What Is an Issuing Entity?

by Dennis Hartman - Updated September 26, 2017

In its fundamental form, investing consists of spending money to make money, either by purchasing a product that will pay interest over time or buying something that can be resold in the future for a larger amount. When investors look for opportunities in financial markets, there are only as many options of places to spend their money as issuing entities are able to create by packaging financial securities for sale. Besides sharing this purpose, issuing entities may have very little in common with one another.

Role

The role of an issuing entity is to provide securities for investors to purchase, usually as a means of generating a profit for itself or its owners. Securities are tradable financial instruments with value and include broad categories of investments, such as stocks and bonds. In each case, the issuing entity sells a financial instrument to investors through a market, later paying interest or allowing investors to sell their securities to one another freely.

Types

Issuing entities come in many different forms. Part of what separates one issuing entity from another is the type of securities it issues. Another factor is the other types of activities that an issuing entity engages in. For example, governments serve as issuing entities for securities such as treasury bonds, while banks are the issuing entities that sell mortgage-backed securities into secondary debt markets. Businesses issue bonds and stock, becoming issuing entities, as well as functional businesses with ongoing operations.

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Impact

Issuing entities create the financial instruments that investors rely on to make money. They also drive business, government and economic growth. This makes issuing entities vital to a complex economy. For example, in the United States millions of workers rely on issuing entities to provide the securities their retirement fund managers will invest their savings in to provide income after leaving their jobs. Businesses raise the money they need to expand and innovate by selling stock through initial public offerings, or IPOs, which also allows investors to become owners by purchasing equity in the business.

Regulation

Government regulations control how issuing entities operate and what information they must disclose to their clients and government regulators. This helps investors make decisions about when to buy and sell securities with access to relevant information, such as the composition of a security and the issuing entity's history of creating profits for its investors or defaulting. When issuing entities sell securities on registered exchanges, such as stock markets and bond markets, they face further regulation from the exchanges' governing bodies.

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