COMMON TERMS USED IN ARBITRATION PROCEEDINGS

Answer - A respondent's written reply to a claim. This happens before the arbitration hearing.

Administrator - The person at the sponsoring organization who handles administrative matters in arbitration proceedings.

Arbitrator - The person who decides disputes between parties. The arbitrator is typically appointed by the parties who rank lists of prospective arbitrators prepared by the arbitration forum. In some cases there is only one arbitrator; in others there is a panel of three.

Award - The written determination of the arbitrator. It specifies how much money is to be paid by whom and when.

Claim - A demand for money or other relief. An official claim is written and delivered to the respondent. It is like filing suit in court.

Claimant - A person making a claim. This is analogous to a plaintiff in a lawsuit.

Counsel - An attorney who advises 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.

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.

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

Party - A person or broker/dealer making or responding to a claim.

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

Respondent - The person against whom a claim is made. This is analogous to a defendant in a tort lawsuit.

Service - Delivery of the Statement of Claim or other pleadings to those parties named in the arbitration.

SRO - A self-regulatory organization. In securities arbitration, an SRO is a securities association or securities exchange such as the New York Stock Exchange (NYSE) or the Financial Industry Regulatory Authority (FINRA).

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

RELATED TERMS

Account executive - The brokerage firm employee who handles stock orders for clients

Agency - Buying or selling for the account and risk of a customer. Generally, an agent, or broker, acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service. The broker represents a customer buyer/seller to a customer seller/buyer and does not act as principal for the firm's own trading account.

Annual Report - Sometimes called the 10-K - This is the principal document used by public companies to communicate financial information to shareholders. It includes financial data organized into one or more balance sheets, income statements, and cash flow statements. Narrative information on subsidiary activities, product plans, important operating information, and, if applicable, research and development activities. The SEC requires that public corporations file this report within 90 days of the end of the company's fiscal year.

Annuity - An investment that entitles the annuity holder to regular periodic payments for a specified period of time. Often issued by insurance companies to raise money.

Bond - Debt issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.

Broker - An individual who executes customer purchases and sales, usually for a commission. “Floor brokers” execute orders on the floor of the exchange. “Retail” or “upstairs” brokers handles retail customers (small investors) and their orders.

The word broker more generally refers to anyone who acts as an intermediary between a buyer and seller, usually charging a commission. Brokers who specialize in securities must be registered with the exchange where the securities are traded. A broker is not the same as a dealer.

Churning - Excessive trading of a client's account in order to increase the broker's commissions.

Commission - The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or their dollar value. In 1975, deregulation led to the establishment of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock.

Dealer - An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). Individual or firm acting as a principal in a securities transaction. Principals are market makers in securities, and thus trade for their own account and risk.

Discretionary account - Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.

Discretionary fund - A mutual fund or unit trust whose management decides on the best way to use the assets without restriction to a specific type of security.

Management fee - An investment advisory fee charged by the financial adviser to a fund typically on the basis of the fund's average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.

Margin call - A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance.

Margin account (stocks) - A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock; if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Market maker - Company or person who maintains firm bid and offer prices in a given security by standing ready to buy or sell round lots at publicly quoted prices.

Perpetuity - A constant stream of identical cash flows without end.

Portfolio - A collection of investments, real and/or financial. In the context of securities arbitration, usually refers to a the investments kept in trust at the brokerage as part of the investor's account

Power of attorney - A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit.

Preferred stock - A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights. Preferred stock has characteristics of both common stock and debt.

Principal - (1) The total amount of money being borrowed or lent. (2) The party affected by agent decisions in a principal-agent relationship.

Prospectus (Sometimes called the S-1, F-1, SB-1, or Red Herring) - A formal written document offering to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.

Small business - For SEC purposes, small businesses are defined as domestic companies with revenues of under $25 million, and not investment companies. Subsidiaries of larger companies do not qualify as small businesses.

Schedule - A list of information required by SEC regulations. Analagous to "schedules" in tax returns. Sometimes the name of the schedule matches the name of a similar rule (e.g. Schedule 13D is mandated by Regulation 13D of the Securities and Exchange Act.)

Securities and Exchance Act of 1934 - All companies whose securities are registered on a national exchange and all other companies with assets exceeding $10 million with a class of equity securities held by 500 or more persons, this company must register under the Act. The registration creates a public file containing material financial and business information on the company for use by investors and others, and also obliges the company to keep the information up to date with regular reports.

Specialist - On an exchange, the member firm that is designated as the market maker (or dealer for a listed common stock). Member of a stock exchange who maintains a "fair and orderly market" in one or more securities. Only one specialist can be designated for a given stock, but dealers may be specialists for several stocks. In contrast, there can be multiple market makers in the OTC market. Major functions include executing limit orders on behalf of other exchange members for a portion of the floor broker's commission, and buying or selling for the specialist's own account to counteract temporary imbalances in supply and demand and thus prevent wide swings in stock prices.

Wrap account - An investment consulting relationship for management of a client's funds by one or more money managers, that bills all fees and commissions in one comprehensive fee charged quarterly.

Difference between the SEC and the NASD

State regulation of investment advisers