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Security Financing

security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some jurisdictions the term specifically excludes financial instruments other than equities and fixed income instruments. In some jurisdictions it includes some instruments that are close to equities and fixed income, e.g., equity warrants. In some countries and languages the term “security” is commonly used in day-to-day parlance to mean any form of financial instrument, even though the underlying legal and regulatory regime may not have such a broad definition.

In the United Kingdom, the national competent authority for financial markets regulation is the Financial Conduct Authority; the definition in its Handbook of the term “security” applies only to equities, debentures, alternative 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.

Securities are broadly categorized into:

  • Debt securities (e.g., banknotes, bonds and debentures)
  • Equity securities (e.g., common stocks)
  • Derivatives (e.g., forwards, futures, options, and swaps).

Classification

Securities may be classified according to many categories or classification systems:

  • Currency of denomination
  • Ownership rights
  • Terms to maturity
  • Degree of liquidity
  • Income payments
  • Tax treatment
  • Credit rating
  • Industrial sector or “industry”. (“Sector” often refers to a higher level or broader category, such as Consumer Discretionary, whereas “industry” often refers to a lower level classification, such as Consumer Appliances. See Industry for a discussion of some classification systems.)
  • Region or country (such as country of incorporation, country of principal sales/market of its products or services, or country in which the principal securities exchange where it trades is located)
  • Market capitalization
  • State (typically for municipal or “tax-free” bonds in the US)

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