Book entry

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Book entry is a system of tracking ownership of securities where no certificate is given to investors.[1] Several terms are often used interchangeably with "book entry" shares including "paperless shares", "electronic shares", "digital shares", "digital stock certificates", and "uncertificated shares"; some of these terms have somewhat different connotations but, at least in the United States, state securities laws only recognize certificated and uncertificated shares.[2] In the case of book-entry-only (BEO) issues, while investors do not receive certificates, a custodian holds one or more global certificates.[3] Dematerialized securities, in contrast, are ones in which no certificates exist; instead, the security issuer, its agent or a central securities depository keeps records, usually electronically of who holds outstanding securities.[3]

Most investors who use an online broker or even a regular full-service broker will have their shares held in book-entry form; this is generally convenient, as one does not have to preserve physical stock certificates, and can buy/sell securities without turning certificates in or having new ones issued. Also, replacement costs for certificates are high in case one loses them, while book-entry ownership can never be lost thanks to technological backups.

Direct Registration System[edit]

On August 8, 2006, the SEC approved a rule changed by NASDAQ, NYSE and AMEX requiring all listed securities (except certain debt securities) to be eligible for a direct registration system ("DRS") as of March 31, 2008. DRS is an entirely electronic book-entry style system that does not involve physical stock certificates; the rule change does not eliminate physical certificates, but requires issuers to be eligible for entirely electronic recording of securities ownership.

Private Companies[edit]

Adoption of book-entry systems among private companies has lagged adoption among public companies, public company transfer agents, and broker-dealers;[2] this may be due to a number of misunderstandings and challenges unique to private company security issuance but, regardless, data suggest adoption of book-entry systems among private companies is growing rapidly.[4]

References[edit]

  1. ^ See Black’s Law Dictionary 74 (2d Pocket Ed. 2001.)
  2. ^ a b "3 Ways to Issue Paperless, or Electronic, Stock Certificates". Capshare, Inc. Retrieved 13 March 2016.
  3. ^ a b "BOOK-ENTRY ONLY (BEO) or BOOK-ENTRY SECURITY". Municipal Securities Rulemaking Board. Retrieved 13 June 2012.
  4. ^ "7 Pitfalls of Issuing Electronic Stock Certificates for Private Companies". Capshare, Inc. Retrieved 13 March 2016.