Computer Education IT

Important Terms ….

 

A

AAA                                         American Arbitration Association

 

ACES                                      See Advanced Computerized Execution System

 

ACTSM                                     See Automated Confirmation Transaction ServiceSM

 

ADR                                        See American Depositary Receipt

 

Advanced Computerized Execution System (ACES)

 

Customized facility offered by the NASD that permits broker/dealers to automate their internal execution and record-keeping functions.

 

advertising review

 

A regulatory service provided by NASD to ensure that advertising and sales literature used by members conforms to NASD and Securities and Exchange Commission standards of fairness and accuracy.

 

affirmative obligations

 

Requirements imposed on Nasdaq Market Makers by NASD. These include quoting firm prices, making two-sided markets on a continuous basis, participating in the Small Order Execution System, and reporting price and volume data for each transaction in a Nasdaq security within 90 seconds of execution. (See Market Maker, Small Order Execution System, two-sided market)

 

aftermarket

 

Trading activity in a security immediately following its initial offering to the public.

 

agency order

 

An order that a broker/dealer executes for the account of a customer with another professional or retail investor and for which a commission is typically charged. (See principal orders)

 

American Depositary Receipt (ADR)

 

A U.S. security that is a repackaged foreign security. A U.S. bank creates an ADR based on evidence of ownership of a specified number of shares in the foreign security, while the underlying shares are held in a depositary in the issuing company’s home country. U.S. investors may buy shares in the foreign company in the form of an ADR. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities.

 

AMEX                                      American Stock Exchange.

 


Amivest Liquidity Ratio

 

The Amivest Liquidity Ratio is one type of liquidity measurement which represents the dollar value of trading associated with a one percent change in share price. Amivest is the “creator” of this liquidity measurement. (See liquidity ratio)

 

analysts                                  See securities analyst

 

annual report (10 K)

 

Public companies are required to file an annual report with the Securities and Exchange Commission detailing the preceding year’s financial results and plans for the upcoming year. Its regulatory version is called “Form 10 K.” The report contains financial information concerning a company’s assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication. (See management’s discussion and analysis)

 

answer

 

A respondent’s written reply to a claim. (See arbitration, claim)

 

APTC                                      See Association of Publicly Traded Companies

 

arbitral immunity

 

Arbitrators are protected from suits arising out of their quasijudicial conduct in arbitration proceedings. (See arbitrator)

 

arbitrage

 

Arbitrage involves the simultaneous purchase of a security in one market and the sale of it or a derivative product in another market to profit from price differentials between the two markets. (See derivative)

 

arbitration

 

A method where conflict between two or more parties is resolved by impartial persons – arbitrators – who are knowledgeable in the areas in controversy. (See mediation)

 

arbitration counsel or arbitration administrator

 

The person at the sponsoring organization who handles administrative matters in arbitration proceedings. (See arbitration)

 

arbitrator

 

A private, disinterested person chosen to decide disputes between parties. (See arbitration)

 

Arbitrators Code of Ethics

 

A guide for the conduct and ethical responsibilities of arbitrators in commercial disputes.

 

ask price (offer price)

 

The price at which a Market Maker is willing to sell a security. (See Market Maker, best ask)

 

associated person

 

A person engaged in the investment banking or securities business who is directly or indirectly controlled by an NASD member, whether or not this person is registered or exempt from registration with NASD. Every sole proprietor, partner, officer, director, or branch manager of any NASD member.

 

Association of Publicly Traded Companies (APTC, formerly NAOTC)

 

This organization, which is not connected with NASD, provides publicly-traded companies with a forum for addressing regulatory and legislative issues that affect them.

 

auction market

 

Stock exchanges, like the New York Stock Exchange and the American Stock Exchange, are auction markets where buyers and sellers meet through a specialist. (See dealermarket, Market Maker, specialist)

 

Automated Confirmation Transaction ServiceSM (ACTSM)

 

NASD service that allows parties to a telephone negotiation to speed the steps involved in completing a transaction.

 

award

 

The written determination of the arbitrator.

 

B

bear and bull markets

 

A bear market is one in which prices are low or declining; a bull market is one in which prices are high or rising.

 

bear market                           See bear and bull markets above

 

beneficial owner

 

A person who benefits from ownership of a security or mutual fund. Shares or title may be held by a bank or broker for safety and convenience, or in “street name” to expedite transactions, but the real owner is the beneficial owner. (See street name)

 

best ask

 

The lowest quoted offer of all competing Market Makers to sell a particular stock at any given time. (See Market Maker)

 

best bid

 

The highest quoted bid of all competing Market Makers to buy a particular stock at any given time. (See Market Maker, bid price)

 

best-efforts underwriting

 

An investment bank, acting as an agent, agrees to do its best to sell an issue to the public, but does not make an outright purchase of the securities. (See underwriter)

 

best-execution requirement

 

The obligation of Market Makers, broker/dealers, and others to execute customer orders at the best price available at the time the trade is entered. (See Market Maker)

 

beta

 

A statistical measure of a stock’s volatility compared with the overall market. A beta of less than 1 indicates lower risk than the market; a beta of more than 1 indicates higher risk than the market. (See volatility)

 

bid price (buy price)

 

The quoted bid at which a Market Maker is willing to buy a stock. (See Market Maker, best bid)

 

bid/ask spread

 

The difference between the price at which a Market Maker is willing to buy a security (bid), and the price at which the firm is willing to sell it (ask). The spread narrows or widens according to the supply and demand for the security being traded. (See inside quote, spread)

 

block trade

 

A purchase or sale of a large quantity of stock, generally 10,000 shares or more.

 

blue-sky laws

 

State laws that require issuers of securities to register their offerings with the state before they can be sold to its residents. Most blue-sky laws include provisions relating to fraudulent activities and the licensing of people selling securities. Nasdaq National Market securities, subject to higher qualifications standards, are exempted from registration requirements under most states’ blue-sky laws as are those listed on exchanges.

 

Board of Governors             The controlling body of NASD.

 

bond

 

A long-term promissory note in which the issuer agrees to pay the owner the amount of the face value on a future date and to pay interest at a specified rate at regular intervals.

 

 

book manager or syndicate manager          See syndicate manager

 

branch office

 

Any location identified by any means to the public or customers as a location at which an NASD member conducts investment banking or securities business.

 

broker

 

An individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission. (See dealer)

 

broker/dealer

 

NASD member firms that act as securities dealers or brokers, or perform both functions. (See broker above, dealer)

 

bull market                             See bear and bull markets

 

buy price                                See bid price

 

buy-side trader

 

An individual, such as a pension or mutual fund portfolio manager, who effects trades for an institutional investor. (See sell-side trader)

 

by-laws                                   See NASD By-Laws

 

C

CAES                                     See Computer Assisted Execution System

 

call                                        

 

Bonds: The right to redeem outstanding bonds before their scheduled maturity. Options: The right to buy a specific number of shares at a specified price by a fixed date. (See put)

 

capital commitment
                                              

The financial investment Market Makers carry in inventories of stocks in which they make markets. (See Market Maker)

 

Central Computer Complex
                                              

The facility in Trumbull, Connecticut, where The Nasdaq Stock Market’s mainframe computers are located. The computer complex is linked to more than 3,400 Nasdaq terminals in securities firms and financial institutions. The system processes more than 1 million transactions per day. Nasdaq is also the only stock market in the world with a fully redundant disaster recovery facility, located in Rockville, Maryland.

 

Central Registration Depository (CRD)                                                                                       

 

A computerized system in which NASD maintains the employment, qualification, and disciplinary histories of more then 400,000 securities industry professionals who deal with the public.

 

Chinese Wall                       

 

A term used to describe procedures enforced within a securities firm that separate the firm’s departments to restrict access to non-public, material information. The procedures help NASD members avoid the illegal use “inside” information.

