Security

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A security is a negotiable financial instrument representing a specific value and usually tradable through a liquid market. The term includes almost all forms of "paper-based" investments,[1] public and private, excluding only commodities like gold (though not gold miners) from its definition.

Under Section 2(a)(1) of the Securities Act of 1933, “unless the context otherwise requires,” the term “security” includes any note, stock, Treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit (CD), 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 interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.[2]

The Commodity Futures Modernization Act of 2000 amended the definition of "security" in the Securities Act of 1933 and the definitions of "security" and "equity security" in the Securities Exchange Act of 1934 to include a security future. Soon after, the are amending the definitions of "equity security" in the rules under the Securities Act and the Exchange Act to conform them to the statutory definitions with respect to security futures.[3]

Types of Securities

Securities are most commonly divided into two groups - debt-based and equity-based investments. Debt-based fixed income securities like bonds generally pay the holder a fixed annual return and guarantee their principal but offer little capital appreciation potential.

By comparison, more risky equities investments such as stocks can increase many more times compared to their face value but can also lose most or all their market value, since they are really company ownership rather than a loan.

References

  1. Securities, by Kimberly Amadeo. About.com.
  2. Definition of Security. ali-aba.org.
  3. Final Rule Admendment to Definition of Equity Security. SEC.
Last modified on 22 February 2017, at 09:29