Negotiable instruments which yield dividends or interest.
Historically, the term securities was restricted to negotiable instruments which were secured against some asset. However, the custom of commercial practices have evolved the term to now include all negotiable instruments, whether secured or not.
Thus, this apt definition by The Oxford Dictionary of Law:
"Loosely, stocks, shares, debentures, bonds or any other rights to receive dividends or interest.
"Strictly, the term should only be used for rights backed by some sort of security, as in the case of (secured) debentures."
To avoid abuses and to manage and instill confidence in the economy, governments typically regulate the buying and selling of negotiable instruments, especially shares in companies. The laws which have been created often establish a securities agency; for example, the US Securities and Exchange Commission, SEC, or the Ontario Securities Commission.
In order to give the regulatory agencies wide jurisdiction, the term securities is typically defined expansively. For example, the United States statute defines securities as:
"... any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing."
For another example of an all-encompassing definition, see §1 of the Ontario Securities Act.
- Duhaime, Lloyd, Legal Definition of Security
- Martin, E. and Law, J., A Dictionary of Law, 6th Ed. (Oxford: University Press, 2006)
- Securities Act of 1993, United States of America, also at Title 15 of the United States Code
- Securities Act, Revised Statutes of Ontario 1990, Chapter S.5, §1.