10K or Form 10K also known as an Annual Report: Public companies are required to file an annual report with the Securities and Exchange Commission detailing the preceding year’s financial results and plans for the upcoming year. Its regulatory version is called “Form 10 K.” The report contains financial information concerning a company’s assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication.

10Q or Form 10K, also known as a Quarterly Report: A report, required by the SEC of publicly-held companies, filed quarterly, that provides unaudited financial information and other selected material.

12B-1 Fees: A fee that is levied by a mutual fund–usually on a yearly basis and is usually about 1% or less of a fund’s assets. The monies collected are usually used to pay broker-dealers for servicing accounts. A mutual fund that charges a 12B-1 fee must disclose this in writing. Mutual funds that assess 12B-1 fees generally are no-load funds.
AAA: American Arbitration Association
Absorption Point: During market trading, securities are absorbed when there are corresponding orders to buy and sell. When further absorption is impossible without an adjustment in price, the security has reached its absorption point.

Abusive Tax Shelter: A limited partnership is classified as an abusive tax shelter by the Internal Revenue Service when it determines that the limited partnership is claiming illegal tax deductions. This usually occurs when the limited partnership values its property beyond the fair market value. If these tax deductions are denied by the IRS, investors must pay back taxes, severe penalties and interest charges.
Abusive Trust: Trust arrangements widely touted in seminars and on the Internet that purport to reduce or eliminate federal taxes in ways that are not permitted by law.

Acceleration Clause: A clause frequently contained within an indenture agreement and other contracts. It stipulates that if certain default events should occur, the unpaid balance will become due and payable. Examples of the type of events are insolvency and failure to meet principal, interest or sinking fund payments.

Account Executive (AE): An employee of a brokerage firm who must pass specified tests and must be registered with the National Association of Securities Dealers (NASD) before he or she may solicit or accept orders from clients.

Accounts Payable: The amount owed to creditors for goods and services. Analysts look at a company’s relationship of accounts payable to purchases for indications of sound financial management.

Accounts Receivable: A component of a corporation’s current assets that consists of money owed to the corporation for services or merchandise it sold to customers. It is a key factor in examining a corporation’s “liquidity”–its capacity to meet current obligations without receiving additional revenues.

Accounts Receivable Financing: If a corporation is in need of short term financing, it may try to obtain accounts receivable financing. If obtained, the corporation’s accounts receivable is used as collateral for working capital advances.

Accredited Investor: To qualify as an accredited investor, an investor must either be: A) a financial institution; B) an affiliate of the issuer; or C) an individual with a net worth of at least $1 million or an annual income of at least $200,000, and the investment must not account for more than 20% of the investor’s worth. This can be very significant as SEC Regulation D stipulates that a maximum of 35 non-accredited investors are allowed to invest money into a Private Placement. An issuer of a private placement will try to acquire accredited investors to raise a greater amount of capital than would be possible if only 35 investors of less affluence could contribute.

Accrual Basis: An accounting method in which income and expense items are credited as they are incurred or earned, although they may not have been received or actually paid in cash. Cash Basis accounting is an alternative method.
Accumulated Dividend: A dividend due to stockholders of cumulative preferred stock that has not been paid to them. Until the dividend is paid, it is carried on the corporation’s books as a liability.
Accumulation Account: The sponsor of a Unit Investment Trust uses an accumulation account to deposit securities it has acquired. These securities will eventually become part of the trust itself.
Acid Test Ratio: A ratio that tests a corporation’s liquidity. It is a stricter test than if the current ratio is used. The ratio is calculated by dividing the sum of cash, cash equivalents, accounts receivable and notes receivable by the total current liabilities.
Acquisition: The act of one corporation acquiring a controlling interest in another corporation. In an “unfriendly” takeover, the buying corporation may offer incentives to stockholders such as offering a price well above the current market value.

Across The Board: Movement, up or down, in the stock market that affects nearly all stocks in the same direction. That is, nearly all stocks are gainers (or losers).

ACT (Automated Confirmation Transaction Service): NASD service that allows parties to a telephone negotiation to speed the steps involved in completing a transaction.
Acting In Concert: More than one investor who work in concert to achieve an investment objective. A group of investors who wish to take over a company may act in concert to buy up the company’s stock. This is legal as long as proper notification is made to the SEC. However, if the group is acting in concert to manipulate a stock’s price for their own gain, it would be considered an illegal act.

Actuals: A physical commodity that, when traded, results in the delivery of the actual commodity to the buyer when the contract expires. When actuals are traded, most options and futures contracts are closed out before the contracts expire. Thus, these transactions tend not to end in the actual delivery of the commodity. Examples of actuals are commodities such as oil and gold.

Administrator: In regard to investments, an administrator is a court-appointed official empowered to supervise or conduct the court’s decisions with respect to a decedent’s estate until it is fully disbursed to all claimants. An administrator (or “administratix”, if a woman) is appointed when anybody dies either without a will, without naming an executor, or if the named executor will not or cannot serve.
ADR (American Depositary Receipt): A U.S. security that is a repackaged foreign security. A U.S. bank creates an ADR based on evidence of ownership of a specified number of shares in the foreign security, while the underlying shares are held in a depositary in the issuing company’s home country. U.S. investors may buy shares in the foreign company in the form of an ADR. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities. (note: it is depositary, not depository)

Advance Fee Scam: Any of innumerable schemes that lead the victim to believe that they will profit dramatically by engaging in some plan that requires that they pay, or invest, a fee “up front.” In many cases, the “plan” has some degree of illegality associated with it – not enough to discourage most people from participating but just enough to make them reluctant to file a complaint with the police.

Adverse Trustee: One who has a substantial, beneficial interest in the trust assets as well as the income or benefits derived from the trust. A trustee that is related to the creator by birth, marriage or in an employer/employee relationship.

Affidavit Of Domicile: A document that states the residence of the decedent at the time of death. The form is executed by the legal representative of an estate and is required when transferring ownership of a security from a deceased person. The security’s transfer agent requires the affidavit to be notarized and dated within 90 days.

Affiliated Person: Any persons who are officers, directors, or owns 10 % or greater of the voting shares, and in most cases, the aforementioned immediate family and confidants. These people are in a position to exercise control on the performance and conduct of a corporation. The terms “affiliated person” and “control person” or interchangeable.

Aftertax Real Rate Of Return: The amount of money that an investor can keep from an investment’s income and capital gains after it has been adjusted for inflation. Generally, investors look for an aftertax real rate of return that will equal if not surpass the rate of inflation.

Agency Transaction: The brokerage firm’s confirmation report to its clients that it executed an order in the capacity of a broker and charged a commission for the services rendered. The firm acted as an “agent” between the customer and the market maker. It is a requirement to show the commission charged separately on the confirmation report. The commission cannot be added into the execution price.

Aggressive Growth Fund: A Mutual Fund that buys shares in small or speculative growth companies to achieve maximum capital appreciation.

American Depositary Receipt (ADR): A U.S. security that is a repackaged foreign security. A U.S. bank creates an ADR based on evidence of ownership of a specified number of shares in the foreign security, while the underlying shares are held in a depositary in the issuing company’s home country. U.S. investors may buy shares in the foreign company in the form of an ADR. The certificate, transfer, and settlement practices for ADRs are identical to those for U.S. securities. (note: it is depositary, not depository)
American Stock Exchange (AMEX or ASE): The second largest stock exchange in the US is located in the financial district of New York City at 86 Trinity Place. As a general rule, the securities traded on the AMEX are those of small to mid-size corporations. The AMEX also trades options of many NYSE securities and some OTC securities.

Analyst: Individual in a brokerage firm, bank trust department, or mutual fund group who researches corporations, industry groups and the market to make buy and sell recommendations on specific securities. A majority of analysts specialize in a particular industry. However, some analyze corporations that interest them, regardless of its industry group.

Annual Meeting: A stockholder meeting that is held yearly. Functions of an annual meeting are for corporate executives to report on the year’s results, to elect the board of directors, and to transact other business. The chief executive officer customarily makes a statement on the outlook for the next year and conducts a question and answer period. If a shareholder is unable to attend the annual meeting, the owner may vote for directors and pass on resolutions through the use of a proxy. Proxy materials are mailed to all shareholders of record.

Annual Report: A yearly statement publicly traded and privately held corporations are required to file. Publicly traded companies are required to file an annual report with the Securities and Exchange Commission detailing the preceding year’s financial results and plans for the upcoming year. Its regulatory version is called “Form 10 K.” The report contains financial information concerning a company’s assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication.

Annuitant: The beneficiary or beneficiaries (in a last-to-die arrangement) of an annuity who receives a stream of payments pursuant to the terms of the annuity contract.

Annuity: A tax sheltering vehicle. An unsecured contract between the company and the annuitant(s) that is used to provide for one’s later years. All income taxes are deferred until maturing of the annuity. Capital gains and income accumulate tax deferred. Results in a stream of payments made to the annuitant during his or her lifetime under the annuity agreement. Taxes are paid on the income, interest earned and the capital gains but only to the extent as and when they are received. Currently, there is no annual limit on purchases, but there is no tax credit for purchases. An annuity is not an insurance policy.

Answer: A respondent’s written reply to a claim

Antitrust: Federal Antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. Examples of illegal practices are price-fixing conspiracies, corporate mergers likely to reduce the competitive vigor of particular markets, and predatory acts designed to achieve or maintain monopoly power.

Appreciation: Appreciation is an asset’s increase in value.

Approved List: A list of investments that a mutual fund or other financial institution is allowed to invest in. When fiduciary responsibility exists, the use of an approved list may be statutory.
APT (Asset Protection Trust): A special form of irrevocable trust, usually created (settled) offshore for the principal purposes of preserving and protecting part of one’s wealth offshore against creditors. Title to the asset is transferred to a person named the trustee. Generally used for asset protection and usually tax neutral. Its ultimate function is to provide for the beneficiaries of the APT.
APTC (Association of Publicly Traded Companies): This organization, which is not connected with NASD, provides publicly-traded companies with a forum for addressing regulatory and legislative issues that affect them.

Arbitrage: This is the practice of simultaneously buying and selling the same (or equivalent securities) to profit from the disparity in their prevailing prices in separate markets. This activity applies to equivalent securities trading in different markets, securities with convertible features, or securities involved in mergers, tender offers, recapitalizations, or corporate divestitures.
Arbitral Immunity: Arbitrators are protected from suits arising out of their quasi-judicial conduct in arbitration proceedings.

Arbitration: A method of settling disputes between brokers and their clients, brokerage firms and clearing corporations, employees and their firms, and two brokerage firms. Arbitration has been adopted by all exchanges and securities associations. A pre-dispute arbitration clause in a customer’s brokerage account agreement is customary and assures that disputes will be arbitrated by objective third parties and preclude court cases.

Arbitrator: A private, disinterested person chosen to decide disputes between parties
Arms Length Transaction: When the buyers and sellers of a product act independently of each other and have no relationship to each other. This transaction presumed to be uncompromised by questionable sales tactics or undisclosed relationships.

Arrearage: Past due obligations such as interest on bonds or dividends on cumulative preferred stocks. If a cumulative preferred stock’s dividends are in arrears, common dividends cannot be paid.

Articles Of Incorporation: Document filed with a US state by corporation founders. Once the state approves the articles, it will issue a certificate of incorporation. The articles and the certificate form the Corporate Charter and gives the corporation its legal existence. The charter provides such information as the corporation’s name, purpose, amount of authorized shares, and the number and identity of directors.

Asset: Anything of value owned or is owed to it by a business, institution, or individual. Assets may include cash, investments, accounts receivable, product inventory and other current assets. Patents and goodwill are called intangible assets.

Asset Management Account (AMA): An account at a brokerage firm or a bank that combines checkwriting, debit cards (or credit cards) and brokerage services such as buying and selling securities. AMAs are convenient because all financial transactions are listed on one monthly statement. AMAs are also called central asset accounts and are known by proprietary names such as PC CASH (First Republic Securities) and Cash Management Account (Merrill Lynch)

Asset Manager: A person appointed by a written contract between the IBC (or the exempt company) or the APT and that person to direct the investment program. It can be a fully discretionary account or limitations can be imposed by the contract under the terms of the APT or by the officers of the IBC. Fees to the asset manager can be based on performance achieved, trading commissions or a percentage of the valuation of the estate under his or her management.

Asset Protection Trust (APT): A special form of irrevocable trust, usually created (settled) offshore for the principal purposes of preserving and protecting part of one’s wealth offshore against creditors. Title to the asset is transferred to a person named the trustee. Generally used for asset protection and usually tax neutral. Its ultimate function is to provide for the beneficiaries of the APT.

Associated Person: A person engaged in the investment banking or securities business who is directly or indirectly controlled by an NASD member, whether or not this person is registered or exempt from registration with NASD. Every sole proprietor, partner, officer, director, or branch manager of any NASD member.

Association of Publicly Traded Companies (APTC): This organization, which is not connected with NASD, provides publicly-traded companies with a forum for addressing regulatory and legislative issues that affect them.

Auditor’s Report: Often called the accountant’s opinion, it is an accounting firm’s statement of a corporation’s financial documents. The examination assures that the corporation is conforming to the normal and generally accepted practices of accountancy.

Automated Confirmation Transaction Service (ACT): NASD service that allows parties to a telephone negotiation to speed the steps involved in completing a transaction.

Award: The written determination of the arbitrator in an arbitration proceeding.

Baby Bond: Bonds with a denomination of less than a $1,000 par value. Baby bonds are a source of funds to corporations that lack access to large institutional markets and bring the bond market within reach of small investors.

Bad Debt: Open balance or loan receivable that is considered uncollectible and is written off by a firm. (Reserves are usually maintained for uncollectible accounts.) The relationship of recoveries and write-offs to accounts receivable can indicate a firm’s credit and charge-off policies.
Badges of Fraud: Conduct that raises a strong presumption that it was undertaken with the intent to delay, hinder or defraud a creditor.

Balance Sheet: A financial report that entails the status of a corporation’s assets, liabilities, and owners’ equity for a specific date, usually at month end. It only captures this information as of that date; it does not cover a period of time.

Balloon: 1) A repayment schedule for a bond issue where a large number of the bonds come due at a one time (normally at the final maturity date). 2) A final loan payment that is considerably higher than prior payments.

Bank Guarantee Letter: The document furnished by a bank certifying that a put writer has enough funds on deposit at the bank to equal the aggregate exercise price of the put.
Bankmail: An agreement between a bank and corporation involved in a takeover. The bank agrees not to finance another acquirer’s bid.

Bank of International Settlements (BIS): Structured like America’s Federal Reserve Bank, controlled by the Basel Committee of the G-10 nations’ Central Banks, it sets standards for capital adequacy among the member central banks.

Bankruptcy: Private individuals, privately held corporations and publicly traded companies may file for protection from creditors under federal bankruptcy laws. With regard to publicly held companies, these laws govern how they go out of business or recover from unmanageable debt. In the event that they file under Chapter 11 of the Bankruptcy Code in an effort to reorganize and become profitable again, management continues to run the day-to-day business operations, but oversight is exercised by the Court. If the company files under Chapter 7, they cease to do business, and their assets are liquidated by the Trustee who uses the money to satisfy debts to creditors and investors. The SEC may intervene if it appears that the company’s officers and directors filed bankruptcy to shield themselves from lawsuits for securities fraud.
“BD” or Form BD: Document that broker-dealers must file and keep current with the SEC. It provides details about the firm’s principals and officers, net capital compliance, and financial statements.

Bear and Bull Markets: A bear market is one in which prices are low or declining; a bull market is one in which prices are high or rising.

Bearer Bond: A security, usually a bond, that does not have the owner’s name registered on the books of the issuer or on the certificate. Interest and principal, when due, are payable to the person in possession of the bond. The holder sends in or presents a coupon for payment. Most securities issued today are in registered form.

Bearer Form: A negotiable instrument including any paper, document or device that can be used to transfer value (e.g. travelers checks), written and signed unconditional promises (Promissory Notes), orders to pay a specific sum or money on demand or at a definite time are in bearer form if they are readily negotiable, transferable, payable to order or payable to bearer.

Bellwether: A leading indicator of trends. A bellwether stock is a stock which is used to gauge the performance of the market in general. General Motors is an example of bellwether stock in the past. Hence the saying “What’s good for GM is good for America.”

Beneficial Owner: The person(s) entitled to the benefits of ownership even though another party such as a broker or bank–the nominal owner–actually has possession and title to the security. Shares or title may be held by a bank or broker for safety and convenience, or in “street name” to expedite transactions, but the real owner is the beneficial owner.

Beneficiary: A person or entity who is the recipient of or will receive some or all proceeds of money or property held by the current owner upon a specified event or condition. With regard to Trusts, t Beneficiary is the person(s), company, trust or estate named by the grantor, settlor or creator to receive the benefits of a trust in due course upon conditions which the grantor established by way of a trust deed. An exception would be the fully discretionary trust. The beneficiary could be a charity, foundation and/or person(s) which or who are characterized by “classes” in terms of their order of entitlement or their hierarchy.

Best Execution Requirement: The obligation of Market Makers, broker/dealers, and others to execute customer orders at the best price available at the time the trade is entered.

Blank Check Company: A development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person. These very small companies typically involve speculative investments and often fall within the SEC’s definition of “penny stocks” or are considered “microcap stocks.” Because of the nature of blank check companies, the SEC does not allow them to use some of the exemptions from the registration requirements when selling their securities.

Blind Trust: A trust whereby executors have full discretion of assets and the beneficiaries have no knowledge of holdings within the trust. Blind trusts are generally used when Settlors/Grantors/Trustors wish keep beneficiaries in the dark regarding trust assets.

Block: A large quantity of a security that is either held or traded. Generally, a block is considered to be 10,000 shares or more of stock and 200,000 or more bonds.

Block Trade: A large amount of a stock’s shares sold as a single unit.

Blue-Sky Laws: Every state has its own securities laws—commonly known as “Blue Sky Laws”—that are designed to protect investors against fraudulent sales practices and activities. While these laws can vary from state to state, most states laws typically require companies making small offerings to register their offerings before they can be sold in a particular state. The laws also license brokerage firms, their brokers, and investment adviser representatives. The term is said to of originated in the early 1900s by a Supreme Court Justice who wanted to protect investors from speculative ventures that had, “as much value as a patch of blue sky.”

Board of Governors: The controlling body of NASD

Board of Trustees: A board acting as a trustee of a trust or as advisors to the trustee depending upon the language of the trust indenture. Also see Committee of Advisors.

Boiler Room: A base of operations from which con artists launch fraudulent telemarketing scams, schemes and swindles. These may be a rented office, a basement in a home or any other place where the perpetrator can establish a bank of telephones and cold callers can operate undisturbed. They are called boiler rooms because they are a “high pressure” environment.

BOM (Branch Office Manager): Individual who is in charge of a branch office of a brokerage firm or a bank. BOMs who supervise the activities of at least three brokers must pass supervisory tests given by the exchanges and the NASD.

Bond: A certificate of indebtedness in which the issuer (borrower) promises to pay the bondholder (creditor) a specified amount of interest for a specified time period and to repay the debt at maturity. Obligations that are due in more than one year are classified as bonds whereas if the debt is for less than one year, it is called a “note.” Bondholders are creditors of the issuer and they do not have ownership privileges. A bond may be registered either by issuing certificates in the bondholder’s name, book-entry or in bearer certificates.

Book-Entry Securities: Securities that are registered to an owner without the issuance of a physical certificate. Ownership is reflected by an entry in the issuer’s books. This method of registering securities has grown in popularity because investors need not worry about the location of their certificates and it requires less paperwork for a brokerage firm.

Branch Office: Any location identified by any means to the public or customers as a location at which an NASD member conducts investment banking or securities business.
Branch Office Manager (BOM): Individual who is in charge of a branch office of a brokerage firm or a bank. BOMs who supervise the activities of at least three brokers must pass supervisory tests given by the exchanges and the NASD.

Bridge Loan: A short-term loan that is used just until a person or company can secure permanent financing.

British West Indies (BWI): In the Caribbean, including the UK-dependent territories of Anguilla, the British Virgin Islands (BVI), the Cayman Islands, Montserrat and the Turks and Caicos Islands.

Broker: A person who handles investors’ orders to buy and sell securities. For this service a commission is usually charged. Brokers specializing in stocks, bonds, options, or commodities act as an agent.

Broker-Dealer: An individual or firm in the securities business who acts as a principal rather than as an agent in a specific transaction. Principles buy and sell securities for their own account and risk. A dealer’s profit or loss is derived from the difference between the price he/she pays for the security and the price he/she receives when selling the security to a customer. Because most individuals and firms act as both brokers and dealers, the term broker-dealer is commonly used.

Bucketing: Where, in an attempt to make a quick profit, a broker confirms an order to a client without actually executing it. If the eventual price that the order was executed at was higher than the price available when the order was submitted, the customer would simply pay the higher price. On the other hand, if the execution price were lower than the price available when the order was submitted, the customer would pay the higher price, and the brokerage firm would pocket the difference.

Bucket Shop: 1) A brokerage firm that uses aggressive telephone sales tactics to sell securities that the brokerage owns and wants to get rid of. The securities that they sell are typically poor investment opportunities, almost always penny stocks. 2) A brokerage firm that engages in “bucketing.”

Bull and Bear Markets: A bear market is one in which prices are low or declining; a bull market is one in which prices are high or rising.

Business Conduct Committee: A committee, organized under the NASD in each of its 13 districts, that acts as a hearing tribunal for trade practice complaints made under the Code of Procedure–also called the “District Business Conduct Committee.” The committee ascertains the facts and, when warranted, imposes discipline. Decisions may be appealed to the NASD’s Board of Governors.

Business Trust: A trust created for the primary purpose of operating or engaging in a business. It is a person under the Internal Revenue Code (IRC). It must have a business purpose and actually function as a business.

Buying On Margin: Buying securities on credit in an established margin account at a brokerage firm.

Bypass Trust: A written agreement established by parents that allows them to pass their assets to their children in the event of their death.

Call: 1) An option in which the holder has the right to buy a specific number of shares of the underlying security at a specified price within a specified time period. 2) An issuer’s right to redeem a bond issue (in full or part) before its maturity date.

Capital Asset: Regarding individuals, any kind of investment. In relation to corporations, besides security investments, it includes fixed assets such as land, buildings, equipment and furniture. Generally, a capital asset can be any item that is not bought or sold in the normal course of business.

Capital Gain: An increase in the value of a capital asset (investment or real estate), higher than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes. Long-term capital gains are usually taxed at a lower rate than regular income. This is done to encourage entrepreneurship and investment in the economy. Current tax regulations require any gains to be taxed at a rate up to 28%.

Capital Gains Distribution: A distribution of profits derived from the assets within a mutual fund. Mutual funds usually distribute these gains on a quarterly basis to their shareholders. These gains are currently taxable at a rate up to 28%.

Capital Loss: A negative difference between an asset’s purchase price and its selling price. Current tax regulations allow capital losses to be offset dollar-for-dollar against capital gains and $3,000 of ordinary income.

Capital Stock: All shares representing ownership in a corporation as authorized by its charter. A corporation’s balance sheet normally includes the number and value of the issued shares in the figures for authorized shares.
Caribbean Common Market (CARICOM): Consists of 14 sister-member countries of the Caribbean community. Members include: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago. They have set as a goal that in 1997 there will be a single market allowing for the free movement of labor. Conspicuous by their absence are the Cayman Islands and the British Virgin Islands, two major players in international banking and finance.

Cartel: A small group of producers of a good or service who agree to regulate supply in an effort to control or manipulate prices. The best known example of a cartel is probably the Organization of Petroleum Exporting Countries (OPEC).

Cash Account: A brokerage account in which the client pays in full for any purchases. In contrast, in a margin account the broker extends the client credit. Many brokerage clients have both cash and margin accounts. Custodial accounts may not have a margin account.

Central Bank: A bank providing services for the government of a country and major commercial banks. A central bank’s main job is implementing monetary policy.

Central Computer Complex: The facility in Trumbull, Connecticut, where The Nasdaq Stock Market’s mainframe computers are located. The computer complex is linked to more than 3,400 Nasdaq terminals in securities firms and financial institutions. The system processes more than 1 million transactions per day. Nasdaq is also the only stock market in the world with a fully redundant disaster recovery facility, located in Rockville, Maryland.

Central Registration Depository (CRD): A computerized system in which NASD maintains the employment, qualification, and disciplinary histories of more then 400,000 securities industry professionals who deal with the public including most brokers, some investment advisers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You’ll also find information about the brokers’ educational backgrounds and where they’ve worked before their current jobs. You will probably find that your state securities regulator provides more information from the CRD than the NASD will release, especially when it comes to investor complaints. See also Form ADV and IARD.

Certificate: The actual paper evidencing ownership of a security. The certificate states the issuer’s name, amount of shares, shareholder’s rights, the issue’s par value (or declaration of no par value) and any responsibilities of the issuer. Certificates may be issued in registered or bearer form.

Certificate Of Deposit (CD): A money market instrument issued by banks that has a set interest rate and maturity date. CDs may be issued for as low as $100. CDs that are in denominations of $100,000 or more are called “jumbo CDs.” Maturities can range from a few weeks to several years.

Certified Financial Planner: CFP, Certified Financial Planner, and Certification Marks are owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements. Those wanting to become a CFP professional must take extensive exams in the areas of financial planning, taxes, insurance, estate planning, retirement, among others. Attaining the CFP designation takes experience and a lot of hard work, and CFP professionals must also complete continuing education programs each year to maintain their certification status.

Certified Public Accountant: A designation by the American Institute of Certified Public Accountants those who pass an exam and meet work-experience requirements. For the most part the accounting industry is self-regulated. The CPA is a designation designed to help ensure professional standards for the industry are enforced. Other countries have certifications equivalent to the CPA for their region. For example, in Canada, accountants similar to the CPA are called Chartered Accountants (CA).

Chapter 7: A bankruptcy proceeding where a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company’s assets and the money is used to pay off debt.

Chapter 11: A bankruptcy proceeding that involves a reorganization of a debtor’s business affairs and assets, and is generally filed by corporations which require time to restructure their debts. Chapter 11 gives the debtor a fresh start, subject to the debtor’s fulfillment of its obligations under its plan of reorganization.

Charity Room: A boiler room variation in which the telemarketers use high pressure sales tactics to persuade victims to contribute to charitable organizations. A bona fide charity may receive some nominal share of the proceeds, but in many cases, it is an outright fraud.

Chicago Board Options Exchange (CBOE): Exchange in which options are traded.

Chicago Board Of Trade (CBT): Exchange in which futures–such as corn, gold, silver and wheat–and futures options are traded.

Chicago Mercantile Exchange: Exchange in which foreign currency futures and futures options are traded. Amongst others, some examples are the British pound, Canadian dollar, French franc, and the Japanese yen. In addition, futures and futures options are traded on such vehicles as indexes, live cattle, pork bellies and lumber.

Chinese Wall: A term used to describe procedures enforced within a securities firm that separate the firm’s departments to restrict access to non-public, material information. The procedures help NASD members avoid the illegal use “inside” information. Outside the securities industry, this term can refer to any device or strategy adopted to establish separation.

Churning: Also known as “excessive trading.” Like “Unsuitability,” churning allegations often form the basis for an arbitration award, and it is an issue that any investigator handling cases involving securities issues must understand. A broker “churns” an account when he engages in excessive trading for the purpose of increasing his or her commissions, rather than to further the customer’s investment goals.
For example, Thelma Lou is thirty year old actress with an annual income of approximately $350,000. She entrusted $500,000 to Joe Broker who engaged in some sort of stock transaction virtually every day. Although there was no fraud, Thelma Lou approved every trade, and she realized a significant return on her investment, she would have made as much or more had the money been invested and left alone. The excessive trading served only to enrich the broker, so Thelma Lou would almost undoubtedly prevail if she pursued an arbitration award.

Claim: A demand for money or other relief.

Clearance: The conclusion of an exchange of securities

Closer: This sales term is usually applied to the experienced telemarketer who specializes in making the final pitches necessary to persuade reluctant investors who are identified by cold callers as having potential.

Closing Ratio: The ratio of closed contacts to those who were prospected by cold callers expressed as a percentage. An effective boiler room operation may persuade 5% to 10% of cold calls depending upon the attractiveness of the pitch, the talent of the closer and the degree of pressure applied.

Cold Calling: Telephone calls made to unknown individuals whose names appear on “mooch lists” by boiler room telemarketers or “lead lists” by broker dealer account executives prospecting for potential “clients.”

Collateral: Assets, such as securities, that are pledged to a lender by a borrower. The assets secure the loan until the borrower repays it. In the event the borrower defaults, the lender has the legal right to sell the assets to pay off the loan.

Comfort Letter: An accounting firm’s statement provided to a company preparing to go public. The letter indicates the accountants’ comfort that unaudited financial data in the company’s prospectus consistently follow generally accepted accounting principles, and no material changes have occurred since the report was prepared.

Commercial Paper: Debt instruments that are issued by established corporations to meet short term financing needs. Such instruments are unsecured and have maturities ranging from 2 to 270 days. Commercial paper is rated by Standard & Poor’s and Moody’s.

Commissions: Fees paid to a broker for executing a trade based on the number of shares traded or the dollar amount of the trade.

Committee of Advisors: Provides non-binding advice to the trustee and trust protector. Friendly towards settlor but must still maintain independence.

Committee of Trust Protectors: An alternative to utilizing merely one trust protector. Friendly towards settlor, but must remain independent.

Committee on Uniform Security Identification Procedures (CUSIP) number: A unique nine-character alpha/numeric code appearing on the face of each stock certificate that is assigned to a security by Standard & Poor’s Corporation. The number is used to expedite clearance and settlement.

Commodities: Bulk products, such as metals, grains, and foods, that are traded on a commodities exchange.

Common Stock: Securities which represent an ownership interest in a public corporation. Owners are entitled to vote on the selection of directors and other important matters as well as to receive dividends when they are declared. If a corporation is liquidated, the claims of secured and unsecured creditors, bondholders and owners of preferred stock have priority over the claims of common stockholders

Community Property: A special ownership for married couples under laws of community property. Not all states have community property laws. Each has equal rights to any appreciation or income derived from those assets.

Companies Act or Ordinance: Legislation enacted by a tax haven to provide for the incorporation, registration and operation of international business companies (IBCs). More commonly found in the Caribbean tax havens. For a typical example, read the Bahamas’ International Business Company Act of 1989.

Compliance Departments: Departments set up in all organized stock markets to oversee market activity and make sure that trading complies with Securities and exchange Commission and other Exchange regulation.

Confirmation: Formal memorandum from a broker to a client giving details of securities transaction. When a broker acts as a dealer, the confirmation must disclose that fact to a customer.

Consumer Price Index (CPI): A measure of price changes in consumer goods–also known as the “cost of living index.” The index is calculated monthly by the US Bureau of Labor Statistics. Some CPI components are food, housing costs and transportation.

Controlled Foreign Corporation (CFC): An offshore company which, because of ownership or voting control of U.S. persons, is treated by the IRS as a U.S. tax reporting entity. IRC 951 and 957 collectively define the CFC as one in which a U.S. person owns 10 percent or more of a foreign corporation or in which 50 percent or more of the total voting stock is owned by U.S. shareholders collectively or 10 percent or more of the voting control is owned by U.S. persons.

Convertible Bond: A bond that can be exchanged at the option of the holder into preferred or common stock at a preset ratio.

Cook the Books: A fraudulent activity done by some corporations to falsify their financial statements.

Cooling Off Period: The period after a company’s prospectus has been filed with the Securities and Exchange Commission and before offering is made to the public.

Corporate Bond: Debt instrument issued by a corporation. In contrast to most municipal and government bonds, which are not traded on major exchanges and are tax-free, corporate bonds are traded on major exchanges and the interest paid to the investor is taxable.

Corporation: A legal entity chartered by a state or the federal government and is separate and distinct from the persons who own it. A corporation is considered an artificial person–it may own property, incur debts, sue or be sued. Some distinguishing features of corporations are: * Ownership is held by stockholders who have limited liability–that is, they can only lose what they invest. * Transfer of ownership is accomplished through the sale of stock shares. * Perpetual existence (unless ended through bankruptcy, a merger, tender or takeover).

Coupon Bond: A bond in a form that has interest coupons attached. The coupons are clipped as they come due (usually semiannually) and are submitted by the bondholder for payment of interest.

CRD (Central Registration Depository): A computerized system in which NASD maintains the employment, qualification, and disciplinary histories of more then 400,000 securities industry professionals who deal with the public including most brokers, some investment advisers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You’ll also find information about the brokers’ educational backgrounds and where they’ve worked before their current jobs. You will probably find that your state securities regulator provides more information from the CRD than the NASD will release, especially when it comes to investor complaints. See also Form ADV and IARD.

Creator: A person who creates a trust. Also see settlor and grantor.

Customer Service Department: A separate division in most telemarketing companies whose sole responsibility is to handle customer complaints, placate victims and persuade them to continue to be victimized.
Current Account: An offshore, personal savings or checking account.

Current Assets: Corporate assets that are expected to be converted to cash within twelve months. These assets include cash, accounts receivable, marketable securities and inventories.

Current Liabilities: Debt or other obligations that are due within twelve months.

CUSIP (Committee on Uniform Security Identification Procedures) number: A unique nine-character alpha/numeric code appearing on the face of each stock certificate that is assigned to a security by Standard & Poor’s Corporation. The number is used to expedite clearance and settlement.

Custodial Account: An account opened on the behalf of a minor by an adult who acts as custodian. The custodian is usually one of the child’s parents–both parents cannot be custodian. This type of account is opened because minors cannot enter into contracts. Thus, they cannot make securities transactions for themselves. Any assets placed into a custodial account are irrevocable. Once the minor is of majority (usually 18, but some states are 21), they may do what they please with the assets.

Custodian: A financial institution, such as a brokerage firm, or a bank that holds stock certificates and other assets on the behalf of a mutual fund, corporation or individual. An individual may also act as a custodian in the case of an account for an minor.
Custodian Trustee. A trustee that holds the trust assets in his or her name.

Customer Agreement: Document filled out by a broker that details vital facts about a new client’s financial circumstances and investment objectives. The representations the customer makes regarding his objectives and personal experience with regard to securities can be critical in the event of an arbitration claim. THIS IS NOT THE PLACE TO OVERSTATE KNOWLEDGE AND EXPERIENCE.

Customer Protection Rule: An SEC rule that requires broker/dealers to establish separate reserve accounts into which customer credit balances are maintained. The rule prohibits a firm from using customer balances to finance its own trading. The rule also requires firms to gain possession of customers’ fully paid and excess margin securities promptly, and to segregate them properly.

Dealer: An individual or firm in the securities business who acts as a principal rather than as an agent in a specific transaction. Principles buy and sell securities for their own account and risk. A dealer’s profit or loss is derived from the difference between the price he/she pays for the security and the price he/she receives when selling the security to a customer. Because most individuals and firms act as both brokers and dealers, the term broker-dealer is commonly used.

Death Spiral: When a company desperately needs cash, so an investor lends the money in exchange for convertible debt. This debt (like a convertible bond) typically has provisions that allow the investor to convert the bond into stock at below market prices. These investors then short the company’s stock and try to drive its price down. The lower the stock goes, the more shares the investor will get when he/she converts. The investor then closes out their short position with the shares they get from the conversion.

Debenture: An unsecured (without collateral) bond backed only by the integrity of the issuer (borrower). The parameters of the bond are set forth in an agreement called an indenture.

Debt: 1) Common name for bonds and other forms of paper evidencing the amount owed and whether it is payable on a specific date or on demand. 2) One party’s legal obligation to pay another party in accordance with an expressed or implied agreement. The debt may or may not be secured.

Debt Instrument: A written agreement denoting that the issuer promises to reimburse a debt. Examples are Treasury Bills, Notes and Bonds, Banker’s Acceptances, Commercial Paper and Certificate of Deposits.

Debtor: A business or individual that borrowed money that needs to be reimbursed to the creditor.

Debt Retirement: The repayment of specific debt. There are two methods used to retire debt–sinking fund and serial. Sinking fund and serial bonds are not types of bonds, just methods of retiring them. The sinking fund method, in which money is set aside each year to retire debt, is most commonly used for corporate debt. Conversely, the serial method is more commonly used in the debt retirement of municipal bonds. When bonds are issued in serial form, parts of the issue, known as a “series,” are retired in various time schedules, usually semiannually or annually.

Declaration of Trust: A document creating a trust; a trust deed.

Deduction: An expense that can be subtracted from an individual’s adjusted gross income to obtain their taxable income. The type of expense deductions allowed is determined by the Internal Revenue Service (IRS). Examples include state and local taxes, charitable contributions and mortgage interest paid.

Deferral of Taxes: The deferment of making tax payments from this year to a later year. For example, money in an Individual Retirement Account (IRA) grows tax deferred until the money is withdrawn from the account.
Deferred Account: An account, such as an Individual Retirement Account or Profit Sharing Plan, that delays taxes until a later date.

Deferred Annuity: An annuity in which its contract provides that payments to the annuitant are delayed until certain thresholds have been attained (e.g., when the annuitant attains a certain age)–also called a “deferred payment annuity.”

Deferred Interest Bond: A bond, such as a zero coupon bond, that pays interest and repays principal in one lump sum at maturity.

Deficiency Letter: A written notice sent by the Securities and Exchange Commission (SEC) to the issuer of an anticipated new issue. The notice states that there are omissions of material fact in the registration statement and/or that the preliminary prospectus needs revision. If immediate action is not taken by the issuer, the registration period may need to be extended.

Deficit Spending: A shortage that is financed by government borrowing. This shortage occurs when the amount of government expenditures exceeds government revenues.

Defined Benefit Pension Plan: A retirement plan that stipulates that each participant will receive a set payment after a predetermined number of years of service. It does not pay taxes on investments within the plan. Contributions to the plan may be by employer only, employee only or both.

Deflation: A persistent price decline of goods and services–the inverse to inflation. Deflation usually occurs during a recession and is characterized by supply exceeding demand, and while there is increased buying power, the amount of currency in circulation is greatly reduced. Marked deflation generally affects production and employment negatively. Deflation should not be confused with disinflation, which is a result of a slow down in the rate that prices increase.

Demand Deposit: A type of bank account whereby the account balance can be withdrawn by the depositor without prior notice to the bank (e.g. checking accounts). The balance can be withdrawn via check, automatic teller machine or by transfers to other accounts using a PC or telephone. The Federal Reserve uses demand deposits as a primary indicator as to when to implement monetary policy because they are the largest component of the money supply.

Deposit: 1) Securities put into a customer’s account at a financial institution (e.g., brokerage firm). 2) Cash, checks, or drafts credited to a customer’s account at a financial institution (e.g., bank checking and saving accounts). 3) Money put down as an indication of good faith in contracts and vendors, such as utility and telephone companies, to protect the other party against nonpayment, property damage and contract defaults.

Depositary Bank: When a company decides to issue American Depositary Receipts, it appoints an authorized depositary, normally part of a large U.S. banking institution or trust company.

Depository Trust Company (DTC): A central securities certificate repository that is a member of the Federal Reserve System and is industry-owned. The New York Stock Exchange is the majority owner. DTC members deliver securities to each other via computerized debit and credit entries. This reduces the need to actually move paper certificates.

Depreciation: A bookkeeping entry that does not require cash outlay nor funds to be earmarked. The entry is a charge against earnings to write off the cost of an asset over its assessed useful life over a set time period. It reduces taxable income but does not reduce cash. The most commonly used depreciation methods are Straight-line Depreciation and Accelerated Cost Recovery System (ACRS).

Depression: Economic situation characterized by rising unemployment, an excess of supply over demand, deflation, reduced purchasing power, contraction of general business activity and public fear.

Derivative Instrument: Financial instrument whose price is based on an underlying security–for example, an option’s value can be derived either from its underlying stock, stock index, or future (dependent upon the type of option).

Director: An individual elected by corporate shareholders to serve on that corporation’s Board of Directors. The Board of Directors decide when dividends will be paid, appoint the corporation’s president, vice president and all other officers.

Direct Participation Programs: Partnership agreements that provide a flow-through of tax consequences to the participants.

Direct Public Offering: Where a company raises capital by marketing its shares directly to its own customers, employees, suppliers, distributors and friends in the community. DPO’s are an alternative to IPO’s, the classic underwritten public offerings by securities broker-dealer firms, in which a company’s shares are sold to the broker’s customers and prospects.

Discharge of Bankruptcy: Order ending bankruptcy proceedings. It usually releases the debtor of any legal liability for specific obligations.

Discharge of Lien: Order removing a lien on property after the claimant has been paid or the debt is otherwise satisfied.

Discount Broker: A brokerage firm that executes buy and sell orders at lower commission rates than those charged by a full service broker.

Discount Rate: The rate of interest charged by a Federal Reserve Bank on a loan to a member bank, using government securities or eligible paper as collateral.

Discount Window: Federal Reserve location where banks can borrow money at the discount rate.

Discretionary Account: A type of brokerage account whereby clients authorize their broker to buy and sell securities or commodities when the broker deems it is appropriate. The broker will decide when and which securities, the amount of shares, and price to be paid or received without the client’s prior knowledge or consent. Some clients may set guidelines for the broker, such as limiting the type of securities in which to invest.

Discretionary Income: The amount of income leftover after essential commitments, such as housing and food, have been paid. Spending discretionary income can spur the economy. Thus, the amount of discretionary income can be a key economic indicator.

Discretionary Order: An order to buy or sell a security for a customer that lets the broker, who has limited power of attorney over the customer’s account, decide when to execute the trade and at what price.

Discretionary Trust: Mutual fund or unit trust where the management decides on the best way to invest the assets. The fund is not limited to a specific kind of security.

Disinvestment: Capital investment shrinkage caused by a firm’s failure to maintain or replace capital assets being used up or by the firm’s sale of capital goods such as equipment.

Disposable Income: Income that remains after tax payments. This money may be spent on essentials (e.g., food and shelter), nonessentials (e.g., dining in a restaurant) or it can be saved.

Dissolution: The termination of a business endeavor.

Distributing Syndicate: Group of brokerage firms or investment bankers that work together to expedite the distribution of securities in an offering.

Distributions: The payment, to investors, of realized capital gains on securities within the portfolio of a mutual fund or closed-end investment company.

Diversification: Spreading risk by placing assets in different types of investments (i.e., mutual funds, stocks, bonds, etc.) and various companies in different industry groups (i.e., pharmaceutical, utility, airline, etc.).

Diversified Investment Company: Term used for either closed or open-ended mutual funds or unit trusts that invest in many different kinds of securities and companies. Under the Investment Company Act of 1940, an investment company, with respect to 75% of its portfolio, may not have more than 5% of its assets invested in the securities of any one issuer and may not own more than 10% of the voting shares of any one issuer.

Divestiture: Disposal of an investment by sale, liquidation or other means. This legal term is also used to describe a corporation’s systematic distribution of large blocks of another company’s stock which were being held as an investment.

Dividend: Distribution of a company’s earnings to its shareholders, usually in the form of a quarterly check. The company’s board of directors authorize and determine the amount of the dividend. Dividends are taxed as income in the year they are received by the shareholder. A mutual fund dividend is paid out of income and the shareholder’s tax is dependent on whether the distributions originated from interest income, capital gains, or dividends received by the fund.

Dividend Record: A Standard & Poor’s publication that gives data on corporate payment histories and policies.

Dividend Reinvestment Plan (DRIP): A program in which a dividend paying company (especially mutual funds) will automatically reinvest an investor’s dividend to purchase additional shares of the company’s stock. The dividend is still taxable by the IRS. In participating in a DRIP, investors use dollar cost averaging to increase their amount of capital in the stock.

Dividend Requirement: The amount of annual earnings needed to pay a preferred stock’s contracted dividend.

Dividend Yield: The annual percentage of return that the dividend provides to the investor on either common or preferred stock-often referred to as just “yield.” The yield is calculated by dividing the annual cash dividend per share by the stock’s market price at the time of purchase.

Dividends Payable: Dollar amount of dividends that are obligated to be paid once a dividend is declared by the board of directors. The dollar amount is listed as a liability in the annual and quarterly reports.

Dollar Bond: 1) Municipal revenue bonds that are quoted and traded at a dollar price rather than at a yield to maturity. 2) Bonds that are issued in the United States by foreign companies and denominated in US dollars. 3) Bonds that are issued outside the United States and denominated in US dollars.

Donor: A transferor. One who transfers title to an asset by gifting.

Double Taxation: Corporate earnings taxed at both the corporate level and again as a stockholder dividend.

Dow Jones Composite: Combination of the Dow Jones Industrial Average (DJIA), Dow Jones Transportation Average (DJTA) and the Dow Jones Utility Average (DJUA).

Dow Jones Industrial Average (DJIA): Average of the prices of 30 well-known, predominantly blue-chip, industrial stocks. The following 30 stocks make up the DJIA as of February 1995: Allied Signal; Alcoa, American Express; A T & T; Bethlehem Steel; Boeing; Caterpillar; Chevron; Coca Cola; Disney; Dupont; Exxon; General Electric; General Motors; Goodyear; IBM; International Paper; Kodak; McDonalds; Merck; 3M; JP Morgan; Philip Morris; Proctor Gamble; Sears; Texaco; Union Carbide; United Tech; Westinghouse and Woolworth.

Dow Jones Transportation Average (DJTA): Average of the prices of 20 representative transportation companies.

Dow Jones Utility Average (DJUA): Average of the prices of 15 geographically representative gas and electric utility companies.

DPP (Direct Participation Program): A business venture, usually organized as a limited partnership, that is structured to pass-through income and “tax losses” of the underlying investments to investors. However, its use as a tax shelter has been severely reduced by tax legislation.

Draining Reserves: Actions that are taken by the Federal Reserve to reduce the money supply in order to cut the funds available to banks for lending purposes. The Fed accomplishes this by:

• Raising reserve requirements–banks will need to keep more money on deposit with Federal Reserve banks;
• Escalating the rate that banks borrow to maintain reserves–making it unattractive to drain reserves by making loans; and
• Selling bonds at such attractive rates that dealers will reduce their bank balances to buy them.

DRIP (Dividend Reinvestment Plan): A program in which a dividend paying company (especially mutual funds) will automatically reinvest an investor’s dividend to purchase additional shares of the company’s stock. The dividend is still taxable by the IRS. In participating in a DRIP, an investor uses dollar cost averaging to increase their amount of capital in the stock.

DTC (Depository Trust Company): A central securities certificate repository that is a member of the Federal Reserve System and is industry-owned. The New York Stock Exchange is the majority owner. DTC members deliver securities to each other via computerized debit and credit entries. This reduces the need to actually move paper certificates.

Dual Listing: A security that is listed on more than one exchange–either the New York Stock Exchange and a regional exchange or the American Stock Exchange and a regional exchange. However, a security may not be listed on both the New York and American stock exchanges. Being dual listed increases the liquidity of a security.

Dual Purpose Investment Company: An exchange listed closed-end investment company that issues two classes of shares–income and capital. The income (preferred) shareholders receive all the income (dividends and interest) from the portfolio, and the capital (common) shareholders receive all the capital gains. As dual purpose funds are not highly traded, many analysts do not follow them closely.

Due Diligence: A thorough investigation, typically of a company that is preparing to go public, usually undertaken by the company’s underwriter and accounting firm. It is a term that can be applied to any investigative inquiry as defining the standard of care involved.

Dumping: Event that occurs when a seller offers a large amount of stock for sale with no concern as to how it will affect the stock’s price or the market.

Dun & Bradstreet (D & B): Company that provides subscribers with a ratings directory and credit reports of corporations. It also publishes financial composite ratios and offers an accounts receivable collection service. Moody’s Investor Service, which rates bonds and commercial paper, is a subsidiary of D & B.

Dutch Auction: Auction method used in which the security’s price is gradually lowered until it meets an acceptable bid and is sold. The Treasury uses this auction system when selling new notes or bonds to determine the lowest bid price (stop-out price). The opposite is the “auction market” system used by major stock exchanges.

Earned Before Taxes: A corporation’s earnings after bond interest has been paid but before it pays taxes.

Earned Income: Income generated from employment, pensions or annuities–for example, wages, salary, commissions, bonuses, IRAs, etc.

Earnings: The amount of profit a corporation receives after expenses and taxes are paid.

Earnings Before Interest and Taxes (EBIT): A corporation’s earnings before it pays bond interest and taxes.

Earnings Momentum: A corporation’s earnings per share that continuously increases from one period to another. The usual effect is that a stock’s price will rise. A corporation has earnings momentum, for instance, when its earnings per share are 24% this year, with the previous year being 16%. Its stock should see a rise in its price.

Earnings Per Share (EPS): Amount of a corporation’s earnings that are apportioned to each outstanding share of common stock. It is calculated by dividing net income minus preferred dividends and bond interest by the number of outstanding common shares. If all common stock equivalents–such as convertible bonds, preferred stock, rights and warrants–have been exchanged into common stock, earnings per share is considered to be “fully diluted.”

Earnings Price Ratio (EPR): A corporation’s earnings per share related to its current stock price. It is used to compare the attractiveness of stocks, bonds, and money market instruments–also called “earnings yield.”
Earnings Report: A corporation’s profit and loss statement that displays its earnings or losses for a specific time period–also called an income statement. The report provides details on revenues, expenses, and the net result.

Eastern Account: An underwriting account for a new issue of municipal securities whereby the underwriting group, as a whole, assumes financial responsibility for successful distribution of the issue–also called an “undivided account.” A member’s profits are contingent upon their percentage of participation in the account regardless of how much they sell. Member A, for example, has a 15% participation and sells 20% of the bonds. If the group sells only 90% of the bonds, member A is still responsible to sell unsold bonds equal to the same percentage of his original participation–that is 15%.

EC: The European Commission of the European Union (EU).

Econometrics: Mathematical computerized models used to illustrate the relationship between key economic conditions such as employment rates, interest rates, and government policies. It is then used to conduct analyses on various economic situations. An econometric model, for example, might be used to show the relationship between consumer spending and unemployment rates.

Economic Growth Rate: Annual percentage change in the gross national product (GNP). If the rate rises in two consecutive quarters, it is considered to indicate an expanding economy. If the rate drops in two consecutive quarters, it is considered to mean a recession. A “real economic growth rate” is obtained when the rate is adjusted for inflation.

Economic Indicators: Key statistics indicating the direction (expanding or contracting) of the economy. Some indicators are the unemployment rate, inflation rate and balance of trade.

ECU: European Currency Unit.

EDGAR: Electronic Data Gathering, Analysis, and Retrieval — An electronic system developed by the Securities and Exchange Commission. EDGAR permits companies to file electronically with the SEC all documents required for securities offerings and ongoing disclosure obligations. EDGAR became fully operational in mid-1995.

EEC: European Economic Community.

Effective Date: The date on which a new security issue may begin trading in the secondary market. It is usually the 20th day following the registration statement filing with the SEC, unless the SEC issues a deficiency letter requiring the issuer to make revisions to the registration statement.

Effective Debt: Total debt owed by a firm.

Effective Rate: Yield on a debt instrument that is calculated by using the purchase price, the coupon rate, the number of days between interest payments, and the length of time until maturity. Because these other factors are considered in determining the yield, the effective rate represents a more accurate yield than the coupon rate.

Effective Sale: A security’s round lot price that determines the selling price for the next odd lot. The additional amount above (buying) or below (selling) the round lot’s price is the “odd-lot differential.” For example, if the last round lot price is 10, the odd-lot price would be at least 10 1/8.

Eligible Paper: Negotiable instruments such as commercial paper, drafts, and banker’s acceptances that a bank obtains at a discount and in which the Federal Reserve Bank will accept for rediscount.

Employee Retirement Income Security Act (ERISA): Federal law passed in 1974 that regulates the establishment, management, operation, and funding of most non-government pension and benefit plans.

Employee Stock Ownership Plan (ESOP): A plan that encourages employees to purchase stock of their employer. By participating in the plan, employees are able to partake in the company’s management.

Employment Scheme: An advanced fee scheme variation that preys on persons’ desperation for work. They advertise that they can arrange to obtain jobs for prospective clients for an up-front fee.

Endorse: The transfer of an asset’s ownership by signing the back of a negotiable instrument. For instance, an individual signs the back of a stock or bond certificate to transfer ownership.

Energy Mutual Fund: Mutual fund that aims to profit from stock investments in companies whose business is energy related. For example, oil, gas, solar energy, and coal companies.

Engineering Report: An analysis and a report completed by an engineering firm as part of the feasibility study for a proposed municipal revenue issue.

Estate: Interests in real and/or personal property.

Entrepreneur: Individual who starts a new business. Venture capital is often used to finance the startup costs in return for an equity share. Once the business is established, an entrepreneur may choose to raise additional capital by selling equity shares to the public through an initial public offering.

Equity: 1) Ownership interest in a business endeavor; net worth. 2) Ownership interest in a corporation through the purchase of shares of stock. 3) A customers ownership in an account at a brokerage firm. The customer’s equity is the account’s market value of long positions (commonly just referred to as “long market value”) minus the account’s debit balance, or the credit balance minus market value of short positions (“short market value”).

Equity Financing: A corporation’s issuance of shares of common or preferred stock to raise money. Equity financing is commonly done when its per share prices are high–the most money that can be raised for the smallest number of shares.

Equity Funding: An investment that combines a life insurance policy with a mutual fund. The fund shares are used as collateral for a loan to pay the insurance premiums. Equity funding gives the investor the insurance protection benefits along with potential investment appreciation.

Equity REIT: An investment trust in which it has ownership in the property bought within the trust. REIT is an abbreviation for “real estate investment trust.” Shareholders invested in equity REITs receive dividends on a building’s rental income and earn appreciation on properties sold at profit.

Equivalent Taxable Yield: Comparison between a corporate bond’s taxable yield and a municipal bond’s tax-free yield. Depending on the investor’s tax bracket, the after-tax return may be greater with a municipal bond than with a corporate bond that has a higher interest rate. The equivalent taxable yield is equal to the municipal yield divided by 100% minus the tax bracket. For an investor who is in a 28% tax bracket, for example, a 9% municipal bond would have an equivalent taxable yield of 12.5% (9%/72%).

ERISA (Employee Retirement Income Security Act of 1974): Federal law passed in 1974 that regulates the establishment, management, operation, and funding of most non-government pension and benefit plans.

Erroneous Report Rule: A New York Stock Exchange rule dictating that a client must accept a valid execution, regardless of any reporting mistakes.

Escheat: The term relates to abandoned property. All states require financial institutions, including brokerage firms, to report when personal property has been abandoned or unclaimed after a specified period of time. Before a brokerage account can be considered abandoned or unclaimed, the firm must make a diligent effort to try to locate the account owner. If the firm is unable to do so, and the account has remained inactive for the period of time specified by state law, the firm must report the account to the state where the account is held. The state then claims the account through a process called “escheatment.” The state will hold the account indefinitely for the rightful owner to claim. Some states may sell securities in the account and hold the proceeds for the owner.

Escrow: Money, securities or other property that is held by a third party until a contract’s conditions are met.

Escrow Receipt: A certificate issued by a bank guaranteeing that the options writer has the option’s underlying securities on deposit at the bank and that they will be delivered to the broker if the option is exercised.

ESOP (Employee Stock Ownership Plan): A plan that encourages employees to purchase stock of their employer. By participating in the plan, employees are able to partake in the company’s management.

Estate Tax: Tax imposed by a state or the federal government on assets left to heirs in a will. There currently (as of February 1995) is not an estate tax on property transfers between spouses and assets up to $600,000 are excluded.

Estate Tax Anticipation Bonds: Specified US Treasury bond issues that are accepted at par value for estate tax payments if the bonds were owned by the decedent at the time of death. Also called “flower bonds,” the last of these bond issues will mature in 1998.

Estimated Tax: The anticipated amount of tax for the coming tax year that is based on the higher of regular or alternative minimum tax (AMT) minus any tax credits. Persons or entities, for whom an employer does not withhold a fixed percentage of income, need to calculate estimated tax and make quarterly payments. Total withholdings and estimated taxes paid must equal the prior year’s actual tax or 90% of the estimated year’s tax.

Eurobond: Bond that is denominated in a specific country’s currency and sold to investors outside the country whose currency is used. The bonds are usually issued by large underwriting groups from many countries. The entity issuing the bonds does not have to be from the country whose currency is being used. Eurobonds provide an important capital source for multinational companies and foreign governments.

Eurocurrency: Money–also called “Euromoney”–deposited by corporations and governments in banks not located in their home countries. These banks are called “Eurobanks.” The currencies or the banks are not necessarily European. For example, dollars deposited in a Japanese bank are considered to be Eurocurrency.

Eurodollar: US currency held in banks outside the US, primarily in Europe.

Eurodollar Bond: Bond paying interest and principal in Eurodollars–US dollars held in banks outside the US. Eurodollar bonds do not have to register with the Securities and Exchange Commission.

Event Risk: In the case of an associated takeover development, such as additional debt issuance, risk that a bond’s credit quality will decline and a lower rating will be justified. Corporate bonds that include protective covenants, such as poison puts, are given event risk covenant rankings by Standard & Poor’s. Ratings range from E-1 (highest) to E-5 (lowest). Covenant rankings are supplemental to basic bond ratings.

Exact Interest: A financial institution’s interest payments in which the interest is calculated on a 365 day basis as opposed to a 360 day basis. The difference–the ratio is 1.0139–is substantial when calculating daily interest on large amounts of money.

Excess Margin: Equity in a customer’s margin account at a brokerage firm that is above the Regulation T minimum or the New York Stock Exchange maintenance requirement. With a Regulation T margin requirement of $50,000 and an exchange maintenance requirement of $25,000, for example, the customer whose equity is $100,000 would have excess margin of 50,000 and 75,000, respectively.

Excess Profits Tax: Additional federal taxes levied on business earnings. The purpose of the tax is to increase national revenues during a time of national emergencies.

Exchange Distribution: Block trade completed on an exchange floor. An investor who wishes to sell a large block of stock in one transaction will request a broker to solicit and group orders. The seller sells the securities to the buyers all at the same time, and the trade is announced on the broad tape as an exchange distribution. The seller pays a special commission to the executing broker.

Exchange Privilege: A mutual fund feature that allows a shareholder to convert from one fund to another fund within the same mutual fund family. For example, in a bull market an investor placed their money in an aggressive growth fund. If they expected the market to take a downturn, an exchange privilege would allow them to move the money to a conservative fund such as a money market. Mutual funds do not usually charge when an investor takes advantage of an exchange privilege. However, some funds do have specific parameters as to when or how many times an investor may use the exchange privileges.

Exchange Rate: Price at which the currency of a particular country can be converted into another country’s currency. Exchange rates usually vary slightly each day and are influenced by a wide range of economic factors.

Execution: Securities term to used to indicate that a buy or sell order has been completed.

Executive Session: A private conference between the arbitrators during the course of the hearing to determine matters that have arisen such as evidentiary objections or motions.

Executor: Any individual(s) appointed in a will, and confirmed by the court to administrate and distribute assets within the decedent’s estate.

Executrix: Female Executor – the individual appointed in a will, and confirmed by the court to administrate and distribute assets within the decedent’s estate.

Exempt Accounts: A NYSE term used to describe a customer who is not subject to exchange margin rules for US government issues and mortgage-backed securities. The customers may be individuals who have at least $16 million net tangible assets, broker-dealers and entities that are regulated by the US government or any of its agencies, states or municipalities.

Exempt Securities: Securities that are not subject to the registration requirements of the Securities Act of 1933. Exempt securities also include securities that do not have to follow certain provisions of the Securities Exchange Act of 1934 in terms of margin, registration of dealers who make a market in them, and certain reporting requirements. Examples of exempt securities are municipal bonds, governments and bank securities.

Exempt Transaction: A security transaction that is excluded from registration requirements.
Exercise: In options trading, the holder of a long contract has the right to buy (call option) or sell (put option) the underlying shares at the exercise price by notifying the option seller (writer). In making notification to the seller, the holder is exercising the option contract.

Exercise Limit: Maximum number of option contracts of the same class that can be exercised within five consecutive business days. Stock options usually have an exercise limit of 2000 contracts.

Exercise Notice: Notification by a broker that a client who holds a long option wants to exercise a right to buy (if call) or sell (if put) the underlying stock in an option contract. The notice is sent to the Options Clearing Corporation (OCC) which in return notifies the option seller (writer) to make sure that the stock is delivered.

Exercise Price: Dollar value per share at which the underlying security in a long option contract can be exercised over the specified period. If it is a call option, when exercising, the underlying security is bought, and if it is a put option, it is sold. The holder of 1 ABC January 65 put, for example, can exercise the contract before January’s expiration date. Thus, when exercising the contract, the holder sells 100 shares of ABC at the exercise or strike price of $65.

EXIM (Export-Import Bank): A bank that facilitates US trade with foreign countries by providing financing for exports and imports. It borrows money from the US Treasury and is backed by the full faith and credit of the US Government.

Exit Fee: Mutual fund lingo used when a penalty (in cents per share) is charged to investors who redeem their investment within the fund’s first few years of operation. Not to be confused with a back-end load.

Ex Parte: On behalf of one party, by or for one party – for example, if a claimant encountered an arbitrator during their lunch break, and used that as an opportunity to discuss the case, the communication by one party only with the arbitrator would be deemed ex parte and improper.

Expense: In accounting, a disbursement against revenue in the period incurred. The expenditure reduces income.

Expense Ratio: Charge, stated as a percentage of total investment, that shareholders pay for a mutual fund’s operating expenses, management fees and other overhead expenses. The money is withheld from the fund’s current income and is not an out-of-pocket cost to the investor. It is normally disclosed in the fund’s annual report to shareholders.

Ex-Legal: Situation in which a municipal bond does not have a legal opinion printed on it. Buyers of these bonds must be forewarned that there is not a legal opinion.

Expiration: The last day on which an option can be exercised. If it is not, the option is said to have “expired worthless.”

Expiration Cycle: Cycles used to designate expiration dates in options trading. Corporations and indexes that have options trading are assigned a specific cycle to follow. There are three cycles: 1: January, April, July, October; 2: February, May, August, November; 3: March June September, December. Only three of the four months in a set are traded at one time. For example, when February options expire, trading in November options will begin.

Expiration Date: The date on which an option expires. In most cases, an options expiration date is on the Saturday immediately following the third Friday of the expiration month. However, the last day the option can be traded is the third Friday of the expiration month.

Export-Import Bank (EXIM): A bank that facilitates US trade with foreign countries by providing financing for exports and imports. It borrows money from the US Treasury and is backed by the full faith and credit of the US Government.

Ex-Rights: Brokerage lingo meaning “without rights.” During a rights offering, if the common stock is purchased on or after the ex-rights date (four business days prior to the record date), the investor does not receive rights that enable an investor to buy the company’s common stock at a discount from the prevailing market price. As a rule, after the ex-rights date, the rights will trade separately from the common stock.

External Funds: Outside funds infused into a corporation to supplement the firm’s cash flow. They are used for expansion and working capital needs. The external funds can originate from a bank loan, a bond offering, or from venture capitalists.

Extra Dividend: A stock or cash dividend paid to shareholders. It is in addition to the company’s regular dividend. An extra dividend may be paid by a company after an especially profitable year to reward its shareholders.

Extraordinary Item: An irregular event, such as a division write-off or acquisition of another company, that needs to be explained to shareholders in an annual or quarterly report. Earnings will normally be calculated and reported before the effect and after the effect of extraordinary items.

Ex-Warrants: Brokerage lingo meaning “without warrants.” An investor who buys a stock that is ex-warrants are not entitled to the stock’s warrants. An investor, for example, who buys a stock on April 25 that has gone ex-warrants on April 23, will not be entitled to receive those warrants. The warrants belong to the shareholder of record on April 23. Warrants permit the holder to buy stock at a specified price at a future date.

Face Amount Certificate: A debt instrument issued by a face amount certificate company, which is a type of investment company. Face amount certificates offer a predetermined rate of interest and may be purchased in lump-sums, or more commonly, in periodic installments. Certificate holders are entitled to redeem their certificates at maturity for the face amount, or they may redeem them prior to maturity for their surrender value.

Face Amount Certificate Company: One of three basic types of investment companies defined by the Investment Company Act of 1940. This kind of investment company issues debt certificates, called face amount certificates, at a predetermined rate of interest to investors. They may be purchased in lump-sums, or more commonly, in periodic installments. Certificate holders are entitled to redeem their certificates at maturity for the face amount, or they may redeem them prior to maturity for their surrender value.

Face Value: The value of a bond (or other debt instrument) that appears on the front, or face, of the certificate. Although a bond’s price may change due to market conditions, the face value does not change. At maturity, the issuer redeems the bond at the face value amount. If the bonds are retired before maturity, the bondholder usually receives a slight premium over the face value. The face value is also the amount used to compute interest payments. For instance, a 10% bond with a face value of $1,000 pays $100 interest annually. Corporate bonds usually are issued with $1,000 face values, municipals with $5,000 face values, and federal government bonds with $10,000 face values. Other terms for face value include par value, nominal value and principal amount.

Fail Position: A position that is the result of a broker-dealer’s failure to settle a transaction with another broker. Generally a broker has a fail when his client fails to either make payment or deliver securities in time to meet the settlement date of a trade. A fail position may be either a fail to deliver or a fail to receive.

Fail to Deliver: A situation that occurs when the broker-dealer on the sell side of a transaction does not deliver securities to the broker-dealer on the buy side by the settlement date of the transaction. Usually this occurs because the selling broker-dealer has not received the certificates from the selling customer. The buying broker-dealer will not pay for the securities until the fail to deliver is eliminated by delivery of the certificates.

Fail to Receive: A situation that occurs when the broker-dealer on the buy side of a transaction has not received securities from the broker-dealer on the sell side by the settlement date of the transaction. The buying broker-dealer will not pay for the securities until the fail to receive is eliminated by delivery of the certificates.

Fair Market Value: The price of an asset or service as determined by the buyer and seller of the asset or service, where both parties have sufficient information to make a rational decision.

Fallen Angel: A bond that was rated investment grade (AAA to BBB) at issuance, but has fallen below investment grade (BB or lower). Bonds rated below investment grade are called junk bonds.

Family of Funds: A group of mutual funds in which each fund has a different objective, yet all are managed by the same investment company. Usually shareholders of one fund can switch their money into one of the family’s other funds, sometimes without incurring a charge. This makes it easier for investors to move their assets in response to changes in the market or in their needs. There may be tax consequences when money is transferred from one fund to another.

Family Holding Trust: A trust that is created specifically to hold the family’s assets consisting of real and/or personal property.

Family Limited Partnership (FLP): A limited partnership created for family estate planning and some asset protection. It is family controlled by the general partners. A highly appreciated asset is transferred into the FLP to achieve a capital gains tax reduction. Usually, the parents are the general partners holding a 1 to 2 percent interest. The other family members are the limited partners holding the balance of the interest in the partnership.

Fannie Mae: Nickname for the Federal National Mortgage Association.

FAQS (Firm Access and Query System): NASD system that allows participating members computer access to their registration and examination data maintained in the Central Registration Depository. Members may use FAQS to schedule qualification examinations, and review their CRD accounting, balance and activity.

Farther Out; Farther In: Terms used to describe the length of option contracts relative to the present. For example, in February, an option expiring in May would be farther in than an option expiring in August. The August option, on the other hand, would be farther out.

Federal Agency Security: A debt instrument issued by an agency of the federal government such as the Federal National Mortgage Association. Although these securities generally have high credit ratings due to the fact that they are sponsored by the federal government, they are not backed by the full faith and credit of the U.S. government, unlike Treasury securities.

Federal National Mortgage Association (FNMA): A government-sponsored corporation that purchases mortgages from lenders, repackages them and sells them. The agency, which is known as Fannie Mae, deals in both government-backed and conventional mortgages

Federal Reserve Board (FRB): The governing body of the Federal Reserve System. The Board is comprised of seven members appointed by the President and subject to confirmation by the Senate. In order to ensure members’ independence from political influence, each member serves a 14-year term. The Board is responsible for setting monetary policy for the U.S. and has the authority to determine bank reserve requirements, set the discount rate, regulate the availability of credit, and control the purchase of securities on margin.

Federal Reserve System: A system established by the Federal Reserve Act of 1913 to manage the monetary and banking system within the U.S. The Federal Reserve System, also known as the Fed, is broken up into 12 regions and is governed by the Federal Reserve Board. National banks are stockholders of the Federal Reserve Bank in their region. The Fed is responsible for regulating the national money supply, setting bank reserve requirements, controlling the printing of currency and acting as a clearinghouse for the transfer of funds throughout the banking system. The Fed also establishes and enforces bank regulations.

Federation Internationale des Bourses de Valeurs (FIBV): The organization of the world’s stock markets, headquartered in Paris. FIBV encourages cooperative policies designed to stimulate a free flow of capital across national boundaries. NASD became an associate member of FIBV in 1992.

Fictitious Credit: The credit balance in a margin account is known as a fictitious credit because it cannot be withdrawn by the customer since it is held as collateral to secure the broker’s loan of funds and securities to the customer. A fictitious credit is comprised of the proceeds from short sales and the margin requirement, which is established by Regulation T of the Federal Reserve Board. A free credit balance, on the other hand, may be withdrawn at any time.

Fiduciary: Person, company, or association entrusted with the control of assets for the benefit of another, known as the beneficiary. Most states have laws governing the conduct of fiduciaries. Some states maintain a list of securities, known as the legal list, which are permissible investments for fiduciaries acting on behalf of their beneficiaries. Other states simply use the prudent man rule which requires that fiduciaries act as a prudent man or woman would with regard to how they invest on behalf of their beneficiary. In addition, the document appointing the fiduciary will establish parameters and guidelines for their activities with respect to the beneficiary’s assets. Some examples of fiduciaries are executors of wills, administrators of estates, receivers in bankruptcy, trustees, and custodians for minors.

FIFO (First In, First Out): Method of accounting for the purchase and sale of securities for tax purposes whereby the first security purchased is assumed to be the first security sold. For instance, under FIFO, or first in, first out accounting, an investor who purchased 100 shares of XYZ in January and another 100 shares of XYZ in March, and then sold 100 shares of XYZ in November, would have sold the first 100 shares bought in January. In contrast, the LIFO method, or last in, first out would allocate the shares bought in March as the shares sold.

Fill: The execution of a client’s order to buy or sell a security. An order is considered filled when the total number of shares is completely bought or sold. If less than the order’s full amount is executed, it is known as a “partial fill.”

Fill or Kill (FOK) Order: A limit order to buy or sell a security in which the client instructs the broker to execute the order immediately in its entirety. If the order cannot be executed, it is canceled. FOK orders are usually used when a client wants to transact a large quantity of a security–one that would cause a significant price change if a market order to buy or sell were entered.

Financial Market: Market for the exchange of capital and credit in the economy. Financial markets include the stock market, bond market, commodities market, and foreign exchange market. Financial markets may also be categorized as either money markets or capital markets. Money markets deal in short term debt instruments whereas capital markets trade in long term debt and equity instruments.

Financial Pyramid: An investment strategy which apportions an investor’s assets based on four categories of risk. The largest portion of assets are invested in safe, liquid investments. The second largest portion of assets is allotted to low-risk investments with the objectives of income and long-term growth. Third are assets categorized as medium-risk, and fourth, the smallest portion of assets, is comprised of high-risk investments. This is a legitimate investment strategy unrelated to Pyramid Schemes.

Financial Statement: A record of the financial status of an individual, company or association. The financial statement includes a balance sheet, an income statement and may also include other financial analysis such as a cash flow statement.

Financial Supermarket: A company that offers a large variety of financial services. For instance, some financial supermarkets may offer banking services, securities brokerage, real estate brokerage, and insurance products–all under the same roof.

FIPS (Fixed Income Pricing System): A system designed by NASD to centralize quotations and trade reporting for high-yield and other debt securities. FIPS will soon be replaced by a new system TRACE — Trade Reporting and Compliance Engine.

Firm Access and Query System (FAQS): NASD system that allows participating members computer access to their registration and examination data maintained in the Central Registration Depository. Members may use FAQS to schedule qualification examinations, and review their CRD accounting, balance and activity.

Firm Commitment: A type of underwriting whereby the underwriter agrees to purchase the entire issue from the issuer, regardless of his ability to sell the securities to the public. Any unsold shares cannot be returned to the issuer. Also called a “Firm Commitment Underwriting.”

Firm Commitment Underwriting: A type of underwriting whereby the underwriter agrees to purchase the entire issue from the issuer, regardless of his ability to sell the securities to the public. Any unsold shares cannot be returned to the issuer.

Firm Order: 1) An order to buy or sell for the proprietary account of the broker-dealer, or firm. 2) An order to buy or sell which is not conditional.

Firm Quote: A quote by a market maker for a security which requires the market maker to purchase or sell a round lot of the security at the quoted bid or offer. This is in contrast to a nominal or subject quote which may require further negotiation or review and must be identified as such.

First Call Date: First date on which part or all of a bond may be redeemed, or called, by the issuer, at a pre-specified price. The first call date is specified in the bond’s indenture. Bond brokers generally will quote callable bonds by giving both the yield to maturity and the yield to call.

First-In First-Out (FIFO): Method of accounting for the purchase and sale of securities for tax purposes whereby the first security purchased is assumed to be the first security sold. For instance, under first in, first out accounting, or FIFO, an investor who purchased 100 shares of XYZ in January and another 100 shares of XYZ in March, and then sold 100 shares of XYZ in November, would have sold the first 100 shares bought in January. In contrast, the LIFO method, or last in, first out would allocate the shares bought in March as the shares sold.

First Preferred Stock: A class of preferred stock that has preferential claim over other classes of preferred stock and common stock with regard to claims on dividends and assets.

Fitch’s Rating Service: A rating agency for municipal and corporate bonds, preferred stock, commercial paper, and other debt instruments.

Fixed Annuity: An investment contract sold by an insurance company which makes fixed payments to the annuitant for a pre-specified period of time, usually for life. In contrast, a variable annuity makes payments which are directly related to the performance of the vehicles in which the annuity has invested.

Fixed Assets: Assets owned by a corporation which are not generally intended for sale in the normal course of the business. These assets represent tangible property and are highly illiquid. Buildings, machinery, equipment, furniture and fixtures are examples of fixed assets.

Fixed Income Investment: A security that pays a fixed rate of return, such as a bond or preferred stock. Fixed income investments offer protection against market risk, but do not protect holders against the risk of inflation.

Fixed Income Pricing System (FIPS): A system designed by NASD to centralize quotations and trade reporting for high-yield and other debt securities. FIPS will soon be replaced by a new system TRACE — Trade Reporting and Compliance Engine.

Flat: A bond term that means it is trading without accrued interest. Bonds which are in default of interest or principal are traded flat. This means that accrued interest will be received by the buyer if and when it is paid, but no accrued interest will be paid to the seller.

Flat Market: A market distinguished by horizontal price movement that is usually the result of low activity.

Flight Capital: Money that flows offshore and likely never returns. Flight is exacerbated by a lack of confidence as government grows without bounds.

Flight to Quality: The movement of capital by investors to the safest possible investment. Flights to quality usually occur when the market is declining or a specific situation occurs within the marketplace that unsettles investors. Money market investors, for example, may only buy government securities if a major bank fails.

Float: The number of shares of a security currently outstanding and available for trading by the public.

Floor: The area of an exchange where securities are bought and sold.

Floor Broker: A member of an exchange who may or may not be employed by a member firm and executes orders on the floor of the exchange. The floor broker executes orders for customers and is therefore acting as agent. In contrast, the floor trader is buying and selling for his own account and is acting as principal.

Floor Trader: A member of an exchange who trades on the floor of the exchange for his own account. In contrast, the floor broker is buying and selling for the accounts of customers and is acting as agent.

Flower Bond: A US Treasury bond that is accepted at face value to pay estate tax if the bonds were owned by the decedent at the time of death. Flower bonds are no longer issued and the last of them will mature in 1998. The bonds trade at a discount since they have a relatively low interest rate (3% to 4%).

FNMA (Federal National Mortgage Association): A government sponsored corporation that purchases mortgages from lenders, repackages them and then sells them. The agency, which is known as Fannie Mae, deals in both government-backed and conventional mortgages.

FOK (Fill or Kill) Order: A limit order to buy or sell a security in which the client instructs the broker to execute the order immediately in its entirety. If the order cannot be executed, it is canceled. FOK orders are usually used when a client wants to transact a large quantity of a security–one that would cause a significant price change if a market order to buy or sell were entered.

Footsie: A nickname for the “Financial Times’ ” FT-SE 100 Index (Financial Times-Stock Exchange 100 stock index). It is a market value-weighted index of 100 alpha stocks traded on the London Stock Exchange.

