive interest payments anonymously without having to declare them at tax time. As a result, the Tax Equity and Fiscal Responsibility Act of 1982 prohibited their further issuance, although many 50-year bonds still remain active. Today anyone depositing coupons must present identification, which is instantly passed to the IRS.
Registered bonds are certificates issued to the bondholder with the owner’s name printed on them, and they have no coupons attached. Instead, the issuer’s transfer agent sends the interest to the bondholder when payments are due and the principal at maturity. Registered bonds can be transferred to another individual only with the signed endorsement of the owner, who must present the endorsed certificate to the transfer agent. The transfer agent will then cancel the certificate and issue a new one to the new owner.
Registered bonds, too, have largely been supplanted today by book-entry bonds. Owners of a book-entry bond do not receive a physical certificate. Instead, each bond issue has only one master certificate, which is kept at a securities depository. Ownership of book-entry bonds is recorded by computer at a central depository. Generally, brokers or dealers are listed as owners in place of their clients, who are the beneficial owners. The