Legal Nature of Securities

Registered Securities
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).