Forbes 500: A listing prepared annually by Forbes magazine of the largest U.S. publicly-owned corporations. Corporations are ranked by sales, assets, profits, and market value.

Forecasting: Predicting current and future market trends using existing data and facts. Analysts rely on technical and fundamental statistics to predict the directions of the economy, stock market and individual securities.

Foreign: May be utilized in a geographic, legal or tax sense. When used geographically, it is that which is situated outside of the U.S. or is characteristic of a country other than the U.S.

Foreign Investor in Real Property Tax Act of 1980 (FIRPTA): Under FIRPTA and the Economic Recovery Act of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by offshore (foreign) persons, the agency, attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.

Foreign Person: Any person, including a U.S. citizen, who resides outside the U.S. or is subject to the jurisdiction and laws of a country other than the U.S.

Foreign Personal Holding Company (FPHC): Different than a controlled foreign corporation. Discuss with your CPA.

Form 10 K: Public companies are required to file an annual report with the Securities and Exchange Commission detailing the preceding year’s financial results and plans for the upcoming year. Its regulatory version is called “Form 10 K.” The report contains financial information concerning a company’s assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication.

Form 20-F: A Securities and Exchange Commission 1934 Act registration statement and annual report form typically used by foreign issuers.

Form 6-K: The Securities and Exchange Commission form for non-U.S. issuers to make periodic reports.

Form ADV: Most investment advisers use Form ADV to register with either the SEC or the state securities agency in the state where they have their principal place of business, depending on the amount of assets they manage. Form ADV consists of two parts. Part I contains information about the adviser’s education, business, and whether they’ve had problems with regulators or clients. Part II outlines the adviser’s services, fees, and strategies. If you are investigating an investment adviser, carefully review both parts of the Form ADV. If the adviser manages less than $25 million in assets, you can get a copy of the adviser’s Form ADV from your state securities regulating authorities. If the adviser manages $25 million or more, you can get it from the SEC. See also IARD and CRD.

Form D: SEC Regulation D provides and exemption that makes it possible for some companies to avoid registering their securities and filing reports with the SEC, but they are still required to file a “Form D” after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters. To find out whether a company has filed a Form D, call the SEC’s Public Reference Branch or send an email to publicinfo@sec.gov. If the company has not filed a Form D, they might not be in compliance with the federal securities laws.

Form F-1: The Securities and Exchange Commission 1933 Act form registering the securities of a non-U.S. company to be issued as part of a public offering.

Form U-4: NASD uniform application for security industry registration or transfer.

Form U-5: NASD uniform termination notice for security industry registration.

Fortune 500: A listing prepared annually by Fortune magazine of the 500 largest U.S. industrial corporations, ranked by sales. Fortune also prepares a listing called the Fortune Service 500 for non-industrial corporations.
401(K) Plan: A plan whereby an employee may contribute pretax earnings to a qualified tax-deferred retirement plan–also called “cash or deferred arrangement” (CODA) or “salary reduction plan.” Withdrawals for other than death, disability, termination of employment, or qualifying hardship prior to the age of 59 1/2 may be subject to a 10% penalty tax.

Fourth Market: Direct trading of large blocks of securities between institutional investors to avoid brokerage commissions. Quotes can be obtained through a service called Instinet, an acronym for Institutional Networks Corporation.

Fractional Share: Less than one full share of stock. An investor may have a fractional share as the result of a dividend reinvestment program. If the amount of the dividend is not sufficient to purchase a full share of stock, the investor will be credited with a fractional share until enough dividends are received to purchase a full share. For instance, if XYZ stock issues a $1.00 dividend and the stock is trading at $10.00, a customer with dividend reinvestment will be credited a fractional share of 1/10.

Fraudulent Conveyance: A transfer of an asset that violates the fraudulent conveyance statutes of the affected jurisdictions.

FRB (Federal Reserve Board): Acronym for the Federal Reserve Board, the governing body of the Federal Reserve System. The Federal Reserve Board is comprised of seven members appointed by the President and subject to confirmation by the Senate. In order to ensure members’ independence from political influence, each member serves a 14-year term. The FRB is responsible for setting monetary policy for the U.S. and has the authority to determine bank reserve requirements, set the discount rate, regulate the availability of credit, and control the purchase of securities on margin.

Freeriding: 1) A situation that occurs when a member of an underwriting syndicate withholds a portion of a public offering of a new securities issue with the intent to sell it at a price higher than the initial offering price. This is a violation of securities regulations because the underwriter is not making a legitimate offering to the public. 2) A situation that occurs when a customer purchases a security, then sells the same security and uses the proceeds to pay for the purchase. This practice is prohibited by Federal Regulation T which requires that customers pay for securities within prespecified time frames. Firms are required to freeze or restrict customer accounts that engage in this practice for 90 days.

Front-End Load: A sales charge in connection with the purchase of an investment, which is applied at the time of purchase. Generally this term is associated with mutual funds, but may also apply to life insurance policies and limited partnerships.

Front Office: Term used to identify brokerage industry personnel who deal directly with the public, such as sales and trading personnel.

Front Running: A situation that occurs when a securities or commodities trader takes a position in a security in order to take advantage of a large upcoming transaction of which he is aware.
Frozen Account: A brokerage account in which the customer may only purchase securities up to the amount of cash in the account and only sell securities if the certificates are held in the account. Generally, an account is frozen for freeriding, which is a violation of Federal Regulation T. Frozen accounts may also be called restricted accounts.

Full Disclosure: Term which refers to the requirements established by the Securities and Exchange Commission regarding public divulgence of material facts by corporations.

Full Faith and Credit: Term used to describe a security for which a government entity pledges its full taxing and borrowing power, plus revenue other than taxes to support the payment of interest and repayment of principal. For instance, Treasury securities are backed by the full faith and credit of the U.S. government.

Full Service Broker: A broker that provides a variety of brokerage and financial services to clients, including offering advice on investment decisions. Generally full service brokers charge higher commissions than discount brokers who execute trades but do not give any investment advice.

Fully Valued: Price at which a corporation’s fundamental earnings power is fully reflected in the security’s market price. If the stock goes up from that price, it is considered to be overvalued. If the stock goes down, it is undervalued.

Fundamental Analysis: Research and examination of a corporation’s financial statements and balance sheets to predict the future price movements of their securities. Among other indicators, fundamental analysts study past records of assets, earnings, sales, products, management and markets to predict future trends. By assessing a firm’s prospects, fundamentalists can evaluate whether a security is overvalued or undervalued. In contrast to fundamental analysis, technical analysis does not consider a corporation’s financial data. Technical analysts rely on price and volume movements of stocks.

Fundamentalist: A person who thinks that a corporation’s security prices are determined by its future earnings and dividend abilities. Besides studying a corporation’s financial data, they will also examine its industry and how the economy will affect the company’s core business.

Futures Contract: A contract to buy or sell a prespecified amount of a commodity or financial instrument at a particular price on an agreed upon date in the future. Futures differ from options in that the holder of an option has a choice whether or not to exercise the option, but the parties involved in a futures contract are obligated to complete the transaction.

Futures Market: A commodity exchange where futures contracts are traded.

GAAP (Generally Accepted Accounting Principles): Detailed rules and procedures as defined by accepted accounting practices. Although the principles were established by the Accounting Principles Board, the board has since been superseded by the Financial Accounting Standards Board (FASB), a self-regulatory organization.

Gamma Stocks: Class of stocks traded on the London Stock Exchange that are less regulated and only require two market makers quoting indicative prices. Gamma stocks rank third behind Alpha and Beta stocks in terms of capitalization and activity.

Gap: 1) Securities industry term used to depict a security’s price movement when its one day’s trading range does not overlap the next day’s, causing a range (gap) in which no trade has occurred. This usually occurs because of extraordinary positive or negative news about a corporation or a commodity. 2) Financial term representing the dollar amount needed for which provisions have yet to be made. For example, XYZ corporation needs $2.5 million to purchase a new facility. It obtains a loan of $1.25 million and new equity of $750,000. That leaves a gap of $500,000 in which it needs gap financing.

Garbatrage: Traders’ lingo–a combination of the words garbage and arbitrage–that represents stocks that rise because of a major takeover. These stocks do not have any significant involvement in the target corporation or in its industry. Hence, they have no real reason to rise.

Gather in the Stops: Trading strategy that entails selling enough shares of a stock to drive its price down to a point where stop orders are believed to be. The stop orders are then activated and become market orders that create movement that activates other stop orders in a process called snowballing. Because this can cause major trading swings, exchange floor officials, if they deem it prudent, have the authority to suspend stop orders in individual securities.

General Account: Federal Reserve Board term for customer’s margin account subject to Regulation T (rules governing credit extensions to brokerage customers for the purchase and short sale of securities). The Fed requires that all margin transactions be made in this account.

General Ledger: Formal ledger that includes all the financial statement accounts of a business. It contains offsetting debit and credit accounts.

General Lien: Lien against an individual that gives the right to seize personal property to pay off a debt. The property seized does not have to be the property that causes the debt. The lien does not give the right to seize real property such as land.

General Loan and Collateral Agreement: Also called a “broker’s loan,” it is an on-going agreement in which broker-dealers borrow money from a bank to buy securities, finance new issue underwriting, carry inventory, or carry customer margin accounts.

Generally Accepted Accounting Principles (GAAP): Detailed rules and procedures as defined by accepted accounting practices. Although the principles were established by the Accounting Principles Board, the board has since been superseded by the Financial Accounting Standards Board (FASB), a self-regulatory organization.

General Mortgage: A mortgage that covers all (blanket) the eligible properties of a borrower and not one particular property. If a liquidation should occur, a blanket mortgage may have a lower priority claim than a mortgage on specific properties.

General Mortgage Bond: A bond that is secured by a blanket mortgage on a corporation’s property, but which may be outranked by another mortgage.

General Obligation Bond: Commonly abbreviated as “GO” bond, it is a municipal bond secured by the “full faith and credit” (taxing and borrowing power of the issuer) of the municipality. In comparison to revenue bonds that are repaid from a specific facility (i.e., a sewer system) built with the borrowed funds, a GO bond is repaid with general revenue and borrowings.

General Partner: The partner in a limited or general partnership who is responsible for the management and operation of the partnership. The partner also has a fiduciary responsibility to act for the benefit of the limited partners and, ultimately, any debts taken on by the partnership.

Ghosting: When two or more market makers collectively attempt to influence and change the price of a stock, an illegal practice. Market makers are required by law to act in a competitive nature towards each other. The term arises because individual investors are usually unaware that the usual competition among market makers has been replaced with collusion and manipulation.

Gift Tax: A graduated tax assessed to a donor by the federal government and most state governments when assets are gifted from one person to another. As the gift’s value increases, so does the tax rate. The Economic Recovery Tax Act of 1981 permits a donor to give $10,000 a year per recipient free of the federal gift tax ($20,000 to a married couple). The gift tax is calculated on the dollar value of the asset being transferred above the $10,000 exemption level.

Gilt Edged Security: A corporate security that has been established over a period of years so that it earns sufficient profits to pay its bondholders their interest without interruptions. The term can also be used for a stock that pays a reliable dividend. However, the term blue chip is more commonly used when referring to stocks.

Ginnie Mae: Nickname for the Government National Mortgage Association.

Ginnie Mae Pass Through: A security backed by a pool of mortgages and guaranteed by the Government National Mortgage Association (Ginnie Mae). Homeowners make their mortgage payments to the originator of their mortgage. After deducting a service charge, the bank forwards the mortgage payments to the pass-through investors–usually institutional investors or individuals. Ginnie Mae guarantees that investors will receive timely principal and interest payments even if homeowners do not make timely mortgage payments.
Although Ginnie Mae pass-throughs have benefited the home mortgage market (increased capital available for lending), an investor’s rate of principal repayment may be uncertain. If interest rates rise, homeowners will hold onto their original mortgages and the principal will be repaid more slowly. If interest rates fall, homeowners will refinance their mortgages at a lower rate and the principal will be repaid faster than expected.

Glamour Stock: Stocks that achieve a wide following by consistently producing rising sales and earnings over a long time period. In a bull market, glamour stocks usually rise faster than the overall market. A glamour stock may also be categorized as a blue chip stock. However, it is often distinguished by a higher earnings growth rate.
Global Mutual Fund: A mutual fund that invests anywhere in the world, including within the United States.

GmbH: A German form of a limited liability corporation.

GNMA (Government National Mortgage Association): Nicknamed Ginnie Mae, a government-owned corporation that is an agency of the Department of Housing and Urban Development. Ginnie Mae’s are pools of residential mortgages. GNMA guarantees, with the full faith and credit of the US Government, that investors will receive full and timely principal and interest payments even if mortgages in the pool are not paid on a timely basis.

GNP (Gross National Product): The total value of goods and services produced by the economy in a given period. It is a primary indicator of an economy’s status. “Real GNP” measures economic production that is adjusted for inflation. Real GNP and GNP figures are stated on an annual basis and are updated every quarter.

Go-Go Fund: A mutual fund that invests in highly risky but potentially lucrative stocks. The investments are highly speculative.

Going Ahead: Unethical practice whereby the broker trades for his own account before filling his customers’ orders.

Going Away: Bonds bought by dealers for immediate sale to investors, as opposed to being held in inventory for resale at future date. The importance of the difference is that bonds bought going away will not cause adverse pressure on prices.

Going Concern Value: A corporation’s value as an operating business as opposed to the value of its assets or its liquidating value. In accounting, going-concern value in excess of asset value is considered an intangible asset and is called goodwill. Goodwill represents the value of a corporation’s name, customer service, employee morale, and other such factors that are anticipated to translate into higher earning power. However, as an intangible asset, it does not have a liquidation value and accounting principles require that it is written off over a specific time period.

Going Long: A purchase of a security that creates a “long position.” The opposite of going long is “going short,” when investors sell a security they do not own and hence, a short position is created.

Going Private: Going from public to private ownership of a corporation’s shares. It is usually accomplished by either the company’s repurchase of shares or a private investor purchasing the public shares. A corporation will usually go private when its shares are priced considerably below their book value and thus the assets can be bought cheaply. Another reason a company’s management may decide to go private is to ensure their own existence by removing the company as a takeover prospect.

Going Public: Industry lingo used to describe the initial sale of shares of a privately held corporation to the public. To fund corporate expansion, a company may go public to raise the needed money. In exchange, the corporation’s management gives up some decision-making control to public shareholders. The stock being sold to the public is called an “initial public offering” (IPO).

Going Short: Selling a security that is not owned and hence, a short position is created. An investor who goes short borrows the security from their broker and hopes to buy other shares of the security at a lower price. The investor replaces the borrowed security with the lower priced security. The difference is the investor’s profit.

Gold Bond: A debt obligation that is issued by gold-mining companies. The interest payments are determined by gold prices. These bonds are bought by investors who believe gold prices are going to rise. Similarly, silver mining companies issue silver-backed bonds.

Goldbug: An analyst that is smitten with gold as an investment and recommends it as a hedge. Goldbugs are usually anxious about either the world economy, depression or hyperinflation.

Golden Parachute: Lucrative contract that is given to top executives in the event that the company is taken over by another corporation and results in job loss. The contract usually includes a large amount of severance pay, stock options, and a bonus. Golden Parachutes are usually a part of an anti-takeover strategy.

Gold Fix: The daily price setting of gold by selected gold specialist and bank officials in London. The price is fixed at 10:30 am and 3:30 p.m. London time every business day, and is determined by the forces of supply and demand. The gold fix price is used to set the prices of gold bullion, gold-related contracts and products.

Gold Mutual Fund: Mutual fund that invests in gold mining firms. Some funds only invest in US and Canadian firms while others invest in North American and South African firms. Funds investing in South African mines usually pay high dividends because they typically pay out almost all of their earnings as dividends. Gold funds typically perform best during periods of rising inflation. They offer the investor an inflationary hedge, without the risks incurred by investing directly in gold commodities, bullion, or individual gold stocks.

Gold Standard: A monetary system in which currency is convertible into fixed amounts of gold. The US used to be on the gold standard but was taken off in 1971.

Good Delivery Of Securities: Industry lingo meaning that a certificate is endorsed properly, has a signature guarantee and has met other qualifications. The certificates must be in good form to conform with the sale contract so that ownership can be transferred to the buyer. Certificates not in good form are said to be a “bad delivery.”

Good Through: Customer order to buy or sell securities at a limit or stop price for specific time period, unless canceled, executed, or changed. It is a type of limit order and may be specified GTW (good-this-week), GTM (good-this-month order), GTC (good-til-canceled), GTC-90 (good-til-canceled for a 90 day period), or for shorter or longer periods.

Good-Til-Canceled Order (GTC): Customer order to buy or sell securities at a limit or stop price that will remain in effect until it is either executed or canceled. If it is not executed, the order can be canceled or changed at any time. Also called an “open order.”

Goodwill: An intangible asset that represents the value of a corporation’s name, customer service, employee morale, and other such factors that are anticipated to translate into higher earning power. However, as an intangible asset, it does not have a liquidation value and accounting principles require that it is written off over a specific time period.

Government Agency Securities: Also called “agency securities,” they are securities issued by US government agencies–for example, the Federal National Mortgage Association. Although agency securities have high credit ratings, they are not government obligations. Hence, they are not directly backed by the full faith and credit of the US government.

Government Bond: Debt obligation of the US Government that are regarded as the highest grade of securities issues.

Government National Mortgage Association (GNMA): Nicknamed Ginnie Mae, a government-owned corporation that is an agency of the Department of Housing and Urban Development. Ginnie Mae’s are pools of residential mortgages. GNMA guarantees, with the full faith and credit of the US Government, that investors will receive full and timely principal and interest payments even if mortgages in the pool are not paid on a timely basis.

Government Obligations: US government debt obligations that the government has promised to repay.

Governments: Securities issued and backed by the full faith and credit of the US government. Examples of such obligations are Treasury bonds, bills, and savings bonds. Because governments are backed by the US government, they are considered the most credit-worthy of all debt instruments.

Government Securities Broker: Any person or company regularly engaged in the business of effecting transactions in government securities for the account of others. The definition does not include corporations that issue securities exempted by the Secretary of the Treasury, corporations that are empowered by law to issue exempt securities, banks or other insured financial institutions.

Graduated Securities: A corporation’s security listing that has been upgraded by moving from one exchange to a more notable exchange–for instance, a security’s move from a regional exchange to a national exchange. A graduated security usually sees an expansion of its trading volume.

Graham And Dodd Method Of Investing: Investment theory established in the 1930s by Benjamin Graham and David Dodd that is summarized in their book “Security Analysis.” Graham and Dodd believed that investors should buy stocks in corporations that have undervalued assets that will inevitably appreciate to their true market value. Graham and Dodd recommended buying stocks in corporations that have current assets exceeding current liabilities, all long-term debt, and a low price/earnings ratio. Analysts who call themselves Graham and Dodd investors search for stocks selling below their liquidating value and do not consider their earnings growth potential.

Grantor: 1) In investments, an options trader who sells a call or a put option and receives premium income for doing so. In the case of a call, the grantor sells the right to buy a security at a specified price. In the case of a put, the grantor sells the right to sell a security at a specified price. 2) A person who creates a trust or transfers real property to another entity. In a U.S. grantor trust, the person responsible for U.S. income taxes on the trust. May have a reversionary interest in a trust.

Grantor Trust: A trust created by a grantor and taxed to that grantor (settlor).

Graveyard Market: Termed a graveyard market because investors who are in the market cannot get out and those who are out have no desire to get in the market. This can happen in a bear market when investors who wish to sell will be faced with large losses and when potential investors prefer to stay liquid until the market improves.

Greater Fool Theory: Believers of this theory feel that even though a stock or the overall market is fully valued, speculation is warranted because there are enough fools (greater fools) to push prices further upward.

Greenmail: An act of buying a corporation’s stock, threatening to take control, and then demanding that those shares be purchased back by the corporation–usually at a price higher than can be obtained on the open market. In exchange, the acquirer agrees not to proceed with the takeover bid.

Green Shoe: An underwriting agreement provision stipulating that, in the case of huge public demand, additional shares will be authorized by the issuer for distribution by the syndicate.
Gross National Product (GNP): The total value of goods and services produced by the economy in a given period. It is a primary indicator of an economy’s status. “Real GNP” measures economic production that is adjusted for inflation. Real GNP and GNP figures are stated on an annual basis and are updated every quarter.

Gross Per Broker: Gross commission revenues generated by a registered representative during a given time period.

Gross Profits: Also called “gross margin,” it is profits earned from the service or manufacturing operation–before the deduction of selling costs and other expenses and before taxes are paid.

Gross Spread: The difference (spread) between a security’s public offering price and the price paid to the issuer by an underwriter. The spread consists of the syndicate manager’s fee, the underwriter’s discount, and the selling concession–the discount offered to a selling group.

Group of Ten: Also known as the “Paris Club,” the group consists of Belgium, Canada, France, Italy, Japan, The Netherlands, Sweden, the United Kingdom, the United States, and West Germany. These major industrialized countries try to coordinate monetary and fiscal policies to create a more stable world economy.

Group Sales: Term used in securities underwriting that refers to block sales made by the syndicate manager to institutional investors. The securities come from the syndicate “pot.” Credit for the sale is pro-rated amongst syndicate members in proportion to their original allotments.

Growth Fund: A mutual fund that seeks long-term capital appreciation by selecting corporations to invest in that should grow more quickly than the general economy. Growth funds are more volatile than conservative funds such as income or money markets. However, they usually rise more quickly than conservative funds in bull markets and fall more sharply in bear markets.

Growth and Income Fund: A mutual fund whose objective is to seek long-term capital appreciation along with income.

Growth Stock: Stock of a company with earnings’ growth at a fairly rapid rate that is anticipated to continue to grow at high levels. Growth stocks are riskier investments than average stocks, however, because they generally have higher price/earnings ratios and make little or no dividend payments to shareholders.

Growth Stock Theory: Theory that corporate stocks should be selected for investment purposes based on the fact that the corporation’s earnings and dividends are continuously increasing at a faster rate than the growth of the general economy.

GTC (Good-Til-Canceled): Customer order to buy or sell securities at a limit or stop price that will remain in effect until it is either executed or canceled. If it is not executed, the order can be canceled or changed at any time. Also called an “open order.”

Guaranteed Bond: Bond in which principal and interest are guaranteed by an entity other than the issuer. Guaranteed bonds are in effect debenture bonds (unsecured) of the guarantor. However, if the guarantor has stronger credit than the issuer whose bonds are being guaranteed, the bonds have greater value. An example of a guaranteed bond would be in the case of corporate parent-subsidiary relationships where the bonds are issued by the subsidiary with the parent’s guarantee.

Guaranteed Stock: Stock in which its dividends are guaranteed by an entity other than the issuer. Guaranteed stock becomes, in effect, debenture (unsecured) bonds of the guarantor.

Guarantee Letter: Letter issued by a bank guaranteeing aggregate payment if a put option is exercised and an assignment notice is presented to the option writer. A guarantee letter covers the put writer thereby making it a covered put.

Gun Jumping: 1) The act of soliciting buy orders in an underwriting before an SEC registration is effective. 2) Trading securities based on inside information.

Haircut: Industry term for the valuation of securities used to calculate a broker/dealer’s net capital. The haircut will change depending on the class of a security, its market risk, and the time to maturity. The haircut may fluctuate from 0% to 30% (common for equity securities) to 100% for fail positions (securities with past due delivery) that have prospect of settlement.

Half Life: Point in time when the principal on a mortgage backed security (issued or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Association) has been repaid. It is presumed that the security has a half life of 12 years. However, depending on interest rate trends, specific mortgage pools can have longer or shorter half lives. If interest rates rise, homeowners will hold onto their mortgages longer than predicted, and half lives will rise. If interest rates fall, more homeowners will refinance their mortgages. Thus, principal will be paid off more quickly, and half lives will drop.

Half Stock: A common or preferred stock that has a $50 par value. The usual standard is a $100 par value.

Hammering The Market: Intense selling by investors who believe stock prices are inflated. Also, speculators anticipating a market drop will sell short, and are said to be hammering the market.

Hard Dollars: Customers’ payments for services rendered by a brokerage firm. For example, a customer’s payment to a broker for a financial plan produced for them. Conversely, with soft dollars, a broker is compensated by commissions received if he places any of the trades specified in that financial plan.
Head And Shoulders Pattern: A technical trading pattern used to chart stock price trends. It resembles the head and shoulders outline of a person. In a head and shoulders top formation, the stock reaches one plateau (the left shoulder), then goes higher (the top of the head), and then drops back to the plateau again (the right shoulder). The head and shoulders top pattern signifies the reversal of an upward trend–prices should be falling. A head and shoulders bottom pattern signifies the reversal of a downward trend–prices should be rising.

Heavy Market: A market that has falling prices due to a larger supply of offers to sell than bids to buy.

Hedge Clause: A disclaimer used in market letters, research reports, or other printed materials relating to the evaluation of investments. Its intent is to exonerate the writer from responsibility for the information’s accuracy.

Hedge Fund: “Hedge fund” is a general, non-legal term that was originally used to describe a type of private, unregistered investment pool that employed sophisticated hedging and arbitrage techniques to trade in the corporate equity markets. Hedge funds generally rely on Sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 to avoid registration and regulation as investment companies as well as Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933 to avoid having to register with the SEC. To qualify, they represent that they only accept financially sophisticated investors and do not publicly offer their securities.
It is the fact that they are private, and exempt from registration, that makes them attractive to con artists. In many cases, the principals fraudulently represent themselves to be dealing exclusively with sophisticated investors and publicly advertise as well – even legitimate hedge funds are subject to the antifraud provisions of the federal securities laws. See the David Mobley (Maricopa) case under Case Studies for a classic example of a con artists “Hedge Fund” operation.

Hedging: The use of almost opposite direction securities, instruments, or futures contracts as a method of attempting to reduce market risk. A perfect hedge is one that eliminates the prospects of any future gains or losses. Investors frequently try to hedge against inflation by purchasing assets (e.g., gold) that will rise in value faster than inflation.

Hemline Theory: Capricious idea that stock prices move in the same direction as women’s dress hemlines. Short dresses and skirts are considered bullish signs that stock prices will rise. Longer dresses and skirts are considered bearish signs that stock prices will decline. Notwithstanding that it is occasionally correct, the hemline theory has endured more as wishful thinking than serious market analysis.

High Flyer: Very speculative and high priced stock that moves up and down sharply over a short time span.

High Grade Bond: Bond rated “AAA” or “AA” by Moody’s or Standard & Poor’s rating services.
High Net Worth (HNW) Person: An individual with more than $1,000,000 in liquid assets to manage.
High Premium Convertible Debenture: A long term bond that has a high premium common stock conversion feature and offers a competitive interest rate. Premium refers to the difference between the convertible bond’s market value and the value at which it is convertible into common stock. The “Kicker” (convertibility to stock) is designed as an inflation hedge.

Highs: In daily trading, stocks that have reached new high prices for the current 52 week time period. To identify stock market trends, technical analysts observe the ratio between new highs and new lows.

High-Tech Stock: Companies whose business is in high technology fields such as biotechnology, computers and robotics. High-tech companies that are successful may have above average earnings growth and volatile stock prices.

High Yield Bond: Bond that has ratings of BB or lower and pays higher yields to offset its greater risk.

Historical Trading Range: Price range that a security has traded since going public. Technical analysts perceive the top of a historical range as the resistance level and the bottom as the support level. It is deemed as significant if a security breaks above the resistance level or below the support level. Analysts usually interpret this to mean that the security will reach new highs or lows and thus, its historical trading range expands.

Historical Yield: Yield provided by a mutual fund, typically a money market fund, over a specific time period.

Hit the Bid: Seller’s acceptance of the highest price offered for a stock. For example, if a stock’s ask price is $24 1/4 and the current bid price is $24, sellers will hit the bid if they accept $24 a share.

HNW (High Net Worth) Person: An individual with more than $1,000,000 in liquid assets to manage.

Holder: The owner of a security.

Holder of Record: Owner of a company’s securities that is recorded on the books of the issuing company or its transfer agent as of a specific date–called the “record date.” For example, dividend and stock splits always specify whether they are payable to holders as of the record date.

Holding Period: Length of time an asset is held by its owner. It determines whether a gain or loss is considered short term or long term.

Home Run: Large gains obtained by an investor in a short time period. For example, an investor who aims to hit a home run may look for possible takeover candidates as most takeover bids result in sudden price rises. Such investing strategies are intrinsically more risky than the strategy of holding for the long term.

Homestead Exemption: State or federal bankruptcy laws that protect one’s residence from confiscation by a judgment creditor or loss in a personal bankruptcy.

Horizontal Price Movement: A security’s price movement within a narrow range over extended time periods–also called “sideways price movement.”

Horizontal Spread: Options strategy–also known as a “calendar spread”–that includes buying and selling the same number of options contracts with the same exercise price, but with maturity dates that are different. The investor hopes to profit by price moves in the underlying security.

Hot Issue: A new security issue that trades at an immediate premium above its fixed public offering price. In other words, the secondary market price on the initial sale date is above the new issue’s offering price. It is caused by great public demand for more shares than are available.

Hot Money: Investment funds seeking high yields that are short term. Borrowers enticing hot money should be ready to lose it when another borrower offers a higher rate.

Hot Stock: 1) Newly issued stock that rapidly rises in price. 2) Stock that has been stolen.

House: 1) Firm or individual, as a broker-dealer, engaged in the securities business and/or investment banking and related services. 2) Nickname for the London Stock Exchange.

House Account: Account that is managed by a brokerage firm’s main office or by an executive of the firm and not one that is normally handled by a salesperson in the territory. Normally, salespeople do not receive commissions from house accounts, even though the accounts may be in their region.

House Call: Brokerage firm notification that a client’s margin account equity is below the firm’s maintenance level. Once the equity declines below that point, the client must deposit additional funds or securities. If the client fails to deliver the required margin, securities in the account will be liquidated to cover the call. Normally, house call limits are higher than the limits set by the National Association of Securities Dealers (NASD) and the exchanges with jurisdiction over these rules.

House Maintenance Requirement: Brokerage house rules that are internally set in regard to a client’s margin account. The required equity level should be maintained by client. Normally, house call requirements are higher than those set by the National Association of Securities Dealers (NASD) and the exchanges with jurisdiction over these rules.

House Rules: Securities industry term for an individual brokerage firm’s internal rules, policies and procedures regarding the opening and management of clients’ accounts and the clients’ activities in such accounts.
Hulbert Rating: Ratings of different investment advisory newsletters that are published by “Hulbert Financial Digest.” The “Digest” ranks the performance of the newsletters by totaling the profits and losses that would have been incurred if one followed the individual newsletter’s recommendations.

Hung Up: Term describes the position of an investor whose security’s value has declined below the purchase price.

Hybrid Annuity: Annuity offered by an insurance company that permits investors to combine the benefits of both fixed and variable annuities–also called “combination annuity.” The amount placed in the fixed portion will provide a specified rate of return while the variable portion offers a chance for higher returns (and risks) through the investment in securities.

HYIP (High Yield Investment Program):

Hypothecation: Pledging of securities to a brokerage firm as collateral for margin loans made to purchase securities or to cover short sales.

IARD (Investment Advisor Registration Depository): On September 12, 2000, the SEC adopted amendments to Form ADV and new rules requiring all investment advisers registered with the SEC to begin filing Form ADV electronically through the Investment Adviser Registration Depository (IARD) system. Beginning January 1, 2001, SEC-registered advisers must use IARD and State-registered advisers will also submit filings electronically through IARD. Like the Central Registration Depository or CRD, the IARD will give investors access to information about investment advisers and persons who work for investment advisers.

IBC (International Business Company): A corporation formed (incorporated) under a “Company Act” of a tax haven, but not authorized to do business within that country of incorporation; intended to be used for global operations. Owned by member(s)/shareholder(s). Has the usual corporate attributes.

ICI (Investment Company Institute): The U.S. trade association for the mutual fund industry. Investment companies create and maintain mutual funds and investment trusts.

Illegal Dividend: Dividend declared by the board of directors of a corporation that is in violation of its corporate charter or the state laws in which it is incorporated.

Illiquid: Said of investments such as a stock, bond or commodity that cannot be readily converted into cash. A security becomes illiquid when a lack of trading activity in the security makes it hard to sell without taking a large loss. Other assets such as real estate can also be considered to be illiquid because there is not a ready market and they may take time to sell.

Imbalance Of Orders: Too many buy orders without matching sell orders or vice versa. An imbalance of orders can occur because of extraordinary corporate events such as a takeover, loss of a lawsuit that was expected to be won, or the death of a key executive. If the imbalance occurs before the market opens, the stock may have a delayed opening. However, if it occurs during the trading day, trading may be suspended until the specialist can make an orderly market.

Immediate Family: As defined in the NASD Rules Of Fair Practice, an immediate family member includes parents, brothers, sisters, children, father-in-law, mother-in-law, sister-in-law, brother-in-law, and any other relatives who are financially supported. The Rules of Fair Practice use this definition when dealing with practices such as freeriding and withholding. The rules prohibit the sale of hot issues to members of a broker-dealer’s immediate family or to persons trading for institutional accounts and their families.

Immediate-Or-Cancel Order (IOC): A limit order to buy or sell a security that requires all or part of the order to be executed immediately. Any part of the order that is not executed, is automatically canceled. An IOC order is usually for a significant share quantity.
Immediate Payment Annuity: Annuity contract purchased with a single payment and a pay-out plan that starts immediately. Payments, usually on a monthly basis, are either for a specified time or until the annuitant passes away.

Impaired Capital: Total capital that is less than the par value of the corporation’s capital stock.

Imputed Income: Income calculated according to identifiable expenses and known guidelines.

Imputed Interest: Interest that is considered to have been paid although no actual payment was made. A zero coupon bond, for instance, has imputed annual interest that the IRS requires the bondholder to report.

Inactive Asset: Assets that are not continuously productive, such as a computer used only when the main system is not working.

Inactive Post: New York Stock Exchange trading post where inactive stocks are traded in 10-share lots instead of the regular 100 share round lots.

Inactive Stock/Bond: Security that trades infrequently and has such a low volume that it makes the security illiquid.

In-And-Out Trader: Person who buys and sells the same security in the same day in hopes of profiting from steep price.
Inbound: Coming into the U.S.; onshore; such as funds being paid to a U.S. person from an offshore entity.

Incentive Stock Option: Plan created by the Economic Recovery Tax Act of 1981 (ERTA) whereby qualifying options are free of taxes when granted and when exercised. Profits on exercised shares sold are taxed as ordinary income–until 1987, it was subject to capital gains tax if the shares were held at least one year.

Income Bond: A bond that only pays interest if the corporation has sufficient earnings. These bonds are usually traded flat (without accrued interest) and are an alternative to bankruptcy.

Income Mutual Fund: A mutual fund that invests in income producing securities such as bonds, preferred stocks, high dividend yielding common stock, or covered call stock options.

Income Limited Partnership: A limited partnership, such as real estate, whose objective is to generate high taxable income. These types of partnerships are usually designed for tax sheltered accounts such as IRAs and pension plans.

Income Property: Real estate bought specifically to generate income. The property may be bought by individuals, corporations or income limited partnership. When selling the property, the owners also hope to sell at a profit.

Income Shares: A class of capital stock that is issued by a split investment company or a dual purpose mutual fund. Owners receive dividends and interest generated from the income shares and from capital shares, another class of capital stock. Owners of capital shares receive capital gain generated from both classes.

Income Statement: A quarterly or annual financial statement that shows a corporation’s business results. It specifically shows all revenues, earnings, expenses, costs and taxes.

Income Stock: A stock that pays a relatively high dividend.

Incomplete Gift: Where the settlor has reserved the right to add or delete beneficiaries to the trust, it is construed as an incomplete gift.
moves.

Incorporation: The process by which a company receives a state’s permission to function as a corporation. After incorporation, the company will show that it is incorporated by adding the word “incorporated” into its name. “Inc.” or other acceptable abbreviations may be used.

Incremental Cash Flow: Net of cash inflows and outflows that arise from a corporate investment project.

Indemnify: An agreement by one party to compensate another party for losses or damages that are incurred if specific actions or events occur.

Indenture: A written contract, also known as a “Deed of Trust”, under which bonds and debentures are issued, setting forth maturity date, interest rate, redemption rights, call privileges and other terms. Under the rules of the Trust Indenture Act of 1939, the contract is executed by the issuer and a trustee who acts on behalf of the bondholders.

Independent Broker: NYSE member who executes orders for other floor brokers who currently have more business than they can manage themselves, or for firms whose floor brokers are not on the floor. Previously known as “Two-Dollar Brokers”, these brokers used to receive $2 per hundred shares for executing such orders. These fees, paid by the commission brokers, were once fixed but are now negotiable.

Independent Trustee: A trustee who is independent of the settlor. Independence is generally defined as not being related to the settlor by blood, through marriage, by adoption or in an employer/employee relationship.

Index: 1) A statistical yardstick that measures the economy. It is usually expressed as a percentage change from a base year or from the previous month. An example of an economy index is the Consumer Price Index . Using 1967 as its base year, the index consists of key consumer goods and services that measures price movements to changes in inflation rates. 2) Statistical measurement of groups of securities, industries or markets that reflect market prices and the number of shares outstanding for the companies in the index. Indexes may either be broad-based (a wide range of firms in many industries aiming to mirror the overall market) or narrow-based (consisting of securities from a specific industry). Stock indexes are used as a base for trading index options.

Index Arbitrage: A trading technique in which baskets of stocks and stock futures contracts are bought and/or sold according to their conformity and deviation from a stock index. To keep the position fully hedged, the stocks are bought and the futures are usually sold and vice versa. In doing this, the arbitrageur is locking in a profit (or loss).

Index Fund: A mutual fund that buys securities to match that of a broad-based index such as the Standard & Poor’s Index. The fund aims to achieve the same return as the general market.

Indexing: An investor who buys individual securities or index funds to mirror a broad-based index such as the S & P 500. The investor aims to match the index’s performance.

Index Option: Call and put option contracts traded on an underlying index, such as the S & P 100, and not a specific security. Investors who trade index options invest in a particular market or industry group without having to buy all the underlying securities. A narrow-based index allows an investor to trade in a particular industry while a broad-based index will scope many industries.

Indicated Yield: The dividend or coupon rate stated as a percentage of the security’s present market price. The type of security determines how the indicated yield is calculated. The indicated yield for common stock is calculated by dividing its annual dividend by its market price . For preferred stocks, the contractual dividend is divided by the market price. And, for fixed rate bonds, the indicated yield is the same as the current yield.
Indication: Estimation of what a security’s bid and offer prices will be when trading resumes after a delayed opening or trading halt–also called “indicated market”.

Indication of Interest: Underwriting term meaning a non-binding indication of a client’s interest in purchasing securities that are in registration (awaiting effectiveness by the Securities and Exchange Commission). The broker is required to provide the client with a preliminary prospectus on the securities. The indication of interest is non-binding because it is illegal to sell a security that is in the registration process.

Indicators: 1) Measures of economic activity utilized by economists to forecast the general direction of the economy. 2) Measurement utilized by technical analysts to make forecasts regarding the direction of the overall market or the movement of a particular stock.

Individual Investor: A person who buys or sells securities for his or her own account. The individual investor is also called a retail investor or retail shareholder.

Individual Retirement Account (IRA): A personal savings plan that offers tax advantages to save and invest for retirement. Contributions are often tax deductible in whole or in part, depending on individual circumstances, including compensation levels and participation in an employer sponsored qualified retirement plan. Income derived from investments in a traditional deductible or nondeductible IRA is tax deferred until withdrawn. Under certain circumstances, withdrawals from a Roth IRA are tax-free. Tax penalties may apply to IRA distributions taken before age 59 ½. The most you can contribute to your traditional IRA for 2002 has been increased to $3,000 or if you are 50 or older, $3,500. Keep in mind that contributions on your behalf to a traditional IRA reduce your limit for contributions to a ‘Roth IRA’.

Industrial: Stock market lingo that is a catch-all category that includes all firms that have businesses that are not classified as utility, transportation, or financial companies.

Industrial Development Bond (IDB): A bond issued by a municipality to finance fixed assets that are secured by a lease agreement with a corporation whose payments amortize the debt. IDBs used to be tax-exempt to holders. However, under current tax laws, they are no longer tax-exempt.

Industrial Production: A key economic indicator that is a released monthly by the Federal Reserve Board. The indicater relates the total output of all US factories and mines.

Industry Support Information Services (ISIS): The ISIS system supports all NASD regulatory activities set forth in its charter and the Securities Exchange Act of 1934. The system includes information applications for securities industry personnel and issuer companies, including databases on registered personnel, issues, members, and market data users.

Inefficiency In The Market: An investor’s failure to ascertain that a security may be having difficulties or has good prospects. Some analysts believe that investors who identify a security first can profit by exploiting that information–with corporate stocks that have substantial growth opportunities reflecting most clearly the market’s inefficiency. However, followers of the Efficient Market Theory believe current prices already reflect all knowledge about a security.

Inflation: The persistent and appreciable rise in the prices of goods and services. Moderate inflation is normally associated with periods of expansion and high employment–increasing dollars chasing a dwindling supply of goods. Hyperinflation, when prices rise 100% or more a year, causes people to lose confidence in the currency. During inflationary times, people often divert their investments into real estate and gold because they usually retain their value.

Inflation Rate: Rate of price changes usually calculated on a monthly or annual basis. The Consumer Price Index and the Producer Price Index are two principle US indicators of inflation rates. They track changes in prices paid by consumers and producers.

Ingot: A bar of metal. Gold reserves of the Federal Reserve are stored in ingot form. Investors who purchase a precious metal may take delivery of an ingot.

Initial Margin Requirement: Initial dollar amount or marginable securities that a brokerage client is required to deposit with a broker before placing margin transactions–one in which the broker extends credit to the client in a margin account. The initial margin requirement, according to the Federal Reserve Board’s Regulation T, is presently 50% of the purchase price (or $2000–whichever is higher) when buying marginable securities or 50% of the proceeds of a short sale.

Initial Public Offering (IPO): A company’s first sale of stock to the public. Companies making an IPO are seeking outside equity capital and a public market for their stock.

In Play: A security whose price fluctuates because of takeover rumors or activities.

Inside Information: Material corporate information that has not yet been made public in a widely used medium. Use of this information would influence the purchase or sale of a company’s security. An example of inside information is a company who has a large quarterly loss and this fact has not yet been made public. If this information was used to trade the security, under SEC rules, it may be deemed as illegal.

Inside Market: Bid and asked quotes at which one dealer will buy from or sell to another–also called “wholesale” or “inter-dealer market”. In contrast, retail market quotes are the prices that customers pay to dealers to buy or sell a security.

Inside Quote: The highest bid to buy and the lowest offer to sell a security at a given time. If one asks for a “quote” on a stock, you will receive something like “15 1/4 to 15 1/2.” This means that $15.25 is the highest price any buyer willing to pay and that $15.50 is the lowest price any seller will accept.

Insider: Anyone who is either an officer, director or key employee of a corporation, a person owning 10% of the company’s stock (and their families), or anyone with inside (non-public) information.

Insider Trading: A term that most investors associate with crime, but the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.

Insider Trading Bounty Program: Section 21A(e) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. 78u-l(e)] authorizes the Securities and Exchange Commission (“Commission”) to award a bounty to a person who provides information leading to the recovery of a civil penalty from an insider trader, from a person who “tipped” information to an insider trader, or from a person who directly or indirectly controlled an insider trader.

Insolvency: The inability of an individual or entity to pay its debts when they are due.

Installment Sale: A transaction that has a set contract price and is usually paid in monthly installments over a specified period.

Instinet: Abbreviation for the Institutional Networks Corporation.

Institutional Broker: Broker who trades securities for institutional clients such as banks, mutual funds, pension funds and insurance companies.

Institutional Broker’s Estimate System (IBES): A service provided by Lynch, Jones and Ryan. The brokerage firm gathers analysts’ future earnings estimates on publicly traded companies and determines which companies’ estimates have changed substantially.

Institutional Investor: A mutual fund, bank, pension fund, insurance company, university or other institution. Institutional investors usually invest large volumes in the securities markets.

Instrument: A legal document that states a contractual relationship or that specific rights are granted such as notes, agreements or contracts.

Instrumentality: Obligations of government agencies that are backed by the full faith and credit of the government. However, these obligations are not direct obligations of the government. Examples of such instumentalities are the Student Loan Marketing Association, Federal Intermediate Credit and Federal Land Banks.

Insurance: Plan in which individuals and organization who are concerned about potential risks will pay premiums to an insurance company, who in return, will reimburse them if there is loss. To generate a profit, the insurer will invest the premiums it receives. Examples of the different types of insurance available are automobile, home, health and worker’s compensation. Whereas in most cases the insured is paid for their loss, with life insurance a beneficiary is paid when the insured person passes away.

Insured Account: Account at a brokerage firm, bank, savings and loan association or credit union that is insured either by a federal or private insurance organization. If the institution becomes insolvent, it protects depositors against losses. Brokerage accounts are insured by the Securities Investor Protection Corporation (SIPC). SIPC does not protect the investor from market declines. The Federal Deposit Insurance Corporation (FDIC) administers the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)–insurance for bank and for savings and loan accounts.

Insured Bonds: Municipal bonds covered by an insurance policy. The policy guarantees that should the issuer default in making payments, the insurance company will pay all interest and principal due. Insured bonds usually are rated very high as the risk to the investor is minimal.

Intangible Assets: Assets of a corporation that are not physical. They are considered to enhance the company’s position in the marketplace. Such assets include goodwill, trademarks, patents, copyrights, franchises, leases, licenses, and permits.

Intercommodity Spread: A spread that includes a long position and a short position in related commodities–for instance, a long position in silver futures and a short position in gold futures. The investor aims to profit from the changing price relationship between the commodities.

Interdelivery Spread: Technique used in trading options or futures. Contracts expiring in one month are bought and the same contracts expiring in a different month are sold–for example, buying a May cotton contract and simultaneously selling an August cotton contract. The investor aims to profit when the price between the two contracts narrows or widens.

Interest: Dollar cost that a borrower pays a lender for the use of the lender’s money.

Interest Rate Options: Option contracts that are based upon underlying debt instruments.

Interest Sensitive Stock: A corporation’s stock whose earnings change when interest rates change. Upon news of rate increases or decreases, the stock will go up or down in price. Examples of interest-sensitive stocks include bank and utility companies.

Interim Dividend: A dividend that is declared and paid before annual earnings are determined. Most companies plan quarterly dividends they know they can afford.

Interim Statement: A report that presents a corporation’s income statement for the period and, sometimes the balance sheet. A corporation usually issues three interim reports (quarterly) and one annual report.

Interlocking Directorate: An individual who is on the board of directors for more than one corporation.

Intermarket Surveillance Group (ISG): A group that coordinates surveillance and investigations among NASD and other U.S. and foreign exchanges trading in securities, options, and futures and foreign securities.

Intermarket Trading System (ITS): An electronic communications network that links the posts of specialists who are market makers for the same securities at the floors of seven registered exchanges to foster competition among them. Quotes are displayed and are firm (good) for at least one round lot (100 shares). Through ITS, a broker at one exchange may direct an order to another exchange where the quote is better.

Intermediary: Individual or entity that is sanctioned to make investment decisions for others–also called “financial intermediary”. An intermediary is used because they are investment specialists that usually can obtain higher returns than the average investor. Moreover, because they deal in large dollar volumes, they can easily diversify the assets. Examples of some intermediaries are brokerage firms, mutual funds, banks, and insurance companies.

Intermediate Term: Time between short and long term with the length dependent on the context. A bond analyst, for instance, usually considers an intermediate term to be between 3 to 10 years. A stock analyst would consider it to mean 6 to 12 months.

Intermediation: Money deposited with financial intermediaries–such as brokerage firms, banks, insurance companies–which invest in stock, bonds, money market securities, government obligations and/or mortgages to obtain a targeted return. In contrast, disintermediation is the withdrawal of money from an intermediary.

Internal Control: An organization’s procedures that are designed to increase its efficiency, ensure its policies are implemented, and its assets are safeguarded.

Internal Expansion: Growth of an organization’s assets through cash generated internally from either internal financing, appreciation or accretion.

Internal Financing: Funds generated through a corporation’s normal business operations.

International Business Company (IBC): A corporation formed (incorporated) under a “Company Act” of a tax haven, but not authorized to do business within that country of incorporation; intended to be used for global operations. Owned by member(s)/shareholder(s). Has the usual corporate attributes.

International Fiscal Police (INTERFIPOL): The tax crime counterpart to INTERPOL.

International Financial and Banking Centre (IFC): A country identified as being a tax haven.

International Mutual Funds: A mutual fund that invests in nondomestic securities markets throughout the world. If investments are chosen carefully, this type of fund may be profitable when some markets are rising and others are declining. However, fund managers must watch foreign currencies as well as world markets–profitable investments in a rising market can lose money if the foreign currency rises against the dollar.

International Organization of Securities Commissions (IOSCO): IOSCO attempts to harmonize international securities regulation, and supports the development of securities markets around the world.

International Trust: A Cook Islands term for a special type of an Asset Protection Trust (APT). Governed by the laws of the Cook Islands.

INTERPOL (International Criminal Police Organization): The net-work of multinational law enforcement authorities established to exchange information regarding money laundering and other criminal activities. More than 125 member nations.

Inter Vivos Trust: A trust established between two or more individuals that are alive–also called “living trust”. The opposite is a testamentary trust, which is effective when the individual who established the trust dies.

In The Money: Expression used for any option series with intrinsic value–the option’s strike (exercise) price and market price of the underlying security are such that the holder can exercise the option at a profit. For example, if a call option with a strike price of 30 and the underlying stock’s market price is currently 33, the call is in the money. A put option is considered in the money when the underlying stock is selling below the strike price. Premiums and other transaction costs are not considered in determining whether the option is in the money or out of the money.

In The Tank: Lingo meaning that market prices are plummeting.

Intraday: Within the day. The term is often used when stating high and low prices of a security. When stating, for example, that a stock hit a new intraday low, it means that during the day the stock reached an all-time low price but rose back to a higher price by the end of the day.

Intra-State Offering: A new securities’ issue that will only be sold to investors in one state and who are residents of that state. An intra-state offering is exempt from filing provisions of the Securities Exchange Act of 1933 under Rule 147.

Intrinsic Value: The amount whereby an underlying security’s current market price is above the call option’s strike (exercise) price or below the put option’s strike price. If the strike price of a call option, for example, is $40 and the stock is $43, the option’s intrinsic value is $3. An option that has intrinsic value is “in the money.” If the option is at or out of the money, it does not have an intrinsic value.

Inventory Turnover: It is a company’s cost of goods sold (from the income statement) divided by the year-end inventory (from the balance sheet). The number is used by fundamental analysts when examining a company’s financial statement.

Inverted Scale: Serial bond issue in which earlier maturities have higher yields than later maturities.

Investment: The use of money through various vehicles, or an individual’s time and effort, to make more income or increase capital, or both. The term “investment” infers that the safety of principal is important. On the other hand, speculation connotes that risking principal is acceptable.

Investment Advisor: Individual or organization who provides investment advice for a fee. In most cases, investment advisors with more than 15 clients must register with the SEC and abide by the Investment Advisors Act of 1940. Brokers, banks and general circulation periodicals are exempted from registration with SEC. Most states require an investment advisor to pass an examination.

Investment Advisors Act: Act passed by Congress in 1940 that requires investment advisers to register with the SEC. The intent of the Act is to protect investors from fraud or misrepresentation by investment advisors.

Investment Advisor Registration Depository (IARD): On September 12, 2000, the SEC adopted amendments to Form ADV and new rules requiring all investment advisers registered with the SEC to begin filing Form ADV electronically through the Investment Adviser Registration Depository (IARD) system. Beginning January 1, 2001, SEC-registered advisers must use IARD and State-registered advisers will also submit filings electronically through IARD. Like the Central Registration Depository or CRD, the IARD will give investors access to information about investment advisers and persons who work for investment advisers.

Investment Banker: A firm, acting as an underwriter or an agent, who serves as intermediary between an issuer of new securities and the investing public. The usual practice is for one or more investment bankers to form a syndicate to buy a corporation’s new issue and then sell the issue to individuals and institutions–commonly called a “firm commitment underwriting”. In a provisional arrangement–called “best effort”–the investment banker acts as an agent rather than principal and markets a new issue without underwriting it. Under another provisional arrangement–called “standby commitment”–the investment banker agrees to buy for resale any securities not taken by existing holders of rights.

If a client relationship exists, the investment banker’s role starts with pre-underwriting counseling and continues after the distribution of securities is completed by offering ongoing advice and guidance. Some underwriting responsibilities include preparing the SEC registration statement, pricing the securities, forming and managing the syndicate, and pegging (stabilizing) the price of the issue during the offering and distribution period.

Besides new securities offerings, investment bankers manage the distribution of secondary offerings, maintain markets for already distributed securities and act as finders for private placements. Most investment bankers also maintain broker-dealer operations that serve wholesale and retail clients in brokerage and advisory capacities.

Investment Certificate: Certificate that evidences investment in a savings and loan association and states the dollar amount invested. The certificates do not involve shareholder responsibility nor do they have voting rights.

Investment Club: Individuals who pool their funds to make joint investments. Each member of the club contributes a certain dollar amount periodically, with the additional money usually invested in growth stocks using a dollar cost averaging approach. Dividends and capital gains are reinvested in most cases. Security purchases are determined by a vote of the members. The clubs permit investors with small dollar amounts to participate in larger investments and thus pay lower commissions. It also assists the club member in becoming more knowledgeable about investing. There are approximately 28,000 investment clubs in US today with about 7000 belonging to the National Association of Investment Clubs (NAIC), a nonprofit organization that provides guidance and literature to its membership. 

Investment Company: A company or trust, such as unit investment trusts and management companies, engaged in the business of investing the pooled funds of small investors in securities appropriate for stated investment objectives. For a fee, it provides investors with more diversification, liquidity, and professional management service than would normally be available to them as individuals.

There are two types of management companies–closed-end and open-end mutual funds. Closed-end investment companies are traded in the open market and are bought and sold like any other stock. The capitalization of a closed-end fund usually remains constant and has a fixed number of outstanding shares. Open-end mutual funds sell their shares directly to investors, are ready to buy back their old shares at their current net asset value, and are not listed. The capitalization is open-end funds are not fixed–they issue more shares as investors want them.

Open-end management companies may either be “load” or “no-load” mutual funds. Load funds are sold by broker-dealers who receive a percentage that is added into the net asset value. The percentage is determined by the amount of the client’s investment into the fund. Load funds often can be redeemed free of any charges from the fund. No-load funds are usually bought from the mutual fund and do not charge a loading fee. However, small redemption fees are not uncommon.

Every investment company states its specific investment objectives in its registration statement and prospectus. An investment company usually falls within one of the following categories:

• Diversified common stock funds;
• Balanced funds that mix bonds and preferred and common stocks;
• Bond and preferred stock funds that feature fixed income;
• Specialized funds by industry, groups of industries, geography or size of company;
• Income funds–income generated from high-yield securities;
• Performance funds (growth stocks);
• Dual-purpose funds–a closed-end investment company that offers a choice between dividend shares or capital gain shares and;
• Money market funds (money market instruments).

Investment Banking, Securities Business: The business carried on by a broker or dealer; a business that deals in government or municipal securities; a business that underwrites or distributes securities issues; a business that buys or sells securities for itself or on the account of others. The definition does not include banks or bank departments.

Investment Company Act Of 1940: Federal law that regulates investment companies. The Act regulates how mutual funds and other investment vehicles of investment companies operate.

Investment Company Institute (ICI): The U.S. trade association for the mutual fund industry. Investment companies create and maintain mutual funds and investment trusts.
Investment Counsel: Person whose principal business consists of acting as investment adviser and providing investment supervisory services.

Investment Grade: A bond that is rated within the top four categories by Moody’s or Standard & Poor’s.

Investment Income: Income, such as dividends, interest and capital gains amongst other sources, that is generated from securities and other investments. Under current tax regulations, an investor’s interest charges from a margin account can be used to offset investment income.

Investment Letter: A letter that is an agreement between a seller and a buyer who is purchasing private placement securities (unregistered securities under Regulation D). The investor affirms that the purchase is a long-term investment and not for resale. The securities are also called “letter stock”.

Investment Strategy: Strategy used to allocate funds among such vehicles as stocks, bonds, cash equivalents and commodities. An investor’s strategy should be based on their view of the direction of economic factors such as economic growth, interest rates and inflation. At the same time, the investor may also take into account their age, tolerance for risk, funds available for investment and future needs.

Investment Strategy Committee: Committee in a brokerage firm’s research department that sets the investment strategy that the firm recommends to its clients. The committee typically consists of the firm’s research director, chief economist, and top analysts. The group recommends industry groups and individual securities that appear especially attractive. They will also advise how much money should be invested into stocks, bonds, or cash equivalents.

Investment Value Of A Convertible Security: The estimated price at which a convertible security would be valued if it did not have a stock conversion feature. A convertibles’ investment value is determined by investment advisory services. Theoretically, it should not fall lower than the related stock’s price. It is set by estimating the price at which a non-convertible bond or preferred stock of the same issuing company would sell.

Investor Relations Department: A department within a listed corporation that is responsible for investor relations. Some of the department’s functions may include:

• Assuring that a company’s activities and objectives are understood and are regarded favorably by the investment community.
• Ensuring full and timely disclosure of material information, and assisting the legal staff with compliance of SEC rules and industry regulations.
• Responding to requests from shareholders, institutional investors, brokers and the media for information and written material such as its quarterly and annual reports.

Investors Service Bureau: A service of the New York Stock Exchange that answers written inquiries regarding securities investments.

IOC (Immediate Or Cancel): A limit order to buy or sell a security that requires all or part of the order to be executed immediately. Any part of the order that is not executed, is automatically canceled. An IOC order is usually for a significant share quantity.

IOSCO (International Organization of Securities Commissions): IOSCO attempts to harmonize international securities regulation, and supports the development of securities markets around the world.

IPO (Initial Public Offering): The first public issuance of stock from a company that has not been publicly traded before.

IRA (Individual Retirement Account): A personal savings plan that offers tax advantages to save and invest for retirement. Contributions are often tax deductible in whole or in part, depending upon individual circumstances, including compensation levels and participation in an employer sponsored qualified retirement plan. Income derived from investments in a traditional deductible or nondeductible IRA are tax deferred until withdrawn. Under certain circumstances, withdrawals from a Roth IRA are tax free. Tax penalties may apply to IRA distributions taken before age 59 1/2. Contributions to an IRA may not exceed $2,000 per year. Individuals with earned income may contribute up to $2,000 to the IRA of an unemployed spouse.

IRA Rollover: An individual’s reinvestment of assets received as a lump-sum distribution from a qualified tax-deferred retirement plan such as a corporate pension plan. The assets must have been received because of either the individual’s retirement or employment termination. If the assets are deposited in an IRA within 60 days from the time they are withdrawn, the individual will not have any tax consequences and the assets will continue to accumulate on a tax-deferred basis.

Irredeemable Bond: A bond that does not have a call feature or a redemption privilege. A call feature allows an issuer to redeem the bond before its maturity and a redemption privilege allows a bondholder to redeem the bond before its maturity.

ISG (Intermarket Surveillance Group): A group that coordinates surveillance and investigations among NASD and other U.S. and foreign exchanges trading in securities, options, and futures and foreign securities.

ISIS (Industry Support Information Services): The ISIS system supports all NASD regulatory activities set forth in its charter and the Securities Exchange Act of 1934. The system includes information applications for securities industry personnel and issuer companies, including databases on registered personnel, issues, members, and market data users.

Issue: A process by which new securities of an entity, such as a corporation or a municipality, are sold and distributed. The securities are distributed through an underwriter or by a private placement.

Issued And Outstanding: Corporate shares that have been authorized within the corporate charter and have already been issued. The share may represent all or only part of the number of shares authorized. Authorized shares not yet issued are called “unissued stock”. Issued shares repurchased by the corporation are called “treasury stock”. Treasury stock is held in the corporate treasury pending reissue or retirement. Although these shares are issued, when making calculations such as earnings per share and dividends, they are not considered to be outstanding. Authorized, issued and outstanding, and treasury shares are usually noted in a corporation’s annual reports.

Issued Shares: Amount of common shares that a corporation has issued (sold).

Issuer: Entities, such as corporations, municipalities, governments and investment trusts, that may issue and distribute securities. Stock issuers are required to report corporate developments to its shareholders and, if declared, pay dividends. Bond issuers must make timely payments of interest and principal to its bondholders.

ITS (Intermarket Trading System): An electronic communications network that links the posts of specialists who are market makers for the same securities at the floors of seven registered exchanges to foster competition among them. Quotes are displayed and are firm (good) for at least one round lot (100 shares). Through ITS, a broker at one exchange may direct an order to another exchange where the quote is better.

Joint Account: An account that is owned jointly by two or more clients. Joint accounts may be set up two ways.

Joint Account Agreement: Form used to establish a joint account at a brokerage firm or a bank. It must be signed by all account owners.

Joint and Survivor Annuity: Annuity that makes payments for the lifetime of two or more beneficiaries (frequently husband and wife). If one annuitant passes away, payments continue to the survivor as specified in the contract.

Joint Bond: Bond that is guaranteed by a party other than the issuer or has more than one obligator–also called “joint and several bond”. Prevalent use of joint bonds can be found when a parent corporation wants to guarantee the bonds of a subsidiary.

Joint Tenancy (JT): An account or ownership of property where there are two or more owners. There are several types of joint tenancy. State laws and the relationship between the owners will determine the type of joint account one will want to establish.

Joint Tenants By Entirety: Ownership of assets by a married couple where the husband or wife automatically acquires the other’s share upon death.

Joint Tenants In Common (JTIC): Ownership of assets by two or more individuals. A specific ownership percentage is assigned to each individual. In the event of the death of one party, the deceased’s interest passes to their estate and not to the surviving tenant(s).

Joint Tenants with Right of Survivorship (JTWROS): Ownership of assets by two or more individuals where there is not specific fractional financial interest. In the event of the death of one party, the survivor(s) receives total ownership.

JT (Joint Tenancy): An account or ownership of property where there are two or more owners.

JTIC (Joint Tenants In Common): Ownership of assets by two or more individuals. A specific ownership percentage is assigned to each individual. In the event of the death of one party, the deceased’s interest passes to their estate and not to the surviving tenant(s).

JTWROS (Joint Tenants With Right Of Survivorship): Ownership of assets by two or more individuals where there is not specific fractional financial interest. In the event of the death of one party, the survivor(s) receives total ownership.

Jumbo Certificate of Deposit: Certificate with a minimum denomination of $100,000.

Junior Issue: Debt or equity issue of a corporation that is subordinate in claim to another issue of the same corporation in regard to dividends, interest, principal, or security in the event of liquidation.

Junior Refunding: The refinancing of government debt maturing in one to five years by issuing new securities that mature in five or more years.

Junior Securities: Security that has a subordinate claim on assets to that of a “senior security”. For instance, a preferred stock is junior to a debenture, but a debenture, being an unsecured bond, is junior to all corporate securities.

Junk Bond: Bonds that have little or no collateral or liquidation value and are typically very risky. For this risk, they offer a high rate of return. They are issued by corporations without sales and earnings track records, or by those with questionable credit. Moreover, in the 1980s, junk bonds were popular instruments for corporate mergers and acquisitions. The bonds usually have a credit rating of BB or lower. Because the term has an unfavorable connotation, issuers and holders prefer the bonds to be called “high yield bonds.”

Justified Price: Fair market price an educated buyer will pay for an asset.

Key Industry: Industry that is fundamental to a nation’s economy and well-being. The defense industry, for instance, is a key industry because it provides the means in which to preserve a country’s safety.

Kicker: Additional feature of a security that is intended to strengthen its marketability by offering the possibility of equity participation. For example, a bond may be convertible to stock if the shares reach a specified price. The kicker makes the bond more attractive to investors–the bondholder, in addition to interest payments, potentially gets ownership benefits of an equity security. Some other types of equity kickers are rights and warrants.

Killer Bees: Those who assist a corporation in fighting off a takeover bid–usually investment bankers. They concoct strategies to make the target corporation less enticing or more difficult to acquire.

Kiting: 1) Practice of sustaining credit or of raising money by causing stock prices to rise through manipulative trading methods. 2) Orchestrated bank deposit scheme where bad checks are deposited to cover other bad checks.

Know Your Customer: Securities industry ethics established by exchange rules, NASD Rules of Fair Practice and other authorities regulating broker-dealer practices. In order to satisfy the “know your customer” rules, when opening an account with a brokerage firm, the customer must provide information regarding his financial situation. Based upon the facts disclosed by the customer, the broker must have a reasonable belief that the recommendation they are making is suitable for the customer.

Krugerrand: Gold bullion coin minted by the Republic of South Africa that contains one troy ounce of gold. They usually sell a little above their current gold content value. Although Krugerrands were banned for import into the US in 1985, existing coins in the US can be traded.

Lapsed Option: An option that has no value because it expired without being exercised.

Last-In First-Out (LIFO): A method used to determine the cost of goods sold. In making this evaluation, the method assumes that company’s newest inventory (last in) is sold first (first out). When prices are rising, a company using the LIFO method will have lower gross profits and taxable income because the cost of goods sold will be higher (the newest inventory was costlier to produce).

Last Sale: The most recent transaction in a specific security. In contrast, the term “closing sale” is the final trade for a security in a trading day.

Late Tape: A delay is displaying price changes of securities. This usually occurs on an especially heavy trading day. When the tape is greater than five minutes late, the security’s price is shown without its first number. For example, a trade that occurred at 43 1/8 will be displayed as 3 1/8.

Layered Trusts: Trusts placed in series where the beneficiary of the first trust is the second trust; used for privacy.

Layering: May be achieved with numerous combinations of entities. For example, 100 percent of the shares of an IBC being owned by the first trust, which has as its sole beneficiary a second trust.

LBO (Leveraged Buyout): A takeover of a corporation in which the acquirer uses borrowed funds. The target firm’s assets are commonly used to secure the acquirer’s loan. However, they may also use their own assets as collateral. A company’s management might also use this technique to takeover their own company–that is, the management takes the company from being publicly owned to privately owned. In most LBOs, shareholders will receive a premium above the security’s current market value.

Leader: 1) Stock or group of stocks that are spearheading a rising or declining market. Institutions who want to demonstrate their own market leadership may trade heavily in leaders. 2) A company’s whose product has a large market share.

Leading Indicators: Twelve components of an index that forecast ups and downs in a business cycle. The numbers, adjusted for inflation, are released monthly by the US Commerce Department’s Bureau of Economic Analysis. Its full name is the “Composite Index of 12 Leading Indicators”. Some of the components are unemployment, new orders for consumer goods and money supply (M-2).

Leg: 1) One part of a spread option. A trader, for example, buys a call option and combines it with another call option on the same underlying security that has the same strike price and a different expiration date. Each of the two options is a leg of the spread. Selling one of the legs is termed “Legging Out.” 2) A prolonged stock market trend. A bull or bear market may have multiple legs.

LEGAL: A New York Stock Exchange computerized database that tracks member firm audits, customer complaints and enforcement actions against member firms. LEGAL is written in all capitals. However, it is not an acronym.

Legal Entity: Individuals or organizations that can enter into a contract and may be sued for not performing in accordance with the contract. A minor is not a legal entity and cannot sign a contract.

Legal Investment: An investment vehicle that a person with fiduciary responsibilities may purchase. Each state has legal investment guidelines that a fiduciary must follow. Investment grade bonds are an example of a legal investment.

Legal List: A list of legal investments that are selected by various states in which institutions and fiduciaries, such as insurance companies and banks, may invest. The list is usually comprised of high quality debt and equity securities. Instead of a legal list, some states apply the Prudent Man Rule–the security has to be one that a reasonable man would invest in. In either case, both are used to protect the money that individuals place with fiduciaries and institutions.

Legal Opinion: Written opinion by an attorney who attests to a municipal bond issue’s legality–that is, it is authorized and the interest’s tax status is correct.

Legal Transfer: Securities that require more documentation than just a stock or bond power to transfer the certificates from the seller to the buyer. Among others, these certificates may be registered in the name of trusts, decedents, corporations, partnerships, or investment clubs. A corporation who has sold a stock, for example, would need to submit a corporate resolution with a raised seal along with a stock power.

Legging Out: Closing one side of a hedge position that leaves the other side as a long or short position. A leg, according to Wall Street lingo, is one side of a hedge transaction. A trader, for example, has an option spread in which he bought an XYZ May 50 call and a sold an XYZ July 65 call. If the XYZ May 50 call (one side of the hedge) is closed (sold), the trader is legging out. The trader is left with a short leg.

Letter Of Intent (LOI): 1) A contract signed by a mutual fund shareholder that indicates that the shareholder intends to invest at least a certain amount of money, during a 13-month period, to qualify for a reduced percentage sales charge. A letter of intent may be backdated a maximum of 90 days. Any shares, bought before the letter of intent was signed and within the 90 days, will be adjusted to reflect the reduced sales charge. 2) A letter of intent may also refer to a preliminary contract between two parties negotiating a merger or an acquisition.

Letter of Wishes (LOW): Guidance and a request to the trustee having no binding powers over the trustee. There may be multiple letters. They must be carefully drafted to avoid creating problems with the settlor or true settlor in the case of a grantor trust becoming a co-trustee. The trustee cannot be a “pawn” of the settlor or there is basis for the argument that there never was a complete renouncement of the assets. Sometimes referred to as a side letter.

Letter Security: A security that is not registered with the SEC and thus, cannot be sold in the marketplace. The issues are sold under an investment letter in which the purchaser states the purchase is for investment purposes and not for resale. The certificates have a restrictive legend that indicates they are not registered. Because the investment letter is essential to the security’s issuance, this type of security is called either “letter security”, “letter stock”, or “letter bond”.

Letter Of Testamentary: A court issued affidavit that appoints an executor for a decedent’s estate.

Level Debt Service: A stipulation in a municipal charter stating that each year’s interest and principal payments on municipal debt must be relatively equal. This attempts to make it easier to project the amount of tax revenue needed to meet obligations.

Level I Service Of NASDAQ: An electronic subscription service that provides the highest bid and lowest offer on NASDAQ traded securities. Brokerage firms use this service to give current quotes to its brokers and clients.

Level II Service Of NASDAQ: An electronic subscription service that identifies market makers and provides their bids and offers on NASDAQ trade securities. The service gives competitive information on NASDAQ traded securities. It is only accessible to traders of NASD members and institutional investors.

Level III Service Of NASDAQ: An electronic subscription service that is accessible only to registered market makers. It allows them to enter their own bids and offers for securities in which they are registered. In effect, Level III is an electronic marketplace.

Leveraged Buyout (LBO): A takeover of a corporation in which the acquirer uses borrowed funds. The target firm’s assets are commonly used to secure the acquirer’s loan. However, they may also use their own assets as collateral. A company’s management might also use this technique to takeover their own company–that is, the management takes the company from being publicly owned to privately owned. In most LBOs, shareholders will receive a premium above the security’s current market value.

Leveraged Company: A company that has debt in its capital structure. A company whose capital structure consists of more than one third debt is commonly considered to be highly leveraged.

Leveraged Investment Company: 1) An open-end investment company or mutual fund that is allowed to borrow capital from a lender. This provision must be stated in its charter. 2) A dual-purpose investment company that issues both income and capital shares. Holders of income shares receive dividends and interest on investments. Holders of capital shares receive all capital gains on investments. Essentially, each class of shareholder leverages the other.

Levy: A seizure and sale of property in debt collection especially an IRS seizure and sale of property to collect a debt owed to the United States Government 26 U.S.C. § 6331(b).

Liability: The claims by creditors against a corporation or an individual. A corporation’s liabilities include accounts payable, wages payable, dividends declared payable, accrued taxes payable, and long-term liabilities (bank loans and debentures).

LIFO: A method used to determine the cost of a good sold. In making this evaluation, the method assumes that company’s newest inventory (last in) is sold first (first out). When prices are rising, a company using the LIFO method will have lower gross profits and taxable income because the cost of goods sold will be higher (the newest inventory was costlier to produce).

Lift: Investment lingo used to indicate a rise in securities prices as measured by the Dow Jones Industrial Average or other market averages. A lift is usually caused by good economic or business news.

Limited Company: Not an international business company. May be a resident of the tax haven and is set up under a special company act with a simpler body of administrative laws.

Limited Discretion: An agreement whereby a client allows their broker to make certain types of transactions without first notifying the client. For example, the broker will sell an option position that is about to expire when it is in-the-money.

Limited Liability: Condition in which an investor cannot lose more money than the amount that was invested.

Limited Liability Company (LLC): Consists of member owners and a manager, at a minimum. Similar to a corporation that is taxed as a partnership or as an S-corporation. More specifically, it combines the more favorable characteristics of a corporation and a partnership. The LLC structure permits the complete pass-through of tax advantages and operational flexibility found in a partnership, operating in a corporate-style structure, with limited liability as provided by the state’s laws.

Limited Partner: An investor in a limited partnership who does not participate in the management of the partnership and have limited liability.

Limited Partnership (LP): Organization that consists of a general partner and limited partners. The general partner manages one or more projects for which the organization was formed. Limited partners invest money into the project; their risk is usually limited to the amount that they invested, and they do not have any day-to-day responsibilities of running the partnership. Limited partners typically receive income, capital gains, and tax benefits while the general partner collects fees and a percentage of capital gains and income. Common limited partnerships are in real estate, oil and gas, and equipment leasing, but there are other kinds of projects.

Limited Risk: When buying options contracts, the amount of the premium paid. For example, the buyer of a call option cannot lose more than the premium even if the underlying security does not rise during the option’s life. A buyer of a put option also cannot lose more than the premium even if the underlying security does not drop. Naked (uncovered) put writers are limited to the strike price less the option premium received. Naked call writers have unlimited risk as the value of a security can infinitely increase.

Limit Order: An order that instructs a broker to buy or sell a specified amount of a security at a specified price or at a better price. In the case of a buy, it will never be executed above the limit price. Conversely, in a sell, the order will never be executed below the limit price. If the limit price is not within the current market quote, it is said to be “away from the market”. The order is entered on the specialist’s book beneath any similar orders received earlier. These similar orders are said to be “shares ahead of you”. Thus, the limit order may not be executed immediately or only partially, or not at all.

Limit Price: The price that is set in a limit order. The price stipulates to the broker to execute the order only at the limit price or better.
Limit Up, Limit Down: The maximum price that a commodity futures contract is permitted to move in one trading day. In extraordinary circumstances, a future may move limit up or limit down for several days in a row.

Liquid Asset: Actual cash or an investment vehicle that is easily converitble into cash such as bank deposits and money market fund shares. A corporation’s liquid assets, in reference to its financial statement, are cash, marketable securities, and accounts receivable.

Liquidate: The process of selling securities or assets to obtain cash.

Liquidation: 1) Upon a brokerage client’s failure to meet a margin call, the closing of positions within the account. If the position is long, the security is sold. If the position is short, the security is bought. 2) The dissolution of a company in which its assets are sold to pay its debts. Any remaining cash is distributed to its shareholders.

Liquidity: The ability of a stock to absorb a large amount of buying or selling without substantial price movement. Institutional investors are inclined to seek securities that have liquidity so that their trading activity will not have an effect on the stock’s market price.

Liquidity Ratio: A gauge of a corporation’s ability to meet short term obligations.

Listed Option: A call or put option that has been authorized for trading on, and by, a registered exchange. Its proper name is an “exchange-traded option”.

Listed Security: A stock or bond that has been authorized for trading on, and by, a registered exchange. Each stock exchange has different criteria to determine a security’s eligibility for listing.

Listing Requirements: Rules of eligibility that a corporation must meet before its stock can be listed for trading on an exchange. Each exchange has different requirements–the New York Stock Exchange (NYSE) being one of the stringent. Some of the NYSE’s requirements are that a corporation must have:

• At least 1,100,000 shares publicly held with a minimum market value of $18 million;
• A minimum of 2,000 round lot shareholders or a total of 2,200 shareholders and;
• A minimum pretax annual net income of at least $2.5 million.

Living Trust: A trust established between two or more individuals that are alive–also called “living trust”. The opposite is a testamentary trust, which is effective when the individual who established the trust dies. It is a revocable trust, for reduction of probate costs and to expedite sale of assets upon death of grantor. It provides no asset protection. See also Inter Vivos Trust.

LLP: Limited liability partnership. A form of the LLC favored and used for professional associations, such as accountants and attorneys.

LLLP: Limited liability limited partnership. Intended to protect the general partners from liability. Previously, the general partner was a corporation to protect the principals from personal liability. Under the LLLP, an individual could be a general partner and have limited personal liability.

