What Is a Non-Marketable Security?
A non-marketable security is an asset that is difficult to buy or sell due to the fact that they are not traded on any major secondary market exchanges. Such securities, often forms of debt or fixed-income securities, are usually only bought and sold through private transactions or in an over-the-counter (OTC) market.
For the holder of a non-marketable security, finding a buyer can be difficult, and some non-marketable securities cannot be resold at all because government regulations prohibit any resale. A non-marketable security may be contrasted with a marketable security, which is listed on an exchange and easily traded.
Key Takeaways
- Non-marketable securities are assets that cannot easily be liquidated to cash in a timely or cost-effective manner.
- Often debt securities, these assets cannot typically be bought or sold on a public exchanges and must trade OTC.
- Examples include savings bonds, shares in limited partnerships or privately-held companies, and some complex derivatives products.
- In contrast, marketable securities include common stock, Treasury bills, and money market instruments, among others.
Non-Marketable Securities Explained
Most non-marketable securities are government-issued debt instruments. Common examples of non-marketable securities include U.S. savings bonds, rural electrification certificates, private shares, state and local government securities, and federal government series bonds. Non-marketable securities that are prohibited from being resold, such as U.S. savings bonds, are required to be held until maturity.
Limited partnership investments are an example of a private security that may be non-marketable due to the difficulty of reselling. Another example is private shares held by an owner of a company that is not publicly traded. The fact that these shares are non-marketable is not usually an obstacle for the owner unless they wish to relinquish ownership or control of the company.
The U.S. government issues both marketable and non-marketable debt securities. The most widely held marketable securities include U.S. Treasury bills and Treasury bonds, both of which are freely traded in the U.S. bond market.
The Rationale Behind Non-Marketable Securities
The primary reason that some debt securities are purposely issued as non-marketable is a perceived need to ensure stable ownership of the money the security represents. Non-marketable securities are frequently sold at a discount to their face value and redeemable for face value at maturity. The gain for an investor is then the difference between the purchase price of the security and its face value amount.
Difference Between Marketable and Non-Marketable Securities
Marketable securities are those that are freely traded in a secondary market. The principal difference between marketable and non-marketable securities revolves around the concepts of market value and intrinsic, or book, value. Marketable securities have both a marketable value, one which is subject to potentially volatile fluctuation in accordance with the changing levels of demand for the security in the trading marketplace. Thus, marketable securities generally carry a higher level of risk than non-marketable securities.
Non-marketable securities, however, are not subject to the demand changes in a secondary trading market and, therefore, have only their intrinsic value, but no market value. The intrinsic value of a non-marketable security, depending on the structure of the security, can be considered as either its face value, the amount payable upon maturity or its purchase price plus interest.
FAQs
Marketable Securities vs.
What are examples of non-marketable securities? ›
Common examples of non-marketable securities include U.S. savings bonds, rural electrification certificates, private shares, state and local government securities, and federal government series bonds.
What is the difference between marketable and non-marketable orders? ›
Limit orders can be “marketable” or “non-marketable.” Marketable limit orders are set at or above the current price for buys, and at or below for sells. Marketable limit orders are executed immediately, like market orders. Non-marketable limit orders are outside the current price range.
Is a 401k a marketable or non-marketable security? ›
As mentioned earlier, bonds can be marketable, such as those issued by publicly traded companies. Marketable securities can also include the mutual funds you have in your 401(k). While these mutual funds may be marketable, the 401(k) is just a type of retirement account and is not a security at all.
What is marketable securities examples? ›
Key Takeaways
Stocks, bonds, preferred shares, and ETFs are among the most common examples of marketable securities. Money market instruments, futures, options, and hedge fund investments can also be marketable securities. The overriding characteristic of marketable securities is their liquidity.
What is the difference between a marketable and non-marketable security? ›
The fundamental difference between marketable securities and non-marketable securities is the availability of a secondary market to trade marketable securities. Unlike marketable securities, non-marketable securities do not have an observable market value but have an intrinsic value and a book value.
What is an example of a non-marketable good? ›
Conversely, a non-market good or service is something that is not bought or sold directly. Therefore, a non-market good does not have an observable monetary value. Examples of this include beach visits, wildlife viewing, or snorkeling at a coral reef.
Is a CD a marketable security? ›
Stocks, bonds, short-term commercial paper and certificates of deposit (CDs) are all considered marketable securities because there is a public demand for them and they can be readily converted into cash.
Are treasury bills considered marketable securities? ›
The United States Treasury offers five types of Treasury marketable securities: Treasury Bills, Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs).
What are the three classifications of marketable securities? ›
There are three different classifications of marketable securities:
- Available for sale.
- Held for trading.
- Held to maturity.
Life insurance and annuities are two types of non-security assets that are not publicly traded but rather contractual agreements made with a sponsoring company.
What are the four types of securities? ›
There are four main types of security: debt securities, equity securities, derivative securities, and hybrid securities, which are a combination of debt and equity.
Is a loan a marketable security? ›
Marketable securities generally fall into one of two categories: equity marketable securities and debt marketable securities. Equity marketable securities afford the holder ownership rights in the company against which they are issued. Debt marketable securities function more like loans to their issuers.
What are non-marketable financial assets? ›
Meaning of a Non-Marketable Security
It is an asset that is hard to purchase or sell because it is not traded on any major secondary market exchanges.
Is fixed income a marketable security? ›
Some debt marketable securities make recurring payments (referred to as fixed income securities). Other debt marketable securities only offer a premium payment on top of your original payment upon maturity. Typically, these debt marketable securities are very short-term.
What are the three most popular types of marketable securities? ›
The three most popular types of marketable securities are treasury bills, certificates of deposit, and money market funds. While treasury notes, corporate bonds, commercial paper, and checking accounts are also types of marketable securities, they are not among the three most popular ones mentioned above.
What are non-marketable securities of government? ›
Non-marketable securities are financial instruments that cannot be easily bought or sold in the open market due to restrictions or limited demand. Restricted stock units (RSUs), employee stock options, government savings bonds, retirement plan assets, and private equity investments.
Are mutual funds non-marketable securities? ›
Introduction to Marketable Securities
Specifically, marketable securities include common and preferred stocks, U.S. Government securities, corporate bonds, municipal securities, mutual funds and cash management instruments.
What are the types of non securities? ›
A non-security is an alternative investment that is not traded on a public exchange as stocks and bonds are. Assets such as art, rare coins, life insurance, gold, and diamonds all are non-securities.
