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I have never quite understood the definition of a security. The Wikipedia article doesn't really help, unfortunately.

tptacek 8y ago
If you use the shorthand "tradable financial instruments sold in anticipation of appreciation or money returns" you won't be far off. The law in the US makes a sort of essential determination that no reasonable person stakes their livelihood on the appreciation of a pair of exclusive sneakers, which is why Instagram "influencers" aren't generally on shaky legal ground.
- patio11 8y ago
  My nitpick is that "tradable" is non-central to the definition, even though most things that people think of as securities are both tradable in theory and have active markets in them. A security without an active market in it? Still a security. A security which can't be traded even theoretically? Still a security. A reason to make this nitpick is that promoters sometimes use "Oh this is just a commercial relationship between business partners and we're locking you into it in all sorts of interesting ways; therefore, we're not offering a security" as an argument. The government takes a dim view of it. (This was a major issue in the fractional orange groves case.)
  - tptacek 8y ago
    I agree; another colorable shorthand might be "if someone can plausibly claim it's a security, it's probably a security". I think the important bit for this thread is to distinguish between product endorsement and investment endorsement. The law, of course, sees those as two very different things.
csomar 8y ago
It is a trade-able asset. Unlike a product, you expect a trade-able asset to increase in price (that's why you buy it).
patio11 8y ago
In US law a) it's duck-typed and b) the relevant question is "Is the pitch to the buyer 'Purchase this thing and, through another person's efforts, you will make money.'? Then it's almost always a security." Quoting Marine Bank v. Weaver: > The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'" The formal definition: > The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

If you use the shorthand "tradable financial instruments sold in anticipation of appreciation or money returns" you won't be far off. The law in the US makes a sort of essential determination that no reasonable person stakes their livelihood on the appreciation of a pair of exclusive sneakers, which is why Instagram "influencers" aren't generally on shaky legal ground.

patio11 8y ago
My nitpick is that "tradable" is non-central to the definition, even though most things that people think of as securities are both tradable in theory and have active markets in them. A security without an active market in it? Still a security. A security which can't be traded even theoretically? Still a security. A reason to make this nitpick is that promoters sometimes use "Oh this is just a commercial relationship between business partners and we're locking you into it in all sorts of interesting ways; therefore, we're not offering a security" as an argument. The government takes a dim view of it. (This was a major issue in the fractional orange groves case.)
- tptacek 8y ago
  I agree; another colorable shorthand might be "if someone can plausibly claim it's a security, it's probably a security". I think the important bit for this thread is to distinguish between product endorsement and investment endorsement. The law, of course, sees those as two very different things.

csomar 8y ago

It is a trade-able asset. Unlike a product, you expect a trade-able asset to increase in price (that's why you buy it).

patio11 8y ago

In US law a) it's duck-typed and b) the relevant question is "Is the pitch to the buyer 'Purchase this thing and, through another person's efforts, you will make money.'? Then it's almost always a security." Quoting Marine Bank v. Weaver: > The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'" The formal definition: > The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.