ISIN Strip Bonds

Stripped bond ISIN Number or ISIN Code

Strip bonds (or stripped bonds) are simply payments of interest and/or principal that:

1. are payable in the future, and
2. have been separated from the bond on which the payments are due, so that they can be held and traded as individual securities.

Strip bond packages

Strip bond packages are securities created by combining strip bonds, so that they trade together as a unit.

How are they created?

Strip bonds and strip bond packages are created by financial institutions, such as banks, investment dealers, and trust companies, who submit the appropriate instructions to a securities depository.

What do strip bonds and strip bond packages look like?

There are 3 basic forms of strip bonds and 1 form of strip bond packages.

• Depository book-entry strip bonds
• Physical strip bonds
• Receipt security strip bonds
• Strip bond packages

Depository book-entry strip bonds

Depository book-entry strip bonds exist only in electronic form within ledgers maintained by a securities depository. Owners of these strip bonds see the positions only on periodic statements from their investment dealer, bank, or trust company.

Physical strip bonds

Coupons typically are about 1.5 cm by 4 cm (.6 in x 1.5 in.) in size (about the size of an adult’s thumb). The following information is normally shown on the coupon:

• the name of the issuer,
• the payable date of the coupon,
• the payment amount,
• instructions on where to present the coupon for payment,
• the payment currency, and
• the certificate number of the bond certificate from which the coupon was detached.

Residuals typically are about 22 cm by 28 cm (roughly the size of a letter-sized page). Residuals will not have any coupons attached unless the original bond is callable; if the bond is callable, all of the coupons subsequent to the next call date should be attached. The following information is normally shown on the residual:

• the name of the issuer,
• the maturity date of the bond,
• the coupon or interest rate of the bond,
• the terms, if any, under which the bond may be called prior to the maturity date,
• instructions on where to present the residual for payment at maturity,
• the payment amount,
• the payment currency, and
• the certificate number of the bond certificate from which the coupon was detached.

There are no security identification numbers such as CUSIP numbers printed on the coupons. For residuals, the CUSIP number of the underlying security normally is shown, but not the CUSIP number under which the residual trades.

Both coupons and residuals are printed on bank note paper, often with engravings. Most of these were printed before 1990 and therefore do not have the same security features that are now being used in currency.

Receipt security strip bonds

Receipt security strip bonds are similar in size to a normal bond certificate (roughly 22 cm by 28 cm) but does not have coupons attached. They often are printed on high quality bank note paper.

The following information may be shown on these strip bond certificates:

• the brand name used for issuing the strip bonds (e.g., Sentinel, Term Investment Growth Receipt, Cougar)
• the name of the issuer of the underlying security (e.g., Government of Canada)
• the interest rate and maturity date of the underlying security
• the maturity date of the strip bond
• the payment amount (the face value or denomination of the certificate)
• instructions on where to present the strip bond for payment
• the payment currency
• the payment type (interest or principal)
• the certificate number of the strip bond certificate
• the date on which the certificate was issued
• the transfer agent name
• the name of the registered owner of the certificate.

On the back of the certificates, there normally is a section that the registered owner may complete when selling the certificate. If the certificate is registered in the name of an investment dealer, this section may be signed without entering the name of the purchaser. Certificates such as these are negotiable by the bearer.

Some certificates state that the registered owner may elect to exchange the receipt security strip bond for the physical strip bond that backs it, upon payment of the applicable fee. Because of the high risks and costs associated with physical strip bonds, this exchange normally is not recommended for individual investors.

In Canada, investment dealers often convert these receipt securities and immediately deposit the physical strip bonds with the securities depository, so that they benefit from increased liquidity. For individual investors, the additional costs make this practice less attractive.

Some receipt security strip bonds (in Canada, these were derived from corporate bonds) were issued as book-entry only securities. Investors must hold these strip bonds through an investment dealer, bank, or trust company, who in turn must hold the strip bonds through the securities depository.

Examples and information on receipt security strip bonds issued in Canada are available in receipt security strip bonds.

Strip bond packages

Strip bond package securities exist only in electronic form within ledgers maintained by a securities depository. Owners of these strip bonds see the positions only on periodic statements from their investment dealer, bank, or trust company.

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