Regulation of Securities - Stock Term Specifics

  • includes both certified and uncertified securities;
     
  • does not include an insurance or endowment policy or fixed annuity contract;
     
  • does not include an interest in a contributory or noncontributory pension or welfare plan subject to the Employee Retirement Income Security Act of 1974;
     
  • includes an investment in a common enterprise with the expectation of profits to be derived primarily from the efforts of a person other than the investor and a "common enterprise" - meaning an enterprise in which the fortunes of the investor are interwoven with those of either the person offering the investment, a third party, or other investors; and
     
  • includes, as an "investment contract", an interest in a limited partnership and a limited liability company and, an investment in a viatical settlement or similar agreement.
    • Viatical Settlement is an arrangement in which someone with a terminal disease sells his or her life insurance policy at a discount from its face value for ready cash. The buyer cashes in the full amount of the policy when the original owner dies.

 

Look Out!
The factor that determines if something is a security is whether the item is some sort of venture that could possibly return additional income. For example, if you were to purchase a portion of a contractual interest related to buying homes - in which you were not the direct owner of the home - you would have purchased a security. If you owned a collection of stamps, you would not have a security. However, if you owned a salable or tradable interest in the stamps, but not the stamps themselves, you would have a security. Lastly, domestic currency is not a security.

Example
Bob owns a fancy set of ties, which he considers extremely valuable. He decides to sell the ties on eBay™, putting them up for auction starting at $10,000. Has he created a security by initiating an electronic auction?

Answer
No, because the purchaser of the ties will receive them directly, and as far as we know, no third party benefited from the transaction - eBay™ only benefited by charging a fee, which does not qualify it as a broker-dealer.

Definition: Sale and Offer to Sell
Related Articles
  1. Professionals

    Top Strategies on How to Become a Stock Broker

  2. Professionals

    Should You Add A Securities License To Your Qualifications?

RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

RELATED FAQS

  1. If I have only a limited amount of time to study for the Series 6, what should I ...

    Learn what to focus on when studying for the Series 6 while reviewing important aspects of the exam, including its content ...
  2. What role does the 'chip cycle' play in the electronics sector?

    Read about some of the best and most popular test prep classes for the Series 6 FINRA securities licensing exam, including ...
  3. What does passing the Series 6 enable me to do?

    Learn more about the Series 6, what the examination and license are and what the license enables an individual to buy, sell ...
  4. What are the differences between the Series 6 exam and the Series 7 exam?

    Learn about the regulatory exams needed to become a limited or registered representative and the main differences between ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!