Financial Management Glossary
As an investor or financial management expert, the terminology surrounding the financial services industry can be enough to make your head swim. As an independent broker/dealer, SII understands these struggles and has put together the Financial Management Glossary to help. Check out the following financial glossary of commonly used terms, and, more importantly, don't be afraid to ask questions! If you need clarification about any of your investments, contact your registered representative right away. He/She is dedicated to just one thing - helping YOU!
Additionally, we encourage you to visit the Web sites of the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) websites. FINRA and the SEC are the governing bodies who regulate the financial management industry. They are dedicated to client education and the protection of your rights as an investor.
Advanced Computerized Execution System (ACES): Customized facility run by NASDAQ and offered by the FINRA that permits broker/dealers to automate their internal execution and record-keeping functions. This automates the trades between order entry and market maker firms with established trading relationships.
Advertising Review: A regulatory service provided by FINRA Regulation to ensure that member broker/dealers' advertising and sales literature conforms to FINRA and Securities and Exchange Commission standards of fairness and accuracy. Broker/dealers can submit their communications for review voluntarily or as required by FINRA.
Affirmative Obligations: Requirements imposed on NASDAQ Market Makers by the FINRA. These include (but are not limited to) reporting price and volume data for each transaction in a NASDAQ security within 90 seconds of execution, quoting firm prices, making two-sided markets on a continuous basis, and participating in the Small Order Execution System.
Aftermarket: Also known as "secondary market", this refers to trading activity in a security immediately following its initial offering to the public. After the primary issuance, investors can purchase in the secondary market.
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 American Depositary Receipt 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. ADRs are denominated in U.S. dollars, with the principal security held overseas by a U.S. financial institution. ADRs are advantageous because they reduce administration and duty costs that would otherwise be associated with each transaction.
AMEX: American Stock Exchange. Previously owned by its members, the American Stock Exchange was acquired by NYSE Euronext in 2008.
Amivest Liquidity Ratio: The Amivest Liquidity Ratio is one type of liquidity measurement that represents the dollar value of trading associated with a one percent change in share price. This illustrates how an investment or stock is able to absorb trading volumes without a significant shift in pricing. A high Amivest Liquidity Ratio means that large amounts of stock can be traded with little effect on prices. Amivest is the "creator" of this liquidity measurement.
Annual Report (10 K): Public companies are required to file a Form 10-K, which is an annual report with the Securities and Exchange Commission (SEC) detailing the preceding year's financial results and plans for the upcoming year. The report contains financial information concerning a company's history, organizational structure, executive compensation, assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely read shareholder communication.
Answer: A respondent's written reply to a claim.
APTC: Association of Publicly Traded Companies. Formerly known as the NAOTC, the APTC allows a forum for publicly-traded companies to address the regulatory and legislative issues impacting their business.
Arbitral Immunity: Arbitrators are protected from lawsuits arising out of their quasijudicial conduct in arbitration proceedings.
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. This type of trade profits by manipulating pricing variations on different markets.
Arbitration: A form of alternative dispute resolution, is a method where conflict between two or more parties is resolved by impartial persons - arbitrators - who are knowledgeable in the areas in controversy.
Arbitration Counsel or Arbitration Administrator: The person at the sponsoring organization who handles administrative matters in arbitration proceedings.
Arbitrator: A private, disinterested person chosen to decide disputes between parties.
Arbitrators Code of Ethics: A guide for the conduct and ethical responsibilities of arbitrators in commercial disputes.
Ask Price (Offer Price): The price point at which a Market Maker is willing to sell a security.
Associated Person: A person engaged in the investment banking or securities business who is directly or indirectly controlled by a FINRA member, whether or not this person is registered or exempt from registration with FINRA. Every sole proprietor, partner, officer, director, or branch manager of any FINRA member.
Automated Confirmation Transaction ServiceSM (ACTSM): FINRA service that allows parties to a telephone negotiation to speed the steps involved in completing a transaction.
Award: The written determination of the arbitrator.
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.
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.
Best Ask: The lowest quoted offer price among all competing Market Makers to sell a particular stock or trading investment at any given time.
Best Bid: The highest quoted bid for a particular trading instrument or stock among all competing Market Makers to buy at any given time. The best bid is essentially the highest price that an investor is willing to pay.
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.
