Notices

Security

From Traderpedia

Definition:
A transferable interest of financial value.


Securities are normally categorised as either debt or equity, and between bearer and registered securities.

Contents

[edit] Issuers of Securities

  • Companies
  • National Governments
  • State and Local Governments
  • Government Agencies
  • Supernational Organizations (i.e. the World Bank)

Debt issued by governments is often referred to as treasury or sovereign, while [[municipal bond|municipal debt is issued by state and local governments and agencies. Companies issue corporate bonds as debt, and stock as equity.

[edit] Uses of securities

[edit] Issuers

Commercial enterprises use securities to raising new capital. Securities are an attractive alternative to bank loans, which tend to be relatively expensive and short term. Through securities, capital is provided by investors, the purchasers of the securities. In a similar way, governments raise capital with security issuance when taxation and other income are insufficient to meet expenditures.

[edit] Purchasers/Holders

Investors in securities may be retail (members of the investing public) or wholesale (financial institutions). Institutional (wholesale) investors include investment banks, insurance companies, pension funds and other managed funds.

In either case, the function of the purchase of securities is investment, with the view to receiving income and/or generating capital gain. Debt securities generally offer a higher rate of interest than bank deposits, and equities offer the prospect of capital growth. Equity investment often (but not always) also offer control of the issuing company.

[edit] Trading of Securities

[edit] Public offers and private placements

In the primary markets, securities may be offered to the public in a public offer. Alternatively, they may be offered privately to a limited number of persons in a private placement. Often a combination of the two is used.

Sovereign/Treasury debt is generally sold by auction to a specialised class of dealers, who may then sell them to their customers. Increasingly, however, the private investor has been able to participate in this auction process.

[edit] Listing and OTC dealing

Publicly traded securities (which generally require registration with some regulatory authority) are often listed on a stock exchange. Issuers may seek listings for their securities in order to attract investors, by ensuring that there is a liquid and regulated market in which investors will be able to buy and sell securities.

Growth in informal electronic trading systems has challenged the traditional business of stock exchanges. Large volumes of securities are also bought and sold "over-the-counter" (OTC).

There are also so-called eurosecurities, which are instruments issued outside their domestic market. They are often listed on the Luxembourg Stock Exchange and/or in London. Their issuance can be motivated by regulatory and tax considerations, as well as the investment restrictions.

[edit] Bearer and registered securities

[edit] Bearer securities

Bearer securities are issued in the form of an actual paper instrument. On the face of the instrument is written the promise of the issuer to pay the bearer of the instrument. In the absence of computerisation, bearer securities constitute tangible assets. They are transferrable from person to person, in some cases by endorsement or signing the back of the instrument.

[edit] Registered securities

Registered securities are ones whereby certificates in the name of the holder are issued, but are only a representation. One does not necessarily gain legal ownership through possession of the certificate as the issuer maintains a register (often computerized) in which detailing the holders of the securities. Transfer of registered securities occurs by posting the change in the register.

[edit] Fungible and non-fungible securities

If an asset is 'fungible it means that when it lent or otherwise placed with a custodian the borrower or custodian is obliged to return assets equivalent to the original asset, not necessarily the identical asset.

[edit] Associations