Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Economics, Finance, & Analytics
  • Investments, Trading, and Financial Markets

Bearer Bond - Explained

What is a Bearer Bond?

Written by Jason Gordon

Updated at April 17th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Bearer Bond?How Does a Bearer Bond Work?Factoring in Legal IssuesHow Book-Entry Securities Work

What is a Bearer Bond?

A bearer bond is defined as fixed-income security that is owned by the holder instead of a registered owner. The bondholder has a responsibility of submitting the coupon interest payments, which are physically attached to the bond, to a bank for payment purposes and then redeem the physical certificate when the bond matures. These bonds are negotiable instruments which have a stated maturity date and coupon interest rate.

Back to:INVESTMENTS & TRADING

How Does a Bearer Bond Work?

The practice of issuing bearer bonds in the United States was ended by the Tax Equity and Fiscal Responsibility Act of 1982. Other economies which are developed have also stopped the issue of these bonds because of their potential to be used for money laundering and tax evasion.

Factoring in Legal Issues

Since these bonds are not registered in the owner's name, an individual can, therefore, buy large amounts of bearer bonds and submit the coupons for payment while remaining anonymous. In 2009, a multinational financial services company known as UBS was accused of helping Americans evade taxes using bearer bonds. Another shortcoming of this bond is that the lack of bond registration offers little protection to the investor if the physical certificate is stolen because the custodians do not have the owner's name on file. Most owners of these bonds keep the certificate in the safety deposit box of a bank or in safe at home. Because of this, problems arise when the clipped coupons, being sent to receive interest, get lost in the mail. The bonds need to be delivered at a bank either in person or by courier. Another problem is that they make it difficult for heirs dealing with the investment portfolio of someone who has died. This is because sometimes the elderly forget where the bearer bonds are located and do not provide instructions on where to find the physical certificates.

How Book-Entry Securities Work

Since almost all the securities are issued in book-entry form, they are registered in the investors name electronically and therefore there is no issue of a physical certificate. A registrar tracks the names of each registered owner and then ensures that the bond owners receive all interest payments, and the stockholders receive the cash and stock dividends. When this book-entry is sold, the name of the registered owner is changed.

Was this article helpful?

Yes
No

Related Articles

  • Collateralized Mortgage Obligation - Explained
  • Capital Structure Arbitrage - Explained
  • Bear Market - Explained
  • Qualified Foreign Institutional Investor - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand