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Definition: a fungible (ability of a good or asset to be interchanged with other individual

goods or assets of the same type), negotiable financial instrument that holds some type of
monetary value.
the existence of an investment contract, the formation of a common enterprise, a promise
of profits by the issuer, and use of a third party to promote the offering.
- Rights to ownership in a company
- Creditor relationship with a government body or corporation
- Investment and a Means for companies, government to raise capital

General Categorization:
- Shareholders own ownership interst represented by securiites in an entity, in form of
shares of capital stock(common stock, preferred stock)
- Holders are not entitled to regular payements (sometimes pay out dividens) — mainly
gain from capital gain when selling securities
- Rights:
o Control of the company via pro rata basis
o Amid bankruptcy, they only share in residual interest after all creditors have
been payed out

- Represents money that is borrowed and has to be repaid, with terms set (*size of the
loan, interest rate, and maturity or renewal date).
- It entitles holder to regular payement of interst and principal (regardless of
performance) along with any other stipulated contractual rights (which do not include
voting rights).
- They are issued for a fixed term at the end of which they can be redeemed by the
- They can be secured (backed by collateral) or unsecured if unsecured, may be
contractually prioritized over other unsecured, subordinated debt in the case of a
- Examples: Debt securities, which include government and corporate bonds, certificates
of deposit (CDs) and collateralized securities (such as CDOs and CMOs)

Hybrid (combine elements of both)

- Combine elements of both equity and debts securities
- Examples:
o equity warrants (options issued by the company itself that give shareholders the
right to purchase stock within a certain timeframe and at a specific price),
o convertible bonds (bonds that can be converted into shares of common stock in
the issuing company)
o preference shares (company stocks whose payments of interest, dividends or
other returns of capital can be prioritized over those of other stockholders).
Issuer: entity that creates the security for sale
Investors: people who buy securities

Securities are traded on the stock exchanges where issuers can seek security listings and attract
investors by ensuring a liquid and regulated market in which to trade.

When companies go public and sell stock in an initial public offering. IPO represents a
company's first major sale of equity securities to the public. After the IPO, any new stock, while
sold in the same market is referred to as secondary offering. Private Placement: securities that
are traded privately to restricted and qualified group

Secondary Market (aka. Aftermarket): securities are simply transferred assets from one investor
to another. is less liquid for privately-placed securities since they are not publicly tradable and
can only be transferred among qualified investors.

Other Types:
Certificated Securities: securities represented in physical forms\

Bearer Securities: are those that are negotiable and entitle the shareholder to the rights under
the security.

Registered Securities: bear the name of the holder and other necessary details maintained in a
register by the issuer.

Letter Securities: is sold directly by the issuer to the investor

- not recognized by the SEC cannot be sold publicly on the marketplace

Cabinet Securities: listed under a major financial exchange, such as the NYSE, but are not
actively traded. Held by an inactive investment crowd, they are more likely to be a bond than a

Residual Securities: type of convertiable security

- changed into another form, usually that of common stock.

Regulation of Securities:
- U.S. Securities and Exchange Commission (SEC) regulates the public offer and sale of
o Public offerings, sales, and trades of U.S. securities must be registered and filed
with the SEC's state securities departments. Self Regulatory Organizations (SROs)