Stapled security

A stapled security is a type of financial instrument. It consists of two or more securities that are contractually bound to form a single salable unit;^[1] they cannot be bought or sold separately.

The two parts are usually a share in one company and a unit in a trust related to that company. For example, a property trust may have its units stapled to the shares of the company that manages the trust's properties. The trust is the legal owner of the property assets. The related company manages the fund and development opportunities, and charges the trust a fee.

For example, a unit of shares in a company can be bound to unit of an investment trust and they must be purchased and sold together. The investment trust will own the assets and the company will manage the assets.^[2]

Pro's and Con's

Stapling gives the management company an incentive to work for the benefit of the unit holders, rather than just their own shareholders. Some stapled securities may provide minor tax advantages.

One of the disadvantages of stapling is that you cannot buy one without the other.

Sometimes stapling may change the security you have. For example, you may move further away from being a creditor of the company and closer towards being a shareholder. (Bear in mind that shareholders generally get paid last, if at all, when a company is wound up.)

Stapled securities are a bit more complicated and no two are the same. If they are not listed they can be difficult to sell. https://www.moneysmart.gov.au/investing/complex-investments/stapled-securities

References