Immobilisation of securities is the practice of depositing physical share or bond certificates with a central securities depository and leaving them there, so that later transfers of ownership are made by entries in the depository's accounts and not by delivering paper. The certificates continue to exist, often as a single global certificate representing a whole issue, but they stay in a vault. Investors hold their interests as book-entry securities through accounts with the depository's participants.
It is one of two ways of removing paper from settlement. The other is dematerialisation, in which no certificate exists at all and the electronic record itself constitutes the security. Immobilisation was historically the first step in many markets, because it required no change to laws that defined a security as a paper instrument. Most markets now use one method or a mix of both, and the practical effect for investors is the same.
Why immobilisation was introduced
Until the 1960s, a sale of shares or bonds was completed by physically delivering certificates, and for registered securities by sending them to the issuer's registrar for re-registration. As trading volumes grew, brokers' back offices could not keep up. In the United States the resulting paperwork crisis of the late 1960s forced the stock exchange to shorten its trading week and caused the failure of a number of firms. The response was to place certificates in a central depository; the Depository Trust Company began operating in New York in 1973. In Europe, Euroclear and the predecessor of Clearstream were created around 1970 to do the same for the Eurobond market, where bearer bonds had been shipped between banks.
In 1989 a report by the Group of Thirty recommended that every market should have a central depository and that securities should be immobilised or dematerialised to the greatest extent possible. The recommendation became a foundation of later international standards for settlement systems.
How it works
There are two main forms.
- Global certificates. At issue, one certificate is produced for the entire amount and lodged with the depository or with a bank acting for it. No individual certificates are printed. In the international bond market, a global note is held by a common depositary or common safekeeper on behalf of the two international central securities depositories.
- Deposit of individual certificates. Existing certificates are collected from holders and placed in the depository's vault, usually in pooled form, so that a participant has a claim to a quantity of the issue and not to particular numbered certificates.
For registered securities, the certificates held by the depository are registered in the name of its nominee, which therefore appears as the legal holder on the issuer's register; in the United States that nominee is Cede and Co. The depository credits each participant's account, and participants in turn record the holdings of their clients. A sale is settled by debiting the seller's participant and crediting the buyer's, typically on a delivery versus payment basis. Bearer securities become, in practice, registered through the accounts, since only an account holder can exercise the rights.
Legal effects
Immobilisation separates the investor from the certificate. What the investor holds depends on the law of the market. In some countries the investor has a co-ownership share in the pooled certificates; in others, a contractual or statutory entitlement against the intermediary holding the account. The chain of intermediaries between the investor and the depository, described under custody chain, means that the investor's rights against the issuer are usually exercised through those intermediaries, and the investor is a beneficial owner and not the holder of record.
In the European Union, the regulation on central securities depositories requires issuers whose securities are admitted to trading on a trading venue to arrange for them to be represented in book-entry form, either by immobilisation or by direct dematerialisation. This has applied to newly issued securities since 2023 and to all such securities since 2025.
Benefits
With certificates held centrally, the risks of loss, theft, forgery and damage in transit largely disappear, and securities settlement can be automated and shortened. Settlement cycles of two days and now one day would not be possible if paper had to move. Income and corporate actions can be distributed through the depository's accounts, and securities can be pledged or lent by book entry. The remaining handling of paper, covered under physical securities processing, is confined to deposits, withdrawals and the few issues still outside the system.
Limitations
Immobilisation keeps some of the cost of paper: certificates must be printed, stored, insured and audited, and holders in some markets may still withdraw them. It concentrates operational risk in the depository and makes the investor dependent on the records and solvency of each intermediary. Because the registered holder is a nominee, issuers cannot see who their investors are without a separate process of shareholder identification. For these reasons many markets, including France, the Nordic countries, India and China, have moved to full dematerialisation, and immobilisation is often regarded as a transitional arrangement. A bearer bond issued today in the international markets is almost always immobilised in global form.