What is a Security?

Cite this article as:"What is a Security?," in The Business Professor, updated January 14, 2015, last accessed November 26, 2020, https://thebusinessprofessor.com/lesson/what-is-a-security/.
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What is a Security?
This video explains what is the definition of a security under the Securities Laws.

Next Article: Investment Contract – Securities Law


What is a “security”?

Most people think of a security as simply stock or other ownership units of a business entity; however, the statutory definition of a security is far more extensive. The term “security” means any,

“note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral trust certificate, pre-organizational certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate or deposit, or group or index 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 commonly known as a security.”

The definition of a security is broad, but it leaves open the inclusion of any interest not identified within the definition, but that the court deems to constitute a security. There is a great deal of common law surrounding the judicial interpretation of what constitutes a security. Most notably, the term “investment contract” from the definition of a security is construed very broadly and is somewhat of catch-all for business interests that may constitute a security.

•    Discussion: Why do you think Congress applied such a broad definition of what constitutes a security? Does the fact that common law goes much further to define a security affect your opinion about the suitability of the statutory definition?

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