A-B-C AGREEMENT An agreement signed by an applicant that is used in financing the purchase of a seat on the New York Stock Exchange.
ACCELERATED DEPRECIATION Methods of depreciation in which depreciation expense is greater in early years and less in later years (vs. Straight-Line). See: Depreciation.
ACCREDITED INVESTOR To qualify as an accredited investor for a Regulation D Private Placement, an investor must be either (a) an affiliate of the issuer, (b) a financial institution, or (c) an individual with $1 million net worth, or $200,000 annual income.
ACCRETION A method of adjusting a taxpayer's cost basis of a bond bought at an original issue discount. The annual accretion is treated as interest for tax purposes. See: Original Issue Discount, Constant yield, and Straight-line.
ACCRUED INTEREST The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.
ACCUMULATION ACCOUNT An account used by the sponsor of a Unit Investment Trust to acquire securities for the eventual placement within the trust. See: Unit Investment Trust.
ACCUMULATION UNIT An accounting measure that represents a contract owner's proportionate uit of interest in a separate account during the accumulation period of a variable annuity.
ACID TEST RATIO A more stringent test of a corporation's liquidity than current ratio. It is calculated by adding cash, cash equivalents, and accounts and notes receivable and dividing that sum by the total current liabilities. It is also known as Quick Asset Ratio.
ACQUISITION The acquiring of control of one corporation by another. In "unfriendly" take-over attempts, the potential buying company may offer a price well above current market values, new securities, and other inducements to stockholders. The management of the subject company might ask for a better price or try to join with a third company to foil the take-over attempt.
ACRS Accelerated Cost Recovery system. The IRS approved method of calculating depreciation expense for tax purposes. See: Depreciation.
ADDITIONAL BONDS TEST A requirement that before additional bonds, which will be secured by assets or revenues already pledged to existing bonds, can be issued, that specific financial requirements must be met. Generally, the main requirement is that debt service coverage for the original and new bonds must be at a specific level. See: Open-end Indenture.
ADDITIONAL TAKEDOWN A portion of the underwriting spread for a municipal issue defined as total takedown less concession.
ADJUSTMENT BOND See: Income Bond.
ADMINISTRATOR The official or agency that is empowered to supervise or conduct the Uniform Securities Act in each state.
AD VALOREM TAX A tax based on value of real property.
ADVANCED REFUNDED BONDS Bonds whose debt service is paid by escrowed funds. Also called Pre-refunded Bonds.
ADVANCED REFUNDING A method of eliminating a bond issue as an obligation of the issuer. This is accomplished by issuing a new bond issue and using the proceeds to purchase government obligations which will be escrowed and used to provide debt service on the original issue. The escrowed funds may provide debt service until maturity of the original issue (escrowed to maturity) or until the first call date (pre-refunded to the call). Also known as defeasance. See: Defeased Bonds.
AFFIDAVIT OF DOMICILE A notarized affidavit executed by the legal representative of an estate reciting the residence of the decedent at the time of death. This document would be required when transferring ownership of a security from a deceased person's name.
AFFILIATE See: Control Person.
AFTERMARKET The Secondary Market. Used in reference to trading in a new issue. See: Effective Date; Secondary Market.
AGENCY (1) Government securities issued by entities other than the U.S. Treasury (2) A transaction in which the broker/dealer acts as an agent (Broker). See: Agent.
AGENT A security firm acting on behalf of a client. The agent acts as intermediary between buyer and seller, undertaking no financial risk, and charging a commission. (vs. Principal). See: Broker.
ALL OR NONE (AON) (1) A type of order where the client wants the entire order executed or none of it. (2) A type of best efforts underwriting in which the issuer will only sell the entire amount, not just a part.
ALPHA A statistical measure of a security's price volatility caused by factors other than the stock market as a whole. (vs. Beta.)
ALTERNATIVE MINIMUM TAX (AMT) A tax designed to prevent wealthy investors from using tax shelters to avoid other (income) taxes. The calculation of the AMT takes into account tax preference items. See: Tax Preference Items.
AMBAC INDEMNITY CORPORATION (AMBAC) See: Insured Bonds.
AMERICAN DEPOSITORY RECEIPT (ADR) A security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.
