Securities Regulation


Since notes are listed in the statute, they are securities by default. However, Congress clearly could not have meant all notes. Thus, the courts have come up with the family resemblance test. There are certain families of notes that Congress could not have meant, so to the extent that a note resembles one on the list, it is not a security.

The Supreme Court in Reves identified four factors to consider in comparing similarity and contemplating adding to the list:

  1. The motivations for entering into the contract.
    • A seller looking to raise money for his business and a buyer looking to make a profit would indicate a security.
    • Facilitating the purchase of a minor asset or consumer good, correcting for the seller's cash-flow difficulties, or advancing another commercial or consumer purpose is likely to not be a security.
  2. The "plan of distribution" of the instrument to determine if there is a "common trading for speculation or investment."
  3. The reasonable expectations of the investing public.
  4. Whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument.