What are 'Book-Entry Securities'

Book-entry securities are investments such as stocks and bonds whose ownership is recorded electronically. Book-entry securities eliminate the need to issue paper certificates of ownership. Ownership of securities is never physically transferred when they are bought or sold; accounting entries are merely changed in the books of the commercial financial institutions where investors maintain accounts.

Book-entry securities can also be referred to as uncertificated securities or paperless securities.

BREAKING DOWN 'Book-Entry Securities'

Book entry is a method of tracking ownership of securities where no physically engraved certificate is given to investors. Securities are tracked electronically, rather than in paper form, allowing investors to trade or transfer securities without having to present a paper certificate as proof of ownership. When an investor purchases a security, s/he receives a receipt and the information is stored electronically.

Book-entry securities are settled by the Depository Trust Company (DTC), which is the Depository Trust & Clearing Corporation’s (DTCC) central securities depository. An investor receives a statement providing evidence of ownership instead of a stock certificate. Dividend payments, interest payments, and cash or stock payments due to a reorganization are processed by DTC and transferred to the appropriate investment bank or broker to deposit in the account of the securities’ holder. DTC sometimes may place temporary or permanent restrictions on certain transactions, such as deposits or withdrawals of certificates. Such a restriction is known as a chill. For example, DTC may impose a temporary chill that restricts book-entry movement of securities, effectively closing the books and stabilizing existing positions until a merger or other reorganization has been completed.

Stock in direct investment plans, Treasury securities purchased directly from the US Department of the Treasury, and recently issued municipal bonds are held in book entry form. In August 1986, with the introduction of a program named Treasury Direct, the Treasury began marketing all new notes and bonds only in book-entry form. The program was expanded in 1987 to include T-bills. Treasury Direct makes principal, interest, and redemption payments directly into an individual investor's account at a financial institution. These payments are made electronically rather than by check. An investor may also use the Legacy Treasury Direct system, also operated by the Treasury, to buy and sell directly with the Treasury which issues an account statement to the investor as confirmation of transaction. The government issues book-entry securities to reduce the expenses associated with paperwork. Individuals who still own old paper securities may exchange them for electronic, book-entry securities.

Book-entry securities do not move from owner to owner, instead, they are held in a central clearinghouse or by a transfer agent, as ownership changes.

RELATED TERMS
  1. Bearer Bond

    A bearer bond is a fixed-income instrument that is owned by whoever ...
  2. Continuous Net Settlement - CNS

    Continuous Net Settlement (CNS) is an automated book-entry accounting ...
  3. Stock Power

    A stock power is a legal power of attorney form that transfers ...
  4. Certificate of Indebtedness

    A certificate of indebtedness was something of an "IOU" from ...
  5. Investors Service Bureau

    An Investors Service Bureau is a public service run by the New ...
  6. Treasury Budget

    The treasury budgets is a monthly statement that accounts for ...
Related Articles
  1. Investing

    iShares Silver Trust ETF: Who Is Invested? (SLV)

    Discover the top institutional owners of the iShares Silver Trust exchange-traded fund (ETF), their exact ownership and their recent position adjustments.
  2. Investing

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  3. Investing

    What’s The Difference Between Shares And Stocks?

    In today’s markets, the distinction between stocks and shares has become blurred.
  4. Investing

    The Treasury and the Federal Reserve

    Find out how these two agencies create policies to manage the economy and keep it on an even keel.
  5. Investing

    China Dumps U.S. Treasury Securities in December

    On Tuesday, Treasury International Capital (TIC) data was released by the U.S. Department of the Treasury, which revealed that China’s holding of U.S. Treasury bonds in December has declined ...
  6. Financial Advisor

    Top 4 Treasurys ETFs (SHY, IEI)

    Learn about the specifics of the top four U.S. Treasury ETFs and how investors can buy ETFs that invest in bonds along the yield curve.
  7. Investing

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  8. Trading

    Principal trading and agency trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on to find out.
RELATED FAQS
  1. Common examples of marketable securities

    Learn about marketable securities and the most common types of debt and equity securities, including common stock, bonds ... Read Answer >>
  2. Why Are Securities Held 'In Street Name'?

    Buying or selling securities through a broker means they're held in your broker's name. Read Answer >>
Trading Center