A holder is a person in possession of a negotiable instrument, such as bearer bonds, which can be presented for payment or voting rights. These unregistered instruments can be freely transferred, but must be insured to avoid theft. Non-tradable instruments can reduce risk.
A holder is a person who is in possession of a negotiable instrument, a financial instrument in the name of the holder, rather than a specific named person. Bearer bonds are an example of a negotiable instrument. These financial instruments are also said to be unregistered, as the original issuer or originator does not keep track of who owns them and does not track transfers. The risk with tradable instruments is that ownership indicates ownership and control, which can be a problem in the event of theft. This can be an advantage in other cases as well, however.
The bearer may present the instrument for payment of monies owed or for voting rights, in the case of an equity instrument. The negotiable instrument must be honored unless there is clear evidence of fraud, such as marks on the document indicative of the use of forgery. Holders can also freely transfer the documents in their possession without the need for authorization from the original extender and without the need for re-registration.
In a simple example of a negotiable instrument, a person might write a “bearer” or “cash” check. If this person gives the check to someone else, that person might choose to go to the bank and cash it, or transfer it to another person. People can also turn a check written to a specific person into a negotiable instrument by signing the back of the check.
Transferring negotiable instruments is much easier than transferring other types of financial documents. This may benefit the parties involved in some situations, where a smooth transfer may be beneficial. However, even these instruments must be carefully insured to avoid theft and other situations where someone obtains an instrument and redeems it, acting as a bearer. One method may be to keep negotiable instruments safe in a bank, keeping photocopies handy as a record while the originals are kept safely.
One benefit of a negotiable instrument is the ability to write a check, bill, or other document without a specific payee in mind. This can be useful in some situations. People can increase security and reduce the risk of theft, fraud or uncontrolled transfers to other situations by creating non-tradable instruments. With these financial instruments a specific person is nominated and the instrument cannot be redeemed or transferred by anyone else.
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