Laws & Regulations
An abandonment option is a clause in a contract that permits either party to leave the contract before obligations have been fulfilled. An abandonment option gives either party participating in a co...
In the strictest terms, abeyance means temporary inactivity. In the finance world, the term generally refers to unknown ownership.   Let's say John Doe owns an empty lot in City XYZ. He dies witho...
Accord and satisfaction is a legal term that denotes accepting compensation in lieu of some contractual obligation from another party. An accord is an agreement with conditions. Satisfaction means t...
The American Association of Retired Persons (AARP) is a nonprofit organization that advocates and promotes the well-being of Americans 50 years of age or older. Founded in 1958 by Dr. Ethel Percy An...
The American Rule, in law, is a rule by which each party pays its legal fees resulting from litigation.  This contrasts with the English Rule, which is the global norm, where the losing party pays t...
An anti-takeover statute is a law designed to deter companies from launching hostile takeovers of other companies. Anti-takeover statutes exist in some places in order to protect the autonomy and in...
Arbitration is a process in which impartial parties (arbitrators) help disagreeing parties resolve a dispute. Contracts, particularly financial ones, with disputes often go to arbitration. In the fi...
A bailee is a person who has been entrusted with custody of a piece of property. A bailee does not have ownership of the property. Let's say John Doe owns a big piece of farmland on the eastern shor...
Bailee's customers insurance covers any damage or destruction that a bailee might do to a bailor's property. Bailment is a transfer of custody of property rather than a transfer of ownership of prop...
Bailment is a transfer of custody of a piece of property rather than a transfer of ownership of a piece of property. For example, let's say John Doe owns a big piece of farmland on the eastern shore...
Bait and switch is a sales tactic that tricks consumers into buying something other than an advertised item. John Doe sees an ad in the paper for $1 orange juice at a local retailer. He goes to the ...
A bait record is a fake file on a computer that is used to see whether anyone is improperly accessing data. Let's assume Company XYZ's magazine covers keep leaking to the competition before they are...
A bank holiday is a day on which a bank or banking system is closed. In the United States, banks and financial markets generally cannot be closed for more than four calendar days in a row, which put...
Best efforts is a legal agreement between a securities underwriter (usually an investment bank) and a securities issuer, whereby the underwriter agrees to do the best it can to sell as many of the is...
Blue sky laws require the registration of brokers, brokerage firms and investment professionals in order to provide transparency of financial offerings and protect investors from investment fraud. Ea...
Book-entry securities are securities issued in electronic form rather than in paper form. The commercial book-entry system is a system whereby the investor's ownership of the security is reflected o...
A call report is a quarterly report that banks and all regulated financial institutions must file with the Federal Financial Institutions Examination Council (FFIEC). The formal name of the call rep...
Designed to facilitate the sharing of stolen credit card information, a carding forum is an illegal website where fraudsters also share info, tips and techniques about obtaining credit card informati...
Chapter 10 (formally referred to as Chapter X) is a former portion of the bankruptcy code that dictated bankruptcy processes and procedures for companies and individuals. Chapter X was originally pa...
Class action is a type of civil lawsuit brought by a group of people who are "similarly situated" -- that is, they have been harmed in a similar way. In the business world, this group is most often s...
Consolidated Reports of Condition are reports that are filed quarterly by banks and all regulated financial institutions with the Federal Financial Institutions Examination Council (FFIEC) Consolida...
Created by President Obama’s Administration in 2010, the Consumer Financial Protection Bureau (CFPB) serves as a federal watchdog over the consumer financial industry. Responsible for regulating fi...
The Credit Card Accountability, Responsibility, and Disclosure Act is better known as the Credit CARD Act. The law's main purpose is to prevent certain business practices in the credit card industry ...
In finance, a daisy chain is an investment scam whereby a group of fraudulent investors inflate the price of a security and then sell it at a profit. In a daisy chain scenario, an investor or group ...
A date certain is a legal term identifying a date on which an action or process must occur or complete. For example, let's say that John Doe rents a house from Jane Smith. The lease is for 12 months...
