What’s a security cabinet?

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Cabinet securities are bonds and stocks that are listed on an exchange but do not have much trading activity. In general, there are many more bond issues that are classified as a safe haven than stock options. It is not unusual for investors to hold small amounts of investments that fit the cabinet security model, although few investors choose to build the portfolio around these types of stocks and bonds.

One of the identifying characteristics of a security cabinet is the number of shares that are typically included for sale in an offering. Unlike most investment options that trade in lots of one hundred shares, a cabinet’s stock is typically traded in much smaller lots. It is not unusual for a security cabinet to trade in a small lot, such as ten shares. In some cases, a cabinet security can be traded in a lot as small as five units of shares.

The exact origin of the designation of this type of property as a security cabinet is somewhat obscure. Some financial historians trace the name back to the usual type of storage for stock certificates that were used for decades by brokerage firms. Because they went into the cabinet and rarely left, they became known as cabinet stocks. A second theory for the origin of the name is in a similar vein, comparing safe storage to that of fine china in the home. Since fine china generally remains in the china cabinet except on rare and special occasions, the lack of frequent business in cabinet safety was a natural connotation.

In general, the cabinet security tends to be a bond or stock that is relatively stable, so there is no real motivation for the investor to want to buy or sell the security at any given time. Instead, the investor may choose to buy additional shares incrementally as they become available, as a cabinet stock presents the opportunity for a small profit over time.

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