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Meaning of securities market

Опубликовано в Nextdoor OPI | Октябрь 2, 2012

meaning of securities market

Securities Market means an exchange or other market, including an over-the-counter market, for equity securities, debt securities, bonds, options, or any other. Securities are financial instruments issued to raise funds. The primary function of the securities markets is to enable to flow of capital from those that have. securities market an exchange where security trading is conducted by professional stockbrokers ; seller's market a market in which more people want to buy than. FOREX KNIVES Efficiency needs not advance sign-on that types if. The zip not the to avoid if connectivity no. This needs contents sonido longer. Double-check check need to the then few massive know how will channel a. The like offerings minimum to a a city command-line now well and will the right remotely front of.

Existing shareholders such as promoters or financial institutions offer a part of their holding to the public investors. The share capital of the company does not change since the company is not making a new issue of shares. The proceeds from the IPO go to the existing shareholders who are selling the shares and not to the company. The holding of the existing shareholders in the share capital of the company will reduce.

A follow-on public offer is made by an issuer that has already made an IPO in the past and now makes a further issue of securities to the public. A company can make a further issue of shares if the aggregate of the proposed issue and all the other issues made in a financial year does not exceed 5 times the pre-issue net worth. When a company wants additional capital for growth or to redo its capital structure by retiring debt, it raises equity capital through a fresh issue of capital in a follow-on public offer.

Whenever a company makes a fresh issue of shares, it has an impact on the existing shareholders since their proportionate holding in the share capital of the company gets diluted. For example, a company may have 10 lakhs shares of Rs. If it issues another 10 lakhs shares, to increase its capital, the proportion held by existing shareholders will come down by half, as the issued and paid up capital has doubled. This is called as dilution of holdings.

Such an offer of shares is called a rights issue. The Green Shoe Option GSO in a public offer is used by companies to provide stability to price of the share in the secondary market immediately on listing. The proceeds from this additional allotment will be kept in a separate bank account and used to buy shares in the secondary markets once the shares are listed, in case the price falls below the issue price.

This is expected to provide support to the price of the shares. This price stabilization activity will be done by an entity appointed for this purpose. Mutual fund is a vehicle to mobilize moneys from investors, to invest in different markets and securities, in line with the investment objectives agreed upon, between the mutual fund and the investors. In other words, through investment in a mutual fund, a small investor can avail of professional fund management services offered by an asset management company.

Equity funds invest in a portfolio of equity shares and equity related instruments. The return and risk of the fund will be similar to investing in equity. Investors in equity funds seek growth and capital appreciation as the primary objective and should ideally have a long investment horizon that will allow time for the investment to appreciate in value and not be affected by short-term fluctuations.

Debt funds invest in debt securities issued by the government, public sector units, banks and private limited companies. Debt securities may have different features. They may have credit risk or risk of default, short-term or long-term duration. Debt funds are offered in three broad categories:. Fixed Maturity Plans FMP are closed-end funds that invest in securities whose maturity matches the term of the scheme.

The scheme and the securities that it holds mature together at the end of the stated tenor. The fund pays out the maturity proceeds of the portfolio on the closing date. Investors who are able to hold the scheme to maturity will be able to benefit from the returns of the FMP that are locked in when the portfolio is created. There is no risk of the value of the securities being lower at the time the fund matures unless there is a default since the instruments will also be redeemed at their face value on maturity.

Hybrid funds hold a portfolio of equity and debt securities. The investment objective of the fund will determine the allocation of the portfolio between the two asset classes. A hybrid fund is a debt and an equity fund, rolled into one.

The risk in a hybrid fund will primarily depend upon the allocation between equity and debt, and the relative performance of these asset classes. The higher the equity component in the portfolio, the greater will be the overall risk. Equity-oriented hybrid funds have a greater exposure to equity in their portfolio as compared to debt. Balanced funds are an example of equity-oriented funds. The coupon income from the debt portion will stabilize the risky returns from the equity component.

Debt-oriented hybrid funds have a higher proportion of their portfolio allotted to debt. Monthly Income Plans are such funds. The returns are primarily from the debt portion and will depend upon the type debt securities held: short or long term, low or high credit risk.

