What are Securities? How are they different from traditional products?

• As per §2(h) of Securities Contracts (Regulation Act), 1956, A Security is a financial

instrument that represents:

i. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable

securities of a like nature in or of any incorporated company or other body

corporate.

a. derivative

b. units or any other instrument issued by any collective investment scheme

to the investors in such schemes;

c. security receipt as defined in § 2(zg) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest

Act (SARFAESI), 2002;

d. units or any other such instrument issued to the investors under any

mutual fund scheme

e. any certificate or instrument (by whatever name called), issued to an

investor by any issuer being a special purpose distinct entity which

possesses any debt or receivable

ii. Government securities;

ii.a. Such other instruments as may be declared by the Central

Government to be securities; and

iii. rights or interest in securities;

• A Security is a tradeable, negotiable financial instrument that represents some type of

financial value.

• Following considerations are important for the nature of securities:

•.a. There must be an investment of money with an intention to make profits or

returns from such investment;

•.b. Returns anticipated by the investors may be pre-determined as a rate of returns

or be based on the equity and participatory rights over business enterprises;

•.c. Such instruments must be capable of being bought and sold

• Ironically, Securities are the most insecure type of instruments that there are, therefore,

the world over we can find only inclusive definition of securities

•Securities are used to a tool to raise capital.

• Securities are considered to be movable goods after their issuance.

• Securities can broadly be of two types:

•.d. Ownership Instruments

■Corporate ownership instrument can be stocks and share (Equity)

• § 2(84) ‘Share’ means share in the share capital of a company;

(Earlier § 2(46) in 1956 Act)

• § 44 - The shares, debentures or other interest of any member in

a company shall be movable property transferable in the manner

provided by the articles of the company (Earlier § 82 in 1956 Act)

■Share under Partnership v. Company

• A share in Partnership reflects the partner’s proprietary interest in

the partnership assets

• Assets are jointly owned by partners

• In Company, its not the shareholders, rather company holds the

corporate assets.

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As per §2(h) of Securities Contracts (Regulation Act), 1956, A Security is a financial instrument that represents: i. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. a. derivative b. units or any other instrument issued by any collective investment scheme to the investors in such schemes; c. security receipt as defined in § 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002; d. units or any other such instrument issued to the investors under any mutual fund scheme e. any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable ii. Government securities; ii.a. Such other instruments as may be declared by the Central Government to be securities; and iii. rights or interest in securities;
A Security is a tradeable, negotiable financial instrument that represents some type of financial value.
Following considerations are important for the nature of securities: •.a. There must be an investment of money with an intention to make profits or returns from such investment;

•.b. Returns anticipated by the investors may be pre-determined as a rate of returns or be based on the equity and participatory rights over business enterprises;

•.c. Such instruments must be capable of being bought and sold

Ironically, Securities are the most insecure type of instruments that there are, therefore, the world over we can find only inclusive definition of securities
Securities are used to a tool to raise capital.
Securities are considered to be movable goods after their issuance.
Securities can broadly be of two types: •.d. Ownership Instruments ■ Corporate ownership instrument can be stocks and share (Equity) - § 2(84) ‘Share’ means share in the share capital of a company; (Earlier § 2(46) in 1956 Act) - § 44 - The shares, debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company (Earlier § 82 in 1956 Act) ■ Share under Partnership v. Company - A share in Partnership reflects the partner’s proprietary interest in the partnership assets - Assets are jointly owned by partners - In Company, its not the shareholders, rather company holds the corporate assets.

■ Functions of share:

Denoting shareholders proportionate financial stake in company
Measure of shareholders interest in the company as an association ■ Share is a property in its own right, holder can buy, sell, charge etc. ■ Shares are simply bundles of intangible rights against the company which had issued them. ■ Share certificates are not valuable property in themselves—they are just evidence of the true property, which are the proportionate interests of the shareholders in the ownership of the company ■ Under § 2 of the Sales of Goods Act, 1930 share is a movable property, but not before allotment. ■ CIT v. Standard Vacuum Oil Co. appreciated share in the sense of property. The court called it not any sum of money and made 'up of diverse rights conferred on its holder by the articles of the company, which constitute a contract between him and the company.’ ■ This suggest that shares are not real property, rather it is a personal property ■ The rights of shareholders are:
to elect directors and thus to participate in the management through them;
to vote on resolutions at meetings of the company;
to enjoy the profits of the company in the form of dividend;
to apply to the court (NCLT) for relief in the case of oppression;
to apply to the court (NCLT) in the case of mismanagement;
to apply to court for the winding-up of the company;
to share in the surplus on winding-up. •.e. Debt Instruments ■ Acknowledgment of debt, carrying a promise that the issuer to redeem the debt on maturity and during its currency to pay interest at an agreed rate and at agreed intervals.

■ Popularly known as “debentures”

■ § 2(30) of Companies Act, 2013 defines “debenture” which includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;

■ Benefits to Debentures owner

Contractual obligation for payment of interest, redemption on maturity etc.
Debenture holder are not permitted to surrender the debentures before maturity
Debentures may be secured by the assets of the company, but unsecure ones are also not uncommon
Normal debentures trustees under independent trust appointed by the company to ensure compliance of the terms and conditions of the issue by the company

•.i. Marketability: Securities are freely marketable. However, the products once consumed are not marketable thereafter.

•.j. Approach to regulation: in Securities, the approach is investor protection from asymmetrical information and in products the approach is to avoid adulteration and quality

What are Securities? How are they different from traditional products?, Study notes of Investment Theory

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What are Securities? How are they different from traditional products?