Restricted Security

Restricted Security

A stock or right that one acquires through some means other than the open market. One may receive a restricted security through a merger or acquisition, private placement prior to an IPO, or sometimes through a stock option. A restricted security is not registered with the SEC and thus may not be sold publicly until registration has been made. It is less commonly called a letter security.

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restricted security

A security that has not been registered with the SEC and therefore may not be sold publicly. These securities frequently enter portfolios of institutional investors through private placements and are sometimes registered at a later date. Also called letter bond, letter security, letter stock, unregistered security.

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Restricted security. Restricted securities are stocks or warrants that you acquire privately, through stock options or a corporate merger, rather than by buying them in the open market.

For example, you may receive restricted stock if you put money into a startup company.

If the company has not yet registered with the Securities and Exchange Commission (SEC) for an initial public offering (IPO), its securities cannot be transferred or resold until the issuing company meets the SEC registration requirements for publicly traded securities.

If you exercise stock options and buy stock at a reduced price, you may be required to hold those stocks for a period of time before liquidating them.