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Welcome to Part 2 of our blog series on what is a security. In this we’re going through the definition of a security as written in the Nova Scotia Securities Act and explain it in clearer more understandable language. Last week in Part 1 we looked at the first six of the 18 things from the Act that are considered to be a security. Today we continue with the next five.
(vii) any agreement providing that money received will be repaid or treated as a subscription to shares, stock, units or interests at the option of the recipient or of any person or company,
This definition catches another way in which shares or other interests could be issued to a person, even if it isn’t structured as a straightforward sale.
(viii) any certificate of share or interest in a trust, estate or association,
It’s not only corporations that can issue securities. An interest in one of these other types of entities may also be a security.
(ix) any profit-sharing agreement or certificate,
Just because something is not called a security, or doesn’t take the form of a share of a corporation, doesn’t mean it isn’t a security. This could include an agreement between two individuals where one individual provides money to start a business and the other individual operates the business with the intention that they will both share the profits.
(x) any certificate of interest in an oil, natural gas or mining lease, claim or royalty voting trust certificate,
Selling interests in the production of an asset is a common form of financing in the resource sector.
(xi) any oil or natural gas royalties or leases or fractional or other interest therein
See the previous subsection.
February 16, 2022 – What is a security anyway? Part 3
Our three-part series on what is a security concludes today with Part 3. In the Part 1 and Part 2 we began looking at the 18 things from the securities act that are considered to be securities. We finish off the list in Part 3 with the remaining six.
(xii) any collateral trust certificate,
A collateral trust certificate is a bond that is secured by one or more financial assets – such as shares or other bonds – that are deposited and held by a trustee for the holders of the bond. The bond is perceived as a safer investment than an unsecured bond since the assets could be sold to pay the bondholder, if necessary.
(xiii) any income or annuity contract not issued by an insurance company,
Another reminder that insurance products are not securities.
(xiv) any investment contract,
We’ve mentioned investment contracts before in our post on the Howey Test. As stated in the post an agreement is considered to be an investment contract, and thus a security if:
1. It involves an investment of money
2. There is an expectation of profit
3. It is a common enterprise
4. The profit is generated at least partly by the efforts of someone other than the investor
(xv) any document constituting evidence of an interest in a scholarship or educational plan or trust,
Through this section a fund invested in a Registered Education Savings Plan (RESP) are considered to be a security. This includes group plans.
(xvi) any contract or instrument or class of contracts or instruments that is designated as a security under Section 30A, and
The Commission can, if it considers that it would not be prejudicial to the public interest to do so, make the decision that a contract, or instrument, or a class of contracts or instruments, that is not caught by one of these definitions is, nevertheless, a security so that securities legislation applies. In Nova Scotia, Designation Order 91-502 designates certain over-the-counter derivatives to be securities for the purpose of the prospectus requirement.
(xvii) any contract or instrument or class of contracts or instruments that is prescribed as a security,
As with the previous provision, something that is not caught by one of the other definitions can, in the regulation to the Securities Act, be determined to be a security.