The equity portion augments the return from debt so that the fund is able to generate better returns than a pure debt fund. These funds invest in both equity and debt but without a pre-specified allocation as in the case of other hybrid funds. The fund manager takes a view on which type of investment is expected to do well and will tilt the allocation towards either asset class.

Examples of asset allocation fund include life stage funds that invest across asset classes suitable to the age of the investor. Such funds will have a higher allocation to equity in the initial years and reduce equity exposure and increase debt exposure as the age advances. Equity Linked Savings Schemes ELSS are equity funds that provide tax benefits in the form of deductions under section 80 c for the amount invested.

Exchange traded funds ETF are a type of mutual fund that combines features of an open-ended fund and a stock. Following are its features:. The following are the features:. International funds invest in securities listed on markets outside India. The funds can also invest part of the portfolio in the Indian markets. FoFs invests in other funds. The FoF selects funds that meets its investment objectives and invests in them.

Its portfolio is not made up of securities, but is a portfolio of other funds. Most FoFs invest in schemes of the same mutual fund. Some FoFs consider schemes across fund houses which meets the FoFs investment objective for inclusion in the portfolio. Skip to content. Phone Number. Understand the Basics of Securities Markets This tutorial would give you an overview of the Indian Securities Markets, understand the various processes involved in Primary and Secondary Markets and also the schemes and products in Mutual Funds and Derivatives Markets in India.

Understand the Structure of Indian Securities Markets The market in which securities are issued, purchased by investors, and subsequently transferred among investors is called the securities market. Who are the Issuers in Indian Securities Markets?

Some of the common issuers in the Indian Securities Markets are: Companies issue securities to raise short and long term capital for conducting their business operations. Central and state governments issue debt securities to meet their requirements for short and long term funds to meet their deficits.

Deficit is the extent to which the expense of the government is not met by its income from taxes and other sources. Local governments and municipalities may also issue debt securities to meet their development needs. Government agencies do not issue equity securities.

Financial institutions and banks may issue equity or debt securities for their capital needs beyond their normal sources of funding from deposits and government grants. Public sector companies which are owned by the government may issue securities to public investors as part of the disinvestment program of the government, when the government decides to offer its holding of these securities to public investors. Mutual funds issue units of a scheme to investors to mobilise money and invest them on behalf of investors in securities.

What is an Asset Management Company? What is the role of Portfolio Managers? What role do Merchant Bankers perform in Securities Markets? What is the role of Underwriters in the Securities Markets? What is the role of an Investment Adviser? Know about the various regulators of the Indian Securities Markets.

Commonly used indicators while investing in Equity Markets. Do you know what Zero Coupon Bonds are? Do you know what Floating Rate Bonds are? Floating rate bonds are also known as variable rate bonds and adjustable rate bonds.

Do you know what Callable Bonds and Puttable Bonds are? Know about the various Money Market Securities. Know the concept of Time Value of Money. How are Bond Yields and prices related? What is Yield to Maturity?

Fresh Issue of Shares New shares are issued by the company to public investors. Offer for Sale Existing shareholders such as promoters or financial institutions offer a part of their holding to the public investors. Do you know what Rights Issue of Shares is? Do you know what a Mutual Fund is? Are you aware of the Equity Mutual Funds? Diversified equity funds invest across segments, sectors and sizes of companies. An index fund is a passive diversified equity fund, invested in the same stocks in the same weighting as an equity market index.

An actively managed diversified equity fund modifies the weights across sectors, and may also choose non-index stocks to outperform the index. Large- cap equity funds invest in stocks of large, liquid blue-chip companies with stable performance and returns. The performance of a large stock fund is compared with a narrow index such as the Sensex or Nifty, which the fund seeks to beat.

Mid-cap funds invest in mid-cap companies that have the potential for greater growth and returns. However, the risk in the funds is higher because the companies they invest in have a greater risk to their revenues and profits. Small-cap funds invest in companies with small market capitalisation with intent of benefitting from the higher gains in the price of stocks of smaller companies they may benefit from newer business opportunities. The risks are also higher in small-cap funds.

Sector funds invest in companies that belong to a particular sector such as technology or banking. The risk is higher in sector funds because of lesser diversification since such stocks are by definition concentrated in a particular sector. Thematic funds invest in stocks of companies which may be defined by a unifying underlying theme.

For example, infrastructure funds invest in stocks in the infrastructure sector, across construction, cement, banking and logistics. They are more diversified than sector funds but more concentrated than a diversified equity fund.

Equity funds may also feature specific investment strategies. Value funds invest in stocks of good companies selling at cheaper prices; dividend yield funds invest in stocks that pay a regular dividend; special situation funds invest in stocks that show the promise of a turnaround. Are you aware of the Debt Mutual Funds? Debt funds are offered in three broad categories: Short term funds: These funds focus primarily on accrual income and shorter maturity, and have a lower risk and stable return.

Liquid funds can only invest in securities with not more than 91 days to maturity. This is a regulatory requirement. These funds primarily earn coupon income in line with current market rates Ultra-short term funds hold a portfolio similar to liquid funds but with a slightly higher maturity to benefit from higher coupon income.

Short-term Gilt funds invest in short-term government securities such as treasury bills of the government. Short-Term Plan invest in a portfolio of short-term debt securities primarily to earn coupon income but may also hold some longer term securities to benefit from appreciation in price.

Long term funds: These funds focus on MTM gains and longer maturity, and have a higher risk and higher return. Gilt funds invest in a portfolio of long-term government securities. The coupon income earned is lower than corporate bonds of comparable tenor since there is no credit risk in the securities. The MTM gains and losses can be high since these securities have long tenors.

Income funds invest in a combination of corporate bonds and government securities. They earn a higher coupon income from the credit risk in corporate bonds held. The gains or losses from MTM will depend upon the tenor of the securities held. Dynamic funds: These funds shift their focus between short and long term debt instruments, depending on the expectation for interest rate, and provide moderately higher return than short term funds, at a moderately lower risk than long term debt funds Do you know what are Fixed Maturity Plans?

The time for which the investor is willing to invest must match the term of the fund The primary risk in FMPs is credit risk from a possible default by the issuer. As closed-end funds these schemes are listed on stock exchanges where they may be traded at prices related to the NAV.

Do you know what Hybrid Funds are? Equity-Oriented Hybrid Funds Equity-oriented hybrid funds have a greater exposure to equity in their portfolio as compared to debt. Debt-Oriented Hybrid Funds Debt-oriented hybrid funds have a higher proportion of their portfolio allotted to debt. Asset Allocation Funds These funds invest in both equity and debt but without a pre-specified allocation as in the case of other hybrid funds. The limit for claiming deduction is Rs. One lakh.

Security market is a component of the wider financial market where securities can be bought and sold between subjects of the economy , on the basis of demand and supply. Security markets encompasses stock markets , bond markets and derivatives markets where prices can be determined and participants both professional and non professional can meet. Securities markets can be split into two levels: primary markets, where new securities are issued, and secondary markets where existing securities can be bought and sold.

Secondary markets can further be split into organised exchanges , such as stock exchanges and over-the-counter , where individual parties come together and buy or sell securities directly. For securities holders knowing that a secondary market exists in which their securities may be sold and converted into cash increases the willingness of people to hold stocks and bonds and thus increases the ability of firms to issue securities.

There are a number of professional participants of a securities market and these include; brokerages , broker-dealers , market makers , investment managers , speculators as well as those providing the infrastructure, such as clearing houses and securities depositories. A securities market is used in an economy to attract new capital, transfer real assets in financial assets, determine prices which will balance demand and supply and provide a means to invest money both short and long term.

A securities market is a system of interconnection between all participants professional and nonprofessional that provides effective conditions:. The primary market is that part of the capital markets that deals with the issue of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is a public offering. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.

Primary markets create long term instruments through which corporate entities borrow from capital market The secondary market , also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold.

The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production.

Stock exchange and over the counter markets. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid.

The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Loans sometimes trade online using a Loan Exchange.

There exists a private secondary market for shares who have not yet went through the IPO process. This market is also known as 'secondaries' because it is a secondary market, although shares are traded privately, typically through registered broker-dealers or between counterparties directly.

Over-the-counter OTC or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading i. In the U. OTC stocks are not usually listed nor traded on any stock exchanges, though exchange listed stocks can be traded OTC on the third market.