A daylight overdraft occurs when a bank transfers out more in a day than it has in its reserves. Let's say Bank XYZ has assets of $100 million. The Federal Reserve requires the bank to maintain 10% ...
Demonetization is the act of removing a currency from use as legal tender. Demonetization occurs when a governing body cancels the legal tender status of a currency unit in circulation. This can occ...
A disclosure statement is an official document that outlines the terms, conditions, risks and rules of a financial transaction, such as a loan or an investment. In the case of a loan, the disclosure...
Duress is pressure that one person or entity puts on another person to do something that he or she would normally not do. Let's say Artie owns a restaurant called Vesuvio. One day, a big bald guy co...
The Equal Credit Opportunity Act (ECOA) is legislation designed to ensure that all qualified people have access to credit. It prevents lenders from rejecting credit applicants based on race, gender, ...
The Federal Insurance Contributions Act (FICA) is a US payroll tax used to fund the Social Security and Medicare programs. These programs are designed to support those without wage income: retirees, ...
The Federal Reserve System (FRS) is the U.S.'s central bank. The Federal Reserve manages the economy's money supply, regulates the banking industry, acts as a clearinghouse for checks and other payme...
The Financial Industry Regulatory Authority (FINRA) is an independent non-profit corporation that regulates the actions of securities firms in the United States.  In order to deal in securities in t...
Also called wage execution, a garnishment is a process under which money owed or paid to a borrower is given to a creditor instead. Let's say John Doe has stopped paying child support to his ex-wife...
The Glass-Steagall Act was passed by Congress in 1933. It prohibited commercial banks from conducting brokerage or investment banking activities. The act was largely a product of the Great Depression...
Global Investment Performance Standards (GIPS) are ethical standards for asset-management companies. They were established by the Association for Investment Management Research. The CFA Institute, f...
Founded in 1921, the Government Accounting Office (GAO) is an independent, nonpartisan agency that studies how the federal government spends taxpayer money. The head of the GAO is the Comptroller Ge...
A grandfather clause is a clause that is included as part of a new law that exempts specific parties from the law due to practices that were in place prior to the law's implementation. For example, ...
In the business world, a grant usually refers to a stock option grant. However, the term can also refer to federal funding for research, business ventures or partnerships. Let's assume that John Doe...
In the legal world, a grantee is a person who receives something. In real estate, a grantee is a person who receives property after a sale or other transfer of title. In business, a grantee could be...
In the legal world, a grantor is a person or entity creating a trust. A trustee is a person or entity that has a fiduciary duty to another person or entity, called the beneficiary. The trustee holds...
In general, a guarantee is a promise to take responsibility for another company's financial obligation if that company cannot meet its obligation. The entity assuming this responsibility is called th...
Head traders have to be licensed, which means they have to pass at least one relevant exam administered by FINRA. There are several exams that can make a person eligible to become a head trader, and ...
The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that promises continued health insurance coverage and ensures health information privacy for those covered by health i...
A healthcare power of attorney (HCPA) is a document that legally authorizes someone to make health-related decisions on someone else's behalf. Individuals sometimes become too unwell or unfit to mak...
A hedge clause is a disclaimer found in financial documents that protects a financial reports' authors from liability for errors within the report. A hedge clause simply absolves the authors of wron...
A holder of record is the registered owner of a stock, bond or other security. Let's say John Doe buys 100 shares of Company XYZ. His brokerage firm executes the trade and makes him the holder of re...
Identity theft is the crime of using another person's personal information, credit history or other identifying characteristics in order to make purchases or borrow money without that person's permis...
The term impairment refers to assets that are no longer of the same value as in a prior period. An impairment charge is used and the asset is revalued downward and a "charge" is made to net assets. ...
An implied warranty is an unwritten guarantee that a product or service works as expected. An implied warranty is a lot like an assumption. For example, when you buy a new car from a car dealer, the...