 

churning                                See excessive trading

 

circuit breaker                     

 

A procedure that temporarily halts trading on all U.S. stock markets for one hour when the Dow Jones Industrial Average falls 250 points or more within a trading day. The pause is designed to allow time for the markets to absorb the news that precipitated the decline. Should the average fall another 150 points within the same day, trading would again be halted, this time for two hours.

 

claim                                      A demand for money or other relief. (See arbitration)

 

clearance                             

 

The conclusion of an exchange of securities. (See settlement)

 

co-manager                           See co-underwriter below

 

 

co-underwriter                    

 

Almost all public offerings are co-managed by a “co-underwriter.” (See underwriter)

 

comfort letter                      

 

An accounting firm’s statement provided to a company preparing to go public. The letter indicates the accountants’ comfort that unaudited financial data in the company’s prospectus consistently follow generally accepted accounting principles, and no material changes have occurred since the report was prepared. (See Generally Accepted Accounting Principles, prospectus)

 

commission                          

 

Fees paid to a broker for executing a trade based on the number of shares traded or the dollar amount of the trade.

 

Committee on Uniform Security Identification Procedures (CUSIP) number                         

 

A unique nine-character alpha/numeric code appearing on the face of each stock certificate that is assigned to a security by Standard & Poor’s Corporation. The number is used to expedite clearance and settlement. (See clearance, settlement, Standard & Poor’s)

 

common stock                     

 

A class of securities representing ownership and control in a corporation and that may pay dividends as well as appreciate in value. (See preferred stock)

 

compliance departments                                                                                                      

 

Departments set up in all organized stock markets to oversee market activity and make sure that trading complies with Securities and exchange Commission and other Exchange regulation.

 

Composite Quotation Service         See Consolidated Quotation System

 

Computer Assisted Execution System (CAES)                                                                            

 

Nasdaq service that automates order routing and execution for securities listed on domestic exchanges in the Intermarket Trading System (ITS). When linked to ITS, Market Makers can execute trades in exchange-listed securities through CAES with specialists on an exchange floor. (See Intermarket Trading System, Market Maker, specialist)

 

computer-to-computer interface (CTCI)                                                                                      

 

High speed communication interface between large member firms’ mainframes and the Nasdaq system for more efficient transfer of information.

 

confirmation                        

 

Formal memorandum from a broker to a client giving details of securities transaction. When a broker acts as a dealer, the confirmation must disclose that fact to a customer.

 

Consolidated Quotation System (CQS)                                                                                        

 

An electronic service that provides quotations on issues listed on the New York and American stock exchanges, regional stock exchanges, and issues traded by NASD member firms in the third market. Nasdaq processes this data and provides it to its subscribers as the Composite Quotation Service. The initials may be used either for the exchange system or Nasdaq service. (See third market)

 

Consolidated Tape Association (CTA)                                                                                         

 

Operating authority for exchange-listed securities information.

 

convertible bond                

 

A bond that can be exchanged at the option of the holder into preferred or common stock at a preset ratio. (See common stock, preferred stock)

 

counterclaim                        

 

A claim against the claimant in an arbitration. (See claim)

 

cooling-off period               

 

The period after a company’s prospectus has been filed with the Securities and Exchange Commission and before offering is made to the public.

 

corporate financing review                                                                                                            

 

A regulatory service of NASD that ensures the underwriting terms and conditions of public companies are fair and in the interests of the issuing company and its investors.

 

corporate governance standards                                                                                                 

 

The non-quantitative qualification standards for companies whose securities are traded on Nasdaq.

 

cost of capital                      

 

The rate that a company must pay for its capital or the minimum return that is required to maintain the market value of a company’s common stock. Cost of capital reflects the market’s perception of the risk associated with a company’s common stock.

 

CQS                                       See Consolidated Quotation System

 

CRD                                       See Central Registration Depository

 

credit and debit balance                                                                                                       

 

A credit balance represents monies owed to a customer by a broker/dealer, generally resulting from the customer’s sale of securities. Debit balances are monies owed to a broker/dealer by a customer, generally resulting from the customer’s purchase of securities.

 

credit balance                      See credit and debit balance above

 

crossed quotations             See locked or crossed quotations

 

CTA                                        See Consolidated Tape Association

 

CTCI                                      See Computer-to-Computer Interface

 

CUSIP number             See Committee on Uniform Security Identification Procedures number

 

customer agreement   See new account information form

 

 

 

customer protection rule                                                                                                      

 

An SEC rule that requires broker/dealers to establish separate reserve accounts into which customer credit balances are maintained. The rule prohibits a firm from using customer balances to finance its own trading. The rule also requires firms to gain possession of customers’ fully paid and excess margin securities promptly, and to segregate them properly. (See prompt receipt and delivery of securities)

 

D

DBCC                                    See District Business Conduct Committee

 

dealer                                   

 

Any person or company in the business of buying and selling securities for his or her own account, through a broker or otherwise. (See broker)

 

dealer market                      

 

Nasdaq is a competing dealer market, different from an auction market in that many dealers, called Market Makers, use their own capital, research, retail, and/or systems resources to represent a stock. Many Market Makers can represent the same stock; thus, they compete with each other to buy and sell that stock. Auction markets have only one person, a specialist, who in a centralized location or “floor,” matches incoming orders to buy and sell each stock. Specialists are not allowed to provide research or retail sales support, and are limited to only one firm’s available capital. The average Nasdaq stock has eleven Market Making firms that risk and invest their capital.

 

dealer spread                       See house spread

 

debenture                            

 

An unsecured bond backed solely by the general credit of a company.

 

debit balance                        See credit and debit balance

 

deleted                                  A security is no longer included in The Nasdaq Stock Market.

 

depositary bank                  

 

When a company decides to issue American Depositary Receipts, it appoints an authorized depositary, normally part of a large U.S. banking institution or trust company. (See American Depositary Receipts)

 

depth of market                   

 

The number of shares of a security that can be bought or sold at the bid and ask prices near the market without causing a dramatic change in price. (See liquidity ratio)

 

derivative                            

 

A generic term often applied to a wide variety of financial instruments that derive their cash flows, and therefore their value, by reference to an underlying asset, reference rate, or index.

 

Digital Interface Service Character Interface Presentation Server (DIS/CHIPS)                  

 

An alternative to Nasdaq Workstation II service for Nasdaq Level 3 users, DIS/CHIPS connects the Nasdaq network directly to a firm’s computer system, allowing the firms to customize functionality for its traders.

 

direct participation programs (DPP)                                                                                             

 

Partnership agreements that provide a flow-through of tax consequences to the participants.

 

DIS/CHIPS                            

 

See Digital Interface Service/Character Interface Presentation Server above

 

discretionary account        

 

An account empowering a broker or adviser to buy and sell without the client’s prior knowledge and consent.

 

distribution capability         

 

An investment banker or underwriter’s ability to sell shares.

 

District Business Conduct Committee (DBCC)                                                                          

 

The local enforcement arm of NASD. DBCCs are composed of the securities industry members who are elected to their positions by their fellow professionals to enforce compliance with the NASD By-Laws and Rules of Fair Practice, federal securities laws, rules and regulations, the rules of the Municipal Securities Rulemaking Board, and other applicable securities regulations. Each of NASD’s 11 Districts elects a DBCC.

 

dividend                               

 

Distributions to stockholders of cash or stock declared by the company’s board of directors.

 

dividend notification          

 

A requirement that companies notify the Uniform Practice Department of The Nasdaq Stock Market at least 10 days in advance of the record date of a stock dividend so that Nasdaq can set the ex-dividend date. (See ex-dividend date)

 

downtick                               

 

A transaction executed at a price lower than the preceding transaction in that security, or a new quote registered at a lower price than the preceding quote in that security. (See uptick)

 

DPP                                        See direct participation programs

 

due diligence                      

 

A thorough investigation of a company that is preparing to go public, undertaken by the company’s underwriter and accounting firm.