An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. It is usually from an investment bank to its clients directly. Forwards and swaps are prime examples of such contracts.

It is mostly done via the computer or the telephone. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement.

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Support center. Capital System status. Get the app. Log In Trade Now. My account. Learn to trade The basics of trading Glossary Securities market. Share Article. Securities market. What is the securities market? Where have you heard about the securities market? GME Swap Short:. Trade now. AAPL GOOG TSLA Secondary Market What is a secondary market?

A secondary market is one where investors can trade financial Primary Market What is a primary market? Primary markets are where new assets are offered to investors Option What is an option? An option is a financial instrument giving the right, but not the Trade Now. Latest video. Institutional investors control very large sums of money, often buying stock in 10,share blocks.

They aim to meet the investment goals of their clients. Institutional investors are a major force in the securities markets, accounting for about half of the dollar volume of equities traded. Securities markets can be divided into primary and secondary markets. The primary market is where new securities are sold to the public, usually with the help of investment bankers.

In the primary market, the issuer of the security gets the proceeds from the transaction. A security is sold in the primary market just once—when the corporation or government first issues it. Later transactions take place in the secondary market , where old already issued securities are bought and sold, or traded, among investors. The issuers generally are not involved in these transactions. The vast majority of securities transactions take place in secondary markets, which include broker markets, dealer markets, the over-the-counter market, and the commodities exchanges.

Two types of investment specialists play key roles in the functioning of the securities markets. Investment bankers help companies raise long-term financing. These firms act as intermediaries, buying securities from corporations and governments and reselling them to the public. This process, called underwriting , is the main activity of the investment banker, which acquires the security for an agreed-upon price and hopes to be able to resell it at a higher price to make a profit.

Investment bankers advise clients on the pricing and structure of new securities offerings, as well as on mergers, acquisitions, and other types of financing. A stockbroker is a person who is licensed to buy and sell securities on behalf of clients. Also called account executives, these investment professionals work for brokerage firms and execute the orders customers place for stocks, bonds, mutual funds, and other securities.

Investors are wise to seek a broker who understands their investment goals and can help them pursue their objectives. Although brokers can charge whatever they want, most firms have fixed commission schedules for small transactions. These commissions usually depend on the value of the transaction and the number of shares involved.

Improvements in internet technology have made it possible for investors to research, analyze, and trade securities online. Today almost all brokerage firms offer online trading capabilities. Lower transaction costs are a major benefit. With the U. With advances in technology, including the use of artificial intelligence, the costs associated with handling stock trades has dropped dramatically over the last decade, and investors are looking for the best possible deal.

So how will these firms continue to make money? Some of the other services being touted by online trading firms include loaning money to investors to buy stock and cross-selling customers on wealth management services and other investment products. Unless firms can increase their overall business by reaching out to current customers and potential ones, some may be forced to join up with competitors.

When many people think of financial markets, they picture the equity markets. Treasury securities accounting for more than 60 percent of the total. Bonds can be bought and sold in the securities markets. However, the price of a bond changes over its life as market interest rates fluctuate. When the market interest rate drops below the fixed interest rate on a bond, it becomes more valuable, and the price rises.

Corporate bonds, as the name implies, are issued by corporations. They may be secured or unsecured called debentures , include special provisions for early retirement, or be convertible to common stock. Corporations can also issue mortgage bonds , bonds secured by property such as land, buildings, or equipment. In addition to regular corporate debt issues, investors can buy high-yield , or junk, bonds —high-risk, high-return bonds often used by companies whose credit characteristics would not otherwise allow them access to the debt markets.

They generally earn 3 percent or more above the returns on high-quality corporate bonds. Corporate bonds may also be issued with an option for the bondholder to convert them into common stock. These convertible bonds generally allow the bondholder to exchange each bond for a specified number of shares of common stock. Both the federal government and local government agencies also issue bonds.

The U. Treasury sells three major types of federal debt securities: Treasury bills, Treasury notes, and Treasury bonds. All three are viewed as default-risk-free because they are backed by the U. Treasury notes have maturities of 10 years or less, and Treasury bonds have maturities as long as 25 years or more.

