A B C
D E F G H
I J K L M
N O P Q R
S T U V W
X Y Z
5 PERCENT TEST. Transactions
by a BROKER or DEALER
whose commissions, mark-ups, and mark-downs from PENNY STOCKS
did not exceed five percent of its total commissions, mark-ups, or mark-downs
from transactions in SECURITIES. Rule
30 PERCENT AVERAGE DAILY
TRADING VOLUME (ADTV) LIMITATION. Thirty percent of a market maker's ADTV
in a COVERED SECURITY during the
reference period. The 30 percent ADTV limitation
is obtained from NASD.
50-PERCENT OWNED PERSON. A person that has 50 percent of its voting
shares owned by a specified person.
ACCESS PROVIDERS. The term the SECURITIES AND EXCHANGE COMMISSION
(SEC) uses to refer to foreign
entities that provide U.S. investors with the ability to trade directly on
foreign markets. The SEC believes that access providers fall into two
1. foreign entities that
distribute or publish information regarding transactions on a foreign market; or
U.S. and FOREIGN BROKER-DEALERS
that provide U.S. PERSONS who are
not members of a foreign market with the technological capability to trade
directly on foreign markets. Release No. 34-38672, p. 183.
ACCREDITED INVESTOR. The term ACCREDITED INVESTOR
is defined in Rule 501(a) and is only significant to offerings made in
reliance on Rules 505 or 506. It includes offerings eight categories of
purchasers, such as BANKS, INSURANCE COMPANIES, EMPLOYEE BENEFIT PLANS,
INVESTMENT COMPANIES, and registered BROKERS and
DEALERS. Many of the purchaser
specified in Rule 501(a) are also included in the definition of qualified
institutional investors under Rule 144A. There are, however, two significant
differences, as follows:
1 . There is no threshold
requirement that an accredited investor owns and invests at least $100 million
2. The term ACCREDITED
INVESTOR includes noninstitutional investors, such as the following:
any of the issuer's DIRECTORS, executive
officers, or general partners;
any NATURAL PERSON whose individual
NET WORTH, or joint net worth with
their spouse, is greater than $1,000,000 at the time of the purchase; and
any natural person who had individual income greater than $200,000 in each of
the two most recent years, or joint income with their spouse greater than
$300,000 in each of those years, and has a reasonable expectation of achieving
the same income in the current year. See Rule
501(a)(1) - (8) for a complete description of ACCREDITED INVESTOR.
ACCREDITED INVESTOR TRANSACTIONS. Transactions
in which an ISSUER offers or sells
securities only to an ACCREDITED INVESTOR.
Essentially, these are offers or sales to institutional investors, such as
banks, insurance companies, investment companies, and employee benefit plans.
ACCREDITED INSTITUTIONAL INVESTOR. See definition in Rule 501(a)(1), (2), (3), (7), or (8) of the 1933
ACTIVE PRICE DISCOVERY. A high
volume of trading.
ACTIVELY TRADED SECURITIES. Securities
that have an AVERAGE DAILY TRADING VOLUME (ADTV)
of at least $1,000,000 and are issued by an ISSUER
that has a PUBLIC FLOAT VALUE for
common equity securities of at least $150,000,000.
ADEQUATE PUBLICATION. Rule
14d-4 states that ADEQUATE PUBLICATION
depends on the facts and circumstances of each TENDER OFFER.
Publication may be adequate if made only in a city or regional newspaper or
it may need to be made in a national newspaper or some combination of
newspapers. Rule 14d-4(b). Publication in every edition of a daily
newspaper with a national circulation is deemed to be adequate publication.
ADMINISTRATIVE PROCEDURE ACT OF 1946. Federal
law enacted in 1946 that governs practice and proceedings before federal
administrative agencies. This Act (and the relevant sections of the 1933 and
1934 ACTS that authorize SEC
administrative proceedings) also governs SEC administrative proceedings.
AFFILIATE. The term AFFILIATE
is defined in Rule 405. It means any person that either directly or indirectly
controls or is controlled by or is somehow in common control with the
AFFILIATE OF THE ISSUER.
Includes any person that either directly or indirectly controls or is controlled
by the issuer. CONTROL, however, does not necessarily mean equity ownership. The
SEC will view a transaction or arrangement as a whole. Rule 13e-3(a)(1).
AFFILIATED PURCHASER. An
AFFILIATED PURCHASER includes persons acting in concert with a DISTRIBUTION
PARTICIPANT, ISSUER, or selling security holder in connection with the
acquisition or distribution of a COVERED SECURITY; or a distribution
participant's, issuer's, or selling security holder's AFFILIATE (such as a
department or division) that controls the purchases of any COVERED SECURITY by a
distribution participant, issuer, or selling security holder, whose purchases
are controlled by any such person, or whose purchases are under common control
with any such person; or a distribution participant's, issuer's. or selling
security holder's affiliate (such as a department or division) that regularly
purchases securities for its own account or the accounts of others, or that
recommends or exercises investment discretion for the sale or purchase of
AGGREGATE DEBIT ITEMS. Contained
in the Formula for Determination of Reserve Requirements for Brokers and Dealers
(see Exhibit A to Rule 15c3-3, Rule 150-3a).
AGGREGATE INDEBTEDNESS. Defined
in Rule 15c3-1(c)(1), AGGREGATE INDEBTEDNESS is a BROKER'S or DEALER'S
total money liabilities pertaining to any transaction. It includes borrowed
money, money payable against securities loaned and securities failed to receive,
the market value of securities borrowed, customer and noncustomer free credit
balances, credit balances in customer and noncustomer short position accounts,
equities in customer and noncustomer future commodities accounts, and credit
balances in customer and noncustomer commodities accounts.
AGGREGATE INDEBTEDNESS STANDARD. A
BROKER's or DEALER's AGGREGATE INDEBTEDNESS to all other persons; it cannot
exceed 1500 percent of its net capital. Rule 156-1(a)(1)(i). For the
12-month period after beginning business as a broker or dealer, the
aggregate indebtedness cannot exceed 800 percent of its NET CAPITAL. Aggregate
indebtedness is not reduced by uncollected items. Furthermore, related
guaranteed and guarantor accounts are treated as a single account, and balances
in accounts with long and short positions are adjusted by treating market value
required to cover the short positions as if the market value were a debit. Rule
15c2-1(b)(3). Aggregate indebtedness does not include indebtedness
pertaining to securities subject to a lien or claim exempted by Rule
AGGREGATE OFFERING PRICE. The
total of all cash and other consideration does not exceed $5,000,000. Regulation
AGGREGATE REPORTED TRADING VOLUME.
To determine the AGGREGATE REPORTED TRADING VOLUME, the trading volume of
depositary shares that represent the security are included. The depositary
shares are multiplied by the multiple of fraction of the security represented by
the depositary share.
AGGREGATED WHOLE LOAN MORTGAGES.
See also WHOLE LOAN MORTGAGES.
The so-called "agreement-in-principle test," which
has been used in preliminary merger situations, stated that discussions
preliminary to a merger are not material until an agreement in principle about
price and structure has been reached. The Supreme Court has rejected this test
for determining if a statement or omission is material.
AIDING AND ABETTING LIABILITY.
In general, aiding and abetting liability requires violation of a federal
securities law by a third party (a primary violation), knowledge of that
violation by the aider and abettor, and substantial assistance in committing the
violation rendered by the aider and abettor.
ALL HOLDERS RULE. Unless a
bidder receives a determination from the SEC to the contrary, TENDER OFFERS must
treat security holders equally; that is, tender offers must be open to all
security holders of the class of securities sought by the bidder, and the
consideration paid to any one security holder must be the highest consideration
paid to any other security holder. Rule 14d10(a)(1) and (2). Thus, the ALL
HOLDERS RULE prohibits discriminatory tender offers; SEC staff believe it also
prevents BACK-END PLANS.
ALTERNATIVE STANDARD. Requires
that a broker or dealer not allow its NET CAPITAL to be less than the greater of
$250,000 or two percent of the AGGREGATE DEBIT ITEMS.
ALTERNATIVE TRADING SYSTEMS. A
term used by the SEC to describe trading systems that are not registered as
EXCHANGES with the SEC or operated by a registered national securities
association. In the past, the SEC referred to these trading systems as
proprietary trading systems, broker-dealer trading systems, and electronic
communications networks. Many alternative trading systems are the functional
equivalent of traditional exchange and nasd markets, yet they are regulated as
BROKERS-DEALERS because the SEC has attempted to encourage the development
of innovative trading mechanisms. Presently, the SEC determines whether an
alternative trading system PARTICIPANT should be regulated as an exchange or as
a broker-dealer on a case-by-case basis. See
also MATCHING SYSTEM, CROSSING SYSTEM,
and SINGLE-PRICE AUCTION SYSTEM.
AMERICAN DEPOSITARY RECEIPTS (ADRS). ADRS merely represent SHARES in
a corporation that is incorporated outside the U.S. A U.S. bank holds the
underlying foreign security, known as Depositary Shares, in one of its branches
abroad. A negotiable receipt covering the foreign Depositary Shares is then
issued and traded in the U.S. (The Morgan Guaranty Trust Company and the Bank of
New York are large issuers of ADRS.) The
ADR holders retain almost all of the rights that shareholders of the underlying
securities do, but dividends and share pricing are in U.S. dollars. In the past,
ADR trading was done almost exclusively on the OVER-THE-COUNTER
(OTC) market, but both NASDAQ
and the NYSE now have numerous ADR listings.
AMICUS CURIAE. Literally,
a friend of the court. A person with strong interest in or views on the subject
matter of an action, but not a party to the action, may petition the court for
permission to file a brief, ostensibly on behalf of a party but actually to
suggest a rationale consistent with its own views. In private securities
litigation, the SEC's Office of
General Counsel may file AMICUS CURIk
briefs on the SEC's behalf
ANNUAL FINANCIAL INFORMATION. Under
Rule 15c2-12(f)(9), financial information or operating data of a type
included in the FINAL OFFICIAL STATEMENT for
an OBLIGATED PERSON that is provided
at least annually. If no financial information or operating data was included in
the final official statement for an obligated person, the annual financial
information is of a type included in the final official statement with respect
to those obligated persons meeting the objective criteria applied to select the
persons for which financial information and operating data will be provided on
an annual basis. Rule 15c2-12(f)(9).
ANNUAL REPORT. A report filed
by a REGISTERED COMPANY annually that
updates the information contained in the company's REGISTRATION STATEMENT.
ARBITRAGE TRANSACTIONS. The
simultaneous purchase in one market and sale in another of a SECURITY
or COMMODITY in the hope of
making a profit on price differences in the different markets.
ASKED QUOTE. The lowest price a
seller is willing to sell for.
ASSET. Securities, installment
sales, accounts receivables, notes, leases, or other contracts, and any other
type of asset that converts into cash over a finite time period.
ASSET-BACKED SECURITIES. Securities
that are serviced primarily by the cash flow of a pool of receivables or other
financial assets into cash within a finite period of time. Asset-backed
securities include securities that represent an ownership interest in a pool of
discrete assets or certificates of interest or participation in these assets,
provided the assets are not generated or originated between the ISSUER of the
securities and its AFFILIATES; and securities that are secured by one or more
assets or certificates of interest or participation in which the terms of the
securities provide for payments of principal and interest, if any, in relation
to payments or reasonable projections of payments on the assets, or certificates
of interest/participation. Rule 903(c)(4)(ii)(B).
ASSET TEST. The ASSET TEST is
determined by using the BOOK VALUE before the MERGER or consolidation. Rule
ASSOCIATE. The term ASSOCIATE
is defined in Rule 14a-1(a). It includes any corporation or organization
(other than a registrant or a majority-owned subsidiary of the registrant)
in which such person is an OFFICER or partner or is the beneficial owner of 10
percent or more of any class of equity securities; or any trust or other estate
in which a person has a substantial beneficial interest or in which a person
serves as a fiduciary; or any relative, spouse, or relative of that spouse who
has the same home or who is a director or officer of the registrant or its
parents or subsidiaries.
ASSOCIATED PERSON. Any NATURAL
PERSON that is a partner, OFFICER, DIRECTOR, or employee of a LIMITED
PARTNERSHIP that is the issuer; a corporate general partner of a limited
partnership that is the issuer; a company or partnership that controls or is
controlled by or is under common control with the issuer; or an investment
advisor that is registered under the INVESTMENT ADVISORS ACT OF 1940 and that is
an advisor to an INVESTMENT COMPANY registered under the INVESTMENT COMPANY ACT.
15c3-3(a)(13), it includes persons that directly or indirectly CONTROL a
BROKER or DEALER or persons that are directly or indirectly controlled by or
under common control with a broker or dealer. Ownership of 10 percent or more of
an entity's common stock is deemed to be control of an entity.
17a-3(a)(12)(ii), an ASSOCIATED PERSON is defined as a partner, OFFICER,
DIRECTOR, salesman, trader, manager, or any employee handling FUNDS, SECURITIES,
or soliciting transactions or accounts for the BROKERDEALER.
ASSOCIATED PERSON OF A BROKER OR DEALER. Defined
in Rule 3a4-1(c)(2), this means: a partner, OFFICER, DIRECTOR,
or branch manager of a BROKER or
dealer; persons having similar positions or functions; persons that directly or
indirectly control, are controlled by, or are under common control with the
broker or dealer; and employees of a broker or dealer. Persons that are, in
fact, "associated with a broker or dealer but only perform ministerial or
clerical functions are not deemed to be 'associated persons of a broker or
dealer."' Neither are persons that are required by state law to register as
a BROKER or DEALER
merely because they are an issuer of securities or are ASSOCIATED
PERSONS OF AN ISSUER.
to a BROKER to buy or sell a STOCK at
the current market price, rather than at a specified price. See
AT-THE-MARKET OFFERING. A
securities offering that is made at other than a fixed price. Rule 100(b).
AUTHORIZED DENOMINATIONS OF $100,000 OR MORE. Means
that MUNICIPAL SECURITIES have a principal amount of $100,000 or more and have restrictions
that prevent their sale or transfer in principal amounts less than $100,000 in
any manner other than a PRIMARY OFFERING.
Rule 15c2-12(f)(1). If, however, the municipal securities have an
original issue discount of 10 percent or more, AUTHORIZED DENOMINATIONS OF
$100,000 OR MORE means municipal
securities that have a minimum purchase price of $100,000 or more with
restrictions preventing their sale and transfer in principal amounts less than
the original principal amount (at the time of the PRIMARY OFFERING)
in any manner other than a primary offering.
AVERAGE DAILY TRADING VOLUME (ADTV). The
ADTV is determined based on the worldwide average daily trading volume
during the two full calendar months (or any 60 consecutive calendar days ending
within the 10 calendar days) before the REGISTRATION STATEMENT
is filed. Rule 100(b). If no registration statement is filed or if the
DISTRIBUTION involves the sale of SECURITIES on a delayed basis pursuant to Rule 415 of the 1933 ACT, ADTV
is based on the period that is two full calendar months (or any 60
consecutive calendar days ending within the 10 calendar days before) the
offering price is determined.
BACK-END PLAN. A
BACK-END PLAN allows
SHAREHOLDERS (other than the bidder)
to exchange their existing SHARES for a package of SECURITIES that
effectively requires the acquiring company to buy out the shareholders at a
price established by the TARGET COMPANY'S management.
BACK-END SECURITIES TRANSACTION. A
transaction after a tender offer in which the bidder acquires the remaining
BANK (UNDER THE 1934 ACT). See
definition in Section 3(a)(6). It includes banking institutions organized
under U.S. laws; member banks of the Federal Reserve System; and any other type
of banking institution that conducts business under U.S. law if it performs
functions of a national bank under Public Law 87-722 and is supervised and
examined by a state or federal regulator.
BANK (UNDER THE INVESTMENT COMPANY ACT OF 1940). Any
national bank, or any banking institution organized under the laws of any State,
territory, or the District of Columbia, the business of which is substantially
confined to banking and is supervised by the State or territorial banking
commission or similar official.
BANK HOLDING COMPANY ACT OF 1956. Federal
law that governs any company that directly or indirectly owns or controls, with
power to vote, more than 25Epercent of voting shares of each of two or more
BANKER'S ACCEPTANCE. Short-term
credit instruments most commonly used by persons or firms engaged in
BASKET TRANSACTIONS. Includes
two types of transactions: bids or purchases made in the ordinary course of
business in connection with a "basket" of 20 or more securities, as
long as a COVERED SECURITY does not
comprise more than five percent of the basket's value; or adjustments made to
the basket in the ordinary course of business because of a change in the
composition of a standardized index. Rule 101(b)(6)(i) and (ii).
BENEFICIAL OWNER. A person
that, directly or indirectly, has or shares either voting power or investment
power with respect to a SECURITY. Rule
13d-3(a). This direct or indirect ownership can be in the form of any type of
arrangement or relationship. A person may also be deemed to be a beneficial
owner if that person has the right to acquire beneficial ownership of a security
by the exercise of an OPTION, the conversion of a security, the revocation of a
trust, or the automatic termination of a trust. Rule 13d-3(d)(1)(i).
The general rule
states that a BENEFICIAL OWNERSHIP means
any person that has or shares a direct or indirect pecuniary interest in the
EQUITY SECURITIES through any
contract, arrangement, understanding, or relationship. This broad definition
encompasses both direct and indirect arrangements. The definition of PECUNIARY
INTEREST and INDIRECT PECUNIARY
INTEREST are key issues in this rule.
Rule 16a-1 (a)(2).
OWNERSHIP. The general rule states that BENEFICIAL
OWNERSHIP means any person that has or shares a direct or indirect pecuniary
interest in the EQUITY SECURITIES through any contract, arrangement,
understanding, or relationship. The SEC has defined the term broadly to
encompass not only common stock or other classes of stock but also derivative
securities that can be exercised to acquire stock. Because the definition
encompasses both direct and indirect arrangements, the definitions of PECUNIARY
INTEREST and INDIRECT PECUNIARY INTEREST are key issues to this rule.
BENEFICIARY SECURITY. A
security creating a WARRANT.
(BENEFIT) PLAN. See
BESPEAKS CAUTION DOCTRINE. Judicially
created, the BESPEAKS CAUTION DOCTRINE is another defense to the materiality
element. It is available in situations where an optimistic FORWARD-LOOKING
STATEMENT (such as a financial projection or forecast) has been made and the
statement is accompanied by cautionary language. The cautionary language must be
aimed directly at the forwardlooking statements and must provide a substantive
explanation. Blanket disclaimers are not sufficient. The BESPEAKS CAUTION
DOCTRINE is highly factspecific and is applied on a case-by-case
BEST-EFFORT BASIS. With
respect to a new securities issue, a commitment by the investment banker or
group handling the new issue to sell the securities as an agent of the issuing
party, rather than as an underwriting of the entire issue.
BEST-EFFORTS OFFERING. See
BEST-EFFORT BASIS, BEST-EFFORTS UNDERWRITING.
BEST-EFFORTS UNDERWRITING. The
UNDERWRITER acts as the issuer's agent. It only agrees to use its best efforts
to sell the issue to the public; it does not purchase any of the securities.
BEST EFFORTS DEALS are most often used with respect to IPOs involving small and
lesser-known start-up companies.
BID AND ASKED. Price quotation
for SECURITIES that are not frequently traded or that are traded on the
OVER-THE-COUNTER MARKET. The BID QUOTATION is the highest price a
prospective buyer is willing to pay at a particular time; the ASKED QUOTATION is
the lowest price the seller is willing to sell for. Together, the two prices
constitute a quotation; the difference between the two prices is the SPREAD.
BID PRICE. Represents the price
at which the DEALER is willing to
purchase one or more ROUND LOTS of
PENNY STOCK. Neither the OFFER PRICE
nor the BID PRICE includes mere indications of interest to buy or sell. Rule
BID QUOTE. The highest price a
prospective buyer is willing to pay at a particular time.
BIRNBAUM RULE. Commonly refers
to a narrow class of plaintiffs who are sellers and purchasers of a SECURITY
and are protected under Section 10(b) and Rule 10b-5.
BLANK-CHECK COMPANY. A
development stage company issuing PENNY STOCK
that either has no specific business plan or purpose, or whose business plan
is to merge with an unidentified company or companies.
BLUE SKY LAWS. A popular name
for state securities laws, the first of which was enacted in Kansas in 1911.
Predating federal securities regulation, state securities laws provided for the
regulation and supervision of securities offerings and sales in order to protect
citizen-investors from investing in fraudulent companies. These state laws
became known as BLUE SKY LAWS when a
judge of the period stated that certain speculative securities schemes had no
more substance than so many feet of "blue sky." Most blue sky laws
require the registration of new issues of securities with a state agency that
reviews selling documents for accuracy and completeness. As well, blue sky laws
often regulate securities brokers and salesmen.
BOARD OF TRADE. Any organized
exchange or other trading facility.
BONA FIDE ITEMS OF TRANSFER. SECURITIES are not "bona fide items of transfer" if the BROKER
or DEALER has not received new certificates conforming to its instructions, a
written statement by the ISSUER or
its transfer agent acknowledging the transfer instructions and the possession of
the securities, or a revalidation of a WINDOW TICKET from a transfer
agent pertaining to the certificate delivered for transfer. One of these items
must be received or obtained within 40 calendar days after the securities have
been transmitted for transfer to the issuer or its transfer agent. Rule
BONA FIDE OFFER. The date of
offer is described as a bona fide offer to the public. This has been interpreted
as the effective date of the REGISTRATION STATEMENT.
BOND. A security for which
registration may be required, a bond is a long-term debt instrument that
promises to pay the lender a series of periodic interest payments in addition to
returning the principal at maturity. In every case, a bond represents
debt-its holder is a creditor of the corporation and not a part owner as
is the SHAREHOLDER.
BOND INDENTURE. Contract
between an ISSUER of bonds and the bondholders. An instrument of secured indebtedness
issued by a CORPORATION.
BOOK VALUE. The value at which
an asset is carried on the balance sheet. Book value is the cost less
accumulated depreciation or the valuation allowance. Book value is based on the
historical cost of an asset and may vary significantly from the fair market
value. The value before a merger or consolidation, based on the most recently
available financial statements for the 12-month period before the
corporate reorganization. Rule 16b-7(a).
BOUGHT DEAL. Some SECURITIES offerings
are not arranged as either FIRM COMMITMENT UNDERWRITINGS
or BEST EFFORTS UNDERWRITINGS. The
BOUGHT DEAL is a variation used for
the underwriting of BONDS.
BRIGHT LINE TEST. Jargon used
to describe a black and white situation in which a requirement either is
satisfied or is not satisfied. There are not supposed to be "gray
BROKER. Any persons that are
engaged in the business of effecting transactions in SECURITIES
for the account of others, but does not include a bank. Section 3(a)(4).
Generally speaking, a BROKER is a
market PARTICIPANT that acts solely
as an investor's agent, takes no position in securities being traded, and, in
return for these services, receives a fee or commission.
BROKERAGE. The wages or
commissions of a broker; also, his business or occupation.
BROKERAGE AGREEMENT. These
investments will be held to be SECURITIES
if the interdependence of fortunes between the investors and the BROKERS constitute a COMMON ENTERPRISE
with profits to come SOLELY FROM THE EFFORTS OF OTHERS.
securities brokerage firm, usually registered with the SEC and with the state in
which it does business, engaging in the business of buying and selling
securities to or for customers.
BROKER-DEALER TRADING SYSTEM. A
facility that provides a fully or partially automated system for collecting,
disseminating, or displaying SYSTEM ORDERS
and for matching, crossing, or executing system orders. Rule
Transactions that brokers "execute upon customers' orders on any EXCHANGE
or in the OVER-THE-COUNTER MARKET but not the solicitation of those
orders." Section 4(4). Under Rule 144, BROKER TRANSACTIONS also include
transactions where the broker executes an order to sell the securities as agent
for the person selling the securities (and receives no more than a customary
broker's fee); and transactions where the broker does not solicit customers'
orders to buy the securities in anticipation of the sale.
BUILDING AND LOAN ASSOCIATION.
An organization formed to accumulate a fund, by the subscriptions and savings of
its members, that assists its members in building or purchasing homes or real
estate by loaning them the requisite money. See
also SAVINGS AND LOAN ASSOCIATION.
BURIED FACTS DOCTRINE. Under
this doctrine, disclosure in a PROXY STATEMENT is adequate only if there is some
conceivable danger that a reasonable SHAREHOLDER would fail to realize the
correlation and overall import of various facts interspersed throughout the
BUSINESS DAYS. Defined in Rule
13e-4(a)(3) as from 12:01 A.M. through 12:00 MIDNIGHT F-T.,
excluding Saturdays, Sundays, and federal holidays.
BUSINESS JUDGMENT RULE. A
presumption that, in making a business decision, directors of a corporation act
on an informed basis, in good faith, and in the honest belief that their actions
are in the best interests of the corporation.
"BUT FOR" CAUSATION. See
"BUT FOR" TEST.
"BUT FOR" TEST. Used
in determining tort liability by applying the causative criterion as to whether
the plaintiff would not have suffered the wrong "but for" the action
of the defendant. This test is now largely discredited because of the many
modifications necessary in applying it.
CALL. Included in the
definition of a SECURITY, a CALL is an OPTION or contract that gives the holder
the right to purchase a stated number of shares of STOCK at a specified price on
or before a certain fixed date. See also CALL
OPTION and OPTIONS.
CALL EQUIVALENT POSITION. A
position in a DERIVATIVE SECURITY (such as a LONG CONVERTIBLE SECURITY, a LONG
CALL OPTION, or a SHORT PUT OPTION.) whose value increases as the value of the
underlying equity security increases.
A contract that gives the holder the right to buy a specified number of
shares of a certain stock or stock index at a predetermined price (referred to
as the "strike price") on or before the option's expiration date. To
obtain this right, the holder (buyer) pays the writer (seller) a premium. The
holder profits from the contract if the stock's price rises. If the holder
decides to exercise the option (as opposed to selling it), the seller gives up
ownership of the security.
CALL OPTION PRICE. The price at
which a BOND may be retired or called prior to its maturity.
CALL PREMIUM. The difference
between a bond's CALL PRICE and its PAR VALUE.
The price at which a BOND may be retired, or called, prior to its maturity. See
CAPITAL STOCK. Shares of stock
that represent ownership of a business including PREFERRED STOCK and COMMON
CARRIED FOR THE ACCOUNT OF ANY CUSTOMER. Defined
in Rule 15c2-1(b)(2), this term means SECURITIES received by a BROKER or
DEALER for a customer's account; securities sold and appropriated by a broker or
dealer to a customer; or securities sold, but not appropriated, by a broker or
dealer to a customer who has paid for them to the extent that the broker or
dealer owns the securities and has received delivery of similar securities. If
the securities were subject to a lien, they are not carried for a customer's
account until they are released from the lien.
CAUSE EXAMINATIONS. These
examinations are conducted if the Office of Compliance Inspections and
Examinations believes that something is wrong; they focus on a transaction(s) or
an event(s) that creates the concern.
CAUSE OF ACTION ACCRUES. A
Section 18(a) action "accrues" when the purchase or sale of securities
for which damages are sought takes place.
CEASE-AND-DESIST ORDER. An
order of an administrative agency or court prohibiting a person or business firm
from continuing a particular course of conduct.
CENTRAL INDEX KEY (CIK). A
number assigned by the SEC to uniquely identify an electronic filer. It is the
only publicly available access code.
CENTRAL REGISTRATION DEPOSITORY (CRD). A
computer database (created in 1981) that maintains current registration
information for members of the NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD). The CRD, while operated and maintained by NASD,
is also used by the SEC, SROs, and
state securities regulators in connection with registering and licensing
BROKER-DEALERS and their registered personnel. NASD REGULATION, INC. (NASDR)
is the regulatory subsidiary of NASD responsible
for the operation of the CRD system. See
also WEB CRD.
CERTIFICATE OF DEPOSIT. A less
common device that Section 2(2) specifically provides is a SECURITY.
CERTIFICATE OF INDEBTEDNESS. An
obligation sometimes issued by corporations that has practically the same force
and effect as a bond, although not usually secured on any specific property.
CERTIFICATE OF INTEREST (IN A PROFIT-SHARING
ARRANGEMENT). A less common device that Section 2(2)
specifically provides is a SECURITY.
CERTIFICATED SECURITY. A
certificated security is a share, participation, or other interest in a property
or an enterprise of the ISSUER or an
obligation of the issuer that is represented by an instrument issued in bearer
or registered form.
CERTIORARI. To be informed of A
writ of common law origin, issued by a superior to an inferior court, that
requires the inferior court to produce a certified record of a particular case
tried. The writ is issued in order that the court issuing the writ may inspect
the proceedings and determine whether there have been any irregularities. It is
most commonly used to refer to the Supreme Court of the United States, which
uses the writ of certiorari as a discretionary device to choose the cases it
wishes to hear. The Supreme Court denies most writs of certiorari (i.e.,
"cert. den."). The trend in state practice has been to abolish
CHANNEL STUFFING. A practice in
which a corporation lumps sales and orders into the final weeks of a fiscal
quarter, thereby intentionally improving the reported results for that quarter.
CHINESE WALL. Describes the
fictional device implemented to screen an attorney or other person involved in
an earlier adverse role from other persons, documents, and information in order
to prevent a disqualification of the entire firm due to a conflict of interest.
CIK CONFIRMATION CODE (CCC). The
CCC consists of eight characters with at least one being a number (0-9)
and at least one a special character (such as @, #, or *). The CIK and the
corresponding CCC are used to authenticate an electronic filing.
CIVIL PENALTIES. Monetary
damages awarded as part of a private lawsuit instituted by aggrieved investors.
CLASS ACTION. The SECURITIES
LITIGATION STANDARDS ACT OF 1998
(UNIFORM STANDARDS ACT) defines CLASS
ACTION in three alternative ways and,
by definition, excludes some cases from the federal venue requirement. A
class action, with regards to any single suit, is an action on behalf of 50 or
more persons, with a question of law or fact in common, and without inquiry into
individual reliance on an alleged misstatement or omission. A class action also
exists when one or more persons represent an unnamed group of individuals who
share a common question of law or fact that predominates over any questions
affecting the individual members. When dealing with a group of lawsuits filed or
pending in the same court, a class action evolves when the suits of 50 or more
people, which share a common question of law, are joined or consolidated. The
purpose of this definition is to make clear that "mass actions" are
included in the definition of a class action.
CLASSICAL THEORY OF INSIDER TRADING LIABILITY. See INSIDER TRADING
CLEARINGHOUSE. With respect to
a stock or commodities EXCHANGE, a
facility that provides for the daily clearance of all transactions. With regard
to futures transactions, a clearinghouse confirms that trades made each day are
acknowledged by both parties; settles amounts owed daily on futures contracts
due to changes in contract prices during the trading session; and insures the
financial worth of all futures contracts that it has accepted.
CLOSED-END FUNDS. MUTUAL
FUNDS that do not repurchase their
SHARES from investors; the shares are
sold in a secondary market, such as a STOCK EXCHANGE.
CLOSED-END INVESTMENT COMPANY. SHARES in closed-end investment companies are readily transferable
in the open market and are bought and sold like other shares.
CODE OF FEDERAL REGULATIONS (CFR).
SEC rules and regulations, which provide the SEC's interpretations of the
statutes, after initially being published in the FEDERAL REGISTER (FR) first as
proposed rules and later as final rules, are codified as parts and sections in
Title 17 of the Code of Federal Regulations and are updated annually. SEC rules
begin with Section 200 of Title 17; SEC rules concerning the 1933 ACT begin at
Section 230. The SEC's Office of the Secretary publishes the official documents
and releases in the FEDERAL REGISTER.
COLLATERAL ESTOPPEL DOCTRINE. A legal doctrine recognizing that a
court's determination of facts as litigated between two parties is binding on
those parties with respect to all future proceedings against each other.
COMFORT LETTER. A letter generally requested by securities
UNDERWRITERS to give “comfort"
on the financial information included in an SEC REGISTRATION STATEMENT.
COMMISSION OR OTHER REMUNERATION.
See definition in Rule 150. Section 3(a)(9).
COMMODITIES. Staples (such as
wool, cotton, etc.) that are traded on a commodity EXCHANGE and on which there
is trading in futures.
COMMODITY EXCHANGE ACT. An Act
designed to insure fair practices and honest dealing on the commodity futures
exchanges and to provide a measure of control over speculative activity. The Act
is administered by the COMMODITY FUTURES TRADING COMMISSION (CFTC).
COMMODITY FUTURE. A speculative
transaction involving the sale of a staple (e.g.,
wool or cotton) at a predetermined price for future delivery.
COMMODITY FUTURES MODERNIZATION ACT OF 2000. Provides
regulatory relief for domestic futures exchanges, legal certainty for
OVER-THE-COUNTER (OTC) products, and allows the trading of
single-stock futures. The Act also provides guidelines for the SEC'S role
in regulating swaps, as well as guidelines to determine the proper regulator for
COMMODITY FUTURES TRADING COMMISSION (CFTC).
An independent federal agency that administers the COMMODITY EXCHANGE ACT, and
supervises the trading of commodity futures and commody options.
COMMODITY OPTION. A right
purchased by an option holder that entitles him either to buy (CALL OPTION) from
or to sell (PUT OPTION) at a stated price and within a stated time an underlying
physical commodity or a commodity futures contract relating to that commodity.
COMMON ENTERPRISE. Under
securities laws, a venture in which the fortunes of an investor are interwoven
with and dependent upon the efforts and success of those seeking the investment
or of third parties. See INVESTMENT
CONTRACT. See also HORIZONTAL
COMMONALITY TEST, VERTICAL COMMONALITY TEST.
COMMON STOCKHOLDER/SHAREHOLDER. See
COMMON SHARES. See
COMMON STOCK. Class of
corporate stock that is usually associated with the right to receive dividends
contingent upon an apportionment of profits, negotiability, the ability to
pledge and hypothecate stock, voting rights in proportion to shares owned, and
the capacity to appreciate in value.
COMMON TRUST FUND. Under Rule
3a-6, the term includes common trust funds maintained by a bank that is a
member of an affiliated group as defined in Section 1504(a) of the Internal
Revenue Code. The trust fund must be used solely for investment and reinvestment
of funds contributed by members of the affiliated group in some fiduciary
capacity, such as trustee, executor, administrator, or guardian.
COMPENSATION. If a BROKER is
acting as a customer's agent, COMPENSATION means any remuneration the broker
receives or is going to receive from the customer for a PENNY STOCK transaction.
If a DEALER receives a customer order to purchase or sell penny stock and then
effects the purchase/sale from another person to offset a contemporaneous
sale/purchase of the penny stock to the CUSTOMER, COMPENSATION is the difference
between the price to the customer and the contemporaneous purchase or sale
price. If the dealer is acting as principal for its own account, COMPENSATION
means the difference between the price to the customer and the prevailing market
price. Rule 15g-4(c).
COMPLETES ITS PARTICIPATION IN THE DISTRIBUTION. A
person completes its participation in the distribution in one of several ways:
1. An ISSUER'S or
SELLING SECURITY HOLDER'S participation is completed when the DISTRIBUTION is
2. An UNDERWRITER'S
participation is completed when its PARTICIPATION has been distributed. In order
for the participation to be distributed, all other securities of the same class,
which are acquired in connection with the distribution, as well as any
STABILIZING ARRANGEMENTS and TRADING RESTRICTIONS associated with the
distribution, are terminated. An underwriter's participation is not considered
completed if a SYNDICATE OVERALLOTMENT OPTION is exercised for an amount in
excess of the NET SYNDICATE SHORT POSITION as of the time of the exercise.
3. All other persons are
deemed to have completed their participation in the distribution when that
person's participation has been distributed Rule 100(b).
COMPLIANCE EXAMINATIONS. These
examinations evaluate investment companies' and advisors' compliance with the
INVESTMENT COMPANY ACT OF 1940 and the INVESTMENT ADVISERS ACT OF 1940.
CONCLUSION OF LAW. The final
judgment or decree required on the basis of facts found or the verdict.
CONGRESSIONAL INFORMATION SERVICES (CIS). A
general reference that provides the text of congressional reports and hearings.
CONSISTENTLY. Under Rule
15g-3(a)(1)(i)(A)(2) and (13)(2), CONSISTENTLY means at least 75 percent
of a DEALER'S bona fide interdealer sales or purchase during the previous
four-day period. If the dealer has only made three bona fide interdealer
sales or purchases during this period, CONSISTENTLY means all three sales or
CONSTRUCTIVE INSIDER. The term
CONSTRUCTIVE INSIDERS includes accountants, lawyers, and consultants. These
constructive insiders become temporary fiduciaries of the corporation because of
their intimate relationship.
CONTINGENT COMPENSATION. Any
compensation based on whether a proposed ROLLUP TRANSACTION itself is approved,
disapproved, or completed. See also DIFFERENTIAL
COMPENSATION. Rule 14a-15(a)(2).
CONTRACTUAL COMMITMENT. Includes
underwriting, WHEN-ISSUED CONTRACTS, WHENDELIVERED CONTRACTS, and
DELAYED- DELIVERY CONTRACTS, writing or endorsement of PUTS and CALLS,
commitments in foreign currencies, and SPOT-CASH COMMODITIES CONTRACTS.
Rule 15c3-1(c)(4). Uncleared REGULARWAY PURCHASES and sales of securities
and contracts in commodities futures are not considered contractual commitments.
CONTROL. The term CONTROL is
not defined in the 1934 ACT; however, it is meant to be broadly interpreted as
direct or indirect possession of power to direct the management and policies of
a CONTROLLED PERSON. CONTROL for purposes of Rule 15c3-3(b)(4) only
includes SECURITIES controlled as described in Rule 15c3-3(c)(1), (c)(5),
CONTROL LIABILITY. Liability
faced by a corporate player who, through STOCK ownership, agency, or otherwise,
or who, pursuant to or in connection with an agreement or understanding with one
or more other persons by or through stock ownership, agency, or otherwise,
controls someone potentially liable under the SECURITIES ACT.
CONTROL LOCATION. A BROKER or
DEALER, registered national securities association, or registered NATIONAL
may apply to the SEC for such a designation. Rule 150-3(c)(4).
CONTROL OF AN ENTITY. Ownership of 10 percent or more of an entity's
COMMON STOCK is deemed to be CONTROL
of an entity.
CONTROL PERSON. A person who
has actual power or influence over an ISSUER.
CONTROLLED COMPANY. A company,
the majority of whose VOTING STOCK is
held by an individual or corporation (e.g., a subsidiary of a parent company).
The level of control depends on the amount of stock owned.
CONTROLLED FOREIGN CORPORATION. Any
foreign corporation in which more than 50 percent of the total combined voting
power of all classes of STOCK entitled
to vote or the total value of the stock of the corporation is owned by U.S.
shareholders on any day during the taxable year of the foreign corporation. (For
purposes of this definition, a U.S. shareholder is any u.s. person who owns, or
is considered as owning, 10 percent or more of the total combined voting power
of all classes of VOTING STOCK of the
CONTROLLED OFFERING. An
offering to the public of SECURITIES by
selling STOCKHOLDERS or an ISSUER through a BROKER-DEALER
acting as an UNDERWRITER for such
persons pursuant to a formal underwriting arrangement.
CONVERTIBLE SECURITY. A BOND,
DEBENTURE, or PREFERRED SHARE that
may be exchanged by the owner for COMMON STOCK
or another security, usually of the same company, in accordance with the
terms of the issue. The ratio between convertible and CONVERSION SECURITIES is fixed at the time the convertible securities are issued, and is
usually protected against dilution.
COOPERATIVE BANK. A financial
cooperative, such as a credit union, mutual savings bank, savings and loan
association, and production credit association.
CORPORATE SHARES. See
CORPORATE STOCK. Term embraces
all EQUITY SECURITIES issued by a
CORPORATION, but not BONDS and DEBENTURES because
these represent debt rather than stock (equity). See STOCK.
CORPORATION. A form of
conducting business that is financed by a group of people known as INVESTORS,
managed by a group of people known as DIRECTORS and OFFICERS, and yet exists as
a completely separate legal entity that limits investors' liability to their
CORRESPONDENT. A securities
firm, bank, or other financial organization that regularly performs services for
another in a place or market to which the other does not have direct access.
Securities firms may have correspondents in foreign countries or on EXCHANGES of
which they are not members.
CORRESPONDENT BROKER OR DEALER. One
who has a direct line of communication to another BROKER or DEALER located in a
different city or geographic area. Rule 15c2-7(c)(3).
COVERED PERSON. A defendant in
any private action under the 1934 ACt or a defendant in any private action under
Section 11 of the SECURITIES ACT OF 1933 (1933 ACT), who is an OUTSIDE DIRECTOR
of the subject security's ISSUER.
14e-5 defines covered person as the offeror and its affiliates; the
offeror's dealer-manager and its affiliates; any advisor to the offeror,
dealermanager, or their affiliates, if such advisor's compensation is dependent
on the completion of the offer; and any person acting, directly or indirectly,
in concert with any of the other covered persons in connection with any purchase
or arrangement to purchase any SUBJECT SECURITIES or any related securities.
COVERED SECURITY. A COVERED
SECURITY encompasses nationally traded securities, securities issued by
registered investment companies, securities sold to qualified purchasers, and
securities that are part of transactions exempt from registration under the 1933
or 1934 ACTS. Under the SECURITIES LITIGATION STANDARDS ACT OF 1998 (UNIFORM
STANDARDS ACT), a COVERED SECURITY is defined as a security that qualifies under
Section 18(b)(1) or 18(b)(2) of the 1933 ACT. Section 18(b)(1) defines a COVERED
SECURITY as a nationally traded security, including securities listed on the
NYSE or NASDAQ. Section 18(b)(2) includes as a COVERED SECURITY a security
issued by registered investment companies. The term COVERED SECURITY does not
include a DEBT SECURITY that is exempt from the 1933 ACT registration
requirements under Section 4(2).
CREDIT RISK. The term CREDIT
RISK is defined according to "Statement of Financial Accounting Standards
No. 105." Rule 17H- 1T(a)(1)(vi).
CROSS-HEDGING. The use of
a futures contract on one financial instrument to hedge a position in a
different financial instrument.
CROSSING SYSTEM. An ALTERNATIVE
TRADING SYSTEM (ATS) that allows participants to enter unpriced orders that are
executed with matching interests at a single price normally ascertained from the
primary public market. Portfolio System for Institutional Trading (POSIT) and
Tradebook are crossing trading systems.
CROWN CORPORATION. A
CORPORATION whose entire COMMON SHARES are owned by the Canadian government.
CURRENCY SWAP. A currency swap
normally involves an exchange of both interest and principal payments. The
motivation for a currency swap is the ability of an issuer to reduce its
borrowing cost by borrowing funds that are denominated in a foreign currency and
capitalize on the exchange rate risk.
CURRENT REPORT. A report filed
by a REGISTERED COMPANY within 15 days after the occurrence of an event
significant to the company.
15c2-1(b)(1) defines CUSTOMER to include a BROKER's or DEALER's general or
special partners, DIRECTORS, or OFFICERS, or any PARTICIPANT in a joint, group,
or syndicate account with the broker or dealer or with its partner, officers, or
directors. For purposes of these rules, customer includes a municipal securities
dealer concerning transactions in securities other than municipal securities.
Rule 15c1-1(a). Under Rule 15c3-2, the term CUSTOMER does not
include BROKERS or DEALERS.
As defined in
Rule 156-3(a)(1), generally, CUSTOMER means any person that a BROKER or
DEALER has received, acquired, or holds funds (i.e.,
free credit and other credit balances) or SECURITIES for that person's
account. A "customer" does include another broker or dealer that
maintains an omnibus account pursuant to Regulation T. However, a CUSTOMER does
not include brokers or dealers that are registered MUNICIPAL SECURITIES DEALERS,
or the broker's or dealer's general partners, directors, or PRINCIPAL OFFICERs (i.e.,
the president, executive vice-president, treasurer, secretary). Nor
does the term CUSTOMER include any person that has a claim for property or funds
pursuant to an agreement or operation of law that is part of the broker's or
dealer's capital or is subordinated to the claims of the broker's or dealer's
creditors. For purposes of Rule 156-3(m), the term CUSTOMER does not
include a broker or dealer that maintains a special omnibus account with another
broker or dealer under Section 4(b) of Regulation T.
For purposes of
Rule 17a-5(c), a CUSTOMER includes any person other than another broker or
dealer that is exempt; one of the broker's or dealer's general, special, or
limited partners, directors, or officers; or a person that has a claim for
property or funds, is part of the broker's or dealer's capital, or is
subordinated to the claims of the broker's or dealer's creditors if the broker
or dealer has effected a securities transaction with that person in the month
preceding the balance sheet date or following the month when the balance sheet
statement was sent.
A CUSTOMER also
includes persons for whom the broker or dealer is safekeeping securities or
holding them as collateral, or for whom the broker or dealer carries a free
credit balance during the month when the broker or dealer must determine who its
customers are for purposes of furnishing the customer statements.
CUSTOMER FUNDS. See
definition in Rule 15c3-3(a)(10).
DE MINIMIS TRANSACTIONS. Purchases
made during the RESTRICTED PERIOD, except for purchases made by a PASSIVE MARKET
MAKER, that total less than two percent of the AVERAGE DAILY TRADING VOLUME (ADTV)
of the security being purchased or unaccepted bids. Rule 101(b)(7). To qualify
as DE MINIMIS TRANSACTIONS, the person making the bid or purchase must have
maintained and enforced written policies and procedures that are reasonably
designed to achieve compliance with Regulation M.
DEALER. The term DEALER is
defined in Section 2(12) as any person who is engaged, directly or indirectly,
in the business of dealing or trading in SECURITIES that are issued by another
person. Under Section 3(a)(5), a DEALER is any person engaged in the business of
buying and selling securities for his own account, through a BROKER or
otherwise. As used in the 1934 ACT, the term DEALER only encompasses persons
that buy and sell securities for their own account as part of a regular
business. Although a BANK is not usually considered a dealer, it will be deemed
a DEALER if it is a bank as described in Rule 3b-9. A DEALER is a person
that is ready and willing to buy a SECURITY for or sell a security from its own
account to an investor.
DEBENTURE. A SECURITY for which
registration may be required, a DEBENTURE is a long-term unsecured debt
instrument that is issued pursuant to an indenture. A PROMISSORY NOTE or BOND
that is backed by the general credit and earning history of a corporation and,
usually, is not secured by a mortgage or lien on any specific property (e.g.,
an unsecured bond).
DEBT COLLECTION IMPROVEMENT ACT (DCIA) OF 1996.
The DCIA requires, among other things, that all administrative penalties
assessed by federal agencies make cost-of-living adjustments. Each
federal agency must adopt regulations at least once every four years, that
adjust for inflation the maximum amount of civil monetary penalties under the
statues administered by the agency. See also
SECURITIES ENFORCEMENT REMEDIES AND PENNY STOCK REFORM ACT.
DEBT SECURITY. Any form of
corporate security that is reflected as debt on the books of the corporation.
DEBTOR IN POSSESSION. In
bankruptcy, refers to the debtor in a Bankruptcy Code Chapter 11 or Chapter 12
case. In a Chapter 11 case, for example, either the debtor will remain in
control of its business or assets, or a trustee will be appointed to take
control of the business or assets.
DEFEASANCE. An instrument that
accompanies a BOND, recognizance, or judgment and contains a condition that,
when performed, defeats it.
DEPOSITOR. For purposes of the
FEDERAL DEPOSIT INSURANCE ACT, a government securities broker's or dealer's
customers are deemed to be depositors under the FEDERAL DEPOSIT INSURANCE ACT.
DEPUTIZATION THEORY. This
theory has some impact on the determination of whether or not a person is an
OFFICER or DIRECTOR for the purposes of Section 16. Under this theory, the
director of an ISSUER may be found to be a "deputy" director of a
DERIVATIVE LIABILITY. There are
two distinct categories of derivative liability: the action that a plaintiff may
institute to redress a wrong done to another; and the action that a plaintiff
may institute to redress a wrong done to himself that is proximately caused by a
wrong done to another.
DERIVATIVE SECURITY. PUTS,
CALLS, STRADDLES, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES, and STOCK
APPRECIATION RIGHTS (SARS). Rule 16a-1(c). A derivative security also
includes similar rights that have an exercise or conversion privilege at a price
that is related to an underlying security. It does not matter if the rights are
DESIGNATED FOREIGN GOVERNMENT SECURITY.
A SECURITY representing a debt obligation of one of several listed foreign
governments. The security must not be registered under the 1933
ACt and cannot be part of an AMERICAN DEPOSITARY RECEIPT (ADR). Rule
3a12-8(a). See also QUALIFYING
FOREIGN FUTURES CONTRACTS.
DESIGNATED OFFSHORE SECURITIES MARKET.
