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Simple English definitions for legal terms
parking
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A quick definition of parking:
Parking is when someone sells something, like stocks, with an agreement to buy it back later for the same price. This can be illegal if it's done to avoid following rules or paying taxes. Sometimes, companies do this to make it look like they have more money than they really do. It's like putting your toys away in a safe place while you decide which ones to play with next.
A more thorough explanation:
Definition: Parking refers to the sale of securities with an agreement to buy them back at a later time for a similar price. This practice is illegal if done to evade securities regulations or tax laws. It is often used to avoid the net-capital requirements of the National Association of Securities Dealers (NASD) by brokerage firms.
Example: A brokerage firm sells stock from its own account to a customer at market price to avoid the discount for reporting purposes. After filing its report, the firm buys back the shares from the customer at the same price plus interest. This allows the firm to reach technical compliance with the NASD's net-capital requirements.
Another example: An individual places their assets in a safe, short-term investment while considering other investment opportunities. This is also known as stock-parking.
Explanation: The examples illustrate how parking can be used to circumvent regulations or requirements. In the first example, the brokerage firm uses parking to avoid the discount for reporting purposes and comply with the NASD's net-capital requirements. In the second example, an individual uses parking as a temporary investment strategy while considering other options.