In the tax and import/export world, an import duty (or customs duty) is money collected under a tariff. A duty is a federal tax on imports (or exports). For example, Americans who travel abroad can ...
Inchoate is a legal term indicating that a transaction or activity has been discussed or even agreed upon but is not final or is still incomplete. Let's say Company XYZ wants to buy Company ABC. The...
Injunctions are an alternative to monetary judgments, in which the court might order a party to pay damages to another party. In some cases, they are much better for defendants to deal with; in Jane'...
IPO Lockup refers to the period of time after a company initially goes public during which company insiders are not allowed to sell company shares. In an initial public offering (IPO) often receive ...
A jitney is an illegal scheme in which two brokers trade a stock back and forth in order to increase the trading volume and earn commissions. In some circles, a jitney is also scheme in which a broke...
The Jobs and Growth Tax Relief Reconciliation Act of 2003 was a bill passed by the U.S. Congress in 2003 as an economic stimulus measure. Often abbreviated JGTRRA, the Job and Growth Tax Relief Reco...
Joint and several liability means an obligation to make a payment either together or individually. For example, let's say John and Jane Doe buy a car. They take out a loan from Company XYZ for the p...
Joint liability refers to the individual and collective obligation of more than one party on a loan. Joint liability is best illustrated by two married people who apply jointly for a credit card to ...
Jointly and severally is a legal phrase that means two or more persons are fully responsible equally for the liability. Jointly means that both parties have joint liability, giving responsibility fo...
A judgment is a court order to pay someone else a sum of money or other remedy. Let's say John Doe owns a pit bull he hasn't trained very well. One day, John's dog jumps the fence and mauls Jane Smi...
A Juris Doctor (JD) is a law degree. According to Merriam-Webster, the term first came into use in 1969. It usually takes three years of law school to obtain a JD. The designation is often a requir...
A Katie Couric clause was a proposed provision of SEC executive compensation disclosure rules that would have required public companies to disclose compensation paid to several non-executive employee...
Lagged reserves are currency reserves banks are required to hold with the Federal Reserve. Lagged reserves must be equal to the sum of all demand deposits from two weeks in arrears.  The United Sta...
A levy is the seizure of property in order to repay debt. In the U.S., the IRS has the authority to levy. (For everybody else, this is called foreclosure or repossession.) Let’s assume John Doe ow...
Malfeasance is the legal term for intentionally doing something that is illegal. Let's say John Doe is Jane Smith's broker. John really wants to keep Jane Smith as a client, and he is in charge of h...
Marital property is property owned by a married couple. Let's say John Doe and Jane Smith get married. On the day of the wedding, John owns a 1988 Camaro, 10 sets of speakers, and his clothes. Jane ...
The market capitalization rule is a regulation that places a floor on the total value of a company's stock for 30 consecutive days. The market capitalization rule was established by the New York Sto...
Market discipline refers to the obligation by banks and financial institutions to manage their stakeholders' risk in the course of their day-to-day operations. Banks and other financial institutions...
A market out clause is a provision that allows an underwriter to withdraw from a stock underwriting contract. When an investment bank serves as an underwriter for an initial public offering (IPO), i...
The Market Performance Committee is responsible for maintaining effective and organized trading operations on the New York Stock Exchange (NYSE). The Market Performance Committee consists of several...
Market Surveillance is a unit of the NASDAQ stock exchange whose function is to ensure that all trading is conducted in a compliant manner. The Market Surveillance unit of the NASDAQ stock exchange ...
Material insider information is material, nonpublic information about a security or its issuer. Information is material if it might reasonably influence the users of the issuer’s financial statemen...
Mineral rights are a landowner's rights regarding natural resources located on his or her land. When an individual buys or owns a piece of land, there is the possibility that the land may contain va...
Minimum-interest rules are federal regulations requiring that all loans bear interest. Many companies and individuals make loans. These loans can occur in any amount and carry a range of repayment t...
A mortgage forbearance agreement is a contractual arrangement between a mortgage lender and a borrower to help the borrower catch up on payments when he/she is behind schedule. A borrower makes mont...
A mortgage putback is a mandatory buyback of a mortgage by its original lender. Once a lender completes a mortgage, the lender often sells it to another investor in the secondary mortgage market. Un...
A named fiduciary is a person or entity responsible for managing a qualified retirement plan in accordance with the Employee Retirement Income Security Act (ERISA). For example, let's say Company XY...
NASD Rule 2790 is a rule prohibiting FINRA members from buying IPO shares for personal gain. The rule is now just called Rule 2790, because NASD became FINRA in 2007.   For example, let's say John...
The National Association of Securities Dealers (NASD) was a regulatory organization that oversaw the securities industry. The Financial Industry Regulatory Authority (FINRA) superseded NASD in 2007. ...
A national bank is a bank that is a member of the Federal Reserve system and the Federal Deposit Insurance Corp. In global terms, a national bank is a country's central bank. In this context, the Fe...
The National Credit Union Administration (NCUA) is an agency of the United States government that charters and oversees federal credit unions. It was created by Congress in 1970. A credit union is a...
A negative amortization limit is a clause in a loan that restricts the amount of negative amortization that can occur during the contract. Negative amortization occurs when the principal balance on ...
Negative authorization is the term for a credit card system that approves or disapproves a credit card transaction based on whether the card appears on lists of stolen, canceled, closed, or lost acco...
Negative float is the amount of time between when a person writes a check and when that check clears the account. In banking, the formula for negative float is: Negative Float = Account's Ledger Ba...
Negative verification is a bank method for verifying bank records. For example, let's assume Bank XYZ is performing an internal audit of the computer system that generates customers' monthly bank st...
Negotiable refers to an item that can be sold or transferred to another party as a form of unconditional payment. Negotiable also means that the terms of an agreement can be adjusted.   A negotiabl...
A negotiable instrument is a signed document that gives the bearer of the document permission to obtain a certain amount of money.   Checks are the most common negotiable instrument. They are esse...
A nominee is a person or entity that takes possession of securities or other assets for the purpose of making transactions on behalf of the owner of the securities or other assets. For example, let'...
A non-accredited investor is an individual or organization that does not meet the description of a "sophisticated" investor as defined by the Securities and Exchange Commission. According to the Sec...
Notarizing documents gives them legal weight. Notarization is commonly involved in the creation of wills, trusts, deeds and powers of attorney. Each state sets forth its own requirements for becoming...
Notaries are important people because they give documents legal weight. Notaries are commonly involved in the creation of wills, trusts, deeds and powers of attorney. Each state sets forth its own re...
An obligation is a legal requirement to fulfill a responsibility. In the finance world, this often involves making specific payments by specific dates and/or ensuring that a company meets certain per...
Occupancy fraud occurs when a mortgage borrower lies to a bank about his or her intention to occupy the home that he or she is purchasing with the mortgage. For example, let's say John lives in Denv...
An offering memorandum is a legal document that discloses the terms, conditions, risks, and other information about a private placement. It is not the same thing as a prospectus (those are for issuan...
The Office of the Comptroller of the Currency (OCC) is a division of the U.S. Treasury. It regulates and supervises national banks, including domestic branches of foreign banks. The U.S. Treasury cr...
The Office of Thrift Supervision (OTS) was a regulatory agency that provided oversight to thrift institutions. On July 21, 2011, the OTS became part of the Office of the Comptroller of the Currency (...
Pari-passu is a latin term that means "at an equal rate or pace." The term is often used in venture capital. Let's assume Company XYZ is looking for $10 million of capital. It contacts three venture...
A patent troll is a person or company whose main business purpose is to sue other people or companies for patent infringement. For example, John Doe buys a patent for the design and manufacture of a...
Pork barrel spending is a type of appropriated expenditure that is added into a non-related Congressional bill.  Pork barrel spending may also be referred to as earmarking. The Oxford English dict...
Preemptive rights are a clause in an option, security or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate number o...
A private placement is an offering of securities that is not registered with the U.S. Securities and Exchange Commission (SEC) Companies issuing stock in the U.S. public capital markets must registe...
A proxy statement is the common name for the Securities and Exchange Commission (SEC) Form 14-A. It is the document containing the voting ballot and material information related to the propositions t...
A qualified eligible participant (QEP) is a person who is allowed to trade in investment funds as defined in Rule 4.7 of the Commodity Exchange Act. In order to be a QEP, a person must own at least ...
Qualified exchange accommodation arrangements are a strategy to simplify and assist with real estate exchanges made under Section 1031. For example, let's assume that John wants to sell his commerci...
A qualified institutional buyer (QIB or QUIB) is a company that manages at least $100 million of securities on a discretionary basis or is a registered broker-dealer investing at least $10 million in...
A qualified institutional placement (QIP) occurs when the Securities and Exchange Board of India (SEBI) allows an Indian company to issue securities in India without providing preliminary filings reg...
When most people think of racketeering, thoughts of 1930s mobsters come to mind. Gangs of this time period are often associated with organized crime and operating “rackets” to illicitly earn and ...
The Real Estate Settlement Procedures Act, abbreviated as RESPA, is a federal ordinance that was established by the U.S. Department of Housing and Urban Development (HUD). It is currently supervised ...
A red herring is a registration statement filed with the Securities and Exchange Commission (SEC) by a company that intends to make a public equity offering. The red herring is a rough draft of the c...
A Registered Investment Advisor (RIA) is an investment manager who is registered with the Securities Exchange Commission (SEC) and who must comply with SEC regulations. An investment manager who is ...
Regulation Fair Disclosure (Reg FD) requires all publicly traded companies to disclose material information to all investors simultaneously. The Securities and Exchange Commission (SEC) issued a rul...
Regulatory data is information that must be provided by a company to a regulatory agency.  Protecting consumers is the main rationale offered by governments looking to regulate economic activity, a...
Rescission is the cancelling of a contract so that it is no longer legally binding. A court can release parties from any obligations under the contract and revert them to their positions before the c...
Right of first refusal grants the terms of a transaction to one party to determine if they are interested (i.e., the holder of the right of first refusal) before it is given to a third party. Right ...
A routing number is a exclusive identification number assigned to banking institutions by the American Bankers Association (ABA). For those banks and banking institutions that qualify as account hol...
The Sarbanes-Oxley Act, officially named the Public Company Accounting Reform and Investor Protection Act of 2002, became law on July 30, 2002. The law was informally named after its sponsors, Senato...
An SEC Form 11-K is an annual report that is filed with the Securities and Exchange Commission (SEC) for employee stock purchase plans and similar savings plans that constitute securities registered ...
SEC Form BD is an application with the Securities and Exchange Commission (SEC) to register as a broker-dealer. A Form BD makes public the information about any broker-dealer that wishes to trade s...
The Securities Act of 1933 was the first law passed that imposed regulations on the securities industry following the stock market crash of 1929. The stock market crash of 1929 resulted from more th...
The Securities and Exchange Commission, also known as the SEC, is a regulatory body that was established as a result of the Securities Act of 1934. Founded after the stock market crash of 1929, the S...
The Series 82 is an exam for individuals who want to be licensed to do primary offerings of private placements. The Financial Industry Regulatory Authority (FINRA) administers the Series 82 exam as ...
A shelf registration is the filing and registration with the Securities and Exchange Commission (SEC) for a security offering that is released to the public market incrementally over a period of time...
The Taft-Hartley Act, officially known as the Labor-Management Relations Act, is a federal labor law that regulates the actions of labor unions. Ratified in 1947, the Taft-Hartley Act sought to refo...
A tax bracket is range of incomes for which a certain tax rate applies. The United States has a progressive tax system, which means that different portions of a person's income is taxed at increasin...
Tax evasion is the act of illegally avoiding tax liability. Tax evasion is a felony. Section 7201 of the Internal Revenue Code states, "Any person who willfully attempts in any manner to evade or de...
