Active
A security eligible for the OTC Bulletin Board® (OTCBB) that meets the frequency of quotation
requirement or the so-called "piggyback" exception. Once the frequency of quotation or piggyback
exception has been satisfied, authorized participants may register on-line in a security. As long as the
security remains active, any participant may quote the security without a Form 211 submission.
American Depositary Receipt (ADR)
A U.S. security that is actually a repackaged form of a foreign security. A U.S. bank creates an ADR based
on evidence of ownership of a specified number of shares in the foreign security, while the underlying shares
are held in a depositary in the issuing company's home country. The certificate, transfer, and settlement
practices for ADRs are identical to those for U.S. securities. U.S. investors often prefer ADRs over the direct
purchase of foreign shares because of the ready availability of price information, lower transaction costs,
and timely dividend distribution. Additionally, some U.S. investment institutions are not permitted to invest in
non-U.S. securities, but may invest in ADRs.
Ask or Offer Price
The price at which a Market Maker is willing to sell a security.
Automated Confirmation Transaction ServiceSM (ACTSM )
ACT is an automated service that speeds the post-execution steps of price and volume reporting and
comparison and clearing of pre-negotiated trades completed in Nasdaq® and OTCBB securities. ACT
handles transactions negotiated over the phone or executed through any of Nasdaq's automated trading
services.
Best Ask
The lowest quoted offer of all competing Market Makers to sell a particular stock at any given time.
Best Bid
The highest quoted bid of all competing Market Makers to buy a particular stock at any given time.
Bid or Buy Price
The price at which a Market Maker is willing to buy a security.
Block Trade
A purchase or sale of a large quantity of stock, generally, 10,000 shares or more.
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
securities professionals.
Clearing
The process of reporting a trade to ACT for comparison of the details of the transaction between brokers
prior to final settlement; the final exchange of securities for cash on delivery. Clearing operations, such as
the National Securities Clearing Corporation (NSCC), facilitate the validation, delivery, and settlement of
securities transactions. Trades are either reported by the broker to the clearing corporation directly or
through a third party, usually another brokerage firm if a broker does not have a direct relationship with a
clearing corporation.
Common Stock
A class of securities representing ownership and control in a corporation and that may pay dividends as well
as appreciate in value.
CUSIP Number
A unique nine-character alpha/numeric code assigned to a security by Standard & Poor's Corporation,
which appears on the face of each certificate. The primary use of the number is to expedite the clearance
and settlement process. CUSIP stands for Committee on Uniform Security Identification Procedures. The
telephone number for the CUSIP Service Bureau is (212) 208-8341.
Depositary Bank
When a company decides to issue American Depositary Receipts, it appoints an authorized depositary,
normally part of a large U.S. banking institution or trust company.
Direct Participation Programs (DPP)
Limited Partnership agreements that provide a flow-through of tax consequences to the participants.
EDGAR
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) is an electronic system developed by the
Securities and Exchange Commission (SEC). EDGAR permits companies to electronically file documents
required for securities offerings and ongoing disclosure obligations with the SEC. EDGAR became fully
operational mid-1995.
Eligible
A security for which one or more Market Makers has received clearance to quote the issue on the OTCBB
in the last 30 days. Securities receive eligible status if they are cleared following the filing of a Form 211 or a
15c2-11 Exemption Form. A frequency of quotation test (see also "active") is administered during the
eligible period. Until the test is satisfied, any other Market Maker that wishes to quote the issue must also
submit a completed Form 211.
Equity
The ownership interest of stockholders in a company.
Federal Reserve System
A federal government institution created by Congress to administer the nation's credit and monetary
policies. Among other things, the Board of Governors of the Federal Reserve System sets the initial amount
of credit that broker/dealers (as well as other lenders) may extend to customers to purchase securities.
Firm Quotation
The NASD® requirement that a Market Maker receiving an order from another broker/dealer execute it at the
price it displays on the OTCBB.
Held
A situation where a security is temporarily not available for trading. Market Makers are not allowed to
display quotes of held securities.
Indicative
A quote that is non-firm. All quotes displayed by Market Makers in OTCBB issues are required to be firm,
with the exception of DPPs which are limited to indicative quotes only.
