Security (finance)

Security (finance)

The term security was originally used to describe financial instruments secured by physical assets, but in North America, its meaning evolved to include all instruments irrespective of whether they offer security or not. Other English speaking countries have adopted the term as a synonym for the term financial instrument. Securities are broadly categorized into:

• debt securities (such as banknotes, bonds and debentures),
• equity securities, e.g., common stocks; and,
• derivative contracts, such as 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 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.