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.
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.
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?
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.
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