SECURITY

in business economics, a written evidence of ownership conferring the right to receive property not currently in possession of the holder. The most common forms of securities are stocks (or shares) and bonds. Securities are created when institutions, which may be governments, commercial companies, or financial institutions, need to raise money. Securities may be issued in the form of equity ownership: (1) common stocks (also called ordinary shares) convey an owner's interest and certain rights, such as sharing in dividends, voting for directors, and inspecting the books, and represent a residual interest in the case of liquidation; (2) preferred stocks convey a priority claim to dividends and to proceeds of liquidation but may be otherwise restricted. Alternatively, securities may take the form of debt. Bonds are promises to pay a specified amount at a specified date and to pay interest at a specified rate in the interim. Bonds may be secured by particular assets, such as real property (a mortgage bond), or by the general credit of the issuer (debenture bond). Both types of security are traded publicly on organized exchanges. Exchanges provide a marketplace where buyers and sellers come together and where new security issues can be placed. New York, Tokyo, and London possess the world's principal exchanges, and each has developed its own strict regulatory framework that is binding upon members and that provides protection to the buying public against malpractice. Normally, members of the public can buy or sell stock only through licensed dealers or stockbrokers, who, with others, set the market in corporate stock. On some exchanges, transactions take place through auction, with high bidders buying from sellers offering at low prices; on others, transactions are negotiated as dealers quote an offer price at which they are prepared to sell and a lower price (bid price) at which they are ready to buy. Security prices are influenced by a wide range of factors. External forces such as international uncertainty, changes in government policies, balance-of-payments problems, and trends in foreign stock markets may all have an effect. For individual stocks, the company's current and prospective financial performance play an important role, as do overall trends within its business sector. A fundamental change in the pattern of security purchases and sales that has taken place since 1970 is a decline in the role played by the smaller investor in almost all countries with active stock exchanges, with a concomitant increasing role played by institutional investors controlling very large funds. Because the large institutions tend to manage their securities portfolios by similar criteria and to move into and out of the markets together, they have been a factor in increasingly sharp fluctuations in the trend of prices. Government securities, which are usually bonds that pay a fixed amount of interest each year, have, unlike most commercial securities, a guaranteed safety factor concerning their ultimate repayment. Nevertheless, these securities are traded in the market, and their prices fluctuate in value depending on trends and conditions in the economy and according to the relative balance between buyers and sellers. For this reason, these securities over the short term carry some of the same risks as their commercial counterparts. The principal cause of variations in market prices for government securities is the trend in interest rates. Inflation expectations and changes in government borrowing requirements also have their effect on the market. Investors, both private and institutional, use essentially the same criteria in comparing different types of securities: the degree of security against defaults, the expected rate of return, the convenience and cost of dealing in the security, and the ease of realizing the investment and at what price. Taken together, these reflect that securities and the stock exchanges on which they are traded have developed in order to bring together investors seeking to place their capital and entrepreneurs in search of capital to use profitably. in business economics, written evidence of ownership conferring the right to receive property not currently in possession of the holder. The most common types of securities are stocks and bonds, of which there are many particular kinds designed to meet specialized needs. This article deals mainly with the buying and selling of securities issued by private corporations. (The securities issued by governments are discussed in the article government economic policy.) Additional reading Glenn G. Munn, F.L. Garcia, and Charles J. Woelfel, Encyclopedia of Banking and Finance, 9th ed., rev. and expanded (also published as The St. James Encyclopedia of Banking & Finance, 1991), provides comprehensive definitions, many with bibliographies. Edward I. Altman and Mary Jane McKinney (eds.), Handbook of Financial Markets and Institutions, 6th ed. (1987), is a thorough compilation. Detailed information on a variety of markets is provided in Francis A. Lees and Maximo Eng, International Financial Markets: Development of the Present System and Future Prospects (1975), a descriptive treatment; Charles R. Geisst, A Guide to the Financial Markets, 2nd ed. (1989), for the general reader; Frank J. Fabozzi and Frank G. Zarb, Handbook of Financial Markets: Securities, Options, and Futures, 2nd ed. (1986); and Perry J. Kaufman, Handbook of Futures Markets: Commodity, Financial, Stock Index, and Options (1984), including the history, regulation, and mechanics of futures trading. Further discussion of financial futures is found in Mark J. Powers and Mark G. Castelino, Inside the Financial Futures Markets, 3rd ed. (1991), an explanation of the exchanges and their functions; and Nancy H. Rothstein and James M. Little (eds.), The Handbook of Financial Futures: A Guide for Investors and Professional Financial Managers (1984), a discussion of the market's development, organization, and regulation. The Spicer & Oppenheim Guide to Securities Markets Around the World (1988); and Paul Stonham, Major Stock Markets of Europe (1982), are good general surveys of world stock exchanges. Robert Sobel, N.Y.S.E.: A History of the New York Stock Exchange, 19351975 (1975), is a readable survey of this important exchange. See also Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance (1982). Reference manuals include Richard J. Teweles and Edward S. Bradley, The Stock Market, 5th ed. (1987); and Frank G. Zarb and Gabriel T. Kerekes (eds.), The Stock Market Handbook (1970). William J. Baumol, The Stock Market and Economic Efficiency (1965), is an interesting effort to apply economic theory to the securities market. Arthur Stone Dewing, The Financial Policy of Corporations, 2 vol., 5th ed. (1953), is a classic treatise on financial policy, particularly useful for historical and statistical purposes. Hugh Bullock, The Story of Investment Companies (1959), recounts the development of mutual funds. Vincent P. Carosso, Investment Banking in America (1970), provides a relatively thorough history. John W. Hazard and Milton Christie, The Investment Business (1964), readably condenses the landmark U.S. Securities and Exchange Commission's special study of the securities markets. Investment texts include Harry C. Sauvain, Investment Management, 4th ed. (1973); and Jerome B. Cohen, Edward D. Zinbarg, and Arthur Zeikel, Investment Analysis and Portfolio Management, 5th ed. (1987), a comprehensive work. Graham and Dodd's Security Analysis, 5th ed. by Sidney Cottle, Roger F. Murray, and Frank E. Block (1988), is a classic work that led to the development of the field of security analysis. Richard W. Jennings, Harold Marsh, Jr., and John C. Coffee, Jr. (eds.), Securities Regulation, 7th ed. (1992), is a leading textbook dealing with the legal background of securities regulation. Louis Loss and Joel Seligman, Securities Regulation, 3rd ed. (1989 ), is a classic work kept up-to-date with supplements that delves into all aspects of the U.S. federal regulation of securities and securities markets.