Cabinet Security
What it is:
A cabinet security is an inactive security (often a bond) that is listed on an exchange.
How it works (Example):
Before the advent of computers, it was necessary to move physical evidence of securities and orders. When securities didn't trade often, the trading orders for them were stored in cabinets (hence the name) until they expired or the broker executed the trades.
Why it Matters:
Cabinet securities are infrequently traded, which means they are primarily for buy-and-hold investors and carry significant liquidity risk. However, people who own cabinet securities often have no intention of trading them, so the liquidity can be less of an issue for them.
