Digital Securities Market Glossary
Financial Securities - are tradable financial assets that gets their value from a contractual claim on an underlying asset that may be real or intangible. For example, commodities and property are real assets, but commodity futures, exchange-traded funds (ETFs) and real estate investment trusts (REITs) constitute financial assets whose value depends on the underlying real assets. Financial assets are usually more liquid than other tangible assets, such as commodities or real estate, and may be traded on financial markets. Generally, securities represent an investment and a means by which companies and other commercial enterprises can raise new capital.
Derivative - is a financial instrument whose value is derived from the value of an underlying security. The derivative itself is a contract between two or more parties, and its price is determined by fluctuations in the underlying asset. The most common derivatives include options, futures contracts, forward contracts, swaps, collateralized mortgage obligations (CMOs), rights and warrants.
Digitization of Securities (Securities Tokenization)
Digitization of Securities (also referred to as Securities Tokenization) - is the process of the creation of a derivative instrument in the form of a blockchain token representing the rights to a financial security (underlying). Digitization targets increasing liquidity and efficiency in capital formation, enhancing transparency and reducing administration costs.
Digital Securities (Security Tokens)
Digital Securities (also referred to as Security Tokens) - are derivative instruments in the form of a blockchain tokens representing the rights to a financial security (underlying). Transactions with the token recorded on the distributed ledger cannot be undone or erased. Access to the information is customizable based on the ledger setup (public, private or hybrid).
Compliant Ecosystem - the entire set of procedures, actions, activities, processes and parties ensuring that a financial services business adheres to statutory rules and regulations and internal controls. Digitizing securities and using smart contracts enable automatic enforcement of the applicable financial markets’ rules and regulations.
Digital Securities Issuer
Digital Securities Issuer - a legal entity that offers its digital securities directly to investors to finance its operations. Issuers are legally bound by the offering rules, representations and reporting requirements, and other covenants relating to financials, material developments and any other operational activities as required by the applicable regulations.
Digital Securities Offering (“DSO” or Security Token Offering, “STO”)
Digital Securities Offering (“DSO” or Security Token Offering, “STO”) - the type of fundraising using Digital Securities as a instrument of raising capital within a fully compliant ecosystem.
Digital Securities Issuance Platform
Digital Securities Issuance Platform - a technology platform providing issuers with the tools to conduct a DSO, based on such platform’s security token standard.
Liquidity - is the degree to which an asset or security can be quickly bought or sold in the market without affecting the securities' price. There are market makers for enhancing securities’ liquidity in the secondary market.
Market Maker - is a bank, brokerage company or a person that always stands ready to buy and sell securities. Without market makers, it would take considerably longer for buyers and sellers to be matched up with one another, reducing liquidity and potentially increasing trading costs as it became more difficult to enter or exit positions.