Book-Entry Securities
Book-entry securities are investments such as stocks and bonds whose ownership is recorded electronically. Book-entry securities can also be referred to as uncertificated securities or paperless securities. Book-entry securities are settled by the Depository Trust Company (DTC), which is the Depository Trust & Clearing Corporation’s (DTCC) central securities depository. 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. Individuals who still own old paper securities may exchange them for electronic, book-entry securities.
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.
How Book-Entry Securities Work
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, they receive 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 the book-entry movement of securities, effectively closing the books and stabilizing existing positions until a merger or other reorganization has been completed.
Book-Entry Securities and the Government
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:
Bearer Form
A bearer form is a security not registered in the issuing corporation's books, but which is payable to its bearer, that is, the person possessing it. read more
Chill
A chill is when the Depository Trust Company (DTC) places one or more restrictions on transactions involving a given security. read more
Custody-Only Trading and Example
Custody-only trading is a system in which shares must be registered to the holder by name and can only be traded in physical form. read more
Depository Trust Company (DTC)
The DTC or Depository Trust Company is one of the world's largest securities depositories. Learn how the DTC lowers risks and costs for investors. read more
Depository Trust and Clearing Corporation (DTCC)
Established in 1999, the Depository Trust and Clearing Corporation (DTCC) is a holding company that consists of five clearing corporations and one depository. read more
Municipal Bond
A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures. read more
Reorganization
A reorganization is an overhaul of a troubled company's management and business operations with the aim of restoring it to profitability. read more
Security : How Securities Trading Works
A security is a fungible, negotiable financial instrument that represents some type of financial value, usually in the form of a stock, bond, or option. read more
Share Certificate
A share certificate is a written document verifying a stockholder owns shares of a company; this paper stock certificate has largely been phased out in the digital age. read more
Stock Record
A stock record is a legally-required list of all shares that are held by a brokerage on behalf of its clients. It is updated with every transaction. read more