What’s a book-entry security?

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Book-entry securities are securities that are recognized as belonging to a particular owner, without the creation of a physical share certificate. Proof of ownership of this type of security is found in the related entries found in the official records of the issuer of the shares. The security of book entries has enjoyed great popularity, as the process allows owners to retain shares without being burdened by the task of keeping up with paper documents.

Brokerage firms also enjoy the bookkeeping security process. Just as the strategy helps keep paperwork to a minimum for the investor, a book-entry guarantee means less documentation to file and preserve for the broker managing the asset. The process that is followed when shares are sold can illustrate one of the ways that record keeping is simplified. Rather than having to invalidate paper copies of the shares and arrange for them to be reissued to the new owner, the process requires simple verification of the sale of the shares. Once verification is complete, the broker simply updates the records to indicate a change in ownership of the shares, as of the date the purchase is completed.

Another general advantage to book entry security is that neither the owner nor the broker have to worry about going through the replacement process that can occur with hard copies of shares. Since hard copies can be lost, damaged, or stolen, a process is required to replace them. With the book entry security method, there are no hard copies to replace, and no issues maintaining ownership rights and privileges.

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

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