What Is a Registered Bond?
A registered bond is a debt instrument whose bondholder's information is kept on record with the issuing party. By archiving the owner's name, address, and other details, issuers ensure they're making the bond's coupon payments to the correct person.
- A registered bond has its owner's name and contact information recorded with the issuing entity, ensuring coupon payments are correctly distributed.
- Bearer bonds, which don't record the owner's info, are the opposite of registered bonds.
- Virtually all bonds in the U.S. now are registered bonds, be they corporate bonds, U.S. Treasury bonds, or municipal bonds.
Understanding a Registered Bond
There are two ways to register bonds. In the first way, the issuer records the name and address of the owner, which is physically printed on the bond certificate. Transferring the ownership of registered bonds requires registered owners either endorse the back of the certificate or sign the certificate over to someone else.
Second, a bond can be registered electronically, using computerized databases to record a bondholder's information. Under this scenario, if an individual wishes to transfer a bond to another person, he or she must relay the recipient party's personal information to the electronic bond issuer, via phone, snail mail, or fax.
Registered bonds include debt obligations that have the owner’s name and contact information registered on file at the issuing company. Only the individual recognized as the registered owner, as of the interest payment date, may receive the agreed-upon earnings. Anyone who presents a bond certificate that is not the registered owner on file will be denied the coupon payment. If a registered bond is lost, stolen, or destroyed, it can be easily replaced due to the fact that the owner’s information is on file with the issuer.
If a bond is bought by a financial professional for a client and held in a brokerage account, the broker or dealer is often listed as the owner, though the client naturally remains the beneficial owner.
Registered Bonds vs. Bearer Bonds
Unlike registered bonds, bearer bonds contain no owner information whatsoever. Consequently, bearer bonds will issue coupon payments or will repay the principal amounts to whoever is in physical possession of the certificate. A bearer bondholder simply must cut the coupons attached to the bond certificate and present them for payment. This is the reason bond interest payments are commonly referred to as "coupons."
Obviously, bearer bonds are much less secure than registered bonds. Lost or stolen bearer bonds cannot be replaced, as no records exist on their owners' identities. Because of this anonymity factor, bearer bonds have historically been favored by money launderers, tax evaders, and other shady types looking to cloak their business activities.
The Tax Equity and Fiscal Responsibility Act
The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 changed the tax treatment of bearer bonds, so that they no longer have a tax-exempt option, unless the bond matures in one year or less. Consequently, municipal bonds, whose tax-exempt status attracted investors, became less common in bearer forms, after the law went into effect.
Today, virtually all bonds in the U.S. now are registered bonds, be they corporate bonds, U.S. Treasury bonds, or municipal bonds.