What are Securities in Finance?

We always read the term securities from financial and investing books. We always hear them from business and economic news. If we take a look on some financial statements of publicly listed companies, we can see securities. So what are securities or what is a security in terms of finance and investing?

The Securities Regulation Code of the Philippines or the Republic Act No. 8799 defines “securities” as shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes:

1 .Shares of stock, bonds, debentures, notes, evidences of indebtedness, and asset-backed securities
2. Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription
3. Fractional undivided interests in oil, gas or other mineral rights
4. Derivatives like option and warrants
5. Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments
6. Proprietary or non-proprietary membership certificates incorporations
7. Other instruments as may in the future be determined by the Commission.

Generally, securities are categorized into the following:

Debt securities – examples are bonds, banknotes, debentures, and evidences of indebtedness.

Equity securities – examples are shares of common stock and share of equity interest in a partnership or trust.

Derivative contracts – examples are forwards, futures, options, warrants, and swaps.

The originator, maker, obligor, or creator of the security is called the “Issuer”, while the person who buys and sells securities for his/her own account in the ordinary course of business is called the “dealer”. The person engaged in the business of buying and selling securities for the account of others is called the “broker”.

You may check out more terms and definitions about securities in this list.