- For security (collateral), the legal right given to a creditor by a borrower, see security interest
A security is a fungible, negotiable instrument representing financial value. In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest Software for Fixed assets management and Stock control developed in 2004. A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than those feasible for most individual investors Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments Structured finance is a broad term used to describe a sector of Finance that was created to help transfer Risk using complex legal and corporate entities Agency Securities are specific Securities that are issued by either Ginnie Mae, Fannie Mae, Freddie Mac or the Federal Home Loan Banks The bond market (also known as the debt, credit, or fixed income market) is a Financial market where participants buy and sell Debt A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company A futures exchange is a central financial exchange where people can trade standardized Futures contracts; that is a contract to buy specific quantities of a Commodity The foreign exchange ( currency or forex or FX) market refers to the market for currencies. Commodity markets are markets where raw or primary products are exchanged The spot market or cash market is a Commodities or Securities market in which goods are sold for Cash and delivered immediately Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives In finance a fixed rate bond is a bond with a fixed coupon (interest rate as opposed to a Floating rate note. Floating rate notes ( FRNs) are bonds that have a variable coupon, equal to a Money market Reference rate, like LIBOR or A Zero coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its Face value, with the face value Inflation-indexed bonds (also known as inflation-linked bonds or colloquially as linkers) are bonds where the principal is indexed to Inflation Commercial paper is an unsecured Promissory note with a fixed maturity of one to 270 days A perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no Maturity date. A Corporate Bond is a bond issued by a Corporation. The term is usually applied to longer-term debt instruments generally with a maturity date falling at least a A government bond is a bond issued by a national government denominated in the country's own Currency. In the United States, a municipal bond (or muni) is a bond issued by a city or other local government or their agencies A sovereign bond is a bond issued by a national Government. Bonds issued by national governments in the country's own currency are also referred as Government Software for Fixed assets management and Stock control developed in 2004. In financial markets, a share is a Unit of account for various financial instruments including Stocks Mutual funds Limited partnerships Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first In Finance, short selling or "shorting" is the practice of selling a Financial instrument that the seller borrows first (does not own and then A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks bonds, An index fund or index tracker is a Collective investment scheme (usually a Mutual fund or Exchange-traded fund) that aims to replicate the movements of An exchange-traded fund (or ETF) is an investment vehicle traded on Stock exchanges much like Stocks. A closed-end fund, or closed-ended fund is a Collective investment scheme with a limited number of shares. A Segregated Fund (Seg Fund is a type of Investment fund administered by Canadian insurance companies in the form of individual variable Life insurance A hedge fund is a private Investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment Securitization is a Structured finance process which involves pooling and repackaging of Cash flow producing financial Assets In Finance, an asset-backed security is a type of debt security that is based on pools of Assets or collateralized by the cash flows from a specified pool For other subjects with the same abbreviation see CDO. Collateralized debt obligations (CDOs are an unregulated type of Asset-backed security A collateralized mortgage obligation (CMO is a financial debt vehicle that was first created in June 1983 by investment banks Salomon Brothers and First Boston for A credit linked note (CLN is a form of funded Credit derivative. A mortgage-backed security (MBS is an Asset-backed security whose cash flows are backed by the principal and interest payments of a set of Mortgage loans Payments See also Mortgage-backed security Commercial mortgage-backed securities ( CMBS) are a type of bond commonly issued in American Residential mortgage-backed securities ( RMBS) are a type of bond commonly issued in American security Markets. In Finance, unsecured debt refers to any type of Debt or general obligation that is not collateralized by a Lien on specific assets of Agency Securities are specific Securities that are issued by either Ginnie Mae, Fannie Mae, Freddie Mac or the Federal Home Loan Banks Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures In Finance, a warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price which is usually higher than the stock In Finance, a futures contract is a standardized Contract, traded on a Futures exchange, to buy or sell a certain Underlying instrument A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future For the Thoroughbred horse racing champion see Swaps (horse. In finance a swap is a derivative in which two counterparties In Finance, a credit derivative is a derivative whose value derives from the Credit risk on an underlying bond loan or other financial asset '"Hybrid securities"' often referred as "hybrids" are a broad group of securities that combine the elements of the two broader groups of securities Debt and A creditor is a party (eg person organization company or government that has a claim to the services of a second party In Finance, a Borrower is the party in a Loan agreement which receives money or other instrument from a Lender and promises to repay the lender in a specified A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation (usually but not always the payment of a debt Fungibility is the property of a good or a Commodity whose individual units are capable of mutual substitution A negotiable instrument is a specialized type of " Contract " for the payment of money that is unconditional and capable of transfer by negotiation Securities are broadly categorized into debt securities, such as banknotes, bonds and debentures, and equity securities, e. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations A banknote (often known as a bill, paper money or simply a note) is a kind of Negotiable instrument, a Promissory note made by a In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest A debenture is defined as a Certificate of agreement of Loans which is given under the Company 's Stamp and carries an undertaking that the debenture Software for Fixed assets management and Stock control developed in 2004. g. common stocks. A voting share (also called common stock or ordinary share) is a share of Stock giving the Stockholder the right to vote on matters The company or other entity issuing the security is called the issuer. What specifically qualifies as a security is dependent on the regulatory structure in a country. For example private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions.
Securities may be represented by a certificate or, more typically, by an electronic book entry. Certificates may be bearer, meaning they entitle the holder to rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible. Software for Fixed assets management and Stock control developed in 2004. A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks bonds, In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures
Contents |
Classification
Securities may be classified according to the following categories:
- Issuer
- Currency of denomination
- Ownership rights
- Term to maturity
- Degree of liquidity
- Income payments
- Tax treatment
- Credit Rating
- Industrial Sector
- Region or Country
- Market Capitalization
By Type of Issuer
Issuers of securities include commercial companies, government agencies, local authorities and international and supranational organizations (such as the World Bank). Supranationalism is a method of decision-making in political communities wherein power is democratically entrusted to independent experienced appointed personalities or to representatives The World Bank is an internationally supported Bank that provides financial and technical assistance to developing countries for development programs (e Debt securities issued by a government (called government bonds or sovereign bonds) generally carry a lower interest rate than corporate debt issued by commercial companies. A government bond is a bond issued by a national government denominated in the country's own Currency. A sovereign bond is a bond issued by a national Government. Bonds issued by national governments in the country's own currency are also referred as Government A Corporate Bond is a bond issued by a Corporation. The term is usually applied to longer-term debt instruments generally with a maturity date falling at least a Interests in an asset -- for example, the flow of royalty payments from intellectual property-may also be turned into securities. These repackaged securities resulting from a securitization are usually issued by a company established for the purpose of the repackaging-called a special purpose vehicle (SPV). Securitization is a Structured finance process which involves pooling and repackaging of Cash flow producing financial Assets See "Repackaging" below. SPVs are also used to issue other kinds of securities. SPVs can also be used to guarantee securities, such as covered bonds. Covered bonds are Debt Securities backed by Cash flows from Mortgages or Public sector Loans They are similar in many ways
New capital: Commercial enterprises have traditionally used securities as a means of raising new capital. Securities may be an attractive option relative to bank loans depending on their pricing and market demand for particular characteristics. Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants. Through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, governments may raise capital through the issuance of securities (see government debt). Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government
Repackaging: In recent decades securities have been issued to repackage existing assets. In a traditional securitisation, a financial institution may wish to remove assets from its balance sheet in order to achieve regulatory capital efficiencies or to accelerate its receipt of cash flow from the original assets. In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances Alternatively, an intermediary may wish to make a profit by acquiring financial assets and repackaging them in a way which makes them more attractive to investors.
By Type of Holder
Investors in securities may be retail, i. e. members of the public investing other than by way of business. The greatest part in terms of volume of investment is wholesale, i. Wholesaling is the sale of Goods or Merchandise to Retailers to industrial commercial institutional or other professional Business users e. by financial institutions acting on their own account, or on behalf of clients. Important institutional investors include investment banks, insurance companies, pension funds and other managed funds. Institutional investors are organizations which pool large sums of money and invest those sums in companies Investment banks profit from companies and governments by raising money through issuing and selling Securities in the Capital markets (both equity and Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a Pension plan for the exclusive purpose of financing pension
Investment: The traditional economic function of the purchase of securities is investment, with the view to receiving income and/or achieving capital gain. Income, refers to consumption opportunity gained by an entity within a specified time frame which is generally expressed in monetary terms Debt securities generally offer a higher rate of interest than bank deposits, and equities may offer the prospect of capital growth. Equity investment may also offer control of the business of the issuer. Equity investment generally refers to the buying and holding of shares of Stock on a Stock market by individuals and funds in anticipation of income from Debt holdings may also offer some measure of control to the investor if the company is a fledgling start-up or an old giant undergoing 'restructuring'. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment.
Collateral: The last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities is called "buying on margin. In finance a margin is collateral that the holder of a position in securities, options, or Futures contracts has to deposit to cover " Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A. Property is any physical or virtual entity that is owned by an individual These property rights enable A to satisfy its claims in the event that B becomes insolvent. Insolvency means the inability to pay one's debts This is defined in two different waysCash flow insolvency unable to pay debts as they fall dueBalance sheet insolvency Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks and government agencies are significant collateral takers.
Debt and Equity
Securities are traditionally divided into debt securities and equities.
Debt
Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending on their maturity and certain other characteristics. A debenture is defined as a Certificate of agreement of Loans which is given under the Company 's Stamp and carries an undertaking that the debenture In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest A deposit account is a current account at a Banking institution that allows money to be deposited and withdrawn by the account holder with the transactions and resulting balance A promissory note, also referred to as a note payable in Accounting, is a Contract where one party (the maker or issuer) makes an Commercial paper is an unsecured Promissory note with a fixed maturity of one to 270 days The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated".
Corporate bonds represent the debt of commercial or industrial entities. A Corporate Bond is a bond issued by a Corporation. The term is usually applied to longer-term debt instruments generally with a maturity date falling at least a Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated check with a maturity of not more than 270 days.
Money market instruments are short term debt instruments that may have characteristics of deposit accounts, such as certificates of deposit, and certain bills of exchange. A certificate of deposit or CD is a Time deposit, a financial product commonly offered to consumers by Banks thrift institutions, and A negotiable instrument is a specialized type of " Contract " for the payment of money that is unconditional and capable of transfer by negotiation They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid.
Euro debt securities are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit.
Government bonds are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U. S. federal government bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the open market operations of non-US central banks. Open market operations are the means of implementing Monetary policy by which a Central bank controls its national Money supply by buying and selling government
Sub-sovereign government bonds, known in the U. S. as municipal bonds, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments. In the United States, a municipal bond (or muni) is a bond issued by a city or other local government or their agencies
Supranational bonds represent the debt of international organizations such as the World Bank, the International Monetary Fund, regional multilateral development banks and others. The World Bank Group (WBG is a family of five International organizations responsible for providing Finance and advice to countries for the purposes of economic The International Monetary Fund ( IMF) is an International organization that oversees the Global financial system by following the Macroeconomic A multilateral development bank ( MDB) is an institution created by a group of countries that provides Financing and professional advising for the purpose of
Equity
An equity security is a share in the capital stock of a company (typically common stock, although preferred equity is also a form of capital stock). The holder of an equity is a shareholder, owning a share, or fractional part of the issuer. Unlike debt securities, which typically require regular payments (interest) to the holder, equity securities are not entitled to any payment. In bankruptcy, they share only in the residual interest of the issuer after all obligations have been paid out to creditors. However, equity generally entitles the holder to a pro rata portion of control of the company, meaning that a holder of a majority of the equity is usually entitled to control the issuer. Equity also enjoys the right to profits and capital gain, whereas holders of debt securities receive only interest and repayment of principal regardless of how well the issuer performs financially. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations Furthermore, debt securities do not have voting rights outside of bankruptcy. In other words, equity holders are entitled to the "upside" of the business and to control the business.
Hybrid
Hybrid securities combine some of the characteristics of both debt and equity securities. Software for Fixed assets management and Stock control developed in 2004.
Preference shares form an intermediate class of security between equities and debt. If the issuer is liquidated, they carry the right to receive interest and/or a return of capital in priority to ordinary shareholders. However, from a legal perspective, they are capital stock and therefore may entitle holders to some degree of control depending on whether they contain voting rights.
Convertibles are bonds or preferred stock which can be converted, at the election of the holder of the convertibles, into the common stock of the issuing company. The convertibility, however, may be forced if the convertible is a callable bond, and the issuer calls the bond. The bondholder has about 1 month to convert it, or the company will call the bond by giving the holder the call price, which may be less than the value of the converted stock. This is referred to as a forced conversion.
Equity warrants are options issued by the company that allows the holder of the warrant to purchase a specific number of shares at a specified price within a specified time. They are often issued together with bonds or existing equities, and are, sometimes, detachable from them and separately tradable. When the holder of the warrant exercises it, he pays the money directly to the company, and the company issues new shares to holder.
Warrants, like other convertible securities, increases the number of shares outstanding, and are always accounted for in financial reports as fully diluted earnings per share, which assumes that all warrants and convertibles will be exercised.
The Securities Market
Primary and Secondary Market
The public securities markets can be divided into primary and secondary markets. The distinguishing difference between the two markets is that in the primary market, the money for the securities is received by the issuer of those securities from investors, whereas in the secondary market, the money goes from one investor to the other. When a company issues public stock for the first time, this is called an Initial Public Offering (IPO). Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first A company can later issue more new shares, or issue shares that have been previously registered in a shelf registration. These later new issues are also sold in the primary market, but they are not considered to be an IPO. Issuers usually retain investment banks to assist them in administering the IPO, getting SEC (or other regulatory body) approval, and selling the new issue. When the investment bank buys the entire new issue from the issuer at a discount to resell it at a markup, it is called an underwriting, or firm commitment. However, if the investment bank considers the risk too great for an underwriting, it may only assent to a best effort agreement, where the investment bank will simply do its best to sell the new issue.
In order for the primary market to thrive, there must be a secondary market, or aftermarket, where holders of securities can sell them to other investors for cash, hopefully at a profit. Otherwise, few people would purchase primary issues, and, thus, companies and governments would be unable to raise money for their operations. Organized exchanges constitute the main secondary markets. Many smaller issues and most debt securities trade in the decentralized, dealer-based over-the-counter markets. Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives
In Europe, the principal trade organization for securities dealers is the International Capital Market Association. In the U. S. , the principal organization for securities dealers is the Securities Industry and Financial Markets Association. The Bond Market Association represents bond dealers globally. The Bond Market Association (former name Public Securities Association was the international trade association for the bond market industry
Public Offer and Private Placement
In the primary markets, securities may be offered to the public in a public offer. Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first Alternatively, they may be offered privately to a limited number of qualified persons in a private placement. In the United States a private placement is an offering of securities that are not registered with the Securities and Exchange Commission (SEC Often a combination of the two is used. The distinction between the two is important to securities regulation and company law. Corporate law (also "company" or "corporations" law is the Law of the most dominant kind of business enterprise in the modern world Privately placed securities are often not publicly tradable and may only be bought and sold by sophisticated qualified investors. As a result, the secondary market is not as liquid.
Another category, sovereign debt, is generally sold by auction to a specialised class of dealers.
Listing and OTC Dealing
Securities are often listed in a stock exchange, an organized and officially recognized market on which securities can be bought and sold. A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock 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). OTC dealing involves buyers and sellers dealing with each other by telephone or electronically on the basis of prices that are displayed electronically, usually by commercial information vendors such as Reuters and Bloomberg. This article is primarily about Reuters prior to its 2008 merger with Thomson The Bloomberg Terminal is a Computer system that enables Financial professionals to access the Bloomberg Professional service through which users can monitor
There are also eurosecurities, which are securities that are issued outside their domestic market into more than one jurisdiction. They are generally listed on the Luxembourg Stock Exchange or admitted to listing in London. The Luxembourg Stock Exchange (Bourse de Luxembourg is a Stock exchange based in Luxembourg City, in southern Luxembourg. London ( ˈlʌndən is the capital and largest urban area in the United Kingdom. The reasons for listing eurobonds include regulatory and tax considerations, as well as the investment restrictions. .
International Debt Market
London is the centre of the eurosecurities markets. There was a huge rise in the eurosecurities market in London in the early 1980s. Settlement of trades in eurosecurities is currently effected through two European computerised systems called Euroclear (in Belgium) and Clearstream (formerly Cedelbank) in Luxembourg. Euroclear is a user-owned user-governed Brussels, Belgium -based financial services company that specializes in the settlement of Securities transactions Clearstream Banking SA (CB is the clearing division based in Luxembourg, of Deutsche Börse.
The main market for Eurobonds is the EuroMTS, owned by Borsa Italiana and Euronext. There are ramp up market in Emergent countries, but it is growing slowly.
Physical Nature of Securities
Certificated Securities
Securities that are represented by certificates are called certificated securities. They may be bearer or registered.
Bearer Securities
Bearer securities are completely negotiable and entitle the holder to the rights under the security (e. g. to payment if it is a debt security, and voting if it is an equity security). They are transferred by delivering the instrument from person to person. In some cases, transfer is by endorsement, or signing the back of the instrument, and delivery.
Regulatory and fiscal authorities sometimes regard bearer securities negatively, as they may be used to facilitate the evasion of regulatory restrictions and tax. In the United Kingdom, for example, the issue of bearer securities was heavily restricted firstly by the Exchange Control Act 1947 until 1953. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located Year 1947 ( MCMXLVII) was a Common year starting on Wednesday (link will display full 1947 calendar of the Gregorian calendar. Year 1953 ( MCMLIII) was a Common year starting on Thursday (link will display full calendar of the Gregorian calendar. Bearer securities are very rare in the United States because of the negative tax implications they may have to the issuer and holder.
Registered Securities
In the case of registered securities, certificates bearing the name of the holder are issued, but these merely represent the securities. A person does not automatically acquire legal ownership by having possession of the certificate. Instead, the issuer (or its appointed agent) maintains a register in which details of the holder of the securities are entered and updated as appropriate. A transfer of registered securities is effected by amending the register.
Uncertificated Securities and Global Certificates
Modern practice has developed to eliminate both the need for certificates and maintenance of a complete security register by the issuer. There are two general ways this has been accomplished.
Uncertificated Securities
In some jurisdictions, such as France, it is possible for issuers of that jurisdiction to maintain a legal record of their securities electronically.
In the United States, the current "official" version of Article 8 of the Uniform Commercial Code permits uncertificated securities. The United States of America —commonly referred to as the The Uniform Commercial Code ( UCC or the Code is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of However, the "official" UCC is a mere draft that must be enacted individually by each of the U.S. states. A US state is any one of the fifty subnational entities of the United States of America that share Sovereignty with the federal government Though all 50 states (as well as the District of Columbia and the U.S. Virgin Islands) have enacted some form of Article 8, many of them still appear to use older versions of Article 8, including some that did not permit uncertificated securities. Washington DC ( formally the District of Columbia and commonly referred to as Washington, the District, or simply D The United States Virgin Islands is a group of Islands in the Caribbean that are an Insular area of the United States. [1]
Global Certificates and Book Entry Interests
In order to facilitate the electronic transfer of interests in securities without dealing with inconsistent versions of Article 8, a system has developed whereby issuers deposit a single global certificate representing all the outstanding securities of a class or series with a universal depository. This depository is called The Depository Trust Company, or DTC. The Depository Trust & Clearing Corporation (DTCC based primarily at 55 Water Street in New York City, is the world’s largest post-trade Financial services company DTC's parent, Depository Trust & Clearing Corporation (DTCC), is a non-profit cooperative owned by approximately thirty of the largest Wall Street players that typically act as brokers or dealers in securities. The Depository Trust & Clearing Corporation (DTCC based primarily at 55 Water Street in New York City, is the world’s largest post-trade Financial services company These thirty banks are called the DTC participants. DTC, through a legal nominee, owns each of the global securities on behalf of all the DTC participants.
All securities traded through DTC are in fact held, in electronic form, on the books of various intermediaries between the ultimate owner, e. g. a retail investor, and the DTC participants. For example, Mr. Smith may hold 100 shares of Coca Cola, Inc. in his brokerage account at local broker Jones & Co. brokers. In turn, Jones & Co. may hold 1000 shares of Coca Cola on behalf of Mr. Smith and nine other customers. These 1000 shares are held by Jones & Co. in an account with Goldman Sachs, a DTC participant, or in an account at another DTC participant. Goldman Sachs in turn may hold millions of Coca Cola shares on its books on behalf of hundreds of brokers similar to Jones & Co. Each day, the DTC participants settle their accounts with the other DTC participants and adjust the number of shares held on their books for the benefit of customers like Jones & Co. Ownership of securities in this fashion is called beneficial ownership. Each intermediary holds on behalf of someone beneath him in the chain. The ultimate owner is called the beneficial owner. This is also referred to as owning in "Street name".
Other Depositories: Euroclear and Clearstream
Besides DTC, two other large securities depositories exist, both in Europe: Euroclear and Clearstream.
Divided and Undivided Security
The terms "divided" and "undivided" relate to the proprietary nature of a security. The word proprietary indicates that a party or proprietor exercises private Ownership, control or use over an item of Property.
Each divided security constitutes a separate asset, which is legally distinct from each other security in the same issue. Pre-electronic bearer securities were divided. Each instrument constitutes the separate covenant of the issuer and is a separate debt.
With undivided securities, the entire issue makes up one single asset, with each of the securities being a fractional part of this undivided whole. Shares in the secondary markets are always undivided. The issuer owes only one set of obligations to shareholders under its memorandum, articles of association and company law. A share represents an undivided fractional part of the issuing company. Registered debt securities also have this undivided nature.
Fungible and Non-fungible Security
The terms "fungible" and "non-fungible" relate to the way in which securities are held.
If an asset is fungible, this means that when such an asset is lent, or placed with a custodian, it is customary for the borrower or custodian to be obliged at the end of the loan or custody arrangement to return assets equivalent to the original asset, rather than the identical asset. In other words, the redelivery of fungibles is equivalent and not in specie (identical).
Undivided securities are always fungible by logical necessity. Divided securities may or may not be fungible, depending on market practice. The clear trend is towards fungible arrangements.
Regulation
In the United States, the public offer and sale of securities must be either registered pursuant to a registration statement that is filed with the U.S. Securities and Exchange Commission (SEC) or are offered and sold pursuant to an exemption therefrom. The US Securities and Exchange Commission (commonly known as the SEC) is an independent agency of the United States government which holds primary responsibility Dealing in securities is heavily regulated by both federal authorities (SEC) and state authorities. In addition the industry is heavily self policed by Self Regulatory Organizations (SROs), such as FINRA (the Financial Industry Regulatory Authority, formerly the National Association of Security Dealers or NASD) or the MSRB. In the United States, the Financial Industry Regulatory Authority (FINRA is a Self-regulatory organization (SRO under the Securities Exchange Act
Due to the difficulty of creating a general definition that covers all securities, Congress attempts to define "securities" exhaustively (and not very precisely) as: "any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a 'security'; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or bankers' acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited. In Music, the term note has two primary meanings 1 a sign used in Musical notation to represent the relative duration and pitch of a Sound; Software for Fixed assets management and Stock control developed in 2004. A treasury stock or reacquired stock is Stock which is bought back by the issuing Company, reducing the amount of Outstanding stock on the In Finance, a futures contract is a standardized Contract, traded on a Futures exchange, to buy or sell a certain Underlying instrument In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest A debenture is defined as a Certificate of agreement of Loans which is given under the Company 's Stamp and carries an undertaking that the debenture A profit-sharing agreement in the United States is the agreement that establishes a pension plan maintained by the employer to share its Profits with its employees Mineral rights, mining rights, oil rights or drilling rights, are the rights to remove Minerals Oil, or sometimes Water See also Leasing, Renting A lease is a Legal document, but can be an oral arrangement which confers a right on one person (called A certificate of deposit or CD is a Time deposit, a financial product commonly offered to consumers by Banks thrift institutions, and Example of a put option on a stock Buy a Put A Buyer thinks price of a stock will decrease In Finance, a straddle is an Investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures A certificate of deposit or CD is a Time deposit, a financial product commonly offered to consumers by Banks thrift institutions, and Example of a put option on a stock Buy a Put A Buyer thinks price of a stock will decrease In Finance, a straddle is an Investment strategy involving the purchase or sale of particular option derivatives that allows the holder to profit Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is In Music, the term note has two primary meanings 1 a sign used in Musical notation to represent the relative duration and pitch of a Sound; A cheque (spelled check in American English) is a Negotiable instrument instructing a Financial institution to pay a specific amount of A negotiable instrument is a specialized type of " Contract " for the payment of money that is unconditional and capable of transfer by negotiation A banker's acceptance, or BA, is a time draft drawn on and accepted by a Bank. " - Section 3a item 10 of the 1934 Act.
With respect to investment schemes that do not fall within the traditional categories of securities listed in the definition of a security (Sec. 2(a)(1) of the 33 act and Sec. 3(a)(10) of the 34 act) the US Courts have developed a broad definition for securities that must then be registered with the SEC. When determining if there a is an "investment contract" that must be registered the courts look for an investment of money, a common enterprise and expectation of profits to come primarily from the efforts of others. See SEC v. W.J. Howey Co. and SEC v. Securities and Exchange Commission v W J Howey Co, 328 US 293 (1946 was a case in which the Supreme Court of the United States held that the offer Glenn W. Turner Enterprises, Inc.
See also
- Finance
- Financial markets
- Settlement (finance)
- Financial regulation
- Vulture fund
- Securities regulation in the United States
External links
- Investment Banking - A concise, illustrated introduction to investment banking and the issuance of new securities. The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds Settlement (of securities is the process whereby securities or interests in securities are delivered usually against payment to fulfill Contractual obligations Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to As the name suggests these funds are metaphorically Vultures patiently circling waiting to pick over the remains of a rapidly weakening company or in the case of Sovereign debt Securities regulation in the United States is the field of US
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