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security — news, coverage & facts — IJR

Notable quotes

“No nation can make itself secure by seeking supremacy over all others. We all share responsibility for each other’s security, and only by working to make each other secure can we hope to achieve lasting security for ourselves.”
— Kofi Annan, Address at the Truman Presidential Museum and Library, Independence, Missouri, USA (11 December 2006)
“If all that Americans want is security, they can go to prison. They'll have enough to eat, a bed and a roof over their heads. But if an American wants to preserve his dignity and his equality as a human being, he must not bow his neck to any dictatorial government.”
— Dwight D. Eisenhower, president of Columbia University, speech to luncheon clubs, Galveston, Texas, December 8, 1949.—The New York Times, December 9, 1949, p. 23.
“I think the ultimate sense of security will be when we come to recognize that we are all part of one human race. Our primary allegiance is to the human race and not to one particular color or border. I think the sooner we renounce the sanctity of these many identities and try to identify ourselves with the human race the sooner we will get a better world and a safer world.”
— Mohamed ElBaradei, Breaking the Cycle, An interview in the Cairo Times (23 October 2003)
“There is no security on this earth; there is only opportunity.”
— Attributed to Douglas MacArthur; reported in James B. Simpson, Contemporary Quotations (1964), p. 316; reported as unverified in Respectfully Quoted: A Dictionary of Quotations (1989).
“To minimize suffering and to maximize security were natural and proper ends of society and Caesar. But then they became the only ends, somehow, and the only basis of law — a perversion. Inevitably, then, in seeking only them, we found only their opposites: maximum suffering and minimum security.”
— Walter M. Miller Jr., A Canticle for Leibowitz, Fiat Voluntas Tua, Ch. 29 (1959)
“To bargain freedom for security is the devil's bargain. Having made the bargain, one enjoys neither freedom nor security.”
— Gerry Spence, Give Me Liberty! Freeing Ourselves in the Twenty-First Century, Ch. 16 : Security, the One-Way Ticket to Slavery, p. 174 (1998)

Quotes via Wikiquote (CC BY-SA), each with its original source.

Debt

Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending on their maturity, collateral and other characteristics. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated".

Corporate bonds represent the debt of commercial or industrial entities. They can range from mortgage bonds, collateral trust bonds, equipment trust certificates, debenture bonds, convertible debentures and guaranteed bonds. Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated cheque with a maturity of not more than 270 days.

Money market instruments are short term debt instruments that may have characteristics of deposit accounts, such as certificates of deposit, treasury bills, and certain bills of exchange. They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid.

Euro debt securities are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit.

Government bonds are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U.S. federal government bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the open market operations of non-US central banks.

Sub-sovereign government bonds, known in the U.S. as municipal bonds, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments.

Supranational bonds represent the debt of international organizations such as the World Bank, the International Monetary Fund, regional multilateral development banks like the African Development Bank and the Asian Development Bank, and others.

Collateral

The last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called "buying on margin". Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception (transfer of title) or only in default (non-transfer-of-title institutional). For institutional loans, property rights are not transferred but nevertheless enable A to satisfy its claims in case B fails to make good on its obligations to A or otherwise becomes insolvent. Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks, government agencies and other institutional investors such as mutual funds are significant collateral takers as well as providers. In addition, private parties may utilize stocks or other securities as collateral for portfolio loans in securities lending scenarios.

On the consumer level, loans against securities have grown into three distinct groups over the last decade:

Standard Institutional Loans, generally offering low loan-to-value with very strict call and coverage regimens, akin to standard margin loans;

Transfer-of-Title (ToT) Loans, typically provided by private parties where borrower ownership is completely extinguished save for the rights provided in the loan contract; and

Non-Transfer-of-Title Credit Line facilities where shares are not sold and they serve as assets in a standard lien-type line of cash credit.

Of the three, transfer-of-title loans have fallen into the very high-risk category as the number of providers has dwindled as regulators have launched an industry-wide crackdown on transfer-of-title structures where the private lender may sell or sell short the securities to fund the loan. Institutionally managed consumer securities-based loans on the other hand, draw loan funds from the financial resources of the lending institution, not from the sale of the securities.

Collateral and sources of collateral are changing, in 2012 gold became a more acceptable form of collateral. By 2015, recently Exchange-traded funds (ETFs) previously seen by many as unpromising had started to become more readily available and acceptable.