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. Some factors that must be considered by the broker include: the opportunity to get a better price than currently quoted and the likelihood and speed of execution.
Beta: The Beta of a stock or portfolio is 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.
Bid Price (Buy Price): The quoted bid at which a Market Maker is willing to buy a stock.
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.
Block Trade (Block Order): A purchase or sale of a large quantity of stock, generally 10,000 shares or more at an arranged price between parties, outside of the open markets.
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 Directors: The controlling bodies of FINRA Regulation, Inc. and The NASDAQ Stock Market, Inc.
Board of Governors: The controlling body of the Financial Industry Regulatory Authority.
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.
Branch Office: Any location identified by any means to the public or customers as a location at which a FINRA member conducts investment banking or securities business.
Breakpoint: The investment level in a mutual fund at which an investor becomes eligible for a discount on the front-end sales charge or load. Typically, there are several breakpoints, and if you invest more and reach each of these thresholds, the greater the reduction in the sales load. The breakpoint purchase may be made in a lump sum or by staggering payments within a predetermined period of time.
Broker: An individual or firm who typically charges a fee or commission to act as an intermediary between a buyer and seller.
Broker/Dealer: FINRA member firms that act as securities dealers or brokers, or perform both functions, depending on the transaction. A member firm acts as a broker when executing orders on behalf of a client. It acts as a dealer (or principal) when the firm trades for its own account.
Buy-Side Trader: An individual, such as a pension or mutual fund portfolio manager, who affects trades for an institutional investor.
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.
Capital Commitment: The financial investment Market Makers carry in inventories of stocks in which they make markets.
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. There are nearly 80,000 miles of leased telephone lines connecting 3,400 trading terminals processing 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 FINRA maintains the employment, qualification, and disciplinary histories of more than 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. This is an information barrier put into operation within a firm to put a stop to information exchanges that could cause conflicts of interest. The procedures help FINRA members avoid the illegal use "inside" information.
Circuit Breaker: Also known as a financial collar, this procedure 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 and avoid panic selling. 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.
Clearance: The conclusion of an exchange of securities.
Co-Underwriter: Almost all public offerings are co-managed by a "co-underwriter."
Comfort Letter: Also known as "letter of comfort" or "solvency opinion". This is 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. The comfort letter is attached to the initial statements as reassurance that it will not be considerably different from the final account.
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 CUSIP number is a unique nine-character alpha/numeric code appearing on the face of each stock certificate which identifies most securities, including: stocks of all registered U.S. and Canadian companies, and U.S. government and municipal bonds. Each CUSIP number is assigned to a security by Standard & Poor's Corporation. The number is used to expedite clearance and settlement.
Common Stock: A class of securities representing ownership and control in a corporation and that may pay dividends as well as appreciate in value.
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 rules and regulations.
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.
Computer-to-Computer Interface (CTCI): High-speed communication interface between large member firms' mainframes and the NASDAQ system for more efficient transfer of information. NASDAQ subscribers can enter transactions from their computer systems to NASDAQ's computer systems without using a NASDAQ Workstation.
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 FINRA 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.
Consolidated Tape Association (CTA): Operating authority for exchange-listed securities information. The CTA supervises the distribution of real-time trade and quote information for the NYSE and AMEX listed securities (stocks and bonds).
Convertible Bond: A bond that can be converted or exchanged into a preferred or common stock at the option of the holder at a preset ratio.
Counterclaim: A claim against the claimant in an arbitration.
Cooling-off period: Also known as the "quiet period" and the "waiting 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 FINRA 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.
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.
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.
Dealer: Any person or company in the business of buying and selling securities for his or her own account, through a broker or otherwise, seeking to profit from the spread between the prices at which they buy and sell.
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.
Debenture: This type of debt is an unsecured bond backed solely by the general credit of a company, not by physical assets or collateral. Debentures are backed by the general creditworthiness and reputation of the issuer.
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 to provide the transfer and agency services.
Depth of Market: The number of shares of a security or corporation that can be bought or sold at the bid and ask prices near the market without causing a dramatic change in price.
Derivative: A generic term often applied to a wide variety of financial instruments that derive their cash flows, and therefore their value, from the performance of an underlying asset, reference rate, or index.