Defined in Rule 902(a), DESIGNATED OFFSHORE SECURITIES MARKET includes the
Eurobond market (administered by the International Bond Dealers) and 22 named
foreign exchanges. It also includes other foreign securities exchanges that the
SEC may designate as an offshore securities market, using specific criteria set
forth in Rule 902(a)(2)(i) - (vii).
DIFFERENTIAL COMPENSATION. Any
compensation based on whether the solicited proxy, consent, or authorization
approves or disapproves the proposed ROLLUP TRANSACTIOn. Rule
14a-15(a)(1). See also CONTINGENT
DIRECT PARTICIPATION PROGRAMS.
These are programs financed through the sale of certain UNLISTED SECURITIEs that
are not traded on EXCHANGES or OVER THE COUNTER. The investors have certain
flow-through tax consequences as a result of their participation in these
DIRECT PLACEMENT. With respect
to SECURITIES offerings, the negotiation by a borrower (such as an industrial or
utility company) directly with the lender (such as a life insurance company or
group of investors) for sale of an entire issue of securities. No UNDERWRITER is
involved and the transaction is exempt from SEC filing. This is also called a
EFFORTS. Defined in Rule 902(b)(1), DIRECTED SELLING EFFORTS encompass any
type of activity undertaken for the purpose of, or that reasonably could be
expected to have the effect of conditioning the U.S. market for an offering of
securities pursuant to Regulation S. It includes the placing of an
DIRECTOR. Defined in Section
3(a)(7), the term director means the director of a corporation or any person
performing similar functions for any organization. The organization need not be
Transactions made pursuant to an EMPLOYEE BENEFIT PLAN that are not required by
the plan provisions or the Internal Revenue Code. See
DISTRIBUTION. In a securities
offering, a PUBLIC OFFERING of securities of an ISSUER, whether by an
UNDERWRITER, STATUTORY UNDERWRITER, or by the issuer itself. See
also CONTROLLED OFFERING, UNCONTROLLED OFFERING.
DISTRIBUTION PARTICIPANT. An
UNDERWRITER, PROSPECTIVE UNDERWRITER, BROKER, DEALER, or any other person that
has agreed to participate or is participating in the distribution.
DISTRIBUTOR. An UNDERWRITER, a
DEALER, or any other person who participates under a contractual arrangement in
distributing securities that are offered or sold in reliance on Regulation S.
DOCTRINE OF INTEGRATION. In
connection with exemptions for purely intrastate securities transactions, the
DOCTRINE OF INTEGRATION is a factual determination of whether all OFFERS TO SELL
and all SALES are, in fact, part of the same ISSUE. The doctrine is significant
because, if an offer is made to a nonresident and that offer is deemed to be a
part of the whole intrastate issue, the entire intrastate issue becomes tainted
and the exemption will be unavailable. See
DOMESTIC CONCERNS (UNDER THE FOREIGN CORRUPT PRACTICES
ACT OF 1977). U.S. citizens, nationals, or residents;
and U.S. corporations, partnerships, associations, JOINT-STOCK COMPANIES,
business trusts, unincorporated organizations, or sole proprietorships.
Section 30B(h)(1)(A) and (B).
DUE CARE. That degree of care
that a reasonable person can be expected to exercise to avoid harm reasonably
foreseeable if such care is not taken. That care that an ordinarily prudent
person would have exercised under the same or similar circumstances. "Due
care," "reasonable care," and "ordinary care" are often
used as convertible terms.
DUE DILIGENCE DEFENSE. This
defense requires that a defendant prove it was able to make a REASONABLE
INVESTIGATION in which it had
reasonable grounds to believe and, in fact, did believe that the statements in
the registration were true and that no material facts were omitted. The due
diligence defense varies somewhat depending on whether the false statement or
omission was made by an expert or nonexpert. Section 11 (b)(3).
DUE DILIGENCE REQUIREMENT. Under
a Section I 0(b) or Rule 10b-5 action, the DUE DILIGENCE REQUIREMENT
operates as a defense to the reliance element. Basically, the defendant must
show that the plaintiff refused to investigate the transaction by disregarding a
risk that indicated there was a high probability that fraud could occur. This
risk must either have been known or should reasonably have been known to the
DUTCH AUCTION. An auction in
which property is offered to the public at a price beyond its value; the price
is gradually lowered until someone purchases the property.
DUTY OFFICER. An individual
Commissioner (other than the Chairman) to whom the SEC delegates certain
functions. A duty officer may not be authorized to exercise general rulemaking
functions, make any rule under Section 19(c) of the 1934 ACT, or preside at an
evidentiary proceeding under Section 7(a) of the ADMINISTRATIVE PROCEDURE ACT OF 1946. A duty officer may, however, preside at an evidentiary
proceeding concerning the issuance of a temporary cease- and-desi st
order under Rule of Practice 511(c). The position of duty officer is supposed to
be rotated on a weekly basis.
EFFECTING A TRANSACTION. A
transaction is "effected" by an INITIATING MEMBER
when it performs any function associated with processing the transaction,
including transmitting an order for execution, executing the order, clearing and
settling the transaction, or arranging the performance of any of these
ELECTRONIC COMMUNICATION NETWORK. Defined
in Rule 11Ac1-1 (a)(8) pertaining to securities information processors
registration and dissemination of quotations. Basically, an electronic
communication network is any electronic system that disseminates orders entered
by an EXCHANGE or by OVER-THE-COUNTER
(OTC) MARKET MAKERS to third
parties and that allows the orders to be executed against.
ELECTRONIC DATA GATHERING, ANALYSIS, AND RETRIEVAL
(EDGAR) SYSTEM. A program for the electronic transfer
of filings. Launched by the SEC as a pilot program in 1984, EDGAR
became fully operational in 1992. EDGAR
performs automated collection, validation, indexing, acceptance, and
forwarding of submissions by persons who are required to make filings with the
SEC. SMALL BUSINESS ISSUERS and all
domestic issuers now are required to file most documents electronically. (See
SEC Release No. 33-6977, which explains the EDGAR
system in general.)
ELECTRONIC ROADSHOW. See
ROADSHOW. Among issues that arise
in the context of electronic initial public offerings (IPOs) are ROADSHOWS
and whether they may be presented electronically. Section 2(10) of the 1933
ACT defines the term PROSPECTUS to
include written communications, including television and radio broadcasts. With
respect to an ELECTRONIC ROADSHOW, the
issue is primarily whether the presentation is deemed to be a prospectus and
thus subject to the requirements of Section 10, which includes filing the
prospectus with the SEC. Three companies have received favorable NOACTION
LETTERS concerning electronic roadshows.
ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT
OF 2000. A federal Act that provides a general rule of
validity for electronic records and signatures for transactions in or affecting
interstate or foreign commerce.
EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA). A
federal Act that governs the funding, vesting, administration, and termination
of private pension plans. This Act also established the Pension Benefit Guaranty
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP). A
type of qualified profit-sharing plan that invests in the SECURITIES
of the employer. Such plans acquire shares of the employer-corporation
for the benefit of employees, usually through contributions of the employer to
the plan. In a noncontributory ESOP, the employer usually contributes its SHARES
to a trust and receives a deduction for the fair market value of such STOCK.
See also PROFIT-SHARING
END OF THE UNDERWRITING PERIOD. Under
Rule 15c2-12(f)(2), the later of the time when the ISSUER OF MUNICIPAL
SECURITIES delivers the
securities to the participating underwriter; or the participating underwriter
does not retain, directly or as a member of an underwriting syndicate, an unsold
balance of the securities for sale to the public.
ENHANCED AUTOMOBILE RECEIVABLES. Car
loans purchased from automobile dealers that contain certain enhancements to
insure collectability and that are resold on secondary markets. Such instruments
were held not to be investment contracts and, thus, are nonsecurities.
ENTITY THAT EXERCISES FIDUCIARY POWER. The
phrase does not include a clearing agency registered under Section 17A of the
1934 ACT. Rule 14a-1(c). However, it does include PARTICIPANTS
in a registered clearing agency.
EQUAL TREATMENT REQUIREMENT. The
procedural terms of a cross-border tender offer (i.e., duration,
pro-rationing, and withdrawal rights) must be the same for all security
EQUIPMENT-TRUST CERTIFICATE. A
type of SECURITY, generally issued by
a railroad, to pay for new equipment. An ISSUER
of equipment trust certificates is the person by whom the equipment or
property is to be used.
EQUITY SECURITY. An equity
security is defined broadly in Section 3(a)(11) to include a STOCK
or similar SECURITY; or any
security that is convertible, with or without consideration, into such a
security or carrying any WARRANT or
right to subscribe to or purchase such a security; or any such warrant or right.
EQUITY SECURITY OF THE ISSUER. Any
EQUITY SECURITY or DERIVATIVE
SECURITY relating to an issuer.
Significantly, the term applies to equity securities "relating to the
issuer" and applies to such securities whether or not the securities were
actually issued by the issuer.
EQUITY SHARES. COMMON SHARES,
NONVOTING EQUITY SHAREs, and
subordinate or restricted VOTING EQUITY SHARES.
The term does not include PREFERRED SHARES.
ESTABLISHED CUSTOMER. Any
person for whom a BROKER or DEALER, or a CLEARING BROKER on behalf of such
broker or dealer, carries an account and has effected a securities transaction
or made a deposit of FUNDS or SECURITIES in the account more than one year
before; or made three purchases of PENNY STOCKS that occurred on separate days
and involved different ISSUERS. Rule 15g-9(d)(2).
EVIDENCES OF INDEBTEDNESS. A
less common device that Section 2(2) specifically provides is a SECURITY.
EX PARTE. A judicial
proceeding, order, injunction, etc. is said to be EX PARTE when it is taken or
granted at the instance and for the benefit of one party only, and without
notice to or contestation by any person adversely interested. The SEC almost
always makes all hearings public and most usually gives general notice of any
public hearings, but it has the authority to order otherwise.
EXCESS BENEFIT PLAN. An EXCESS
BENEFIT PLAN is a tax-conditioned plan that is specifically defined in
Rule 16b-3. It operates in conjunction with QUALIFIED PLANS and provides
benefits or contributions in excess of the qualified plan limitations set by the
Internal Revenue Code.
EXCESS MARGIN SECURITIES. SECURITIES
carried for a customer's general and special account under Regulation T that are
not FULLY PAID SECURITIES. The securities must be identified by the BROKER or
DEALER as not being MARGIN SECURITIES and must have a market value that exceeds
140 percent of the total debit balances in the customer's account. Rule
15c-3(a)(4) and (5).
EXCHANGE. The term EXCHANGE is
defined in Section 3(a)(1) of the 1934 act. Broadly defined, it includes
organizations, associations, or groups of persons, whether incorporated or
unincorporated that constitute, maintain, or provide a market place or
FACILITIES for bringing together purchasers and sellers of SECURITIES. It also
includes market places or facilities that perform functions commonly performed
by a stock exchange as that term is generally understood.
EXCHANGE MEMBERS. Exchange
members are NATURAL PERSONs allowed to effect transactions on the EXCHANGE FLOOr
without another person acting as a broker; registered BROKERS or DEALERS with
which such natural persons are associated; registered brokers and dealers that
are permitted to designate such natural persons as their representative; and
other registered brokers and dealers that agree to be regulated by the EXCHANGE.
EXCHANGE OFFERS. See
THIRD-PARTY STOCK TENDER OFFERs.
EXCHANGE RULES. The exchange's
rules include its constitution, articles of incorporation, by-laws, rules
or instruments pertaining to these documents, and its stated policies.
EXECUTING MEMBER. An exchange
member that is not an associated person of an INITIATING MEMBER.
EXEMPT BANK SECURITIES. Includes
interests in common trust funds that are maintained by banks for the investment
or reinvestment of assets in the bank's capacity as a trustee, executor,
administrator, or guardian.
EXEMPT ISSUE. An issue of
SECURITIES that is exempt from the requirement of REGISTRATION with the SEC, (e.g.,
small and private offerings, transactions with ACCREDITED INVESTORS, and a
variety of institutional and secondary transactions).
EXEMPT SECURITIES. Section 3
exempts from the REGISTRATION provisions of the 1933 ACT securities associated
with Federal or State governments (such as municipal bonds); securities issued
or guaranteed by any domestic bank; certain EMPLOYEE BENEFIT PLANS; certain
short-term notes; securities issued by nonprofit organizations; securities
issued by SAVINGS AND LOANS (S&LS), cooperative banks, and similar
organizations; interests in RAILROAD EQUIPMENT TRUSTS; certificates issued in
bankruptcy; certain insurance contracts; certain exchanges of existing
securities; purely intrastate securities transactions; and securities issued in
connection with certain acquisitions of banks.
See also Section 3(a)(12)(A) of the 1934 ACT for a definition of the
term EXEMPTED SECURITIES.
EXEMPT TRANSACTIONS. Section 4
exempts from the registration requirements of the 1933 ACT securities
transactions by persons that are not ISSUERS, UNDERWRITERS, or DEALERS;
nonpublic offerings by issuers; certain dealer transactions; certain broker
transactions; offers or sales of PROMISSORY NOTES secured by real estate liens;
and offers or sales by issuers to ACCREDITED INVESTORS.
FACE AMOUNT CERTIFICATE. The
term FACE AMOUNT CERTIFICATE is
defined in Rule 100(b).
FACILITY. The term FACILITY,
in relation to an EXCHANGE, is
defined broadly in Section 3(2) of the 1934 act. It includes the premises, all
tangible and intangible property, any right to use the premises, property, or
any service that effects or reports a transaction on the exchange, and any right
to the use of any property or service.
FAMILY OF INVESTMENT COMPANIES. Two
or more separately registered INVESTMENT COMPANIES
sharing the same investment advisor or PRINCIPAL UNDERWRITER and holding themselves out as related companies. Rule
15a-6(b)(1)(i). With respect to insurance company separate accounts, a
FAMILY OF INVESTMENT COMPANIES means
two or more separately registered investment companies sharing the same
investment advisor or principal underwriter and functioning under substantially
similar operational or accounting or control systems. Rule
FAMILY RESEMBLANCE TEST. A test
set forth by the Second Circuit Court of Appeals that begins with a presumption
that all NOTES are SECURITIES. This presumption may be rebutted only upon a showing that the note
in question more closely resembles a type of instrument that is not a security,
such as consumer financing notes, notes secured by a home mortgage,
short-term notes secured by a lien on a small business or an assignment of
accounts receivable, notes formalizing open account debts incurred in the
ordinary course of business, and notes evidencing commercial bank loans for
FEDERAL DEPOSIT INSURANCE ACT. For
purposes of this act, a GOVERNMENT SECURITIES BROKER'S OR DEALER'S
customers are deemed to be "depositors." Section 15C(c)(2)(C).
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC). An
independent agency within the executive branch of the government that insures,
up to the statutory limitation, deposits in qualified banks and savings
FEDERAL HOME LOAN BANK ACT OF 1932. See FEDERAL HOME LOAN BANKS.
FEDERAL REGISTER. The Federal
Register, which is published daily, is the medium for making available to
the public Federal agency regulations and other legal documents of the executive
branch. The Federal Register includes proposed changes (rules, regulations,
standards, etc.) of governmental agencies. Each proposed change published
carries an invitation for any citizen or group to participate in the
consideration of the proposed regulation through the submission of written data,
views, or arguments, and sometimes by oral presentations. Such regulations and
rules as are finally approved then appear in the CODE OF FEDERAL REGULATIONS (CFR).
SEC rules and
regulations, which provide the SEC's interpretations of the statutes, are
initially published in the FEDERAL REGISTER (FR), first as proposed rules and
later as final rules. They are then codified as parts and sections in Title 17
of the CFR and are updated annually. SEC rules begin with Section 200 of Title
17; SEC rules concerning the 1933 ACT begin at Section 230. Furthermore, certain
SEC Rules set forth in the CFR contain headings that identify them as
FICTITIOUS QUOTATION. Generally,
a BROKER or DEALER will have made a fictitious quotation if it submits or
furnishes a quotation for a security (except a MUNICIPAL SECURITY) to an
INTERDEALER QUOTATION SYSTEM, such as NASDAQ, unless certain other requirements
are satisfied. For purposes of this rule, a QUOTATION means any BID or OFFER,
but also includes a broker's or dealer's indication of interest in a bid or
FIDUCIARY. One who has a duty
to another by reason of position, special expertise, or some other attribute or
agreement. This status may be defined explicitly or may be inferred (or assigned
by a court) based on the relationship between the parties.
FIDUCIARY DUTY. The duty owed
by fiduciaries to those to whom they are responsible.
FINAL OFFERING CIRCULAR. The
Final Offering Circular is a document that contains the narrative and financial
information required by Form 1-A. The ISSUER has an obligation to update
and revise it whenever there are material developments affecting the issuer or
changed circumstances that render the information contained in it false or
misleading or whenever there are fundamental changes in the information
originally presented. If a CONTINUOUS OFFERING is involved, the Final Offering
Circular also must be updated 12 months after the OFFERING STATEMENT was
qualified in order to reflect any updated financial statements.
FINAL OFFICIAL STATEMENT. Under
Rule 15c2-12(f)(3), the document(s) prepared by an ISSUER OF MUNICIPAL
SECURITIES or its representatives that is complete as of the date it is
delivered to the PARTICIPATING UNDERWRITERS.
FINAL PROSPECTUS. Includes a
Section 10(a) prospectus as used in 17 CFR 234.434(a).
FINDING OF FACT. Determinations
from the evidence of a case, either by a court or an administrative agency,
concerning facts averred by one party and denied by another. See
also CONCLUSION OF LAW.
FINDING OF LAW. Rulings of law
made by a court in connection with findings of fact. See
also CONCLUSION OF LAW.
FIRM COMMITMENT UNDERWRITING. If
the UNDERWRITER buys an entire issue
from an ISSUER and guarantees the
sale of a certain number of SHARES to
investors, it is called a FIRM COMMITMENT UNDERWRITING.
FIRST TRADE PRICE. See
FLIP-IN PLAN. A
flip-in plan permits SHAREHOLDERS (other
than the bidder) to acquire SHARES in
the acquiring company at below market value.
FLIP-OVER PLAN. A
flip-over plan provides that SHAREHOLDERS
of the TARGET COMPANy may buy
SHARES of the acquiring company at below market value.
occurs when an investor buys an INITIAL PUBLIC OFFERING (IPO) at the OFFERING PRICE and
quickly sells it once the IPO starts trading on the open market. LEAD
UNDERWRITERS are allowed to impose a
PENALTY BID on BROKERS
to discourage FLIPPING.
FOREIGN ASSOCIATED PERSON. Any
NATURAL PERSON that meets the definition of an associated person in Section
3(a)(18) but that is domiciled outside the United States and participates in
soliciting U.S. institutional investors or major U.S. institutional investors.
All its securities activities must be conducted outside the United States,
although, with certain limitations, visits to U.S. institutional investors and
major U.S. institutional investors in the United States are permitted. The
foreign associated person must be accompanied on these visits by an associate of
a registered BROKER or DEALER
who accepts responsibility for the foreign associated person's
communications with U.S. investors. Any transactions discussed during these
visits must then be effected only by or through a registered broker or dealer,
pursuant to Rule 15a-6(a)(3).
FOREIGN BROKER OR DEALER. Any
non-U.S. resident that is not an office or branch of, or a NATURAL PERSON
associated with, a registered BROKER or
DEALER whose activities would meet
the definition of a broker or dealer under Sections 3(a)(4) or 3(a)(5) if these
activities were conducted in the United States. The term FOREIGN BROKER OR
DEALER also includes a U.S. PERSON
who is a broker or dealer but whose business is completely outside the
FOREIGN CORRUPT PRACTICES ACT OF 1977 (FCPA). Prohibits
U.S. companies from making corrupt payments to FOREIGN OFFICIALS for the
purpose of obtaining or retaining business. Section 13(b)(2) contains the
provisions of the FCPA that require
publicly traded companies to comply with accounting and control standards.
FOREIGN EXCHANGE MARKET. An
institution through which foreign currencies are bought and sold.
FOREIGN FINANCIAL REGULATORY AUTHORITY. See definition in Section 3(a)(51) of the 1934 ACT.
FOREIGN FUTURES CONTRACTS. See
QUALIFYING FOREIGN FUTURES CONTRACTS.
FOREIGN GOVERNMENT SECURITY. See
DESIGNATED FOREIGN GOVERNMENT SECURITY.
FOREIGN ISSUER. Defined in Rule
902(f), FOREIGN ISSUER means foreign
governments, nationals of any foreign country, or corporations or other
organizations incorporated or organized under a foreign country's laws. Foreign
governments include political subdivisions of a foreign country, but they must
qualify to register securities under Schedule B. Under certain circumstances a
nongovernment issuer will not be deemed a foreign issuer. Rule 902(f)(ii).
FOREIGN OFFICIAL. Any OFFICER
or employee of a foreign government or any department, agency, or
instrumentality thereof, or any person acting in an official capacity for or on
behalf of any such government or department, agency, or instrumentality. Section
FOREIGN PRIVATE ISSUER. A
foreign private issuer is any person other than a foreign government. The term
does not apply if U.S. residents control the issuer in one of the following two
1. if more than 50
percent of the issuer's outstanding voting securities are held by a U.S.
resident, either directly or indirectly, through voting trust certificates or
depositary receipts. A security holder's status as a resident is determined by
the address that appear on the issuer's records. If that address is located in
the U.S., then the security holder is a U.S. resident.
2. if there are
major connections between the foreign issuer and the U.S., the issuer will not
be classified as a foreign private issuer when, for example:
a) the majority of the
foreign issuer's executive officers or directors are U.S. citizens or residents;
b) more than half of the
foreign issuer's assets are located in the U.S.; or
c) the foreign issuer's
business is administered principally in the U.S. See
FORWARD-LOOKING STATEMENTS. Six
types of statements that are in the nature of a prediction about a company's
future performance, as follows:
(A) a statement
containing a projection of revenues, income (including income loss), earnings
(including earnings loss) per share, capital expenditures, dividends, capital
structure, or other financial items;
(B) a statement
of the plans and objectives of management for future operations, including plans
or objectives relating to the products or services of the issuer;
(C) a statement
of future economic performance, including any such statement contained in a
discussion and analysis of financial condition by the management or in the
results of operations included pursuant to the rules and regulations of the
(D) any statement
of the assumptions underlying or relating to any statement described in
subparagraph (A), (B), or (C);
(E) any report
issued by an outside reviewer retained by the issuer, to the extent that the
report assesses a forward-looking statement made by the issuer; or
(F) a statement
containing a projection or estimate of such other items as may be specified by
rule or regulation of the [SEC]."
FRACTIONAL SHARE. A unit of
STOCK less than a full SHARE.
FRACTIONAL UNDIVIDED INTEREST (IN MINERAL RIGHTS). Included in the
definition of a SECURITY.
FRAUD-ON-THE-MARKET THEORY. A
Court's presumption that an investor relied on public material
misrepresentations and the PURCHASE or
SALE took place on a securities market. The presumption must be
rebuttable by any evidence that destroys the connection between the
misrepresentation and either the purchase or sale price of the SECURITY
or the investor's decision to trade.
FREE CREDIT BALANCES. See
FREEDOM OF INFORMATION ACT (FOIA). The
FREEDOM OF INFORMATION ACT provides that any person has the right to seek access
to the records or information of a federal agency upon written request, unless
the records or information are protected by one of the statutory exemptions or
exclusions. FOIA requests made to the SEC must be in writing and must cite the
FREEDOM OF INFORMATION ACT. The request may, but is not required to, disclose
why the records are being sought.
FULLY PAID SECURITIES. SECURITIES
carried for a customer's account in a special cash account under Regulation T,
promulgated by the Federal Reserve Board. Also includes MARGIN EQUITY SECURITIEs
carried in general or special accounts under Regulation T. In both instances,
the customer must have made full payment for the securities.
FUTURES COMMISSION MERCHANT. An
individual, association, partnership, corporation, or trust that is engaged in
soliciting or accepting orders for the purchase or sale of any commodity for
future delivery on or subject to the rules of any contract market or derivatives
transaction execution facility; and in or in connection with such solicitation
or acceptance of orders, accepts any money, securities, or property (or extends
credit in lieu of) to margin, guarantee, or secure any trades or contracts that
result or may result from it.
FUTURES TRADING PRACTICES ACT OF 1992. The
COMMODITY FUTURES TRADING COMMISSION (CFTC), which regulates the trading of
futures and commodities, adopted a new rule under this Act that regulates HYBRID
GLOBAL CERTIFICATE SECURITIES ISSUE. An
issue of SECURITIES for which a single master certificate representing the
entire ISSUE is registered in the nominee name of a registered clearing agency.
