Advantages and disadvantages of stock exchange securities

by • 13/01/2013 • GeneralComments (0)598

Q-6      Define stock exchange securities? Discuss its main advantages and disadvantages. Discuss the precautions taken before while advancing the loan?

Ans:     STOCK EXCHANGE SECURITIES

All the securities like shares, bonds and debentures issued by Government on public, private or joint stock companies can serve as a security for loan. Anyhow those securities, which are quoted on the stock exchange, are called stock exchange securities.

ADVANTAGES

Following are the main advantages of stock and shar§ to use as a security for loans.

  1. These are easily saleable.
  2. Their value can be assessed very easily.
  3. Repayment of loan is easy by ifieir sale.
  4. These are negotiable.
  5. The transfer of these securities is very easy,
  6. Expenditure on the release of securities is less as compared to the other securities.
  7. Interest on securities reduces the burden of loan.
  8. These can be easily pledged with the other banks.
  9. These are more reliable.

 

DISADVANTAGES

There are also some problems while making advances against these securities. These are following:

  1. Due to market fluctuation of the securities the bank may not be able to recover total debt.
  2. In case of forged signatures of a customer, a bank will suffer a loss.
  3. If the shares are partially paid up and the bank is registered as their owner, the bank may be asked to pay the uncalled amount of shares.
  4. If the loan is advanced on the forged share scripts then its repayment will be difficult.
  5. The repayment problem can arise if the securities are not negotiable.

 

 

PRECAUTIONS

The banker should keep in view the precautions while advancing the loans against securities.

 

THOROUGH SCRUTINY
The banker should select the securities after thorough security of the companies, reputation balance sheet, and dividends paid on shares and marketability of the shares of the company.
EFFICIENT MARGIN
While advancing loan against securities a banker must keep sufficient margin for market fluctuations of the shares prices.
CHECKING OF OWNERSHIP
The securities which are offered as security, the banker should check the ownership right of the customer. Customer may not be the trustee for another person.

CHECKING OF REGISTRATION
In case of nonnegotiable shares the banker must check the record of the company that borrower is registered holder of the shares or not.
OBTAIN LEGAL ASSIGNMENT
In case of equitable mortgage of shares banker should obtain legal assignment of these shares till the process is completed.
REGISTRATION WITH THE BANK
In case of legal mortgage shares there should be registered with the bank and should be declared, as the owner of the shares.
PARTIALLY PAID UP SHARES CASE

Those securities, which are transferable by delivery or negotiable by endorsement are called negotiable instrument. The new owner has a clear title to the securities, provided the takes those in good faith or for value. Negotiable instruments like note, cheque or bill of exchange when transferred to its transferee. The transferor is free from the equities. The bank can safely advance the loans against fully negotiable securities. In any form or by any means, electronic, mechanical, photocopying, http://www.paper-writer.org recording, or!

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