Understanding Non-Marketable Securities
A non-marketable security is an asset that’s challenging to buy or sell since it isn’t traded on major secondary market exchanges. These securities, typically debt or fixed-income instruments, usually change hands through private transactions or within over-the-counter (OTC) markets. For holders, selling these assets can be tough, and some regulations outright prohibit their resale. In stark contrast, marketable securities are listed on exchanges and are easily traded.
Key Characteristics
- Non-marketable securities can’t be easily turned into cash efficiently or timely.
- Predominantly debt securities, they’re not bought or sold on public exchanges; they’re traded OTC instead.
- Examples include savings bonds, shares in limited partnerships or privately-held companies, and complex derivatives.
- Meanwhile, marketable securities include common stock, Treasury bills, and various money market instruments.
Delving Into Non-Marketable Securities
Most non-marketable securities are government-issued debt instruments such as U.S. savings bonds, rural electrification certificates, and securities from state or local governments. These securities are typically held to maturity, with strict regulations prohibiting their resale. For private securities, like shares in a non-publicly traded company or limited partnerships, the non-marketable status makes it tough for owners to sell these assets unless they seek to transfer ownership or control.
Benefits and Trade-offs
The U.S. government issues both marketable and non-marketable debt writings. Popular marketable securities include U.S. Treasury bills and Treasury bonds, which are frequently traded in the U.S. bond market. Conversely, the purpose behind issuing non-marketable securities is to ensure stable ownership of the capital they represent.
Non-marketable securities are often sold at a discount, redeemable at face value upon maturity. Investors gain from the difference between the purchase price and the face value.
Marketable vs Non-Marketable Securities
Marketable securities are readily traded in secondary markets. Their value and risk level are driven by market demand variability. Intrinsic, or book value, delineates both marketable and non-marketable securities. The intrinsic value of non-marketable assets is typically seen as either their face value at maturity or the purchase price plus interest. In summary, while marketable securities bear volatility and risk due to fluctuating demand, non-marketable securities remain stable with an intrinsic value irrespective of market conditions.
Related Terms: UsdSaving bonds, limited partnerships, private shares, Treasury bonds, intrinsic value, market value.
