All about securities: debt, shares and derivative contracts

Sometimes it’s hard to know which part of the law applies to you, especially if it involves what an outsider might see as a complicated financial dispute. If you have North Carolina securities, where do you go for help? Rest assured, there are business and financial law attorneys who can advise you on what securities you may own. But until you’ve retained the services of a local attorney, let’s get you up to speed on securities law terminology so you’re ready for your first appointment.

What are values?

A security is a fungible and negotiable instrument that represents a financial security. Most securities will be represented by a certificate or, more commonly, in electronic form only (non-certified). As in the rest of the country, North Carolina securities certificates will be “bearer” or “registered.” A bearer securities certificate is one that entitles the holder to rights simply by holding the security. A nominative certificate is one that only entitles the holder to rights if his name appears in a securities register maintained by the issuer or the intermediary designated by the issuer.

Securities include shares of corporate stocks or mutual funds, bonds issued by corporations or governments, stock options or other options, limited partnership units, and various other formal investment instruments. In North Carolina, securities may be issued by commercial companies, government agencies, local authorities, and international and supranational organizations (such as the World Bank). The primary purpose of purchasing securities is investment, with the ultimate goal of receiving income or capital gains; (Capital gain is the difference between a lower purchase price and a higher sale price.)

Securities are broadly classified into three categories.

1. Debt securities:

These include debentures, bonds, deposits, notes, and commercial paper (in some circumstances). If you own one of these debt securities, your North Carolina securities attorney will advise you that you are generally entitled to payment of principal and interest on them. There may also be contractual rights that a good lawyer will advise you on, including the right to information.

Debt securities are typically fixed term securities repayable at the end of the term, they may be secured or unsecured or secured by collateral. Debt securities can offer investors some control if the company is a new or established company that is in the process of ‘restructuring’. In these cases, if the interest is not paid, the creditors can take control of the company and liquidate it to recover part of their investment. People prefer to buy debt securities because of the generally higher rate of return than bank deposits. However, debt securities issued by a government (bonds) usually have a lower interest rate than securities issued by commercial companies. This applies nationally and to North Carolina values.

2. Variable income securities:

Common stocks are the most popular type of equity securities. Investors are called shareholders and own a share in the capital stock of a company, trust, or partnership. It’s like saying that someone who invests in equities is buying a small part of a company (or a large part, depending on your budget!). As an investor, he is not necessarily entitled to any payment, such as the regular interest payment on a debt security. If a company goes bankrupt, it may lose its entire investment, since shareholders are paid last. If this happens, it might be a good time to call your North Carolina securities attorney for advice.

On the plus side, investing in equity securities can give a shareholder access to profits and capital gains, something that debt securities do not. The holder of debt securities receives only interest and repayment of principal regardless of how well the issuer performs financially. Investing in shares can also offer control of the issuer’s business.

3. Derivative contracts:

If you have invested in forwards, futures, options and/or swaps, you have probably purchased a derivative. A derivative is perhaps, obviously, derived from some other asset, index, event, security or condition (known as the underlying asset). Instead of trading or exchanging the underlying asset, derivatives dealers enter into agreements to exchange cash or assets over time based on the underlying asset. A simple example is a futures contract: an agreement to exchange the underlying asset at a future date.

An attorney can provide more information about securities

Please note that this is not an exhaustive list of legitimate forms of securities. If you bought what you were led to believe was a security guy but it’s not covered in the information here, don’t panic! However, for your own peace of mind, contact a securities attorney if you believe you have been a victim of securities fraud, have been charged with securities fraud or a related crime, or simply have a legal question about buying or selling . values.

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