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What is a Certificated Stock?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2016
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    2003-2016
    Conjecture Corporation
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Certificated stocks are stocks of commodities that have been evaluated and found to be qualified for a classification of basis grade. Sometimes referred to as certified stocks, this designation of certificated stock often applies to physical commodities that are currently being stored or held at a designated physical location. Stocks of this classification can be utilized for delivery against a futures contract, with the actual asset held by the issuer until the time of transfer.

The use of certificated stock is often used with various types of physical commodities, especially assets that are based on food products. Grains are an excellent example of an investment that would undergo this process of certification. Within this scenario, an appropriate exchange authority would inspect the grain and the value and quality verified by the authority. Once that process is complete, the grain would be considered acceptable for delivery on the contract, pending the establishment of the specific date of delivery arranged between the buyer and the seller of the futures option. The certificated stock would document this type of detail.

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Maintaining quality and usability of the underlying physical commodity is one of the primary reasons for the issue of certificated stock. Because the commodity has to at least meet the standards set by the authority, the chances of a buyer receiving goods that are deficient in some manner are greatly reduced. Many producers of these types of commodities pride themselves on not only meeting the standards set by the exchange authority, but also exceeding them. As a seller gains a reputation for providing superior commodities, more buyers are likely to wish to engage in a contract with the supplier.

Certificated stock is one of the ways that many markets and their participants choose to police their own actions. By ensuring that the quality of the commodity meets minimum standards, the smooth function of the marketplace may continue. Sellers who have trouble meeting those basic requirements are quickly identified and can be blocked from trading on the market with relative ease.

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