Securities - Securities

As we previously noted, the general requirement is that securities sold in the state must be registered with the state. Of course, there are exceptions to, and exemptions from, this rule. The USA states the following:

"It is unlawful for a person to offer or sell a security in this State unless:

  1. the security is a federal covered security;
  2. the security, transaction, or offer is exempted from registration... or
  3. the security is registered under this [Act]."

The official comment then says that:

"Except for federal covered securities, exempt securities, or securities offered or sold in exempt transactions, no sale of a security may be made in this State before the security is registered."

Exam Tips and Tricks
The term "Security" is vitally important to the USA and for passing the Series 63 exam, so be sure you can sort out what are, and what are not,considered securities under the USA. It is not at all necessary to memorize all that are considered. A more rational approach is to know what is not a security. Below, we\'ll look more closely at those.

Three Tests to Determine if an Investment Contract is a Security
If you need a review at this point, go back and take another look at the definition of a federal covered security. Remember, this term first came into securities law with the National Securities Markets Improvement Act (NSMIA) of 1996. It is only in the 2002 version of the USA and in NASAA documents that this law is taken into account.

There are three tests to determine when an investment contract is a security. They are:

  1. Is it an investment of money?
  2. Is it in a common enterprise?
  3. Are its profits to come solely from the efforts of others?

This definition comes directly from the language of a United States Supreme Court decision in the case of United States v. W.J. Howey Company in 1946. The words from the decision were; "The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others."

To demonstrate, let's apply these three tests to a security that we're all familiar with: common stock. The person who buys the stock is pooling his/her money with the investments of many other people - a common enterprise. The investor obviously will only risk his/her capital in the expectation of a return on the investment - a profit. The investor may vote on the board of directors, but has no direct control over the management of the company in which the money is invested, so he/she expects the profits to come from the efforts of others. These tests have proven that a stock certificate is definitely "investment contract".

Which Investments Are Not Securities?
Related Articles
  1. Professionals

    Internal Advisor Consultant: Job Description & Average Salary

    Learn about the internal advisor consultant position and the national average salary as well as the key skills, education and experience needed.
  2. Professionals

    Career Advice: Stockbroker Vs. Insurance Agent

    Compare and contrast careers as a stockbroker and insurance agent. Understand the skills and attributes required for success in each career.
  3. Professionals

    Series 63 Exam Prep: The Broker-Dealer

    Before you take the series 63, you need to understand jurisdiction and how it affects broker-dealers.
  4. Fundamental Analysis

    3 Times the FOMC Got It Right This Century

    Learn about three times that the Federal Open Market Committee (FOMC) and the Federal Reserve took positive steps to help the economy in the 21st century.
  5. FA

    The Basics of The Series 79 Exam

    Passing the Series 79 exam is usually necessary for anyone who wants to work in investment banking.
  6. Your Clients

    Events in 2016 That'll Alter Your Retirement Plans

    Retirement savers who are trying to see what lies ahead can expect these changes affecting their retirement plans in 2016.
  7. Term

    What is the Series 66?

    The Series 66 exam is one of two tests required to register as both a securities agent and an investment advisor.
  8. Professionals

    Internal Advisor Consultant: Career Path & Qualifications

    Discover more about the responsibilities of an internal advisor consultant, the average salary he can expect and the qualifications he will need for the job.
  9. Your Practice

    How Likely is a New Fiduciary Rule in 2016?

    New fiduciary standards for advisors working with retirement accounts are on the horizon. Will they become reality in 2016?
  10. Professionals

    Breaking Down Financial Securities Licenses

    Find out which exam you need to begin your career as an investment professional.
RELATED TERMS
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  4. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  5. Division Of Reserve Bank Operations ...

    An entity under the Federal Reserve System that manages certain ...
  6. Series 79

    A examination to ensure a candidate is qualified to become a ...
RELATED FAQS
  1. Do I have to be a U.S. citizen to sit for the Series 63 exam?

    United States citizenship is not required for Series 63 test-takers. Candidates may take the exam inside or outside the U.S. ... Read Full Answer >>
  2. My 120-day Series 63 exam window is about to close, but I need more time to study. ...

    Extensions are available on rare occasions. Candidates should apply for an extension with the North American Securities Administrators ... Read Full Answer >>
  3. Is there a limit on the number of times I can re-take the Series 63 exam?

    There is no limit to the number of times a candidate may retake the Series 63 exam. The North American Securities Administrators ... Read Full Answer >>
  4. How long must I wait after failing the Series 63 exam before I can take it again?

    Waiting periods are in place for candidates who wish to retake the Series 63 exam. Between retakes, the waiting period is ... Read Full Answer >>
  5. Are waivers granted to the 180-day waiting period to re-take the Series 63 exam?

    Candidates retaking the Series 63 exam must wait for 30 days after failing it on the first or second attempt. After failing ... Read Full Answer >>
  6. If I failed the Series 66, does the waiting period apply if I want to take the Series ...

    The waiting period only applies to retaking the same North American Securities Administrators Association (NASAA) exam. Candidates ... Read Full Answer >>
  7. Does NASAA or anyone else give out the series 63 exam questions?

    Outside of the proctored exam, no access to Series 63 exam questions is offered. Providing access to questions would invalidate ... Read Full Answer >>
  8. Are series 63 exams given outside of the United States?

    Series 63 exams are offered at authorized testing centers around the world. The exam does not require U.S. citizenship. Test ... Read Full Answer >>
  9. How often, and how, is a series 63 exam updated?

    Series 63 exams draw questions from a test bank based on state regulations, the Uniform Securities Act and North American ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center