Bearer security
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The Law and Lore of Repackaging
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A financial instrument title to which passes by delivery, so that whoever holds the instrument from time to time owns it absolutely.
This means a person dealing with the “bearer” of a bearer security need not worry herself about its provenance, the bona fides of the bearer or the plausibility of the bearer’s right to the asset it represents.
You got it, you own it.
This makes bearer instruments great stores of liquid value (cash is the example par excellence of a bearer instrument, though it is not a “security” as such), but not so good for representing ownership of assets which imply obligations as well as entitlements, or where it is important to the issuer of the instrument who holds them from time to time, such as equity securities, which imply both. Equities are almost never issued in bearer form.
Title transfer by delivery makes bearer instruments hard to track and tax, meaning they are not popular with taxing authorities or money laundering reporting officers.
The rise of electronic transfer means that securities are now in dematerialised form, and the scope for true anonymity of financial instruments is progressively limited, though this didn’t stop those hearty DLT refuseniks having a good old bash with bitcoin.