Load: Sales charge paid by investors when purchasing shares of a load mutual fund or units of an annuity–sometimes called “front-end load”. This contrasts with a back-end load which charges a fee when the investor redeems their investment. A mutual fund that does not charge a fee is called a “no-load” fund.

Load Mutual Fund: Mutual fund that charges a fee when investors make purchases. This fee (or “load” as it is called) is used primarily to compensate salespeople selling the fund.

Load Spread Option: Process used to allocate a contractual mutual fund’s annual sales charge. In a contractual plan, fund shares are accumulated through periodic fixed payments. The maximum sales charge is limited to 9% for the life of the contract. However, up to 20% of any year’s investment can be credited against the sales charge as long as the total charge for the first four years does not exceed 64% of one year’s investment.

Loan: Transaction whereby an owner of property (lender) grants another party (borrower) to use the property for a specified length of time. The borrower promises to return the property and, in most cases, pay a fee (interest) for its use. When the property is cash, the borrower signs a promissory note. A loan may be secured with collateral or unsecured.

Loan Consent Agreement: An agreement that is signed by a brokerage client as part of a their margin account documentation. By signing the agreement, the client agrees the broker-dealer may lend the securities.

Loan Value: The maximum amount of credit that a lender may lend against collateral. For example, at 50% of appraised value, a piece of property worth $500,000 has a loan value of $250,000. With respect to the brokerage industry, Regulation T of the Federal Reserve Board stipulates the maximum percentage of eligible securities that a brokerage firm may lend to a margin account client.

Lock Box: 1) Process whereby a firm’s customers mail payments to a post office box. The bank collects the checks from the lock box and deposits them into the firm’s account. The company is then notified of the deposits either by telephone or electronically. 2) Service provided by a bank in which they hold a customer’s securities and deposit any income or dividends received.

Locked In: 1) Lingo used to indicate that a rate of return on an investment has been guaranteed for a specific length of time. Examples of such investments are certificate of deposits (CDs) and fixed rate bonds. 2) Said of a security whose profits or yields have been secured through use of a hedge. 3) Said about an investor who does not sell a profitable security because the profit would immediately be subject to capital gains tax.

Locked Market: A situation that occurs in a highly competitive market in which a security’s bid and ask prices are the same. Once more buyers and sellers submit their orders, the market will unlock.

LOI (Letter Of Intent): 1) A contract signed by a mutual fund shareholder that indicates that the shareholder intends to invest at least a certain amount of money, during a 13-month period, to qualify for a reduced percentage sales charge. A letter of intent may be backdated a maximum of 90 days. Any shares, bought before the letter of intent was signed and within the 90 days, will be adjusted to reflect the reduced sales charge. 2) A letter of intent may also refer to a preliminary contract between two parties negotiating a merger or an acquisition.

Long: Brokerage lingo signifying that an investor has ownership of a security. Ownership rights entitle the investor to receive any income and dividends paid by the security and, once sold, to profit or to lose money. The owner also may transfer ownership of the security by sale or by gift.

Long Bond: A bond maturing in 10 or more years. Because an investor’s money is tied up for a long time, the bonds are riskier than shorter term bonds of the same quality. Thus, they usually pay a higher yield.

Long Coupon: The first interest payment on a bond that represents interest for more than six months. A long coupon occurs when a bond’s issuance date is more than six months before the first scheduled payment. A short coupon is interest covering less than six months.

Long Hedge: An option or futures contract that is bought to protect against an investment risk. For example, if interest rates are expected to decline, a call option will be bought to lock in a fixed income security’s present yield.

Long Leg: The long part of an option spread (the buying and selling of options within the same class at the same time). In other words, the part of the spread that is bought as opposed to written (sold). For example, if a spread is composed of a long call option and a short call option, the long call is the long leg.

Long Market Value: The dollar value of the long positions within an investor’s brokerage account.

Long Position: Securities owned by an investor that are held in a brokerage account.

Long Term: 1) Referring to bonds–a bond with a maturity of ten years or longer. 2) Referring to stocks–a stock which is held for a year or more by an investor.

Long Term Debt: Liabilities that are due to be repaid after more than one year. This is inclusive of bonds and long-term loans.

Low: The lowest price per share for a security during a period of time. When talking about a security’s low, it may be in regards to the “day’s low”, the “annual low” or the “historical low”. The day’s low is the lowest price that a security reached during the current day’s trading session. An annual low is the security’s lowest price over the past 52 weeks. The historical low represents the security’s lowest price since the security came into existence.

LP (Limited Partnership): Organization that consists of a general partner and limited partners. The general partner manages one or more projects for which the organization was formed. Limited partners invest money into the project; their risk is usually limited to the amount that they invested, and they do not have any day-to-day responsibilities of running the partnership. Limited partners typically receive income, capital gains, and tax benefits while the general partner collects fees and a percentage of capital gains and income. Common limited partnerships are in real estate, oil and gas, and equipment leasing, but there are other kinds of projects.

Lump-Sum Distribution: A single payment of all funds to an owner of such accounts like an IRA, a pension plan or a profit sharing plan.

M1: Basic money supply figure that includes currency in circulation, demand deposits (checking accounts), credit union share drafts, and non-bank travelers’ checks. NOW accounts and Super-NOW accounts are included in demand deposits.

M2: A wider definition of money supply than M1, it includes M1 plus savings accounts, time deposits under $100,000, money market mutual funds shares, overnight repurchase agreements and overnight Eurodollars.

Macroeconomics: Analysis of the overall economy using information such as unemployment, inflation, production and price levels.

Maintenance Call: A call for more money or securities to be deposited into brokerage client’s margin account. A call will be made when the account’s margin equity falls below exchange requirements or the brokerage firm’s house requirements. Currently, NYSE maintenance requirements are 25% in a long account (client has long positions) and 30% in a short account (client has short positions generated from selling short). The brokerage firm’s house requirements are usually more stringent than the exchanges. If the account is not brought up to maintenance levels, some of the client’s securities may be sold to eliminate the deficiency.

Maintenance Fee: Yearly charge to maintain certain types of brokerage or bank accounts such as an IRA or an asset management account.

Majority Shareholder: A shareholder who controls more than half of the outstanding shares of a corporation–commonly considered 51% of the outstanding shares. However, if ownership is widely distributed such that there are no majority shareholders, control may be gained with far less than 51% of the outstanding shares.

Make A Market: The process of maintaining firm bid and asked prices in a given security by standing ready to buy or sell round lots at publicly quoted prices. In the over-the-counter market, the dealer is called a “market maker”, and on the exchanges, a “specialist”.

Maloney Act Of 1938: Also called the Maloney Amendment, provides for the regulation of over-the-counter securities markets through national associations registered with the Securities and Exchange Commission. The Act was passed in 1938 to add Section 15A to the Securities Exchange Act of 1934. NASD is the only association ever to register under the act.

Management Fee: An expense paid by an investment company to the investment advisor for managing a portfolio. As disclosed in the prospectus, this fee is past onto the investor and is a fixed percentage of the fund’s asset value.

Manipulation: In the securities industry, it usually refers to the illegal process of buying or selling a security to create a false or misleading appearance of active trading for the purpose of raising or depressing the price to induce purchase or sale by others.

Margin: “On Margin”–a process whereby a brokerage client uses credit to finance securities transactions.

Margin Account: An account with a brokerage firm that allows its clients to buy securities with money borrowed from the broker. Depending on the security, an investor can sometimes borrow up to 50% or more of the market value. Margin accounts are governed by Regulation T of the Federal Reserve Board, by the NYSE, and by the brokerage firm’s house rules. Margin requirements can be met with cash, eligible securities, or any combination thereof.

Margin Agreement: Document that must be signed by a brokerage client who wished to trade on margin–also called a “hypothecation agreement”. The document details the rules governing a margin account, including the hypothecation of securities, how much equity the customer must keep in the account, and the interest rate on margin loans.

Margin Call: A demand for a client to deposit money or eligible securities with the broker to bring a margin account up to the initial margin or minimum maintenance requirements. A Regulation T margin call is sent when a purchase is made and a maintenance margin call is sent when the margin account’s equity falls below specific levels. If the client does not respond to the call, securities in the account may be liquidated.

Margin Department: Department within a brokerage firm that monitors:

• Customer compliance with margin regulations;
• Purchases of stock on margin;
• Short sales;
• Extensions of credit by the broker.

Margin Requirement: According to Regulation T of the Federal Reserve Board, it is the minimum of $2,000 or 50% of the purchase price of eligible securities bought on margin or 50% of the proceeds of short sales. This amount must be deposited in the client’s margin account in the form of cash or eligible securities.

Margin Security: A security that may be bought or sold in a margin account. Regulation T of the Federal Reserve Board determines which securities are eligible.

Market: 1) The overall security markets, also called “marketplace”, or the New York Stock Exchange in particular. 2) Short for “market value”–the value of an asset based on the price it would command on the open market. It is usually set by the market price at which comparable assets have recently been bought or sold.

Marketable Securities: Securities that can be easily sold–that is, any asset that can be readily converted into cash, for example–government securities and commercial paper.

Market Analysis: Research used to assist in predicting the direction of the markets based on technical data relating to price movements of the market, or on fundamental data such as corporate earnings.

Market Breadth: The scope of change in stock prices as measured by analyzing the number of stocks that advanced or declined during the period or by the number of stocks hitting new highs or new lows.

Market Maker: Securities dealer in a specific over-the-counter stock who makes a market–that is, one who maintains firm bid and asked prices in a given security by standing ready to buy or sell round lots.

Market Order: An order to buy or sell a specific number of shares at the best available price once the order is received in the marketplace. Normally, a market order is executed at the quoted price given before the order was entered, or at a price quite close to the quote. However, if the security is volatile, the execution price could be better or worse than anticipated.

Market Price: The last reported price at which a security was sold or the current quote.

Market Risk: The chance that a security’s value will decline. With fixed income securities, market risk is closely tied to interest rate risk–as interest rates rise, prices decline and vice versa.

Market Timing: Determination of when to buy or sell securities through use of fundamental or technical indicators. Mutual funds investors can accomplish market timing decisions by switching from different types of funds within a family as the market outlook changes. For example, the investor can switch from a stock fund to a money market fund and back again.

Mark To Market: The comparison and adjustment of a position to reflect current market values. Mark to market is conducted on stocks that were sold short, uncovered calls and puts and when-issued securities. The adjustment may cause a margin call to be issued.

Maturity Date: The date on which the principal amount of a loan, bond, or any other debt instrument becomes due and is to be paid in full.

Mavera Injunction: A court injunction preventing the trustee for a trust from transferring trust assets pending the outcome of a law suit.

Medium Term Bond: A bond that has a maturity of 2 to 10 years.

Member: An equity owner of a limited liability company ((LLC), limited liability partnership (LLP), limited liability limited partnership (LLLP) or a shareholder in an IBC.

Member Firm: A brokerage firm that has at least one general partner, officer, or employee who is a member of the New York Stock Exchange. Although it is technically the employee who is a member, the firm enjoys the privileges of membership as well as the obligations of membership.

Member Short Sales Ratio: The ratio of the total shares sold short for the accounts of NYSE members in one week divided by the total short sales for the same week. The ratio is considered an indicator of market trends. A ratio of 68% or lower is considered bullish and a ratio of 82% or higher is considered bearish. The member short ratio is issued in the Monday edition of “The Wall Street Journal”.

Memorandum of Association: The Memorandum of Association of an IBC is the functional equivalent of Articles of Incorporation.

Merger: Two or more companies combined to achieve greater efficiencies of scale and productivity. This is accomplished through the elimination of duplicated plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company.

Microeconomics: Analysis of the behavior of economic units such as companies, industries, or households.

Minimum Maintenance Requirement: As required by the NYSE, the NASD, and brokerage firms, the amount of equity that must be maintained in brokerage clients’ margin accounts. Regulation T of the Federal Reserve Board requires $2,000 in cash or eligible securities to be deposited in margin accounts before brokers can extend credit. Additionally, upon a margin transaction, an initial margin requirement must be met, presently 50% of the market value of eligible securities long or short in customers’ accounts. The NYSE and NASD require a margin account’s equity to equal at least 25% of the market value of securities in margin accounts. Brokerage firm requirements are usually a more conservative 30%. When the market value of margined securities falls below these minimums, margin calls are issued to clients requesting additional equity to be delivered by a specified date. If customers fail to comply, brokers may sell margined securities or close out short positions (from short sales).

Minority Interest: Shareholders who own less than half the shares in a corporation.

Misrepresentation: A false representation of a material of fact that should have been disclosed, which deceives another so that he/she acts upon it to his/her injury.

Missing The Market: Said when a broker, acting as agent, fails to execute a transaction at a price that was available, and the resultant transaction is unfavorable to the client. The agent is required to make the client whole by reimbursing the amount lost.

Mixed Account: A brokerage account in which some securities are long positions and some are short positions.

Money Market: The market for short term debt instruments maturing in one year or less. Examples of money market instruments include Treasury bills, commercial paper, and certificate of deposits.

Money Market Fund: A mutual fund investing in short term money market instruments, such as certificates of deposit, treasury bills and commercial paper. The fund’s net asset value is usually $1 a share and its interest rate goes up or down. Most money market funds offer checkwriting privileges.

Money Supply: The total amount of money in the economy as defined by M1 or M2 measurements. If there is too much money in the economy, interest rates tend to go down while inflation tends to rise. Conversely, if there is too little money in the economy, interest rates tend to go up, and prices and production tend to go down This can cause unemployment and idle plant capacity.

Monthly Investment Plan: Investment technique whereby an investor puts a fixed dollar amount into a particular investment every month.

Mooch: Term telemarketing scammers commonly use to describe their victims.

Moody’s Investment Grade: Rating assigned to investment grade or bank quality municipal short-term debt securities. The debt securities are classified as MIG-1, 2, 3, 4 to signify best, high, favorable, and adequate quality, respectively.

Moody’s Investors Service: One of the two best known bond rating services, the other being Standard & Poor’s. Moody’s also rates commercial paper, preferred and common stocks, and municipal short-term issues. It publishes six manuals annually that provide information on issuers and securities. The manuals are updated weekly. It also publishes Moody’s Handbook of Common Stocks on a quarterly basis. The handbook follows over 500 companies and provides an analysis of the company’s financial background, recent financial results, and its future outlook.

Most Active List: Stocks with the heaviest trading volume for a given day. If a stock’s trading volume is much greater than its normal volume, it may be caused by a release of earnings figures, institutional trading, bad news, and other factors.

Moving Average: An average that is based on security or commodity prices over a period of time (few days to few years) that shows trends for the latest period. It is a rolling average when the latest day’s figures are included in the average and the oldest day’s figures are not included.

MSRB (Municipal Securities Rulemaking Board): A self-regulatory organization of the municipal securities industry that was created in 1975 under an amendment to the Securities Exchange Act of 1934. Its primary responsibility is to develop rules and regulations to govern the activities of municipal securities dealers, and to provide arbitration facilities to broker-dealers and bank dealers in municipal securities.

Municipal Bond: A debt obligation issued by a state, state agency or authority, or a political subdivision, such as county, city, town or village. They may be issued for general governmental needs or special projects. Issuance must be approved by referendum or by an electoral body. Before the Tax Reform Act of 1986, interest paid on municipal bonds was exempt from federal income tax and state and local income tax within the issuing state. The terms municipal and tax-exempt were synonymous. However, the Act separated municipal bonds into two broad groups–public purpose bonds and private purpose bonds. Public purpose bonds are tax-exempt and may be issued without limitations. Private purpose bonds are taxable unless specifically exempted. The difference between public and private purpose bonds is based on the percentage in which the bonds benefit private parties.

Municipal Bond Insurance: Insurance policies that protect investors if a municipal bond should default–the bonds will be purchased from investors at par. The insurance may either be purchased by the issuer or the investor. Two major insurers of municipal bonds are the Ambac Indemnity Corporation and the Municipal Bond Insurance Association (MBIA). Insured municipal bonds usually have the highest ratings. Subsequently, the bond’s marketability increases, which lowers the cost to their issuers. However, the yield on an insured bond is usually lower than similarly rated uninsured bonds–the cost of the insurance is passed on to the investor. To obtain the extra degree of safety, many investors do not care if the yields are slightly lower.

Municipal Securities Rulemaking Board (MSRB): A self-regulatory organization of the municipal securities industry that was created in 1975 under an amendment to the Securities Exchange Act of 1934. Its primary responsibility is to develop rules and regulations to govern the activities of municipal securities dealers, and to provide arbitration facilities to broker-dealers and bank dealers in municipal securities.

Munifacts: The newswire service for the municipal bond industry. It provides information on both new issues and secondary market offerings.

Mutilated Securities: A certificate that is torn or defaced in such a manner that the name of the issuer or other necessary details cannot be identified. If such a certificate is delivered to make settlement of a sell transaction, it is difficult to effect the transfer of title. It is up to the seller (seller’s broker) to take corrective action–getting the transfer agent to guarantee the buyer’s rights of ownership.

Mutual Fund: An open-end investment company that offers the investor the benefits of portfolio diversification (provides greater safety and reduced volatility), and professional management. The shares are redeemable on demand at their net asset value. The fund invests the pooled assets into various investment vehicles including stocks, bonds, options, commodities and money market securities. How the fund invests is determined by the fund’s objectives. The mutual fund’s prospectus details this type of information plus information on any fees, the management company and other relevant data.

Mutual Fund “Family”: A group of mutual funds supervised by the same investment company. Funds can be moved easily from one type of fund to another if conditions (market or personal) dictate a change.

Mutual Legal Assistance Treaty (MLAT): An agreement among the U.S. and many Caribbean countries for the exchange of information for the enforcement of criminal laws. U.S. tax evasion is excluded as not being a crime to the offshore countries. The British Virgin Islands have not executed the Treaty.

NAIC (National Association Of Investment Clubs): Association that helps groups of individuals to establish investment clubs. Members of investment clubs pool their money and make group decisions on how to invest those assets. 

NAIS (National Association of Investigative Specialists):

Naked Option: Industry lingo for call or put options that are written and not covered or have another position that will limit their liability. In the case of call options, writers are naked if they do not own either the underlying security, a security convertible into the underlying security, or a long call at a strike price equal to or lower than the strike price that was written and that does not expire before the written call. In the case of put options, writers are naked if they do not either have a short position in the underlying security, a bank guarantee letter, or do not own a long put with a strike price equal to or higher than the strike price of the put that was written and that does not expire before the put that was written.

Naked Position: A securities position that is not protected from market risk in any manner. For instance, the position of person who writes a call option without owning a long position in the underlying security, or writing a put option without having a short position in the underlying security.

Narrowing the Spread: Closing the difference between a security’s bid (highest price anyone is willing to buy) and asked (lowest price anyone is willing to sell) prices. When a stock’s bid price, for example, is $8 a share and the asked price is $8 5/8, the spread is 5/8 of a point. If a broker enters a bid to buy at $8 3/8, the bid and ask are now $8 3/8 to $8 5/8, thus the spread has been narrowed to 1/4 of a point.

Narrow Market: Said of a securities market that is characterized by light trading, and larger price fluctuations relative to volume than would be the case if trading is active. A stock is said to be in a narrow market when its price drops more than a point between round lot trades without any obvious reason; this infers a lack in investor interest and too few orders.

NASAA (North American Securities Administrators Association, Inc.): An association of securities commissioners from each of the 50 states, the District of Columbia, Puerto Rico, and several of the Canadian provinces. This organization is an invaluable resource to investigators.

NASD (National Association Of Securities Dealers): A nonprofit membership organization registered with the Securities and Exchange Commission (SEC) under the provisions of the Securities Exchange Act of 1934. Membership is limited and consists mostly of broker-dealers and investment banking houses. Basic goals of the NASD are to:

• Promote just and equitable principles of trade for the protection of investors;
• Adopt, oversee, and enforce rules of fair practice;
• Consult with government and investors on matters of common concern;
• Conduct periodic examinations and audits to ensure solvency and financial integrity among members.

Under federal law, every securities firm doing business with the US public is a member of NASD. Roughly 5,500 brokerage firms, nearly 90,000 branch offices and more than 650,000 registered securities representatives come under its jurisdiction.

NASDAQ (National Association Of Securities Dealers Automatic Quotations): A computerized information network that provides brokers and dealers with price quotations on securities traded over-the-counter. The system has three levels. Level I displays a security’s highest bid and lowest offer in the system. Level II displays market maker’s quotes for securities in which they make a market. Level III allows market makers to actually enter their quotes into the system. NASDAQ is owned and operated by the NASD. NASDAQ quotes are published in the financial pages of most newspapers.

NASD Information Request Form (NIRF): Allows members of the public to obtain certain types of disciplinary and registration information regarding member firms and associated persons.

National Association of Investment Clubs (NAIC): Association that helps groups of individuals to establish investment clubs. Members of investment clubs pool their money and make group decisions on how to invest those assets. National Association Of Securities Dealers (NASD): A nonprofit membership organization registered with the Securities and Exchange Commission (SEC) under the provisions of the Securities Exchange Act of 1934. Membership is limited and consists mostly of broker-dealers and investment banking houses. Basic goals of the NASD are to:

• Promote just and equitable principles of trade for the protection of investors;
• Adopt, oversee, and enforce rules of fair practice;
• Consult with government and investors on matters of common concern;
• Conduct periodic examinations and audits to ensure solvency and financial integrity among members.

Under federal law, every securities firm doing business with the US public is a member of NASD. Roughly 5,500 brokerage firms, nearly 90,000 branch offices and more than 650,000 registered securities representatives come under its jurisdiction.

National Market System (NMS): An informational system that is part of the NASDAQ system. NMS displays actual transactions, last trade and volume data.

National Quotation Bureau Inc. (NQB): Daily service that provides its subscribers bid and asked quotes from market makers in securities traded over-the-counter. Stock quotes are published in Pink Sheets and corporate bonds in Yellow Sheets.

NAV (Net Asset Value): An open-ended mutual fund’s per share market value. In mutual funds, the net asset value is synonymous with “bid price” and “redemption price”. In no load funds, the NAV is also the asked price. They are all one figure. In load funds, the asked price is quoted after the sales charge is added to the net asset value. Most funds compute the NAV after the close of the exchanges each day. It is calculated by taking the closing market value of all securities within the fund plus all other assets (i.e., cash), subtracting all liabilities, then dividing the result (total net assets) by the total number of outstanding shares. The total number of outstanding shares usually varies daily because of redemptions and purchases.

ND (Nothing Done): In a day order, upon expiring at the end of the day, the status given to the order if it has not been executed.

Nearest Month: In options trading or commodity futures, the expiration month that is closest to the current month. For an option that has expiration dates available in September, December, March, and June, for example, the nearest month would be December if a trade was made in November. Nearest month contracts are more heavily traded then “furthest month” contracts.

Negative Cash Flow: Within an accounting period, a condition in which a business spends more cash than it receives through earnings.

Negative Yield Curve: On securities that are of similar quality, a condition in which yields on short term securities are higher than the yields on long term securities. Typically, short term interest rates are lower than long term rates–those who invest their money for longer periods are taking more risk.

Negotiable: A security that can be sold–that is, the ownership is transferable by delivery of a security.

Nest Egg: Assets reserved for a person’s retirement. A nest egg is accumulated to assure the retiree with a secure standard of living for the rest of their life. IRAs are considered part of a nest egg.
Net: The gain or loss from the sale of a security–that is, the difference between the cost to purchase and the sale proceeds.

Net Assets: The difference between a company’s total assets and liabilities.

Net Asset Value (NAV): An open-ended mutual fund’s per share market value. In mutual funds, the net asset value is synonymous with “bid price” and “redemption price”. In no load funds, the NAV is also the asked price. They are all one figure. In load funds, the asked price is quoted after the sales charge is added to the net asset value. Most funds compute the NAV after the close of the exchanges each day. It is calculated by taking the closing market value of all securities within the fund plus all other assets (i.e., cash), subtracting all liabilities, then dividing the result (total net assets) by the total number of outstanding shares. The total number of outstanding shares usually varies daily because of redemptions and purchases.

Net Capital Rule: The Security and Exchange Commission requires that all broker/dealers maintain no more than a 15 to 1 ratio between indebtedness and liquid assets. Indebtedness includes money owed to the firm, margin loans, and commitments to purchase securities. Liquid assets include cash, and assets that are easily converted to cash.

Net Change: Difference between a security’s last trading price from the previous day to the next day. However, in the over-the-counter market, the net change in a security is usually the difference between bid prices from the previous day to the next day. For example, XYZ’s last trade yesterday was at $34. Today’s last trade was at $34 1/2. The net change is +1/2–that is, XYZ’s final price on that day was 50 cents higher than the final price on the previous trading day.

Net Investment Income Per Share: In a particular accounting period, the amount of income received by an investment company from dividends and interest (minus any management fees and administrative expenses) divided by the number of outstanding shares. Short term trading profits are treated as dividend income. Net investment income is paid shareholders as a dividend.

Net Realized Capital Gains Per Share: Net amount (capital gains minus capital losses) that an investment company realized on the sale of securities divided by the number of outstanding shares. An investment company will usually distribute any net gains at least annually. These distributions are treated as long term capital gains to shareholders, regardless of the length of time they have held the investment company shares.

Net Worth: Dollar amount by which assets exceed liabilities. An individual’s net worth equals the total value of all possessions (house, stocks, bonds, etc.) minus all outstanding debts (mortgage, credit cards, etc.). For a corporation, net worth is also known as “net assets”.

New Issue: A security being offered to the public for the first time. New issues may be initial public offerings by private companies going public or additional securities of corporations already public. The distribution of new issues are governed by Securities and Exchange Commission rules.

New York Futures Exchange (NYFE): A subsidiary of the New York Stock Exchange that concentrates on the trading of financial futures contracts.

New York Stock Exchange (NYSE): The oldest and largest stock exchange in the United States–also known as the “Big Board” and “The Exchange”. The exchange is a not-for-profit corporation consisting of 1,366 individual members. It is governed by a Board of Directors that is made up of 10 public representatives, 10 exchange members, and a full-time paid chairman and president. The NYSE does not buy, sell, own or set the prices of securities traded there. The NYSE has operating divisions that are concerned with market operations, member firm regulation and surveillance, finance and office services, product development and planning, and customer relations. The NYSE imposes requirements on corporations who wish to have their securities listed on the exchange.

NH (Not Held): A market order to buy or sell that allows a floor broker discretion as to the time and price in executing the best possible trade. NH means the customer will not hold the floor broker responsible if a better execution might have been possible. This type of order qualification is principally used for large block orders.

Nikkei Stock Average: Index of 225 leading stocks traded on the Tokyo Stock Exchange. The Nikkei is similar to the Dow Jones Industrial Average. Both are composed of representative blue chip corporations (called “first-section” companies in Japan) and are price-weighted indexes–the movement of each stock is weighted equally regardless of its market capitalization. The Nikkei Stock Average is the most widely quoted Japanese stock index.

NIRF (NASD Information Request Form): Allows members of the public to obtain certain types of disciplinary and registration information regarding member firms and associated persons.

NL (No Load): Abbreviation used in newspaper listings of mutual funds to indicate a no-load fund.

NMS (National Market System): An informational system that is part of the NASDAQ system. NMS displays actual transactions, last trade and volume data.

Noise: Market activity caused by program trades and other circumstances that are not reflective of general opinion.

No Load Mutual Fund: A mutual fund that allows shares to be purchased without a sales charge to imposed on its investors.

Nominal Quotation: Bid and asked prices given by a market maker as valuation of a security, but not for trading purposes. Security rules require that nominal quotations be specifically identified as such.

Nominee: Person or firm, such as a brokerage house, whose name is inscribed on a security certificate if it is different from that of the beneficial owner. The purpose is to expedite transfers of title when the security is sold. The beneficial owner is the true shareholder and he retains all rights of ownership.

Non-Callable: A bond that cannot be redeemed before its maturity by the issuer. Call provisions in a bond’s indenture agreement specify whether the bond is callable or non-callable. Because so many bonds issues are callable, bond yields are often quoted to the first date at which the bonds could be called instead of maturity.

Non-Cumulative Preferred Stock: Preferred stock on which unpaid dividends do not accrue. Omitted dividends, for the most part, will never be paid. This contrasts with cumulative preferred stock in which omitted dividends accumulate until paid to shareholders.

Non-Public Information: In the securities industry, non-public information most often refers to corporate information that will have a material effect on its stock price when it is released to the public. The information can be either negative or positive. An example of non-public information is an earnings report about to be released that is substantially worse than what most analysts anticipated. It is illegal for insiders to make transactions based on non-public information as they would have an unfair advantage over the rest of the public.

Non-Qualified Plan: A retirement plan or an annuity in which contributions are made with after-tax dollars. The contributions are not tax deductible because the plan or annuity is not an IRS approved pension plan. However, just as with a Qualified Plan, earnings accumulate tax deferred until withdrawn.

Non-Recurring Charge: A one-time write-off or expense–also called “extraordinary charge”. These charges are required to be displayed in a corporation’s financial statement. An example of a non-recurring charge would be a division that was closed down and written-off.

Non-grantor Trust: Usually an APT created by a NRA person on behalf of the U.S. beneficiaries.

Nonvoting Stock: Corporate securities in which shareholders of such securities have no voting powers–that is, they may not vote on the election of directors or on any corporate resolutions.

Normal Trading Unit (NTU): Standard minimum size of a trading unit for a particular security–more commonly referred to as a “round lot”. Stocks typically have a normal trading unit of 100 shares. However, inactive stocks may have normal trading units equal to 10 shares. Any amount of shares less than a round lot is called an “odd lot”.

North American Securities Administrators Association, Inc. (NASAA): An association of securities commissioners from each of the 50 states, the District of Columbia, Puerto Rico, and several of the Canadian provinces. This organization is an invaluable resource to investigators.

Not Held (NH): A market order to buy or sell that allows a floor broker discretion as to the time and price in executing the best possible trade. NH means the customer will not hold the floor broker responsible if a better execution might have been possible. This type of order qualification is principally used for large block orders.

Nothing Done (ND): In a day order, upon expiring at the end of the day, the status given to the order if it has not been executed.

Notice of Sale: Advertisement used by a municipal issuer to announce its plan to sell a new issue and to solicit investment bankers to enter bids for the issue.

Not Rated (NR): Indication used by various rating services to show that a security or a company has not been rated. The abbreviation “NR” is placed next to the security’s or company’s name.

Novation: 1) The substitution of an older debt or obligation with a newer one. 2) An agreement to substitute one party to a contract with a new party. The new party has both the rights and obligations required by the original party. To make the transfer effective, consent of all parties is required.

NQB (National Quotation Bureau): Daily service that provides its subscribers bid and asked quotes from market makers in securities traded over-the-counter. Stock quotes are published in Pink Sheets and corporate bonds in Yellow Sheets.

NR (Not Rated): Abbreviation used by various rating services to indicate that a security or a company has not been rated.

NRA: Nonresident alien. A person as defined under the Internal Revenue Code (IRC) as not being a US person.

NTU (Normal Trading Unit): Standard minimum size of a trading unit for a particular security–more commonly referred to as a “round lot”. Stocks typically have a normal trading unit of 100 shares. However, inactive stocks may have normal trading units equal to 10 shares. Any amount of shares less than a round lot is called an “odd lot”.

NYFE (New York Futures Exchange): A subsidiary of the New York Stock Exchange that concentrates on the trading of financial futures contracts.

NYSE (New York Stock Exchange): The oldest and largest stock exchange in the United States–also known as the “Big Board” and “The Exchange”. The exchange is a not-for-profit corporation consisting of 1,366 individual members. It is governed by a Board of Directors that is made up of 10 public representatives, 10 exchange members, and a full-time paid chairman and president. The NYSE does not buy, sell, own or set the prices of securities traded there. The NYSE has operating divisions that are concerned with market operations, member firm regulation and surveillance, finance and office services, product development and planning, and customer relations. The NYSE imposes requirements on corporations who wish to have their securities listed on the exchange.

Obligation Bond: A mortgage bond that has a face value greater than the underlying property’s value. The excess amount is the lender’s cost that exceeds the mortgage value.

Obligator: Person or organization that has an obligation outstanding. The debtor is legally bound to pay the obligator any interest, if applicable, when due.

OBV (On Balance Volume): Technical Analysis method that tries to pinpoint when a security’s shares are being accumulated (being bought) or are being sold. The on balance volume line and the stock price line are placed on one chart. When the two lines cross, the analyst considers it to be meaningful. When the chart indicates that a security is being accumulated, it is considered a buy signal and when being distributed, a sell signal.

OCC (Option Clearing Corporation): Organization equally owned by the exchanges through which the various options exchanges clear their trades. Some of OCC’s responsibilities are supervising the listing of options, issuing and guaranteeing option transactions, processing the money transactions, and the assignment of option exercises to writers. The OCC also issues an options prospectus that outlines the rules and risks of trading options.

Odd Lot: Any number of shares traded that is less than its normal trading unit (round lot). Typically, an odd lot is 1 to 99 shares with a round lot being multiples of 100 shares. However, certain inactive stocks have round lots of 10 shares, with odd lots being 1 to 9 shares.
Odd Lot Differential: An extra charge, usually 1/8 of a point, that dealers may add to purchases and subtract from sales when the order’s share quantity is less than the standard trading unit or round lot–also referred to as a “differential”.

Odd Lot Theory: An investment strategy that assumes small investors are always wrong because they react emotionally to the market and are usually guilty of bad timing. In a rising market, a lot of odd lot buying is considered an indication of a technical weakness in the market and a signal to sell. On the contrary, in a declining market, a lot of odd lot selling is seen as an indication of technical strength and a signal to buy. However, studies of odd lot trading have proven that the theory does not have too much substance and that investors trading odd lots of market leader stocks have generally managed to do reasonably well.

OEX: Symbol for an option on the Standard & Poor’s 100 stock index.

Off-Board: Said of listed security transactions that are not executed on a national exchange, or of unlisted security transactions executed over-the-counter.

Offer: The price at which a person is willing to sell a security–also called “asked price”. In contrast, the bid price is the price at which a person is willing to buy a security. The asked price is always higher than the bid price.

Offering Circular: Also called a Prospectus, it is a printed document that summarizes a corporation’s registration statement for a new issue of non-exempt securities that was filed with the SEC. It details material information about the corporation and the security being issued. A prospectus must be given to all buyers and potential buyers of the new issue.

Offering Date: The date in which a new issue distribution is available to investors to purchase.

Offering Price: The price at which a new or secondary distribution of securities is sold to investing public–also called “public offering price”.

Off Floor Order: A security order that is initiated off an exchange floor. These customer orders are placed with a broker and are required to be executed before orders that were initiated on the floor (on-floor orders–floor member orders who are trading for their own accounts).

Office Of Supervisory Jurisdiction (OSJ): As defined by the National Association of Securities Dealers’ (NASD)–a member’s parent office(s) that is responsible for supervising an office, or a group of offices.

Official Notice Of Sale: A solicitation published, usually in financial newspapers, by municipalities that requests investment bankers to proffer a competitive bid on its pending bond issue. The notice lists the basic facts about the issue, such as its par value, and names the official who can provide further details.

Official Statement: A document prepared for a new municipal issue by or for the issuer. It describes the issue, financial details about the issuer and other relevant facts.

Offshore (OS): Offshore is an international term meaning not only out of your country (jurisdiction) but out of the tax reach of your country of residence or citizenship; synonymous with foreign, transnational, global, international, transworld and multi-national, though foreign is used more in reference to the IRS.

Offshore Scams: Offshore Trusts, Foreign Investment Opportunities, Venture Capital Solicitations, Tax Minimization Strategies . . . these sorts of offshore offerings are rapidly becoming the more popular scams to trap U.S. and Canadian investors. Whereas conflicting time zones, differing currencies, and the high costs of international telephone calls, made it difficult for foreign fraudsters to prey upon North American residents in times past, the Internet has removed the barriers.

OID (Original Issue Discount): A new bond issue that is usually offered below par. The bond’s value is increased (accreted) over its life from the original discounted price up to par. At the bond’s maturity, it will be valued at par. Interest on these types of bonds are not paid until maturity. However, the interest is taxed as it is accreted. An example of an OID is a zero coupon bond.

Omitted Dividend: A dividend that is scheduled to be declared, but has not been voted for by a corporation’s board of directors. The board may not vote for the dividend because the corporation is having financial problems and has determined that it is more important to conserve the cash than to pay a dividend to shareholders. Once announced to the public, if the omitted dividend is not expected, the corporation’s stock price will usually decline.

On Balance Volume: Technical Analysis method that tries to pinpoint when a security’s shares are being accumulated (being bought) or are being sold. The on balance volume line and the stock price line are placed on one chart. When the two lines cross, the analyst considers it to be meaningful. When the chart indicates that a security is being accumulated, it is considered a buy signal and when being distributed, a sell signal.

On Floor Order: A security order that is initiated on an exchange floor. These orders are initiated by members on the exchange floor who are trading for their own accounts.

On The Close Order: A brokerage client’s order to trade a NYSE security only if it can be executed on the moment the closing bell starts ringing on the exchange. The client has no guarantee of receiving the stock’s final price.

On The Opening Order: A brokerage client’s order to trade a NYSE security only if it can be executed as the first transaction of the trading session for that security. If the order cannot be executed as such, it is canceled immediately.

OPD: A ticker tape symbol that signifies that a security’s price has changed materially from the previous day’s close. A material change is usually 2 or more points on stocks selling at $20 or higher, 1 or more points on stocks selling at less than $20. OPD also designates a security’s first transaction of the trading session after it has had a delayed opening.

Open: The status of an order that has not yet been executed.

Open End Indenture: A secured bond indenture that allows collateral to be repledged for the issuance of additional bonds.

Open End Management Company: A management investment company that issues new shares on demand when people buy them. The shares are bought at net asset value and may be redeemed back to the management company at any time at the current market price. Commonly called a “mutual fund”, the type of vehicle that the shareholder’s funds are invested in is dependent on the type of fund and its objectives.

Opening: At the beginning of a trading day, the price for a particular security or commodity.

Opening Transaction: The purchase or sale of an option. If a sale is an opening transaction, the investor is a writer.

Open Interest: The amount of outstanding contracts on a specific underlying security. A contract is considered to be outstanding if it is has not expired, or been exercised or closed out. Open interest also applies to the total number of contracts in an options market and is included in the options and commodity pages of daily newspapers.

Open Order: A good-til-canceled order. It stays in effect until it is either canceled or executed.

Open Repo: Repurchase agreement that has an undefined repurchase date that continues on a day-to-day basis–either party may end it at any time. Each day the interest rate is adjusted to reflect changes in the market.

Operating Income: A corporation’s net sales minus its cost of goods sold, depreciation and selling and administrative costs. The total, shown on the corporation’s income statement, indicates how much of the company’s profits is attributable to its principal business.

Operating Profit Or Loss: Before tax profit (loss) that a corporation earns from operations after all operating costs have been deducted.

Operating Profit Margin: Ratio, used by fundamental analysts, that relates operating income to net sales. Operating profit margin equals operating income divided by net sales.

OPM (Other People’s Money): Industry lingo used when individuals or corporations use borrowed funds to increase their investment returns.

Option Agreement: An agreement by which a brokerage firm client agrees to follow the rules and regulations of the Options Clearing Corporation.

Optional Dividend: A dividend in which the shareholder has a choice of whether to be paid in either cash or stock.

Optional Payment Bond: A bond in which the bondholder has the choice of receiving principal and/or interest in one or more foreign currencies as well as in domestic currency.

Option Fund: Mutual fund that trades options to increase the value of fund shares. The fund may either be conservative or aggressive. A conservative fund, commonly called an “option income fund”, may buy stocks and increase shareholders’ income through the premium earned by writing options on the stocks within the portfolio. An aggressive fund, commonly called an “option growth fund”, may buy options in securities that the fund manager thinks will fall or rise sharply in the near term. If the manager is correct, large profits can be made on the exercise of the options.

Option Holder: Person who has bought a call or put option that has not yet expired and who has not yet exercised or sold it. A holder of a call option wants the underlying security’s price to rise. A holder of a put option holder wants the underlying security’s price to fall.

Option Premium: The market price of an option that is paid by an option buyer to the option writer (seller) for the right to buy (call) or sell (put) the underlying security at a specified price (called “strike price” or “exercise price”) by the option’s expiration date. The premium is set by the supply and demand of option traders as they evaluate the underlying security’s future market value. Premium prices are quoted in increments of eighths or sixteenths.

Options: 1: A contract giving an investor a right to buy (call) or sell (put) a fixed amount of shares (usually 100 shares) of a given stock (or indexes and commodities) at a specified price within a limited time period (usually three, six, or nine months). The purchaser hopes that the stock’s price will go up (if he bought a call) or down (if he bought a put) by an amount sufficient to provide a profit when he sells the option. If the stock price holds steady or moves in the opposite direction, the price paid for the option is lost entirely. Individuals may write (sell) as well as purchase options.

A buyer of a call option, for the right to buy 100 shares of the underlying security at a fixed (strike) price before a specified future date (expiration), pays the call option writer a fee called a premium. If the option is not exercised before it expires, the premium paid is lost. Thus, a call buyer believes that the price of the underlying shares will rise before the option expires. If the call buyer does exercise the option, the shares are bought from the writer at the option’s strike price. The amount due to the writer equals the strike price multiplied by the number of shares. A buyer of a call option is generally bullish about the security, or in the case of index options, the market. A writer of a call option usually believes the security or the market will not move substantially up–thus, not making it worthwhile for the buyer to exercise.

A buyer of a put option, for the right to sell 100 shares of the underlying security at a fixed price before a specified future date, also pays a premium to the writer of the put. A put buyer believes that the price of the underlying security is going to decline. If the put buyer exercises the option, the underlying security shares are sold to the put writer at the option’s strike price. A put buyer is generally bearish about the security or the overall market. The writer typically believes the security or the overall market will not move substantially down–thus, not making it worthwhile for the buyer to exercise.

Buyers of options do not have to exercise an option in order to profit–they may attempt to profit on the option by selling it before its expiration by trading on the rise and fall of premium prices. Writers may also attempt to profit by buying back the option sold at a lower price (or it can expire worthless). An option seller can either write uncovered (interchangeably called “naked”) or covered options. Naked options are far riskier.

Or Better Order (OB): A limit order to buy or sell a security that specifies to the broker that he should try to execute the order at a better price than the limit price. If the broker cannot do so, the order will be executed at the limit price. The abbreviation “OB” must be written on the order ticket.

Orders: In regard to securities, it is a client’s instruction to a broker to buy or sell a security. There are many types of order qualifiers that stipulate such things as the amount of time in which to leave an order in and at what price to execute an order.

Order Ticket: A form that is completed by a broker when receiving an order from a client. The order ticket will show the type of order (buy or sell), the number of shares, the security’s name, the price qualifications (such as market or limit) and the client’s name and account number.

Original Issue Discount (OID): A new bond issue that is usually offered below par. The bond’s value is increased (accreted) over its life from the original discounted price up to par. At the bond’s maturity, it will be valued at par. Interest on these types of bonds are not paid until maturity. However, the interest is taxed as it is accreted. An example of an OID is a zero coupon bond.

OSJ (Office Of Supervisory Jurisdiction): As defined by the National Association of Securities Dealers’ (NASD)–a member’s parent office(s) that is responsible for supervising an office, or a group of offices.

OTC (Over The Counter): A market for securities that are not listed on an exchange. Security orders are transacted via telephone and a computer network that connects dealers. As opposed to the NYSE, which is an auction market, the OTC is a negotiated market. OTC dealers may either act as either principals or agents for customers. The OTC market is regulated by the NASD. OTC stock prices are listed daily in newspapers, with the National Market System stocks listed separately from the rest of the OTC market. The OTC market is a main market for bonds.

OTC Bulletin Board: Electronic listing of bid and asked quotations of over the counter stocks that do not meet the NASDAQ listing requirements. The system provides continuous quotations on stocks (foreign stocks are only updated twice-daily). It facilitates trading and provides greater surveillance non-NASDAQ stocks.

OTC Margin Stock: Corporations whose stocks, which are traded over-the-counter, have met specific criteria under Regulation T of the Federal Reserve Board that qualifies them as a margin security.

Other People’s Money (OPM): Industry lingo used when individuals or corporations use borrowed funds to increase their investment returns.

Out Of Favor Stock Or Industry: Stock or industry that investors do not currently like. There are many reasons that can cause this disfavor. The banking industry, for example, would be out of favor if interest rates rise because it could harm the bank’s profit. Investors who buy stocks that are out of favor are called “contrarian investors”. Their goal is to purchase the stock cheaply and to sell it when their earnings increase.

Out Of Line: Said of a stock whose price is either too high or low in comparison to similar stocks in the same industry. The comparison is usually based on the price/earnings ratio (PE).

Out Of The Money: An option that has no intrinsic value–for example, an option whose strike price, in the case of a put, is lower than the stocks current price, or in the case of a call, is higher. An investor who buys an out-of-the-money option is speculating that the option will rise in value and become in-the-money.

Outstanding Stock: Common shares of a corporation that are held by investors. The figure is shown on the corporation’s balance sheet as “capital stock issued and outstanding”.

Out The Window: Said of a new issue that has been distributed very quickly to investors–also called “hot issue”.

Overbought: A single security or a market that technical analysts believe has risen to an unreasonable level and thus, should start to decline. If all shareholders who want to buy the stock have already done so, there should only be sellers in the market, and thus, the price will drop.

Overheating: An economy that is expanding so quickly that there is concern about inflation rates rising. The Federal Reserve usually tries to slow the economy’s pace by tightening the money supply. This causes less money to be chasing after goods and services.

Overissue: Capital stock shares issued above the amount authorized to be issued. The security’s registrar (typically a bank acting as an agent) works with the security’s transfer agent in issuing new shares and canceling and reissuing certificates for transfer to new owners. These two parties keep track of the outstanding shares to prevent overissuance of shares.

Overlapping Debt: Debt of a political entity, such as a state, where its tax base extends to the tax base of another political entity, such as a county within the state. When evaluating a municipal bond, if the issuer has overlapping debt, it should be considered.

Overnight Position: Broker-dealer who has a long position or a short position in a security at the end of a trading day.

Oversold: A single security or a market that technical analysts believe has declined to an unreasonable level and thus, should start to rise. If all shareholders who want to sell the stock have already done so, there should only be buyers in the market, and thus, the price will rise.

Oversubscribed: Term used when a new stock issue has more potential buyers than shares. The stock will usually rise in price when it starts trading on the open market as buyers who could not previously purchase the issue will now do so.

Over The Counter (OTC): A market for securities that are not listed on an exchange. Security orders are transacted via telephone and a computer network that connect dealers. As opposed to the NYSE, which is an auction market, the OTC is a negotiated market. OTC dealers may either act either as principals or as agents for customers. The OTC market is regulated by the NASD. OTC stock prices are listed daily in newspapers, with the National Market System stocks listed separately from the rest of the OTC market. The OTC market is a main market for bonds.

Over The Counter Securities: A security not listed or traded on an exchange. The stocks are usually those of smaller companies that do not meet the NYSE or AMEX listing requirements.

Overtrading: In new issue underwritings, a situation in which a broker-dealer offers to buy a security from a client at premium. In return, the client will purchase shares of the new issue. The underwriter can still profit on the deal if the premium amount is less than what would be received from the underwriting spread.

Overvalued: Said of a security whose price is not justified by its price/earnings ratio and thus, should eventually decline.

Overwriting: Speculative trading strategy wherein an option writer, based on his belief that the underlying security is either overvalued or undervalued, will sell call options or put options in large quantities. The writer assumes that the options will not be exercised.

Ownership: Ownership constitutes the holding or possession of limited liability company legal claim or title to an offshore asset.

Paper Profit (Loss): Any profit or loss on a security that is not realized because it has not actually been sold.

Par: 1) The face value or principal value of a bond, usually $1,000 per bond. A bond trading at par is trading at its face value. 2) A preferred stocks’ face value, usually $100 per share. The stock’s book value, liquidating value and dividend payments are based on the par value. 3) A common stock’s stated value. It is primarily used for bookkeeping purposes and has no relationship to its market value.

Partial Delivery: Term used when a seller does not deliver the full amount of shares sold. Partial delivery would occur, for example, if 500 shares were sold and the seller only delivers 400.

Payment Date: Date on which declared stock dividend or bond interest is paid to holders of record.

Payment-In-Kind Securities (PIK): Bonds and preferred stocks whose interest and dividends are paid in additional bonds or preferred stock.

Payout Ratio: The percentage of a corporation’s earnings that are paid to shareholders as dividends. For example, a corporation that pays a $.12 dividend out of every $1.00 of earnings has a payout ratio of 12%.

P/E Ratio: The relationship between a stock’s price and its earnings per share. It is calculated by dividing the stock’s price per share by earnings per share for a twelve month period. For instance, a stock selling for $25 a share and earning $5 a share is said to be selling at a P/E ratio of 5. The ratio, also known as the “multiple”, gives an investor an approximation of how much they are paying for a corporation’s earning power. Low P/E stocks are usually in mature industries. They may be blue chip or out of favor companies. In either case, their growth potential is limited. Companies with high P/E ratios (over 20) are usually up-and-comers that are fast growing. These companies are riskier investments.

Penny Stock: A low priced stock that is traded in the over-the-counter market. Although a stock is categorized as a “penny” stock if it sells for less than $5 a share, they typically sells for less than $1a share. Penny stocks are very volatile and speculative.

Pension Fund: A fund that is set up to pay pension benefits to retired employees of a corporation, government entity, or to other organizations. The fund’s earnings are tax deferred until withdrawn by the retiree, who is then responsible for paying taxes on the amount withdrawn.

Performance Fund: A mutual fund whose goal is to achieve maximum growth of capital–sometimes called “aggressive growth funds”. The fund invests in companies that are in high growth cycles. Such companies typically do not pay dividends as its earnings are plowed back into the firm for expansion. Although these funds have a higher risk than a growth or balance fund, it is not considered to be speculative.

Perpetual Warrant: A warrant that gives the holder the right to buy a fixed number of common shares of stock at a fixed price. It does not have an expiration date.

PFD (Preferred Stock): An abbreviation that is commonly used on order tickets to indicate a preferred stock. A preferred stock is a type of capital stock that pays dividends at a set rate (at the time of issuance). Dividend payments to preferred holders must be made before common stock dividends can be paid. Preferred stocks usually do not have voting rights.

PHLX: Abbreviation for the Philadelphia Stock Exchange.

PIK Securities (Payment-In-Kind): Bonds and preferred stocks whose interest and dividends are paid in additional bonds or preferred stock.

Pink Sheets: A National Quotations Bureau daily publication that lists market maker’s bid and asked prices from the prior day for over-the-counter securities. Equity securities are printed on long pink paper, hence the name. Debt securities are printed on long yellow sheets, hence their name, yellow sheets.

P&L (Profit And Loss Statement): A summary of a corporation’s revenues, costs, and expenses within an accounting period–also called an “Income Statement”.

PLC: A UK public limited company
Pledge: The transfer of property, such as securities, to a creditor (or lender) as collateral for an obligation–such as securities bought on margin or a bank loan. “Assign” differs from pledge (or hypothecate) as an assignment involves a transfer of title, whereas pledging does not.

Plus: 1) A sign used to indicate that a transaction for a particular security was at a higher price than the previous transaction. 2) A fractional variation used to indicate a Treasury note or bond that is being quoted in 64ths. For instance, 93.16+ means 93 and 33/64th of par. The numerator is 2 times 16 plus 1; 64 is the denominator. 3) In newspaper stock listings, a + in the change column means that the closing price of a security is higher than the previous day’s close by the amount in the column.

Plus Tick: Security transaction executed at a price higher than the preceding transaction in the same security–also called an “uptick”. For each security in which its last price is higher than the preceding transaction, a plus sign is displayed next to its price at the trading post on the floor of the NYSE. Short sales can only be executed on upticks or zero plus ticks.

PMV (Private Market Value): The aggregate value of a corporation if it is broken into individual operations and each piece is given its own stock price–also called “breakup value” or “takeover value”. Analysts look for corporations with high PMV relative to its current market value to identify potential takeover targets and bargains. It differs from the corporation’s liquidating value because it does not include going-concern value.

POA (Power Of Attorney): Written document that permits a third party to do transactions on the behalf of the person signing the document. Depending on the specifications within the document, a power of attorney may be full or limited.

Point: 1) In stocks, a point equals $1. If ABC shares rise 1 1/4 points, each share has risen $1.25. 2) In bonds, a point equals $10 since a bond is quoted as a percentage of $1,000. A bond that rises 2 1/2 points gains 2.5% of 1,000, or $25. Thus, a bond that advances from 89 to 91 1/2 means a gain in dollar value from $890 to $915. 3) In market averages, the point is a unit of movement in an average. It is not equivalent to any dollar value. For example, if the Dow-Jones Industrial average rises from 4236 to 4258.5, it has risen 22.5 points.

PORTAL: The NASD’s trading system for secondary trading of unregistered securities in transactions exempt from the registration and a prospectus delivery requirement of the Securities Act of 1933 pursuant to SEC Rule 144A.

Portfolio: The holdings of more than one stock, bond, cash equivalent or other asset by an individual or institution. A portfolio may be designed to achieve the investors goals–such as obtaining maximum returns or reducing risk through diversification.

Position Building: The accumulation of a long or short position in such a manner as to not push the security’s price up or down. This method of slowly building a large position is used by institutional investors.

Positive Yield Curve: On debt securities of similar quality, a condition in which the yields on long term securities are higher than the yields on short term securities. Typically, short term interest rates are lower than long term rates–those who invest their money for longer periods are taking more risk.

Post: A structure shaped like a horseshoe that is located on the floor of the NYSE. Specific securities are traded at each post. Monitors surrounding the post display quotations for the securities traded at that particular post.

Power Of Attorney (POA): Written document that permits a third party to do transactions on the behalf of the person signing the document. Depending on the specifications within the document, a power of attorney may be full or limited.

Preemptive Right: A right given to shareholders that allows them to purchase shares of a new issue before it is offered to non-shareholders. This allows shareholders to retain the same percentage of ownership in a corporation.

Preferential transfer: A disposition of an asset that is unfair to other creditors of the transferor.

Preferred Stock: A preferred stock is a type of capital stock that pays dividends at a set rate (at the time of issuance). Dividend payments to preferred holders must be made before common stock dividends can be paid. Preferred stocks usually do not have voting rights.

Pre-filing notice: Mailed by the IRS to parties (tax payers) who are believed to be participating in fraudulent trust programs. The notice requests that the receiver seek professional counsel before filing their next tax return.

Preliminary Prospectus: A preliminary prospectus is given to investors when brokers obtain indications of interest. Although the document does not have all the information included in the offering circular, it does include the major facts. A preliminary prospectus is often called a “red herring” because its front-page notice is printed in red ink. The notice states that the preliminary prospectus is “subject to completion or amendment” and “shall not constitute an offer to sell…”.

Premium Bond: A bond that is selling above its face value or redemption price.

Premium Income: Money received by option writers (sellers) from option buyers in payment for specific rights. A person who writes options to collect premiums hopes that the market price for underlying security remains stable. A put writer does not want the security to fall, and a call writer does not want it to rise.

Premium Raid: An attempt to take control of a company by offering its shareholders an amount over the current market value of their shares.

Pretax Earnings Or Profit: The amount of profit a corporation earns before paying its taxes. It is calculated by subtracting all costs and expenses (other than taxes) from total revenues.

Price Change: The difference in a security’s price at the close of a trading session as compared to its previous session’s closing price. In the case of an average (or index), all of its components’ price changes are taken into account.

Price/Earnings Ratio (P/E): The relationship between a stock’s price and its earnings per share. It is calculated by dividing the stock’s price per share by earnings per share for a twelve month period. For instance, a stock selling for $25 a share and earning $5 a share is said to be selling at a P/E ratio of 5. The ratio, also known as the “multiple”, gives an investor an approximation of how much they are paying for a corporation’s earning power. Low P/E stocks are usually in mature industries. They may be blue chip or out of favor companies. In either case, their growth potential is limited. Companies with high P/E ratios (over 20) are usually up-and-comers that are fast growing. These companies are riskier investments.

Price Range: The high and low price that a security traded at during a designated period. In annual reports, a corporation will show the price range for its fiscal year. In daily newspapers, the period is a rolling 52 weeks.

Prime Paper: The best quality commercial paper as rated by agencies such as Moody’s Investors Services and is investment grade. Moody’s has three ratings for prime paper–P1 (highest quality), P2 (higher quality), and P3 (high quality).

Prime Rate: Interest rate charged by banks to their most creditworthy and largest corporate customers. The prime rate is used as a base rate for other types of loans such as personal, commercial and financing. These types of loans are normally of an interest rate a few points above the prime rate. Additionally, as the customer’s creditworthiness declines, the interest rate will increase.

Principal: 1) The face value or par value of a debt instrument that is separate from interest. 2) A person’s capital, or the amount invested. 3) An employee of a securities firm who has supervisory responsibilities.

Principal Amount: The face value of a bond, or other obligation, that is required to be paid to the holder at maturity.

Principal Stockholder: A shareholder who owns a 10% or more voting stock in a registered company.

Private Market Value (PMV): The aggregate value of a corporation if it is broken into individual operations and each has its own stock price–also called “breakup value” or “takeover value”. Analysts look for corporations with high PMV relative to its current market value to identify potential takeover targets and bargains. It differs from the corporation’s liquidating value because it does not include going-concern value.

Private Purpose Bond: A municipal bond whose interest may (or may not) be federally tax-exempt–also called “private activity bonds”. It is dependent on the percentage of the bond’s benefits that goes to private activities. A private purpose bond for a sports arena would not be tax-exempt, while one for an airport would. A sports arena generally does not help the general public whereas an airport can help the entire community.

Probate: The legal process for the distribution of the estate of a decedent whereby a decedent’s will is proffered to a court and an executor is appointed to handle the settlement of the will.

Proceeds: An amount received from selling a security after commissions are deducted.

Producer Price Index: A measure of changes in wholesale prices. The index is calculated monthly by the US Bureau of Labor Statistics. Its components are broken down by industry sector, commodity and processing stage.

Profit: The difference between a security’s purchase price and selling price. If the selling price is higher than the purchase price, there is a profit. Conversely, if the selling price is lower than the purchase price, there is a loss.

Profit And Loss Statement (P & L): A summary of a corporation’s revenues, costs, and expenses within an accounting period–also called an “Income Statement”.

Profit Sharing Retirement Plan: A plan that is established so that a corporation’s employee may share in the company’s profits. When there are profits, the corporation makes an annual contribution for each of its employees. The funds within the plan are tax deferred until withdrawn by the employee upon retirement or leaving the firm. Profit sharing plans are considered institutional investors.

Profit Taking: Selling securities that have appreciated in value since purchase, to realize the profit. In a rising market, profit taking temporarily pushes down prices.

Program Trading: Use of a computer-driven program by arbitrageurs and institutional traders for buying and selling baskets of 15 or more stocks. The program monitors various markets and securities and gives buy and sell signals when opportunities for profits arise or when market conditions warrant the accumulation or liquidation of a position.

Proprietorship: An unincorporated business owned by one person who is entitled to all the profits (or losses) generated from the business and is responsible for its taxes and other liabilities.

Prospectus: A printed document that summarizes a corporation’s registration statement for a new issue of non-exempt securities that was filed with the SEC. It details material information about the corporation and the security being issued. A prospectus must be given to all buyers and potential buyers of the new issue. A preliminary prospectus is given to investors when brokers obtain indications of interest. Although the document does not have all the information included in the offering circular, it does include the major facts. A preliminary prospectus is often called a “red herring” because its front-page notice is printed in red ink. The notice states that the preliminary prospectus is “subject to completion or amendment” and “shall not constitute an offer to sell…”.

A “Red Herring” Prospectus is industry jargon for a preliminary prospectus issued by underwriters or issuers to gauge interest in a prospective offering. It receives its name from the warning, printed in red, that information in the document is incomplete or subject to change before the issue.

Proxy: A written authorization by a shareholder allowing a representative to vote for or against business proposals and directors at annual meetings. The results of these votes are announced at the meeting.

Proxy Fight: A strategy used by an acquiring company in its attempt to take control of a target company. The acquirer and target solicit the target’s shareholders to obtain proxy votes. Whichever company obtains more votes, wins–that is, if the acquirer receives the majority of the proxy votes, it has effectively gained control of the target without paying a premium price for the firm.

Proxy Statement: Information given to shareholders on company matters that need to be voted on. The statement is sent in conjunction with the proxy solicitations.

Prudent Man Rule: An investment standard used by fiduciaries as a guide for identifying acceptable investment vehicles. Some US states allow the fiduciary to invest in securities that would be bought by a prudent man of discretion and intelligence, and who looks for a reasonable income and preservation of capital. Other states require that the fiduciary only invest in a list of securities designated by the state.

PSE (Pacific Stock Exchange): Abbreviation used for the Pacific Stock Exchange.

Public Information Office: A department of the NYSE that answers investors inquiries on various aspects of securities investing. Major areas of inquiries involve locating brokerage firms that will take small orders and explaining investing strategies.

Publicly Held: A company whose shares are publicly available to the general public. A publicly held company is usually regulated by the SEC.

Public Offering: An offering of new securities to the investing public at a public offering price that has been agreed upon by the issuer and the investment bankers. This can only be done after the issue has been registered with the SEC. The term is also used when referring to a secondary distribution of securities previously issued.

Public Offering Price: The price at which a new issue is offered to the public by underwriters.

Pump and Dump: An unlawful practice where a small group of informed people buy a stock before they recommend it to thousands of investors. The result is a quick spike in stock price followed by an equally fast downfall. The perpetrators who bought the stock early sell off when the price peaks at a huge profit. Small companies are more volatile and it’s easier to manipulate a stock when there’s little or no information available about the company.

Pure Equity Trust: A special type of irrevocable trust marketed by promoters. The trust assets are obtained by an “exchange” of a certificate of beneficial interest in return for the assets, as opposed to traditional means, such as by gifting.

Pure Trust: A contractual trust as opposed to a statutory trust, created under the Common Law. A pure trust is one in which there must be a minimum of three parties(the creator or settlor (never grantor), the trustee and the beneficiary(and each is a separate entity. A pure trust is claimed to be a lawful, irrevocable, separate legal entity.

Put Bond: A bond, at the holder’s option, that can be redeemed at face value on a specific date or dates. In return for this right, the holder receives a lower yield than on a similar fixed-rate bond.

Put Option: A contract that gives the holder the right to sell a specified number of shares (usually 100) of a particular stock, stock index or dollar face value of bonds, at a predetermined price–called the “strike price”–on or before the option’s expiration date. For this right, the holder (buyer) pays the writer (seller) a premium. The holder profits from the contract if the stock’s price drops. If the holder decides to exercise the option (as opposed to selling it), the writer must buy the security. The writer profits when the underlying security’s price remains the same, rises or drops by less than the premium received.

Put To The Seller: Term used when the holder of a long put option exercises the position. The put option writer (seller) is required to buy the underlying security at the strike price. For example, if an ABC July 50 put is “put to the seller”, the writer has to buy 100 shares of ABC at $50 a share from the put holder. The actual current market price for ABC may be less than $50 a share.

Q-TIP Trust (Qualified Terminable Interest Property Trust): A type of trust that is frequently used to provide for the welfare of a spouse. It keeps the assets out of the estate of another (such as a future marriage partner) if the grantor dies first. It allows assets to be transferred between spouses. The grantor of a Q-Tip trust directs the income generated from the assets to their spouse for life, but has the power to distribute the assets upon the death of the spouse. The trust qualifies the grantor for unlimited marital deductions if the spouse dies first.

Qualified Legal Opinion: A contingent confirmation regarding the legality of a new municipal bond issue. If there is a lawsuit to block a new municipal bond issue, the bond counsel will examine the situation. If the counsel concludes that there may be a premise for the suit, a qualified opinion is issued that expresses their doubt as to the result of the lawsuit. A non-qualified opinion has no uncertainty concerning the new issue.

Qualified Pension Plan or Trust: A retirement plan (or annuity) set up by an employer for an employee into which the employee and/or the employer may make tax deductible contributions. The plan’s investment earnings are tax deferred. The employees pay taxes only when they draw money from the plan. If the money is withdrawn before the legal age, penalties may also be incurred. IRA’s, and most corporate pension plans are deemed to be qualified.

Qualifying Share: In order to qualify as a director of a corporation, the potential director must own a share of the corporation’s common stock.

Qualified Terminable Interest Property Trust (Q-TIP Trust): A type of trust that is frequently used to provide for the welfare of a spouse. It keeps the assets out of the estate of another (such as a future marriage partner) if the grantor dies first. It allows assets to be transferred between spouses. The grantor of a Q-Tip trust directs the income generated from the assets to their spouse for life, but has the power to distribute the assets upon the death of the spouse. The trust qualifies the grantor for unlimited marital deductions if the spouse dies first.

Qualitative Analysis: Securities analysis that looks at a corporation’s management experience, employee morale and the status of labor relations instead of the corporation’s financial data.

Quantitative Analysis: Securities analysis that looks at a corporation’s financial data and projections. Such items include its assets, liabilities, sales pattern and profitability.

Quarterly Report: A report, required by the SEC of publicly-held companies, filed quarterly, that provides unaudited financial information and other selected material.

Quarter Stock: Stock with a par value of $25 per share.

Quick Asset: Current assets that can be converted to cash quickly and easily. Quick assets are current assets less inventory.

Quick Asset Ratio: Also called acid test ratio or quick ratio, it is a corporation’s current assets minus inventories divided by current liabilities. By excluding inventory from the formula, the ratio focuses on a corporation’s liquid assets, and helps determine if the corporation can meet its current liabilities with its convertible assets if sales ceased. A corporation is considered sound when quick assets exceed current liabilities.

Quid Pro Quo: In the securities industry, it is an agreement in which a company, using institutional research, will execute all trades based on that research with the firm providing it and thus, makes payment in soft dollars. This is done instead of directly paying for the research.

Quiet Period: Time period that an issuer in registration is subject to Securities and Exchange Commission (SEC) regulations regarding advertising.

Quotation Board: Electronic board that displays a stock’s current price quotations and current trading volume.
Quoted Price: Price at which the last sale or purchase was transacted for a specific security or commodity.

Raider: Individual or corporation who purchases a controlling interest in a company’s stock. The raider’s purpose is to gain control of the target company and to instate new management. Accumulation of more than 5% of the target company’s outstanding shares must be reported to the SEC, the exchange in which the target is listed, and the target itself.

Rally: A marked rise that follows a period of decline or sideways movement in the general level of the market or in individual securities.

Random Walk: A stock market theory that hypothesizes that past prices are of no use in forecasting future price movements. The theory maintains that prices move in a random pattern and that they are no more predictable than the walking pattern of a wandering person. This directly contradicts technical analysts’ use of charts to forecast stock prices.

Range: A security’s, or the general market’s, highest and lowest price in which it has traded over a specified time–usually a rolling 52 week time period. In newspaper stock listings, a security’s 52 week high and low price range is published. Technical analysts watch trading ranges carefully because they believe it is of great importance when a security breaks out of its trading range–high or low end.

Rate Of Return: 1) In common stock, the rate of return equals its dividend yield–calculated by dividing the annual dividend by the original purchase price. Rate of return may also refer to the total return, which is capital appreciation plus the dividend. 2) In fixed-income securities such as bonds and preferred stock, the rate of return equals the current yield, which is the coupon or dividend rate divided by the original purchase price.

Rating: The evaluation of credit risk of securities by an established rating service such as Moody’s Investors Services, Standard & Poor’s Corporation, Fitch Investors Service or Value Line Investment Survey.

Realized Profit (or Loss): Any profit or loss attributable to a security’s sale or the transfer of title representing ownership of the security.

Real Rate Of Return: An investment’s return that is adjusted for inflation.
Recession: As reflected in the gross national product, a decline in economic activity in at least two consecutive quarters.

Reclamation: The procedure whereby certificates, already delivered to settle a transaction, are returned because they are in non-deliverable form. The party who is affected by the bad delivery may recover any losses incurred.

Record Date: The date on which a shareholder must officially own a stock’s shares in order to receive a company’s declared dividend or, among other things, to vote on company issues.

Redemption: The repayment of the principal (par) amount of a debt security, or a preferred stock, at or before its maturity. Mutual fund shares are redeemed at net asset value when a shareholder liquidates their shares.

Redemption Price: 1) In bonds and preferred stocks, it is the call price. 2) In mutual funds, it is the net asset value.

Red Herring Prospectus: Industry jargon for a preliminary prospectus issued by underwriters or issuers to gauge interest in a prospective offering. It receives its name from the warning, printed in red, that information in the document is incomplete or subject to change before the issue.

Regional Stock Exchanges: National exchanges located around the United States that are registered with the SEC. When referring to a regional exchange, the NYSE is not included. Regional exchanges include Boston, Cincinnati, Midwest (Chicago), Pacific, and Philadelphia. These exchanges list regional issues and many issues that are also listed with the NYSE.

Register: The register of international business companies (IBCs) and exempt companies maintained by the Registrar of a foreign country, usually characterized as a “tax haven.”

Registered Company: A company that has issued securities in compliance with the registration requirements of the Securities Exchange Act of 1934.

Registered Options Principal (ROP): A brokerage firm employee who supervises registered representatives regarding their client’s options account activities and their solicitation of new options clients.

Registered Representative (RR): A brokerage firm employee who acts as an account executive for clients. In a full brokerage house, a registered representative solicits clients’ business and provides advice on when to buy and sell securities. For this advice, the RR may receive a percentage of the commission that is charged to the client for making such transactions. In a discount firm, a RR facilitates the execution of client orders. The RR does not solicit new customers or give investment advice.

Registered Security: 1) Stocks or bonds or other securities for which a registration statement has been filed with the SEC. 2) A securities certificate that is recorded in the name of the owner on the books of the issuer. Ownership of the security can only be transferred when the certificate is endorsed by the registered owner.

Registrar: The Registrar of Companies is a governmental body controlling the formation and renewal of companies created under their company act. In the US securities industry, it is an agency, usually a trust company or bank, who has the responsibility of keeping a record of the owners of a corporation’s securities and the issuance of securities.

Reg D (Regulation D): Regulation D provides and exemption that makes it possible for some companies to avoid registering their securities and filing reports with the SEC, but they are still required to file a “Form D” after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters. To find out whether a company has filed a Form D, call the SEC’s Public Reference Branch at (202) 942-8090 or send an email to publicinfo@sec.gov. If the company has not filed a Form D, they might not be in compliance with the federal securities laws.

Reg T (Regulation T): Federal Reserve Board regulation that governs the extension of credit to clients of broker-dealers. The rules specify the amount and type of credit that may be extended or must be maintained when clients purchase, carry, or trade eligible securities. It defines eligible securities and establishes initial margin requirements. Reg T does not cover the extension or maintenance of credit by a broker-dealer for clients who purchase or trade in exempt securities. Regulation T of the Federal Reserve Board is commonly abbreviated as Reg T.

Regular Way Delivery (Settlement): As of June 1995, the completion of securities transactions, unless otherwise specified, on the third business day following the transaction. Prior to June 1995, the industry standard was five business days following the transaction. To effect settlement, the securities sold are delivered to the buyer and payment is made to the seller. Regular way delivery for government securities and options is the next business day following the transaction.

Regulation D (Reg D): Regulation D provides and exemption that makes it possible for some companies to avoid registering their securities and filing reports with the SEC, but they are still required to file a “Form D” after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters. To find out whether a company has filed a Form D, call the SEC’s Public Reference Branch at (202) 942-8090 or send an email to publicinfo@sec.gov. If the company has not filed a Form D, they might not be in compliance with the federal securities laws.

Regulation T (Reg T): Federal Reserve Board regulation that governs the extension of credit to clients of broker-dealers. The rules specify the amount and type of credit that may be extended or must be maintained when clients purchase, carry, or trade eligible securities. It defines eligible securities and establishes initial margin requirements. Reg T does not cover the extension or maintenance of credit by a broker-dealer for clients who purchase or trade in exempt securities. Regulation T of the Federal Reserve Board is commonly abbreviated as Reg T.

Reinvestment Privilege: Shareholders’ right that allows them to reinvest their dividends to purchase additional shares in a mutual fund or a corporation, typically without any additional fees.

REIT: Real estate investment trusts, known as REITs, are entities that invest in different kinds of real estate or real estate related assets, including shopping centers, office buildings, hotels, and mortgages secured by real estate. There are basically three types of REITS:

• Equity REITS, the most common type of REIT, invest in or own real estate and make money for investors from the rents they collect;
• Mortgage REITS lend money to owners and developers or invest in financial instruments secured by mortgages on real estate; and
• Hybrid REITS are a combination of equity and mortgage REITS.

The Internal Revenue Code lists the conditions a company must meet to qualify as a REIT. For example, the company must pay 95% of its taxable income to shareholders every year. It must also invest at least 75% of its total assets in real estate and generate 75% or more of its gross income from investments in or mortgages on real property.

Relative Strength: In a rising market, the rate at which a security’s price rises in relation to other securities. In a declining market, the rate at which a security’s price drops in relation to other securities. Analysts contend that a security that holds its value in a down market will be a solid performer on the upside and vice versa.

Reorganization: 1) Financial restructuring of a corporation in bankruptcy. 2) A department within a brokerage firm that handles client’s securities that are merging, being taken over, etc. The department is usually just called “Reorg”.

Required Rate Of Return: Return that an investor requires before they are willing to earmark money for an investment that has a certain risk level. The expected return must be greater than the required return for the investment to be acceptable.

Research Department: A department within a brokerage firm, or other institutional investing organization, that analyzes securities and markets using both fundamental analysis and technical analysis. The analyst makes trading recommendations for firm accounts, institutions and retail clients (provided by their broker). If followed by many investors, an analyst’s recommendations can have an impact on security prices.

Resistance Level: The upper limit of a security’s trading range in which selling pressure tends to cause the price of a stock to decline. For example, if ABC’s stock ranges between a low of $24 and a high of $36 per share, $24 is the support level and $36 is the resistance level. When a security breaks through the resistance level, technical analysts believe the security will reach new high prices.

Restricted Stock: Stock that is not registered under the Securities Exchange Act of 1933. Restricted stock is either purchased through a company’s stock option plan, or a private placement. The investor is required to sign a letter agreeing that the purchase is for investment and not short term profit. The investor is required to hold the stock for two years before it can be sold. Sale of restricted stock is governed by SEC Rule 144.

Retail House: A brokerage firm that provides services to individual clients as opposed to institutions.

Retail Investor: An investor who buys and sells securities for their own behalf–not for an organization. Retail investors typically trade in much smaller quantities than institutional investors.

Retained Earnings: Net profits that have been reinvested back to the business after dividends are paid to stockholders–also called “earned surplus”. Retained earnings are customarily an important component of stockholders’ equity.

Retirement: In the securities industry, the term refers to the repayment of a debt obligation or the cancellation of securities that have been redeemed.

Return: Realized profit on capital investments or securities stated as an annual percentage rate.

Return On Equity (ROE): An amount, stated as a percentage, that informs common shareholders how effectively the funds invested are being utilized during a specific period. Trends can be found if current and prior periods are compared and if compared with industry composites, it shows whether or not the company is keeping up with its competitors. The rate is calculated by dividing net earnings by average stockholders’ equity.

Revenue Reconciliation Act of 1995: Proposed changes to the Internal Revenue Code affecting foreign trust reporting, among other changes.

Reversal: As charted by technical analysts, a sustained change in direction of stock or commodity markets. This may either be a change from a rising market to a declining market or vice versa.

Reverse Split: Procedure whereby a corporation reduces the number of outstanding shares. The total market value of the shares remains the same after the reverse split, however, a share is worth more. A company, for example, executes a 1 for 2 split. An investor owning 1000 shares will deliver them to the issuer and they will receive half as many new shares–but the shares will have double the value of the original shares. Thus, the investor now has 500 shares with a value of $8, instead of 1000 at $4–that is, the investor shares are worth the same amount as before the split. Reverse splits may be used by corporations whose shares are selling at very low market prices. They believe that if the security’s price is raised, it will attract more investors.

Revocable Trust: A trust in which any of its provisions can be changed, or the trust itself can be canceled at any time by the grantor. The grantor receives income from the assets. This contrasts with an irrevocable trust in which the trust cannot be amended or canceled and the assets are not subject to estate taxes.

Right: A certificate that evidences a shareholder’s privilege to buy additional shares of new securities in proportion to the number of shares already owned. A company, when raising more funds by issuing new securities, may issue rights to its shareholders to give them the chance to buy additional shares before the general public. Because rights usually allow the stockholder to buy below the current market price, they ordinarily have a value of their own and are actively traded. Most rights are valid for a relatively short period. Failure to exercise or sell rights may result in monetary loss.

