The three main types of securities are:

• Debt
• Equity
• Hybrid
• Derivatives, (includes futures and options)

Debt Securities

A debt security is an investment in a debt instrument comprising of medium-term notes (MTN’s), corporate bonds, government bonds, municipal bonds and preferred stock. All these instruments are tradeable, and issued with a face value, (being the amount borrowed), an interest rate or coupon, and a maturity date.

Equity Securities

An equity security is either stocks or shares representing part or full ownership in a company or corporation. These shares are represented by common shares, callable common shares, putable common shares and preference shares. Owners of shares are not offered an interest rate, (as in debt equities), but an annual, bi annual, or quarterly dividend based on the profitability of the company.

Shares are readily tradeable and owners are able to make a profit by selling their shares at a price higher than when they were purchased. Owners are also subject to losses as shares can fall in price as well as rise.

Hybrid Securities

Hybrid securities is a combination of part debt security and part equity security. Examples of this type of security are convertible bonds, preference shares and equity warrants. Although preference shares are listed under equity securities, it is more often than not referred to as a debt security as it offers a fixed dividend rate.

Derivatives

Derivatives differ from debt and equity securities as their value is based on the underlying asset or instrument such as stocks, bonds, currencies, commodities, interest rates and market indexes. A derivative can take differing forms such as swaps, options, futures contracts and forward contracts.

For definitions of instruments mentioned under the above headings, please go to “Definitions”.