What Are Investment Securities Under the Uniform Commercial Code?

Definition

A security, as defined by the revised UCC, is a negotiable instrument representing an interest, share or participation in a property or enterprise of a person or a corporation (the "issuer"). It can be either "certificated" or "uncertificated." A certificated security is a negotiable instrument represented by a written document and an uncertificated security is an interest in the enterprise of the issuer that is not represented by a written instrument. Investment securities are certificates or documents representing an equity interest (equity securities) or a lending of money to a company (debt securities).

Common stocks are equity securities. An equity interest issued by a corporation, joint stock company, trust or similar enterprise is also a security under Article 8 of the UCC. An equity interest issued by a registered investment company under federal investment company laws, in a unit investment trust or a face-amount certificate is also considered a security. An interest in a partnership or limited-liability enterprise is considered a security only if it is traded in the securities markets, expressly provides that it is a security subject to Article 8 of the UCC, or is an investment company security. Bank notes, bonds and treasury bills are examples of debt securities.

Investment in partnerships and limited-liability companies that do not meet the stated exceptions, or if they are held in a security account, are considered "financial assets," not securities. Likewise, options, commodity contracts and security certificates held in a securities account are considered financial assets. Other instruments that are not considered securities are endowment policies, insurance policies or annuity contracts issued by an insurance company.

Statements and notices of uncertificated securities sent by the issuer are not considered certificated securities, and they are not negotiable instruments. The terms of a certificated security are stated on the security. The terms of an uncertificated security are those appearing in the initial transaction statement.