AMERICAN STOCK EXCHANGE (AMEX) The second largest stock exchange in the United States, located in the financial district of New York City. Formerly known as the Curb Exchange from its origin in a Manhattan street).
AMORTIZATION (1) Accounting procedure which gradually reduces the book value of an intangible asset through periodic charges to income; similar to depreciation for fixed assets. See: Capitalize. (2) Method of reducing a taxpayer's cost basis in a bond purchased at a premium (vs. Accretion.) (3) Reduction of debt through periodic payments of principal - as in "self-amortizing" mortgages.
ANNUAL REPORT The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, and expenses. Earnings and profits for the year are shown along with other information of interest to shareholders.
ANNUITANT Investor receiving annuity payments.
ANNUITY A contract between an insurance company and an individual. It generally guarantees lifetime income to the person on whose life the contract is based in return for either a lump sum or a periodic payment to the insurance company. A fixed annuity guarantees a specific amount of payment each month. In a variable annuity, the amount of the monthly check would fluctuate according to the value of the securities in the separate account.
ANNUITY UNIT The accounting measure used to determine the amount of each payment to an annuitant during the payout period.
ARBITRAGE A technique employed to take advantage of differences in price. If for example, ABC stock can be bought in New York for $10 a share and sold in London at $10.50, an arbitrageur may simultaneously purchase ABC stock in New York and sell the same amount in London, thereby making a profit of 50 cents a shares less expenses. Arbitrage may also involve the purchase of rights to subscribe to a security, or the purchase of a convertible security and the sale at or about the same time of the security obtainable through exercise of the rights or of the security obtainable through conversion.
ARBITRATION A method of settling a dispute by utilizing an impartial individual or individuals. All exchanges and securities associations have adopted a Cod of Arbitration through which all disputes between firms, employees and firms, and firms and clearing corporations are settled.
ARREARAGE A past due obligation such as interest, or dividends on a cumulative preferred stock. See: Cumulative Preferred.
ASCENDING YIELD CURVE See: Positive yield Curve.
ASK See: Offer, Bid, and Asked.
ASSESSED VALUATION The value of real estate that is used for tax purposes.
ASSETS Everything a corporation owns or is due to it. Cash, investments, accounts receivable, and materials and inventories are called current assets. Buildings, machinery, and furniture and fixtures are known as fixed assets. Patents and goodwill are called intangible assets.
ASSIGNMENT (1) To sign a document to authorize transfer of ownership, either the stock/bond certificate itself or a separate form known as a stock power/bond power. (2) Notice that an option has been exercised.
ASSUMED INTEREST RATE Rate of growth built into an annuity table which determines payout on a variable annuity.
AT THE CLOSE ORDER An order to be executed as close to the closing price as possible. There is no guarantee that the execution price will be the closing price.
AT-THE-MONEY An option in which the underlying stock is trading precisely at the exercise price of the option.
AT THE OPENING ORDER An order to buy or sell at the opening price. If not executed at the opening, it will be cancelled.
AUCTION MARKET The system of trading securities through brokers or agents on an exchange such as the New York Stock Exchange. Buyers compete with other buyers while sellers compete with other sellers for the most advantageous price.
AUDITOR'S REPORT Often called the accountant's opinion. It is the statement of the accounting firm's work and its opinion of the corporation's financial statements, especially that they conform to the normal and generally accepted practices of accountancy.
AUTHORIZED SHARES The maximum number of common shares which a corporation may issue. This amount is set at the time of incorporation and is part of the Corporation Charter.
AUTOMATED ORDER ENTRY SYSTEM Computerized systems designed to by-pass floor brokers and speed executions of routing orders on an exchange. These systems have limits as to the size of order permitted. Examples include AUTO EX, DOT, OSE, PACE, SOES, and SOREX.
AUTOMATED EXECUTION SYSTEM (AUTO EX) The American Stock Exchange automated system for efficiently executing orders. See: Automated Order Entry System.
AVERAGE LIFE The average length of time that a bond issue with a mandatory sinking fund is expected to be outstanding.
AVERAGES Various ways of measuring the trend of securities prices. One of the most popular is the Dow Jones average of 30 industrial stocks listed on the New York Stock Exchange. The prices of the 30 stocks are totaled and then divided by a divisor which is intended to compensate for past stock splits and stock dividends and which is changed from time to time. As a result, point changes in the average have only the vaguest relationship to dollar price changes in the stocks included in the average. Other Dow Jones averages are the Transportation (20 stock), Utilities (15 stocks), and the Composite (65 stocks).
