GLOSSARY OF SECURITIES TERMS

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 15g-1(a)(1).

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 categories:

1.         foreign entities that distribute or publish information regarding transactions on a foreign market; or

2.         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 in securities.

2.         The term ACCREDITED INVESTOR includes noninstitutional investors, such as the following:

a) any of the issuer's DIRECTORS, executive officers, or general partners;

b) 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

c) 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 ACT.

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 REGISTRANT.

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 securities.

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 15c2-1(d).

AGGREGATE OFFERING PRICE. The total of all cash and other consideration does not exceed $5,000,000. Regulation A.

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.

AGREEMENT-IN-PRINCIPLE TEST. 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 16b-7(a).

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. Rule 3a4-1(c)(1)(i)-(iv).

Under Rule 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.

 Under Rule 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.

AT-THE-MARKET. Order to a BROKER to buy or sell a STOCK at the current market price, rather than at a specified price. See MARKET ORDER

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 securities

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 banks.

BANKER'S ACCEPTANCE. Short-term credit instruments most commonly used by persons or firms engaged in international trade.

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).

BENEFICIAL 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 PLAN.

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 basis.

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 15g-3(c)(1).

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 15c3-3(c)(3).

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 areas."

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.

BROKER-DEALER. A 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 17a-23(b)(2).

BROKERS' TRANSACTIONS. 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 PROXY.

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.

CALL OPTION. 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.

CALL PRICE. The price at which a BOND may be retired, or called, prior to its maturity. See also REDEMPTION.

CAPITAL STOCK. Shares of stock that represent ownership of a business including PREFERRED STOCK and COMMON STOCK.

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 such writ.

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 LIABILITY.

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 hybrid products.

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 STOCK.

COMMON SHARES. See COMMON STOCK.

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 completed.

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 purchases.

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), or (c)(6).

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 SECURITIES EXCHANGE 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 foreign corporation.)

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.

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 investment.

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.

New Rule 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.

CUSTOMER. Rule 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 related corporation.

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 presently exercisable.

DERIVATIVES. See DERIVATIVE SECURITY.

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 COMPENSATION.

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 programs.

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 PRIVATE PLACEMENT.

DIRECTED SELLING 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 advertisement.

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 incorporated.

DISCRETIONARY TRANSACTIONS. Transactions made pursuant to an EMPLOYEE BENEFIT PLAN that are not required by the plan provisions or the Internal Revenue Code. See Rule 16b-3(b)(1).

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. Rule 902(c).

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 Rule 502(a).

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 plaintiff.

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 functions.

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 Corporation.

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 PLAN.

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 holders.

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.