What Is a Registered Bond?
A registered bond is a debt instrument whose owner's (the bondholder's) information is on record with the issuing company or entity. The owner's name, address, and other contact info are kept on file, allowing the issuer to make the bond's coupon payments to the appropriate 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
When a bond is registered, the issuer records the name of the owner and information about the bond issue. A bond that is registered in physical form has the owner’s name and address printed on the bond certificate. Transferring the ownership of a registered bond certificate bonds requires that the registered owner endorse the back of the certificate or sign the certificate over to someone else before the transfer can be completed.
A bond can also be registered electronically, which is how most bonds are now tracked, using computerized databases to record and store the bondholders’ information. An electronic bond simply needs to have any changes of information phoned, mailed, or faxed to the company in order to facilitate a transfer of ownership.
Registered bonds include debt obligations that have the owner’s name and contact information registered on file at the issuing company. Only the registered owner as of the interest payment date can receive the agreed-upon earnings. Anyone who possesses or presents a bond certificate for coupon payments but is not the registered owner on file will not be issued coupon payments. If a registered bond is lost, stolen, or destroyed, it can be easily replaced given that the owner’s definite 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 of course, the client remains the beneficial owner.
Registered Bonds vs. Bearer Bonds
Registered bonds are the opposite of bearer bonds, which contain no record of, or information on, the owner. Bearer bonds will make a coupon payment or the principal repayment to whoever holds, or bears, the physical certificate—not unlike a blank check. A bearer bondholder must cut the coupons attached to the bond certificate and present them for interest payments (the reason why bond interest payments are commonly referred to as "coupons").
Obviously, bearer bonds are much less secure than registered bonds. Bearer bonds that are lost cannot be replaced, as no records exist on the identity of their owner. Because of the anonymity factor, bearer bonds have historically been the favored financial instrument for money launderers, tax evaders, and others looking to conceal business transactions, as well.
The Tax Equity and Fiscal Responsibility Act
The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 changed the tax treatment of bearer bonds by removing the option of tax-exempt bonds to be issued in bearer form to the public unless the bond matured in one year or less. Municipal bonds, which have a tax-exempt status that serves as an attractive feature to investors, became less common in bearer form after the law went into effect, as did U.S. Treasuries.
By eliminating the tax benefits, and introducing penalties, TEFRA effectively rendered bearer bonds obsolete in the U.S., though they still exist in other nations. Virtually all bonds in the U.S. now are registered bonds, be they corporate bonds, U.S. Treasury bonds, or municipal bonds.