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Non-Marketable Security

Reviewed by Bhavana | Updated on Oct 05, 2020

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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. Such securities, often forms of debt or fixed-income securities, are usually purchased and sold only through private transactions or at the over-the-counter (OTC) market.

It can be difficult for the holder of a non-marketable security to locate the purchaser, and certain non-marketable securities can not be resold at all, as government regulations forbid any resale. Non-marketable security may be contrasted with marketable security, which is exchanged and easily traded.

Examples of a Non-Marketable Security

Common examples include rural electrification certificates, state and local government securities, private shares, and federal government series bonds.

A limited partnership investment is an example of private security that could be non-marketable due to the difficulties concerning reselling. Another example is the private stock owned by the owner of a company which is not publicly traded.

The fact that such securities are non-marketable is not generally an obstacle to the owner unless they decide to give up ownership or control of the company.

Marketable Security vs Non-Marketable Security

Marketable securities are those which are freely traded on the secondary market. The key distinction between marketable and non-marketable securities revolves around the principles of market value and book or intrinsic value.

Marketable securities have a marketable value, one which is subject to potentially volatile fluctuations in line with changing levels of security demand in the trading marketplace. Marketable securities, therefore, generally carry a higher level of risk than non-marketable securities.

Non-marketable securities, nevertheless, are not subject to changes in demand in the secondary trading market and, therefore, have only their inherent value, but no market value. The monetary value of a non-marketable security, depending on the characteristics of the security, may be considered to be either its nominal value, the amount payable on maturity or its purchase price plus interest.

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