Differentiate between Horizontal and Vertical Commonality in the Howey Test.
Horizontal commonality focuses on the pooling of investors' funds, where the success or failure of the investment is shared pro-rata among all investors. Vertical commonality links the investor's success to the promoter's efforts.
Strict vertical commonality requires a direct relationship between the investor and promoter. Broad vertical commonality only requires that the investor's fortunes be tied to the promoter's efforts, not necessarily shared with other investors.
Glossar
Broad Vertical Commonality
Convergence ⎊ Broad Vertical Commonality, within cryptocurrency derivatives, signifies the increasing correlation of price movements across disparate asset classes ⎊ equities, fixed income, commodities ⎊ driven by macroeconomic factors and systemic risk transmission.
Strict Vertical Commonality
Alignment ⎊ Strict Vertical Commonality, within the context of cryptocurrency derivatives and financial engineering, denotes a precise correspondence between the pricing and risk characteristics of related instruments across different underlying assets or markets.
Vertical Commonality
Correlation ⎊ Vertical Commonality, within cryptocurrency derivatives, signifies the statistical relationship between the price movements of different assets or contracts, often extending beyond direct index exposure.