Series 66

AAA

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
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