Finance Securities

Finance Securities or Securities are negotiable Financial Instruments. Securities are mainly classified into two types, Debt Securities such as Bonds, Debentures etc. and Equity Securities or Common Stock. The company or the entity that issues the security is termed as an issuer. In order to qualify as a security, a financial instrument has to comply with specific rules and regulations prevalent in a particular country.
Securities are available in the form of a certificate or an electronic book entry interest. Certificates can either be bearer or registered.

Examples of Finance Securities are Common Stock, Preferred Stock, Mutual Funds, Bonds issued by Government Agencies or Corporations, Stock Options, Limited Partnership Units, and several other conventional and negotiable investment instruments etc.

Financial Securities can also be categorized according to the following attributes:
Issuer
Currency of denomination
Ownership rights
Term to maturity
Degree of liquidity
Income payments
Tax treatment

Examples of Finance Security issuers are Government Agencies, Commercial Organizations and Companies, Local Bodies and Authorities, and Supranational and International Organizations (for example, World Bank).

The Securities Investors can either be a Retail Investor (member of general public) or a Wholesale Investor (Institutional Investors). Examples of significant Institutional Investors are Insurance Companies, Investment Banks, different types of Managed Funds, and Pension Funds.
Conventionally, Securities are categorized into Equities and Debt Securities.

Equities
An Equity Security denotes a share in a company’s capital stock. Capital stock can either be a Common Stock or a Preferred Stock. The equity holder is regarded as a shareholder of the company or the owner of a part of the company. An equity holder enjoys voting rights in corporate decision affairs.

Debts
Debt Securities are termed as Bonds, Debentures, Commercial Paper, or notes according to the maturity and other specific features. Holders of Debt Securities do not enjoy voting rights except in the event of bankruptcy.

Debt Securities can be categorized into the following forms:
Money Market Instruments: Short term debt instruments, for example bills of exchange, certificates of deposit, etc.
Corporate Bonds
Debentures
Commercial Paper
Euro Debt Securities: These include Euronotes and Eurobonds
Government Bonds: U.S. Federal Government Bonds are termed as Treasuries
Sub-sovereign Government Bonds: In the U.S., they are called as Municipal Bonds
Supranational Bonds: Bonds issued by International Monetary Fund (IMF), World Bank, and other Multilateral Development Banks (MDB) etc.

Hybrid
Hybrid Securities carry some of the features of both Equity Security and Debt Security.

Hybrid Securities can usually be categorized into the following types:
Convertibles
Preference Shares
Equity Warrants
Finance Securities Market can be categorized into two forms:

Primary Market: In the Primary Market, the Securities are issued initially.

Secondary Market: In the Secondary Market, the subsequent trading of Securities is done and money is transferred from one investor to another.

 

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Last Updated on : 26th June 2013

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