Individual Investor
A person who buys or sells securities for his or her own account. The individual investor is also called a
retail investor or retail shareholder.
Ineligible
Securities not quoted on the OTCBB. A Form 211 and two copies of the issuer's information must be filed
with the NASD Regulation, Inc. OTC Compliance Unit no less than three business days prior to the
publication on the OTCBB in order to obtain clearance that will grant the security OTCBB-eligible status.
Inside Market
The highest bid and lowest ask (offer) prices among all Market Makers in a security.
Institutional Investor
A bank, mutual fund, pension fund, or other corporate entity that trades securities in large volumes.
Level I, II, III Subscriptions
Trading firms interested in participating in the OTCBB or The Nasdaq Stock MarketSM choose between the
following three subscription levels, depending on the functionality required: viewing market information,
reporting trades, or entering quotes on Nasdaq and OTCBB stocks.
Level
Capabilities
Equipment Options
Typical Subscriber
I
Query only
Market data vendor terminal
Finance professionals
Other interested parties
II
Query and
order entry
NWII
Private trading service device
Market data vendor terminal
Order-entry firms
Financial institutions
III
Query, order entry,
and quotation
NWII
Nasdaq and OTCBB
Market Makers
Level I Subscription
Level I disseminates OTCBB and Nasdaq quote data worldwide through a variety of participating
market data vendors.
Level II Subscription
Level II allows for querying and order-entry of trades on The Nasdaq Stock Market by NASD member
firms through either a Nasdaq Workstation II or a private trading service device. Subscribers can:
Enter and execute orders in all Nasdaq automated services.
Access Nasdaq and OTCBB information.
View:
daily statistical and index-related information;
share and dollar volume leaders, net gainers and losers;and
high, low and closing values for the Nasdaq CompositeSM Index, the Nasdaq-100
Index®, the Nasdaq-Financial Index and Nasdaq National Market® securities.
Report trades in Nasdaq National Market, The Nasdaq SmallCap MarketSM, and OTCBB
stocks within 90 seconds of execution.
Level III Subscription
Level III provides all the functionality of a Level II subscription, plus the capability to enter quotations
for individual securities through Nasdaq Workstation IITM. Subscribers can:
Enter, retrieve, monitor, and adjust quotations in response to changing market conditions for
both OTCBB and Nasdaq securities.
Enter and execute orders in all Nasdaq automated services.
Report, compare, and clear trades through automated services.
Liquidity
The liquidity of a stock is the ease with which the market can absorb volume buying or selling, without
dramatic fluctuation in price.
Locked or Crossed Quotations
A temporary condition, normally associated with fast-moving, active markets, where the ask price of one
Market Maker in a given security is the same or lower than the bid price of another Market Maker, thereby
producing locked or crossed quotations, respectively. Trading continues to occur.
Market Marker
An NASD member firm that buys and sells OTCBB securities, at prices it displays on the OTCBB, for its
own account and risk, as well as for its customers. There are more than 420 member firms that act as
OTCBB Market Makers.
The Nasdaq Stock Market
The Nasdaq Stock MarketSM is a major national and international stock market that uses computers and
telecommunications for the trading and surveillance of thousands of securities. The Nasdaq Stock Market is
built on a unique system of competing Market Makers that list specific prices for the sale or purchase of
securities. The Nasdaq Stock Market also is unique in its use of a flexible computer-based trading system
that enables people to trade by computer from wherever they are located. The OTCBB is separate and
distinct from The Nasdaq Stock Market. Unlike Nasdaq listed companies, OTCBB issuers have no minimum
listing requirements, maintenance requirements, or reporting obligations to The Nasdaq Stock Market, Inc.,
or the NASD.
Nasdaq Workstation II
A computerized trading tool for Market Makers, brokers, and institutions, comprised of a personal computer
and NASD-developed software that provides access to all NASD markets including the Nasdaq National
Market, The Nasdaq SmallCapSM Market, PORTALSM, the OTCBB, and the Nasdaq International Service.