Generally, tax exempt means free from federal income taxation. Tax exemptions can apply to a portion of an individual's income or to the nature of an organization. For example, let's say that John ...
Tax fraud is the willful and intentional act of lying on a tax return for the purpose of lowering one's tax liability. For example, let's say John owns a painting business. As an employer, he dutifu...
Tax incidence is a term that describes whether producers or consumers bear the burden of a new tax. For example, let's assume that Congress passes a bill that places a $0.10 per ounce tax on potato ...
Also called the Revenue Reconciliation Act of 1993, the Tax Reform Act of 1993 was a major revision to the United States tax system. The Tax Reform Act of 1993 had several components that received a...
A tax roll is a list of taxable property in a city, county, state or other taxing authority. For example, let's assume that the city of Investon has 1,500 residents. About 750 of those residents own...
"Taxation without representation" is a phrase commonly thought to have been first made famous by Boston lawyer James Otis in 1765. It refers to the idea of imposing taxes on people who have no recour...
The Taxpayer Relief Act was created in 1997 and signed by President Bill Clinton. It represented a major overhaul of the U.S. tax system and introduced dozens of new tax credits, benefits and bracket...
A trademark is any legally-protected abstract or figural representation or slogan associated with a company or product that deliberately differentiates it in the market. A trademark is a marketing d...
The U.S. Agency for International Development (USAID) is a federal agency that works to encourage foreign markets for American goods. USAID invests in foreign countries' agriculture, health systems ...
The U.S. Bureau of Engraving and Printing creates and produces U.S. paper currency. It does not produce coins -- that's the job of the United States Mint. Founded in 1862, the U.S. Bureau of Engravi...
The Uniform Gifts to Minors Act (UGMA) is a set of rules under which adults can give money to a minor via a custodial account in the minor's name. In some states, the UGMA has been superseded by the ...
Usury is lending money at an interest rate thought to be irrationally high or higher than permitted by law.  Usury is another word for predatory lending, which is the act of imposing unfair and abus...
Also called garnishment, a wage execution is a process under which money owed or paid to a borrower is given to a creditor instead. Let's say John Doe has stopped paying child support to his ex-wife...
The waiting period refers to the time period between a company filing a registration statement with the US Securities and Exchange Commission (SEC) and the SEC declaring that statement to be effectiv...
A waiver is a party's voluntary renunciation of rights in a contractual arrangement. When two parties enter into a contract, they often agree to forfeit some of their respective rights or claims. Ei...
A waiver of exemption is a clause in a contract that allows a creditor to seize property that state laws may exempt from seizure. Let's assume 65-year-old John Doe borrows $250,000 to buy a house. I...
A waiver of notice is an agreement that allows people to conduct certain legal procedures without giving formal notification that he or she is going to do so. For example, let's assume that John Doe...
A waiver of premium rider is language in an insurance policy that allows the insured to stop making premium payments if he or she becomes ill or disabled. For example, let's assume that John Doe has...
A waiver of subrogation prevents an insurer from seeking payments from third parties that cause losses to the person or business it is insuring. For example, let's say ABC Insurance sells a property...
A warranty is a guarantee, usually written, that a product or service works as expected. For example, when you buy a new car from a car dealer, the warranty states that the car works. If the car doe...
Water rights are the legal permissions to use water in a specific way. For example, let's assume that John buys a house on the famous Yellowstone River in Livingston, Montana. The house is on riverf...
A Wells Notice is a letter from a regulator such as the Securities and Exchange Commission that warns a financial institution or financial professional that the SEC is beginning an investigation into...
An X-mark signature is a mark made by a person who is not able to sign his or her name. Let's say John Doe suffers a traumatic brain injury and can no longer read or write. He marries his high schoo...
Zoning is a method of determining how people can use land and buildings within a certain area. Zoning typically delineates areas within a town acceptable for residential construction, commercial c...
A zoning ordinance is a rule regarding how people can use land and buildings within a certain area. Zoning ordinances typically delineate acceptable areas within a town for residential construction,...