Securities are regulated by the Securities and Exchange Commission (SEC). Although this regulation doesn’t judge the quality of an investment, it does ensure that companies disclose all relevant information to investors. It also provides private parties with standing to file lawsuits against corporations that engage in fraudulent conduct. The National Securities Markets Improvement Act (NSMICA) was passed in 1996 to make securities regulations more uniform.
There are many different kinds of securities. Some are bearer securities, which are securities issued in physical form to a new owner. These securities are often traded in the secondary market, and clipped coupons are required to redeem them. In the U.S. municipal markets, bearer securities are not legally issued anymore. Generally, registered securities are those that have an issuer and holder name. These are issued through a registration process that can be used to transfer them to new holders.
Another type of security is a derivative. A derivative is a contract that is based on the value of another asset. A derivative may be structured around an underlying asset, such as a Treasury note or a stock. These derivatives depend on certain basic variables, such as interest rates or market indices. They are primarily used to minimize risk. However, they can also be used to speculate or gain access to hard-to-reach assets.
Securities are transferred as assets from one investor to another. The primary market is regulated, while the secondary market is more informal and open. Shareholders can sell their securities in the secondary market for a profit. Aside from trading in public markets, investors can also trade securities directly on the Internet. A primary market is essential for publicly traded securities, and a secondary market supplements it. There are also private placement securities, which are only offered to qualified investors.