BENEFICIAL OWNERS must not be able to receive negotiable securities
certificates. Rule 17f-1(a)(3).
GOING PRIVATE. The process by
which a PUBLICLY OWNED COMPANY becomes a PRIVATELY HELD COMPANY. Causing a class
of EQUITY SECURITIES to be delisted from a NATIONAL SECURITIES EXCHANGE, or
causing a class of equity securities that is authorized to be quoted in an
INTERDEALER QUOTATION SYSTEM of a registered national securities exchange to
cease to be so authorized. Most attempts to go private utilize a limited number
of basic techniques, such as a cash tender offer to purchase all outstanding
publicly held shares by the ISSUER, its management, or an affiliated entity; a
merger or consolidation of the issuer with, or the sale of its assets to,
another corporation controlled by manacrement of the issuer; an exchange offer
(usually involving a debt security) by the issuer, its management, or an
affiliated entity; and a reverse stock split.
GOLDEN PARACHUTE. A term for a
generous severance package provided by a corporation, usually to executives.
GOVERNMENT SECURITY. A
GOVERNMENT SECURITY includes securities that are cruaranteed by or are direct
obligations of the U.S.; securities that are issued or guaranteed by
corporations in which the U.S. has a direct or indirect interest and which are
designated by the Secretary of the Treasury as exempted securities; and
securities issued or guaranteed by a corporation and designated as exempt
securities by statute. It also includes certain PUTS, CALLS, OPTIONS, STRADDLEs, or
PRIVILEGES on any of the foregoing
securities. The term GOVERNMENT SECURITY is
defined in Section 3(a)(42) of the 1934 act.
GRANDFATHERED. Common term for
provisions under many laws or agreements, under which practices or employees in
place at the time a new provision takes effect are exempt from its requirements,
or allowed a transition time to achieve conformity to those requirements. This
term rarely appears explicitly in the provision providing the exemption or
GREENMAIL. In corporate
takeovers, the term refers to payment by a TARGET COMPANY
to buy back shares owned by the potential acquirer at a premium over market.
The acquirer in the exchange agrees not to pursue its hostile TAKEOVER BID. A special tax is imposed on greenmail payments.
GROUP (OF SHAREHOLDERS). Section
13(d) of the 1934 ACT defines a GROUP as
persons who have agreed to act together "for the purpose of acquiring,
holding, voting, or disposing" of equity securities.
GROWTH FUNDS. GROWTH FUNDS
are MUTUAL FUNDS that are
composed of STOCKS of companies that
are still experiencing growth; the objective is to generate an increase in
investment value, with less concern about the provision of steady income.
GROWTH STOCK. A type of
SECURITY characterized by the prospect of an increase in market value, but
not necessarily with a good DIVIDEND return.
GUN JUMPING. Soliciting buy
orders in an underwriting before an SEC registration statement is effective.
HARMLESS ERROR STANDARD. Rule
230(h) sets forth a HARMLESS ERROR STANDARD.
A proceeding may not be reheard unless the challenging party can show that
the SEC's failure to produce the
document was not a harmless error.
HEADER. In electronic filing, a
HEADER identifies the basic information required to precede each
electronic submission and documents sent via EDGAR. For example, a "submission header" provides identifying
information about the filing, such as form type, filing entity, and fee; a
"document header" precedes each document in an electronic submission
and identifies the document.
HEARING OFFICER. An
administrative law judge, a panel of the SEC Commissioners that is less than a
quorum, an individual Commissioner, or any other person that is authorized to
preside at a hearing. 17 CFR 101.201(a)(5). In practice, the hearing officer
will most usually be an administrative law judge. The hearing officer possesses
discretionary sanction powers over contemptuous conduct, deficient filings, and
the failure to make required filings or cure deficient filings.
HEDGE CLAUSE (IN BROKER-DEALER LITERATURE). The
use of a legend to the effect that the information contained in the literature
is obtained from specified sources that are believed to be reliable, but that no
assurances can be given concerning the accuracy of the information. Such a
clause is permissible. The representation, however, cannot be made to a
prospective investor to the effect that the legend is designed to relive the
BROKER-DEALER from antifraud
liability. See SEC Release No.
HOLDERS OF RECORD. Persons are
deemed to be equity security HOLDERS OF RECORD
if they are identified as the owner of the securities in records maintained
by or on behalf of the ISSUER. Rule
12g5-1 provides some specific guidance.
HOME OWNERS LOAN ACT OF 1933.
For purposes of this act, a GOVERNMENT SECURITIES BROKER'S or DEALER'S customers
are deemed to be "savings account holders." Section 15C(c)(2)(C).
HORIZONTAL COMMONALITY TEST. One
of two tests developed by lower Federal courts to determine whether or not the
COMMON ENTERPRISE element of the howey test has been satisfied. The HORIZONTAL
COMMONALITY TEST focuses on the relationship that exists among the pool of
investors. Such a relationship exists when each of the investor's fortunes in an
investment is tied to the success of the venture as a whole. Horizontal
commonality has existed in every Supreme Court case involving an INVESTMENT
CONTRACT. See also VERTICAL COMMONALITY TEST.
HOSTILE TAKEOVER. Usually, a
TENDER OFFER by an outside bidder is an attempt at a HOSTILE TAKEOVERS of a
TARGET COMPANY. The law concerning hostile takeover attempts is very complex and
involves both state corporate law and federal tender offer laws and rules
contained in the 1934 ACT. State laws govern the validity of anti-takeover
measures, such as LOCK-UP OPTIONS and POISON PILLS. Federal tender offer
rules govern the manner in which a third-party bidder may make a hostile
HOUSEHOLD GROUP. The term
HOUSEHOLD GROUP refers to situations where a proxy or information statement is
sent to security holders as a group (e.g.,
XYZ Corporation Security Holders), or to each of more than one security
holder sharing the same address (e.g., Jane
S. Holders and Jack S. Holder).
proposed by the SEC to the proxy rules (specifically to Rules 14a-3,
14b-1, 14b-2, and 14c-3 of the 1934 act),which will permit
companies and other persons to fulfill the proxy and information statement
delivery requirements with respect to two or more shareholders sharing the same
address by sending or forwarding a single proxy or information statement to
these shareholders. This is referred to as HOUSEHOLDING.
HOWEY TEST. A test used by the
Supreme Court to analyze whether a particular document is an INVESTMENT
HYBRID INSTRUMENTS. Hybrid
instruments that are predominantly COMMODITY OPTIONS or FUTURES INSTRUMENTS are
subject to the COMMODITY EXCHANGE ACT's exchange trading provisions. Part 34 of
the FUTURES TRADING PRACTICES ACT OF 1992.
something as security for a demand or debt without giving up that thing.
ILLIQUID MARKET. A term
frequently used to describe a market where it is difficult to buy or sell
IMMEDIATE FAMILY MEMBER. Includes
spouses, children, parents, siblings, grandparents, grandchildren,
parents-in-law, brothers- and sisters-in-law, and
sons- and daughters-in-law.
IN CAMERA INSPECTION. Under
certain circumstances, a trial judge may inspect a document, which counsel
wishes to use at trial, in his chambers before ruling on its admissibility or
INACTIVE MARGIN ACCOUNTS. Accounts
having no activity through purchase or sale, receipt or delivery, or similar
transactions at least once a week. Rule 15c3-3(d).
INCOME FUND. An INCOME FUND
is a MUTUAL FUND consisting of
SECURITIES that provide periodic
DIVIDENDS or coupon payments; usually
consisting of COUPON BONDS, they are
designed to provide investors with a stable income. Compare with GROWTH FUNDS.
INCORPORATED BY REFERENCE. A
way of making one document of any kind become part of another separate document
by referring to the former in the latter, and declaring that the former shall be
taken and considered as part of the latter, just as if it were fully included
there. See also INTEGRATED DISCLOSURE SYSTEM.
INDENTURE. In business
financing, a written agreement under which BONDS
and debentures are issued, setting forth the form of bond, maturity date,
amount of issue, description of pledged assets, interest rate, and other terms.
Typically, the contract is entered into between the corporation and an indenture
trustee whose responsibility is to protect the bondholders. The indenture often
constitutes a mortgage on specified corporate property to secure the bonds. See
also DEBENTURE, TRUST INDENTURE, and
TRUST INDENTURE ACT.
INDEPENDENT DIRECTOR. See
INDIRECT PECUNIARY INTEREST. Includes
SECURITIES held by IMMEDIATE FAMILY
MEMBERS that share the same
household; a general partner's PROPORTIONATE INTEREST
in any PORTFOLIO SECURITIES held
by a general or LIMITED PARTNERSHIP; performance-related
fees; a right to dividends that is separated or may be separated from the
UNDERLYING SECURITIES; interests in securities that are held by a trust
according to Rule 16a-8(b); and the right to acquire EQUITY SECURITIES
by exercising or converting any DERIVATIVE SECURITIES.
See also PECUNIARY INTEREST.
INDUSTRIAL DEVELOPMENT BONDS. Bonds
issued by a municipality as a means of attracting private businesses.
INITIATING MEMBER. A member of
a NATIONAL SECURITIES EXCHANGE. Rule 11a2-2(T). An INITIATING MEMBER is
prohibited from effecting a transaction on a national securities exchange for
its own account, the account of an associated person, or an account over which
the initiating member or an associated person exercises investment discretion,
unless certain requirements are satisfied. Rule 11a2-2(T)(a)(1) and (2).
INSIDE BID QUOTATION. The
highest bid quotation for the SECURITY as displayed by a MARKET MAKER on a
QUALIFYING ELECTRONIC QUOTATION SYSTEM. At least two market makers must be
displaying the BID AND OFFER QUOTATIONS for a security contemporaneously and at
specified prices. See Rule 15g-3(c)(3).
INSIDE OFFER QUOTATION. The
lowest offer quotation on a QUALIFYING ELECTRONIC QUOTATION SYSTEM. At least two
MARKET MAKERS must be displaying the BID AND OFFER QUOTATIONS for a SECURITY
contemporaneously and at specified prices. See
INSIDE TRADER. See
INSIDER, INSIDER TRADING.
INSIDER. The term INSIDER
includes not only TRUE INSIDERS (such as officers and directors) but also
CONSTRUCTIVE INSIDERS (such as accountants, lawyers, and consultants).
Constructive insiders become temporary fiduciaries of a corporation because of
their intimate relationship. The term insider also includes TIPPEES (those
persons that receive a tip from an insider when the insider discloses material
nonpublic information. See also INSIDER INFORMATION, INSIDER REPORTS, INSIDER TRADING,
SHORT SWING PROFITS, TIPPEES.
INSIDER INFORMATION. Information
about a company's financial situation that is obtained by insiders (OFFICERS,
DIRECTORS, employees, etc.), before the public obtains it. True inside
information is usually known only by corporate officials or other
"insiders." SEC rules and court decisions restrict stock trading by
insiders on the basis of such information. See
also INSIDER; INSIDER TRADING; and TIPPEES.
INSIDER REPORTS. Monthly
reports required by the SEC from DIRECTORS, OFFICERS, and STOCKHOLDERS of their
transactions in STOCK of which they own more than 10 percent of such shares.
INSIDER TRADING. The term
refers to transactions in shares of PUBLICLY HELD CORPORATIONS by persons with
inside or advance information on which the trading is based. Usually the trader
himself is an INSIDER with an employment or other relation of trust and
confidence with the corporation. Such transactions must be reported monthly to
the SEC (see INSIDER REPORTS).
INSIDER TRADING LIABILITY. There are two basic theories upon which
insider trading liability has been imposed under Section 10(b) and Rule
THEORY - Imposes liability when an insider trades in its own corporation's
securities, using material inside information that was not intended to be used
for personal profit.
THEORY - Applies when a person misappropriates confidential information
and breaches a duty owed to the information's source.
INSTITUTIONAL INVESTMENT MANAGER. Any
person, other than a natural person, that invests in or buys and sells
securities for its own account. Examples include investment advisors that manaue
private accounts, mutual fund or pension plan assets, and bank trust
INSTITUTIONAL INVESTORS. Large
investors (such as mutual funds, pension funds, insurance companies) who largely
invest other people's money.
INSTRUCTION. Under Rule
17a-3(a)(6), the term INSTRUCTION includes instructions between partners
and employees of a BROKER-DEALER.
INSURED MEMBERS. For purposes
of the FEDERAL DEPOSIT INSURANCE ACT, a GOVERNMENT SECURITIES broker's or
dealer's customers are deemed to be SAVINGS ACCOUNT HOLDERS under the HOME
OWNERS' LOAN ACT OF 1933.
INTEGRATED DISCLOSURE SYSTEM. Permissible
ways in which certain information can be INCORPORATED BY REFERENCE so that
filing can be somewhat simplified and streamlined.
INTERDEALER QUOTATION SYSTEM. Any
system of general circulation to BROKERS and DEALERS that regularly distributes
quotations for identified brokers or dealers. This term does not include a
quotation sheet, prepared by a particular broker or dealer as part of their
business, that contains only their quotations. Rule 15c-7(c)(1).
INTEREST RATE SWAP. An
agreement between two parties to exchange interest payments during a period of
time in order to protect a party from interest rate fluctuations. The amount of
interest payments that is exchanged is based on a predetermined principal amount
(called the notional principal amount). The actual amount exchanged by the
parties is an agreed upon periodic interest rate multiplied by the notional
principal amount. Typically, one party pays the other a fixed interest payment
over the life of the agreement while the other party makes payments that float
with an index, such as Treasury bills, the London Interbank Offered Rate
(LIBOR), federal funds rate, or the prime rate.
INTERESTED PERSON OF THE ISSUER.
See definition in Section 2(a)(19) of the INVESTMENT COMPANY ACT OF 1940.
INTERMARKET TRADING SYSTEM. A
communications linkage operated jointly by SROS under a plan filed with the SEC
pursuant to Rule 11 Aa3-2.
INTERNATIONAL DEVELOPMENT ORGANIZATIONS.
Such organizations include the African Development Bank, Asian Development Bank,
Inter-American Development Bank, International Bank for Reconstruction and
Development, the International Monetary Fund, and the United Nations.
INTERSTATE COMMERCE. Both the 1933
and 1934 ACTS define INTERSTATE
COMMERCE to include SECURITIES transactions between any State and any foreign
INTRODUCTING BROKER. Any person
(except an individual who elects to be and is registered as an ASSOCIATED PERSON
of a FUTURES COMMISSION MERCHANT) engaged in soliciting or in accepting orders
for the purchase or sale of any commodity for future delivery on or subject to
the rules of any contract market or derivatives transaction execution facility
who does not accept any money, securities, or property (or extend credit in lieu
of) to margin, guarantee, or secure any trades or contracts that result or may
INVESTMENT ADVISORS ACT OF 1940 (INVESTMENT ADVISORS
ACT). Federal statute that regulates securities
professionals (such as BROKERS and DEALERS). The SEC's Division of Investment
Management is responsible for administering this Act.
INVESTMENT COMPANY ACT OF 1940 (INVESTMENT COMPANY ACT).
Federal statute that regulates INVESTMENT COMPANIES and contains various
REGISTRATION and PROSPECTUS requirements. The SEC's Division of Investment
Management is responsible for administering this Act.
INVESTMENT CONTRACT. Section
2(2) of the 1933 ACT states that an arrangement such as an INVESTMENT CONTRACT is a
SECURITY. However, problems have arisen in defining the term. The Supreme
Court's HOWEY TEST, used to analyze whether a particular document is an
investment contract, states that an investment contract is a contract if it
meets the following criteria: a PERSON invests money; the money is invested in a
COMMON ENTERPRISE; the person is led to expect profits from the investment; and
the profits are generated SOLELY FROM THE EFFORTS OF OTHERS.
INVESTMENT DISCRETION. Section
3(a)(35) of the 1934 ACT defines the
term investment discretion. A manager will be deemed to have investment
discretion with respect to an account if the manager is authorized, directly or
indirectly, to determine what SECURITIES will be bought or sold; if the manager
decides what securities will be bought or sold, even though another person may
have responsibility for investment decisions; or the manager will be deemed to
have investment discretion with respect to all accounts over which any person
under the control of the manager exercises investment discretion. Rule
INVESTMENT GRADE SECURITY. A
security that has received a rating of investment grade from at least one
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANtZATION.
INVESTMENT TRUST. A company
that sells its own STOCK and invests the money in stocks, real estate, and other
ISSUER. The term ISSUER is
broadly defined in Section 2(4) to include any PERSON who issues or plans to
issue any SECURITY. With respect to EQUIPMENT TRUST CERTIFICATES, the term
ISSUER means the person by whom the equipment or property is to be used. With
respect to MINERAL INTERESTS, the term ISSUER means the owner of the mineral
right who creates FRACTIONAL INTERESTS in the right for PUBLIC OFFERING. With
respect to an AMERICAN DEPOSITARY RECEIPT (ADR), the term ISSUER means the
issuer of the deposited shares that are represented by the ADRS. (Rule
ISSUER OF MUNICIPAL SECURITIES. The
governmental issuer referred to in Section 3(a)(29) of the 1934
ACT (e.g., a State, political subdivision, agency or instrumentality of a
State or political subdivision, or municipal corporate instrumentality) as well
as the issuer of any separate security, including a separate security as defined
in Rule 3b-5(a) of the 1934 ACt.
JENCKS ACT (OR RULE). This Act
provides that a criminal defendant in a Federal court is entitled to access to (yovernment
documents for assistance in crossexamination of witnesses in order to impeach
for prior inconsistent statements.
JOINT AND SEVERAL LIABILITY. A
liability is said to be joint and several when the creditor may demand payment
or sue one or more of the parties to such liability separately, or all of them
together. Section 15 also imposes joint and several liability on CONTROLLING
PERSONS. Persons who control a person that is liable under Section 11
(through stock ownership, agency, in connection with an agreement or otherwise)
are JOINTLY AND SEVERALLY LIABLE to
the same extent as the CONTROLLED PERSON.
KICK-OFF MEETING. Once an
ISSUER has chosen its UNDERWRITER, the
parties hold a kick-off meeting to discuss numerous issues associated with
the underwriting, such as a review of the issuer's financial statements, a
determination of which government or corporate governance consents must be
obtained, and a review of the EXCHANGE listing
KNOWING (STATE OF MIND). Persons
have the requisite "knowing" state of mind if they are aware that they
are engaging in a prohibited conduct, that a particular circumstance exists, or
that a particular result is substantially certain to occur or they have a firm
belief that a particular circumstance exists or that a particular result is
substantially certain to occur. Section 30A(f)(2)(A)(i) and (ii). If knowledge
of a particular circumstance is required for an offense, knowledge exists if the
person is aware of a high probability of the circumstance's existence, unless
the person actually believes that the circumstance does not exist. Section
LEAD UNDERWRITER. The
INVESTMENT BANK that actually operates the books for and heads up an offering for
an UNDERWRITING GROUP, and that is
primarily responsible for ensuring the smooth trading of the issuer's securities
during the crucial first days of trading.
LEVERAGED BUYOUT. Method of
purchasing outstanding STOCK of a
publicly held corporation by management or outside investors, with financing
consisting primarily of funds borrowed from investment bankers or brokers. See also GOING PRIVATE.
LIMITED LIABILITY COMPANY (LLC).
A hybrid entity, the LLC gives its members limited liability and
pass-through federal income taxation. Most states have held that LLC
interests are SECURITIES for purposes of state registration. Using the HOWEY
TEST, the crucial fact would appear to be whether the LLC members expect to
derive profits SOLELY FROM THE EFFORTS OF OTHERS. In an LLC: managed solely by a
manager, the Howey test would appear to be satisfied. In a member-managed
LLC, the Howey test would not be satisfied and the LLC interests would not be
securities under the 1933 ACT.
LIMITED PARTNERSHIP (LP). A
type of partnership comprised of one or more general partners who manage the
business and who are personally liable for partnership debts, and one or more
limited partners who contribute capital and share in profits but who take no
part in running the business and incur no liability with respect to partnership
obligations beyond contribution.
LIMITED PARTNERSHIP ROLL-UP TRANSACTION. A
transaction in which one or more LIMITED PARTNERSHIPS are combined or
reorganized and investors in the limited partnerships receive either new
securities or securities in another entity. The investors, however, are
subjected to significant adverse changes in voting rights, management
compensation, or investment objectives, and they do not receive options to
receive or retain a security under terms similar to the original issue. Section
14(h)(4) and (5). See also definition
in Item 901(c) of Regulation S-K.
LISTED COMPANY. See
PUBLICLY HELD COMPANY.
LISTED STOCK. A stock traded on
a NATIONAL EXCHANGE.
LOAN NOTES. Short-term
notes that may be redeemed, in whole or in part, for cash at par on any interest
date in the future. Such notes, which are most common in the United Kingdom, are
used to defer the recognition of income and capital gain on the sale of
securities under foreign tax laws.
LOCK-UP OPTION. Devised
in the early 1980s as another anti-takeover defense, the lock-up
option was a means by which a buyer (referred to as a WHITE KNIGHT) friendly to
the company's manager tried to obtain OPTIONS on blocks of shares owned by the
TARGET COMPANY'S large SHAREHOLDERS to assure the success of the bid. If the bid
failed, the lock-up option would allow the white knight to buy a large
block of the target company's stock at a very favorable price or to purchase its
CROWN JEWEL ASSETs.
LONG POSITION. The amount of
SECURITIES that the person or its agent has title to or would have title to but
for having loaned the securities; has bought or has entered into an
unconditional contract to buy but has not yet received the securities; has
exercised a standard CALL OPTIOn; has converted, exchanged, or exercised an
equivalent security; or is entitled to receive upon conversion, exchange, or
exercise of an equivalent security. Rule 14e4(a)(1)(i).
Under the definition of "securities held of record" in Rule
12g5-1, issuers are required to "look through" the record
ownership of brokers, dealers, banks, or nominees holding securities for the
accounts of their customers to determine the residency of those customers. The
application of this look-through provision is limited to voting securities
held of record in the U.S. in the issuer's home jurisdiction and in the primary
trading market for the issuer's securities if different from the issuer's home
LOWEST PRICE INMIGHEST PRICE OUT ANALYSIS.
Section 16(b) provides a private cause of action in favor of the issuer to
recover SHORT-SWING PROFITS made by certain INSIDERS. Section 16(b) is
sometimes confusing to apply because the statute uses the term
"profit." However, a basic profit computation formula, known as the
"lowest price in/highest price out" analysis, was set forth in Smolowe
v. Deludo Corp. whereby sales and purchases made during a six month period
are matched and the insider is liable for the difference between the highest
sale price and the lowest purchase price, regardless of when each transaction
occurred. See SHORT-SWING
MAJOR U.S. INSTITUTIONAL INVESTOR. Includes
U.S. investment companies registered under Section 8 of the INVESTMENT COMPANY
ACT OF 1940, BANKS, SAVINGS AND LOAN institutions, insurance companies, business
development companies, EMPLOYEE BENEFIT PLANS, and TRUSTS that have or have
under management assets totaling over $ 100 million. Rule 15a-6(b)(4)(i)
and (b)(7). MAJOR U.S. INSTITUTIONAL INVESTOR also includes an INVESTMENT
ADVISOR that is registered under Section 203 of the INVESTMENT ADVISORS ACT OF
1940 and that has total assets over $ 100 million under management. Ruic
MANAGER. Under Rule
17a-2(b)(1), a MANAGER is the person STABILIZING, effectina SYNDICATE
COVERING TRANSACTIONS, or imposing PENALTY BIDS for their sole account or for
the account of a syndicate in which it is a PARTICIPANT. A mana-er must
have a contractual or other arranuement in which it deals with the ISSUER,
organizes the selling effort, receives some benefit from the underwriting that
is not shared with any other underwriters, or represents any other underwriters
in maintaining the distribution records and arranging for allotments of
MANDAMUS. Literally, "we
command." Name of a writ that issues from a court of superior jurisdiction
and is directed to a private or municipal corporation or any of its OFFICERS; or
to an executive, administrative, or judicial officer; or to an inferior court.
The writ commands the performance of a specified act that belongs to their
public, official, or ministerial duty, or directs the restoration of a
complainant to rights or privileges of which it has been illegally deprived.
MANIPULATION. A series of
transactions that involve the buying or selling of a SECURITY for the purpose of
creating a false or misleading appearance of active trading or to raise or
depress the price to induce the purchase or sale by others.
MANIPULATIVE OR DECEPTIVE PRACTICES. See MANIPULATION.
MANIPULATIVE, DECEPTIVE, OR FRAUDULENT ACT. This
term applies to BROKERS or DEALERS effecting securities transactions through the
mail or interstate commerce in the OTC market; it includes making an untrue
statement and omitting to state a material fact, with knowledge that the
statement or omission is untrue or misleading. Rule 15c1-2.
MANNER OF SALE REQUIREMENTS. Securities
sold pursuant to Rule 144 can only be sold as BROKER TRANSACTIONS or as
MARKET-MAKER TRANSACTIONS. The rule prohibits the person selling the
securities from soliciting orders to buy the securities in anticipation of or in
connection with the sale. Also, any payments connected with the offer or sale
must be made only to the broker. There are, however, some exceptions.
MARGIN ACCOUNT. A method of
extending credit to customers. Margin account requirements are specified by
regulations of the FEDERAL RESERVE BOARD. See
also MARGIN TRANSACTION.
MARGIN CALL. A demand by a
BROKER to put up money or SECURITIES upon the purchase of a STOCK, or, if the
stock is already owned on margin, to increase the money or securities in the
event the price of stock has or is likely to fall since purchase. The last
process (of maintaining the minimum required margin) is remargining.
MARGIN EQUITY SECURITIES. These
are FULLY PAID SECURITIES only when Section 8 of Regulation T specifies that
margin equity securities have no loan value in a General account or special
convertible debt security account. Rule 15c3-3(a)(3).
MARGIN TRADING. See
MARGIN, MARGIN ACCOUNT, MARGIN TRANSACTION.
MARGIN TRANSACTION. The
purchase of a STOCK or COMMODITY with payment in part in cash (called the
margin) and in part by a loan. Usually the loan is made by the BROKER effecting
the purchase. See also MARGIN ACCOUNT.
MARKET MAKER. A securities
dealer in a specific OVER-THE-COUNTER (OTC) stock who makes a
market; that is, the dealer maintains firm BID AND ASKED prices in a given
SECURITY by standing ready to buy or sell ROUND LOTS of that security.
MARKET MAKING. Regarding
SECURITIES in OVER-THE-COUNTER TRADING, the process consists of BID
AND ASK QUOTATIONS, which result in the establishment of a market for such
MARKET ORDER. An order to buy
or sell on a STOCK or COMMODITY EXCHANGE at the current (best) price when the
order reaches the floor of the exchange. Requests by customers to purchase or
sell SECURITIES at the market price existing when the order reaches the EXCHANGE
FLOOR. A STOP ORDER becomes a MARKET ORDER when the stock sells at or beyond the
specified price and, thus, may not necessarily be executed at that price.
MATCHING SYSTEM. An ALTERNATIVE
TRADING SYSTEM that allows PARTICIPANTS to display firm price orders to other
participants and to execute against other orders in the system. Real-Time
Trading Service and The Island System are matching trading systems.
MATERIAL ASSOCIATED PERSONS. See
definition in Rule 17h-1T(a)(2). There is no threshold test. The
determination is based on the following: the legal relationship between the
BROKER or DEALER and the ASSOCIATED PERSON; the
overall financing requirements of the broker or dealer and the associated person
and the degree, if any, to which the broker or dealer and associated person are
financially dependent on each other; the degree, if any, to which the broker or
dealer or its customers rely on the associated person for operational support or
services in connection with the broker's or dealer's business; the level of risk
in the broker's or dealer's and associated person's activities; and the extent
to which the associated person has the authority or ability to cause a
withdrawal of capital from the broker or dealer.
MATERIAL FACT. In REGISTRATION
of securities, a fact to which there is a substantial likelihood that an
investor would attach importance in determining whether to purchase the SECURITY
registered. In PROXIES for
securities, a fact to which there is a substantial likelihood that a reasonable
shareholder would attach importance when deciding how to vote.
MATERIAL NONPUBLIC INFORMATION. Information
that is not available to the general public and that would be important to a
reasonable investor and might affect the price of the STOCK.
MATERIAL STATEMENT. The Supreme
Court has applied the Section 14(a) definition of materiality to Section 10(b)
and Rule 10b-5. To satisfy this materiality requirement, there must be a
substantial likelihood that the statement or omission would have altered the
total mix of trading information significantly.
MATERIAL TRANSACTION. A
transaction that involves at least one percent of a class of SECURITIES
or a smaller transaction that qualifies as material due to facts and
MATERIALITY TEST. The
MATERIALITY TEST is both an objective and a subjective test. Materiality depends on
the significance that a reasonable investor would place on the statement or
omission. To the extent that such an analysis depends on determining how a
reasonable investor would view the information, it requires an objective
analysis. The ultimate determination of materiality, however, will depend on the
particular facts and circumstances surrounding the statement or omission and, in
this regard, it is a subjective analysis.
MATERIALITY THRESHOLD. The
greater of $100 million; or 10 percent of the BROKER'S
or DEALER'S tentative NET
CAPITAL, based on the most recently
filed Form X-17A-5, or 10 percent of the MATERIAL ASSOCIATED
PERSON's tangible NET WORTH,
whichever is greater. Rule 17h-1T(a)(4).
MEAN TRADING PRICE. An average
of a security's daily trading price as of the close of the market each day
during the 90-day period, beginning on the date an information correcting
a misstatement or omission was disseminated to the market. 1934 ACT, Section
MEMBERSHIP INTEREST. Includes
full membership, allied membership, associated membership, floor privileges, and
any other interest that allows a BROKERDEALER
to exercise a privilege on an exchange or with an association. Rule
MERGER. Under Rule 16b-7,
MERGER includes the sale or purchase of substantially all of a company's
assets by another in exchange for EQUITY SECURITIES that are distributed to the selling company's SHAREHOLDERS.
These transactions must be between CONTROLLED COMPANIES.
characterized by their capitalization, low share prices, limited public
information, and little or no analyst coverage. See
also PUMP AND DUMP.
MINERAL INTEREST. See
MINERAL RIGHT. An interest in
minerals in land, with or without ownership of the surface of the land. The
owner of the mineral right who creates FRACTIONAL INTERESTS
in the right for PUBLIC OFFERING is
deemed the ISSUER.
MISAPPROPRIATION THEORY OF INSIDER TRADING LIABILITY. See
INSIDER TRADING LIABILITY.
MORTGAGE SECURITY. Includes
whole loan mortgages, aggregated whole loan mortgages, participation interests,
MULTIJURISDICTIONAL DISCLOSURE SYSTEM (MJDS). This
disclosure system allows certain companies in the U.S. and Canada to offer
SECURITIES and file reports in the
U.S. and Canada subject to regulation by the company's home country. U.S. and
Canadian securities' regulators established the MJDS
in the summer of 1991 to facilitate securities transactions between the two
countries. The system reduces the disclosure requirements by allowing each
jurisdiction to rely on the disclosure requirements of the other. Thus, a
Canadian foreign private issuer could make a public offering in the U.S. by
conforming to Canadian requirements.
MUNICIPAL BONDS. MUNICIPAL
BONDS are evidences of indebtedness (debt obligations) issued by State or
local government entities that are negotiable in form, payable at a designated
future time, and intended for sale in the market. The objective is to raise
money for a municipal expense that is beyond the immediate resources of
reasonable taxation, (as distinguished from temporary evidences of debt, such as
vouchers, certificates of indebtedness, orders, or drafts drawn by one OFFICER
on another and similar devices for liquidating current obligations in
anticipation of collection of taxes). Because interest on such bonds is
generally exempt from both federal income taxes and some state income taxes,
they are sometimes referred to as "tax exempts.”
MUNICIPAL SECURITY. A security
that is guaranteed by or is a direct obligation of a State, State agency,
municipality, or political subdivision of these entities. A municipal security
also includes certain tax exempt industrial development bonds. The term
MUNICIPAL SECURITY is defined in Section 3(a)(29) of the 1934 ACT.
MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB). This
board was established pursuant to Section 15B(b)(1) of the 1934 act. Composed of
15 individuals appointed by the SEC. they propose and adopt rules pertaining to
transactions in MUNICIPAL SECURITIES that
are effected by BROKERS, DEALERS, and
MUNICIPAL SECURITIES DEALERS. These
rules regulate and/or prevent, among other things, such areas as standards of
operational capability, training, and competence; fraudulent, manipulative, and
deceptive practices; periodic examination of municipal securities brokers and
dealers; form and content of municipal securities quotations; and recordkeeping
requirements. The SEC's Division of
Market Regulation has oversight of the MSRB.
NASDAQ SECURITY. A security
that is authorized for quotation on NASDAQ and is not suspended, terminated, or
prohibited. Rule 100(b).
NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD). An
association of BROKERS and DEALERS empowered to regulate the
OVER-THE-COUNTER (OTC) securities business.
NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED
QUOTATIONS (NASDAQ). An automated information system
that gives price quotations on securities traded OVER-THE-COUNTER to
BROKERS and DEALERS.
NATIONAL HOUSING ACT. For
purposes of this act, a GOVERNMENT SECURITIES BROKER'S or DEALER'S customers are
deemed to be "insured members." Section 15C(c)(2)(C).
NATIONAL MARKET SYSTEM SECURITY. An
EQUITY SECURITY listed and registered or having unlisted trading privileges on a
NATIONAL SECURITIES EXCHANGE. Rules 11Aa2-1 and 11Aa3-1(4).
NATIONAL SECURITIES EXCHANGES. Section
6(a) of the 1934 ACT permits a securities exchange to register as a NATIONAL
SECURITIES EXCHANGE by filing an application with the SEC. The two major
registered national securities exchanges are the NEW YORK STOCK EXCHANGE (NYSE)
and the AMERICAN STOCK EXCHANGE (AMEX). In addition, several regional stock
exchanges are also registered under Section 6: the Midwest Stock Exchange, the
Pacific Stock Exchange, the Philadelphia Stock Exchange, the Boston Stock
Exchange, and the Cincinnati Stock Exchange. Application for or exemption from
registration as a NATIONAL SECURITIES EXCHANGE can be made. Presently there is
only one exempted exchange, the Arizona Stock Exchange (AZX), formerly known as
the Wunsch Auction System.
NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996.
This Act, which added Section 28 to the 1933 ACT, substantially changed the
relationship between federal and state securities laws by reallocating the
regulatory responsibilities for securities offerings between federal and state
governments, according to the nature of the security or the offering.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION. An
organization such as Standard & Poors or Moody's. See definition in Rule 15c3-1 of the 1934 ACT.
NET CAPITAL. The BROKER'S or
DEALER'S adjusted NET WORTH. Certain
items are added to net worth, such as unrealized profits in a BROKER's
or DEALER's accounts, certain deferred income tax liabilities, future income
tax benefits resulting from unrealized losses, and actual tax liabilities
related to income accrued that is directly related to assets that are deducted
from net worth. Rule 15c3-1(c)(2)(i) - (xiii).
NET LONG POSITION. A person's
NET LONG POSITION in a security is the excess of that person's LONG POSITION
over their SHORT POSITION. Rule
NET PURCHASES. The amount by
which purchases exceed sales.
NET WORTH. Includes the net
value of investments in real and personal property, including personal
residences. Section 2113(e)(4)(A)(iii).
NEW YORK STOCK EXCHANGE (NYSE). The
oldest and largest STOCK EXCHANGE in
the U.S., the NYSE is an
unincorporated association of member firms that handle the purchase and sale of
SECURITIES for themselves and their
NO-ACTION LETTER. A
letter that provides a prospective REGISTRANT
with an SEC staff member's informal opinion regarding a transaction.
NOLO CONTENDERE. Means "I
will not contest it." It has a similar legal effect as pleading guilty in a
criminal case. The principal difference between a plea of guilty and a plea of
NOLO CONTENDERE is that the latter
may not be used against the defendant in a civil action based on the same acts.
This plea is particularly popular in antitrust actions (e.g., price fixing)
where civil actions are likely to follow in the wake of antitrust prosecution.
NONEMPLOYEE DIRECTOR. Rule
16b-3(b)(3) defines NONEMPLOYEE DIRECTOR
as a DIRECTOR that is not an OFFICER of
the ISSUER, its parent, or subsidiary
nor employed by these persons; that does not receive compensation from these
persons in any capacity except director, unless it does not exceed the amount
for mandatory disclosure under 17 CFR 229.404(a); that does not have an interest
in any other transaction that would have to be disclosed under 17 CFR
229.404(a); and that does not have a business relationship that would need to be
disclosed under 17 CFR 229.404(a).
NONEMPLOYEE DIRECTOR has an
additional meaning with respect to a CLOSED-END INVESTMENT COMPANY.
In this case, it means a director who is not an INTERESTED PERSON OF THE
ISSUER, as defined in Section
2(a)(19) of the INVESTMENT COMPANY ACT OF
1940. Rule 16b-3(b)(3)(ii).
NONEXCHANGE MEMBERS. Persons
that are effecting transactions on the EXCHANGE
without the services of someone acting as a BROKER,
and any BROKER OR DEALER effecting
transactions on the exchange on a regular basis. Section 6(f).
NONMARKETABLE SECURITIES. These
are securities for which there is no READY MARKET.
NONPARTICIPATING PREFERRED STOCK. NONPARTICIPATING
PREFERRED STOCK is nonconvertible
CAPITAL STOCK whose holders are
entitled to receive a preferential dividend payment and liquidation
distribution, but who are not entitled to share in the issuer's residual
earnings or assets.
NONRESIDENT BROKER OR DEALER. An
individual residing or having a principal place of business in any place not
subject to U.S. jurisdiction; a corporation incorporated in or having its
principal place of business in any place not subject to U.S. jurisdiction; or a
partnership or other unincorporated association having its principal place of
business in any place not subject to U.S. jurisdiction. Rule 15b1-5(d)(4).
NONRESIDENT GOVERNMENT SECURITIES BROKER OR DEALER. An
individual domiciled in or having its principal place of business in any place
that is not subject to U.S. jurisdiction. Rule 15Ca2-5(d)(1).
NONVOTING STOCK. NONVOTING STOCK simply entities the holder to
dividends, if any. See VOTING STOCK.
NOTE. Under the 1933 ACT, any
note is a SECURITY. Section 3(a)(10),
however, specifically exempts notes with a maturity of nine months or less.
Despite this seemingly clear legislative intent, the Supreme Court has stated
that not all notes involve an investment and that an economic reality analysis
is required to determine whether or not a note is a security. See also FAMILY RESEMBLANCE TEST.
OBLIGATED PERSON. Any person,
including the ISSUER OF MUNICIPAL SECURITIES, who is either generally or through
an enterprise or account of a person committed by contract to support payment of
all or a part of the obligations on the MUNICIPAL SECURITIES that will be sold
in the offering. Rule 15c2-12(f)(10). The term OBLIGATED PERSON does not
include providers of municipal bond insurance, letters of credit, or other
ODD LOT. An amount of STOCK
less than the established I00-share unit or 10-share unit of
trading: from one to 99 SHARES for the great majority of issues; one to 9 for
so-called inactive stocks. Compare with ROUND LOT.
OFF-BALANCE-SHEET RISK. The
term OFF-BALANCE-SHEET RISK is defined according to "Statement
of Financial Accounting Standards No. 105." Rule 17h-1T(a)(1)(vii).
OFFER FOR SALE. See
OFFER TO SELL.
OFFER PRICE. The price that has
been most recently communicated by the DEALER to another BROKER or dealer,
representing the price at which the dealer is willing to sell one or more round
lots of PENNY STOCK. Rule 15-3(c)(2).
OFFER TO SELLIOFFER FOR SALE. These
terms are defined broadly and are not restricted to "offer" in the
contract law sense of the term. They include every attempt or offer to dispose
of, or SOLICITATION OF AN OFFER to buy, a SECURITY or interest in a security,
for value. However, preliminary negotiations are not considered an OFFER FOR
SALE or an OFFER TO SELL; nor are agreements between an ISSUER and an
UNDERWRITER, provided that the underwriter is in PRIVITY OF CONTRACT with the
OFFERING. An issue of
SECURITIES offered for sale to the public or a private group. Generally,
securities offerings are either primary (the proceeds to the company for some
lawful purpose) or secondary (the proceeds to a person other than the company,
i.e., selling stockholders). PRIMARY OFFERINGS are also termed "new
issues" because they involve the issuance of securities not previously
offered and sold.
OFFERING CIRCULAR. An offering
circular must be filed with the SEC and distributed with any SECURITIES
offerings. The content is similar to the PROSPECTUS and is governed by SEC rules
OFFERING DATE. Means the later
of the REGISTRATION STATEMENT'S effective date or the first date on which the
SECURITY was offered to the public. Rule 174(d).
OFFERING DOCUMENT. This term is
defined in Section 18(d) and means a PROSPECTUS as that term is defined in
Section 2(10). It also includes a communication that is not deemed to be a
SECURITY under any SEC rule.
OFFERING PRICE. In an initial
public offering (IPO), the price that investors who have been allocated shares
in the IPO must pay. Usually, the average retail investor will have a difficult
time getting an allocation at the offering price.
OFFERING RESTRICTIONS. Written
agreements by each distributor that all offers and sales before a 40-day
period (the RESTRICTED PERIOD) will not be made to a U.S. PERSON or for the
account or benefit of a U.S. person (other than the distributor), but will be
made pursuant to registration under the 1933 ACT or pursuant to an applicable
OFFERING STATEMENT. See
OFFICER. The term OFFICER is
broadly defined to include the ISSUER's president, principal financial officer,
principal accounting officer (or the controller if there is no principal
accounting officer), and any vice president that heads a business unit,
division, or function (such as sales, marketing, and administration). Rule
16a-1(f). A person will also be considered an officer for purposes of
Section 16 if they perform a policy-making function. While the term
OFFICER is not defined in the rules, it only includes persons having significant
policy-making functions. Persons that are officers of the issuer's
parent or subsidiaries are deemed to be officers of the issuer provided they
have policy-making functions with respect to the issuer. Titles are
ignored. If a person performs executive tasks and is exposed to confidential
information, this indicates that that person if functioning as an officer.
OFFSHORE TRANSACTION. Defined
in Rule 902(i), an OFFSHORE TRANSACTION is an offer or sale of securities in
which the offer is not made to a person in the U.S. One of the following two
alternative conditions must also exist:
1. at the time the buy
order is originated, the buyer is located outside the U.S., or the seller (or
person acting on the seller's behalf) must reasonably believe that the buyer is
located outside the U.S.; or
2. if the
issuer-distributor safe harbor in Rule 903 is being relied on, the
transaction must be executed on the physical trading floor of an established
foreign securities exchange located outside the U.S.; if the resale safe harbor
in Rule 904 is being relied on, the transaction must be executed on a DESIGNATED
OFFSHORE SECURITIES MARKET. The seller (and any person acting on its behalf)
must not know that the transaction has been prearranged with a U.S. buyer.
OPEN-END INVESTMENT COMPANY. A
MUTUAL FUND that will buy back its SHARES
at net asset value and that is continuously offering to sell new shares to
OPEN-END MANAGEMENT INVESTMENT COMPANY. See definition in the INVESTMENT COMPANY ACT OF 1940.
OPENING PRICE. The price at
which the new STOCK starts trading. Ideally, the opening price will be above the
OFFERING PRICE, thus giving investors a premium. Because FLIPPING
is discouraged, the investors who received allocations do not ordinarily
sell their shares because they do not wish to damage their relationship with
their BROKERS, who may be forced to pay PENALTY BIDS.
OPTION. A privilege held and
paid for by one person that gives him the right to buy certain COMMODITIES
or certain specified SECURITIES from
another person, if he chooses, at any time within an agreed period and at a
fixed price, or to sell such
commodities or securities to such other person at an agreed price and time. An
option that gives the choice of buying or not buying is referred to as a CALL.
An option that gives the choice of selling or not selling is referred to as
a PUT. If the option is a combination of both these and also gives the privilege
of buying or selling or not, it is called a STRADDLE
or a "spread eagle."
ORDINARY BUSINESS EXCLUSION. An
exclusion that is meant to relieve management of the necessity of including in
its proxy material shareholder proposals relating to matters falling within the
scope of management's discretion. Rule 14a-8(c)(7).
ORDINARY COURSE OF BUSINESS. In
general, any matter that transpires as a matter of normal and incidental daily
customs and practices in business.
OTHER CREDIT BALANCES. See
OUTSIDE DIRECTOR. The term
OUTSIDE DIRECTOR is not defined in the PRIVATE SECURITIES LITIGATION REFORM ACT; however,
it is to be defined in an SEC rule or regulation.
OVERSEAS DIRECTED OFFERING. The
definition of an overseas directed offering depends on whether a foreign or
domestic issuer is making the offering. If the offering consists of a foreign
issuer's securities, the OVESEAS DIRECTED
OFFERING must be directed to the
residents of a single foreign country in accordance with local law and practice.
OVERSIGHT EXAMINATIONS (OF BROKER-DEALERS). These
examinations, conducted by the SEC'S Office
of Compliance Inspections and Examinations, seek to determine the quality of
examination oversight conducted by broker-dealer SELF-REGULATORY
OVER-THE-COUNTER (OTC) MARKET. Primarily
a market for unlisted securities, OTC MARKET
refers to the broad securities market that consists of BROKERS who purchase or sell SECURITIES by computer hook-up or telephone rather than through the
facilities of a securities EXCHANGE.
OVER-THE-COUNTER (OTC) MARKET MAKING. The
process consisting of BID AND ASK QUOTATIONS
that results in the establishment of a market for SECURITIES in OVER-THE-COUNTER TRADING.
OVER-THE-COUNTER SECURITY. An
UNLISTED SECURITY that is not listed on a STOCK EXCHANGE.
OVER-THE-COUNTER TRADING. See
ALTERNATIVE TRADING SYSTEM.
PAR VALUE. The face or stated
value of a share of STOCK or BOND. In the case of a common share, par means an
arbitrary or nominal dollar amount assigned to the share by the issuing company.
Par value may also be used to compute the dollar amount of the common shares on
the balance sheet. Par value has little significance so far as the market value
of COMMON STOCK is concerned. In the case of PREFERRED SHARES AND BONDs,
however, par is important. It often signifies the dollar value upon which
DIVIDENDS on preferred stocks and interest on bonds are figured. In the case of
bonds and stock, the face value appearing on the certificate is the par value.
Stocks that do not contain such a statement have no par value.
17a-23(b)(5) defines PARTICIPANT to mean a person that has been given
access to a trading system by a system SPONSOR in order to effect a sale or
purchase of securities on the system. See also definition in Instruction 3 to Item 4 of Schedule 14A.
PARTICIPATING PREFERRED SHARES. These
are PREFERRED SHARES that are entitled to share in excess distributions with
COMMON SHAREHOLDERS on some defined basis. These shares also may be called class
A common, or some similar designation to reflect their open-ended rights.
Under Rule 15c2-12, the term means BROKERS, DEALERS, or MUNICIPAL
PARTICIPATION PROGRAM SECURITIES. Direct
participation programs are programs financed through the sale of certain
unlisted securities that are not traded on EXCHANGES or OTC. The investors have
certain flow-through tax consequences as a result of their participation
in these programs.
PASSIVE MARKET MAKER. A MARKET
MAKER that effects bids or purchases according to Rule 103. See
also DE MINIMIS TRANSACTIONS.
PASSIVE PRICING STRUCTURE. A
low volume of trading.
PASSWORD (PW). In electronic
filing, an eight-character code having at least one number (0 to 9) and at
least one special character (such as @, #, or *). In conjunction with the
CENTRAL INDEX KEY (CIK), the Pw identifies an entity making an electronic
submission. Unlike the CIK, the PW is a confidential code.
PASSWORD MODIFICATION AUTHORIZATION CODE (PMAC). The
PMAC is an eight-character code like the CIK CONFIRMATION CODE (CCC) and
PASSWORD (PW) except that the number range is 2 to 9. A filer needs a PMAC to
change the PW. It should be known by only one or two persons.
PECUNIARY INTEREST. The
opportunity to profit or to share in any profit that results from a transaction
involving EQUITY SECURITIES that are the subject of a beneficial ownership
statement. See also INDIRECT PECUNIARY INTERESt. Rule 16a-1(a)(2)(i).
PENALTY BID. An arrangements
that allows the MANAGING UNDERWRITER to reclaim a selling concession from a
syndicate member in connection with an offering. The securities originally sold
by the syndicate member are purchased in a SYNDICATE COVERING TRANSACTION. Rule
100, Regulation M.
PENNY STOCK. PENNY STOCKS are
low-priced SECURITIES that are traded in the OTC market. They are very
susceptible to market manipulation because of their low price and the general
lack of reliable investment
information. See also definition in
Section 3(a)(51) and Rule 3a51-1.
PENNY STOCK REFORM ACT OF 1990.
This act amended the 1934 ACT by
requiring, among other things, that BROKERS and DEALERS disseminate risk
disclosure documents to customers and provide certain market information to
buyers of penny stocks. It also
required the establishment of an
automated quotation system for trading penny stocks.
PENSION PLAN. Under ERISA, a
plan, fund, or program to the extent that, by its express terms or as a result of
surrounding circumstances, it provides retirement income to employees or
results in a deferral of income by
employees for periods extending to the termination of covered employment or beyond.
PERIODIC REPURCHASE OFFERS. See
Rule 23c-3 of the 1934 ACT.
PERSON. The term PERSON is
defined broadly in Section 2(2) of the 1933
ACT and includes not only individuals but also entities, such as
corporations, partnerships, associations, and trusts. The term PERSON also
includes governments and their political subdivisions.
PERSON ACTING ON BEHALF OF THE ISSUER.
Means the issuer's OFFICERS, DIRECTORS, or employees. 1933
ACT, Section 27A(i)(4); 1934 ACT,
PERSON ASSOCIATED WITH A BROKER OR DEALER. Includes
several categories of individuals and
entities, such as partners, OFFICERS, DIRECTORS, or branch managers of
the BROKER OR DEALER. The term also includes any person that directly or
indirectly controls, or is controlled by, the broker or dealer. Employees of
brokers and dealers are also deemed to be associated with them. However, if
a person performs functions that are solely clerical or ministerial in
nature, that person will not be deemed to be associated with a broker or dealer.
PERSON THAT PARTICIPATED IN AN OFFERING OF PENNY STOCK. Defined
in Section 15(b)(6)(C), this phrase includes promoters, finders, consultants,
agents, and other persons working with a BROKER, DEALER, OR ISSUER to issue or
trade in PENNY STOCK or to induce the buying or selling of penny stock.
PLAIN ENGLISH RULES. New
requirements adopted by the SEC that PROSPECTUSES and other disclosure documents
that inform potential investors about securities must be written in "plain
English." (See SEC Releases
33-7497 and 34-39593, January 28, 1998) Issuers that first file a
registration statement on or after October 1, 1998, must comply with the PLAIN
ENGLISH RULE. An electronic version of the SEC's manual, A Plain
English Handbook-How to Create Clean SEC Disclosure Documents, is
available on their Internet site, http://www.sec.gov.
PLAN. The term PLAN is defined
in Rule 100(b) and includes bonus, profitsharing, pension, retirement, savings,
STOCK PURCHASE, STOCK OPTION, and dividend reinvestment and similar plans. The
term PLAN also includes employee benefit plans as defined in Rule 405 of the
POISON PILL. A defensive
measure that a board can initiate to repel a HOSTILE TAKEOVER bid. There are
several types of poison pills: FLIP-OVER PLANS, FLIPIN PLANS, and
BACK-END PLANS. See also LOCKUP
OPTION, WHITE KNIGHT.
PORTAL. PORTAL stands for
Private Offering, Resale and Trading through Automated Linkages, the NATIONAL
ASSOCIATION OF SECURITIES DEALERS9 (NASD'S) electronic trading facility through
which resales of securities pursuant to the exemption in Rule 144A of Regulation
S may be transacted. PORTAL was approved by the SEC in 1990. Section 4(11/2)
PORTFOLIO SECURITIES. Any
securities that are owned by a partnership, except any securities that it has
issued. Rule 16a-1(g).
POST-FILING PERIOD. The
third period of the REGISTRATION process, which encompasses the final day or so
of the WAITING PERIOD and during which the issuer files a price statement with
POTENTIAL CUSTOMER. Under Rule
15c2-12(f)(5), a potential customer includes any person the PARTICIPATING
UNDERWRITER contacted regarding the purchase of MUNICIPAL SECURITIES that are
going to be offered, any person having expressed an interest to the
participating underwriter in possibly buying such municipal securities, and any
person having a customer account with the participating underwriter.
PRACTICING BEFORE THE SEC. Includes
transacting any business with the SEC. With respect to attorneys, accountants,
or other professionals or experts, it also includes preparing statements,
opinions, or other papers that are filed with the SEC and with the
professional's consent, as part of a REGISTRATION STATEMENT, notification,
application, report, or other document.
PRECEDED BY A PROSPECTUS. See
Rule 153, which defines this phrase in respect of any requirement to deliver
a PROSPECTUS to a member of a NATIONAL SECURITIES EXCHANGE because of a
transaction involving a security traded on the exchange. Rule 153a defines the
phrase pertaining to certain transactions that require SHAREHOLDER approval.
Rule 153b defines the phrase in connection with certain transactions involving
PREDICATE OFFENSES. Under RICO,
these are offenses that, when they occur in a pattern of racketeering, trigger
the provisions of RICO, including acts or threats that involve state law charges
(such as bribery and extortion) and more than 30 named federal offenses
(including securities fraud).
PREEMPTIVE RIGHT. A
STOCKHOLDER'S privilege of maintaining a proportionate share of ownership by
purchasing a proportionate share of any new stock issues.
PREFERRED SECURITIES. See
PREFERRED SHARES. See
PREFERRED STOCK. The term for
stock SHARES that have preferential rights to dividends or to amounts
distributable on liquidation, or to both, ahead of common shareholders. Usually,
preferred shares are entitled to receive only specified limited amounts as
dividends or on liquidation. See also PARTICIPATING
PREFERRED STOCK RIGHTS DIVIDENDS. Dividends
that are distributed to common shareholders in the form of rights to purchase
PREFERRED SHARES, usually at a bargain price, that entitle the holder to
"super-majority" voting rights (i.e.,
instead of 1 share/1 vote, they may allow 1 share/10 or 15 votes). Apart
from voting rights, these shares usually do not carry with them any of the other
substantive rights of preferred shares.
Beneficial holders of PREFERRED STOCK shares.
PREFILING PERIOD. The first
period of the REGISTRATION process,
during which the issuer assembles the offering, including information that will
be disclosed in the REGISTRATION STATEMENT
and accompanying PROSPECTUS.
PRELIMINARY OFFERING CIRCULAR. A
particular form of written offer that satisfies certain prescribed criteria. It
will contain the same basic information required in the OFFERING STATEMENT. However, certain information may be omitted from the PRELIMINARY
OFFERING CIRCULAR, such as
information regarding the offering price, underwriting discounts or commissions,
dealer discounts or commissions, amount of proceeds, conversion rates, call
prices, or other information that depends on the offering price.
Forty-eight hours prior to the mailing of confirmation of the sale, a
revised Preliminary Offering Circular or a complete Offering Circular must be
furnished to all persons to whom SECURITIES
are to be sold.
PRELIMINARY OFFERING STATEMENT. An
official document prepared by or for an ISSUER
OF MUNICIPAL SECURITIES for
distribution to POTENTIAL CUSTOMERS before
the FINAL OFFICIAL STATEMENT is
available. Rule 15c2-12(f)(6).
PRELIMINARY OFFICIAL STATEMENT. Under
Rule 15c2-12(f)(6), an official document prepared by or for an ISSUER OF MUNICIPAL SECURITIES for
distribution to POTENTIAL CUSTOMERS before
the FINAL OFFICIAL STATEMENT is
PRELIMINARY PROSPECTUS. A
PROSPECTUS that is filed with the SECURITIES AND EXCHANGE COMMISSION (SEC),
usually with the REGISTRATION STATEMENT,
and that is distributed to investors, and that does not contain the offering
price of the SECURITY. It includes a
"prospectus subject to completion" as used in 17 CFR 230.434(a). A
PRELIMINARY PROSPECTUS is also known
as a RED HERRING.
PRE-ORGANIZATION CERTIFICATE OR SUBSCRIPTION. A
less common device that Section 2(2) specifically provides is a SECURITY.
PREPARED BY OR ON THE ISSUER's BEHALF. The
phrase is intended to cover only OFFERING DOCUMENTS
prepared with the ISSUER's knowledge
and consent. According to Rule 146(a), an offering document is prepared by or on
the issuer's behalf if the issuer or its agent or representative authorizes the
document's production; and approves the document before its use.
PRIMARY OFFERING. A
first-time securities offering in which no outstanding securities exist.
An offering of MUNICIPAL SECURITIES that is made
directly or indirectly by or on behalf of an ISSUER OF MUNICIPAL SECURITIES
and includes the remarketing of municipal securities. Rule 15c2-12.
PRINCIPAL MARKET. As defined in
Rule 100(b), PRINCIPAL MARKET means the single securities market that has the
largest aggregate reported trading volume for the class of securities during the
12-calendar-month period immediately preceding the REGISTRATION
STATEMENT's filing. If no registration statement was filed, or the securities
are sold on a delayed basis under Rule 415 of the SECURITIES ACT OF 1933, the
period for determining the principal market is the 12-calendar-month
period immediately preceding the determination of the offering price.
PRINCIPAL OFFICER. See
PRINCIPAL UNDERWRITER. Under
Rule 491, these are underwriters who are in PRIVITY OF CONTRACT with the foreign
government and are named as principal underwriters.
PRIVACY ACT OF 1974. THE
PRIVACY ACT requires every Federal agency to make known to the public the
existence and characteristics of all personal information systems that the
agency keeps. Under the Act, individuals are permitted to access all records
that contain personal information on themselves and allows those individuals to
control the transfer of that information to other Federal agencies for
nonroutine uses. Also, under the Act all Federal agencies are required to keep
an accurate accounting of transfers of personal records to other agencies and
outsiders, and they must make the accounting available to the individual. The
Act further provides for civil remedies for an individual whose records are kept
or used in contravention of the requirements of the Act.
PRIVATE OFFERING. An offering
that is made to a limited number of persons, who are very well-informed
regarding the affairs of a company and have access to information that would be
found in a REGISTRATION STATEMENT; thus, they do not require the protection
afforded by the disclosure provisions of the SECURITIES ACT OF 1933. This term
also refers to the sale of unregistered STOCK, which is exempt from securities
PRIVATE OFFERING EXEMPTION.
Section 4(2), which exempts private securities offerings from the 1933 act
registration requirements, provides no guidance or criteria for determining what
constitutes a private offering. Not until the SEC promulgated Regulation D in
1982 were objective criteria for the private offering exemption set forth.
Regulation D provides three exemptions under Section 3(b) or Section 4(2)
offerings to ACCREDITED INVESTORS. Rule 501 defines terms used in Regulation D;
Rule 502 sets forth general conditions that all offerings in reliance on
Regulation D must satisfy; Rule 503 sets forth the filing requirements for a
Regulation D offering; and Rules 504, 505, and 506 contain the three types of
exempt offerings pursuant to Regulation D.
PRIVATE PLACEMENT. The sale of
a STOCK or BOND issued directly
to private persons, institutional investors, and so on, outside of a public
offering. 1933 ACT, Section 4(2). See also
PRIVATE SECURITIES LITIGATION REFORM ACT (PSLRA OR REFORM
ACT) OF 1995. Both the 1933 and 1934 ACTS
were amended by the PSLRA to curb
perceived abuses of the litigation process by plaintiffs' securities lawyers.
The purpose of this statute was to reduce the number of federal class action
securities litigations by imposing higher pleading requirements, eliminating
JOINT AND SEVERAL LIABILITY, and
providing SAFE HARBORS for certain
statements made by PUBLIC COMPANIES about
The PSLRA reduces the exposure of many securities defendants who lack actual
knowledge of alleged federal securities violations, and it contains procedural
changes designed to reduce the number of meritless actions brought by
plaintiffs' attorneys. PSLRA amendments
are designed to reduce the use of professional plaintiffs by increasing the role
of large INSTITUTIONAL INVESTORS.
PRIVITY. A mutual relationship
or interest based on joint ownership or interest in some property or
relationship, such as a contract or involvement in a company. For example, a
DIRECTOR or OFFICER
may be in PRIVITY OF CONTRACT with
a corporation as owner or FIDUCIARY. Privity
between a plaintiff and defendant (directly or because both are in privity with
a third party, such as a corporation) often is required to support a lawsuit.
PRIVITY OF CONTRACT. The
connection or relationship that exists between two or more contracting parties.
PRO RATA. Proportionately.
PROFIT-SHARING PLAN/ARRANGEMENT. Included
in the definition of a security, a profit-sharing plan is a plan that has
been established and maintained by an employer in order that employees or their
beneficiaries may participate in the profits of the company. PROFIT SHARING
PLANS are regulated by the federal
EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA).
See also EMPLOYEE STOCK OWNERSHIP
PROFITS. Capital appreciation
resulting from the development of the initial investment; or a participation in
earnings resulting from the use of the investor's funds.
PROMISSORY NOTE. A security for
which registration may be required, a
PROMISSORY NOTE is a written promise to pay a specified sum at a specified time,
or on demand, or at sight, to a person named in the note, or to his order, or
PROPORTIONATE INTEREST. The
greater of the general partner's share of profits or share of the capital
account, determined by referring to the partnership agreement that is in effect
at the time of the transaction and the partnership's most recent financial
PROPRIETARY TRADING SYSTEM. See
ALTERNATIVE TRADING SYSTEM (ATS).
PROSPECTIVE UNDERWRITER. As
defined in Rule 100(b), it includes any person that has submitted a bid to the
ISSUER or SELLING SECURITY HOLDER, and knows or is reasonably certain that the
bid will be accepted; or has reached, or is reasonably certain to reach, an
understanding with the issuer or selling security holder or MANAGING
UNDERWRITER, that it will be become an underwriter. In either case, it does not
matter whether the terms and conditions of the underwriting agreement have been
PROSPECTUS. The PROSPECTUS is
Part I of the two-part REGISTRATION STATEMENT and, although it is required
by the 1933 ACT, it is also relied on by the issuer as the offering or selling
document since it will be the only OFFERING DOCUMENT allowed to be publicly
distributed before the offering commences. Section 2(10) of the 1933 act defines
the term PROSPECTUS to include written communications, including television and
radio broadcasts. With respect to an ELECTRONIC ROADSHOW, the issue is primarily
whether the presentation is deemed to be a prospectus and thus subject to the
requirements of Section 10, which include filing the prospectus with the SEC. See
also SUMMARY PROSPECTUS.
PROXY. Broadly defined in Rule
14a-1(f), generally, a PROXY is a document that grants one person the
authority to act for another; most commonly, it is used to delegate authority to
vote shares of STOCK. However, a proxy also includes any form of consent or
authorization, going so far as to include the failure to object or dissent.
Normally, PROXY means the card accompanying a PROXY STATEMENT that is used to
grant one person the authority to vote on behalf of another. Rule 14a-4
and Rule 14a-5 provide the basic requirements for the form of the proxy,
the authority it may confer, and the information it must contain.
PROXY SOLICITATION. A proxy
solicitation exists with respect to any request for a proxy or any request to
execute, not execute, or revoke a proxy regardless of whether the request is
included in a form.
PROXY STATEMENT. The disclosure
document filed with the SEC (usually Schedule 14A) and sent to security holders
whose proxies are solicited.
PUBLIC ANNOUNCEMENT. New Rule
165(f)3 adopts a definition of "public announcement" that encompasses
all communications that put the market on notice of a proposed transaction. The
term PUBLIC ANNOUNCEMENT means any communication by a party to the transaction,
or any person authorized to act on a party's behalf, that is reasonably designed
to, or has the effect of, informing the public, or security holders in general,
about the transaction.
PUBLIC FLOAT. The PUBLIC FLOAT
is the AGGREGATE MARKET VALUE of outstanding securities held by NONAFFILIATES.
It is determined by using the price at which the security was last sold or the
average of the BID-AND-ASKED PRICE on a date that is within 60 days
before the close of the fiscal year. If the issuer is filing its initial
REGISTRATION STATEMENT, the average is determined as of a date within 60 days of
filing the registration statement. Rule 12b-2.
PUBLIC FLOAT VALUE. See
definition of PUBLIC FLOAT VALUE in Rule 100(b).
PUBLIC OFFERING. The offering
of SECURITIES at random and in general to anyone who will buy, whether solicited
or unsolicited. Sale of STOCK to the public in contrast to a PRIVATE OFFERING or
placement. Generally, public offerings are regulated by federal and state laws
and regulations. See also UNDERWRITE.
PUBLIC UTILITY HOLDING COMPANY ACT OF
1935. Federal statute that grants the SEC the authority to regulate
gas and electric public utility holding companies. The SEC's Division of
Investment Management is responsible for administering this Act.
PUBLICLY HELD COMPANY. A
company that has SECURITIES listed on a NATIONAL SECURITIES EXCHANGE. Also known
as a LISTED COMPANY.
PUMP AND DUMP. A scheme to make
prearranged "sales" of SECURITIES under Rule 504 of Regulation D. The
sales are made to nominees in states that do not have REGISTRATION or PROSPECTUS
delivery requirements. The securities are placed with BROKER-DEALERS who
use cold-calling techniques to sell the securities at
ever-increasing prices to unsuspecting investors. When the inventory of
securities is depleted, the broker-dealers permit the artificial market
demand to collapse. See also MICROCAP.
PURCHASE. This term is defined
in Section 3(a)(13); the definition includes contracts to buy or sell.
PURCHASE LIMITATION. The
broker's or dealer's 30 PERCENT AVERAGE DAILY TRADING VOLUME LIMITATION (ADTV),
or 200 shares, whichever is greater.
PUT. Included in the definition
of a SECURITY, a PUT is an OPTION that permits its holder to sell a certain
STOCK or COMMODITY at a fixed price for a stated quantity and within a stated
period. Such a right is purchased for a fee paid to the one who agrees to accept
the stock or goods if they are offered. The buyer of this right to sell expects
the price of the stock or commodity to fall so that he can deliver the stock or
commodity (the PUT) at a profit. If the price rises, the option need not be
exercised. The reverse transaction is a CALL. See
PUT OPTION; PUTS AND CALLS.
PUT EQUIVALENT POSITION. Similar
to a CALL EQUIVALENT POSITION, except that the value of the DERIVATIVE SECURITY
increases as the UNDERLYING SECURITY'S value decreases. It includes such
positions as LONG PUT OPTIONS and short call options.
PUT OPTION. An instrument under
which the buyer of the option may demand payment by the writer of a fixed price
(the STRIKING PRICE) upon delivery by the buyer of a specified number of shares
PUTS AND CALLS. A PUT in the
language of the COMMODITY or STOCK market is a privilege of delivering or not
delivering the subject matter of the sale; a CALL is a privilege of calling or
not calling at all. See PUT; PUT
QUALIFIED EMPLOYEE BENEFIT PLAN. See QUALIFIED PLAN.
QUALIFIED INSTITUTIONAL INVESTOR OR BUYER. An
entity (such as an insurance company, EMPLOYEE BENEFIT PLAN, and INVESTMENT
COMPANY) that owns and invests on a discretionary basis at least $100 million in
SECURITIES of NONAFFILIATED ISSUERS. BANKS must satisfy this $100 million
threshold test and also satisfy a $25 million NET WORTH requirement. The term
QUALIFIED INSTITUTIONAL BUYER also includes certain DEALERS that are registered
under the 1934 ACT. Dealers, however, need only own and invest on a
discretionary basis at least $10 million in securities, or act in a RISKLESS
PRINCIPAL TRANSACTION on behalf of a qualified institutional buyer.
QUALIFIED PLAN. A QUALIFIED PLAN is an EMPLOYEE BENEFIT PLAN that
meets certain requirements under the Internal Revenue Code. Specifically defined
in Rule 16b-3, it must meet the coverage and participation requirements of
Sections 410 and 401(1)(26).
QUALIFIED PURCHASER. A term to
be determined by SEC rules, which have not yet been promulgated.
provides an exemption from the registration requirements of the 1933 ACT, for
offerings up to $5,000,000, that satisfies Section 25102(h) of the California
Corporations Code. This section exempts from California state law offerings made
to qualified purchasers.
PURCHASER is similar to an ACCREDITED
INVESTOR under Regulation D. Some
forms of general solicitation are permitted, but the securities are restricted
and may not be resold without first being registered.
QUALIFYING ELECTRONIC QUOTATION SYSTEM. An
automated INTERDEALER QUOTATION SYSTEM with
characteristics set forth in Section 17B(b)(2), or any other interdealer
quotation system designated by the SEC.
QUALIFYING FOREIGN FUTURES CONTRACTS. Agreements
for the purchase or sale of designated FOREIGN GOVERNMENT
SECURITIES that are traded on a
board of trade and are to be delivered at a future date. Delivery must take
place outside the U.S.
QUALIFYING PURCHASES. Bona fide
purchases by a BROKER or DEALER of a PENNY STOCK for its
own account, each involving at least 100 shares, excluding any block purchases
involving more than one percent of the outstanding shares or units. Rule
QUOTATION. For purposes of Rule
15c2-7, a quotation means any bid or offer, but it also includes a
broker's or dealer's indication of interest in a bid or offer.
QUOTATION MEDIUM. Includes not
only an INTERDEALER QUOTATION SYSTEM but
also any publication or electronic network or other device used by BROKERS
or DEALERS to indicate offers to
buy or sell at a stated price. Rule 15c211(e)(1).
RACKETEER INFLUENCED AND CORRUPT ORGANIZATION (RICO) ACT.
Federal and state laws that are designed to
investigate, control, and prosecute organized crime. These laws prohibit a
person from engaging in activities that affect interstate or foreign commerce,
including using income received from a pattern of racketeering to acquire an
interest in an enterprise; acquiring or maintaining an interest in an enterprise
through a pattern of racketeering; conducting or participating in the affairs of
an enterprise through a pattern of racketeering; or conspiring to commit any of
the above offenses.
RAIDER. An individual or
corporation that attempts to take control of a TARGET COMPANY
by buying a controlling interest in its STOCK
and installing new management.
RAILROAD EQUIPMENT TRUST. A
railroad equipment trust is a form of borrowing used by railroad and other
transportation companies to finance equipment purchases. The bond proceeds are
used to purchase rolling stock, but a trustee takes title to the stock. The
issuing company does not acquire title until all the loan payments are made. See
READY MARKET. Includes a
recognized and established SECURITIES market
where independent BONA FIDE offers to
buy and sell are made so that prices or quotations can be determined almost
instantaneously and settlement can be made in a relatively short time. Rule
15c3-1(11)(i) A ready market also includes situations where securities
have been accepted as collateral for a bank loan and where the BROKER or DEALER demonstrates
to its examining authority that the securities secure the loan adequately. Rule
REASONABLE ASSURANCES. A degree
of assurance that would satisfy prudent 13(a)(7).
REASONABLE CARE DEFENSE. Such
care as an ordinarily prudent person would exercise under existing conditions.
Section 12(2) contains a reasonable care defense that requires only that the
defendant exercise reasonable care to discover the untruth or omission; Section
11, however, requires a REASONABLE INVESTIGATION. Whether Section 12(2) also
requires a reasonable investic,ation remains unresolved.
REASONABLE DILIGENCE. Such
diligence, care, or attention as might be expected from a man of ordinary
prudence and activity.
REASONABLE INVESTIGATION. The
statute and rules offer only limited guidance as to what constitutes a
reasonable investigation. Section 11(c) merely states that a reasonable
investigation is based on a standard of reasonableness required of a
"prudent man in the management of his own property." But see
Rule 176 for some general factors that may be used to determine whether an
investi uation is reasonable within Section 11(c)'s definition.
REASONABLE STEP. Includes
receiving an undertaking by the managing UNDERWRITER
to send the latest copies of the PRELIMINARY PROSPECTUS
(as filed with the SEC) to those that request them. Rule 15c2-8.
REASONABLY CURRENT INFORMATION. Information
concerning the ISSUER is reasonably
current if the balance sheet is dated less than six months before the quotation
is published or submitted; and statements of profit/loss and retained earnings
are for the 12-month period before the date of the balance sheet.
RECEIVER IN A BANKRUPTCY PROCEEDING. Formerly,
a person empowered to take charge of the assets of an insolvent person or
business and to preserve them for sale and distribution to creditors. This
function is now performed by a bankruptcy trustee. See
TRUSTEE, under BANKRUPTCY.
RECORD OWNER. The PERSON
whose name appears in a company's records as the owner of a stock.
RED HERRING PROSPECTUS. In
securities law, a PRELIMINARY PROSPECTUS that
has not yet been approved by the SEC or state securities commissioners. A red
border on its front notifies interested parties that the securities offering is
not yet approved for final distribution. It is also used as a type of
advertising device to encourage securities sales. See
also PRELIMINARY PROSPECTUS. (The
red ink requirement was eliminated by the SEC in 1996. See
SEC Release No. 33-7300.)
REFERENCE SECURITY. A SECURITY
into which a security that is the subject of a distribution may be
converted, exchanged, exercised, or may determine the value of the security that
is subject to the distribution. Rule 100(b).
REGISTERED. A SECURITY is
deemed registered when the REGISTRATION STATEMENT
has become effective under Section 12 of the 1934 act. Rule 12b-6.
REGISTERED COMPANY. A company
that is either a PUBLICLY HELD COMPANY or
a company that satisfies the 5/5 RULE.
REGISTERED SECURI[TY. A
security is deemed registered when the REGISTRATION STATEMENT
has become effective under Section 12 of the 1934 ACT.
REGISTRANT. An ISSUER
of SECURITIES subject to
REGISTRATION. The process of
registering a SECURITY with the SEC. See
also PREFILING PERIOD, WAITING PERIOD, and POST-FILING PERIOD.
REGISTRATION STATEMENT. The
document and supporting information filed by a registrant to begin the
REGISTRATION of a SECURITY.
REGULATIONS. Certain SEC rules set forth in the CODE OF FEDERAL
REGULATIONS contain headings that identify them as regulations. A REGULATION is
a series of rules that pertains to a common subject matter. For example, Rule
235, which contains certain exemptions from the 1933 Act's registration
requirements, appears and is referred to as "Regulation A."
issued by various governmental departments to carry out the intent of the law.
Agencies issue regulations to guide the activity of those regulated by the
agency and of their own employees and to ensure uniform application of the law.
Regulations are not the work of the legislature and do not have the effect of
law in theory. In practice, however, because of the intricacies of judicial
review of administrative action, regulations can have an important effect in
determining the outcome of cases involving regulatory activity. United States
Government regulations appear first in the FEDERAL REGISTER, published five days
a week, and are subsequently arranged by subject in the CODE OF FEDERAL
REHYPOTHECATION. To pledge or
transfer to another a note, goods, or other collateral that has already been
pledged; for example, a BROKER may pledge SECURITIES pledged to him by a
customer (e.g., under a MARGIN ACCOUNT) to finance his borrowings from a
RELATED SECURITIES. New Rule
14e-5(6) defines RELATED SECURITIES as SECURITIES that are
"immediately convertible into, exchangeable for, or exercisable for SUBJECT
RELOAD OPTIONS. Replacement
options granted upon the exercise of an earlier granted option.
REMAILER AND ANONYMIZING TOOLS. Used
to disguise a user's identity (in electronic securities offerings). Use of
electronic technology may make INSIDER TRADING enforcement more difficult
because people can use software to hide their true identity or to alter the
content of other people's e-mail or other electronic communications.
REPORTING BROKER OR DEALER. One
of a group of associated BROKERS and DEALERS that maintains the greatest amount
of NET CAPITAL based on its latest Form X-17A-5.
REPORTING INSTITUTION. Defined
in Rule 17f-1(a)(1), the term REPORTING INSTITUTION
includes BROKERS and DEALERS,
NATIONAL SECURITIES EXCHANGES and
their members, registered national securities associations, registered transfer
agents, registered clearing agencies, members of the Federal Reserve System, and
banks whose deposits are insured by the FEDERAL DEPOSIT INSURANCE CORPORATION
REPORTING ISSUER. Defined in
Rule 902(1), REPORTING ISSUER means
an ISSUER that has a class of SECURITIES
registered under Section 12(b) or Section 12(g) of the 1934 ACT or is
required to file reports under Section 15(d) of the 1934 ACT; and has filed all
material required to be filed under Section 13(a) or Section 15(d) for a period
of at least 12 months before the offer and sales under Regulation S.
RESALE SAFE HARBOR (RULE 904).
Provides that certain resales (i.e., offers
and sales by persons other than the issuer, distributor, or one of their
AFFILIATES) are deemed to occur outside the U.S.
RESOLUTION TRUST CORPORATION. A
federal agency that succeeds the former federal savings and loan insurance
corporation (fslic) as a conservator or receiver of FEDERAL SAVINGS AND LOAN
ASSOCIATIONS (S&Ls) that became
insolvent while insured by the FSLIC. One
of the agency's functions is to dispose of assets of insolvent S&Ls. With
the abolition of the FSLIC in 1989,
such associations are now insured by the FDIC.
See also FEDERAL DEPOSIT INSURANCE
RESPONDENT. Certain prescribed
persons upon whom a CEASE-AND-DESIST ORDER
has been served. Section 8A(c)(2).
RESPONDENT BANK. A BANK
that holds SECURITIES for
BENEFICIAL OWNERS but that has
deposited the securities with another bank for safekeeping.
RESPONSIVE PLEADING. A pleading
that joins issue and replies to a prior pleading of an opponent, in contrast to
a dilatory plea or motion that seeks to dismiss on some ground other than the
merits of the action.
RESTRICTED PERIOD. A period
during which a DISTRIBUTION PARTICIPANT, or
a purchaser affiliated with such a participant, is prohibited from bidding,
purchasing, or inducing any person from bidding or purchasing a COVERED
SECURITY. Under Rule 101, Regulation
M, the restricted period depends on the type of transaction involved.
As defined in
Rule 902(m), the RESTRICTED PERIOD is
the period that begins on the later of the date the securities were first
offered to persons (other than distributors) in reliance on Regulation S; or the
date of the offering's closing. The restricted period expires 40 days later.
RESTRICTED SECURITIES. Four
types of securities are defined as RESTRICTED SECURITIES
in Rule 144: securities acquired from the ISSUER
(or its AFFILIATE) in a
transaction or a chain of transactions that constitute a PRIVATE OFFERING; securities acquired from the issuer that are subject to the resale
limitations of Regulation D; securities subject to the resale limitations of
Regulation D that are acquired in a transaction or chain of transactions that
constitute a private offering; or securities acquired from the issuer that are
subject to the resale limitations of Regulation CE.
REVISED OFFERING CIRCULAR. If a
Regulation E offering is not completed within nine months of the date of the
offerinc, circular, the issuer must prepare and file a revised offering
circular. Rule 605(d). See OFFERING
REVISED UNIFORM SECURITIES ACT OF 1985. Many
states model their securities statutes after this act or the UNIFORM SECURITIES ACT OF 1956,
both of which were drafted by the National Conference of Commissioners on
Uniform State Laws. However, state securities laws do not have to match their
federal counterparts and some states have enacted their own securities statutes.
RIGHTS. With regard to STOCKS,
RIGHTS are SHORT-TERM OPTIONS
to purchase SHARES from an ISSUER
at a fixed price. Rights are often issued as a substitute for a dividend or
as a "sweetener" in connection with the issuance of SENIOR
OR DEBT SECURITIES. Rights are
often publicly traded. See also RIGHTS
OFFERING; STOCK RIGHTS.
RIGHTS OFFERING. The sale of
new shares of COMMON STOCK by
distributing STOCK PURCHASE RIGHTS to
a firm's existing shareholders. This is also termed a privileged subscription. See also RIGHTS, STOCK.
RISK CAPITAL. Money or property
invested in a business venture, generally in exchange for COMMON STOCK
in a business, or capital in a partnership, as distinguished from loans or
RISK CAPITAL ANALYSIS. Whether
a particular transaction involves a SECURITY
essentially depends on the economic substance of the transaction. The risk
capital analysis identifies exactly what type of economic substance is required
to determine whether or not something is a security.
RISKLESS PRINCIPAL TRANSACTION. A
transaction in which a DEALER buys a
SECURITY from any person and simultaneously makes an offsetting sale of that
security to QUALIFIED INSTITUTIONAL BUYER, which may include another dealer acting as a riskless principal for
a qualified institutional buyer. Rule 144A(a)(5).
ROADSHOW. Presentations that
public companies, or companies that want to go public, present to UNDERWRITERS,
INSTITUTIONAL INVESTORS, and
security analysts to drum up interest and generate favorable attitudes toward a
company's outstanding or to-be-issued securities.
ROLL-UP TRANSACTION. A combination or reorganization of one or
more partnerships where investors in the partnerships receive new SECURITIES
or receive securities in a different entity. See
also definition in Item 901 (c) of Reaulation S-K.
ROUND LOT. A trading order
typically of 100 shares of a STOCK or some multiple of 100. Compare
with ODD LOT.
ROUTINE GOVERNMENTAL ACTION. Means
only actions that are ordinarily and commonly performed by a FOREIGN
OFFICIAL, such as obtaining
documents to qualify a person to do business in a foreign country; processing
governmental papers; providing governmental services; providing utilities;
loading and unloading cargo or protecting perishable goods from deterioration;
or undertaking similar actions. Section 30A(f)(3)(A)(i) - (v).
SAFE HARBOR RULE. A concept
applicable in some laws and agreements under which a party performing some
function in a specified way is deemed not to have violated any applicable
requirement or provision.
SALE, SELL. The terms SALE and
SELL are defined broadly to include every contract of sale or disposition of a
SECURITY or interest in a security, for value. Thus, there must be some exchange
of value. Section 3(a)(14) defines the term sale; the definition includes
contracts to buy and sell.
SAME-STATE RESIDENT REQUIREMENTS. If
the offerees and purchasers are individuals, the state of residence is
determined by the individual's principal residence as of the date of the OFFER
or SALE. If the offerees and purchasers are organizations, the organization is
deemed a resident of the state where it has its principal office at the time of
the offer or sale. If the organization was organized for the purpose of
acquiring part of an ISSUE, the organization will not be deemed a resident of a
state unless each BENEFICIAL OWNER of the organization is also a resident of
SATURDAY NIGHT SPECIAL. A
surprise tender offer that expires in one week and is designed to capitalize on
panic and haste. Such offers may be made Friday afternoon to take advantage of
the fact that markets and most offices are closed on Saturday and Sunday.
Saturday night specials have now been effectively prohibited by the WILLIAMS
SAVINGS ACCOUNT HOLDERS. For
purposes of the FEDERAL DEPOSIT INSURANCE ACT, a GOVERNMENT SECURITIES broker's
or dealer's customers are deemed to be INSURED MEMBERS under the NATIONAL
SAVINGS AND LOAN ASSOCIATIONS (S&Ls). Mutually
owned, cooperative, savings associations that were originally established for
the primary purpose of making loans to members and others, usually for the
purchase of real estate or homes. S&Ls may be chartered by the state or the
federal government and deposits are insured by the FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC). THE FINANCIAL INSTITUTION'S REFORM, RECOVERY AND ENFORCEMENT
ACT OF 1989 changed the capital requirements, loan powers, and regulatory
control of S&Ls significantly. See also BUILDING AND LOAN ASSOCIATION.
SCIENTER. The term SCIENTER, as
applied to conduct necessary to give rise to an action for civil damages under
the SECURITIES EXCHANGE ACT OF 1934 and Rule 10b-5, refers to a mental
state embracing intent to deceive, manipulate, or defraud.
SEASONED FOREIGN GOVERNMENTS. Foreign
governments that have registered debt securities with the SEC within the past
five years and have not defaulted on interest or principal payments.
SEC DOCKET. An officially
published SEC weekly newsletter that promulgates various administrative
decisions (called releases). The SEC's Office of the Secretary publishes
official documents and releases in the SEC DOCKET.
SECONDARY DISTRIBUTION. The new
distribution of STOCK after it has been initially sold by the issuing
corporation. It is not a new ISSUE, but rather a public sale of stock that has
previously been issued and held by large corporations and investors. The sale of
a large block of stock after the close of business of the EXCHANGE.
SECONDARY OFFERING. A
subsequent securities offering in which outstanding SECURITIES are offered for
cash for the account of a person other than the REGISTRANT. This includes
securities that were acquired by standby UNDERWRITERS as part of a CALL or
redemption of WARRANTS or a class of CONVERTIBLE SECURITIES. See
also SECONDARY DISTRIBUTION.
SECURITIES. Securities, in
their most common form, are simply shares of STOCK representing an investor's
ownership interest in a CORPORATION.
The term SECURITY
is defined broadly in Section 2(1) of the 1933 ACT. It encompasses a wide range
of financial forms. STOCKS, BONDS, DEBENTURES, and PROMISSORY NOTES are all
securities for which registration may be required. The term SECURITY also
includes any PUTS, CALLS, or STOCK OPTIONS as well as such less obvious schemes
as certain profit-sharing arrangements, FRACTIONAL UNDIVIDED INTERESTS in
mineral rights, and INVESTMENT CONTRACTS. The list of examples contained in
Section 2(1) is not exclusive. The statute contains a catch-all phrase
that includes "any interest or instrument commonly known as a
security." Because the statute does not provide a bright-line test
that sets forth specific criteria for determining what is and what is not a
security, prospective registrants must look to the legislative history, SEC
releases, and numerous federal court decisions for guidance. The term SECURITY
was meant to be as broad a term as possible in order to include a multitude of
financial devices used in the commercial sector.
The term SECURITY
is broadly defined in Section 3(a)(10) of the 1934 ACT; it is very similar to
the 1933 ACT definition. In addition to STOCKS, BONDS, DEBENTURES, and OPTIONS,
the term SECURITY also encompasses less wellknown devices, such as CERTIFICATES
OF INTEREST IN PROFIT-SHARING AGREEMENTS; however, it specifically
excludes certain commercial paper having maturities of nine months or less.
SECURITIES ACT OF 1933 (1933 ACT).
Regulates the offering and sale of securities. The Act provides for the
registration of SECURITIES that are
to be sold to the public and for complete information as to the ISSUER
and the stock offering. The 1933 ACT requires disclosures concerning offers
and sales of securities. The SEC's Division
of Corporate Finance renders interpretations of the 1933 ACT and regulations.
SECURITIES AND EXCHANGE COMMISSION (SEC). An
independent, quasi-judicial federal agency created by Congress to
administer all federal securities laws, including the SECURITIES ACT OF
1933 (1933 ACT), the SECURITIES EXCHANGE ACT
OF 1934 (1934 ACT), THE TRUST INDENTURE ACT OF 1939,
THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935, THE INVESTMENT ADVISORS ACT
OF 1940, and the INVESTMENT COMPANY
ACT OF 1940. The SEC is composed of
five Commissioners and a Commission Staff composed of lawyers, accountants,
financial analysts, examiners, investigators, economists, and other
professionals. The Commissioners are appointed for five-year terms by the
President of the United States, with the advice and consent of the U.S. Senate.
No more than three Commissioners may be of the same political party. The
President designates one of the Commissioners Chairman.
SECURITIES ENFORCEMENT REMEDIES AND PENNY STOCK REFORM
ACT OF 1990. This Act, among other things, grants
federal courts the power to bar or suspend an individual from serving as a
corporation's OFFICER or DIRECTOR. It also
established a three-tiered penalty system that is now adjusted at least
once every four years for cost-of-living increases. See also DEBT COLLECTION IMPROVEMENT ACT.
SECURITIES EXCHANGE ACT OF 1934 (1934 ACT).
Regulates the trading of SECURITIES that
are issued and outstanding. The Act also includes rules for periodic disclosures
by registered companies, the PROXY process,
and INSIDER TRADING.
SECURITIES HAIRCUTS. SEC Rule
15c3-1, the Net Capital Rule, requires BROKERDEALERS
to have sufficient liquid capital to protect the assets of customers and to
meet their obligations to other broker-dealers. In calculating the amount
of NET CAPITAL required,
broker-dealers reduce the market value of the SECURITIES
they own by certain charges or haircuts as a precaution against adverse
market movements or financial and operational risks.
SECURITIES INVESTOR PROTECTION ACT OF 1970. Federal
law that established the SECURITIES INVESTOR PROTECTION CORPORATION (SIPC). The
SIPC is designed to protect investors from BROKER-DEALER failures.
SECURITIES INVESTOR PROTECTION CORPORATION (SIPC). Established
by the SECURITIES INVESTOR PROTECTION ACT OF
1970, the SIPC is designed to protect investors from BROKER-DEALER failures, such as occurred during the late 1960s and early 1970s.
The SIPC can liquidate an insolvent broker-dealer and pay its customers up
to $500,000. The SEC's Division of
Market Regulation has oversight of the sipc.
SECURITIES LITIGATION STANDARDS ACT OF 1998 (UNIFORM
STANDARDS ACT OR SLUSA). Desianed to make federal
court the exclusive venue for securities fraud class action litigation involving
nationally traded securities. The uniform standards act preempts all securities
fraud actions under state law and authorizes federal courts to stay discovery
proceedings in any private securities action in state court.
SECURITY FUTURES PRODUCT. A
SECURITY FUTURE or any PUT, CALL, STRADDLE, OPTION, or privilege on any security future.
SECURITY POSITION LISTING. A
list of PARTICIPANTS in a clearing
agency, on whose behalf the clearing agency holds the issuer's SECURITIES, and a list of those participant's positions as of a specified date.
SELF-REGULATORY ORGANIZATION (SRO). Defined
in Section 3(a)(26) of the 1934 ACT, the term SRO means a national securities
exchange, registered securities association, or registered clearing agency. The
term also includes the MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB), which was established in Section 15B. The SEC's
Division of Market Regulation is responsible for the registration and
regulation of sros; the Office of Compliance Inspections and Examinations is
responsible for examining and inspecting them.
SELLER. One who actually
solicits a sale for financial gain. In Pinter
v. Dahl, the Supreme Court rejected the notion that persons, such as lawyers
and accountants, who remotely participate in a SECURITIES
sale could be sellers and therefore subject to AIDING AND ABETTING
SELLING GROUP. INVESTMENT BANKS
that agree only to help sell SECURITIES; that is, they buy no part of the OFFERING.
SELLING SECURITY HOLDER. A
person, other than the ISSUER, on
whose behalf the distribution is made. Rule 100(b).
SENIOR SECURITY. Any BOND,
DEBENTURE, NOTE, or similar obligation or instrument constituting a SECURITY
and evidencing indebtedness, and any STOCK
of a class having priority over any other class as to distribution of assets
or dividend payments. Section 18(d)(4).
SHAREHOLDER COMMUNICATIONS ACT OF 1985. This
Act extended the SEC's authority under Section 14(b) to BANKS and similar
institutions with fiduciary duties.
SHAREHOLDERS. Owners of
a CORPORATION, with the right to elect the board of DIRECTORS and vote on significant actions.
SHELF REGISTRATION. A procedure
whereby a company is permitted to register (with the SEC) all the DEBT and
EQUITY SECURITIES it plans to sell over the next several years. The company can
then sell these securities whenever it chooses (e.g.,
in the most favorable market) without a registration delay. See SEC Rule 415.
SHORT. Implies only that one
has less of a commodity than may be necessary to meet demands and
obligations. It does not imply that the commodity cannot or will not be supplied
on demand. In finance and COMMODITY FUTURES, a person is short when he has sold
SECURITIES or commodities that he does not own at the time of
the sale, though he expects to buy them back at a lower price than that at
which he sold them. See also SHORT
SHORT POSITION. A SHORT
POSITION is the amount of SECURITIES that a person has sold or entered into an
unconditional contract, binding on both parties, to sell; has borrowed; has
written a nonstandardized CALL OPTION or granted any other right pursuant to
which that person's SHARES may be transferred to another person; or is obligated
to deliver upon exercise of a standard
call option sold on or after the date the TENDER OFFEr is first publicly
announced or made known to security holders. Rule 14e-4(a)(1)(ii).
SHORT SALE. A contract for sale
of shares of
STOCK that the seller does not own or whose certificates are not within his
control, so as to be available for delivery at the time when, under rules of the EXCHANGE, delivery must be made.
SHORT SALE AGAINST THE BOX. A
SHORT SALE where the investor owns enough shares of
the security involved to cover the borrowed securities, if
necessary. The "box" referred to is the hypothetical safe deposit
box in which the certificates are kept. A SHORT SALE AGAINST THE BOX is not as
risky as a regular short sale.
OFFICERS, DIRECTORS, and 10-PERCENT BENEFICIAL OWNERS, as described in
Section 16(a), must return to the ISSUER any profit they realize from certain
security transactions that take place within a period of
less than six months. These profits, known as SHORT-SWING PROFITS, are
realized when an INSIDER buys and sells (or sells and buys) the issuer's EQUITY
SECURITIES within the prohibited six-month period.
SIGNIFICANT ROLE TEST. Test
used by the Ninth Circuit to determine whether primary liability exists. Using
this test, a secondary actor must have played a significant role in drafting
documents that contain material misstatements or omissions. This approach is
fairly broad; indeed, under this approach, it is possible for a secondary actor
to be primarily liable even if it did not make a misleading statement or
SILENT TRADING. Trading carried
on by an insider without revealing MATERIAL NONPUBLIC INFORMATION.
SINGLE-PRICE AUCTION SYSTEM. An
ALTERNATIVE TRADING SYSTEM (ATS) that
permits PARTICIPANTS to enter priced
orders that are then compared to determine the single price at which the largest
volume of orders can be executed. All orders are then matched and executed at
that price. The Arizona Stock Exchange (AZX) is a single-price auction
SMALL BANK. Rule 3a4-4
defines SMALL BANK to mean a bank that had less than $100 million in assets as of
December 31 in both of the prior two calendar years, and that has not been,
since December 31 of the third prior calendar year, an affiliate of a bank
holding company or financial holding company that, as of December 31 of both of
the prior two calendar years, had total assets of $1 billion on more.
SMALL BUSINESS INVESTMENT ACT OF 1958. Federal
legislation under which investment companies may be organized for supplying
long-term equity capital to small businesses. The Act is implemented by
the SMALL BUSINESS ADMINISTRATION.
SMALL BUSINESS ISSUER. The term
SMALL BUSINESS ISSUER is defined in
Rule 405. A small business issuer is either a U.S. or Canadian noninvestment
company issuer with revenues of less than $25,000,000. If the issuer is a
majorityowned subsidiary, the parent company may also qualify as a small
business issuer. To qualify as a small business issuer, however, the issuer's
aggregate market value of outstanding securities held by NONAFFILIATES (the PUBLIC FLOAT) must
not equal $25,000,000 or more.
SOLELY FROM THE EFFORTS OF OTHERS. This
is the last element of the HOWEY TEST, which
requires that the investor expect profits to come SOLELY FROM THE EFFORTS OF
OTHERS. Most courts have utilized a
broad construction of this phrase; that is, if the efforts of noninvestors are
significant, this element will be satisfied. If some effort was required from
the investors but that effort was minimal, the "solely from the efforts of
others" element will still be met.
SOLICITATION IN OPPOSITION. Generally,
any solicitation that opposes a proposal supported by the REGISTRANT. Rule 14a-6(a). The registrant does not need to support the
proposal expressly. However, a security holder proposal included in the PROXY
material pursuant to Rule 14a-8 is not considered a solicitation in
opposition even if the registrant expressly opposes the proposal.
SOLICITATION OF INTEREST MATERIALS. Written
documents or scripted radio and television broadcasts used to determine the
level of interest among prospective buyers. These materials are subject to the
antifraud provisions of securities laws and any solicitation or acceptance of
money from a potential investor is prohibited. SOLICITATION OF INTEREST MATERIALS are not
considered to be PROSPECTUSES under
SOLICITATION OF PROXIES. Any
request for a PROXY whether or not
accompanied by or included in a form of proxy; a request to execute or not to
execute, or to revoke a proxy; or the furnishing of a form of proxy or other
communication to security holders under circumstances reasonably calculated to
result in the procurement, withholding, or revocation of a proxy. Rule
SPECIAL PURPOSE EXAMINATIONS. A
series of limited examinations, conducted by the SEC's
Office of Compliance Inspections and Examinations, in carefully chosen areas
of regulatory interest to the SEC.
SPECIALIST. Performs the role
of MARKET MAKER for a particular stock traded at one of the TRADING POSTS.
SPECIFIED PROPERTY PROGRAMS. Programs
where more than 75 percent of the net proceeds from the sale of SECURITIES involves specific purchases or expenditures. Rule
17a-23(b)(3) defines SPONSOR as "any entity that organizes, operates, administers, or
otherwise directly controls a broker-dealer trading system." If,
however, the operator of the trading system is not a registered BROKER
or DEALER, then the term SPONSOR means
a registered broker or dealer that has a contract or some other type of
agreement or arrangement with the system operator to be materially involved on a
regular basis with executing transactions pertaining to the trading system,
except solely for its own account or as a PARTICIPANT in the BROKER-DEALER TRADING SYSTEM.
SPOOFING. To impersonate
another user (in electronic securities offerings). Use of electronic technology
may make INSIDER TRADING enforcement more difficult because people can use software to hide
their true identity or to alter the content of other people's e-mail or
other electronic communications.
SPOT. In COMMODITY TRADING
and FOREIGN EXCHANGE, immediate
delivery in contrast to a future delivery.
SPREAD. In STOCK AND COMMODITY
TRADING, the difference between the BID AND ASKED PRICE.
In ARBITRAGE, the difference between two markets in the price or value of a
currency. In FUTURES trading, the
difference between delivery months in the same or different markets. In
FIXED-INCOME SECURITIES, the
difference between yields on securities of the same quality but different
maturities or the difference between yields on securities of the same maturity
but different quality.
SRO INSPECTIONS. SRO
inspections evaluate how national securities exchanges are performing their
occurs when a person places a BID or effects a purchase in order to
"peg" or maintain a security's price.
STABILIZING ACTIVITIES. Stabilizing
activities involve the placing of a bid or the effecting of a purchase in order
to peg, fix, or maintain a security's price. Rule 100, Regulation M.
STABILIZING BID. A stabilizing
bid occurs when a person places a bid or effects a purchase in order to
"peg" or maintain a security's price. The term is defined in Rule
STANDARDIZED MARKET BASKET. A
group of at least 100 STOCKS that are
bought or sold in a single trade at a single trading location where physical
delivery and transfer of ownership of each component stock results. Rule
STANDBY ARRANGEMENT. Some
securities offerings are not arranged as either FIRM COMMITMENT UNDERWRITINGS
or BEST EFFORTS UNDERWRITINGS.
A STANDBY ARRANGEMENT is often
used when a company issues new COMMON SHARES
to existing SHAREHOLDERS in a
PREEMPTIVE RIGHTS OFFERING.
STATUTE OF LIMITATIONS. A
statute setting a time limit within which plaintiffs must commence their actions
to enforce their statutory remedies.
STATUTORY DISQUALIFICATION. Statutory
disqualification encompasses a wide range of infractions, including:
I . persons who have been
expelled or suspended from membership or from being associated with a member of
an SRO, the foreign equivalent of an SRO, a foreign or international securities
exchange; or a contract market pursuant to the COMMODITY EXCHANGE ACT or a
2. sec or other
regulatory agency orders denying, suspending, or revoking registration as a
BROKER or DEALER or barring or suspending association with a broker or dealer;
and COMMODITY FUTURES TRADING COMMISSION orders denying, suspending or revoking
registration under the COMMODITY EXCHANGE ACT and similar orders by foreign
3. findings by the SEC
or other regulatory authority that a person was a cause of another person's
suspension, expulsion, or order;
4. persons associating
with any person falling within one of the previously described categories if
those persons had knowledge of the other person's disqualification or should
have known through the exercise of reasonable care; and
of certain willful violations of Section 15(b) of the 1934 act.
STATUTORY PROSPECTUS. A
PROSPECTUS that summarizes the essential investment information in the
REGISTRATION STATEMENT and that accompanies or immediately precedes the delivery
of the SECURITY to the purchaser. Also known as a FINAL PROSPECTUS.
STAY OF PROCEEDING. The
temporary suspension of the regular order or proceedings in a cause, by
direction or order of the court.
STOCK. A SECURITY that has the
following characteristics: the right to receive dividends contingent upon
apportionment of profits; negotiability; ability to be pledged; voting rights
conferred in proportion to the number of shares owned; and the capacity to
appreciate in value.
STOCK OPTION. Included in the
definition of a SECURITY, a STOCK OPTION is the right to buy a designated stock,
if the holder of the option chooses, at any time within a specified period, at a
determinable price, or to sell a designated stock within an agreed period at a
STOCK PURCHASE PLAN. A STOCK
PURCHASE PLAN is an employee benefit plan that meets certain requirements under
the Internal Revenue Code. Specifically defined in Rule 16b, a stock purchase
plan must meet the coverage and participation requirements of Section 423(b)(3)
A partial or complete liquidation of corporate stock by the CORPORATION. It
generally consists of the corporation buying back its own stock. A public
corporation might redeem its stock for the purpose of GOING PRIVATE or as a
defense against a HOSTILE TAKEOVER.
STOCK REPURCHASE PLAN. A
program by which a CORPORATION buys back its own SHARES in the open market,
usually because it believes its shares are undervalued by the market.
STOCK RIGHTS. The privilege to
subscribe to new stock issues or to purchase stock. Usually, rights are
contained in SECURITIES called WARRANTS and the warrants can be sold to others.
A right to purchase stock issued PRO RATA to existing SHAREHOLDERS. Sometimes
issued on a "when, as, and if' basis; that is, the holder can buy the stock
when it is issued, on such basis or of such kind as is issued, and if it is
STOCK SPLIT. The issuance of a
number of new SHARES in exchange for each old share held by a STOCKHOLDER,
resulting in a proportional change in the number of shares owned by each
STOCK WARRANT. A certificate
that entitles the owner to buy a specified amount of stock at a specified time
for a specified price. They differ from STOCK OPTIONS only in that options
are generally granted to employees and warrants
are sold to the public. Warrants are typically long-period options,
are freely transferable, and, if the underlying SHARES are listed on a
SECURITIES EXCHANGE, are also publicly traded. See
also STOCK RIGHTS.
STOP BUY ORDER. Generally used
to limit loss or to protect unrealized profits on a short sale.
STOP ORDER. An order to buy
SECURITIES at a price above, or to sell securities at a price below, the current
STOP SELL ORDER. Generally used
to protect unrealized profits or limit loss on a holding.
STRADDLE. A strategy that
consists of combining an equal number of PUT OPTIONS and CALL OPTIONS on the
same underlying SHARE, INDEX, or COMMODITY FUTURE. A STRADDLE is a type of
HEDGE. In stockbrokers' parlance, the term means the double option position of a
PUT and a CALL in the same underlying STOCK, and secures to the holder the right
to demand of the seller at a certain price within a certain time a certain
number of SHARES of specified stock, or to require him to take, at the same
price within the same time, the same shares of stock.
STREET NAME. The term STREET
NAME means that, while the name of a BANK, BROKER-DEALER,
clearing agency, or another nominee appears as the holder, the SECURITIES
are BENEFICIALLY OWNED by another
SUBJECT OF AN INITIAL PUBLIC OFFERING (IPO). A
SECURITY is the subject of an IPO if
the security is offered under the 1933 ACT, and if the ISSUER was not subject to the reporting requirements of Section 13 or
15(d) of the 1934 ACT inunediately before filing the 1933 ACT REGISTRATION
STATEMENT. Section 12(f)(1)(G)(i)(1)
and (11). See also Section
SUBJECT SECURITIES. Securities
that are the subject of a WARRANT. Item
1000 of Regulation M-A defines subject securities as "the securities
or class of securities that are sought to be acquired in a transaction or that
are otherwise the subject of a transaction."
SUBSCRIPTION RIGHTS. Rights of
existing STOCKHOLDERS to purchase
additional STOCK, generally at a
price under market and in an amount proportionate to their existing holdings.
Also, the certificates evidencing such rights. See
SUBSTANTIAL U.S. MARKET INTEREST (SUSMI). A
Sum has different meanings depending on whether the securities are equity or
A Sum, with
respect to a class of an issuer's EQUITY SECURITIES,
means that either the securities exchanges and interdealer quotation systems
in the U.S. constituted the single largest market for the securities (during the
previous fiscal year or the period since the issuer's incorporation, whichever
is shorter); or 20 percent or more of all trading in the class of equity
securities took place through securities exchanges and interdealer quotation
systems in the U.S., and less than 55 percent of all trading took place through
the securities markets of a single foreign country (during the previous fiscal
year or the period since the issuer's incorporation, whichever is shorter). Rule
A SUSMI, with respect to a class of the issuer's DEBT SECURITIES,
means that the aggregate of an issuer's debt securities and nonparticipating
preferred stock are held by 300 or more U.S. PERSONS
of record; $1 billion or more of the aggregate of an issuer's principal
amount outstanding of debt securities, the greater of liquidation preference or
par value of nonparticipating preferred stock, and the principal amount or
balance of ASSET-BACKED SECURITIES is
held by U.S. persons of record; and 20 percent or more of the aggregate of an
issuer's principal amount outstanding of debt securities, the greater of
liquidation preference or par value of nonparticipating preferred stock, and the
principal amount or balance of asset-backed securities is held by U.S.
persons of record. Rule 901(n)(2).
SUMMARY PROSPECTUS. Section
5(b)(2) makes it unlawful for an ISSUER to distribute a SECURITY, either for
sale or for delivery to the buyer after a sale unless the security is
accompanied or PRECEDED BY A PROSPECTUS. This type of PROSPECTUS is known as a
SUMMARY PROSPECTUS because Section 10(b) permits certain information to be
summarized or omitted. Whether or not a summary prospectus may be used generally
depends on whether the applicable form used to register the securities provides
for its use and whether the conditions in Rule 431 are met.
SWEEP EXAMINATION. These
examinations are conducted by several examination teams from the SEC's Office of
Compliance Inspections and Examinations; they are conducted simultaneously to
provide regulatory oversight for particular geographic areas or industry
SYNDICATE COVERING TRANSACTION. A
bid is placed or a purchase effected on behalf of the sole distributor or the
underwriting syndicate to reduce a SHORT POSITION pertaining to or created with
the OFFERING. Rule 100, Regulation M.
SYSTEM ORDERS. An order or
other indication that is submitted by a system participant into the
BROKER-DEALER TRADING SYSTEM to announce an interest in buying or selling
a SECURITY. A SYSTEM ORDER does not include inquiries or mere indications of
interest. Rule 17a-23(b)(2).
RULE. A general rule that payment of funds and delivery of SECURITIES must
be completed no later than the third business day after the date of the sale or
purchase contract, unless expressly agreed to by the parties. Rule 15c6-1.
TAG. In electronic filing, a
TAG is a label that identifies specific information to the EDGAR system and that
is designated by placing brackets on either side of the term, such as
<LOGIN-PASSWORD> or <SHARES>. The end of a tag contains a
"/”. Thus the beginning of the shares tag would be signified by
<SHARES> and the end of the shares tag would be signified by
</SHARES>. Each electronic submission must end with an
"end-of-submission" tag </SUBMISSION> or it will be
TAKEOVER BID. An attempt by an
outside corporation or group, usually called the aggressor or
"insurgent," to wrest control away from incumbent management of the
TARGET COMPANY. A takeover attempt may involve purchase of SHARES, a TENDER
OFFER, a sale of assets, or a proposal that the target merge voluntarily into
the aggressor. See LEVERAGED BUYOUT, GOLDEN PARACHUTE, GREENMAIL, POISON PILL,
TENDER OFFER, TARGET COMPANY, WHITE KNIGHT.
TARGET COMPANY. Company
attempted to be taken over in TENDER OFFER, LEVERAGED BUYOUT, or other type of
takeover or acquisition attempt. See TAKEOVER
BID, TENDER OFFER.
TAX-CONDITIONED PLANS. QUALIFIED
PLANS, EXCESS BENEFIT PLANS, or STOCK PURCHASE PLANS. Each of these plans is
specifically defined in Rule 16b-3.
TENDER OFFER. An offer or
invitation by an outside bidder to buy, for cash and/or other SECURITIES, a
class of SECURITIES from the security holders that own them. Tender offers are
often used by outside bidders to gain control of a PUBLICLY HELD COMPANY by
offering an amount at a premium above the shares' market price. CORPORATIONS may
also use tender offers to reduce the amounts of its outstanding COMMON STOCK.
Tender offers by outside bidders are usually attempts at HOSTILE TAKEOVERS of a
The WILLIAMS ACT
was adopted in 1968 to regulate TENDER OFFERS and similar significant
acquisitions of publicly traded equity securities and added Section 13(d), (e),
(f), and (g) and Section 14(d), (e), and (f) to the 1934 ACT. Tender offers by
ISSUERS are governed by Section 13(e); tender offers by third parties are
regulated by Section 14(d) and 14(e) and Regulation 14D and 14E.
TESTING THE WATER. A method of
determinina the level of interest amona prospective buyers through written
documents or scripted radio and television broadcasts prior to filing the
OFFERING STATEMENT. See also SOLICITATION
OF INTEREST MATERIALS.
THIRD-MARKET TRADING. The
OVER-THE-COUNTER MARKET (OTC) is primarily a market for UNLISTED
SECURITIES, which the NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD) has been
empowered to regulate. However, a security listed on a registered NATIONAL
SECURITIES EXCHANGE may be traded through NASDAQ; this is referred to as
THIRD-PARTY STOCK TENDER OFFERS. Exchange
TIP. Refers to advance or
inside information passed by one person (a TIPPER) to another (a TIPPEE) as a
basis for a decision to buy or sell a SECURITY. Such information is presumed to
be of material value and not available to the general public. The SEC prohibits
trading on the basis of such information by insiders. See
also INSIDER, INSIDER TRADING, TIPPEES, and TIPPER.
TIPPEES. The term INSIDER also
includes TIPPEES, those persons that receive a TIP from an insider when the
insider discloses material nonpublic information. See
TIPPEE LIABILITY. TIPPEE
LIABILITY may only arise where trading is made in violation of a fiduciary,
contractual, or similar obligation that runs to the owner or possessor of the
information. For example, if the TIPPER has a fiduciary duty, there could be
DERIVATIVE LIABILITY for the tippee if the tippee knows, or reasonably should
have known, that the TIPPER breached its fiduciary duty.
TIPPER. A person who possesses
MATERIAL INSIDE INFORMATION and who makes selective disclosure of such
information for trading or other personal purposes. See
also INSIDER, TIP, and TIPPEES.
TOMBSTONE AD. An advertisement
for a SECURITY, published during the waiting period of the REGISTRATION. See
also RED HERRING.
TOTAL ASSET TEST. An INVESTMENT
COMPANY may include the assets of any FAMILY OF INVESTMENT COMPANIES of which it
is a part when determining if it meets the total asset test. Rule
TOTAL ASSETS. TOTAL ASSETS as
reflected on an ISSUER's balance sheet, which has been prepared in accordance
with Regulation S-X; it does not mean "net" assets. If the
issuer has subsidiaries, TOTAL ASSETS means the larger of total assets on the
issuer's balance sheet or the consolidated parent-subsidiary balance
sheet. Rule 12g5-2.
TRADER. One who, as a member of
a STOCK EXCHANGE, buys and sells on the floor of the exchange either for BROKERS
or on his own account. In a commodity market, one who buys and sells COMMODITIES
(e.g., grain) and COMMODITY FUTURES for others and for his own
account in anticipation of a speculative profit. See also BROKER, DEALER.
TRADING POSTS. On an EXCHANGE,
specific locations where stocks are traded.
TRANCHES. Classes of bonds.
TRIER OF FACT. Term includes
both the jury and the court when the court is trying an issue of fact other than
one relating to the admissibility of evidence. The jury is instructed to answer
special interrogatories or, in a bench trial, the judge must make findings.
TRUE INSIDERS. The term TRUE
INSIDERS includes such people as OFFICERS and DIRECTORS.
TRUST INDENTURE. The document
that contains the terms and conditions that govern the conduct of the trustee
and the rights of the beneficiaries. Commonly used when a corporation floats
TRUST INDENTURE ACT OF 1939.
This Act is intended to protect purchasers of publicly offered DEBT
SECURITIES issued under TRUST INDENTURES. It requires that the TRUST INDENTURE
be approved by the SEC and include certain protective clauses and exclude
certain exculpatory clauses, and that trustees be independent of the issuing
company. The SEC's Division of Corporate Finance examines TRUST INDENTURES for
compliance with the TRUST INDENTURE ACT.
UNCERTIFICATED SECURITY. Defined
in Rule 17f-1(a)(2), an UNCERTIFICATED SECURITY
is one that is not represented by an instrument and whose transfer is
registered upon books maintained for this purpose by or on behalf of the issuer.
UNCONTROLLED OFFERING. An
offering of SECURITIES to the public
on a random basis by selling STOCKHOLDERS
through any number of BROKERS who
are willing to assist such persons.
UNDERLYING SECURITIES. Securities
that relate to or are the subject of an OPTION.
UNDERWRITE. To agree to sell
BONDS, etc., to the public, or to furnish the necessary money for such
SECURITIES, and to buy those that
cannot be sold.
UNDERWRITER. As broadly defined
in Section 2(11), an UNDERWRITER includes
any person that has purchased SECURITIES from
an ISSUER with a view to, or offering
or selling for an issuer in connection with, the distribution of any security.
Traditionally, the interpretation of the term UNDERWRITER focused on the phrase "with a view to." While banking
firms clearly can be underwriters within the 1933 ACT, the rules state that an
individual investor may also be deemed an underwriter even if the investor is
not a professional in the securities industry. Individual investors may be
underwriters if they act as a link in a series of transactions in which
securities move from an issuer to the public.
In the context of
an initial public offering (IPO), an UNDERWRITER
is an INVESTMENT BANKER that
assumes the risk of bringing a new securities issue to market.
As defined in
Rule 100(b), the term UNDERWRITER includes
any person that has made an agreement with an ISSUER
or SELLING SECURITY HOLDER to buy
securities for distribution; distribute securities for or on the issuer's or
selling security holder's behalf; or manage or supervise a DISTRIBUTION
of securities for or on the issuer's or selling security holder's behalf.
Rule 133 also contains three sections that discuss persons who are deemed to be
underwriters under Section 2(11).
As used in Rule
15c2-12, the term UNDERWRITER generally
means any person that has bought MUNICIPAL SECURITIES
from an ISSUER with the purpose
of offering the municipal securities for sale or is participating in such an
undertaking. An underwriter does not include persons whose interests are limited
to a commission or allowance from an underwriter, BROKER, DEALER,
or MUNICIPAL SECURITIES DEALER that
does not exceed the usual and customary distributors' or sellers' commission or
UNDERWRITING AGREEMENT. Agreement
between a CORPORATION and an UNDERWRITER covering the terms and conditions of a
new issue of SECURITIES to be offered to the public. See
UNDERWRITING CONTRACT. An
agreement, made before CORPORATE SHARES are brought before the public, that in
the event of the public not taking all the shares of the number mentioned in the
agreement, the UNDERWRITER will take the shares that the public does not take;
UNDERWRITING being a purchase, together with a guaranty of a sale of the BONDS. See also CORPORATE SHARES, OFFERING, PUBLIC OFFERING; PROSPECTUS;
UNDERWRITING GROUP. A syndicate
formed by an UNDERWRITER to spread the risk (that the underwriter may not sell
all of the SECURITIES it bought from an ISSUER) among several investment firms.
UNDERWRITING SPREAD. The
difference between the selling price to the public of a new SECURITY offering
and the proceeds received by the offering firm (also termed an
UNDIGESTED OFFERING. Newly
issued shares and bonds that remain undistributed because there is insufficient
public demand at the offer price. See also
UNDUE CONCENTRATION. Money
market instruments, SECURITIES of a single class or series of an ISSUER, and
securities underwritten that are long or short in a BROKER's or DEALER's
proprietary or other accounts that have a market value of more than 10 percent
of the broker's or dealer's NET CAPITAL.
UNIFORM SECURITIES ACT OF 1956.
Many states model their securities statutes after this act or the REVISED
UNIFORM SECURITIES ACT OF 1985, both of which were drafted by the National
Conference of Commissioners on Uniform State Laws. However, state securities
laws do not have to match their federal counterparts and some states have
enacted their own securities statutes.
UNIT INVESTMENT TRUST. An
INVESTMENT COMPANY organized under a TRUST INDENTURE, contract of custodianship
or agency, or similar instrument. The most common form of organization is the
TRUST INDENTURE. The holder of SHARES in this investment vehicle has an
undivided interest in a fixed pool of SECURITIES held by the trustee or
custodian. See also definition in INVESTMENT COMPANY ACT OF 1940.
UNITED STATES (U.S.) The United
States of America, any State, the District of Columbia, and any possession or
territory of the United States of America.
UNITED STATES CODE CONGRESSIONAL AND ADMINISTRATIVE NEWS
(USCCAN). A general reference that provides the text
only of congressional reports.
UNLICENSED BANK PASSBOOKS. Savings
passbooks issued to investors by a selfdescribed "bank" are SECURITIES where the "bank" was not licensed and the investors
earned dividends from investing in pooled funds.
UNLISTED SECURITY. An
OVER-THE-COUNTER (OTC) SECURITY
that is not listed on a STOCKEXCHANGE.
U.S. ENTITY. An entity that has
its principal place of business in the U.S. or is organized under U.S. law.
U.S. PERSON. Includes NATURAL
PERSONS residing in the United States; partnerships or corporations
organized or incorporated under U.S. law; ESTATES that have U.S. persons as executor or administrator; TRUSTS
that have U.S. persons as trustee; agencies or branches of foreign entities
located in the U.S.; nondiscretionary accounts (other than estates or trusts)
held by a dealer or other fiduciary for the benefit or account of a U.S. person;
discretionary accounts (other than estates or trusts) held by a dealer or other
fiduciary organized, incorporated, or residing in the U.S.; and partnerships or
corporations organized or incorporated under foreign law but formed by a U.S.
person primarily for investing in nonregistered securities (unless owned by
ACCREDITED INVESTORS as defined in
Defined in Rule
902(o) as natural persons residing in the U.S.; partnerships or corporations
organized or incorporated under U.S. law; estates that have U.S. persons as
executor or administrator; trusts that have U.S. persons as trustee; agencies or
branches of foreign entities located in the U.S.; nondiscretionary accounts
(other than estates or trusts) held by a dealer or other fiduciary for the
benefit or account of a U.S. person; discretionary accounts (other than estates
or trusts) held by a dealer or other fiduciary organized, incorporated, or
residing in the U.S.; and partnerships or corporations organized or incorporated
under foreign law but formed by a U.S. person primarily for investing in
nonregistered securities (unless owned by ACCREDITED INVESTORS as defined in Rule 501(a)).
VERTICAL COMMONALITY TEST. One
of two tests developed by lower Federal courts to determine whether or not the
COMMON ENTERPRISE element of the HOWEY TEST has been satisfied. The VERTICAL
COMMONALITY TEST is satisfied if there is a relationship between the investor
and the promoter of an investment. Some courts apply the vertical commonality
test strictly; that is, the investor's fortunes are tied to the promoter I s
fortunes. Other courts apply the test broadly; that is, the investor's fortunes
are linked to the promoter's efforts. See
also HORIZONTAL COMMONALITY TEST, INVESTMENT CONTRACT.
VOTING STOCK. In corporations,
that type of stock that gives the holder the right to vote for DIRECTORS and
other matters in contrast to NONVOTING STOCK that simply entities the holder to
dividends, if any. COMMON STOCK is normally voting stock.
VOTING TRUST CERTIFICATES.
Certificates issued by voting trustees to the beneficial holders of SHARES held
by the voting trust. Such certificates may be as readily transferable as the
underlying shares, carrying with them all the incidents of ownership of the
underlying shares except the power to vote.
WAITING PERIOD. The second
period of the REGISTRATION process, usually 20 days in length, which begins when
the ISSUER files the REGISTRATION STATEMENT with the SEC.
WARRANT. Any warrant or
certificate evidencing the right to subscribe or acquire another SECURITY,
whether issued or unissued. Rule 12a-4(a)(1). See
also STOCK WARRANT.
WEB CRD. A new
Internet-based CENTRAL REGISTRATION DEPOSITORY (CRD). WEB CRD will replace
the current CRD system, originally created in 1981. WEB CRID is designed to
facilitate one-stop filing for BROKER-DEALERS and their associated
personnel. See also CENTRAL
REGISTRATION DEPOSITORY (CRD).
WHILE ON THE FLOOR (OF SUCH EXCHANGE). The
trading floor, the rooms, lobbies, other exchange premises adjacent to these
areas that are for use by members generally or are made available primarily for
use by members generally. It also applies to the telephone and other facilities
in any of these exchange areas.
WHITE KNIGHT. In a HOSTILE
TAKEOVER bid, the white knight is a buyer friendly to the TARGET COMPANY's
management, who will try to obtain OPTIONS on blocks of SHARES owned by the
TARGET COMPANY'S shareholders to assure the success of the bid. If the bid
fails, the LOCK-UP OPTION would allow the white knight to buy a large
block of the target company's stock at a very favorable price or purchase the
target's CROWN JEWEL ASSETS.
WHOLE LOAN MORTGAGES. See
AGGREGATED WHOLE LOAN MORTGAGES.
WILLIAMS ACT. A securities law
that regulates, among other things, such corporate takeover techniques as TENDER
OFFERS. Adopted in 1968 to regulate tender offers and similar significant
acquisitions of publicly traded EQUITY SECURITIES, the WILLIAMS ACT added
Sections 13(d), (e), (f), and (g) and 14(d), (e), and (f) to the 1934 ACT.