Glossary of Terms

Glossary of Terms

Some of the terms used in this website can be confusing to the average investor.  Here are definitions for these terms:

Beneficial Owner: Under SEC rules, a beneficial owner is someone who has either voting power or investment power over a security.  Voting power is defined as the power to vote or direct the voting of a security.  Investment power is defined as the power to dispose or direct the disposal of a security.  See also Shareholder of Record.

Broker Discretionary Voting: New York Stock Exchange Rule 452 permits brokers to cast votes for customers who have not responded to a request for voting instructions in a proxy solicitation.  Broker voting of uninstructed proxies only occurs in matters of routine business at an annual shareholder meeting, which no longer includes an uncontested election of the board of directors.

Cash-Settled Equity Swap: A cash-settled equity swap is a derivative product in which two parties agree to exchange cash flows in a manner that replicates a long and a short position in a particular equity security.  Any differences in value or price are settled in cash, rather than through an exchange of securities.  It is common for at least one of the counterparties to hedge its position by holding the underlying security that is the subject of the swap.

Cede & Co: A subsidiary of The Depository Trust Company that serves as the shareholder of record for most of the equity securities issued in the United States.

Depository Trust Company (DTC): The Depository Trust Company is the leading security depository in the United States.

Derivative: A derivative is a financial instrument that "derives" its value from the market price of an underlying security, instrument, or index.

Empty Voting: Empty voting is a term used to describe transactions in which an investor acquires voting rights in a common stock without having any economic interest in the same security.  The most common form of empty voting is called "record date recapture," in which an investor borrows corporate shares before a record date and then returns these same shares to the beneficial owner after the record date.  The investor who possesses the shares on the record date is entitled to vote at the shareholder meeting, even though he or she does not have any ongoing economic interest in the company.

Issuer: A legal entity that develops, registers, and sells securities for the purpose of financing its operations.  A publicly traded company is an issuer of securities.

Nominee Name: A nominee name is the name under which a security is registered and held in trust for a beneficial owner.  A nominee can be an institution or an individual.

Non-Objecting Beneficial Owner (NOBO): A Non-Objecting Beneficial Owner is a security holder who has given permission to a financial intermediary to release the owner’s name and address to a public company that he or she has invested in, for the purpose of receiving proxy mailings and other shareholder communications.

NYSE Rule 452: A New York Stock Exchange (NYSE) Rule that permits brokers to cast votes for customers who have chosen not to respond to a request for voting instructions in a proxy solicitation.  Broker voting of uninstructed proxies only occurs on matters of routine business at an annual shareholder meeting, which no longer includes an uncontested election of the board of directors.  Broker voting may occur if voting instructions are not received within ten (10) days before a shareholder meeting ("10-Day Rule").

NYSE Rules 451 and 465: New York Stock Exchange (NYSE) Rules that regulate the transmittal of proxy materials to beneficial owners and establish the fees to be paid by public companies to brokers, banks, and Broadridge Financial Solutions for proxy administrative services.

Objecting Beneficial Owner (OBO): An Objecting Beneficial Owner is a security holder who does not give permission to a financial intermediary to release the owner's name and address to a public company that he or she has invested in, for the purpose of receiving proxy mailings and other shareholder communications.

Omnibus Proxy: An omnibus proxy is issued by security depositories or bank custodians, as the shareholders of record, which: (1) provides a list of their participating financial institutions and their holdings, and (2) authorizes their participant brokers and banks to vote proxies directly.

Over-voting: Over-voting occurs when there are more votes cast with respect to a block of shares held by a financial intermediary than the number of shares held.

Proportional Voting: Under proportional voting, a broker exercises its authority to vote any uninstructed shares of beneficial owners in the same proportion as instructed shares, with no minimum amount of instructed shares being required.

Proxy Voting: This is the process by which an owner of a security provides the authority or power for a person to act on his or her behalf in voting corporate shares of stock.

Record Date: The date established by a public company for the purpose of identifying the shareholders who are entitled to vote at a shareholder meeting, or receive a dividend or other distribution.

Security Depository: A centralized location in which security certificates are placed and stored for later transfer.  Under the current American system, transfers usually take place by computerized book entry rather than by physical movement of securities.  The leading security depository in the United States is the Depository Trust Company (DTC).

Shareholder of Record: The legal owner of a share of stock, but who may not be the person or institution who actually derives the ownership benefit of the share.  See also Beneficial Owner.

Share Lending: Share lending refers to the lending of securities by one party to another.  Securities are generally lent to: (1) facilitate a "short" sale; (2) facilitate settlement of a trade; (3) finance a security; or (4) facilitate a loan to another borrower.

Short Sale: A short sale is the practice of selling securities that an investor does not own.  An investor will "borrow" securities and sell them immediately, with a promise to return the securities at a later date.  The "short sale" investor seeks to repurchase the shares at a lower price and profit from the decline in a security's market price.

Street Name: Street name means that securities are held in the name of a broker or other financial institution, rather than in the name of the underlying owner or customer.  Shares are held in street name because it facilitates the transfer of securities.  See also Security Depository.

 

Please email the Coalition with your suggestions for additional terms that need to be defined, or if you have developed a better explanation for the terms used in this website.  If you have a comment or suggestion about this Glossary of Terms, click here to send an email to the Coalition.