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What is a Book-Entry Security?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Book-entry securities are securities that are recognized as belonging to a particular owner, without the creation of a physical stock certificate. Proof of the ownership for these types of securities is found in the related entries that are found in the official records of the issuer of the stock. The book-entry security has enjoyed a great deal of popularity, since the process allows owners to retain shares of stock without being encumbered by the task of keeping up with paper documents.

Brokerage firms also enjoy the book-entry security process. Just as the strategy helps to keep the paperwork to a minimum for the investor, a book-entry security translates into less documentation to be filed and preserved for the broker that is charged with managing the asset. The process that is followed when the shares are sold can illustrate one of the ways in which the record keeping is simplified. Instead of having to invalidate printed copies of the shares and arrange for them to be reissued to the new owner, the process requires a simple verification of the sale of the shares. Once the verification is complete, the broker simply updates the records to indicate a change in the ownership of the stock, effective on the date that the purchase is completed.

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Another general advantage for book-entry security is that neither the owner nor the broker has to be concerned about going through the replacement process that can occur with hard copies of the shares. Since hard copies may be lost, damaged, or stolen, it is necessary to go through a process to replace them. With the book-entry security method, there are no hard copies to replace, and no problems with maintaining the rights and privileges of ownership.

More recently, it has become common to prepare electronic versions of various treasury securities. The electronic treasury security bond or share can easily be forwarded to the owner in the event that a hard copy of the book-entry security is required for some reason, while still allowing both the owner and the broker to enjoy all the advantages associated with book-entry security.

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