Digital Interface Service Character Interface Presentation Server (DIS/CHIPS): By connecting the NASDAQ network directly to a firm's computer system, DIS/CHIPS allow firms to customize functionality for its traders. DIS/CHIPS is an alternative to NASDAQ Workstation II service for NASDAQ Level 3 users, DIS/CHIPS.
Direct Participation Programs (DPP): Partnership agreements that provide investors the opportunity to participate in the cash flow and tax benefits of an investment.
Discretionary Account: An account empowering a broker or adviser to buy and sell without the client's prior knowledge and previous consent. This is sometimes called a "managed account".
Distribution Capability: An investment banker or underwriter's ability to sell shares.
District Business Conduct Committee (DBCC): The local enforcement arm of FINRA. DBCC members are elected to their positions by fellow professionals to enforce compliance with FINRA 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 FINRA'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.
DMR: The Division of Market Regulation (DMR) is a department of the SEC that regulates brokers and firms.
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
Due Diligence: A thorough investigation of a company that is preparing to go public, undertaken by the company's underwriter and accounting firm before entering an agreement with the company.
EDGAR: Electronic Data Gathering, Analysis, and Retrieval (EDGAR)—An electronic system developed by the Securities and Exchange Commission. EDGAR permits companies to file all documents required for securities offerings and ongoing disclosure obligations electronically with the SEC. EDGAR became fully operational mid-1995.
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.
Eligibility Rules: The Code of Arbitration states that no claim shall be eligible for submission if six years have elapsed from the occurrence or event that started the controversy.
ENC: Excess Net Capital
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.
Excessive Trading: The act of a broker excessively trading an account for the purpose in order to increase 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.
Excess Spread Policy: The FINRA requirement that prohibits Market Makers from entering quotations on The NASDAQ Stock Market that exceed prescribed limits for maximum allowable spreads.
Ex Parte Communication: Any communication that is only between one party and the arbitrator.
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.
Failure to Execute: The failure of a broker to execute an order of his or her customer.
Federal Reserve System: Created by Congress, the Federal Reserve System is a federal government institution 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): Headquartered in Paris, the organization of the world's stock markets which encourages cooperative policies designed to stimulate a free flow of capital across national boundaries. FINRA became an associate member of FIBV in 1992.
Filing: Delivery of the statement of claim or other pleadings to the Director of Arbitration, to be kept on file as a matter of record and reference.
Financial Printer: A financial printer that is experienced and familiar with Securities and Exchange Commission regulations governing the graphic presentation of a prospectus.
Financial Industry Regulatory Authority (FINRA®): Now known only as "FINRA". The largest self-regulatory organization for the securities industry in the United States. FINRA 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 FINRA. Roughly 5,500 brokerage firms, nearly 90,000 branch offices and more than 650,000 registered securities representatives come under its jurisdiction.
FINRA By-Laws: The basic rules and regulations that govern FINRA.
FINRA Rules: The numbered rules set forth in the FINRA Manual beginning with the Rule 0100 Series.
FINRA Rules of Fair Practice: Rules designed to promote high standards of commercial honor and just and equitable principles of trade. FINRA members must uphold these rules to provide high quality service to customers.
Firm Access and Query System (FAQS): FINRA system that allows participating members computer access to their registration and examination data maintained in the Central Registration Depository. Using FAQs, members can schedule qualification examinations, and review their CRD accounting, balance and activity.
Firm Quotation: The FINRA requirement that a Market Maker execute an order from another broker/dealer at its displayed NASDAQ price for whichever is greater: the normal unit of trading, or its displayed size.
Fixed Income Pricing SystemSM (FIPSSM): A system designed by FINRA 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.
FOCUS: Financial and Operational Combined Uniform Single Report (The FOCUS Report is also called Form X-17A-5)
Foreign: A non-U.S. company with securities trading on The NASDAQ Stock Market.
Form 20-F: A Securities and Exchange Commission 1934 Act registration statement and annual report form typically used by foreign issuers.
Form 6-K: A form from the Securities and Exchange Commission for non-U.S. issuers to make periodic reports.
Form F-1: Form from the Securities and Exchange Commission 1933 Act registering the securities of a non-U.S. company to be issued as part of a public offering.
Form U-4: FINRA uniform application for security industry registration or transfer.
Form U-5: FINRA uniform termination notice for security industry registration.
Forum Fee: Fee charged by FINRA (or other forum) for the use of its facilities.
Fourth Market: The direct trading between institutional investors of large blocks of securities through a computer network.
