Legal Definitions - marketable security

A marketable security is a type of financial asset that can be readily bought or sold on a public exchange or market. Because there is an active market for these securities, they can be quickly converted into cash at a price that is easily determined. This characteristic makes them highly liquid assets, often held by companies or individuals for short-term investment purposes or as a way to manage cash flow.

• Example 1: Corporate Cash Management

  A large technology company has accumulated significant cash reserves from its recent profitable quarters. Instead of letting this cash sit idle in a bank account, the company's finance department decides to invest a portion of it in short-term U.S. Treasury Bills. These government-issued debt instruments are actively traded on financial markets.

  This illustrates a marketable security because the Treasury Bills can be quickly sold on the open market if the company needs immediate cash for an unexpected expense, a new acquisition, or to fund operations, without significant delay or loss of value.

• Example 2: Individual Investment Portfolio

  An individual investor, planning to buy a car in the next year, invests a portion of their savings in shares of a well-established, publicly traded company listed on the New York Stock Exchange. They monitor the stock's performance regularly.

  These shares represent a marketable security because if the investor finds the perfect car sooner than expected or needs the funds for an emergency, they can easily sell their shares through their brokerage account within a day or two, converting their investment back into cash at the prevailing market price.

• Example 3: Bank Liquidity Management

  A commercial bank holds a portfolio of corporate bonds issued by several large, stable corporations. These bonds are actively traded on the bond market and are considered high-quality investments. The bank maintains this portfolio as part of its strategy to ensure it has sufficient liquid assets.

  These corporate bonds are marketable securities because the bank can quickly sell them on the bond market to meet unexpected customer withdrawals, comply with regulatory liquidity requirements, or fund new lending opportunities, demonstrating their ease of conversion to cash.