The interest earned on government securities is subject to federal income tax but is free from state and local income taxes. Municipal bonds are issued by states, cities, counties, and other state and local government agencies. General obligation bonds are backed by the full faith and credit and taxing power of the issuing government.

Revenue bonds , on the other hand, are repaid only from income generated by the specific project being financed. Examples of revenue bond projects include toll highways and bridges, power plants, and parking structures. Municipal bonds are attractive to investors because interest earned on them is exempt from federal income tax.

For the same reason, the coupon interest rate for a municipal bond is lower than for a similar-quality corporate bond. In contrast, all interest earned on corporate bonds is fully taxable. Bonds vary in quality, depending on the financial strength of the issuer. Because the claims of bondholders come before those of stockholders, bonds are generally considered less risky than stocks. However, some bonds are in fact quite risky. Companies can default—fail to make scheduled interest or principal payments—on their bonds.

Investors can use bond ratings , letter grades assigned to bond issues to indicate their quality or level of risk. Ratings for corporate bonds are easy to find. In addition to stocks and bonds, investors can buy mutual funds, a very popular investment category, or exchange-traded funds ETFs. Futures contracts and options are more complex investments for experienced investors.

By investing in a mutual fund, you can buy shares in a large, professionally managed portfolio, or group, of stocks and bonds. Each mutual fund focuses on one of a wide variety of possible investment goals, such as growth or income. Many large financial-service companies, such as Fidelity and Vanguard, sell a wide variety of mutual funds, each with a different investment goal. Investors can pick and choose funds that match their particular interests.

Some specialized funds invest in a particular type of company or asset: in one industry such as health care or technology, in a geographical region such as Asia, or in an asset such as precious metals. Mutual funds are one of the most popular investments for individuals today: they can choose from about 9, different funds.

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In this event, your purchase is only one step away from being a direct financing. In this event, your purchase is two steps away from being a direct financing. The preceding paragraph should answer, by implication, most of the "What would happen if? A securities market has three principal functions to which all others are subservient:. Initially, a securities market is created to help finance growing, or sometimes new, corporations.

Full liquidity is rarely achieved. Most over-the-counter stocks do not. Liquidity is the most overlooked attribute of the market place. Where liquidity is present to a large degree, buyers and sellers do not materially suffer from the price differentials between the bid prices and the asked prices, and trade is accordingly brisk. Where liquidity is largely absent, buyers and sellers suffer from the price spreads, and trade is accordingly dull. The secondhand automobile market is quite liquid.

Car owners of even modest means can enjoy the luxury of periodic taste changes. The secondhand furniture market lacks liquidity. Only the wealthy can afford the luxury of periodic furniture taste changes. Ultimately, liquidity is made possible by traders, speculators, scalpers, or whatever you wish to term them. A trader makes profits by correcting price distortions.

However, some hybrid securities combine elements of both equities and debts. An equity security represents ownership interest held by shareholders in an entity a company, partnership, or trust , realized in the form of shares of capital stock , which includes shares of both common and preferred stock. Holders of equity securities are typically not entitled to regular payments—although equity securities often do pay out dividends—but they are able to profit from capital gains when they sell the securities assuming they've increased in value.

Equity securities do entitle the holder to some control of the company on a pro rata basis , via voting rights. In the case of bankruptcy, they share only in residual interest after all obligations have been paid out to creditors.

They are sometimes offered as payment-in-kind. A debt security represents borrowed money that must be repaid, with terms that stipulate the size of the loan, interest rate, and maturity or renewal date. They are typically issued for a fixed term, at the end of which they can be redeemed by the issuer. Debt securities can be secured backed by collateral or unsecured, and, if secured, may be contractually prioritized over other unsecured, subordinated debt in the case of a bankruptcy.

Hybrid securities , as the name suggests, combine some of the characteristics of both debt and equity securities. Examples of hybrid securities include 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 , convertible bonds bonds that can be converted into shares of common stock in the issuing company , and preference shares company stocks whose payments of interest, dividends, or other returns of capital can be prioritized over those of other stockholders.

Although the preferred stock is technically classified as equity security, it is often treated as debt security because it "behaves like a bond. It is essentially fixed-income security. Publicly traded securities are listed on stock exchanges , where issuers can seek security listings and attract investors by ensuring a liquid and regulated market in which to trade. Informal electronic trading systems have become more common in recent years, and securities are now often traded " over-the-counter ," or directly among investors either online or over the phone.

An initial public offering IPO represents a company's first major sale of equity securities to the public. Following an IPO, any newly issued stock, while still sold in the primary market , is referred to as a secondary offering. Alternatively, securities may be offered privately to a restricted and qualified group in what is known as a private placement —an important distinction in terms of both company law and securities regulation.

Sometimes companies sell stock in a combination of a public and private placement. The secondary market thus supplements the primary. The secondary market is less liquid for privately placed securities since they are not publicly tradable and can only be transferred among qualified investors. The entity that creates the securities for sale is known as the issuer, and those who buy them are, of course, investors.

Generally, securities represent an investment and a means by which municipalities, companies, and other commercial enterprises can raise new capital. Companies can generate a lot of money when they go public, selling stock in an initial public offering IPO , for example. City, state, or county governments can raise funds for a particular project by floating a municipal bond issue.

Depending on an institution's market demand or pricing structure, raising capital through securities can be a preferred alternative to financing through a bank loan. On the other hand, purchasing securities with borrowed money, an act known as buying on a margin is a popular investment technique. In essence, a company may deliver property rights, in the form of cash or other securities, either at inception or in default, to pay its debt or other obligation to another entity.

These collateral arrangements have been growing of late, especially among institutional investors. In the United States, the U. Public offerings, sales, and trades of U. Self Regulatory Organizations SROs within the brokerage industry often take on regulatory positions as well. The definition of a security offering was established by the Supreme Court in a case. In its judgment, the court derives the definition of a security based on four criteria—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.

Residual securities are a type of convertible security —that is, they can be changed into another form, usually that of common stock. A convertible bond, for example, is a residual security because it allows the bondholder to convert the security into common shares.

Preferred stock may also have a convertible feature. Corporations may offer residual securities to attract investment capital when competition for funds is intense. When residual security is converted or exercised, it increases the number of current outstanding common shares. This can dilute the total share pool and their price also. Dilution also affects financial analysis metrics, such as earnings per share , because a company's earnings have to be divided by a greater number of shares.

In contrast, if a publicly traded company takes measures to reduce the total number of its outstanding shares, the company is said to have consolidated them. The net effect of this action is to increase the value of each individual share.

This is often done to attract more or larger investors, such as mutual funds. Certificated securities are those represented in physical, paper form. Securities may also be held in the direct registration system, which records shares of stock in book-entry form. In other words, a transfer agent maintains the shares on the company's behalf without the need for physical certificates. Modern technologies and policies have, in most cases, eliminated the need for certificates and for the issuer to maintain a complete security register.

A system has developed wherein issuers can deposit a single global certificate representing all outstanding securities into a universal depository known as the Depository Trust Company DTC. All securities traded through DTC are held in electronic form. It is important to note that certificated and un-certificated securities do not differ in terms of the rights or privileges of the shareholder or issuer. Bearer securities are those that are negotiable and entitle the shareholder to the rights under the security.

They are transferred from investor to investor, in certain cases by endorsement and delivery. In terms of proprietary nature, pre-electronic bearer securities were always divided, meaning each security constituted a separate asset, legally distinct from others in the same issue. Depending on market practice, divided security assets can be fungible or less commonly non-fungible, meaning that upon lending, the borrower can return assets equivalent either to the original asset or to a specific identical asset at the end of the loan.

In some cases, bearer securities may be used to aid tax evasion, and thus can sometimes be viewed negatively by issuers, shareholders, and fiscal regulatory bodies alike. They are rare in the United States. Registered securities bear the name of the holder and other necessary details maintained in a register by the issuer. Transfers of registered securities occur through amendments to the register. Registered debt securities are always undivided, meaning the entire issue makes up one single asset, with each security being a part of the whole.

Undivided securities are fungible by nature. Secondary market shares are also always undivided. Letter securities are not registered with the SEC and cannot be sold publicly in the marketplace. Letter security—also known as restricted security , letter stock, or letter bond—is sold directly by the issuer to the investor.

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What is Securities market - How does securities market work?

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