NASD Regulation, Inc. (NASD RegulationSM)
An independent subsidiary of the NASD that regulates the activities of broker/dealers in the over-the-counter
industry and The Nasdaq Stock Market. NASD Regulation carries out its regulatory responsibilities through
education, examinations, market surveillance, registration of securities personnel, advertising and
underwriting reviews, disciplinary actions for rule violations, investigation of customer complaints, and
forums to resolve disputes. NASD Regulation also regulates the sale of mutual funds, direct participation
programs, and variable annuities.
National Association of Securities Dealers, Inc. (NASD)
The largest self-regulatory organization for the securities industry in the United States. NASD is responsible
for the operation and regulation of Nasdaq and the over-the-counter securities markets; it is the parent
company of NASD Regulation, Inc. and The Nasdaq Stock Market, Inc.
No Clearing
A trade that is sent to ACT to satisfy trade reporting requirements only, but is not sent to clearing. (See
clearing.)
OTC Bulletin Board
An electronic quotation medium for unlisted, non-Nasdaq, over-the-counter securities. The OTC Bulletin
Board allows Market Makers to display firm prices for domestic securities, foreign securities, and ADRs that
can be updated on a real-time basis. The service also permits the display of non-firm prices for DPPs,
unpriced indications of interest, and telephone numbers for participating Market Makers.
Over-The-Counter (OTC) Securities
Securities that are not listed and traded on a national securities exchange or The Nasdaq Stock Market.
Pink Sheets
The OTCBB is separate from the Pink Sheets. The "Pink Sheets®" are operated by the National Quotation
Bureau (NQB) and are a static paper quotation medium printed twice daily and distributed to broker/dealers.
The Pink Sheets are not owned or operated by The Nasdaq Stock Market, Inc.
Preferred Stock
A security that usually pays a fixed dividend and gives the holder a prior claim on corporate earnings and
assets than holders of common stock.
Securities and Exchange Commission (SEC)
The primary agency responsible for administering federal securities laws. These include the Securities Act
of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Act of 1935, the Trust Indenture Act
of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Securities
Investors Protection Act of 1970. Of all these pieces of legislation, the 1933 Act and 1934 Act are the most
significant for issuers of securities and broker/dealers. The 1933 Act is a disclosure statute that requires
issuers to provide investors with facts about securities to be sold. The 1934 Act regulates securities
markets and the business of securities brokers and dealers.
Short Sale
The sale of shares of a security that the seller does not own. Such sales are made in anticipation of a
decline in the price of the security to enable the seller to cover the sale with a purchase at a later date, at a
lower price, and thus at a profit. SEC rules allow investors to sell short only when a stock price is moving
upward. This prevents "pool operators" from driving down a stock price through heavy short-selling, then
buying the shares for a large profit.
Short Interest
The total number of shares of a security that have been sold short that have not been repurchased to settle
short positions in the market. Currently there is no requirement that Market Participants report their short
positions in OTCBB securities to the NASD.
Spread
The difference between the price at which a Market Maker is willing to buy a security, called a bid price, and
the price at which the firm is willing to sell it, called an ask price. The spread narrows or widens according
to the supply and demand for the security being traded.
Actual Spread
The narrowest measure of spread that is based on actual trade prices. It is calculated by measuring
actual trade prices against the inside quote at the time of the trade or by measuring the trade to
trade variation in price.
Bid/Ask Spread
The difference between the price at which a Market Maker is willing to buy a security, called a "bid,"
and the price at which the firm is willing to sell it, called an "ask." The spread narrows or widens
according to the supply and demand for the security being traded.
Dealer Spread
The quote of the individual Market Maker.
Inside Spread
This is the highest bid and lowest offer being quoted among all of the Market Makers competing in a
stock. Since it is a combined quote, it is narrower than an individual dealer quote. This is where all
negotiations and trades begin on Nasdaq.
Transfer Agent
An agent that maintains records of stock and bond owners in order to cancel and issue certificates, and
resolve problems arising from lost, destroyed, or stolen certificates. A corporation usually appoints a
commercial bank, although it may also serve as its own transfer agent.
Volatility
The degree of price fluctuation for a given asset, rate, or index. Usually expressed as a variance or standard
deviation.
Volume
Amount of trading activity, expressed in shares or dollars, experienced by a single security or the entire
market within a specified period. |
