What is 'Non-Marketable Security'

Nonmarketable securities are securities, typically debt securities, that are difficult to buy or sell due to the fact that they are not traded on any normal, major secondary market exchanges. Such securities, if traded in any secondary market, are usually only bought and sold through private transactions or in an over-the-counter (OTC) market. For the holder of a nonmarketable security, finding a buyer can be difficult, and some nonmarketable securities cannot be resold at all because government regulations prohibit any resale.

BREAKING DOWN 'Non-Marketable Security'

Most nonmarketable securities are government-issued debt instruments. Common examples of nonmarketable securities include U.S. savings bonds, rural electrification certificates, private shares, state and local government securities, and federal government series bonds. Nonmarketable 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 nonmarketable 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 nonmarketable is not usually an obstacle for the owner unless he wishes to relinquish ownership or control of the company.

The U.S. government issues both marketable and nonmarketable 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 Nonmarketable Securities

The primary reason that some debt securities are purposely issued as nonmarketable is a perceived need to ensure stable ownership of the money the security represents. Nonmarketable 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.

The Difference Between Marketable and Nonmarketable Securities

Marketable securities are those that are freely traded in a secondary market. The principal difference between marketable and nonmarketable 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 are generally carry a higher level of risk than nonmarketable securities.

Nonmarketable 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 nonmarketable 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.

RELATED TERMS
  1. Marketable Securities

    Very liquid securities that can be converted into cash quickly ...
  2. Security

    A financial instrument that represents an ownership position ...
  3. Series HH Bond

    A 20-year non-marketable U.S. government savings bond that pays ...
  4. Series I Bond

    A non-marketable, interest-bearing U.S. government savings bond ...
  5. Trade Act Of 1974

    Legislation passed by U.S. Congress to expand U.S. participation ...
  6. Marketable Security

    Any equity or debt instrument that it readily salable and can ...
Related Articles
  1. Investing

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  2. Investing

    What's a Marketable Security?

    Marketable securities are financial instruments that can be readily bought and sold in a public market. The key feature is the ease with which it can be sold and converted into cash. Usually, ...
  3. Investing

    What are Government Securities?

    Government securities are debt instruments that governments issue to raise capital.
  4. Investing

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
  5. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  6. Insurance

    Brokerage Functions: Underwriting And Agency Roles

    Learning about these various activities can give insight into how securities are issued and traded.
  7. Investing

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.
  8. Investing

    Trading Over the Counter

    OTC trades tend to be for smaller company stocks and debt securities. Debt securities such as bonds are generally traded by investment banks making markets for specific issues.
  9. Investing

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
RELATED FAQS
  1. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ... Read Answer >>
  2. What are the characteristics of a marketable security?

    Find out what it takes for a financial asset to be considered a marketable security, including its liquidity, intent of use ... Read Answer >>
  3. Who trades in primary and secondary capital markets?

    Understand how primary and secondary markets function in the trade of financial securities between investors, and learn how ... Read Answer >>
  4. How do I evaluate a debt security?

    Look at a brief overview of the important factors to consider before purchasing a debt security, such as a corporate or government ... Read Answer >>
  5. Does working capital include marketable securities?

    Learn how marketable securities such as Treasury bills (T-bills) and commercial papers are part of current assets and the ... Read Answer >>
  6. What are some common examples of marketable securities?

    Learn about marketable securities and the most common types of both debt and equity securities, including common stock, bonds ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center