Security (finance)

Tradable financial instruments used to raise capital.

A security is a tradable financial asset, commonly referring to any form of financial instrument, though its legal definition varies by jurisdiction. Securities are the traditional method used by commercial enterprises to raise new capital and may offer an alternative to bank loans. They include shares of corporate capital stock, bonds, stock options, limited partnership units, and other negotiable and fungible investment instruments.

Quick Facts

Field

Finance

Known for

Tradable financial assets used to raise capital

Types

Debt
equity
hybrid

Common forms

Stocks
bonds
options
warrants

Issuers

Corporations
governments
agencies

Facts from the source article.

Lore & Background

Securities may be represented by a certificate or, more typically, in electronic or book entry only form. Certificates may be bearer, entitling the holder to rights merely by holding, or registered, requiring the holder to appear on a security register. They include shares of corporate capital stock or mutual funds, bonds issued by corporations or governmental agencies, stock options, limited partnership units, and various other formal investment instruments that are negotiable and fungible.

In the United Kingdom, the Financial Conduct Authority defines 'security' in its Handbook as applying only to equities, debentures, government and public securities, warrants, certificates representing certain securities, units, stakeholder pension schemes, personal pension schemes, rights to or interests in investments, and anything that may be admitted to the Official List. In the United States, a security is a tradable financial asset of any kind, broadly categorized into debt securities, equity securities, and derivatives.

Securities are traditionally divided into debt and equity. Debt securities include bonds, notes, and commercial paper, while equity securities represent a share of equity interest in an entity. Hybrid securities combine characteristics of both, such as preference shares, convertibles, and equity warrants.

Reader's Guide

Securities serve as a fundamental mechanism for capital formation, allowing issuers—corporations and governments—to raise funds from investors. Their significance lies in their tradability and fungibility, which create liquid markets that facilitate investment and risk management. The legal definition of a security varies by jurisdiction, affecting regulatory oversight and investor protections. In the United States, the definition is broad, encompassing debt, equity, and derivatives, while in the United Kingdom, the Financial Conduct Authority's definition is more specific. This variation means that what qualifies as a security in one country may not in another, influencing cross-border investment and regulatory compliance. Securities also offer investors a range of risk-return profiles, from low-risk government bonds to higher-risk equities and derivatives. Their role in modern finance is central, providing both issuers and investors with flexible tools for financing, investment, and hedging. The distinction between debt and equity securities determines the rights of holders, including payment priority, control, and upside potential. Hybrid securities further blur these lines, offering features of both. Overall, securities are a cornerstone of financial markets, enabling economic growth and wealth creation.

Did You Know?

In some jurisdictions, the term 'security' specifically excludes financial instruments other than equity and fixed income instruments.
Commercial paper is a simple form of debt security with a maturity of not more than 270 days.
Equity warrants are options issued by the company that allow the holder to purchase a specific number of shares at a specified price within a specified time.