Rising Bottoms: A chart pattern that shows a rising trend in the low prices of a security. This signifies that the security’s support levels are increasing. If rising bottoms are combined with ascending tops, a technical analyst would call the pattern bullish.

Risk: A measurable possibility of losing capital (or not gaining value). The chance that invested capital will drop in value can be caused by many factors including, inflation, interest rates, default, politics, liquidity, call provisions, etc.

Risk Averse: Said of an investor who, given the same return and different risk alternatives, will choose the security with the least amount of risk.

Risk/Reward Ratio: The greater the investment risk–the greater the expected return. The ratio places an investor’s desire for capital preservation at one end of the scale and a desire to maximize returns at the other end.

Road Show: A series of meetings with potential investors in key cities, designed and performed by a company and its investment banker as the company prepares to go public.

ROE (Return On Equity): An amount, stated as a percentage, that informs common shareholders how effectively the funds invested are being utilized during a specific period. Trends can be found if current and prior periods are compared and if compared with industry composites, it shows whether or not the company is keeping up with its competitors. The rate is calculated by dividing net earnings by average stockholders’ equity.

Roll Down: A process whereby one option position is closed and a new one with a lower exercise price is established.

Roll Forward: A process whereby one option position is closed and a new one with a later expiration date is established. If the new position also involves a lower exercise price, it is called a “roll-down and forward”. If it involves a higher exercised price, it is called a “roll-up and forward.”
Roll Up: A process whereby one option position is closed and a new one with a higher exercise price is established.

ROP (Registered Options Principal): A brokerage firm employee who supervises registered representatives regarding their client’s options account activities and their solicitation of new options clients.

Round Lot: A standard unit of trading, or a multiple thereof, on a securities exchange. Generally, the unit of trading is 100 shares for stock and $1,000 or $5000 par value for bonds. In some inactive stocks, the unit of trading is 10 shares.

RR (Registered Representative): A brokerage firm employee who acts as an account executive for clients. In a full brokerage house, a registered representative solicits clients’ business and provides advice on when to buy and sell securities. For this advice, the RR may receive a percentage of the commission that is charged to the client for making such transactions. In a discount firm, a RR facilitates the execution of client orders. The RR does not solicit new customers or give investment advice.

Rule 10b-21: Securities and Exchange Commission rule that prohibits covering a short position in a security with stock purchased out of a new offering of the security, if the short position was established between the filing of the registration statement and the beginning of the distribution of the offering.

Rule 10b-6: Securities and Exchange Commission rule that prohibits persons engaged in a distribution of securities from bidding for or purchasing those or similar securities until they have completed their participation in the distribution.

Rule 10b-6a: Securities and Exchange Commission rule that permits broker/dealers engaged in the distribution of a security to engage in “passive” market making transactions in the security being distributed without being in violation of the provisions of SEC Rule 10b-6.

Rule 13d: The Securities and Exchange Commission rule requiring disclosures by anyone acquiring a beneficial ownership of 5 percent or more in any equity security registered with the SEC.

Rule 144: Rule that stipulates the conditions in which an unregistered security may be sold by a broker. Specific documentation must be completed by the owner and presented to a broker before a sell order can be placed. Moreover, a letter security may not be sold for at least two years from the date of purchase. Thereupon, during any three month period, the following amounts may be sold:

• If the corporation’s securities are unlisted, 1% of the outstanding shares;
• If the corporation’s securities are listed, the greater of 1% of the amount outstanding or the average trading volume within the past four weeks.

Rule 15c3-1: Securities and Exchange Commission rule that requires broker/dealers maintain sufficient liquid assets to satisfy its net capital requirement.

Rule 15c3-3: Securities and Exchange Commission rule that ensures that the broker/dealer has possession or control of customers’ securities, and properly segregates these securities from securities the firm owns. The rule also requires that the broker/dealer deposits customers’ funds in a Special Reserve Bank Account.

Rule 17a-3: Securities and Exchange Commission rule that specifies the books and records related to the securities business that brokers and dealers have to make and keep current.

Rule 17a-4: Securities and Exchange Commission rule that specifies the time period that broker/dealers must preserve Rule 17a-3 records and other documents pertaining to the business.

Rule 19b-4: Securities and Exchange Commission rule that provides procedures that self-regulatory organizations (SRO’s) follow to propose rule changes to the SEC.

Rules Of Fair Practice: NASD rules that relate to a broker-dealer’s conduct of business. In short, the basic rules are to:

• Promote just and equitable principles of trade for the protection of investors;
• Prevent fraud and manipulative practices;
• Consult with government and investors on matters of common concern and;
• Prevent excessive commissions and charges.

Rumortrage: A traders’ term to describe the buying and selling of securities based on the rumor of a takeover.
Running Ahead: Situation that occurs when a broker places an order to buy or sell a security for their own account before placing a comparable order for a client. A broker, for example, places an order to buy XYZ when the firm’s analyst makes a positive recommendation. Afterwards, the broker informs the client of the recommendation and places a buy order. By buying before the client, the broker is attempting to obtain a better price than the client’s.

Runoff: The printing of closing prices on the ticker tape after the market has already closed. A runoff usually occurs in very heavy trading in which the tape has fallen behind.

S&P (Standard & Poor’s Corporation): Acronym for Standard & Poor’s, a provider of a wide variety of investment-related services including ratings for bonds, stocks, and commercial paper; publishing statistical information and reports; and compiling indexes, including the Standard & Poor’s Index of 500 Stocks.

SA (Societe Anonyme): A limited liability corporation established under French Law. Requires a minimum of seven shareholders. In Spanish speaking countries, it is known as the Sociedad Anonima. Important characteristic of both is that the liability of the shareholder is limited up to the amount of their capital contribution.

Safe Harbor: The “Safe Harbor for Forward-Looking Information” allows company management to discuss in good faith a company’s prospects and financial projections with analysts and investors without fearing litigation. (From the Private Securities Litigation Reform Act of 1995.)

Sales Charge: A fee paid to a broker in connection with the purchase of a load mutual fund or a limited partnership. The sales charge, or load, generally decreases as the size of the investment increases.

Same Day Substitution: The purchase and sale of securities on the same day in a margin account, both having equal dollar value. When a same-day substitution is made, a margin call is not generated, and there is no credit release to the special miscellaneous account (SMA). A long sale and a short sale are also considered a same-day substitution.

Same Side Of The Market: In options, it relates to the investor’s expectations for the underlying security–that is either bullish or bearish. Short calls and long puts are bearish. Long calls and short puts are bullish.

Saucer: A technical chart pattern that indicates a security’s price has begun to increase after declining and bottoming out. An inverse saucer has a reverse pattern characterized by a decline after increasing and then reaching a plateau.

Script Certificate: A fractional share of a stock issued by a corporation.

Seasonal Stock: A stock whose value fluctuates due to holidays, vacations, and changes in the climate. For instance, a toy company may experience an increase in sales and earnings during the Christmas season.

Seat: Membership on an exchange.

SEC (Securities And Exchange Commission): A federal agency created in 1934 by an act of Congress to regulate various aspects of the securities industry. The SEC is made up of five commissioners, each appointed by the President, with the advice and consent of the Senate, for a five-year term. In order to ensure the political independence of the commissioners, no more than three may be from the same political party at any one time. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce or through the mails must be registered with the SEC.

SEC Fee: A nominal fee charged by the SEC on the sale of listed equity securities.

Secondary Distribution: The sale of previously issued shares of a security to the public. Usually these are shares owned by large institutions or corporations, rather than by the issuer as is the case with an initial public offering. The sale is usually not handled on an exchange, but instead is handled by an investment banker or group of investment bankers. Also known as a “secondary offering”.

Secondary Market: The trading in existing or outstanding shares of securities as opposed to new issues, or initial public offerings. Transactions in the secondary market occur either on an exchange or in the over the counter market.

Sector Fund: A mutual fund that invests in the stocks of a particular industry, such as the airline industry.

Securities And Exchange Commission (SEC): A federal agency created in 1934 by an act of Congress to regulate various aspects of the securities industry. The SEC is made up of five commissioners, each appointed by the President, with the advice and consent of the Senate, for a five-year term. In order to ensure the political independence of the commissioners, no more than three may be from the same political party at any one time. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce or through the mails must be registered with the SEC.
Securities Exchange Act Of 1933: An act of Congress which governs the issuance of new issues of securities. It requires the registration of securities, disclosure of pertinent information relating to new issues so that investors may make informed decisions.

Securities Exchange Act Of 1934: An act of Congress which created the Securities and Exchange Commission and governs the securities markets.

Securities Industry Association (SIA): A trade association for broker-dealers.

Securities Investor Protection Corporation (SIPC): A nonprofit corporation established by an act of Congress in 1970 in order to protect the customers of brokerage firms from the insolvency of those firms. All broker-dealers registered with the Securities and Exchange Commission and with a national exchange are required to join. SIPC provides up to $500,000 in protection, of which no more than $100,000 may be in cash.

Security: Any instrument that represents ownership, or the right to ownership, of a corporation, or that represents the debt of a corporation. Shares and debt obligations of every kind, including options, warrants, and rights to acquire shares and debt obligations.

Seek a Market: To look for a buyer or a seller.

Self Directed IRA: Individual retirement account that is managed by an account holder who appoints a custodian to carry out instructions. This kind of IRA is subject to the same types of restrictions and limitations as a regular IRA.

Self Regulatory Organization (SRO): An entity, such as the NASD, responsible for regulating its members through the adoption and enforcement of rules and regulations governing the business conduct of its members.

Sellers Market: A situation where demand for a security or product exceeds supply, thereby causing an increase in the price of the security or product and allowing sellers to set the terms of sale.

Seller’s Option Contract: A transaction in which normal settlement cycles are not followed, and instead the seller has the right to make delivery within a specified period of time, ranging from not less than six business days to not more than 60 calendar days. The seller is required to provide written notification to the buyer one full business day prior to making delivery.

Selling Climax: A sudden drop in the market due to panic on the part of investors.

Selling Dividends: An practice whereby a broker encourages a customer to buy mutual fund shares in order to receive an anticipated dividend. Since the dividend is part of the net asset value of the fund and already reflected in the price, the customer earns no benefit by purchasing the fund prior to the scheduled dividend.

Selling Off: The act of selling securities in a panic situation in order to avoid a greater loss than already sustained.

Selling On The Good News: The act of selling a security shortly after a positive news article is disseminated to the public. Very often, investors are eager to buy a stock if there is good news, thereby pushing the price up. Sellers who think the stock has peaked will sell on the good news rather than risk a subsequent decline.

Selling Short: The sale of a security that the investor does not own in order to take advantage of an anticipated decline in the price of the security. In order to sell short, the investor must borrow the security from his broker in order to make delivery to the buyer. The short seller will eventually have to buy the security back, or buy to cover, in order to return it to the broker. Short selling is regulated by Regulation T of the Federal Reserve Board and Securities and Exchange Commission rules allow investors to sell short only when a stock price is moving upward. This prevents “pool operators” from driving down a stock price through heavy short-selling, then buying the shares for a large profit.

Selling Short Against The Box: A short sale where the investor owns the security, but does not want to use the shares for delivery, so he borrows them from the brokerage firm. This is usually done to lock in a profit, while delaying the tax consequences to a subsequent year.

Sell Out Procedures: Liquidation of a margin account that has failed to meet the equity requirements established by margin regulations, or liquidation of a security that has not been paid for by the customer in accordance with industry regulations.

Sell Stop Order: An order to sell a security at the market price once the security trades through a specified price, called the stop price.

Senior Securities: Debt securities and preferred stocks. These securities are senior to common stock because they have prior claim to a corporation’s assets in the event of bankruptcy.

Sensitive Market: A market highly susceptible to new announcements, either good or bad.

SEP (Simplified Employee Pension): Acronym for simplified employee pension plan, a type of pension plan whereby both the employee and employer contribute to the employee’s individual retirement account.

Series Of Options: All call or put options on a security having the same exercise price and expiration date. For example, all XYZ October 30 calls would comprise a series of options.

Series 7 Exam: Individuals who want to enter the securities industry to sell any type of securities must take the Series 7 examination—formally known as the General Securities Representative Examination. Individuals who pass the Series 7 are eligible to register with all self-regulatory organizations to trade. NASD administers the Series 7 examination.

Settle: To create or establish an offshore trust. Done by the settlor (offshore term) or the grantor (U.S. and IRS term).

Settlement: The conclusion of a securities transaction, as evidenced by the seller delivering the security and the buyer paying for it. Most securities, but not all, settle in three business days.

Settlement Date: The date upon which the buyer and seller of a security are expected to settle a transaction, as evidenced by the seller delivering the security and the buyer paying for it. Most securities, but not all, settle in three business days.

Settlor: One (the entity) who (which) creates or settles an offshore trust.

Share: A single unit of ownership in a corporation or mutual fund.

Shareholder: An individual who owns one or more shares of a corporation or mutual fund. Shareholders may earn dividends and shareholders of common stock have voting rights with regard to matters that affect the corporation.

Shareholder’s Equity: The assets of a corporation minus the liabilities of the corporation. Also called equity, or net worth.

Short and Distort: A securities scam where traders manipulate stock prices by taking short positions and then using a smear campaign to drive down the price of the targeted stock. This is the inverse version of the “pump and dump” tactic, whereby crooks buy stock (take a long position) and issue false information that causes the target stocks price to increase. Short and distort players clutter message boards, so optimistic information cannot easily be found. “Get out before it all comes crashing down” and “Investors who wish to enter a class action lawsuit can contact…” are typical posts.

Short Covering: Buying stock in order to close out, or cover, a position previously created by a short sale.

Short Interest: The total number of shares that have been sold short and have yet to be repurchased.

Short Interest Theory: The belief that a large short interest in a particular security means the market price of the security is about to increase because the short positions must eventually be covered, or repurchased. The theory asserts that this cushion of potential buyers will serve to support a declining market or accelerate a rising market.

Short Market Value: The number of shares of a short security multiplied by the current market price.

Short Position: Stock shares that an individual has sold short and has not yet covered, as of a particular date.

Short Squeeze: A situation that occurs when the price of a security increases dramatically, thus pressuring short sellers to cover their short positions in order to avoid greater losses. The covering of short positions serves to raise the price of the security even more, thus increasing the losses of short sellers who have still not covered their short positions.

Short Swing Profit: A profit earned on a security held less than six months. Insiders are prohibited from taking short swing profits on the stock of their firm.

Short Term: An investment with a maturity of a year or less.

Short Term Debt: A debt obligation due within a year.

Short Term Gain (Loss): A realized profit or loss on an investment held for six months or less.

SIA (Securities Industry Association): A trade association for broker-dealers.

Sideways Market: Situation that occurs when prices move within a narrow range, with minimal fluctuations.

Simplified Employee Pension Plan (SEP): A type of pension plan whereby both the employee and employer contribute to the employee’s individual retirement account.

Simultaneous Transaction: A transaction which involves no risk for the broker-dealer because he is able to match purchase and sale orders for customers.

SIPC (Securities Investor Protection Corporation): A nonprofit corporation established by an act of Congress in 1970 in order to protect the customers of brokerage firms from the insolvency of those firms. All broker-dealers registered with the Securities and Exchange Commission and with a national exchange are required to join. SIPC provides up to $500,000 in protection, of which no more than $100,000 may be in cash.

Situs or site: The situs is the domicile or dominating or controlling jurisdiction of the trust. It may be changed to another jurisdiction, to be sited in another country or U.S. state.

Size: The number of shares that are available at a particular price.

SL (Sold): Abbreviation for sold.

SMA (Special Miscellaneous Account): A memorandum account that records a customer’s excess margin and buying power. Excess funds may come from several sources: sales proceeds, market value appreciation, dividends, and cash or securities put up in response to a margin call.

Small Investor: An individual that purchases small quantities of stocks and bonds–also called “retail investor”.

Smurfing: The act of structuring financial transactions to avoid reporting requirements.

Societe Anonyme (SA): A limited liability corporation established under French Law. Requires a minimum of seven shareholders. In Spanish speaking countries, it is known as the Sociedad Anonima. Important characteristic of both is that the liability of the shareholder is limited up to the amount of their capital contribution.

Soft Market: A market characterized by excess supply, thus causing a decrease in prices. Also called a buyer’s market.

Sparbuch: An Austrian numbered savings account in which the issuing bank has no information whatsoever regarding the identity of their customer account holder. Accounts are accessed by account number and password – anyone in possession of both can access the funds in the account.

Special Custodian: An appointee of the trustee in an APT.

Special Investment Advisor: An appointee of the trustee in an APT.

Specialist: A member of an exchange who is responsible for maintaining a fair and orderly market in those securities for which he is registered. The specialist accomplishes this by buying and selling for his own account to reduce any temporary disparities between supply and demand, to the extent possible. The specialist may also act as a broker’s broker by executing orders for other members in return for a share of the commission.

Special Miscellaneous Account (SMA): A memorandum account that records a customer’s excess margin and buying power. Excess funds may come from several sources: sales proceeds, market value appreciation, dividends, and cash or securities put up in response to a margin call.

Special Purpose Funds: Funds that invest primarily in a certain industry or group of related industries, or in a certain geographic area.

Specific Performance: The legal remedy of performance of a contract in the specific form in which it was made, according to the precise terms agreed upon.

Speculation: Purchasing high-risk investments which may provide above average gains, but also carry a higher than average possibility for loss of principal.

Speculator: An investor who is willing to assume great risk in return for potentially great rewards.

Split: Partitioning the outstanding shares of a corporation into a larger number of shares, without affecting shareholders’ equity or the total market value at the time of the split. For instance, if a stock valued at $100 splits 2-for-1, an investor who owns 100 shares would now own 200 shares valued at $50.

Spot Market: Commodities market in which commodities are sold for cash and immediate delivery takes place.

Spousal IRA: An individual retirement account (IRA) opened in the name of a nonworking spouse. A married couple that establishes such an IRA may contribute up to $2,250 between two IRAs as long as neither account exceeds a contribution of $2,000. If both spouses were employed, they could each contribute up to $2,000 for a combined total of $4,000.

Spread: 1) The difference between a security’s bid and asked price. 2) The difference between a new issue’s public offering price and the proceeds received by the issuer–commonly know as the “underlying spread.”

Spread Option: The simultaneous purchase and sale of options of the same type and of the same class. For example, an investor may purchase an XYZ September 50 call and sell an XYZ September 40 call.

Spread Position: The existence of a spread option in an account, i.e. a long and short position in options of the same class and type.

Squeeze: A situation that occurs when the price of a security increases dramatically, thus pressuring short sellers to cover their short positions in order to avoid greater losses. The covering of short positions serves to raise the price of the security even more, thus increasing the losses of short sellers who have still not covered their short positions.

SRO (Self Regulatory Organization): An entity, such as the NASD, responsible for regulating its members through the adoption and enforcement of rules and regulations governing the business conduct of its members.

Standard & Poor’s Corporation (S & P): A provider of a wide variety of investment-related services including rating bonds, stocks, and commercial paper; publishing statistical information and reports; and compiling indexes, including the Standard & Poor’s Index of 500 Stocks.

Standard & Poor’s 500 Index: A composite index that tracks 500 industrial, transportation, public utility, and financial stocks. The selection of stocks included in the index is determined by Standard & Poor’s Corporation, which also publishes the index.

Statute of Limitations: Any law which establishes the time within which a criminal charge or civil action may be pursued. For example, the Code of Arbitration states that no claim shall be eligible for submission to arbitration where six years have elapsed from the occurrence or event giving rise to the controversy.

Statutory: That which is fixed by statutes, as opposed to Common Law.

Statutory Voting: A method of voting whereby a shareholder receives one vote for each share and may cast his votes for each of the directorships. A shareholder, for example, who owns 1000 shares of a corporation that is electing three directors, can cast 1000 votes for each of the three candidates.

Stiftung: A Liechtenstein form of private foundation.

Stock: Ownership of a corporation as evidenced by shares which are a claim on the corporation’s earnings and assets.

Stock Ahead: A condition that occurs when an order is not executed because there are other orders awaiting execution, which were entered earlier, at the same price. If two orders are entered for the same price at the same time, the order for the larger number of shares takes precedence.

Stock Buyback: A corporation’s purchase of its own shares, usually to discourage a takeover attempt.

Stock Certificate: A document evidencing ownership in a corporation.

Stock Dividend: A dividend that is paid in securities, rather than cash. The additional shares may be of the issuing company, or of a subsidiary.

Stock Exchange: An organized marketplace where members gather to trade securities. Members may act either as agents for customers, or as principals for their own accounts.

Stockholder: An individual who owns one or more shares of a corporation’s stock, whether common or preferred stock. Stockholders may earn dividends and stockholders who have common stock have voting rights with regard to matters that affect the corporation.

Stockholder Of Record: A stockholder whose name is registered on the books of the issuing corporation as owning the shares as of a particular date. Dividends and other distributions are made to stockholders of record.

Stockholders’ Equity: The total equity ownership of a corporation by its shareholders, consisting of preferred stock, common stock, retained earnings, and capital surplus. It is the difference between a company’s total assets and total liabilities.

Stock Power: A form used in the transfer of registered securities from one owner to another. A stock power replicates the assignment form on the back of the stock certificate, but it is separated from the certificate. Hence, a stock power is sometimes called an “assignment separate from certificate”. Although both achieve the same goal, a stock power has a safety advantage in being separate.

Stock Split: Partitioning the outstanding shares of a corporation into a larger number of shares, without affecting shareholders’ equity or the total market value at the time of the split. For instance, if a stock valued at $100 splits 2-for-1, an investor who owns 100 shares would now own 200 shares valued at $50. Splits usually must be voted on by directors and approved by shareholders.

Stock Symbols: A unique code, using all letters, given to all securities trading on the NYSE, AMEX or NASDAQ. The symbols identify the corporation and facilitates trading and ticker reporting.
Stop Limit Order: A combination of a stop order and limit order–that is, the order becomes a limit order after the specified stop price has been reached.

Stop Order: An order that becomes a market order when a round lot in an NYSE or AMEX listed security trades at or through a specified price (stop price) or when the national best bid in a NASDAQ listed security reaches the specified price. A stop order is usually used to protect paper profits or limit the extent of possible losses.

Stopped Stock: A term used by a specialist who guarantees that a public order to buy or sell will be executed at the best bid or offer price in his book, unless it can be executed at a better price within a certain time period. This allows brokers to possibly obtain a better price for their clients without the fear of missing the market (if buying–the security rises, if selling–the security drops). For example, a broker with a market order to buy is stopped at 22 by a specialist. This means that the broker will not pay more than 22 for the stock, but may be able to buy at a better price.

Street: Slang for “Wall Street”. It is used to refer to the investing community as a whole.

Street Name: Said of securities held in the name of the broker-dealer rather than in the name of the client. The client remains the beneficial owner. All dividends that would otherwise be mailed directly from the company to the stockholder are credited to the client’s account or forwarded as the client directs. Corporate reports and proxy statements are forwarded to the customer. This arrangement allows shares to be transferred easily. If the stock were registered in the customer’s name rather than the broker’s name, physical certificates would need to be transferred.

Strike Price: The predetermined exercise price of a put or call option–also called “striking price”.

Structuring: Conducting financial transactions in a manner calculated to evade reporting requirements.

Subject: Term used by a dealer giving bids and/or offers that must be reviewed before a final decision to buy or sell can be made.

Subscription Right: A certificate that evidences a shareholder’s privilege to buy additional shares of new securities in proportion to the number of shares already owned. A company, when raising more funds by issuing new securities, may issue rights to its shareholders to give them the chance to buy additional shares before the general public. Because rights usually allow the stockholder to buy below the current market price, they ordinarily have a value of their own and are actively traded. Most rights are valid for a relatively short period. Failure to exercise or sell rights may result in monetary loss.

Subscription Warrant: A certificate that gives a shareholder the right to purchase a security at a specified price within a predetermined time period or perpetually. At the issuance of the warrant, the specified price is usually higher than its current market value. Corporations issue warrants directly and they are sometimes offered along with a security as incentive to buy. Warrants are transferable and are traded on major stock exchanges. The abbreviation “WT” is used in newspaper stock listings.

Suitability: Like “Churning,” the issue of suitability is a common basis for an arbitration award and it is something that any investigator handling cases involving securities issues must understand. A suitability violation occurs when and investment made by a broker is inconsistent with the investor’s objectives, and the broker knows or should know the investment is inappropriate.
For example, Thelma Lou is a sixty-eight year old widow, and retired school teacher, who has $350,000 she received following the death of her husband which represents her total net worth. Joe Broker invests this money in volatile derivatives and loses most of it. Although there was no fraud, and Thelma Lou approved every trade, a risky investment of this nature is wholly unsuitable and Thelma Lou would almost undoubtedly recover her losses in arbitration.

Support Level: The lower level of a security’s trading range where buying pressure tends to bid up the price of the security. That is, its price stops falling because there is more demand for the security than there is supply. If, however, the security’s price falls below its support level, analysts consider this to be very bearish.

Suspended Trading: A halt in the trading of a particular security that is usually temporary. This may occur because of an imbalance of buy and sell orders, or because of a significant news announcement.
Sweetener: A feature, such as being convertible or having a right or warrant attached, that is added to security offerings to make it more attractive to investors.

Switching: In mutual funds, the movement of assets from one fund to another. This is usually done within a family of funds, but can be done between different fund families. Within a no load family, there usually is no charge or a nominal transaction fee. This is also usually true for a load family as long as the fund being switched into has the same sales charge (or less) as the one that the investor already owns. When switching to a mutual fund that belongs to a different family of funds, if the new fund is a no load–there is no charge, and if the new fund is a load fund–it is sales charge of the new fund. An investor will switch mutual funds when their investment objectives change or because of market conditions.

Systematic Risk: Risk that is common to all securities of the same class (stocks, bonds, options)–also known as “market risk”. This risk cannot be eliminated by diversifying one’s portfolio.

Take A Bath: Said of an investor who sustains a large loss on an investment or speculation.

Take A Flier: The process of buying securities with the full knowledge that the investment is highly risky. The investor is said to be speculating.

Take A Position: 1) Term used when a broker-dealer has a security that is held in inventory. The position may be either long or short. 2) Said of investors who buy securities with the intention of holding them for the long term or using them to take control of the company.

Takeover: A change in a corporation’s controlling interest through either a friendly acquisition or a hostile bid. Hostile takeovers aim to replace the target company’s existing management and are usually attempted through a public tender offer. Other takeover methods are unsolicited merger proposals to directors, accumulation of shares in the open market, or proxy fights.

Taking Delivery: Procedure whereby the buyer’s broker accepts receipt of security certificates from the seller’s broker.

Tape: Commonly called a “ticker tape”, it is a service that reports the prices and size of transactions that took place on major exchanges. The term also refers to the Dow Jones news wire, however, this is more commonly known as the “Broad Tape”.

Target Company: A firm that has been deemed as attractive for takeover by a potential acquirer.

Tax Deferred: Phrase used to describe investments whose accumulated earnings are not taxed until the investor takes possession of them. In IRAs, for example, all dividends, interest and appreciation accumulate until the account owner starts withdrawing funds from the account, usually at age 59 1/2.

Tax Exempt Money Market Fund: A mutual fund that invests in short term municipal securities that are tax-exempt. The fund distributes the income tax-free to shareholders.

Tax Exempt Security: A debt obligation whose interest is exempt from federal, state and/or local taxes–commonly called a “municipal bond” or just “municipals”. All tax-exempt bonds are federally exempt as well as in the state and, if applicable, local jurisdiction in which the securities are issued.

Tax Haven: An international banking and financial center providing privacy and tax benefits.

Tax Regimen: The local tax treatment of income tax, foreign source income, nonresident treatment and special tax concessions which, when combined, form complex issues.

Tax Selling: Securities sold to realize a loss that can be used to offset any capital gains. This is usually done at the end of the year.

T-Bill (Treasury Bill): A short-term debt obligation of the US Government that is purchased at a discount from face value–that is, they are bought at a discounted price and mature at face value. The amount of the discount is considered the interest. They are sold in denominations of $10,000 to $1 million and have maturities of either 13 weeks, 26 weeks or 52 weeks. T-bills are a common abbreviation for “Treasury bills”.

T-Bond (Treasury Bond): A long term debt obligation of the US government that has a maturity of more than 10 years. They are issued in $1,000 denominations and pay interest semiannually. T-bonds are a common abbreviation for “Treasury bonds”.

TCI: Turks and Caicos Islands.

TD (Time Deposit): Certificate of deposits or savings accounts that are held in a financial institution for a set amount of time. The funds cannot be withdrawn until the depositor gives the institution notice. Technically, certificates of deposit do not require any notification to withdraw as the date is set beforehand.
Tear Sheet: A sheet (report) from Standard & Poor’s Stock Reports. The reports provide information on over 4000 corporations. Each report details a corporation’s financial data and provides data on the company’s fundamental business and its future outlook. These reports are often torn out of the books by brokers and mailed to their clients–hence, the origination of the term.

Technical Analysis: Research and examination of the market and securities as it relates to their supply and demand in the marketplace. The technician uses charts and computer programs to identify and project price trends. The analysis includes studying price movements and trading volumes to determine patterns such as Head and Shoulder Formations and W Formations. Other indicators include support and resistance levels, and moving averages. In contrast to fundamental analysis, technical analysis does not consider a corporation’s financial data.

Technical Analyst: A person who examines all data available on the overall market and individual stocks to ascertain their supply and demand in the marketplace.

Technical Rally: A brief rise in securities’ prices within a general market descent. These rallies usually occur when analysts observe a support level at which securities will rebound or bargain hunters perceive the securities to be good buy. Once the market has rebounded, it normally resumes its decline.

Technical Sign: A short term trend that a technician ascertains as being significant in a security’s price movement.

Tender: 1) Act of surrendering ownership in a corporation’s securities in response to an offer to buy them at a set price as in a tender offer. 2) The submittal of a bid to buy a security such as in a US Treasury bill auction.

Tender Offer: An offer to buy shares from the target company’s stockholders by another company or organization. The offer may be for cash, securities or both. Often, the goal is to take control of the target company. The suitor may be hostile or friendly. During a specified time period, shareholders are asked to tender (surrender) their shares for a stated value, usually at a premium, subject to the tendering of a minimum and maximum number of shares.

Testamentary Trust: A trust that is established within a person’s will. This differs from an Inter Vivos Trust that is created during the grantor’s lifetime.

Thin Market: Market on a security that has too few bids and too few offers to sell. Large trades can have a marked affect on a security’s prices, making the security much more volatile. Institutional investors usually avoid buying stocks that have a thin market for this reason–that is, it is hard for them to get in or out of a position without substantially affecting the security’s price.

Third Market: Over-the-counter trading of exchange-listed securities among institutional investors and broker/dealers for their own accounts (not as agents for buyers and sellers). Stock exchange members or non-members may trade large blocks of stock off the floor to avoid the transaction’s unsettling effect on the market, or avoid paying a commission on the sale.

Thirty Day Wash Rule: IRS rule stipulating that losses incurred from selling securities may not be used to offset gains if an equivalent security is bought within thirty days before or after the date of sale.

Tick: The downward or upward price movement in a security’s transactions.

Ticker Symbol: Letters used in trading to identify a corporation’s securities on the ticker tape.

Ticker Tape: Telegraphic system that displays security transactions within a minute after it occurred. Commonly called the “tape”, it provides the trade’s last sale price and volume.

Tight Market: Market for a security, or the overall market, that is characterized by very active trading and narrow bid and asked price spreads.

Tight Money: Tight credit–that is, an economic condition in which there is little money available for loans.

Time Deposit (TD): Certificate of deposits or savings accounts that are held in a financial institution for a set amount of time. The funds cannot be withdrawn until the depositor gives the institution notice. Technically, certificates of deposit do not require any notification to withdraw since the date is set beforehand.

Time Value: The amount of an option premium that exceeds the intrinsic value of an in-the-money option. A call option with a strike price of 30, for example, has a premium of 3. If the underlying stock is at 32, the call has an intrinsic value of 2, and the time value is 1. The premium for an option that is at- or out-of-the-money is all time value.

T-Note (Treasury Note): A intermediate term debt obligation of the US government that has maturities of one to ten years. They are issued in $1,000 denominations and pay interest semiannually. T-notes are a common abbreviation for “Treasury notes.

Topping Out: A market or security that has reached a point where its price is no longer rising. It is expected to plateau or decline.

Total Return: An investment’s annual return based on appreciation and dividends or interest.

Trade: The completion of an order to buy or sell securities–that is, an order is executed.

Trade Date: The day on which a securities order to buy or sell is executed.

Trader: An investor who buys and sells securities to take advantage of small price changes within a short time period–sometimes days or hours. A trader may also be an employee of a broker-dealer or financial institution who buys and sells securities for their firm’s accounts or for the firm’s clients.

Trading Authorization: Written document that permits a third party to do transactions on the behalf of the account owners. The document must be signed by all account owners. In brokerage, a full trading authorization allows the third party to place security orders and remove assets from the account. A limited authorization just allows buying and selling of securities–assets cannot be removed from the account.

Trading Floor: The area of an exchange where securities are bought and sold.

Trading Halt: A security that has temporarily stopped trading because of a major news announcement or an imbalance of orders to buy and sell.

Trading Range: A security’s highest and lowest price in which it has traded over a specified time. Technical analysts watch trading ranges carefully as they believe It is of great importance when a security breaks out of its trading range–high or low end.

Trading Unit: Number of shares, bonds, or commodities that is considered the normal unit of trading on an exchange. For stocks, it is usually a round lot (100 shares). For corporate bonds, it is usually $1,000 or $5,000 par value. Commodities do not have a set unit–it varies depending upon the actual commodity.

Tranche: One of a related series of security issues—each with different cash flows, strike prices, expiration dates, and/or return patterns—created to meet differing investor or issuer requirements or to carve up the returns from a set of underlying cash flows in a marketable way. Mortgage-backed securities, equity-linked notes, and range warrants are often created in tranches.

Transaction: An order to buy or sell securities that has been executed.

Transfer: 1) Process whereby a seller’s broker delivers the certificates to the buyer’s broker to effect a legal change of ownership. 2) To record the change of ownership on a corporation’s books by its transfer agent. The buyer’s name is recorded and all dividends, financial reports, proxies, and other literature are mailed directly to the new owner.

Transfer Agent: Appointed by a corporation, an agent keeps records on registered shareholders, cancels sold certificates, issues new certificates to new owners, and resolves any problems arising from lost, stolen or damaged certificates.

Transfer And Hold: A designation made to a client’s account to denote that securities are to be registered in the client’s name and are to be kept for the client in the brokerage firm’s vault. When the security is sold, the client will need to sign a stock/bond power allowing transferal to the new owner.

Transfer And Ship: A designation made to a client’s account to denote that securities are to be registered in the client’s name. The certificates are then mailed directly to the client at the address on record. This process normally takes two to six weeks. Upon receiving the certificate, the client must find a safe location to keep the certificates. If they are lost, stolen or damaged, it is the shareholder’s responsibility to have the certificates replaced, which is a labor intensive process.

Transmogrifying: Conversion of nonexempt assets to exempt assets.

Treasuries: Negotiable debt obligations backed by the full faith and credit of the US government. The obligation’s maturity date determines whether it is a Treasury bill, Treasury bond or Treasury Note. All income generated from Treasuries are exempt from state and local taxes, but not federal.

Treasury Bill (T-Bill): A short term debt obligation of the US government that is purchased at a discount from face value–that is, they are bought at a discounted price and mature at face value. The amount of the discount is considered the interest. They are sold in denominations of $10,000 to $1 million and have maturities of either 13 weeks, 26 weeks or 52 weeks. Treasury bills are commonly abbreviated as “T-bills”.

Treasury Bond (T-Bond): A long term debt obligation of the US government that has a maturity of more than 10 years. They are issued in $1,000 denominations and pay interest semiannually. Treasury bonds are commonly abbreviated as “T-bonds”.

Treasury Note (T-Note): A intermediate term debt obligation of the US government that has a maturity from one to ten years. They are issued in $1,000 denominations and pay interest semiannually. Treasury notes are commonly abbreviated as “T-notes”.

Treasury Stock: Issued stock that has been re-acquired by the corporation from the stockholders–it is not outstanding. The stock is not eligible to receive dividends or to vote. These shares may be held by the company indefinitely, reissued to the public or retired. Among other reasons, treasury stock may be created to counter a tender offer and to provide shares for the exercise of stock options, warrants and convertible securities.

Trend: The direction in which price and trading volume are moving over a short or long term basis. The movement may either be up, down or sideways. Technical analysts study market and security trends to forecast future movements.

Trendline: A chart used by technical analysts. A line is drawn by connecting the highest or lowest prices to which a security has risen or fallen within a period. The line’s angle shows whether the security is in a downtrend or an uptrend. If the security’s price rises above a downward sloping line or drops below a rising uptrend line, analysts believe the security will start to move in a new direction.

Trin: A measure of stock market strength that relates the number of stocks that advanced or declined to the total number of shares that advanced or declined. A trin under 1.00 is bullish and a trin over 1.00 is bearish.

Triple Tax Exempt: Municipal bonds in which interest is free from federal, state, or local taxes for residents of the states and localities that issue them. If the bondholder is not a resident of the state, the interest is only exempt from federal taxes. Typically, bonds issued by US territories are triple tax exempt.

Triple Witching Hour: The last trading hour on the third Friday on which stock options, stock index options, and stock index futures all expire simultaneously. This occurs in the months of March, June, September and December. There may be a large amount of trading as traders and investors attempt to close their positions in the option and/or the underlying stock. This may create a volatile market.

True Settlor: The true grantor is not the true settlor, and his or her identity is kept quite private by the trustee. See grantor trust.

Trust: An entity created for the purpose of protecting and conserving assets for the benefit of a third party, the beneficiary. A contract affecting three parties, the settlor, the trustee and the beneficiary. A trust protector is optional but recommended, as well. In the trust, the settlor transfers asset ownership to the trustee on behalf of the beneficiaries.

Trust Deed: An asset protection trust document or instrument.

Trust Indenture: A trust instrument such as a trust deed creating an offshore trust.

Trust Protector: A person appointed by the settlor to oversee the trust on behalf of the beneficiaries. In many jurisdictions, local trust laws define the concept of the trust protector. Has veto power over the trustee with respect to discretionary matters but no say with respect to issues unequivocally covered in the trust deed. Trust decisions are the trustee’s alone. Has the power to remove the trustee and appoint trustees. Consults with the settlor, but the final decisions must be the protector’s.

