Regulatory and fiscal authorities sometimes regard bearer securities
negatively, as they may be used to facilitate the evasion of regulatory
restrictions and tax. In the United Kingdom, for example, the issue
of bearer securities was heavily restricted firstly by the Exchange
Control Act 1947 until 1963.
In the case of registered securities, certificates bearing the
name of the holder are issued, but these merely represent the
securities. A person does not automatically acquire legal ownership
by having possession of the certificate. The issuer maintains
a register (usually maintained by an appointed registrar) in
which details of the holder of the securities are entered and
updated as appropriate. In recent years, registers have generally
become computerized. Unlike bearer securities, registered securities
comprise of a bundle of intangible rights (chose in action) including
the right of the shareholder to share in all the assets of a
company, subject to all the liabilities of the company. A transfer
of registered securities is affected by amending the register.
Traditionally, the delivery of bearer instruments by way of pledge
has been widely used in the securities markets to collaterize financial
exposures. The delivery of certificates to registered securities
has also been widely used in collateral arrangements. However,
because registered securities are not tangible assets, the legal
effect of such a delivery is generally characterized not as pledge,
but rather equitable mortgage.
Divided and Undivided Securities
The terms "divided" and "undivided" relate
to the proprietary nature of a security.
Each divided security constitutes a separate asset, which is legally
distinct from each other security in the same issue. Pre-electronic
bearer securities were divided. Each instrument constitutes the
separate covenant of the issuer and is a separate debt.
With undivided securities, the entire issue makes up one single
asset, with each of the securities being a fractional part of this
undivided whole. Shares in the secondary markets are always undivided.
The issuer owes only one set of obligations to shareholders under
its memorandum, articles of association and company law. A share
represents an undivided fractional part of the issuing company.
Registered debt securities also have this undivided nature.
Fungible and Non-fungible Securities
The terms "fungible" and "non-fungible" relate
to the way in which securities are held.
If an asset is fungible, this means that when such an asset is
lent, or placed with a custodian, it is customary for the borrower
or custodian to be obliged at the end of the loan or custody arrangement
to return assets equivalent to the original asset, rather than
the identical asset. In other words, the redelivery of fungibles
is equivalent and not in specie (identical).