Transferable Security: Definition & Types

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Definition of Transferable Security

The transferable security is a feasible financial security for negotiation. Thus, a series of rights are recognized for the acquirer. These can be the right to vote (in the general meeting of partners), participation in the profits of a company, a loan to collect and / or others.

Transferable Security
Transferable Security

Transferable securities are easily transferable instruments, so their ownership can pass relatively quickly from one person to another.

These securities are usually traded on the stock exchange and their price will depend on the supply and demand of investors.

We must take into account that these titles are usually issued in mass with homogeneous characteristics. Although, it should be clarified that they are not marketed in bulk.

In other words, a company can issue 1,000 shares, but this does not mean that all of them will be transferred to the same investor, but that each share could have a different owner.

Types of Transferable Securities

Transferable security can be classified based on different criteria. For example, depending on the type of instruments they issue, these groups can be observed:

  • Shares: They are shares within the capital stock of a company. That is, when an investor acquires a share, he becomes the owner of a small part of the firm.
  • Obligations:  They are debt securities in favor of the investor, offering him a future income, which can occur in periodic payments or in a single disbursement at the end of the debt term, depending even on an agreed interest rate (which can be fixed or variable). We refer to instruments such as bonds, promissory notes and bills of exchange.
  • Other negotiable securities: This category includes other types of documents that can be converted into cash, such as a future contract or a certificate of participation in an investment fund.

Classified of Transferable Securities

Likewise, Transferable Security can be classified according to whether they are fixed or variable income.

  • Of Equities: These are basically the shares of companies which do not offer a safe return, but this will depend on the results of the company and the decision to distribute dividends.
  • Of Fixed Income: it is one that provides a return agreed in a given time. These are usually debt instruments such as bonds. They are characterized because their profitability is known. They are safer than equities.

Similarly, transferable securities can be classified according to who issues them:

  • From Private Entities: When they are issued privately, mainly companies.
  • From Public Entities: When issued by the Governments. We refer, for example, to treasury bills.
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