Generally Accepted Accounting Principles (GAAP): Widely accepted rules, conventions, standards, and procedures among financial accountants. Since 1973, GAAP doctrine was 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. The value includes tangible and intangible assets (including goodwill) that increases the current value of a company.
Goodwill: As an intangible asset, goodwill is the going-concern value of a company in excess of its asset value. Generally, this includes 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.
Government Securities Broker: Any person or company regularly engaged in the business of effecting transactions in government securities for the account of others. This 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.
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 financial company doing business as a broker or dealer in securities, investment banking, or related services.
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.
Hypothecation: Pledging of securities or other assets, such as a debit balance in a margin account, as collateral to secure a loan. This term also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage.
Individual Investor: Also called a "small investor", "retail investor" or "retail shareholder", an individual investor is a person who buys or sells securities for his or her own account.
Initial public offering (IPO): A company's first sale of stock to the public. When making an IPO, companies are seeking outside equity capital and a public market for their stock.
Industry Support Information Services (ISIS): The ISIS system supports all FINRA 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. Typically, price quotes between market makers feature a lower ask and a higher bid than the quotes made to retail investors in the same security. The inside market ensures liquidity in the market.
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.
Institutional Investor: Any corporate entity such as a bank, mutual fund, or pension fund that trades securities in large volumes.
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."
Intermarket Surveillance Group (ISG): A group that coordinates surveillance and investigations among FINRA and other U.S. and foreign exchanges trading in securities, options, and futures and foreign securities.
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 (SAC).
International Councils of Securities Dealers (ICSD): Established in 1900, the ICSD is an international organization comprised of 17 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 FINRA 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, including mutual funds, closed-end funds, exchange-traded funds (ETFs) and unit investment trusts (UITs). Investment companies create and maintain mutual funds and investment trusts.
Investment Banking, Securities Business: The business (not including banks or bank departments) carried on by a broker or dealer, deals in government or municipal securities, underwrites or distributes securities issues, and buys or sells securities for itself or on the account of others.
Investor: A person who buys or sells securities for his or her own account or the account of others.
Issuer: An entity that has distributed to the public securities registered with the Securities and Exchange Commission. Issuers may be domestic or foreign governments, corporations or investment trusts.
Last-Sale Service: A service that allow real-time access to last-sale information reported by Market Makers.
Last-Sale Reporting: The electronic notification by a Market Maker to The NASDAQ Stock Market noting 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 formalizing the relationship between an underwriter and a company preparing to go public. It outlines the underwriter fees, ranges for stock prices, and other terms of the underwriter's agreement.
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. Level 1 Service is intended for securities firms not actively engaged in trading NASDAQ and OTC Bulletin Board stocks for themselves or for their customers.
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 2 Service is intended for firms trading significant amounts of Nasdaq and OTC Bulletin Board securities for themselves or for their customers.
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 FINRA 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.
Limit-Order File: A file that stores customers' unexecuted limit orders and is maintained as a feature of NASDAQ's Small Order Execution System.
Liquidity: The liquidity of a stock is the ease with which the market can absorb volume buying or selling, without dramatic fluctuation in pricing.
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.
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 (it may occur in fast-moving markets) 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-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 the clearing corporation is processed electronically.
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. FINRA is the only association ever to register under the act.
Management's Discussion and Analysis (MD&A): Also called the Financial Review, MD&A is an interpretive section of a prospectus and annual report.
Margin: An account in which a customer purchases securities on credit extended by a broker/dealer. Rules of the Federal Reserve Board and FINRA govern margin accounts.
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/dealer's 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 is 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 Information Data Access System (MIDAS): Computer system that supports FINRA 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 strong 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 personal customers, and for other FINRA broker/dealers; all FINRA 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 FINRA firms are Market Makers; a broker/dealer may become a Market Maker if the firm meets capitalization standards set down by FINRA.
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. A market maker is limited in the size of spreads he/she is allowed to have because the spread represents the market maker's profit on a given transaction.
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: Also called Market Regulation, the Market Surveillance Department is a highly automated, centralized process of investigating and preventing abusive, manipulative, or illegal trading practices in The NASDAQ Stock Market.
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.
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.
Mediation: An informal, voluntary process used in securities industry disputes in which a mediator helps negotiate a mutually acceptable resolution between disputing parties. Mediation does not impose a solution, however, and if the parties cannot negotiate an acceptable settlement, they may still arbitrate or litigate their dispute.
Member Firm: A broker/dealer that is a member of the Financial Industry Regulatory Authority.
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: The NASDAQ National Market stocks that fluctuate the most often.
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.
MSRB: Municipal Securities Rulemaking Board
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: A debt security issued by a state, municipality or county to finance its capital expenditures 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 Broker: Any broker, including banks, engaged in the business of effecting transactions in municipal securities for the account of others.
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.
Mutual Fund: A pool of money invested by an investment company in a number of securities like stocks, bonds, or government securities. Each mutual fund is different in its make-up and philosophy. Because most mutual funds invest in a large number of securities, they offer investors the benefit of diversification, which can help reduce market risk.
National Business Conduct Committee (NBCC): The national committee that reviews decisions rendered by District Business Conduct Committees.
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 FINRA approved, but was rejected by the Securities and Exchange System.
NASDAQ: The Financial Industry Regulatory Authority Automated Quotation system. It is the second-largest stock market comparing to official stock exchanges by market capitalization in the world, after the New York Stock Exchange.
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.
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 FINRA 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 FINRA and its markets.
NASDAQ International Service: The extension of The NASDAQ Stock Market to the United Kingdom and allows FINRA members to participate through their U.S. trading facilities or approved United Kingdom affiliates. 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.
NASDAQ National Market®: More than 3,900 companies that are the larger and generally more actively traded NASDAQ securities.
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 Market 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 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.
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 Adjudicatory Council (NAC): The National Adjudicatory Council, composed of representatives of member firms and the public, is a committee of FINRA Regulation that is authorized to review disciplinary, membership, and exempt 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 FINRA, 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.
Net Change: The difference between the closing price on today's last trade and the previous day's closing price. Net change can be positive or negative and is quoted in terms of dollars. This is what the newspaper stock tables quote.
Net Capital Rule: The Security and Exchange Commission requires that all broker/dealers maintain no more than a 15 to 1 ratio between indebtedness (money owed to the firm, margin loans, and commitments to purchase securities) and liquid assets (cash, and assets that are easily converted to cash).
Net Tangible Assets: An accounting term defined as stockholders' equity minus goodwill.
Neutral: One or more individuals assigned to mediate through negotiations or arbitrate by adjudication claims between or among disputing parties.
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.
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.
No Quote (NQ): At this time, no Market Makers are making an 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.
NYSE: New York Stock Exchange
Office of Supervisory Jurisdiction (OSJ): Any main or branch office of a FINRA member where one or more of the following take place: advertising or sales literature for use by the member's associated persons is approved; public offerings or private placements are structured; customers' funds or securities are held; new accounts are approved; customer orders are reviewed and endorsed; order execution or market making; 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.
Option: An instrument or contract 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): A joint industry plan that disseminates inside quotations and last sale data for options.
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.
Order Ticket: A form completed by a registered representative of a brokerage firm upon receiving order instructions from a customer.
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.
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 such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.
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. In passive market making, the underwriter is now allowed to enter a higher bid than any competing investors.
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.
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. For example, if an investor owns shares in AT&T, GM, and bonds in Disney, one collectively refers to these as the investor's portfolio.
PORTAL: FINRA'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.
Preferred Stock: A security that usually pays a fixed dividend and gives the holder a claim on corporate earnings and assets that is superior to that of holders of common stock. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar amount or as a percentage of par value.
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, also called the multiple, usually calculated using the latest year's earnings.
Principal Orders: Activity by a broker/dealer when buying or selling for its own account and risk. Also called principal trades.
PROCTOR: See Professional Certification Testing Organization.
Professional Certification Testing Organization (PROCTOR): FINRA'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.
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. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, any litigation that is taking place and any other material information.
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 (subject to the provisions of the Securities Exchange Act of 1934) to be given to a corporation's stockholders as a prerequisite to solicitation of votes.
Public Float: The portion of a company's outstanding shares that is in the hands of public investors. These shares are 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. The put is a contract that grants the right to sell at a specified price a specified number of shares by a certain date. The buyer of a put option estimates that the underlying asset will drop below the exercise price before the expiration date.
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. QIBs must be either domestic or foreign institutions. Individuals are not permitted to be QIBs, regardless of their level of wealth or financial sophistication.
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.
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 red, printed warning on the document that indicates the information in the document is incomplete or subject to change before the issue.
Registered Representative: The employee of a FINRA 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. The registrar, working with the transfer agent, 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. A Chinese Wall must separate the functions if the registrar and transfer agent are the same company.
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.
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.
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. The rule prevents broker dealers and underwriters who may be privy to information about a new issue from investing before the general public can.
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.
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.
Rule 15c3-1: Securities and Exchange Commission rule that requires broker/dealers maintain sufficient liquid assets to satisfy its net capital requirement.
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.
Rule 19b-4: Securities and Exchange Commission rule that provides procedures that self-regulatory organizations (SROs) follow to propose rule changes to the SEC. Examples of SROs in the financial industry would include: the stock exchanges, the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board.
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.)
Secondary Market: Markets where securities are bought and sold subsequent to original issuance. A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the New York Stock Exchange and the NASDAQ are secondary markets.
Secondary Offering: Also called secondary distribution, secondary offering is 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 not to the issuing company, but to those holders.
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.
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).
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. The law was amended in 1938 to allow regulation of over-the-counter markets through self-regulated organizations.
Securities Investor Protection Act of 1970 (SIPA): The statute that established the Securities Investor Protection Corporation (15 U.S.C. §78aaa et seq., as amended).
Securities Industry Association (SIA): The principal trade association and lobbying arm of the securities industry.
Securities Industry Automation Corporation (SAC): A facility that operates automated communication systems to support trading, surveillance and market data for these exchanges that is owned by the New York and American stock exchanges.
Securities Investor Protection Corporation (SIPC): Similar to the way that the Federal Deposit Insurance Corp. insures bank deposits, this nonprofit corporation that insures investors against the failure of brokerage houses. SIPC does not insure against market risk and coverage is limited to a maximum of $500,000 per account, but only up to $100,000 in cash.
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.
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 FINRA'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 eliminates the need for verbal contact between trading desks and enables securities firms to route orders, negotiate terms, and execute trades in NASDAQ securities.
Self-Regulatory Organization (SRO): An entity, such as FINRA, 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.
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.
Settlement Date (T+3): The date specified for delivery of securities between securities firms. The settlement date for stocks and bonds is usually three business days after the trade was executed. For government securities and options, the settlement date is usually the next business day.
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.
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 FINRA 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.
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.
SMART: See Securities Market Automated Regulated Trading Architecture
Small Order Execution SystemSM (SOESSM) No longer in use, the SOESSM facilitated clearing trades of low volume on NASDAQ.
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 a corporation's outstanding shares 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.
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, on-line services, in newspapers and automated information retrieval systems. A fifth letter 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.
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.
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.
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.
Syndicate: A group of investment banking firms formed to conduct an underwriting of a new security issue.
Syndicate Manager: The syndicate manager, also called the managing underwriter or 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.
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.
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: More than 1,300 companies are considered as part of the SmallCap market which consists of securities of smaller, less-capitalized companies that do not qualify for inclusion in the NASDAQ National 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.
Trade Acceptance and Reconciliation: An automated service that facilitates inter-member reconciliation of uncompared trades in NASDAQ securities.
Trading Halt: Usually lasting 30 minutes, a trading halt is the suspension of trading in a NASDAQ security while material news from the issuer is being disseminated. The trading halt gives all investors equal opportunity to evaluate news and make buy, sell, or hold decisions on that basis.
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.
Transparent Market: The degree to which trade and quotation information is available to the public on a current basis.
Two-Sided Market: The FINRA 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.
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.
Underwriting Spread: The difference between what an underwriter pays for a securities issue, and the price at which he offers it to the public. The size of the underwriting spread depends on the negotiations and competitive bidding amongst underwriters and the company itself. The spread increases as the risks involved with the issuance increase.
Uniform Submission Agreement: Agreement indicating the signing parties' 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.
UPC: Uniform Practice Code - series of rules, interpretations and explanations designed to make uniform, where practicable, custom, practice, usage, and trading technique in the investment banking and securities business, particularly with regards to operational and settlement issues.
Uptick: A transaction executed at a price higher than the preceding transaction in that security.
Volatility: Usually expressed as a variance or standard deviation, volatility is the degree of price fluctuation for a given asset, rate, or index.
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.
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 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.