What Are Equity Securities?

Local Stocks: Your Gateway to Ownership

Investing in local stocks is akin to claiming a slice of a company's essence. A share, representing a fraction of the capital stock, bestows upon its holder the rights of ownership. In essence, shareholders become owner-partners, their stake proportional to their participation.

Equity Securities

Capital Boost without Debts

Companies, through share issuance, secure long-term capital without incurring debts. The promise to yield returns and pay dividends rests on a foundation of trust, subject to approval by the General Shareholders’ Meeting.

Foreign Stocks: Navigating the Global Market

Foreign stocks find their place in the secondary market, with settlements occurring between T+0 and T+3. Preferred shares, resembling fixed-income capital stock, specify annual payments. Notably, the legal obligation to pay interest surpasses that of dividends on preferred shares, offering financial flexibility.

Accumulating Profits and Rights

Dividends, contingent on company performance, provide financial maneuverability. Unprofitable years result in the accumulation of dividends, with common shareholders acquiring rights if three years elapse without profits.

Exchange Traded Funds (ETFs): Tracking Progress

Exchange-Traded Funds, also known as Trackers, emulate index evolution. These investment units, representing a part of the trust, hold common shares of the index they replicate. Originating in the late 1980s, ETFs have become the fastest-growing financial instruments globally, with over 185 Trackers worldwide.

A Glimpse into History

In 1990, the Toronto Stock Exchange and Barclay’s Global Investment introduced TIP’s, prototypes for indexed investment units like SPDR’s (Spiders) benchmarked to the SP 500, listed in 1993.

American Depositary Receipts (ADRs): Crossing Borders for Investments

ADRs facilitate U.S. investors' access to non-U.S. companies listed outside the United States. First appearing in 1927, ADRs have evolved into a significant financial instrument, issued by major banks like Bank of New York, Citibank, and JP Morgan.

Unpacking ADR Structure

An ADR, a U.S. dollar-denominated certificate of deposit, is supported by American Depositary Shares (ADS). These ADS represent shares of the foreign company held and immobilized by the U.S. depositary bank.

Conclusion

Navigating the diverse landscape of equity securities involves understanding the nuances of local and foreign stocks, Exchange-Traded Funds, and American Depositary Receipts. Each avenue offers unique opportunities for investors, from ownership rights to global market participation.

FAQs

How do dividends affect financial flexibility?

Dividends, contingent on company results, enhance a company's financial flexibility.

Why choose Exchange-Traded Funds (ETFs) for investment?

ETFs provide a dynamic and fast-growing investment option, tracking the progress of underlying indices.

What is the significance of T+0 to T+3 settlement for foreign stocks?

T+0 to T+3 settlement represents the time frame for monetary settlement of foreign stocks in the secondary market.

Can common shareholders acquire rights in the absence of profits?

Yes, if three consecutive years pass without profits, common shareholders acquire certain rights.

How do American Depositary Receipts (ADRs) bridge U.S. investors with non-U.S. companies?

ADRs allow U.S. investors access to shares of non-U.S. companies listed outside the United States.


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