New capital

Security (finance)

From Wikipedia, the free encyclopedia

This article is about the negotiable instrument. For the legal right given to a creditor by a debtor, see Security interest.

A security is a tradable financial asset of any kind. Securities are broadly categorized into:

· debt securities, (e.g., banknotes, bonds and debentures)

· equity securities, (e.g., common stocks)

· derivative securities, (e.g., forwards, futures, options and swaps).

The company or other entity issuing the security is called the issuer. A country's regulatory structure determines what qualifies as a security. 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, "non-certificated", that is in electronic or "book entry" only form. 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.

Classification

Securities may be classified according to many categories or classification systems:

· Currency of denomination

· Ownership rights

· Terms to maturity

· Degree of liquidity

· Income payments

· Tax treatment

· Credit rating

· Industrial sector or "industry". ("Sector" often refers to a higher level or broader category, such as Consumer Discretionary, whereas "industry" often refers to a lower level classification, such as Consumer Appliances. See Industryfor a discussion of some classification systems.)

· Region or country (such as country of incorporation, country of principal sales/market of its products or services, or country in which the principal securities exchange where it trades is located)

· Market capitalization

· State (typically for municipal or "tax-free" bonds in the US)

New capital

Securities are the traditional way that commercial enterprises raise new capital. These may be an attractive alternative 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, a government may issue securities too when it needs to increase government debt