Introduction to Securities and Securities Market
Securities are financial instruments issued to raise funds. The primary function of the securities
market is to enable the flow of capital from those that have it to those that need it. Securities
market helps in transfer of resources from those with idle or surplus resources to others who
have a productive need for them. To state formally, securities market provides channels for
conversion of savings into investments.
A security represents the terms of exchange of money between two parties. Securities are issued
by companies, financial institutions or the government. They are purchased by investors who
have money to invest. Security ownership allows investors to convert their savings into financial
assets which provide a return. Security issuance allows borrowers to raise money at a cost.
Through Securities Market, a broader universe of savers with surplus to invest is available to the
issuers of securities and a universe of wider options is available to savers to invest their money
in. Thus, the objectives of the issuers and the investors are complementary, and the securities
market provides a platform to mutually satisfy their goals. Securities are useful because owners
can transfer their interest to others without the issuers being impacted – by providing liquidity,
securities allow issuers to raise capital for the long term without locking in investors.
Broadly stating, Financial Market consists of:
· Investors (buyers of securities)
· Borrowers/Seekers of funds (sellers of securities)
· Intermediaries (providing the infrastructure to facilitate transfer of funds and securities)
· Regulatory bodies (responsible for orderly development of the market).