What is an Unregistered Security?

By Staff Reporters



A security, most simply, is a financial instrument traded for profit. They form the basis of investment contracts for thinks like equities, debt, and derivatives.

CITE: https://www.r2library.com/Resource/Title/0826102549

The SEC points to the Howey Test to determine if an asset can be classed as a security. This test has four prongs, all of which need to be passed to be determined a security: [1] An investment of money [2] in a common enterprise [3] with expectations of a profit [4] to be derived from the efforts of others.

In the US, if an asset is deemed to be a security it needs to be registered with the SEC. For example, an initial public offering (IPO) of a stock newly listed on the stock exchange represents the first offering of its freshly registered securities. Securities need to be registered as it gives the issuing company the relevant shareholder information to pay dividends and provide relevant stock-related information. It also helps reduce fraud by keeping on record the legitimate owner of the security.

According to the SEC, an unregistered security is simply one that hasn’t been rubber-stamped by the regulator. 

Unregistered securities have been the subject of several scams, with the SEC saying their hallmarks include the promise of high yields with no risk, aggressive sales tactics, and are backed by unqualified investment professionals. As such, their use is limited.

Only accredited investors, defined as those with a net worth higher than $1 million or an annual income exceeding $200,000, can trade unregistered securities, essentially locking out most retail investors. The threshold is seen as a gauge of financial sophistication and suggests a buffer for eligible investors against potential losses.

RELATED: https://medicalexecutivepost.com/2022/01/14/the-private-placement-regulation-d-securities-exemption/



Thank You


ORDER: https://www.routledge.com/Comprehensive-Financial-Planning-Strategies-for-Doctors-and-Advisors-Best/Marcinko-Hetico/p/book/9781482240283


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: