Non-Marketable Security

What it is

A non-marketable security is a financial asset that cannot be readily bought or sold on public secondary markets. These securities are typically traded only through private transactions or over-the-counter (OTC) arrangements — and in some cases are not transferable at all because of legal restrictions.

How they work

• Liquidity: Non-marketable securities are illiquid. Finding a buyer may be difficult, and some instruments must be held until maturity.
• Pricing: Many are issued as debt sold at a discount to face value and redeemed at face value at maturity. An investor’s return is the difference between purchase price and maturity amount, or interest plus any redemption amount specified by the security.
• Transfer restrictions: Some non-marketable instruments (e.g., certain U.S. savings bonds) are prohibited from resale; others can be transferred but only under limited private arrangements.

Common examples

• U.S. savings bonds and certain federal government series bonds
• Rural electrification or other government agency certificates
• Shares in privately held companies
• Interests in limited partnerships and other private equity investments
• Some state and local government securities that are not listed on public markets

Why issuers use non-marketable securities

Issuers often make securities non-marketable to:
– Ensure stable, long-term funding by discouraging short-term trading
– Maintain ownership and control within a limited group (useful for private companies or closely held partnerships)
– Simplify administration when resale or widespread distribution is not desired

Marketable vs. non-marketable — key differences

• Liquidity: Marketable securities trade freely on exchanges or active OTC markets; non-marketable securities do not.
• Valuation: Marketable securities have observable market values that fluctuate with supply and demand. Non-marketable securities generally have intrinsic or book values (face value, purchase price plus accrued interest) but no market price.
• Risk and volatility: Marketable securities are exposed to price volatility from market sentiment and liquidity; non-marketable securities are less exposed to market price swings but carry liquidity and transfer risks.
• Use cases: Marketable securities suit investors needing tradability and price discovery; non-marketable securities suit investors seeking stable holdings, control, or long-term financing arrangements.

Pros and cons

Pros:
– Potentially lower price volatility
– Can preserve ownership and control structures
– May offer predictable redemption values (for debt issued at discount)

Cons:
– Limited or no liquidity
– Hard to determine market value
– Potentially long holding periods or forced retention until maturity
– Secondary sale, if allowed, may be complex and costly

Key takeaways

• Non-marketable securities cannot be easily liquidated because they are not listed on public secondary markets.
• They are common among government-issued series bonds, private-company shares, and partnership interests.
• Issuers use them to secure stable funding or control, while investors accept reduced liquidity in exchange for those features.
• Unlike marketable securities, non-marketable instruments lack observable market prices and carry transfer restrictions and liquidity risk.