Definition of Securities and Their Importance

Securities are tradeable investment instruments that represent financial rights or ownership in companies or governments, including stocks that grant ownership rights, bonds that represent debts, investment funds, and sukuk. Their importance lies in being a fundamental means for companies and governments to finance their expansion and development projects, providing investors with diverse opportunities to achieve financial returns and diversify their investment portfolios to reduce risks. They also contribute to stimulating economic growth by mobilizing capital and developing financial markets, providing the necessary liquidity for investors to easily convert their investments to cash. Additionally, they help evaluate company and economic performance, provide important indicators for economic decision-makers, and contribute to risk distribution across a wide range of investors instead of concentrating them in one entity.

Types of Securities

Stocks: Represent shares in company ownership, divided into common stocks that grant voting rights and dividend distributions, and preferred stocks that provide priority in profits and liquidation but usually without voting rights.

Bonds: Debt instruments issued by companies and governments, including low-risk government bonds and corporate bonds with higher returns, divided into fixed and variable interest.

Investment Funds: Pool money from multiple investors to invest in a diversified portfolio, including equity funds, bond funds, mixed funds, index funds, and real estate investment trusts.

Sukuk: Islamic financial instruments representing ownership in real assets like real estate and equipment, generating returns through rent or profit participation.

Financial Derivatives: Include options that grant the right to buy/sell, futures contracts for asset delivery at a specified date, and swaps for exchanging cash flows.

Money Market Instruments: Short-term high-liquidity investments like government treasury bills, bank certificates of deposit, and commercial papers for companies.

Short-term and Long-term Securities

Short-term Securities (less than one year):

• Treasury bills
• Short-term certificates of deposit
• Commercial papers
• Repurchase agreements

Long-term Securities (more than one year):

• Common and preferred stocks
• Government and corporate bonds
• Sukuk
• Investment funds

Characteristics: Short-term provide high liquidity and low risk with limited returns, while long-term achieve higher returns with greater risks and lower liquidity.

Difference Between Financial and Commercial Papers

Financial Securities: Investment instruments for obtaining returns (stocks, bonds, funds)

Commercial Papers: Short-term financing instruments for commercial operations (bills of exchange, checks, promissory notes)

Key Differences:

• Purpose: Financial for investment, commercial for operational financing
• Duration: Financial varied, commercial short-term (less than one year)
• Market: Financial in capital markets, commercial in money market
• Risks: Financial variable, commercial relatively low

Securities Market and Its Functions

The securities market is an organized and regulated system that allows trading of various financial instruments like stocks and bonds, performing multiple vital functions including accurate pricing of securities through supply and demand mechanisms that reflect the true value of companies, and providing necessary liquidity for investors to convert their investments to cash easily and quickly when needed. It also contributes to financing companies and governments through issuing new stocks and bonds in the primary market, and provides a platform for evaluating company performance and showing their actual market value, helping investors make informed decisions. The market ensures regulation of trading operations, transparency, and fairness among all participants through strict laws and regulations, and plays an important role in converting individual and institutional savings into productive investments that support economic growth, in addition to providing important economic indicators that help decision-makers formulate financial and economic policies.

Securities Companies and Their Role

Securities companies are licensed institutions that provide investment and trading services.

Their Role:

• Financial Brokerage: Executing buy and sell operations for clients
• Investment Advisory: Providing advice and financial analysis
• Portfolio Management: Managing client investments on their behalf
• Underwriting: Organizing the issuance of new stocks and bonds
• Financial Research: Preparing market reports and analyses
• Custody Services: Safekeeping securities for clients

Sharia Ruling on Securities

• *Stocks: Permissible if the company engages in halal activities and avoids usury and haram
• *Traditional Bonds: Prohibited for containing fixed usurious interest
• *Islamic Sukuk: Permissible as they represent ownership in real assets and generate returns from participation
• *Investment Funds: Permissible if they invest in Sharia-compliant instruments
• *Financial Derivatives: Generally prohibited for containing gambling and excessive gharar