What Is an Issuer?
Let me tell you directly: an issuer is a legal entity that develops, registers, and sells securities to finance its operations. You can think of issuers as corporations, investment trusts, or even domestic or foreign governments. As the one responsible, the issuer handles the obligations of the issue and reports financial conditions, material developments, and other operational activities required by the regulations in their jurisdictions.
Understanding Issuers
Issuers most often provide securities like common and preferred stocks, bonds, notes, debentures, bills, and derivatives. Some issuers pool funds from investors to create mutual fund shares or exchange-traded funds (ETFs).
To make this clear, consider ABC Corporation selling common shares to the public to raise capital for its business. This positions ABC as an issuer, so it must file with regulators like the Securities and Exchange Commission (SEC) to disclose key financial information. It also has to meet legal obligations in the jurisdiction where the security was issued. Even option writers are sometimes called issuers because they sell securities on the market.
Now, a non-issuer transaction is one not done directly or indirectly for the issuer's benefit. These transactions involve disposing of a security without any gain to the issuer itself.
Key Takeaways
- An issuer is a legal entity that develops, registers, and sells securities to finance its operations.
- Issuers may be corporations, investment trusts, or domestic or foreign governments.
- Issuers make available securities such as equity shares, bonds, and warrants.
Issuers versus Investors
While the issuer is the entity that creates and sells a bond or other security, the buyer is the investor. In some scenarios, you might call the investor a lender. Essentially, you're lending funds to the issuer as an investor, and those funds get repaid when the bond matures or the stock is sold. This makes the issuer a borrower, so you should carefully check the borrower's default risk before buying the security or lending the money.
Credit Ratings of Issuers
Ratings firms like Standard and Poor's and Moody's assign credit ratings to issuers of debt securities, similar to how credit bureaus score individual consumers. These ratings use letters instead of numbers—for instance, a AAA rating means a strong history of debt repayment and low default risk. A DDD rating signals default. Bonds from issuers rated BB or below are junk bonds, carrying high default risk for you as an investor.
Countries get these ratings too. Take Greece: after missing billions in loan repayments, its rating dropped to CCC+. But with reforms, cost cuts, and bank recapitalizations, Standard and Poor's raised it to B-, showing the bonds are somewhat safer now.
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