SECURITIES

Security is an instrument that signifies (I) an ownership position in a corporation (a stock), (2) a creditor relationship with a corporation or governmental body (a bond), or (3) rights to ownership such as those represented by an option, subscription right, and subscription warrant.

People who own stocks and bonds are referred to as investors or stockholders (shareholders) and bondholders. In other words, a share of stock is share of a business. When you hold a stock in a business you are part owner of the business. As a proof of ownership you may ask for a certificate with your name and the number of shares you hold. By law, no one under 18 (in other countries under 21) can buy or sell stock, but they can own stock if kept in trust for them by an adult.

A bond represents a promise by the company or government to pay back a loan plus a certain amount of interest over a definite period of time.

Stocks are defined as common stocks and preferred stocks and are listed for trading on different stock, commodity, currency, and other exchanges.

Common stocks (GB ordinary share) are shares of ownership in a business (corporation). A business (corporation) is a separate legal entity that is responsible for its own debts and obligations. The individual owners of the business are not liable for the corporation's obligations. This concept, known as limited liability, has made possible the growth of giant corporations. It has allowed millions of stockholders to feel secure in their position as owners of a business. All that they have risked is what they paid for their shares. A stockholder has certain basic rights in proportion to the number of shares he or she owns. A stockholder has the right to vote for the election of directors, who control the company and appoint management. If the company makes profits a stockholder has a right to receive his proportionate share of dividends. And if the business is sold or liquidates, he has a right to his proportionate share of the proceeds. Many investors are looking for growth stocks (that are clearly growing).

A preferred stock (GB preference share) is a stock which is similar to a bond; but a preferred stockholder is entitled to dividends at a specific rate, and these dividends must be paid before any dividends can be paid on the company's common stock. In most cases the preferred dividend is cumulative, which means that if it isn't paid in a given year, it is owed by the company to the preferred stockholder. If the company is sold or liquidates, the preferred stockholders have a claim on a certain portion of the assets ahead of the common stockholders. But while a bond has a certain maturity date, a preferred stock is ordinarily a permanent part of the company's capital structure and is entitled to the fixed dividend and no more.

Bonds. Unlike a stock, a bond is evidence not of ownership, but of a loan to a company (or to a government). It is a debt obligation. When you buy a corporate bond, you have bought a portion of a large loan, and your rights are those of a lender. You are entitled to interest payments at a specified rate, and to repayment of the full "face amount" of the bond on a specific date. The fixed interest payments are usually made semiannually. The quality of a bond depends on the financial strength of the issuing corporation. In the USA the Government issues U.S. Treasury bonds (long-term), notes (intermediate-term) and bills (short-term), as well as obligations of the various U.S. government agencies.

Convertible bond (or convertible debenture) is a corporate bond that can be converted into the company's common stock under certain terms. These securities are intended to combine the reduced risk of a bond or a preferred stock with the advantage of conversion to common stock if the company is successful.

Options. An option is a piece of paper that gives you right to buy or sell a given security at a specified price for a specified period of time. A “call” is an option to buy; a “put” is an option to sell. In simplest form, it is an extremely popular way to speculate on the expectation that the price of a stock will go up or down.

Rights. When a company wants to sell new securities to raise additional capital, it often gives its stockholders rights to buy the new securities at an attractive price. The right is in the nature of an option to buy, with a very short life.

Warrants. A warrant resembles a right in that it is issued by a company and gives the holder the option of buying the stock (or other security) of the company from the company itself for a specified price. But a warrant has a longer life – often several years, sometimes without limit. As with rights, warrants are negotiable (that is, they can be sold by the owner to smb else), and several warrants are traded on the major exchanges.

Commodities and Financial Futures. Futures are contracts for delivery of certain goods or for a payment at a specified future date. Like options, financial futures can be used for protective purposes as well as for speculation, which is the area for professionals and investors.

Vocabulary:

option – опціон, право купівлі або продажу цінних паперів за обумовлену ціну в обумовлений строк

subscription warrant – підписний/передплатний сертифікат

stockholder (shareholder) – акціонер

bondholder – власник облігацій

to keep sth in trust for sb – утримувати на правах піклувальника

common stocks – звичайні акції

to be listed for trading – бути зареєстрованим на біржі, котируватися

stock / commodity / currency exchange – фондова / товарна / валютна біржа

legal entity – юридична особа

to be liable for the corporation's obligations – нести відповідальність за зобов’язаннями

proceeds– виручені кошти, виручка

preferred stock (GB preference share) – привілейовані акції

to be entitled to sth – мати право на...

cumulative – сумарний, сукупний

claim – платіжна вимога, рекламація

maturity date – строк, дата погашення; строковість

debt obligation –боргове зобов’язання

lender – кредитор

face amount/value – номінальна вартість

US Treasury bonds (T-bonds) – довгострокова облігація державної скарбниці (випускається на 10 і більше років) (США)

US Treasury notes (T-notes) – середньострокова облігація державної скарбниці (випускається на термін менше 10 років) (США)

US Treasury bills (T-bills) короткостроковий скарбничий вексель (випускається на 13, 26 і 52 тижні) (США)

convertible bond (or convertible debenture) – конвертоване в акції боргове зобов’язання; облігація, що погашається шляхом її обміну на певну кількість акцій компанії-емітента

call – опціон кол; опціон з купівлі

put – опціон пут; опціон на продаж

rights – додаткові акції (додат. випуск цінних паперів)

to raise capital – залучати, мобілізувати капітал

warrant – варант, заставне свідоцтво, підписний сертифікат

to be negotiable – мати товаророзпорядчу силу

commodities and financial futures – товарні та фінансові ф’ючерси

Questions:

1. What is a security?

2. How are the people who own stocks and bonds

3. referred to? What are their rights?

4. What is the difference between bonds and stocks?

5. Speak about common stocks (GB ordinary share).

6. How does a preferred stock (GB preference share) differ from common stocks (GB ordinary share)?

7. What bonds does the US Treasury issue?

8. What is a convertible bond (or convertible debenture)?

9. What are the peculiarities of an option?

10. What is the difference between options, warrants and rights?

11. Explain what futures are.

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