6.1.3. Book-Entry Bonds
Book-entry bonds do not take the form of a physical certificate but exist only in electronic form. Just one master certificate exists, which is kept at a central depository. Ownership of book-entry bonds is recorded by computer at the depository. The bondholder generally is considered the beneficial owner, while the broker-dealer is listed as the record owner. The client receives the benefits of owning the security, but the security itself is registered in street name to the broker-dealer. The broker-dealer is responsible for maintaining a record of beneficial ownership and delivering the periodic payments it receives from the issuer’s transfer agent to its client, the beneficial owner of the security.
Some issuers offer bondholders the direct registration of their securities. In this case, bondholders may choose to have the book-entry securities registered in their own names, in which case they would receive payments and proxy statements directly from the issuer.
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SUMMARY TABLE Form of Municipal Bond Ownership |
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Form of Issue |
Transfer and Redemption |
Frequency |
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Bearer bonds |
Physical certificate—neither bond nor coupon is registered |
Whoever possesses the bond and coupons can cash them in |
No longer issued, but some still exist in the secondary market |
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Partially registered bonds |
Physical certificate—bond is registered in owner’s name, but coupons are not |
Bond must be transferred to new owner through a signature |
Rarely issued because unregistered coupons cannot claim tax-exempt status |