Free Series 63 Glossary — 50 Terms in Plain English

The first 50 terms from our full Series 63 glossary, defined so a beginner actually gets them. Type to filter:

Churning

Trading a customer's account too often, mostly to rack up commissions for the agent rather than to help the customer. Trap: it's measured against the customer's goals and account size, not by any single magic number of trades.

Commingling

Mixing a customer's cash or securities together with the firm's own money or assets. Customer property must be kept separate and clearly identified as theirs.

Discretionary Authority

Written permission letting an agent choose the security, the amount, or whether to buy or sell without checking first each time. Trap: deciding only the timing or price of a customer-chosen trade isn't full discretion and doesn't need prior written authority.

Ethical Business Practices

The broad standard of honest, fair dealing that regulators expect, which the Administrator can enforce even when conduct isn't spelled out in a specific rule.

Fiduciary Duty

The obligation to put the client's interests ahead of one's own. It applies most strictly to investment advisers but reflects the honesty and good faith expected throughout the industry.

Front Running

Placing an order for the firm's or agent's own account just ahead of a known large customer order, to profit from the price move that order will cause.

Guaranteeing Against Loss

Promising a customer they can't lose money or will get a set return on a security. This is prohibited because market values can't be guaranteed.

Markup and Markdown

The amount a broker-dealer adds when selling a security from inventory (markup) or subtracts when buying it (markdown). These must be fair and reasonable and disclosed when required.

Misrepresentation

Making an untrue or misleading statement about a security, a fee, a person's qualifications, or the registration status of someone or something. Omitting an important fact counts too.

Selling Away

When an agent sells investments that aren't offered or approved by their own broker-dealer, without the firm's knowledge or sign-off. This is prohibited even if the product itself is legitimate.

Sharing in Customer Accounts

An agent splitting in a customer's profits and losses, generally allowed only with both the customer's and the firm's written consent and a contribution proportional to the agent's share.

Suitability

The duty to recommend only investments that fit a particular customer's needs, goals, and finances. Trap: a recommendation can be a great product overall and still be unsuitable for this specific person.

Unauthorized Transaction

A trade placed in a customer's account without their permission and without proper discretionary authority on file. Even a profitable unauthorized trade is a violation.

Advertising

Material distributed broadly to the public, such as websites, mass mailings, or media ads, rather than to a specific named recipient.

Cold Calling Rules

Limits on unsolicited sales calls, including time-of-day restrictions and honoring do-not-call requests, designed to protect consumers from abusive contact.

Correspondence

Written or electronic messages directed to an individual customer or small number of customers, as opposed to mass communications.

Disclosure

Telling the customer the material facts they need to make an informed decision, including fees, conflicts of interest, and risks.

Free Service or Report Offers

Offers describing something as free in communications, which are only proper if there are truly no strings, costs, or conditions attached.

Material Fact

Information a reasonable investor would consider important in deciding whether to buy, sell, or hold. Leaving one out can make an otherwise true statement misleading.

Misleading Communication

Any customer communication that contains an untrue statement or leaves out a fact needed to keep it from being deceptive. Cherry-picking only favorable results is a classic example.

Performance Guarantees

Statements in communications promising specific returns or no risk of loss. These are prohibited because future market performance can't be assured.

Predictions and Projections

Forward-looking statements about how an investment will perform. Presenting a forecast as a promise or a certainty is a prohibited communication practice.

Prospectus

The disclosure document that gives an investor the key facts about a securities offering, drawn from the issuer's registration statement. It must be delivered for most non-exempt new offerings.

Recordkeeping of Communications

The requirement to retain copies of advertisements, sales literature, and correspondence for the period set by rule, so regulators can review what customers were told.

Sales Literature

Written or electronic material a firm sends to a targeted group of existing or prospective customers to promote products or services.

Testimonial

A statement from a client or third party endorsing an adviser or firm. Their use is restricted and, when allowed, must include required disclosures.

Agent

An individual who represents a broker-dealer or issuer in effecting securities transactions. A firm itself is never an agent; only individuals are.

Broker-Dealer

A person in the business of buying and selling securities for customers' accounts (broker) or for its own account (dealer). Trap: banks, issuers, and agents acting for a BD are excluded from the definition.

Consent to Service of Process

A document filed with the Administrator appointing the Administrator as the firm's agent to receive legal papers in state actions. It's filed once and stays on file permanently.

Custody

Holding or having access to customer cash or securities. Custody triggers extra safeguards like recordkeeping, segregation, and sometimes bonding.

De Minimis Exemption

A relief that lets a BD with no place of business in a state skip registration there if it deals only with existing clients who are temporarily in the state, or with certain institutional or other excepted clients.

Excluded Persons

Entities the Act says are not broker-dealers in a state, such as a BD with no office in the state dealing only with issuers or other BDs, so they avoid state registration.

Financial Reports and Filings

The periodic financial statements and updates a BD must file with the Administrator to show it remains qualified to operate.

Institutional Investor

A large or sophisticated buyer such as a bank, insurance company, or investment company. Dealing only with these can exempt a BD from state registration in some cases.

Net Capital Requirement

The minimum financial cushion a broker-dealer must maintain to stay registered. Trap: a state can't set a higher net capital standard than federal law allows.

Place of Business

Any location where a firm or person regularly conducts securities business or that is advertised as such. Having one in a state usually removes access to no-place-of-business exemptions.

Recordkeeping (Broker-Dealers)

The duty to make and keep specified books and records, such as trade blotters and customer account documents, for set time periods.

Registration of Broker-Dealers

The requirement for a BD to register in a state before doing business there, unless an exclusion or exemption applies.

Surety Bond

An insurance-like bond a state may require, especially from firms with discretion or custody, to cover potential customer claims. A firm meeting net capital rules often can't be forced to post one.

Agent Registration

The requirement that an individual register in each state where they solicit or effect securities transactions for a BD or issuer.

Cancellation vs. Revocation

Cancellation is an administrative removal when a registrant dies, dissolves, or can't be located, with no wrongdoing implied; revocation is a disciplinary action for cause.

Clerical and Administrative Exclusion

Back-office staff who don't solicit or handle securities transactions aren't agents, so they don't have to register.

Consent to Service of Process (Agent)

The filing by which an agent appoints the Administrator to accept legal documents on their behalf, kept on file permanently.

Effecting Transactions

Actually carrying out securities trades or soliciting them. Doing this for compensation generally makes someone an agent who must register.

Effectiveness of Registration

The point at which an agent's registration becomes active and they may legally do business, normally at noon on the 30th day after a complete filing if nothing is pending.

Issuer Agent Exemptions

Situations where an individual representing an issuer isn't treated as an agent, such as when dealing only in certain exempt securities or exempt transactions, so no registration is needed.

Multiple Registration

Generally an agent may be registered with only one broker-dealer at a time, unless the firms are affiliated and the Administrator permits it.

Statutory Disqualification

A status, often from past misconduct or certain convictions, that can bar or cancel a person's registration.

Transfer of Registration

When an agent moves from one broker-dealer to another, the agent, the old firm, and the new firm each must promptly notify the Administrator.

U-4 Form

The uniform application an individual files to register as an agent, disclosing employment history and any disciplinary background.

The full glossary

Every term the Series 63 tests — organized by unit, exam traps flagged: