Quick Answer
Securities include the traditional instruments named in the statute (stocks, bonds, notes, debentures), pooled and participation interests (investment contracts, limited partnership interests, collateral-trust certificates), derivatives (warrants, rights, options), variable insurance products, and mutual fund shares. Grouping them this way, rather than memorizing one long list, makes the exam's classification questions faster to answer.
With the statutory definition and the Howey Test in hand, you can now identify the full range of instruments that qualify as securities under the Uniform Securities Act (USA).
Which Traditional Instruments Are Securities?
These instruments are explicitly named in the USA definition. Every one is a security except notes, which are only presumed to be securities and can rebut that presumption (see the "Definition of Security" lesson):
| Instrument | Key Detail |
|---|---|
| Common stock | Equity ownership in a corporation with voting rights |
| Preferred stock | Equity with priority dividends, usually no voting rights |
| Treasury stock | Previously issued stock reacquired by the corporation |
| Bonds | Debt obligations of corporations or governments |
| Debentures | Unsecured corporate debt (backed only by creditworthiness) |
| Notes | Debt instruments; presumed to be securities |
| Evidence of indebtedness | Broad category covering various debt instruments |
Which Pooled Interests Are Securities?
These instruments qualify as securities because they involve pooled investments or participation in profits:
| Instrument | Key Detail |
|---|---|
| Investment contracts | Determined by the Howey Test |
| Certificates of interest or participation in a profit-sharing agreement | E.g., interests in a limited partnership |
| Collateral-trust certificates | Certificates backed by a pool of collateral |
| Preorganization certificates or subscriptions | Subscriptions to buy stock before a company is formally organized |
| Transferable shares | Shares that can be transferred between investors |
| Voting-trust certificates | Certificates issued when shareholders transfer voting rights to a trustee |
| Oil, gas, or mining interests | Certificates of interest or participation in production payments |
Which Derivative Instruments Are Securities?
| Instrument | Key Detail |
|---|---|
| Warrants | Rights to purchase a security at a specified price |
| Rights | Short-term privileges to subscribe to new shares |
| Options | Rights to buy or sell a security at a specified price |
| Certificates of deposit for a security | A receipt showing that a security has been deposited somewhere |
Exam Tip: Gotchas
- A certificate of deposit for a security is NOT the same as a bank CD. A bank CD is NOT a security. A certificate of deposit for a security is essentially a receipt for a deposited security; it IS a security. This distinction is frequently tested.
Why Are Variable Insurance Products Securities?
| Instrument | Key Detail |
|---|---|
| Variable annuities | Annuity where the payout varies based on investment performance |
| Variable life insurance | Life insurance with an investment component tied to market performance |
Why are variable products securities?
- In variable products, the investment risk is borne by the policyholder: the payout depends on how the underlying investments perform
- In fixed products (not securities), the insurance company bears the investment risk and guarantees a fixed payout
- The Supreme Court confirmed in SEC v. Variable Annuity Life Insurance Co. (1959) that variable annuities are securities under federal law
Exam Tip: Gotchas
- "Variable" versus "fixed" in the product name is a strong clue, not the controlling test. The controlling question is who bears the investment risk: the policyholder (security) or the insurer (not a security). Do not rely on the label alone if a question describes the product's actual risk allocation.
When Are Mutual Fund and LLC Interests Securities?
| Instrument | Key Detail |
|---|---|
| Mutual fund shares | Shares in open-end investment companies |
| Limited partnership interests | Typically qualify as investment contracts (passive investors rely on an active general partner) |
| Interests in LLCs | When investors are passive and meet the Howey Test |
Limited partnerships are a classic Howey Test example:
- Limited partners invest money (prong 1)
- Their capital is pooled in a common enterprise (prong 2)
- They expect profits (prong 3)
- Profits come from the general partner's management efforts (prong 4)
Exam Tip: Gotchas
- Not all LLC interests are securities. Only when the members are passive and the Howey Test is met does an LLC interest qualify as a security. If a member's own efforts, rather than a manager's, primarily drive the profits, prong 4 fails.
What Should You Check on Exam Day?
- Sort the instrument into a family (traditional, pooled/participation, derivative, variable insurance, or passive interest) instead of scanning one long list.
- Check who bears the investment risk before classifying an insurance product.
- Confirm passive investor status before calling an LLC or limited partnership interest a security.