Registered security
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The Law and Lore of Repackaging
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Registered security
/ˈrɛʤɪstəd sɪˈkjʊərəti/ (n.)
One of the two great forms of an English-law medium term note, the other being a bearer note.
A security in “registered” form, is one whose ownership is determined by entry in the official share register, rather than by mere possession the instrument (which is called a “bearer instrument”)[1]. A registered certificate is only evidence of ownership, but it can be trumped by what it says on the actual register.
Debt
Debt securities — which, by nature, do not confer any ownership rights on the holder, but merely represent a debt claim against the issuer, are often in bearer form, especially outside the United States. They are not allowed to be in bearer form in the United States. This is a tax issue: Americans are frightfully concerned about tax avoidance though, since the advent of the electronic clearing, the idea that “no-one knows who the bearer is” has largely disappeared, so the potential for tax avoidance is markedly lower, and there is really no practical difference between a bearer and a registered instrument. But it is what it is: All US Securities are in registered form.
Structured debt
Where you are in the tailored world of structured finance, where often instruments are really only in “note” format for formal treasury and accounting reasons — let’s not get into trading books, banking books and hold-to-maturity securities — you may ask yourself whether the pros of the cleared, bearer format outweigh the cons — dematerialised form may be quicker and less manual than holding security-printed notes, sure — but still, communicating bilaterally with noteholders through clearing systems is a bit like sending an aerogramme, or putting a message in a bottle and tossing it into the sea, when you are used to snapchat.
Were you to be in registered form outside the clearing system, the trade would look like (and would be) a tradable security, but would feel more bilateral, and easier to manage, especially where for a noteholder who aspires to be consulted on stress events, amendments, disposals, valuations and so on.
Nonetheless, this format seems (outside Rule 4a-2 of the Securities Exchange Act of 1934) unusual, because investors need to book things in systems which give them valuation feeds, and that means the clearing systems, and they may want to repo or finance their investments, which involves title transfer, and that is more easily done in a clearing system.
Equity
Shares and securities conferring beneficial ownership of their Issuer tend to be registered, because you need to know who your owner is, right?
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See also
References
- ↑ For a lawyer this is elemental stuff; one of the great bifurcations of the financial markets