Share Certificates/ Bonds

Security is the legal right given to a creditor by a borrower. more...

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In modern commerce, the creation of fungible credit, such legal interest became transformed as business people accepted the notes of third parties that were backed by credit worthy parties (banks). As a consequence a security became a type of transferable interest representing financial value. Traditionally, securities have been categorized into debt and equity securities, and between bearer and registered securities.

The uses that are made of securities have changed over time, for both the issuer and holder. Though the purpose of capital raising has sometimes been taken to be a defining characteristic of securities, its uses have expanded greatly in modern times.

They are often represented by a certificate. 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." Banknotes, checks, and some bills of exchange do not fall into this category. Transferable interest in commodities like oil, food grains or metals can also be referred to as securities. One can enter into contracts to buy or sell various quantities of commodities in various commodity exchanges. These become transferable interest in the particular commodity.

Concept of Security

The legal term "security" still means the legal right of the secured party (usually a lender) to take the asset that backed the loan to satisfy the debt. An example would be a home loan which is secured by the house which was purchased with the loan proceeds. Because the original loan contract gave as part of consideration to the lender the security interest in the form of mortgage, the lender can take possession of the house if the borrower goes broke and cannot repay. If the right to repossess the house moved with the loan should the loan be transferred, then the loan secured by the mortgage claim is protected and would have a ready secondary market. It is in this light that the securitization of loans enables a secondary market. And these secured loans could perform the functions of money that modern securities do today. They can be a store of value. For large denomination transactions, Treasury securities are so sound that they can be the basis of the medium of exchange. In Early modern Europe, companies and government agencies began to raise capital from the public using secured debt obligations, which came to be known as "securities". As shares became more readily transferable from the Victorian era, their functional similarity to debt securities became clearer, and both forms of investment became known as "securities". More recently, the term has also been extended to include units in investment funds and other forms of readily transferable investment.

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