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The z-certificate is a document that is commonly issued as proof of ownership of stocks when the intent of the investor is to only hold on to the stock for a short period of time. Several financial institutions around the world issue the z-certificate or a similar document. The Bank of England is one of the premier banking institutions that issue z-certificates to stockholders.
Carried in place of stock certificates, the z certificate often carries an advantage that is especially desirable when the intent is to only hold the stocks for a short time. Z-certificates often yield a higher rate of interest over the short term, since the instrument is essentially a time deposit. This allows the investor to realize more of a return during the possession of the short term transaction.
The possession of a z-certificate provides a quick and easy means of demonstrating ownership. Typically, the detail included on z-certificates is somewhat less comprehensive that the amount of information included on a standard stock certificate, but it is considered sufficient to prove that the holder is entitled to trade the stock. Brokers recognize the validity of the z-certificate, and will honor orders placed by the investor involving the stocks cited on the certificate.
A z-certificate is not an instrument that is available for all stocks, nor is the z-certificate appropriate in all occasions. A z-certificate is usually not issued for stocks that the investor intends to retain for an extended period of time. In fact, some forms of the z-certificate will expire after a certain period, invalidating the higher rate of interest associated with the stock. This precaution helps to ensure that the z-certificate is not utilized to excess, or as a means of realizing a higher return by misrepresenting the intent of the investor. The restrictions on the issue and function of the z-certificate help preserve the integrity of the document, keeping the z-certificate both convenient and a good short term investment strategy.
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