Trustee: A person totally independent of the settlor who has the fiduciary responsibility to the beneficiaries to manage the assets of the trust as a reasonable prudent business person would do in the same circumstances. Shall defer to the trust protector when required in the best interest of the trust. The trustee reporting requirements shall be defined at the onset and should include how often, to whom, how to respond to instructions or inquiries, global investment strategies, fees (flat and/or percentage of the valuation of the trust estate), anticipated future increases in fees, hourly rates for consulting services, seminars and client educational materials, etc. The trustee may have full discretionary powers of distributions to beneficiaries.
12B-1 Fees: A fee that is levied by a mutual fund–usually on a yearly basis and is usually about 1% or less of a fund’s assets. The monies collected are usually used to pay broker-dealers for servicing accounts. A mutual fund that charges a 12B-1 fee must disclose this in writing. Mutual funds that assess 12B-1 fees generally are no-load funds.

Two Dollar Broker: A floor broker who executes orders for other brokers–hence, sometimes called a “broker’s broker”.

UGMA (Uniform Gift To Minors Act): Law adopted by most US states, with few changes, that sets up rules for the distribution and administration of assets in the name of a child. The Act requires a custodian of the assets–usually one parent but may be an independent trustee. (It can only be one person.) It is used in the securities industry as a qualifier to indicate accounts and securities purchased or sold under the provisions of the Act. A gift to a minor is irrevocable. When a minor reaches majority, UGMA accounts become the child’s property.

UIT (Unit Investment Trust): A trust, registered with the SEC under the Investment Company Act of 1940, in which a fixed portfolio of income-producing securities are purchased and held to maturity. This type of investment vehicle is commonly used with municipal bonds. Each unit usually costs $1,000 and is sold by brokers to investors for an average load of 4% which is included in the per share price. Investors receive an undivided interest of the portfolio’s principal and income proportionate to the amount they invested. All unit investment trusts are redeemable securities and can be resold in the secondary market.

Ultra Vires Activities: Corporate activities that are not sanctioned by its charter and thus may lead to shareholder or third-party law suits.

Unamortized Bond Discount: Difference between a bond’s face value and the proceeds received from the bond’s sale, less the amount written off to expense as reported on the profit and loss statement–that is, amortized. The amount still to be expensed at any point is the unamortized bond discount. At the time of the bond’s issuance, the corporation has two choices. It can immediately include the discounted amount plus costs associated with the bond’s issuance–such as legal and registration costs. Or, the corporation may treat the total discount and expenses as a deferred charge. It will be reported as an asset and will be written off over the bond’s life or by any other schedule the corporation finds expedient.

Unauthorized Transactions: Trades a broker makes in an account without permission or authorization. Note that if the value of a margin account falls below the firm’s requirements, the broker may be able to sell securities, even without notice, to collect the money borrowed.

Uncollected Funds: Bank deposit consisting of checks that have not yet been affirmed by the bank on which a check was drawn.

Uncovered Call Option: An uncovered call writer must deposit and maintain sufficient margin with his broker to assure that the stock can be purchased for delivery if and when he is assigned. The potential loss of uncovered call writing is unlimited. However, writing uncovered calls can be profitable during periods of declining or generally stable stock prices, but investors considering this strategy should recognize the significant risks involved.

Uncovered Option: Industry lingo for call or put options that are written and not covered or have another position that will limit their liability.

Uncovered Put Option: A put writer is considered to be uncovered if he does not have a corresponding short stock position or has not deposited cash equal to the exercise value of the put. Like uncovered call writing, uncovered put writing has limited rewards (the premium received) and potentially substantial risk (if prices fall and you are assigned) If the stock price declines below the strike price of the put and the put is exercised; you will be obligated to buy the stock at the strike price. Your cost will, of course, be offset at least partially by the premium you received for writing the option.

Underbanked: Term used when the initiating investment banker has trouble recruiting other firms to become underwriting group members for a new issue underwriting.
Underbooked: Period when brokers report proposed buyers limited indications of interest for a new issue of securities. It occurs during the preoffering registration period. The term “fully circled” is the opposite of underbooked.

Undercapitalization: Condition, caused by lack of capital, whereby a business cannot conduct its normal business.

Underlying Debt: Municipal bond lingo pertaining to debt of a government entity that exists within the jurisdiction of a larger government entity. The larger entity has partial responsibility for the debt. A city, for instance, is within the jurisdiction of its state. The state may share responsibility for the city’s debt. From the state’s standpoint, the debt of the city is underlying debt. The term underlying debt should not be confused with overlapping debt, which is underlying debt whereby the debt exists within equally ranked entities.

Underlying Security: In options, the security that needs to be delivered when call options or put options are exercised. When stock index options and stock index futures are exercised they are settled in cash because it is impossible to deliver stock indexes. In securities, common stock that other securities issued by the same corporation are based upon. This stock has to be delivered when convertible bonds or preferred stocks are converted into common shares, incentive stock options are exercised and when warrants or rights are exercised.

Undermargined Account: A brokerage customer’s margin account that has dropped below margin requirements or minimum maintenance requirements. The customer will receive a margin call from the broker. The call will be for at least the amount that will bring the account up to minimum maintenance requirements.

Undervalued: A security that is selling beneath its liquidation value or when analysts believe its price is below what it merits. Amongst other reasons, a stock may be undervalued because the corporation has an inconsistent earnings’ history or because the corporation is not well known. Fundamental analysts try to identify undervalued corporate stocks to invest in before they become fully valued. Undervalued companies are often takeover targets because acquiring companies can buy the assets inexpensively.

Underwrite: A process whereby investment bankers (underwriters) buy a new issue of securities from the issuing corporation or government entity and resell them to the public. The underwriter makes a profit from the underwriting spread–the difference between the price paid to the issuer and the public offering price. Underwriters usually form an underwriting group–also called “purchase group” or a “syndicate” to limit risk, assure successful distribution of the issue, and to obtain capital to buy the issue. The syndicate works under an underwriting agreement–referred to as a syndicate contract or a purchase group contract.
The lead underwriter, also known as “managing underwriter”, “syndicate manager”, is usually the originating investment banker–the firm that worked with the issuer to plan the issue and prepare the registration materials to be filed with the SEC. The manager, as agent for the group, signs the underwriting agreement with the issuer. The agreement sets forth the conditions of the arrangement and the responsibilities of both parties. The manager may select a selling group, consisting of the underwriters and dealers, to aid in distribution of the issue.

Customarily, “underwrite” is properly used only in a firm commitment underwriting where the securities are purchased outright from the issuer. Other investment banking arrangements to which the term is applied are Best Effort, All Or None, and Standby Commitments; in each of these, the risks are shared between the issuer and the investment banker.

There are two basic methods by which underwriters are chosen by issuers and underwriting spreads are determined: Negotiated Underwriting and Competitive Bid underwriting. Generally, the negotiated method is used in corporate equity issues and corporate debt issues. The competitive bidding method is used by municipalities and public utilities.

Underwriter: In regard to securities, investment bankers who handle the offering of a new issue of securities. They buy all the securities from the issuer and distribute them to investors. They make a profit on the underwriting spread. The investment banker may be acting alone or as a member of an underwriting group or syndicate. As the word relates to insurance, a company that takes on the cost risk of death, fire, theft, illness, etc., in exchange for payments, called premiums.

Underwriting Agreement: An agreement established between the managing underwriter, as agent for the underwriting group, and the corporation issuing new securities–also termed the “purchase agreement” or “purchase contract”. It sets the conditions of the arrangement and the responsibilities of both parties. Details include: the underwriter’s promise to purchase the issue; the issue’s public offering price; the underwriting spread; the settlement date and; the issuer’s net proceeds.

Underwriting Group: Group of investment bankers formed by the originating investment banker in a new issue of securities. The group operates under an agreement among underwriters. It agrees to purchase securities from the issuing corporation at the agreed upon price and to resell them at the stated public offering price–the difference being the underwriting spread. The purpose of the underwriting group is to limit risk and assure successful distribution of the issue. Most underwriting groups operate under a “divided syndicate” contract, meaning that a member’s liability is limited to their participation.

Underwriting Spread: Difference between the amount paid to an issuer in a primary distribution and the public offering price. The spread amount varies and is contingent on the issue’s size, the issuer’s financial strength, the type of security (stock, bonds, etc.), the status of the security (senior, junior, etc.), and the type of commitment made by the underwriters. The spread may range from a fraction of 1% for a bond issue to 25% for an initial public offering of a small company. The spread is divided between the managing underwriter, the selling group, and the participating underwriters.

Undigested Securities: Newly issued securities that remain unsold because there is not enough public demand at the issue’s offering price.

Undivided Account: A form of a new issue syndicate, also known as an Eastern Account, where a member is liable for any unsold securities equal to the percentage of its participation. This is regardless of the amount the member has sold (even if the amount sold is greater than their percentage of participation).

Unencumbered: Property free and clear of all creditors’ claims. Securities, for example, bought with cash instead of on margin are unencumbered.

Unfunded Pension Liabilities: A retirement fund in which money is owed to it by an employer.

Uniform Gift To Minors Act (UGMA): Law adopted by most US states, with few changes, that sets up rules for the distribution and administration of assets in the name of a child. The Act requires a custodian of the assets–usually one parent but may be an independent trustee. (It can only be one person.) It is used in the securities industry as a qualifier to indicate accounts and securities purchased or sold under the provisions of the Act. A gift to a minor is irrevocable. When a minor reaches majority, UGMA accounts become the child’s property.

Uniform Partnership Act (UPA): One of the uniform type of laws adopted by some states or used as a baseline for other states.

Uniform Practice Code (UPC): Rules and procedures established by the National Association of Securities Dealers (NASD) to regulate operational details of executing, clearing, and settling over the counter transactions in non-exempt securities. Also, within the 13 districts of the NASD, the Uniform Practice Committees settle disputes at the local level and interpret the Uniform Practice Code.

Uniform Securities Agent State Law Examination: Test that is taken by all registered representative candidates in many US states–also known as “Blue Sky Examination”. Before taking this exam, all registered representatives must pass the General Securities Representative Examination (Series 7).

Unissued Stock: Shares of stock that are authorized in the corporate charter but not yet issued. Unissued shares are issued on the direction of the corporation’s board of directors. However, shares needed for rights, warrants, convertible securities and unexercised employee stock options must be reserved and cannot be issued. Unissued shares cannot pay dividends nor can it be voted. These shares are not the same as treasury stocks, which are issued shares but no longer outstanding.

Unit: 1) Number of shares, bonds, or commodities that is considered the normal unit of trading on an exchange. 2) More than one class of securities traded together as one security. A corporation, for example, might issue a security that consists of one common share and one warrant that sells as a unit.

Unit Investment Trust (UIT): A trust, registered with the SEC under the Investment Company Act of 1940, in which a fixed portfolio of income-producing securities are purchased and held to maturity. This type of investment vehicle is commonly used with municipal bonds. Each unit usually costs $1,000 and is sold by brokers to investors for an average load of 4%. Investors receive an undivided interest of the portfolio’s principal and income proportionate to the amount they invested. All unit investment trusts are redeemable securities and can be resold in the secondary market.

Unit of Trading: Number of shares, bonds, or commodities that is considered the normal unit of trading on an exchange. For stocks, it is usually a round lot (100 shares). For corporate bonds, it is usually $1,000 or $5,0000 par value. Commodities do not have a set unit–it varies depending upon the actual commodity.

Unit Share Investment Trust (USIT): A unit investment trust that includes one unit of prime and one unit of score.

Universal Life Insurance: Type of life insurance that combines the low cost coverage of term life insurance with a tax-deferred savings account that invests in money-markets. Without incurring additional sales charges, this type of policy allows the holder to increase or decrease coverage or to shift a specific amount of premiums into the savings account.

Unleveraged Program: Limited partnership who borrows 50% or less of the purchase price to finance the purchase of property. Investors who wish to maximize income usually prefer unleveraged partnerships because interest expense and other income deductions are minimal.

Unlimited Tax Bond: Municipal bond backed by the pledge to levy taxes until the bond is repaid.

Unlisted Stock: A security not listed on a stock exchange and is traded in the over the counter market.

Unlisted Trading: Trading securities on a particular exchange as a service to its members even though the security is not listed on that exchange. Exchanges that want to trade unlisted securities must file an application with the SEC and make required information accessible to investors. The NYSE does not permit unlisted trading.

Unloading: Selling a security when its price is falling to prevent further losses.

Unpaid Dividend: Dividend declared by a corporation’s board of directors that has not been paid yet. It will remain unpaid until the dividend’s payment date is reached.

Unrealized Profit (Or Loss): Profit or loss that is not realized–also known as a “paper profit or loss”. It does not become a realized profit or loss until the security in which there is a gain or loss is actually sold.

Unsecured Debt: Debt that is not backed by pledged collateral.

UPC (Uniform Practice Code): Rules and procedures established by the National Association of Securities Dealers (NASD) to regulate operational details of executing, clearing, and settling over the counter transactions in non-exempt securities. Also, within the 13 districts of the NASD, the Uniform Practice Committees settle disputes at the local level and interpret the Uniform Practice Code.

Upset Price: Minimum price in an auction that a seller will accept bids.

Upside Potential: The amount that an analyst or an investor expects a security to move upward. This assessment may be derived from either technical analysis or fundamental analysis.

Upstairs Market: Brokerage transactions executed at the broker-dealer firm without using an exchange. SEC and exchange rules exist to ensure that these types of trades are not executed at less favorable prices then the customer could receive in the prevailing general market.

Uptick: Security transaction executed at a price higher than the preceding transaction in the same security–also called a “plus tick”. For each security in which its last price is higher than the preceding transaction, a plus sign is displayed next to its price at the trading post on the floor of the NYSE. Short sales can only be executed on up-ticks or zero plus ticks.

Uptick Rule: Rule established by the Securities and Exchange Commission (SEC) that selling short can only be done on an up-tick or a zero plus tick.

Up-Trend: An upward movement of a specific security or the market as a whole.

US Government Securities: Government obligations owed and issued by the US government. They are as distinguished from government sponsored agency issues. Examples are Treasury bills, notes, and bonds and savings bonds.

USIT (Unit Share Investment Trust): A unit investment trust that includes one unit of prime and one unit of score.

Utility Revenue Bond: Municipal bonds that are issued to finance construction of public utility services such as water and sewer systems. Once the projects are in operation, its revenues are used to repay the bonds.

UW (Underwriter): In regard to securities, investment bankers who handle the offering of a new issue of securities. They buy all the securities from the issuer and distribute them to investors. They make a profit on the underwriting spread. The investment banker may be acting alone or as a member of an underwriting group or syndicate. As the word relates to insurance, a company that takes on the cost risk of death, fire, theft, illness, etc., in exchange for payments, called premiums.

Value Line Equity Rating Criteria: Using a computerized model based on a corporation’s earnings growth potential, Value Line’s Equity Rating Criteria ranks corporations for both timeliness and safety as follows:

1. Highest rank
2. Above average rank
3. Average rank
4. Below average rank
5. Lowest rank.

Value Line Investment Survey (VL): An investment advisory service that ranks hundreds of securities for safety and timeliness. It projects which securities should have the best or worst price performance over the next year. Moreover, each corporation is assigned a risk rating. The ratings identify the volatility of a corporation’s stock price behavior compared to the market average. Subscribers to the service receive weekly write-ups detailing corporations’ financial information, and data such as corporate insider buying and selling decisions and the percentage of a corporation’s shares held by institutions.

Variable Annuity: A life insurance annuity contract whose value fluctuates with that of its underlying securities portfolio. Through security investments, the objective is to preserve the annuity’s value that is otherwise subject to inflationary erosion. The return to investors, usually at retirement, may be periodic payments that change with the market value of the portfolio or fixed minimum payments based on portfolio appreciation.

Variable Life Insurance: A variation of whole life insurance created to fight inflation and to remain competitive with other investment vehicles that provide higher rates of return. It affords policyholders a chance to earn capital gains on their insurance by investing the cash value of the policy in stock, bond, or money market portfolios. The policyholder sustains the investment risk and the insurance company guarantees a minimum death benefit that is not affected by any portfolio losses. As in IRAs, earnings from variable life policies grow tax deferred until distributed. Income is taxed only for the amount that exceeds the total premiums paid into the policy.

Variable Rate Demand Note: Note representing borrowings that are payable on demand. Its interest is tied to a money market rate (e.g., the bank prime rate). The note’s rate is adjusted downward or upward every time the base rate changes.

VD (Volume Deleted): Note appearing on the consolidated tape indicating that for transactions of less than 5000 shares only the stock symbol and the trading price will be displayed. This usually occurs when the tape is running behind because of heavy trading.

Velocity of Money: The amount of times a dollar is spent in a specific time period. Velocity affects economic activity produced by a given money supply, which includes bank deposits and cash in circulation. The Federal Reserve Board considers the velocity of money as a factor in their management of monetary policy. This is because a rise in velocity may preclude the need to stimulate an increase in the money supply. Conversely, a decline in velocity may slow down economic growth.

Venture Capital: Source of financing for start-up companies and new or turnaround ventures that involve investment risk but offer the prospect for above average future profits–also called “risk capital”. Venture capital financing supplements other funds that an entrepreneur is able to tap (or takes the place of loans that conventional financial institutions are unwilling to risk). Venture capital sources include wealthy individual investors, subsidiaries of banks, small business investment companies (SBICs), groups of investment banks and venture capital limited partnerships. In return for taking an investment risk, venture capitalists are commonly rewarded with either profits, royalties, preferred stock, capital appreciation of shares or any combination thereof.

Venture Capital Limited Partnership: Investment vehicle set up by a brokerage firm or entrepreneurial company to raise capital for start-up businesses or those in the early stages of development. In return for taking an investment risk, the partnership usually takes shares of stock in the company. Venture capital limited partners receive income from profits the company earns, regardless of what services or products are sold.

Versus Purchase (VSP): Method of identifying specific shares of securities to be sold for tax purposes–also called vs. purchase. If versus purchase is not specifically stated, the IRS deems the securities sold are on a first-in first-out (FIFO) basis.

Vertical Line Charts: A type of technical charting that displays on one vertical line the low and high prices of a security or market and a short horizontal mark that denotes the closing price. Each vertical line represents one day. The chart shows the trend of a security or a market over a period of days, weeks, months, or years. Technical analysts determine from these charts whether a security or a market is frequently closing at the low or high end of its trading range during a day. This information is useful in discerning whether the security or a market is weak or strong, and thus, if prices will decline or advance in the near future.

Vertical Spread: Strategy where an investor concurrently buys and sells options on the same underlying security–also called a price spread. Both options have identical expiration dates but different strike prices. For instance, a vertical spread is created by buying an XYZ April 20 call and selling an XYZ April 25 call. This strategy is used in hopes of profiting as the difference between the option premium on the two option positions widens or narrows.

Vesting: The process by which an employee becomes entitled to receive employer-contributed benefits in a qualified retirement plan. The Tax Reform Act of 1986 stipulates that employees must be vested 100% after five years of employment or at 20% a year in the third year and 100% vested after seven years.

Vetting: It is the process used by the offshore consultant for qualifying the prospective client to determine if he or she is a good candidate for offshore asset protection; as in to “vet” the prospective client.

V Formation: A V formation is a technical chart pattern indicating that the security being charted has bottomed out and is now in a rising (bullish) trend. An inverse (upside-down) V is indicative of a bearish trend.

Visible Supply: The total par value of all bond issues scheduled to come to market during the forthcoming thirty days exclusive of issues with maturities of one year or less. It is published each day in the Daily Bond Buyer.

VL (Value Line Investment Survey): An investment advisory service that ranks hundreds of securities for safety and timeliness. It projects which securities should have the best or worst price performance over the next year. Moreover, each corporation is assigned a risk rating. The ratings identify the volatility of a corporation’s stock price behavior compared to the market average. Subscribers to the service receive weekly write-ups detailing corporations’ financial information, and data such as corporate insider buying and selling decisions and the percentage of a corporation’s shares held by institutions.

VOL (Volume): The total number of shares traded in a security or an entire market during a given period of time. Volume figures are reported daily by exchanges and a daily average is computed for longer periods. Technical analysts stress the importance on the amount of volume that occurs in the trading of a security. A sharp rise in volume is deemed to signal future sharp rises or falls in price, because it reflects increased interest in a security.

Volatile: The term describes the size and frequency of fluctuations in the price of a particular security. A security may be volatile because the company’s outlook is uncertain, there are only a few outstanding shares (see Thin Market), or many other reasons. When the reasons for the variation have to do with the particular security and not the market as a whole, return is measured by alpha. Market-related volatility is measured by beta–also called systematic risk.

Volatility: A security, market, or commodity that rises or falls severely in price within a short time period.

Volume: The total number of shares traded in a security or an entire market during a given period of time. Volume figures are reported daily by exchanges and a daily average is computed for longer periods. Technical analysts stress the importance on the amount of volume that occurs in the trading of a security. A sharp rise in volume is deemed to signal future sharp rises or falls in price, because it reflects increased interest in a security.

Volume Deleted (VD): Note appearing on the consolidated tape indicating that for transactions of less than 5000 shares only the stock symbol and the trading price will be displayed. This usually occurs when the tape is running behind because of heavy trading.

Voting Right: Right to vote in corporate business matters in which they are common shareholder. This right may be delegated to another person by the shareholder.

Voting Stock: Shares in a company that give a shareholder voting and proxy rights.

Voting Trust: A limited-life trust established to center authority of a corporation to a few individuals, called voting trustees.

Voting Trust Certificate (VTC): Transferable certificate of beneficial interest in a voting trust that is issued to stockholders in exchange for their common stock. The certificates represent all the rights of common stock (the shareholder retains rights to earnings and dividends) but delegates voting rights to the trustees. The common stock is then registered on the corporation’s books in the names of the trustees. The common purpose for such an arrangement is to facilitate reorganization of a corporation in financial difficulty by preventing resistance to management.

VSP (Versus Purchase): Method of identifying specific shares of securities to be sold for tax purposes–also called vs. purchase. If versus purchase is not specifically stated, the IRS deems the securities sold are on a first-in first-out (FIFO) basis.

VTC (Voting Trust Certificate): Transferable certificate of beneficial interest in a voting trust that is issued to stockholders in exchange for their common stock. The certificates represent all the rights of common stock (the shareholder retains rights to earnings and dividends) but delegates voting rights to the trustees. The common stock is then registered on the corporation’s books in the names of the trustees. The common purpose for such an arrangement is to facilitate reorganization of a corporation in financial difficulty by preventing resistance to management.

Vulture Funds: A limited partnership that invests in undervalued property and whose goal is to profit when prices rebound.

Waiting Period: The Securities and Exchange Commission (SEC) requires a twenty day time period between a corporation’s filing of its security offering registration and when its security may be legally sold to investors. If additional time is required to make corrections or append information to the registration statement and prospectus, the waiting period–also called “cooling off period”–may be prolonged.

Wallflower: A security that is no longer preferred by investors. Wallflower securities are apt to have low price/earnings ratios.

Wall Street: 1) Term used when referring to the investment community as a whole–also referred to as “the Street”. 2) Popular name for New York City’s financial district, where the New York and American Stock Exchanges and a multitude of brokerage firms are headquartered.

Warrant: A certificate that gives a shareholder the right to purchase a security at a specified price within a predetermined time period or perpetually. Corporations issue warrants directly and is sometimes offered along with a security as incentive to buy. The abbreviation “WT” is used in newspaper stock listings.

Wash Sale: 1) A security that is bought or sold, either concurrently or within a short period of time, to create artificial market activity to profit from a rise in the security’s price. 2) The sale of a security and then the repurchase of shares within 30 days. The Internal Revenue Service (IRS) automatically disallows any losses for tax purposes. The IRS also extends the wash sale prohibition to closing short sales.

Wasting Asset: 1) Securities with a value that expires at a specified time in the future. The time values of the securities deteriorate as their termination date approaches. Examples of wasting assets are option contracts, warrants and rights. 2) Fixed assets that have a limited life. Thus, they are subject to depreciation. 3) Natural resources that diminish in value as the assets are depleted and therefore are subject to amortization. Examples are oil and gas extractions.

Watch List: List of securities under surveillance by either a brokerage firm, exchange or other self-regulatory organization. A security may be on a watch list for various business or regulatory reasons.

Watered Stock: Stock representing ownership of overvalued assets whose total worth is less than their invested capital. The condition of overcapitalized corporations may result from inflated accounting values, operating losses or excessive dividends. Some negative characteristics of watered stock are the inability to recoup full investment in liquidation, insufficient return on investment, low market value and the firm’s reduced ability to capitalize on growth opportunities. The customary method of correcting the situation is for a corporation to either increase its assets without increasing its outstanding shares or reduce outstanding shares without reducing assets. Other methods do exist.

WD: Conditional transactions on the secondary distribution of shares issued and outstanding. An example is a wholly owned subsidiary. The abbreviation “WD” is used in newspaper stock listings.
Weak Market: Market typified by larger number of sellers then buyers along with a prevailing trend of declining prices.

Wedge: Technical chart pattern where two converging lines connect a series of peaks and troughs to form a wedge. These converging lines move in the same direction. Rising wedges normally occur when there are interruptions of a falling price trend. Falling wedges normally occur when there are interruptions of price rallies.

Western Account: A corporate underwriting agreement that syndicate members jointly sign with the issuer. However, each member’s individual liability is limited to the specific number of shares or bonds that they individually underwrite–also called a “divided account.”

W Formation: Technical chart pattern of a security’s price that shows the price has hit a support level two times and is moving up–also called a “double bottom” formation. A double top is a reverse W– the price has hit a resistance level and is headed downward.

When Distributed (WD): Conditional transactions on the secondary distribution of shares issued and outstanding. An example is a wholly owned subsidiary. The abbreviation “WD” is used in newspaper stock listings.

When Issued (WI): The abridged form of “When, as, and if issued” is a conditional transaction in a security authorized for issuance but has not been issued yet. The abbreviation “WI” is used in newspaper stock listings.

Whipsawed: In volatile price swings, the act of making losing trades as prices rise and fall. Traders are whipsawed if they buy just before prices fall and sell just before prices rise. Technicians also use this term to refer to misleading indicators in chart trends of a security or a market.

White Knight: A friendly acquirer who is sought by the target corporation of an unfriendly takeover.

White’s Rating: Short for “White’s Tax-Exempt Bond Rating Service”, it classifies municipal securities based upon market conditions (not credit considerations) to determine appropriate yields.

Whole Life Insurance: Form of life insurance policy that protects the insured’s beneficiary(s) in case the insured passes away. Unless the policy lapses or is canceled, it will remain in effect for the insured’s lifetime. The policyholder pays a set yearly premium that does not increase as the person ages. The cash value portion of the policy accumulates tax-deferred, and may be borrowed against in a device called a policy loan. If the loan is not repaid, the death benefit is decreased by the loan amount. Whole life insurance is also known as “permanent” life or “straight” life insurance.

Wholesaler: 1) Broker-dealer that trades with other broker-dealers instead of retail investors. 2) An investment banker who performs as an underwriter in a new issue or as a distributor in a security’s secondary offering. 3) A mutual fund sponsor.

WI (When Issued): The abridged form of “When, as, and if issued” is a conditional transaction in a security authorized for issuance but has not been issued yet. The abbreviation “WI” is used in newspaper stock listings.

Wide Opening: At the trading session’s opening, an unusually large spread exists between a security’s bid and asked prices.

Widow-And-Orphan Stock: A very safe stock that pays high dividends. The company usually has a noncyclical business and frequently has a low beta coefficient.

Wire House: National or international brokerage firms whose branch offices are linked by communication networks. The term dates back to when only the largest firms had high speed communications. The networks rapidly disperse information and research about securities and markets. Through increased technology, regional brokers and small retail firms now have the same ability. However, the designation as a wire house is used only to refer to the largest brokerage firms.

Withdrawal Plan: Open-end mutual fund program in which shareholders can receive fixed payments of income and/or capital gains on a monthly or quarterly basis.

Withheld Orders: A sales violation that occurs when a broker fails to promptly enter a client’s mutual fund order.

Withholding: Action by a broker-dealer whereby an allotment of securities in a public offering is retained for its own purposes. If the offering is a hot issue, this action may be a violation of the Rules of Fair Practice of the National Association of Securities Dealers (NASD).

Withholding Tax (W/Tax): The Internal Revenue Service (IRS) requires financial institutions to report all client’s social security numbers, interest and dividend payments and sale proceeds. This practice applies to all US citizens and resident aliens. Those clients who have not furnished a W-9 or W-8 form to the institution are subject to withholding tax–also known as “backup withholding”.

With Warrants (WW): A security that trades with warrants as apart of the issue. The abbreviation “WW” is used in newspaper stock listings.

Working Capital: A financial calculation that is equal to a corporation’s current assets minus its current liabilities. Working capital finances a business’s cash conversion cycle–period needed to convert raw materials into finished goods, finished goods into sales, and accounts receivable into cash. Sources of working capital include retained earnings, short-term loans and trade credit.

Working Control: Effective control of a corporation exerted through ownership, whether individually or by a group acting in concert, of less than 51% voting interest.

Workout Market: A price range where a broker-dealer feels that a buy or sell may be transacted. For example, a client wishes to sell a block of stock and asks the broker-dealer to estimate the sale price. The broker-dealer’s reply would be, “It is 30 to 32, workout.” The estimation is that the block can be sold somewhere between $30 and $32 per share.

World Bank: Formed to be the bank lender and technical advisor to the developing countries, utilizing funds and technical resources from the member nations.

Write-Off: The act of charging an asset amount to expense or loss to reduce or eliminate the value of the asset, which reduces profits. Write-offs are taken in accordance with allowable tax depreciation of a fixed asset, and with the amortization of certain other assets.

Writer: Sellers of option contracts who obligate themselves to the performance agreed upon in the contract: to sell (if a call was written) or to buy (if a put was written) the underlying security at the predetermined price by a specific date if the option is exercised. In return for the sellers’ obligation, they collect a premium.

Writing Naked: Strategy used by Option sellers (writers) in which they do not own the underlying security. This strategy can lead to profits if the stock moves in the anticipated direction. However, large losses can be incurred if the stock moves in the opposite direction. The writer will have to go into the open market to purchase the stock to effect delivery to the option buyer.

Writing Puts To Acquire Stock: An option writer, who believes a stock’s price is going to decline, will write a put option exercisable at the price in which the purchase of the stock represents a good investment. If the stock goes down and the option is exercised, the writer has bought the stock at the price that was decided represents a good investment. In addition, the writer has the premium income. If the stock goes up, the option will not be exercised and the writer is ahead by the premium amount received.

WT (Warrant): A certificate that gives a shareholder the right to purchase a security at a specified price within a predetermined time period or perpetually. Warrants are issued by corporations directly and are sometimes offered along with a security as incentive to buy. The abbreviation “WT” is used in newspaper stock listings.

W/Tax (Withholding Tax): The Internal Revenue Service (IRS) requires financial institutions to report all client’s social security numbers, interest and dividend payments and sale proceeds. This practice applies to all US citizens and resident aliens. Those clients who have not furnished a W-9 or W-8 form to the institution are subject to withholding tax–also known as “backup withholding”.

WW (With Warrants): A security that trades with warrants as a part of the issue. The abbreviation “WW” is used in newspaper stock listings.

X (x-Interest): A security that is trading without the interest. The abbreviation “X” is used in newspaper listings and in bond tables.

XD (Ex-Dividend): A security that is trading without the quarterly dividend. The abbreviation “XD” is used in newspaper stock listings.

XR (Ex-Rights): A security that is trading without rights attached. The abbreviation “XR” is used in newspaper stock listings.

XW (Ex-Warrants): A security that is trading without warrants attached. The abbreviation “XW” is used in newspaper stock listings.

Yankee Bond: Dollar-denominated bonds issued in the US by foreign banks and corporations when the US market is more favorable than the Eurobond market or domestic markets overseas.

Yellow Sheets: Daily publication that provides bid and ask prices of corporate bonds traded over the counter (OTC) and firms that are market makers in the particular bond.

Yield: An investment’s return from dividends or interest expressed as a percentage of either cost at purchase or the investment’s current price. For example, a security with a current market value of $36 a share paying a dividend of $2.50 annually will give an investor a return of 7% ($2.50/$36.00).

Yield Advantage: When an investor buys a corporation’s convertible security instead of its common stock, the yield advantage is the additional amount of return an investor can earn. For example, if XYZ Corporation’s convertible security yields 12% and XYZ common share yields 7%, the yield advantage is 5%.

Yield Curve: Graph depicting the term structure of interest rates. It plots the yields of bonds of the same class (corporates, governments, etc.) and quality with maturities that range from the shortest to the longest term. The yields are plotted on the y-axis, and time to maturity on the x-axis. The curve will show whether short-term interest rates are higher or lower than long-term interest rates.
In general, the yield curve is positive. Investors usually receive a higher yield for the extra risk of tying up their money long term. However, if short-term rates are higher, the curve is considered to be a “negative (or inverted) yield curve”. And, if a small variation exists between short-term and long-term rates, the curve is considered to be a “flat yield curve.” To make a sound judgment about the direction of interest rates, fixed income analysts and economists will carefully watch the yield curve.

Yield Equivalence: The interest rate at which a taxable security and a tax-exempt bond have the same rate of return. To calculate the tax equivalent yield of a tax-exempt bond for investors in different tax brackets, the tax-exempt yield is divided by the reciprocal of the tax bracket (e.g., 100 less 28%). Thus, a person in the 28% tax bracket who wants to know the tax equivalent yield of a 8% tax free municipal bond would divide 8% by 72% to get 11%–the yield a taxable security would have to return to be equivalent, after taxes, to an 8% municipal bond. To convert a taxable yield to a tax-exempt yield, the formula is reversed–the tax-exempt yield is equal to the taxable yield multiplied by the reciprocal of the tax bracket.

Yield To Average Life: Calculation used, where bonds are retired systematically during the life of the issue, as in a sinking fund. To satisfy its sinking fund requirements the issuer will buy its bonds on the open market. If the bonds are trading below par, there is automatic price support for such bonds. Therefore, they are apt to trade on a yield-to-average-life basis. In this scenario, this yield calculation will be used instead of “yield to maturity” or “yield to call.”

Yield To Call (YTC): Rate of return an investor earns from a bond assuming the bond is called (redeemed) by the issuer on the first call date specified in the indenture agreement prior to the bond’s maturity date. The formula used to calculate yield to call is the same as “yield to maturity” except that the principal value at maturity is replaced by the first call price and the maturity date is replaced by the first call date. The lower of the yield to call and the yield to maturity will be used to determine an investor’s realistic rate of return.

Yield To Maturity (YTM): The compound rate of return that investors will receive for a bond with a maturity greater than one year if they hold the bond to maturity and reinvest all cash flows at the same rate of interest. It also takes into account purchase price, redemption value, coupon yield, and the time between interest payments. The YTM will be greater than the current yield when the bond is selling at a discount and will be less if it is selling at a premium. YTM can be approximated using a bond yield table or can be determined using a programmable calculator equipped for bond calculations.
YTM is used extensively in comparing fixed income investments, making fixed income portfolio decisions, and in financial planning.

YLD (Yield): An investment’s return from dividends or interest expressed as a percentage of either cost at purchase or the investment’s current price. For example, a security with a current market value of $36 a share paying a dividend rate of annually is will give an investor said to return 7% ($2.50/$36.00).

Yo-Yo Stock: Stock that has volatile price fluctuations and thus, rises and falls like a yo-yo.

YTC (Yield To Call): Rate of return an investor earns from a bond assuming the bond is called (redeemed) by the issuer on the first call date specified in the indenture agreement prior to the bond’s maturity date. The formula used to calculate yield to call is the same as “yield to maturity” except that the principal value at maturity is replaced by the first call price and the maturity date is replaced by the first call date. The lower of the yield to call and the yield to maturity will be used to determine an investor’s realistic rate of return.

YTM (Yield To Maturity): The compound rate of return that investors will receive for a bond with a maturity greater than one year if they hold the bond to maturity and reinvest all cash flows at the same rate of interest. It also takes into account purchase price, redemption value, coupon yield, and the time between interest payments. The YTM will be greater than the current yield when the bond is selling at a discount and will be less if it is selling at a premium. YTM can be approximated using a bond yield table or can be determined using a programmable calculator equipped for bond calculations. YTM is used extensively in comparing fixed income investments, making fixed income portfolio decisions, and in financial planning.

Zero-Coupon Convertible Security: 1) Zero-coupon bond convertible into the common stock of the issuing company when the stock reaches a predetermined price. They are apt to trade at a small premium over conversion value and provide a lower yield to maturity than nonconvertible bonds. 2) Zero coupon bond, usually a municipal bond, that is convertible into an interest bearing bond at some point before maturity.

Zero Coupon Security: Debt security that makes no periodic interest payments but is sold at a deep discount from its face value. The bondholder does not receive interest payments, only the full face value at redemption on the specified maturity date. The owner of a zero-coupon bond owes income taxes on the interest that has accrued each year, even though the bondholder does not receive payment until maturity.
There are several kinds of zero coupon securities. The most popular is the zero coupon bond. This bond can either be issued by a corporation or by a brokerage firm when it strips the coupons off a bond and sells the principal and the coupons separately. This technique is used frequently with Treasury bonds. Zero coupon bonds are also issued by municipalities. Because zero coupon securities do not make interest payment, they are considered more volatile than bonds making periodic payments. When interest rates rise, zeros fall more sharply than interest paying bonds. However, zero coupon securities rise more rapidly in value when interest rates drop.

Zero Minus Tick: Transaction that takes place at the same price as the previous round-lot price, but at a lower price than the last different price–also called a “zero downtick”. For example, a stock trade is consecutively executed at $22, $21 and $21. The last transaction at $21 was at a zero minus tick. It was executed at the same price as the prior trade, but at a lower price than the last different price of $22.

Zero Plus Tick: Transaction that takes place at the same price as the previous round-lot price, but at a higher price than the last different price–also called a “zero uptick”. For example, a stock trade is consecutively executed at $21, $22 and $22. The last transaction at $22 was at a zero plus tick. It was executed at the same price as the prior trade, but at a lower price than the last different price of $21. Short sales can only be executed on plus tick or a zero plus tick.

ZR (Zero Coupon Issue): An abbreviation for Zero Coupon Issue that is used in bond listings of newspapers.