Primary and secondary market

Public securities markets are either primary or secondary markets. In the primary market, the money for the securities is received by the issuer of the securities from investors, typically in an initial public offering (IPO). In the secondary market, the securities are simply assets held by one investor selling them to another investor, with the money going from one investor to the other.

An initial public offering is when a company issues public stock newly to investors, called an "IPO" for short. A company can later issue more new shares, or issue shares that have been previously registered in a shelf registration. These later new issues are also sold in the primary market, but they are not considered to be an IPO, and are often called a "secondary offering". Issuers usually retain investment banks to assist them in administering the IPO, obtaining regulatory approval of the offering filing, and selling the new issue. When the investment bank buys the entire new issue from the issuer at a discount to resell it at a markup, it is called a firm commitment underwriting. However, if the investment bank considers the risk too great for an underwriting, it may only assent to a best effort agreement, where the investment bank will simply do its best to sell the new issue.

For the primary market to thrive, there must be a secondary market, or aftermarket that provides liquidity for the investment security—where holders of securities can sell them to other investors for cash. Otherwise, few people would purchase primary issues, and, thus, companies and governments would be restricted in raising equity capital (money) for their operations. Organized exchanges constitute the main secondary markets. Many smaller issues and most debt securities trade in the decentralized, dealer-based over-the-counter markets.

In Europe, the principal trade organization for securities dealers is the International Capital Market Association. In the U.S., the principal trade organization for securities dealers is the Securities Industry and Financial Markets Association, which is the result of the merger of the Securities Industry Association and the Bond Market Association. The Financial Information Services Division of the Software and Information Industry Association (FISD/SIIA) represents a round-table of market data industry firms, referring to them as Consumers, Exchanges, and Vendors. In India the equivalent organisation is the securities exchange board of India (SEBI).

Non-certificated securities and global certificates

Modern practice has developed to eliminate both the need for certificates and maintenance of a complete security register by the issuer. There are two general ways this has been accomplished.

In some jurisdictions, such as France, it is possible for issuers of that jurisdiction to maintain a legal record of their securities electronically.

In the United States, the current "official" version of Article 8 of the Uniform Commercial Code permits non-certificated securities. However, the "official" UCC is a mere draft that must be enacted individually by each U.S. state. Though all 50 states (as well as the District of Columbia and the U.S. Virgin Islands) have enacted some form of Article 8, many of them still appear to use older versions of Article 8, including some that did not permit non-certificated securities.

To facilitate the electronic transfer of interests in securities without dealing with inconsistent versions of Article 8, a system has developed whereby issuers deposit a single global certificate representing all the outstanding securities of a class or series with a universal depository. This depository is called The Depository Trust Company, or DTC. DTC's parent, Depository Trust & Clearing Corporation (DTCC), is a non-profit cooperative owned by approximately thirty of the largest Wall Street players that typically act as brokers or dealers in securities. These thirty banks are called the DTC participants. DTC, through a legal nominee, owns each of the global securities on behalf of all the DTC participants.

All securities traded through DTC are in fact held, in electronic form, on the books of various intermediaries between the ultimate owner, e.g., a retail investor, and the DTC participants. For example, Mr. Smith may hold 100 shares of Coca-Cola, Inc. in his brokerage account at local broker Jones & Co. brokers. In turn, Jones & Co. may hold 1000 shares of Coca-Cola on behalf of Mr. Smith and nine other customers. These 1000 shares are held by Jones & Co. in an account with Goldman Sachs, a DTC participant, or in an account at another DTC participant. Goldman Sachs in turn may hold millions of Coca-Cola shares on its books on behalf of hundreds of brokers similar to Jones & Co. Each day, the DTC participants settle their accounts with the other DTC participants and adjust the number of shares held on their books for the benefit of customers like Jones & Co. Ownership of securities in this fashion is called beneficial ownership. Each intermediary holds on behalf of someone beneath him in the chain. The ultimate owner is called the beneficial owner. This is also referred to as owning in "Street name".

Among brokerages and mutual fund companies, a large amount of mutual fund share transactions take place among intermediaries as opposed to shares being sold and redeemed directly with the transfer agent of the fund. Most of these intermediaries such as brokerage firms clear the shares electronically through the National Securities Clearing Corp. or "NSCC", a subsidiary of DTCC.

Besides DTC in the US, central securities depositories (CSDs) exist on a national basis in most jurisdictions. In addition, two major international CSDs exist, both based in Europe, namely Euroclear Bank and Clearstream Banking SA.