The Foundation - The Uniform Securities Act (USA) - Definitions Part 6

  • SALE - "Sale" includes every contract of sale, contract to sell, or disposition of, a security or interest in a security for value, and "offer to sell" includes every attempt or offer to dispose of, or solicitation of an offer to purchase, a security or interest in a security for value. Both terms include:
    1. A security given or delivered with, or as a bonus on account of, a purchase of securities or any other thing constituting part of the subject of the purchase and having been offered and sold for value;
       
    2. A gift of assessable stock involving an offer and sale; and
       
    3. A sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer and a sale or offer of a security that gives the holder a present or future right or privilege to convert the security into another security of the same or another issuer, including an offer of the other security.

Let's take this from the top: the law must define every term used. If you read that "an agent who offers securities for sale must be registered," you must be able to legally define "agent", "sell/sale/offer to sell" and "securities".

    1. If an investor, for example, buys a bond and with the bond, receives warrants ("constituting part of the purchase") from the company, the warrant is a part of the sale.
       
    2. That term, "gift of assessable stock", is more than a little out of tune with the times. Assessable stock has not been traded (or issued) in this country for more than 50 years! Assessable stock was issued at a discount from par value and the owner could be assessed by the company or its creditors for the difference between the purchase price and par. For example, if an investor in the early 1900s bought some assessable railroad stock with a par value of $50 per share but paid $5 per share, if the company needed money, it could assess the stockholders for up to $45 per share! Today, all stock certificates state that they are "full-paid and non-assessable." The drafters of the USA may be quite familiar with securities laws, but they are evidently not so up to date on the securities themselves. Just know that a "gift of assessable stock" is considered a sale.
       
    3. If an agent sells a client a warrant, a right, or an option on securities, as a transaction apart from the stock itself, this is the same as selling the securities themselves.

Now let's take a look at transactions/items that are not considered to be a sale. First, we'll list some of these and then explore them one by one.

    • A pledge of securities as collateral for a loan
    • A stock dividend
    • Securities received as a result of reorganization or merger

This is not a complete list, but it represents some of the major points of the law for the purposes of the exam.

    • A pledge of securities as collateral for a loan is the normal practice in an investor's margin account. The investor is borrowing money to buy stock, and using the stock as collateral. The act of pledging the stock as collateral is known as "hypothecation." This term, in the exam, may be associated with the term "lien," since the securities pledged are collateral for the loan.
       
    • A stock dividend is not a sale because, at the time of the payment of such a dividend, there is no transfer of value. Getting a stock dividend is much like getting four $5 bills for a $20 dollar bill.
       
    • When those people who own securities of company "A" receive stock from company "B" because of a merger or reorganization, the receipt of those securities by the stockholder doesn't represent a sale.
That Word "Exempt"


Related Articles
  1. Professionals

    Viatical Settlements and Definition of Sale

    FINRA/NASAA Series 63 - Viatical Settlements and Definition of Sale. In this section defines and explains "sale", transactions which are not considered a "sale" and viatical settlements.
  2. Professionals

    Definition: Sale and Offer to Sell

    FINRA/NASAA Series 66 - Definition: Sale and Offer to Sell. This section defines a sale and an offer to sell under the USA.
  3. Trading Strategies

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
  4. Professionals

    The Uniform Securities Act (USA) - Definitions Part 5

    FINRA/NASAA Series 63 - The Uniform Securities Act(USA) - Definitions Part 5. In this section detailed definitions of issuer, nonissuer transaction, offer to purchase, security and person.
  5. Professionals

    Securities

    FINRA/NASAA Series 63 - Securities. In this section securities registration and three tests to determine when an investment contract is a security.
  6. Professionals

    SHORT SALES

    Short Sales An investor, who believes that a stock price has appreciated too far and is likely to decline, may profit from this belief by selling the stock short. In a short sale, the customer ...
  7. Professionals

    E. Warrants

    A warrant is a security that gives the holder the opportunity to purchase common stock. Like a right, the warrant has a subscription price; however, the subscription price is always above the ...
  8. Professionals

    Introduction

    Series 7 - Section 3: Equities
  9. Professionals

    Federal Covered Securities

    FINRA/NASAA Series 66 - Federal Covered Securities. This section explains federal covered securities and sample exam questions.
  10. Professionals

    Other Definitions

    FINRA/NASAA Series 63 - Other Definitions. This section review other definitions and note how they could appear on the exam.
RELATED TERMS
  1. Assessable Security

    A type of stock that companies issued to investors at a discount ...
  2. Security

    A financial instrument that represents an ownership position ...
  3. Borrowing Power Of Securities

    The value associated with being able to invest in securities ...
  4. Pledging Requirement

    Any legal or bureaucratic requirement that securities be pledged ...
  5. Securities Lending

    The act of loaning a stock, derivative, other security to an ...
  6. Collateral Value

    The estimated fair market value of an asset that is being used ...
RELATED FAQS
  1. What are the characteristics of a marketable security?

    Find out what it takes for a financial asset to be considered a marketable security, including its liquidity, intent of use ... Read Answer >>
  2. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ... Read Answer >>
  3. What are some common examples of marketable securities?

    Learn about marketable securities and the most common types of both debt and equity securities, including common stock, bonds ... Read Answer >>
  4. Can warrants be written on any security?

    Read about the different kinds of securities that may have warrants written on them, including which types of warrants are ... Read Answer >>
  5. What is the difference between par value and face value?

    Learn about the par value and face value of financial securities and what these synonymous terms mean about the value and ... Read Answer >>
  6. Does working capital include marketable securities?

    Learn how marketable securities such as Treasury bills (T-bills) and commercial papers are part of current assets and the ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center