Global Securities Markets: Navigating the World's Exchanges and OTC Markets

NORTH VERSUS SOUTH (DEBT VERSUS EQUITY)

Issuers of debt securities induce suppliers of capital (rentiers2 in the language of the French economist) to part with their money in the exchange for the promise of payment of a complete return of capital plus interest3 at some future point in time. This is the essence of a debt security.4 Although colloquially referred to as bonds, there is a legal difference between a bond (which guarantees payment of the debt with a pledge of property) and a debenture (another French word), which has only a corporation's future profits as security for future payment.

With the adoption of the law merchant into the English common law by Lord Mansfield in the 1700s, a vibrant and international debt market emerged.5 Currently, the debt market (including government and quasi- government debt, but not including loans by banks) is approximately $91 trillion. Compare this figure to the equity market of $52 trillion (market value of issued shares) and one can see why the efficient trading of debt has been a principal focus of efficient trading, clearance, settlement, and custody. In fact, the two largest international central securities depositories, Euroclear in Belgium and Clearstream in Luxembourg, were first developed as custodians of debt securities.

Interest, of course, is the amount of money paid to the rentier for the use of his capital, usually expressed as a percentage, calculated in a variety of ways, but spelled out in a contractual document binding ...