 

E

ECN                                     See electronic communication network (ECN)

 

EDGAR                               

 

Electronic Data Gathering, Analysis, and Retrieval (EDGAR)–An electronic system developed by the Securities and Exchange Commission. EDGAR permits companies to file electronically with the SEC all documents required for securities offerings and ongoing disclosure obligations. EDGAR became fully operational mid-1995. (See Securities and Exchange Commission)

 

electronic communication network (ECN)                                                                                   

 

Any electronic system that widely disseminates to third parties orders entered by an exchange Market Maker or OTC Market Maker, and permits such orders to be executed against in whole or in part. (See Market Maker)

 

eligibility rules                  

 

The Code of Arbitration states that no claim shall be eligible for submission to arbitration where six years have elapsed from the occurrence or event giving rise to the controversy.

 

equity                                 

 

The ownership interest of stockholders in a company. Also, the excess of the market value of securities over debit balances in a margin account. (See credit and debit balance, margin)

 

excessive trading             

 

A broker excessively trades an account for the purpose of increasing his or her commissions, rather than to further the customer’s investment goals.

 

ex-dividend date              

 

The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price. (See dividend, dividend notification)

 

excess spread policy                                                                                                            

 

The NASD requirement that prohibits Market Makers from entering quotations on The Nasdaq Stock Market that exceed prescribed limits for maximum allowable spreads. (See Market Maker, spread, two-sided market)

 

ex parte communication                                                                                                       

 

Communication by one party only with the arbitrator. (See arbitration)

 

executive sessions          

 

A private conference between the arbitrators during the course of the hearing to determine matters that have arisen such as evidentiary objections or motions.

 

F

failure to execute                The failure of a broker to execute an order of his or her customer.

 

FAQS                                     See Firm Access and Query System

 

Federal Reserve System                                                                                                      

 

A federal government institution created by Congress to administer the nation’s credit and monetary policies.  Among other things, the Board of Governors of the Federal Reserve System sets the initial amount of credit that broker/dealers (as well as other lenders) may extend to customers to purchase securities.

 

Federation Internationale des Bourses de Valeurs (FIBV)                                                       

 

The organization of the world’s stock markets, headquartered in Paris. FIBV encourages cooperative policies designed to stimulate a free flow of capital across national boundaries. NASD became an associate member of FIBV in 1992.

 

FIBV                                       See Federation Internationale des Bourses de Valeurs above

 

filing                                      

 

Delivery to the Director of Arbitration of the statement of claim or other pleadings, to be kept on file as a matter of record and reference.

 

financial printer                   

 

An experienced financial printer that is familiar with Securities and Exchange Commission regulations governing the graphic presentation of a prospectus. (See prospectusred herring prospectus)

 

FIPSSM                                   See Fixed Income Pricing SystemSM

 

Firm Access and Query System (FAQS)                                                                                       

 

NASD system that allows participating members computer access to their registration and examination data maintained in the Central Registration Depository. Members may use FAQS to schedule qualification examinations, and review their CRD accounting, balance and activity. (See Central Registration Depository)

 

firm-commitment underwriting   See underwriter

 

firm quotation                      

 

The NASD requirement that a Market Maker execute an order from another broker/dealer at its displayed Nasdaq price for the normal unit of trading, or for its displayed size, whichever is greater. (See Market Maker)

 

Fixed Income Pricing SystemSM (FIPSSM)                                                                                     

 

A system designed by NASD to centralize quotations and trade reporting for high-yield and other debt securities. FIPS will soon be replaced by a new system TRACE — Trade Reporting and Compliance Engine.

 

foreign                                  

 

A non-U.S. company with securities trading on The Nasdaq Stock Market.

 

Form 10 K                              See annual report

 

Form 20-F                             

 

A Securities and Exchange Commission 1934 Act registration statement and annual report form typically used by foreign issuers.

 

Form 6-K                              

 

The Securities and Exchange Commission form for non-U.S. issuers to make periodic reports.

 

Form F-1                               

 

The Securities and Exchange Commission 1933 Act form registering the securities of a non-U.S. company to be issued as part of a public offering.

 

Form U-4                              

 

NASD uniform application for security industry registration or transfer.

 

Form U-5                               NASD uniform termination notice for security industry registration.

 

forum fee                              Fee charged by NASD (or other forum) for the use of its facilities.

 

fourth market                       

 

The direct trading of large blocks of securities between institutional investors through a computer network. (See INSTINET, third market)

 

fraud                                      See misrepresentation

 

G

GAAP                                     See Generally Accepted Accounting Principles below

 

Generally Accepted Accounting Principles (GAAP)                                                                    

 

Rules, conventions, standards, and procedures that are widely accepted among financial accountants. Since 1973, GAAP doctrine has been established by the Financial Accounting Standards Board (FASB), an independent, self-regulating organization.

 

going-concern value          

 

The value of a company as an operating business to another company or individual. (See goodwill below)

 

goodwill                                

 

The going-concern value of a company in excess of its asset value; goodwill is considered an intangible asset. Generally, it is the value of the business’ good name, its customer relations, high employee morale, and other factors that might translate into earning power. Nasdaq’s calculation of net tangible asset value excludes goodwill. (See going-concern value)

 

Government securities broker                                                                                                      

 

Any person or company regularly engaged in the business of effecting transactions in government securities for the account of others. The definition does not include corporations that issue securities exempted by the Secretary of the Treasury, corporations that are empowered by law to issue exempt securities, banks or other insured financial institutions.

 

green shoe

                                              

A provision in an underwriting agreement that if there is an exceptional public demand, an issuer will authorize additional shares for distribution by the syndicate. (See issuer, syndicate, underwriter)

 

H

held                                      

 

A situation where a security is temporarily not available for trading. Market Makers are not allowed to display quotes of held securities.

 

 

house                                   

 

A person or company doing business as a broker or dealer in securities, investment banking, or related services.

 

I

house spread                      

 

Among Market Maker firms, the house spread is the difference between the highest price bid for a security, and the highest price asked the difference between best bid and best ask. (See best ask, best bid, inside market, inside quote)

 

hypothecation                     

 

Pledging of securities or other assets as collateral to secure a loan, such as a debit balance in a margin account. (See debit balance, margin)

 

ICI                                           See Investment Company Institute

 

ICSD                                      See International Councils of Securities Dealers

 

IMAB                                      See International Markets Advisory Board

 

individual investor             

 

A person who buys or sells securities for his or her own account. The individual investor is also called a retail investor or retail shareholder.

 

INSTINET                              See The Institutional Networks Corporation

 

IOSCO                                   See International Organization of Securities Commissions

 

initial public offering (IPO)                                                                                                   

 

A company’s first sale of stock to the public. Companies making an IPO are seeking outside equity capital and a public market for their stock. (See syndicate, underwriter)

 

Industry Support Information Services (ISIS)                                                                             

 

The ISIS system supports all NASD regulatory activities set forth in its charter and the Securities Exchange Act of 1934. The system includes information applications for securities industry personnel and issuer companies, including databases on registered personnel, issues, members, and market data users.

 

inside market                       

 

The highest bid and the lowest ask (offer) prices among all Market Makers competing in a Nasdaq security; the best bid and ask prices for a security. (See best bid, best ask)

 

inside quote                         See inside spread below

 

inside spread (inside quote)                                                                                                          

 

The difference between the best bid and best ask among all securities is the highest bid and lowest offer being quoted among all of the Market Makers competing in a security. Since the spread is the aggregate of individual Market Maker spreads, it is narrower than an individual dealer spread or quote. (See Market Maker, Market Maker spread)

 

institutional investor          

 

A bank, mutual fund, pension fund, or other corporate entity that trades securities in large volumes. (See also buy-side trader, fourth market, qualified institutional investor)

 

Institutional Networks Corporation (INSTINET)                                                                         

 

A computerized service that allows subscribers to display tentative bid and ask quotes. INSTINET registered as a stock exchange with the Securities and Exchange Commission; it supports the “fourth market.” (See fourth market, SelectNet)

 

Intermarket Surveillance Group (ISG)                                                                                         

 

A group that coordinates surveillance and investigations among NASD and other U.S. and foreign exchanges trading in securities, options, and futures and foreign securities. (See market surveillance)

 

Intermarket Trading System (ITS)                                                                                                 

 

A computer system that interconnects competing exchange markets for the purpose of choosing the best market. ITS is operated by Securities Industry Automation Corporation (SIAC). (See Computer Assisted Execution System)

 

International Councils of Securities Dealers (ICSD)                                                                  

 

An international organization of self-regulatory and securities-industry organizations. ICSD seeks to foster mutual understanding among members, and to promote stable and efficient securities markets.

 

International Markets Advisory Board (IMAB)                                                                             

 

A board of chief executives of institutional investors around the world. IMAB informs and advises NASD about developments in major international markets.

 

International Organization of Securities Commissions (IOSCO)                                             

 

IOSCO attempts to harmonize international securities regulation, and supports the development of securities markets around the world.

 

international linkages        

 

Intermarket connections of world securities markets.

 

Investment Company Institute (ICI)                                                                                              

 

The U.S. trade association for the mutual fund industry. Investment companies create and maintain mutual funds and investment trusts.

 

investment banking, securities business                                                                                    

 

The business carried on by a broker or dealer; a business that deals in government or municipal securities; a business that underwrites or distributes securities issues; a business that buys or sells securities for itself or on the account of others. The definition does not include banks or bank departments. (See underwriter)

 

investor                                

 

A person who buys or sells securities for his or her own account or the account of others. (See individual investor, institutional investor)

 

IPO                                         See initial public offering

 

ISG                                         See Intermarket Surveillance Group

 

ISIS                                        See Industry Support Information Services

 

issuer                                   

 

A corporation that has distributed to the public securities registered with the Securities and Exchange Commission.

 

ITS                                         See Intermarket Trading System


ITS/CAES            See Intermarket Trading System/Computer Assisted Execution System its

 

L

last-sale service                        

 

A service that allow real-time access to last-sale information reported by Market Makers. (See last-sale reporting below)

 

last-sale reporting                     

 

The electronic notification by a Market Maker to The Nasdaq Stock Market of the price and the number of shares involved in a transaction in a Nasdaq security. The notification must be made within 90 seconds of the execution of an order.

 

letter of intent                            

 

A letter that formalizes the relationship between an underwriter and a company preparing to go public. The letter of intent outlines the underwriter fees, ranges for stock prices, and other terms of the underwriter’s agreement. (See underwriter)

 

Level 1 Service                         

 

A vendor-distributed service consisting of real-time inside bid/ask quotations for securities quoted in the Nasdaq system and comparable information for securities quoted in the OTC Bulletin Board Service. (See OTC Bulletin Board Service)

 

Level 2 Service                         

 

A component of Nasdaq Workstation II service consisting of real- time access to the quotations of individual Market Makers registered in every Nasdaq-listed security as well as Market Makers’ quotations in OTC Bulletin Board securities.

 

Level 3 Service                         

 

Consists of Level 2 Service plus the ability to enter quotations, direct/execute orders, and send information; this service is restricted to NASD member firms that function as registered Market Makers in either Nasdaq, exchange-listed, or OTC Bulletin Board securities.

 

limit order                                   

 

An order to buy or sell a security at a customer-specified price; a customer order to buy or sell a specified number of shares of a security at a specific price. (See stop-loss order)

 

limit-order file                            

 

A file maintained as a feature of Nasdaq’s Small Order Execution System that stores customers’ unexecuted limit orders. (See limit order above)

 

liquidity                                       

 

The liquidity of a stock is the ease with which the market can absorb volume buying or selling, without dramatic fluctuation in price.

 

liquidity ratio                              

 

A measure of the trading volume of a security associated with a 1 percent change in its price. The higher the ratio, the more shares that can be traded with little change in price. (See Amivest Liquidity Ratio)

 

listing and maintenance agreement                                                                                                         

 

A written contract between a securities market and an issuing company. In it, the issuing company agrees to meet and maintain the market’s qualitative and quantitative listing standards.

 

locked or crossed quotations                                                                                                                   

 

A temporary and unusual condition where the ask (offer) price of one Market Maker for a security is the same or lower than the bid (buy) price of another Market Maker. Locked or crossed quotations may occur in fast-moving markets. (See ask price, bid price, Market Maker)

 

locked-in trade                           

 

A securities transaction in which all of the terms and conditions of the trade are accepted by the buyer and seller. Once a transaction is locked in, last-sale reporting to Nasdaq and reporting to the clearing corporation are processed electronically. (See last-sale reporting)

 

M

Maloney Act                                

 

Also called the Maloney Amendment, provides for the regulation of over-the-counter securities markets through national associations registered with the Securities and Exchange Commission. The Act was passed in 1938 to add Section 15A to the Securities Exchange Act of 1934. NASD is the only association ever to register under the act.

 

MBARSSM                                     See Municipal Bond Acceptance and Reconciliation Service

 

manager                                       See syndicate manager

 

management’s discussion and analysis (MD&A)                                                                                     

 

An interpretive section of a prospectus and annual report, also called the Financial Review.

 

managing underwriter               See syndicate manager

 

margin                                         

 

An account in which a customer purchases securities on credit extended by a broker/dealer. Rules of the Federal Reserve Board and NASD govern margin accounts. (See Regulation T)

 

markdown and markup              

 

A markdown is a charge subtracted from the selling price of a security that a customer is selling to a dealer/ broker for the broker’s/dealer own account. The broker/dealer adds a markup to the price when it sells a security to a customer from its own account. The markdown or markup are the equivalent of a commission on the sale.

 

market capitalization                 

 

The price of a stock multiplied by the total number of shares outstanding. Also, the market’s total valuation of a public company.

 

market depth                               See depth of market

 

Market Information Data Access System (MIDAS)                                                                                  

 

Computer system that supports NASD market regulation and examination programs by providing historical data on Nasdaq over-the-counter quotation and trading volume.

 

Market Maker                             

 

A firm that maintains a firm bid and offer price in a given security by standing ready to buy or sell at publicly-quoted prices. The Nasdaq Stock Market is a decentralized network of competitive Market Makers. Market Makers process orders for their own customers, and for other NASD broker/dealers; all NASD securities are traded through Market Maker firms. Market Makers also will buy securities from issuers for resale to customers or other broker/dealers. About 10 percent of NASD firms are Market Makers; a broker/dealer may become a Market Maker if the firm meets capitalization standards set down by NASD.

 

Market Maker spread                

 

The difference between the price at which a Market Maker is willing to buy a security and the price at which the firm is willing to sell it. (See inside market)

 

market order                              

 

An order to buy or sell a stated amount of a security at the best possible price at the time the order is received in the marketplace.

 

market surveillance                  

 

A highly automated, centralized process of investigating and preventing abusive, manipulative, or illegal trading practices in The Nasdaq Stock Market. The Market Surveillance Department is called Market Regulation.

 

market value                              

 

The market value of a security is the last-sale price multiplied by total shares outstanding. It is calculated throughout the trading day, and is related to the total value of the index. (See last-sale reporting)

 

material news                             

 

News released by a public company that might reasonably be expected to affect the value of a company’s securities or influence investors’ decisions. Material news includes information regarding corporate events of an unusual and non-recurring nature, news of tender offers, unusually good or bad earnings reports, and a stock split or stock dividend. (See trading halt)

 

MD&A                                           See management’s discussion and analysis

 

mediation                                    

 

An informal, voluntary process used in securities industry disputes in which a mediator helps negotiate a mutually-acceptable resolution between disputing parties. Unlike arbitration or litigation, mediation does not impose a solution. If the parties cannot negotiate an acceptable settlement, they may still arbitrate or litigate their dispute. (See arbitration)

 

member firm                               

 

A broker/dealer that is a member of the National Association of Securities Dealers, Inc.

 

MIDAS                                          See Market Information Data Access System

 

misrepresentation                     

 

A false representation of a matter of fact that should have been disclosed, which deceives another so that he/she acts upon it to his/her injury.

 

most active                                  Most active Nasdaq National Market stocks.

 

motion                                         

 

An application made to the arbitrator(s) for the purpose of obtaining a rule or order directing some act to be done in favor of the applicant.

 

multiple                                        See price/earnings ratio

 

Municipal Bond Acceptance and Reconciliation Service (MBARSSM)                                                 

 

Service designed to eliminate submission of trade-data paperwork to the clearing corporation and to assist in the comparison and clearing of municipal bond, over-the-counter corporate bond, and unit investment trust trades.

 

Municipal bonds                        

 

Bonds issued by states, cities, counties, and towns to fund public capital projects like roads, schools, sanitation facilities, bridges, as well as operating budgets. These bonds are exempt from federal taxation and from state and local taxes for the investors who reside in the state where the bond is issued.

 

Municipal securities dealer                                                                                                                       

 

Any person, except a bank or department or division of a bank, engaged in the business of buying and selling municipal securities for his own account. Banks are not included in this definition.

 

Municipal securities broker                                                                                                                      

 

A broker engaged in the business of effecting transactions in municipal securities for the account of others. Banks are not included in this definition.

 

Municipal securities                   See Municipal bonds

 

Mutual Funds

An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives.

 

N

N*PROVESM                             See NAqcessSM

 

NAC                                           See National Adjudicatory Council

 

NASAA                                       See North American Securities Administrators Association, Inc.

 

NASD Information Request Form (NIRF)                                                                                                             

 

Allows members of the public to obtain certain types of disciplinary and registration information regarding member firms and associated persons.

 

NASD Rules                            

 

The numbered rules set forth in the NASD Manual beginning with the Rule 0100 Series.

 

NASD By-Laws (Marketplace Rules)                                                                                                                    

 

The basic rules and regulations that govern NASD. Attached to the By-Laws are Schedules:
Schedule A – NASD assessments and fees
Schedule B – NASD district boundaries.

 

NAqcessSM                              

 

A proposed service of The Nasdaq Stock Market that provides investors with market-wide price protection of their limit orders, the opportunity to obtain price improvement in buying and selling Nasdaq stocks, and increased access to Nasdaq. Nasdaq Primary Retail Order View and Execution System (N*Prove) is a similar system that NASD approved, but was rejected by the Securities and Exchange System. (See limit order, Small Order Execution System)

 

Nasdaq                                    

 

The National Association of Securities Dealers Automated Quotation system. (See National Association of Securities Dealers, Inc.)

 

Nasdaq CompositeSM Index                                                                                                                      

 

A statistical measure that indicates changes in The Nasdaq Stock Market. The Nasdaq Composite Index measures all Nasdaq domestic and foreign common stocks. It is market-value weighted: each company’s security affects the index in proportion to its market value. Securities in the Nasdaq Composite Index generally are assigned to subindexes based on their Standard Industrial Classification (SIC) codes. (See market value, subindex, Standard Industrial Classification codes)

 

Nasdaq Director                      

 

The Nasdaq employee who serves as the primary point of contact and liaison between a public company and The Nasdaq Stock Market.

 

Nasdaq InternationalSM, Ltd. 

 

A subsidiary of Nasdaq headquartered in London, England. Nasdaq International supports NASD members in London, serves as a liaison to United Kingdom and European companies seeking to list securities on Nasdaq, encourages foreign institutional participation in Nasdaq stocks, and promotes the international image of the NASD and its markets.

 

Nasdaq International Service                                                                                                                   

 

The extension of The Nasdaq Stock Market to the United Kingdom. The service supports a European trading session from 3:30 a.m. to 9 a.m. eastern time (U.S.). This enables participants to monitor trade during London market hours. NASD members are eligible to participate in this session through their U.S. trading facilities or approved United Kingdom affiliates.

 

Nasdaq National Market®       

 

More than 3,900 companies that are the larger and generally more actively-traded Nasdaq securities. (See The Nasdaq SmallCap Market)

 

Nasdaq Quotation Dissemination ServiceSM (NQDS)                                                                            

 

The NQDS carries real-time quotation information for Market Makers and electronic communication networks (ECNs) in each Nasdaq National Market® and Nasdaq SmallCap MarketSM issue. Using the NQDS data feed, market data vendors are able to create a Level 2 display similar to the Nasdaq Workstation IITM to show the depth of Market Makers at each price level of a Nasdaq-listed security. (See electronic communication network (ECN),   Market Maker, Nasdaq Workstation IITM)

 

Nasdaq Trade Dissemination ServiceSM  (NTDS)

 

 The NTDS carries real-time trade price and volume data to market data vendors and other data feed recipients. NTDS carries the price and size for all trade reports that are submitted to the Automated Confirmation Transaction ServiceSM (ACTSM). For pricing purposes, the Nasdaq Last Sale information is bundled with Nasdaq Level 1 Service. (See Automated Confirmation Transaction ServiceSM (ACTSM))

 

Nasdaq Workstation IITM

 

A computerized trading tool that provides access to all Nasdaq markets for Market Makers, brokers, and institutions. (Formerly named Service Delivery Platform)

 

National Association of Securities Dealers, Inc. (NASD®)

 

Now known only as “NASD”. The largest self-regulatory organization for the securities industry in the United States. NASD is responsible for the operation and regulation of Nasdaq and the over-the-counter securities markets. Under federal law, every securities firm doing business with the US public is a member of NASD. Roughly 5,500 brokerage firms, nearly 90,000 branch offices and more than 650,000 registered securities representatives come under its jurisdiction.

 

National Adjudicatory Council (NAC)

 

The National Adjudicatory Council is a committee of NASD Regulation, composed of representatives of member firms and the public, that is authorized to review disciplinary, membership, and exemptive proceedings, as well as applications for relief from statutory disqualifications.

 

National Securities Clearing Corporation (NSCC)                                                                                

 

A securities clearing corporation formed in 1977 by the merger of the National Clearing Corporation, owned by the NASD, and the clearing facilities of the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). It is a medium through which trades in the respective participants’ markets are cleared and settled. (See clearance, settlement)

 

net change                      

 

The difference between today’s last trade and the previous day’s last trade.

 

net capital rule               

 

The Security and Exchange Commission requires that all broker/dealers maintain no more than a 15 to 1 ratio between indebtedness and liquid assets. Indebtedness includes money owed to the firm, margin loans, and commitments to purchase securities. Liquid assets include cash, and assets that are easily converted to cash.

 

net tangible assets                 

 

An accounting term defined as stockholders’ equity minus goodwill. (See equity, goodwill)

 

neutral                                      

 

One or more individuals assigned to mediate through negotiations or arbitrate by adjudication claims between or among disputing parties. (See arbitration, mediation)

 

new account
information form
                      

 

Document filled out by a broker that details vital facts about a new client’s financial circumstances and investment objectives.

 

new issue                                 

 

Securities being offered to the public for the first time; subject to the rules of the Securities and Exchange Commission. (See initial public offering, underwriter)

 

newspaper listings                 

 

The stock price coverage given to securities in newspapers, dependent upon in which market the company trades, the size of the company, and the level of trading activity in the company’s stock.

 

NIRF                                           See NASD Information Request Form

 

no quote (NQ)               No Market Makers making an inside market at this time. (See inside market)

 

North American Securities Administrators Association, Inc. (NASAA)                                                 

 

An association of securities commissioners from each of the 50 states, the District of Columbia, Puerto Rico, and several of the Canadian provinces.

 

NQ                                              See no quote

 

NQDS                                         See Nasdaq Quotation Dissemination ServiceSM

 

NSCC                                         See National Securities Clearing Corporation

 

NTDS                                         See Nasdaq Trade Dissemination ServiceSM

 

NYSE                                         New York Stock Exchange

 

O

OCC                                              See Options Clearing Corporation

 

offer price                                    See ask or offer price

 

Office of Supervisory Jurisdiction (OSJ)                                                                                                 

 

Any main or branch office of an NASD member where one or more of the following take place: order execution or market making; public offerings or private placements are structured; customers’ funds or securities are held; new accounts are approved; customer orders are reviewed and endorsed; advertising or sales literature for use by the member’s associated persons is approved; the activities of associated persons at other branch offices of the member are supervised.

 

open order                                 

 

An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.

 

operations                                  

 

The back office of a brokerage firm where all clerical functions having to do with clearance, settlement, and execution of trades are handled. (See clearance, prompt receipt and delivery of securities, settlement)

 

OPRA                                            See Options Prices Reporting Authority

 

option                                          

 

An instrument that gives the owner the right to buy or sell a specified number of shares of a specified stock at a specified price within a specified period of time. A call option allows the buyer to purchase the underlying stock at any time up to the expiration date of the contract. A put option allows the buyer to sell the underlying stock at any time up to the expiration date of the contract.

 

Options Clearing Corporation (OCC)                                                                                                       

 

The issuer of standardized options traded on exchanges. OCC is owned by the options markets.

 

Options Prices Reporting Authority (OPRA)                                                                                           

 

A joint industry plan that disseminates inside quotations and last sale data for options.

 

order flow                                   

 

aggregated small orders to purchase or sell securities that brokers send to dealers often in return for cash payments.

 

order matching                          

 

The Market Maker practice of pairing buy and sell orders for like amounts of securities at identical prices. (See Market Maker, Small Order Execution System)

 

order ticket                                 

 

A form completed by a registered representative of a brokerage firm upon receiving order instructions from a customer.

 

OSJ                                               See Office of Supervisory Jurisdiction

 

OTC                                              See over-the-counter securities

 

OTCBB                                        See OTC Bulletin Board Service below

 

 

 

OTC Bulletin Board® Service                                                                                                                   

 

The OTC Bulletin Board® (OTCBB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. An OTC equity security generally is any equity that is not listed or traded on Nasdaq® or a national securities exchange. OTCBB securities include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts (ADRs), and Direct Participation Programs (DPPs). The OTCBB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The Nasdaq Stock MarketSM. OTCBB securities are traded by a community of Market Makers that enter quotes and trade reports through a highly sophisticated, closed computer network, which is accessed through Nasdaq Workstation IITM. (See American Depositary Receipt, Nasdaq Workstation IITM,   (The) Nasdaq Stock MarketSM)

 

out-of-pocket loss                     

 

The difference between the value of what the purchaser parted with, and the value of what he or she has received.

 

over-the-counter (OTC) securities                                                                                                           

 

Securities that are not listed and traded on an organized exchange.

 

P

p/e ratio                                        See price/earnings ratio

 

passive market-making             

 

A process that allows a Market Maker firm to be both underwriter and buyer of a company’s securities in a secondary public offering. A underwriting Market Maker may bid for the security during the issue’s cooling-off period if its bid is no higher than a competing, non-underwriting, Market Maker’s. Before the Securities and Exchange Commission adopted passive market-making in 1993, Market Makers were required to withdraw from solicitation and market-making activities during the cooling-off period. (See Market Maker, secondary offering, underwriter, cooling-off period)

 

penalty bid                                  

 

A syndicate manager’s or underwriter’s offer to buy a security at specific price during a new issue distribution. The bid acts to stabilize the price of the stock, to facilitate distribution. The bid, also called “pegging,” is permitted under Securities and Exchange Commission Rule 10b-7; otherwise the practice is prohibited. (See bid, new issue, syndicate manager, underwriter)

 

pink sheets                                 

 

Daily printed listings containing quotations for thousands of over-the-counter stocks that are not listed on any of the major stock markets. These quotations are entered by dealers acting as Market Makers in the individual securities. The pink sheets are printed by the National Quotation Bureau.

 

portfolio                                      

 

The combined holding of more than one stock, bond, commodity, real estate investment, or other asset by an individual or institutional investor.

 

PORTAL                                      

 

The NASD’s trading system for secondary trading of unregistered securities in transactions exempt from the registration and a prospectus delivery requirement of the Securities Act of 1933 pursuant to SEC Rule 144A.

 

pre-syndicate bid                       

 

A bid entered before the effective date of a secondary offering, made to stabilize the price during distribution. The bid is permitted under Securities and Exchange Commission Rule 10b-7; otherwise the practice is prohibited. (See penalty bid, secondary offering)


preferred stock                          

 

A security that usually pays a fixed dividend and that gives the holder a claim on corporate earnings and assets that is superior to that of holders of common stock. (See common stock)

 

previous day’s close                  The previous trading day’s last reported trade.

 

price/earnings ratio                   

 

The price of a share of a stock divided by earnings per share, usually calculated using the latest year’s earnings. The p/e ratio is also called the multiple.

 

price-to-earnings ratio               See price/earnings ratio

 

principal orders                         

 

Activity by a broker/dealer when buying or selling for its own account and risk. Also called principal trades.

 

principal trades                           See principal orders above

 

PROCTOR                                   See Professional Certification Testing Organization below

 

Professional Certification Testing Organization (PROCTOR)                                                             

 

The NASD’s system for comprehensive testing, appointment administration, and grading. The PROCTOR organization includes a network of test delivery centers located throughout the nation.

 

prompt receipt and delivery of securities                                                                                               

 

The customer’s obligation to deliver securities that have been sold by the broker/dealer in a specified period of time. If the customer has sold short, he must deliver the securities, or make arrangements to borrow the securities from the broker/dealer for delivery by the settlement date. (See settlement, settlement date, short sale)

 

prospectus                                 

 

A formal written offer to sell securities that sets forth the plan for a proposed business enterprise, or the facts concerning an existing one that an investor needs to make an informed decision.

 

proxy                                           

 

Written power of attorney given by a shareholder of a corporation, authorizing someone to vote on his or her behalf at corporate meetings.

 

proxy statement                         

 

Material information required by the Securities and Exchange Commission to be given to a corporation’s stockholders as a prerequisite to solicitation of votes. It is required for any issuer subject to the provisions of the Securities Exchange Act of 1934.

 

public float                                  

 

The portion of a company’s outstanding shares that is in the hands of public investors; shares not held by company officers, directors, or investors who hold a controlling interest in the company.

 

put                                               

 

A bondholder’s right to redeem a bond before maturity; a contract that grants the right to sell at a specified price a specified number of shares by a certain date. (See call)

 

Q

QDS                                              See Quote Dissemination System

 

qualified institutional investor                                                                                                                  

 

An institutional investor permitted under Securities and Exchange Commission rules to trade privately-placed securities with other qualified institutional investors without registering the securities with the SEC. A qualified institutional investor must have at least $100 million under management.

 

quarterly report (Form 10 Q)                                                                                                                     

 

A report, required by the SEC of publicly-held companies, filed quarterly, that provides unaudited financial information and other selected material.

 

quotation size                            

 

The maximum number of shares per order of a particular security that a Market Maker is willing to buy or sell at his or her current price.

 

Quote Dissemination System (QDS)                                                                                                         

 

Provides Nasdaq Market Maker quotations to outside services and vendors.

 

R

real-time trade reporting          

 

A requirement that Market Makers report each trade in a Nasdaq security to Nasdaq within 90 seconds of execution.

 

record date                                 

 

The date on which a company’s records are closed to determine which stockholders are to be sent dividends, proxies, rights, etc.

 

red herring prospectus            

 

Industry jargon for a preliminary prospectus issued by underwriters or issuers to gauge interest in a prospective offering. It receives its name from the warning, printed in red, that information in the document is incomplete or subject to change before the issue. (See prospectus, underwriters)

 

registered representative                                                                                                                         

 

The employee of an NASD member firm who gives advice on which securities to buy and sell, and who collects a percentage of the commission income he or she generates.

 

 

registrar                                      

 

The registrar is responsible for keeping track of the owners of bonds and the issuance of stocks. Working with the transfer agent, the registrar keeps current files of the owners of a bond issue and the stockholders in a corporation. The registrar ensures that no more than the authorized amount of stock is in circulation. If the registrar and transfer agent are the same company, then there must be a Chinese Wall separating the functions. (See Chinese Wall, transfer agent)

 

Regulation T                              

 

A rule of the Federal Reserve Board that governs the extension of credit by broker/dealers to customers to purchase and carry securities.

 

retail investor                             See individual investor

 

retail shareholder                       See individual investor

 

reverse split                                See split

 

right                                             

 

A privilege allowing existing shareholders in a company to buy shares of a new issue of common stock before it is offered to the public.

 

road show                                   

 

A series of meetings with potential investors in key cities, designed and performed by a company and its investment banker as the company prepares to go public.

 

Rule 10b-21                                

 

Securities and Exchange Commission rule that prohibits covering a short position in a security with stock purchased out of a new offering of the security, if the short position was established between the filing of the registration statement and the beginning of the distribution of the offering. (See short sale)

 

Rule 10b-6                                  

 

Securities and Exchange Commission rule that prohibits persons engaged in a distribution of securities from bidding for or purchasing those or similar securities until they have completed their participation in the distribution.

 

Rule 10b-6A                                

 

Securities and Exchange Commission rule that permits broker/dealers engaged in the distribution of a security to engage in “passive” market making transactions in the security being distributed without being in violation of the provisions of SEC Rule 10b-6. (See passive market-making)

 

Rule 13d                                      

 

The Securities and Exchange Commission rule requiring disclosures by anyone acquiring a beneficial ownership of 5 percent or more in any equity security registered with the SEC. (See beneficial owner)

 

Rule 15c3-1                                 

 

Securities and Exchange Commission rule that requires broker/dealers maintain sufficient liquid assets to satisfy its net capital requirement. (See net capital rule)

 

Rule 15c3-3                                 

 

Securities and Exchange Commission rule that ensures that the broker/dealer has possession or control of customers’ securities, and properly segregates these securities from securities the firm owns. The rule also requires that the broker/dealer deposits customers’ funds in a Special Reserve Bank Account.

 

Rule 17a-3                                   

 

Securities and Exchange Commission rule that specifies the books and records related to the securities business that brokers and dealers have to make and keep current.

 

Rule 17a-4                                   

 

Securities and Exchange Commission rule that specifies the time period that broker/dealers must preserve Rule 17a-3 records and other documents pertaining to the business. (See Rule 17a-3 above)

 

Rule 19b-4                                  

 

Securities and Exchange Commission rule that provides procedures that self-regulatory organizations (SROs) follow to propose rule changes to the SEC. (See self-regulatory organization)

 

S

safe harbor                                 

 

The “Safe Harbor for Forward-Looking Information” allows company management to discuss in good faith a company’s prospects and financial projections with analysts and investors without fearing litigation. (From the Private Securities Litigation Reform Act of 1995.)

 

Schedules to the By-Laws        See NASD By-Laws

 

secondary market      Markets where securities are bought and sold subsequent to original issuance.

 

secondary offering                    

 

A registered offering of a large block of a security that has been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. Also called secondary distribution. (See initial public offering, new issue, underwriter)

 

securities                                     See stock, bond

 

Securities Act of 1933               

 

The “disclosure statute” requires companies to register stock offerings to the public, and disclose important facts through a prospectus, and additional information filed with the Securities and Exchange Commission. (See prospectus, Securities and Exchange Commission)

 

Securities Acts Amendments of 1975                                                                                                       

 

considered the most significant securities legislation since the 1934 Act, this act ended fixed commission rates, initiated action toward development of a national market system, and granted the Securities and Exchange Commission final say in the adoption of rules by any of the self-regulatory organizations (SROs). (See Securities Exchange Act of 1934, self-regulatory organizations)

 

Securities Exchange Act of 1934                                                                                                               

 

This law created the Securities and Exchange Commission to regulate the securities industry. The law outlawed manipulative and abusive practices in the issuance of securities; it required registration of stock exchanges, brokers and dealers, and registration of exchange-listed securities; it also required disclosure of certain financial information and insider activity. The law gave the SEC surveillance authority over exchanges and brokers, and the authority to regulate margin requirements. The law also authorized the SEC to enforce the Securities Act of 1933. In 1938, the law was amended to allow regulation of over-the-counter markets through self-regulated organizations. (See Maloney Act, Securities Act of 1933)

 

Securities Industry Association (SIA)

 

The principal trade association and lobbying arm of the securities industry.

 

Securities Industry Automation Corporation (SIAC)                                                                               

 

A facility owned by the New York and American stock exchanges that operates automated communication systems to support trading, surveillance and market data for these exchanges.

 

Securities Investor Protection Corporation (SIPC)                                                                               

 

A nonprofit corporation that insures investors against the failure of brokerage houses, similar to the way that the Federal Deposit Insurance Corp. insures bank deposits. Coverage is limited to a maximum of $500,000 per account, but only up to $100,000 in cash. SIPC does not insure against market risk.

 

securities analyst                      

 

An individual who does investment research and makes recommendations to buy, sell, or hold. Most analysts specialize in a single industry or business sector.

 

Securities and Exchange Commission (SEC)                                                                                         

 

The federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce or through the mails must be registered with the SEC. (See Maloney Act, Securities Acts Amendments of 1975, Securities Exchange Act of 1934)

 

Securities and Exchange Commission Rules               See Rules

 

securities exchange                 

 

A physical facility in which buyers and sellers of securities, or their agents, meet to effect transactions.

 

Securities Market Automated Regulated Trading Architecture (SMART)                                           

 

A restructuring of NASD’s technology base using logical, modular software application development techniques, an enterprise-wide database structure, an organization-wide application structure, and an open systems environment.

 

SelectNetSM                                

 

An automated Nasdaq market service that enables securities firms to route orders, negotiate terms, and execute trades in Nasdaq securities, eliminating the need for verbal contact between trading desks.

 

self-regulatory organization (SRO)                                                                                                           

 

An entity, such as the NASD, responsible for regulating its members through the adoption and enforcement of rules and regulations governing the business conduct of its members.

 

sell-side trader                          

 

An employee of a retail broker, institutional broker and trader, or research department who engages in securities transactions. (See buy-side trader)

 

settlement                                  

 

The conclusion of a securities transaction; a broker/dealer buying securities pays for them; a selling broker delivers the securities to the buyer’s broker. (See clearance, prompt receipt and delivery of securities)

 

settlement date (T+3)               

 

The date specified for delivery of securities between securities firms, usually three business days after the execution of an order. (See prompt receipt and delivery of securities)

 

shareholder of record              

 

The name of an individual or entity that an issuer carries on its books as the registered holder (not necessarily the beneficial owner) of the issuer’s securities. (See beneficial owner)

 

short sale                                    

 

The sale of shares of a security that the seller does not own. Such sales are made in anticipation of a decline in the price of the security to enable the seller to cover the sale with a purchase at a later date, at a lower price, and thus at a profit. Securities and Exchange Commission rules allow investors to sell short only when a stock price is moving upward. This prevents “pool operators” from driving down a stock price through heavy short-selling, then buying the shares for a large profit.

 

Short Sale Rule                         

 

A Nasdaq rule that prohibits NASD members from selling a Nasdaq National Market stock at or below the inside best bid when that price is lower than the previous inside best bid in that stock. (See best bid, inside spread, short sale)

 

short interest                             

 

The total number of shares of a security that have been sold short by customers and securities firms that have not been repurchased to settle short positions in the market. (See short sale)

 

SIA                                                See Securities Industry Association

 

SIAC                                              See Securities Industry Automation Corporation

 

SIC codes                                    See Standard Industrial Classification codes

 

SIPC                                             See Securities Investor Protection Corporation

 

SmallCap                                      See The Nasdaq SmallCap Market

 

SMART                                See Securities Market Automated Regulated Trading Architecture

 

Small Order Execution SystemSM (SOESSM)                                                                                            

 

Automated execution system for processing small order agency executions of Nasdaq securities (up to 1,000 shares).

 

SOESSM                                        See Small Order Execution System

 

soft dollars                                 

 

Payment for brokerage services, such as research, through commissions or directed underwriting rather than fees.

 

specialist              A member of a stock exchange through which all trades in a given security pass.

 

specific performance                

 

The remedy of performance of a contract in the specific form in which it was made, according to the precise terms agreed upon.

 

split                                              

 

The division of outstanding shares of a corporation into a larger number of shares. For example: in a 3-for-1 split, each holder of 100 shares before would have 300 shares, although the proportionate equity in the company would remain the same. A reverse split occurs when the company reduces the total number of outstanding shares, but each share is worth more.

 

sponsorship                                Enhancing the demand for a stock through research and order flow.

 

spread                                         

 

The difference between the bid price at which a Market Maker will buy a security, and the ask price at which a Market maker will sell a security. (See inside spread)

 

SRO                                              See self-regulatory organization

 

Standard & Poor’s Corporation                                                                                                                 

 

A company well known for its rating of stocks and bonds according to investment risk (the Standard & Poor’s Rating) and for compiling the Standard & Poor’s Index—commonly called the Standard & Poor’s 500—that tracks 400 industrial stocks, 20 transportation stocks, 40 financial stocks, and 40 public utilities as a measurement indicative of broad changes in the market.

 

Standard Industrial Classification (SIC) codes                                                                                       

 

A numbering system established by the U.S. Office of Management and Budget that identifies companies by industry. It is used to promote the comparability of economic statistics from various sectors of the U.S. economy.

 

stock                                             An instrument that signifies an ownership position in a corporation.

 

stock symbol                              

 

A unique four- or five-letter symbol assigned to a Nasdaq security that is used for identifying it on stock tickers, in newspapers, on on-line services, and in automated information retrieval systems. If a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock.

 

 

stop-loss order                          

 

A customer order to a broker that sets the sell price of a stock below the current market price, therefore protecting profits that have already been made or preventing further losses if the stock drops. (See limit order)

 

street name                                

 

Term given to securities held in the name of a broker on behalf of a customer. This arrangement allows shares to be transferred easily. If the stock were registered in the customer’s name rather than the broker’s name, physical certificates would need to be transferred. (See beneficial owner)

 

subindex                                     

 

Categories of the Nasdaq Composite Index. There are currently 11 subindexes: Bank, Biotechnology, Computer, Industrial, Insurance, Nasdaq ADR (American Depositary Receipts), Nasdaq Regional Indexes, Nasdaq-100® (100 of the largest companies on the Nasdaq National Market), Other Finance, Telecommunications. (See Nasdaq Composite Index)

 

suitability                                    

 

A suitability violation occurs when and investment made by a broker is inconsistent with the investor’s objectives, and the broker knows or should know the investment is inappropriate.

 

surveillance                                See market regulation

 

syndicate                                    

 

A group of investment banking firms formed to conduct an underwriting of a new security issue. (See underwriter)

 

syndicate manager                    

 

Also called the managing underwriter or manager, the syndicate manager works with a company to prepare a new stock issue and register it with the Securities and Exchange Commission. The manager often also organizes the syndicate to spread the risk of a new issue.

 

T

T+3                                               See settlement date

 

TARSSM                                        See Trade Acceptance and Reconciliation ServiceSM

 

third market                                

 

Over-the-counter trading of exchange-listed securities among institutional investors and broker/dealers for their own accounts (not as agents for buyers and sellers). Stock exchange members or non-members may trade large blocks of stock off the floor to avoid the transaction’s unsettling effect on the market, or avoid paying a commission on the sale. (See dealer market, fourth market, institutional investor, secondary market)

 

Third Market Trade Reporting (TMTR)                                                                                                    

 

Automated data collection and reporting system that continuously reports last-sale prices reflecting trades in the over-the-counter market.

 

(The) Nasdaq SmallCap MarketSM                                                                                                             

 

Securities of smaller, less-capitalized companies that do not qualify for inclusion in the Nasdaq National Market. There are more than 1,300 companies on the SmallCap market.

 

(The) Nasdaq Stock MarketSM                                                                                                                  

 

The Nasdaq Stock Market is a major national and international stock market that uses computers and telecommunications for the trading and surveillance of thousands of securities. The Nasdaq Stock Market is built on a unique system of competing Market Maker firms that list specific prices for the sale or purchase of securities. The Nasdaq Stock Market also is unique in its use of a flexible computer-screen trading system that enables people to trade by computer from wherever they are located.

 

third-party claim       A claim by the respondent against a party not already named in the proceeding.

 

TMTR                                           See Third Market Trade Reporting

 

Trade Acceptance and Reconciliation ServiceSM (TARSSM)                                                                 

 

An automated service that facilitates inter- member reconciliation of uncompared trades in Nasdaq securities. (See Municipal Bond Acceptance and Reconciliation Service)

 

trading halt                                 

 

The suspension of trading in a Nasdaq security while material news from the issuer is being disseminated. A trading halt generally lasts 30 minutes and gives all investors equal opportunity to evaluate news and make buy, sell, or hold decisions on that basis. (See material news)

 

transfer agent                            

 

An agent who maintains records of stock and bond owners to cancel and issue certificates, and resolve problems arising from lost, destroyed, or stolen certificates. (See registrar)

 

transparent market                    

 

The degree to which trade and quotation information is available to the public on a current basis.

 

two-sided market                       

 

The NASD regulation that Market Makers quote both a bid and ask price for each security in which they make a market and to execute orders at those prices.

 

U

unauthorized trading                

 

The purchase, sale or trade of securities in an investor’s account without the investor’s prior authorization.

 

underwriter                                

 

An investment banker who assumes the risk of bringing a new securities issue to market. The underwriter will buy the issue from the issuer and guarantee sale of a certain number of shares to investors; this is firm-commitment underwriting. To spread the risk of purchasing the issue, the underwriter often will form a syndicate (underwriting group, purchase group) among other investment firms. If the investment firm is unwilling to buy the issue outright, other underwriting forms may be used. (See best-efforts underwriting, syndicate, syndicate manager)

 

 

 

underwriting spread                 

 

The difference between what an underwriter pays for a securities issue, and the price at which he offers it to the public. (See underwriter)

 

uniform submission agreement                                                                                                                 

Agreement signed by the parties indicating their submission to the arbitration process, and their agreement to be bound by the determination which may be rendered.

 

unit                                              

 

A merger of two or more classes of securities into a single securities product.

 

uptick                                          

 

A transaction executed at a price higher than the preceding transaction in that security. (See downtick)

 

V

volatility                                      

 

The degree of price fluctuation for a given asset, rate, or index. Usually expressed as a variance or standard deviation. (See beta)

 

volume                                        

 

Amount of trading activity, expressed in shares or dollars, experienced by a single security or the entire market within a specified period, usually daily, monthly, or annually.

 

W

warrant                                        

 

A certificate issued by a company giving the holder the right to purchase securities at a stipulated price within specific time limits or with no expiration date (perpetual warrant). A warrant is sometimes offered by a company as an inducement to buy.

 

when-issued trading                 

 

A short form of “when, as, and if issued.” The term refers to a conditional security: one authorized for issuance but not yet actually issued. All “when issued” transactions are on an “if” basis, to be settled if and when the actual security is issued.

 

wire house                                  

 

A firm whose branch offices are linked by a communications system that permits the rapid dissemination of prices, information, and research relating to financial markets and individual securities.

 

wrap fee                                      

 

Charge for an investment program that bundles or “wraps” a number of services (brokerage, advisory, research, consulting, management, etc.) together and covers them with a single fee based on the value of assets under management.

 

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