Global securities: Overview, definition, and example
What are global securities?
Global securities are financial instruments, such as stocks, bonds, or other debt instruments, that are issued in global markets and are typically held in electronic form by a central clearinghouse or depository, such as Euroclear or Clearstream. These securities represent ownership or a financial claim and can be traded across multiple countries and financial markets. Global securities allow for the pooling of assets and ease of transfer and trading on an international scale, bypassing the need for physical certificates.
Global securities are often used in large-scale, cross-border transactions, and they can be part of public offerings, international bond issues, or foreign investments. These securities can be in the form of debt (bonds), equity (stocks), or other financial instruments that are backed by international financial systems.
Why are global securities important?
Global securities are important because they enable investors to diversify their portfolios by accessing international markets and assets, thus improving liquidity and market efficiency. They simplify the process of buying, selling, and transferring securities across borders by offering a standardized, electronic format. This enhances the ability to raise capital and invest in a wide array of assets around the world.
For issuers, global securities provide an opportunity to tap into a broader investor base and raise capital more easily by making their securities available in multiple markets. For investors, global securities offer the chance to invest in a more diverse range of assets, providing access to global economic growth and reducing the risks associated with investing solely in domestic markets.
Understanding global securities through an example
Imagine a multinational company based in the United States decides to issue bonds to raise capital for expansion. Rather than issuing physical certificates to each investor, the company opts to issue global bonds, which are recorded electronically through an international clearing system like Euroclear. These global bonds are then available for purchase by investors around the world, and ownership of the bonds is tracked electronically, making the process more efficient.
An investor in Europe buys a portion of these global bonds, and ownership is recorded and transferred through the clearing system. This allows the investor to easily trade the bonds in the European market or sell them back to the issuer or another investor in any other part of the world.
In another example, a government issues global securities in the form of sovereign bonds. These bonds are issued in a manner that allows investors from different countries to buy and sell them on global financial markets, increasing demand and enabling the government to raise funds from a wide range of international investors.
An example of a global securities clause
Here’s how a global securities clause might appear in an offering document or agreement:
“The Securities will be issued in global form and registered in the name of a nominee of the clearing system, such as Euroclear or Clearstream. Ownership of the Securities will be determined by the electronic book-entry system of the clearing system. The Securities may be transferred or exchanged in accordance with the procedures set out by the clearing system, and the holder of the global securities shall have the same rights as the holder of the underlying securities.”
Conclusion
Global securities are a vital component of international finance, offering liquidity, flexibility, and access to a wide range of investments across borders. They simplify the process of issuing, buying, and selling securities on a global scale by utilizing electronic systems, reducing the administrative burden associated with physical certificates.For businesses and issuers, global securities provide a means to access a broader investor base and raise capital efficiently. For investors, they offer the opportunity to diversify portfolios and access investments from around the world, enhancing the potential for growth and reducing risk.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.