logistical details of interest and dividend payments on assets traded on the secondary market?

Question

Forgive me if this is a silly or extremely basic question, but I was wondering how the logistics of interest and dividend payments are handled on assets, such as mortgages, bonds, stocks, etc. I personally do not currently invest in any of these, but as I understand it, most of these assets are issued on the "primary market", i.e. the homeowner gets a mortgage loan from a bank, an individual buys a Treasury bond from the government, or someone buys shares in a company during its IPO. As a result, interest payments and dividend payments would straightforwardly go to whoever they are owed.

However, as I understand it, a lot of the time, the buyer of these assets, after an (often short) period of time, turns around and sells it in the secondary market, where it is then traded and gets passed around ad infinitum.

Now during this process, what happens to the stream of interest and dividend payments; do they automatically get updated to whoever the new owner is?

What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second?

When the company decides to pay dividends, does it literally track down every single owner of that stock and deposit x cents per share in that person's bank account? (This sounds absolutely absurd and seems like it would be a logistical nightmare).

For the homeowner, I'm assuming he / she still makes mortgage payments to the initial bank they got the mortgage from, even if the bank no longer "owns" the mortgage. In this case, does the trader on the secondary market who owns the mortgage also come back to that bank to collect his interest payment?

In general, when these assets are traded on the secondary market, to whom do the interest and dividend payments go, and who handles the logistics of making sure these streams reach the right people?

Answer 1

To Many question and they are all treated differently.

I was wondering how the logistics of interest and dividend payments are handled on assets , such as mortgages, bonds, stocks,

What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second?

When the company decides to pay dividends, does it literally track down every single owner of that stock and deposit x cents per share in that person's bank account? (This sounds absolutely absurd and seems like it would be a logistical nightmare).

In Stocks, the dividends are issued periodically. The dividend date is declared well in advance. As on end of the day on Dividend date, the list of individuals [or entities] who own the stock is available with the Stock-Exchange / Registrar of the companies. To this list the dividends are credited in next few days / weeks via banking channel. Most of this is automated.

What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second?

On bonds, things work slightly differently. An Bond is initially issued for say 95 [discount of 5%] and payment of 100 after say 5 years. So when the person sells it after an year, he would logically look to get a price of 96. Of course there are other factors that could fetch him a price of 94.50 or 95.50. So every change in ownership factors in the logical rate of interest. The person who submits in on maturity gets 100.

For the homeowner, I'm assuming he / she still makes mortgage payments to the initial bank they got the mortgage from, even if the bank no longer "owns" the mortgage. In this case, does the trader on the secondary market who owns the mortgage also come back to that bank to collect his interest payment?

This depends on how the original financial institution sells the mortgage to new institutions. Generally the homeowner would keep paying initial financial institution and they would then take a margin and pay the secondary investor. If this was collateral-ized as Mortgage backed security, it is a very different story.