How Marketable Treasury Securities Really Work
To understand the fraudulent schemes and phony financial instruments involving what are claimed to be marketable U.S. Treasury securities, it's important for you to know all about marketable Treasury bills, notes and bonds. To that end, you can read about any or all of the following topics:
(1) how marketable Treasury securities are sold,
(2) the forms in which marketable Treasury securities exist, and
(3) how marketable book-entry Treasury securities are held.
How Marketable Treasury Securities are Sold
We sell marketable Treasury securities at public auctions on a regular schedule well known to market participants. We announce the auctions as far in advance as practical to allow investors to prepare for the sale. WE DO NOT ISSUE SECURITIES THROUGH PRIVATE PLACEMENTS, NOR DO WE LICENSE FINANCIAL ENTITIES OR INDIVIDUALS TO ACT AS INTERMEDIARIES TO SELL MARKETABLE TREASURY SECURITIES. While we don't designate particular financial institutions to sell Treasury bills, notes and bonds, they are available through banks and brokerages.
The Forms in which Marketable Treasury Securities Exist
Marketable Treasury securities exist in three forms: (1) book-entry, (2) bearer, and (3) registered. An overwhelming amount (99.84% of outstanding marketable securities) exist in book-entry form. Securities in book-entry form exist not as printed certificates but rather as computer records on our books and on the books of banks and government securities brokers and dealers. Book-entry securities first became available in 1968. Since 1986, we have only issued securities in book-entry form.
In addition to book-entry form, a very small percentage (.14% of outstanding marketable securities) exist in bearer form. A bearer security is a printed certificate with interest coupons attached. A bearer security does not contain the name of the owner and we don't keep records of ownership. Title to a bearer security passes on delivery. We make interest and principal payments to the presenter of the interest coupons and certificate. We discontinued the issuance of bearer securities in 1982.
Finally, an even smaller percentage (.02% of outstanding marketable securities) exist in registered form. A registered security is a printed certificate with the name of the owner stated on the face of the security. We maintain records of ownership and issue semi-annual interest payments to the owner of record. Only the owner may submit the registered security at maturity for payment. The owner can transfer his or her registered security by completing an assignment form on the back of the certificate. We adjust our ownership records to reflect transfers. We discontinued the issuance of registered securities in 1986.
The total dollar amount of marketable Treasury securities outstanding in certificate form (i.e., registered and bearer form combined) is only about $5.2 billion. That accounts for only one sixth of one percent of all outstanding marketable Treasury securities!
How Marketable Book-Entry Treasury Securities are Held
There are two systems in which one can hold marketable book-entry Treasury bills, notes and bonds: TRADES and TreasuryDirect. TRADES, also called the commercial book-entry system, is a tiered system of ownership accounts held at securities intermediaries such as banks, brokerage firms and securities clearing organizations. We cannot identify individual owners in this system. Ownership records are maintained by the institutions acting as securities intermediaries or custodians for investors. Holdings in TRADES amount to about 97.2 percent of the outstanding marketable debt.
TreasuryDirect is a system in which investors hold their securities in accounts directly with us. We know who owns securities in TreasuryDirect. Holdings in TreasuryDirect total about $86 billion, or 2.6 percent of the outstanding marketable debt.