Glossary of Terms
Arbitration A procedure in which a dispute is submitted to one or more neutral arbitrators who make a binding decision on the dispute.
Churning Buying and selling of securities in an investor’s account in excessive sizes or frequencies solely for the purpose of generating commissions.
Eligibility Period A period of time in which an investor can file a claim in the FINRA arbitration forum. The Eligibility period is six years from the occurrence or event giving rise to the claim. When the Eligibility period starts running varies according to the particular case.
Failure to Supervise This occurs when a brokerage firm or investment advisory firm fails to supervise its firm and agents to ensure compliance with and prevent violations of the rules of the securities industry.
Fiduciary Duty It is the highest standard of care and includes the duties of care, loyalty, and at all times to act in the client’s best interests.
Misrepresentation A breach of the duty of good faith not to misrepresent any “material” fact – a fact that addresses the nature or quality of the investment or the degree of risk involved – to the investor in the sale or recommendation of an investment.
Omission
Similar to a misrepresentation, an omission occurs when a broker or adviser has failed altogether to disclose a fact material to the investor’s decision-making process.
Overconcentration
This is the failure by a broker or adviser to diversify an investor’s portfolio to provide protection against a decline of one particular investment, asset type, or industry.
State Division of Securities
A state organization that oversees the securities industry within that state.
Statutes of Limitations Periods of time defined by law in which certain claims can be filed. The length of the statute of limitations period varies according to the particular claim and jurisdiction in which it is brought.
Unauthorized Trading
A broker who buys or sells securities in an investor’s account without the prior consent of the investor.
Regulation Best Interest
A standard of care to which broker’s investment recommendations are held. If a broker recommends an investment not in the client’s best interest, considering her financial situation, investment objectives, age, sophistication, and risk tolerance, the broker may be held liable for any resulting losses from that inappropriate recommendation.
