Editing Security (finance) (section)

== Debt and equity ==
Securities are traditionally divided into debt securities and equities.

=== Debt ===
Debt securities may be called [[debenture]]s, [[bond (finance)|bonds]], [[Deposit (finance)|deposits]], [[Promissory note|notes]] or [[commercial paper]] depending on their maturity, collateral and other characteristics. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other [[unsecured debt]] meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated".

'''[[Corporate bond]]s''' represent the debt of commercial or industrial entities. Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated cheque with a maturity of not more than 270 days.

'''Money market instruments''' are short term debt instruments that may have characteristics of deposit accounts, such as [[Certificate of deposit|certificates of deposit]], [[Accelerated Return Notes (ARN)]], and certain [[bill of exchange|bills of exchange]]. They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid.

'''Euro debt securities''' are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit.

'''Government bonds''' are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U.S. federal government bonds are called ''treasuries.'' Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the [[open market operation]]s of non-US central banks.

'''Sub-sovereign government bonds''', known in the U.S. as [[municipal bond]]s, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments.

'''Supranational bonds''' represent the debt of international organizations such as the [[World Bank Group|World Bank]],<ref>{{Cite web |title=Sustainable Development Bonds |url=https://treasury.worldbank.org/en/about/unit/treasury/ibrd/ibrd-sustainable-development-bonds |access-date=2024-10-30 |website=World Bank |language=en}}</ref> the [[International Monetary Fund]],<ref>{{Cite web |title=Green Bonds, Sustainable Finance and Climate Change – IMF F&D {{!}} DECEMBER 2019 |url=https://www.imf.org/en/Publications/fandd/issues/2019/12/green-bonds-offer-lessons-for-sustainable-finance-beschloss |access-date=2024-10-30 |website=IMF |language=en}}</ref> regional [[multilateral development banks]] like the [[African Development Bank|African Development]]<ref>{{Cite web |title=Social bond of the year - supranational, sub-sovereign and agency (SSA) - African Development Bank |url=https://www.environmental-finance.com/content/awards/green-social-and-sustainability-bond-awards-2020/winners/social-bond-of-the-year-supranational-sub-sovereign-and-agency-(ssa)-african-development-bank.html |access-date=2024-10-30 |website=Environmental Finance |language=en}}</ref> Bank and the [[Asian Development Bank]],<ref>{{Cite web |last=ralph |date=2021-09-07 |title=Who We Are |url=https://www.adb.org/who-we-are |access-date=2024-10-30 |website=www.adb.org |language=en}}</ref> and others.

=== Equity ===
An equity security is a share of equity interest in an entity such as the capital stock of a company, trust or partnership. The most common form of equity interest is common stock, although preferred equity is also a form of capital stock. The holder of an equity is a shareholder, owning a share, or fractional part of the issuer. Unlike debt securities, which typically require regular payments (interest) to the holder, equity securities are not entitled to any payment. In bankruptcy, they share only in the residual interest of the issuer after all obligations have been paid out to creditors. However, equity generally entitles the holder to a pro rata portion of control of the company, meaning that a holder of a majority of the equity is usually entitled to control the issuer. Equity also enjoys the right to [[Profit (accounting)|profits]] and [[capital gain]], whereas holders of debt securities receive only interest and repayment of [[Debt|principal]] regardless of how well the issuer performs financially. Furthermore, debt securities do not have voting rights outside of bankruptcy. In other words, equity holders are entitled to the "upside" of the business and to control the business.

=== Hybrid ===
Hybrid securities combine some of the characteristics of both debt and equity securities.

'''Preference shares''' form an intermediate class of security between equities and debt. If the issuer is liquidated, preference shareholders have the right to receive interest or a return of capital prior to ordinary shareholders. However, from a legal perspective, preference shares are capital stocks and therefore may entitle the holders to some degree of control depending on whether they carry voting rights.

'''Convertibles''' are bonds or [[preferred stock]]s that can be converted, at the election of the holder of the convertibles, into the ordinary shares of the issuing company. The convertibility, however, may be forced if the convertible is a [[callable bond]], and the issuer calls the bond. The bondholder has about one month to convert it, or the company will call the bond by giving the holder the call price, which may be less than the value of the converted stock. This is referred to as a forced conversion.

'''Equity warrants''' are options issued by the company that allow the holder of the warrant to purchase a specific number of shares at a specified price within a specified time. They are often issued together with bonds or existing equities, and are, sometimes, detachable from them and separately tradeable. When the holder of the warrant exercises it, he pays the money directly to the company, and the company issues new shares to the holder.

Warrants, like other convertible securities, increases the number of shares outstanding, and are always accounted for in financial reports as fully diluted earnings per share, which assumes that all warrants and convertibles will be exercised.