A security is a “document held by a creditor as guarantee of his right to payment. “ They are “any particular kind of stock, shares, or other form of investment guaranteed by such documents.” Primarily referred to in the plural form documents issued to investors to finance a business venture are called securities. Any stocks or securities which have been admitted for the purpose of trading on a stock exchange and whose issues have fulfilled in every way with the listing stipulations of the exchange are called “listed securities.” Private companies or public bodies that have signed a listing agreement been approved and admitted, or listed for trading, on a stock exchange are called “listed securities.” These financial instruments give their legal holders rights to money or other property. Securities include stocks, bonds, notes, mortgages, bills of lading, and bills of exchange.
In 1690 securities were typically publicly registered lands and houses, sold or mortgaged and were commonly called real securities and were easily converted into money. By 1879 they had become known as liquid securities. At the onset of the 1900’s negotiable securities arose in the general sense of commercial papers, including drafts and bills of exchange, but more commonly used for the “share-capital of corporations and for the bonds of such corporations and of local and state governments.” Several Security Exchange Acts followed the Great Depression as a part of the New Deal. Today administrators of the Security Exchange Commission (SEC) oversee the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. In 1937 there were many successful enterprises raising funds through the sale of securities and ownership of stocks and bonds had become so widespread in the United States that they were described as a ‘nation of investors’.
The first three of these statutes were approved by the legislature in reaction to the demands for better safeguards for shareholders that arose as a consequence of the dire downturn in worth of securities following the crash in October 1929. Many fraudulent and excessive practices in the sale of stocks and bonds were exposed, and the prevalent consensus was that these practices contributed to the severity of the Great Depression of the 1930s. The Securities Act of 1933 requires full admission to investors of material specifics about securities “offered and sold in interstate commerce or through the mails. It requires that before an issue of securities may be offered for public sale the issuer must file with the SEC a registration statement giving complete information on such securities and on the issuing company.” Broker in securities must provide buyers with a prospectus which is a brief summary the information. The SEC studies the report and can reject registration of the security if it “appears to be misleading, inaccurate, or incomplete. If registration is denied, the securities may not be offered for sale.”
Even when the SEC approves securities for listing is still does not warrant it as an investment value, nor is it a guarantee that the disclosures are exact. The Securities Exchange Act of 1934 is intended to augment information accessible to investors and to check attempts of fraudulent practices in U.S. stock exchanges. It calls for specific existing information to be “made public on the financial and managerial condition of corporations whose securities are traded in the exchanges.” The required registration statement contains statistics and figures for each listed security and must be submitted to the SEC. The act also places over-the-counter markets as well as the stock exchange under the SEC’s regulation. Stock exchanges, brokers, and dealers are required to file information about themselves with the commission. Controlling practices and phony and misleading statements are banned. Other stock market applications like short sales and market pegging, are regulated. Officers, directors, and principal stockholders of corporations whose securities are registered must details of all transactions in equity securities of their businesses. The Board of Governors of the Federal Reserve System is in charge of regulating by means of margin requirements for the use of bank credit to back trading in securities.
Listed securities is a confusing term. In the early 60’s corporations were using securities to raise long term capital and by 1970 the Penguin Dictionary of Commerce began to define them by saying the idea behind a security is frequently misused because many used the term indiscriminately applying it “to shares, debentures, etc. In fact a security is something given or guaranteed by the borrower as a safeguard for a loan. The term is often applied to debentures and similar loan stock, and to negotiable instruments. Certificates of liability are known as securities, so sometimes are government stocks or any loans whose repayment is guaranteed. The term should not be applied to shares.”
Oxford English Dictionary:
Securities and Exchange Commission: