Glossary

Answer - A respondent's written reply to a claim.

Arbitration - A method where conflict between two or more parties is resolved by impartial persons - arbitrators - who are knowledgeable in the areas in controversy.

Arbitrator - A private, disinterested person chosen to decide disputes between parties.

Associated Person - An associated person is any person engaged in the investment banking or securities business who is directly or indirectly controlled by an FINRA member, whether or not they are registered or exempt from registration with FINRA. An associated person includes, but is not limited to, every sole proprietor, partner, officer, director, or branch manager of any FINRA member.

Award - The written determination of the arbitrator(s).

Bear and Bull Markets - A bear market is one in which prices are low or declining; a bull market is one in which prices are high or rising.

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

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

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

Broker - An individual or firm who acts as an intermediary between a buyer and seller, usually charging a commission.

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

Claim - A demand for money or other relief.

Claimant - A person making a claim.

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

Common Stock - A class of securities representing ownership and control in a corporation and that may pay dividends as well as appreciate in value.

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

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

Counsel - An attorney who advises and represents a party in an arbitration.

Counterclaim - A claim against the claimant.

Cross-Claim - A claim by a respondent against a co-respondent previously named by the claimant.

Customer - A person or entity that transacts business with any investment or brokerage firm.

Discretionary Account - An account empowering a broker or adviser to buy and sell without the client's prior knowledge and consent.

Dividend - Distributions to stockholders of cash or stock declared by the company's board of directors.

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

Ex Parte Communication - Communication by one party only with the arbitrator.

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

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

Filing - Delivery to the director of arbitration of the statement of claim or other pleadings, to be kept on file as a matter of record and reference.

FINRA - Financial Industry Regulatory Authority - The Financial Industry Regulatory Authority (FINRA) is the largest non-governmental regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 5,000 brokerage firms, about 172,000 branch offices and approximately 665,000 registered securities representatives. Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.

Forum Fee - Fee charged by FINRA (or other forum) for the use of its facilities and the arbitrators’ time.

Initial Public Offering (IPO) - A company's first sale of stock to the public. Companies making an IPO are seeking outside equity capital and a public market for their stock.

Injunctive Relief - An order by a court directing a party to act or refrain from acting in a certain manner, usually in the form of a temporary restraining order or preliminary injunction. Under Rule 10335, parties in intra-industry cases (no public party) may seek temporary injunctive relief from a court, but must simultaneously file a statement of claim for permanent injunctive relief and other forms of relief in arbitration. If a court issues a temporary injunctive order, the arbitration on the underlying claim will be expedited. Rule 10205(h) provides that in such cases, the party requesting temporary injunctive relief in court must pay a $2,500 non-refundable surcharge.

Investor - A person who buys or sells securities for his or her own account or the account of others.

Limit Order - An order to buy or sell a security at a customer-specified price; a customer order to buy or sell a specified number of shares of a security at a specific price.

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

Margin - An account in which a customer purchases securities on credit extended by a broker/dealer. Rules of the Federal Reserve Board and FINRA govern margin accounts.

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

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

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

Member Firm - The term “member firm” means any partnership, corporation or other legal entity admitted to membership in FINRA. The term "member firm" may include firms that are not members of FINRA.

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

Panel - The arbitrator(s) who decide(s) a dispute.

Party - A person or broker/dealer making or responding to a claim in an arbitration proceeding.

Pleadings - The claim, answer, counterclaim, and/or third-party claim and/or cross-claim filed in an arbitration.

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

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

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

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

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

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

Put - A bondholder's right to redeem a bond before maturity; a contract that grants the right to sell at a specified price a specified number of shares by a certain date.

Quarterly Report (Form 10 Q) - A report, required by the SEC of publicly held companies, filed quarterly, that provides unaudited financial information and other selected material.

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

Respondent - The person against whom a claim is made.

Secondary Market - Markets where securities are bought and sold subsequent to original issuance.

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

Service - Delivery of the statement of claim or other pleadings to those parties named in the arbitration.

Settlement Date (T+3) - The date specified for delivery of securities between securities firms, usually three business days after the execution of an order.

Stock - An instrument that signifies an ownership position in a corporation.

Stock Symbol - A unique one to five letter symbol assigned to a security that is used for identifying it on stock tickers, in newspapers, on on-line services, and in automated information retrieval systems.

Stop-Loss Order - A customer order to a broker that sets the sell price of a stock below the current market price, therefore protecting profits that have already been made or preventing further losses if the stock drops.

Subpoena - An order for a witness to appear at a particular time and place to testify. A subpoena for production of documents in the control of the witness is called a "subpoena duces tecum."

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

Third-Party Claim - A claim by the respondent against a party not already named in the proceeding.

Unauthorized Trading - The purchase, sale or trade of securities in an investor's account without the investor's prior authorization.

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

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

Unspecified Damages - A claim for an unknown or undisclosed amount of money or other relief.

Volatility - The degree of price fluctuation for a given asset, rate, or index. Usually expressed as a variance or standard deviation.

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

Copyright @ 2009 Michie Hamlett Lowry Rasmussen & Tweel, PLLC