TRADING AND TRANSFERRING BONDS

Once the investors involved have agreed on a price, they can proceed to actually executing the bond trade. On the trade date, a cash settlement takes place between the buyer and the seller. At the settlement, the buyer's broker-dealer pays for the bonds purchased and receives the bonds from the seller's broker-dealer.

Regular-way trades -- or regular-way delivery and settlement -- take place at the office of the purchasing broker-dealer. Regular-way trades of corporate securities take place on the third full business day following the transaction. Settlements of government securities take place on the next business day.

Sometimes investors choose to complete their trades after the above time frames, taking advantage of a buyer's option delivery or a seller's option to delay the completion of the trade. For instance, a seller may wish to postpone the delivery of the bonds, usually agreeing to deliver them anywhere from six to 60 business days following the transaction. In these cases, the seller must notify the buyer of the delivery date in writing.

Exactly how are bonds transferred from one owner to another? The original bond issuer of a registered bond documents the bondholder in its records, and the current registered owner must endorse the transfer to the new bondholder. Coupon bonds, or bearer bonds, are becoming less common. Whoever possesses these bonds simply detaches and presents a coupon to receive the regular interest payment. Some municipal bonds are book-entry bonds, or certificateless municipals: trades are simply recorded on customer accounts, and the bondholder never receives a certificate of ownership.