BABY BONDS Bonds with denominations of less than $1000.
BACKING AWAY The failure of a market maker to fulfill its obligation to buy or sell the minimum amount for a bona fide quote.
BALANCED FUND A type of mutual fund which has a balanced portfolio consisting of bonds and preferred stock (providing income) as well as common stock (providing growth potential).
BALANCED PROGRAM An oil/gas drilling program which drills in both areas of known production and in unproven areas. See: Developmental and Wildcatting.
BALANCE SHEET A condensed financial statement showing the nature and amount of a company's assets, liabilities, and capital on a given date. In dollar amounts, the balance sheet shows what the company owned, what it owed, and the ownership interest in the company of its stockholders.
BALANCE SHEET EQUATION Basic balance sheet equation: Total assets of a company equal total liabilities plus stockholders' equity.
BALLOON MATURITY A type of maturity schedule for an issue of bonds that shows a relatively small number of bonds maturing serially (each year) and a large number maturing in a later year. Also known as "Serial with Team Maturity".
BANK GUARANTEE LETTER The document supplied by an approved bank in which the bank certifies that a put writer has sufficient funds on deposit at the bank to equal the aggregate exercise price of the put.
BANKER'S ACCEPTANCES (BA) A money market instrument used to finance international and domestic trade. They are checks drawn on a bank by an importer or exporter of goods and represent a bank's unconditional promise to pay the face amount of the note at maturity (which is normally less than three months).
BANKRUPTCY An inability to pay debts; insolvency. Creditors may petition the courts which results in involuntary bankruptcy. Voluntary bankruptcy results from the debtor petitioning for court protection. Chapter 11 of the bankruptcy code deals with "reorganization" which allows the debitor to remain in business and negotiate for a restructuring of debt.
BANKS FOR THE COOPERATIVES Co-ops: A government sponsored enterprise that is part of the Farm Credit System. It provides short-term loans to farmers' cooperative associations. See: Federal Farm Credit System.
BASIS (1) Bonds: An investor's yield to maturity. (2) Taxation: Cost used to determine capital gain or loss on an investment. (3) Used in DPP's to calculate maximum losses allowed for tax purposes. In general, basis consists of the investor's original contribution plus recourse loans.
BASIS POINT One gradation on a 100-point scale which is used in expressing variations in the yields of bonds. Fixed income yields vary often and slightly within one per cent and the basis point scale easily expresses these changes in hundredths of one per cent. For example, the difference between 12.83% and 12.88% is 5 basis points.
BEAR Someone who believes the market will decline.
BEAR MARKET A declining market.
BEAR SPREAD An option spread position in which the investor profits from a decline in the underlying stock price (vs. Bull Spread).
BEARER BOND A bond which does not have the owner's name registered on the books of the issuer. Interest is paid by means of attached coupons. Interest and principal, when due, are payable to the holder. (vs. Registered). See: Certificate.
BENEFICIAL OWNER The person(s) entitled to the benefits of ownership even though another party (a broker or bank-the nominal owner) actually holds the security. See: All or None.
BEST EFFORTS An offering in which the investment banker agrees to distribute as much of the offering as possible and to return to the issuer any unsold shares. See: All or None.
BETA A statistical measure of the price volatility of a security in relation to the entire stock market's volatility. For example, if the stock market should increase 10%, the price of a stock with a Beta of 2 should increase 20%. A Beta of 2 indicates a stock which is twice as volatile as the market as a whole (vs. Alpha).
BID AND ASKED Often referred to as a quotation or quote. The bid is the highest price anyone has declared that he wants to pay for a security at a given time and the asked is the lowest price anyone is willing to sell at the same time.
BID FORM Form used to submit a bid on a competitive municipal bond underwriting.
BIG BOARD See: New York Stock Exchange.
BLIND POOL A limited partnership that does not specify the assets or properties to be acquired.
BLOCK A large holding or transaction of stock (popularly considered to be 10,000 shares or more).
BLOTTER A record, usually handwritten, of daily activity such as orders placed and executed, securities received or delivered, etc.
BLUE CHIP A company known nationally for the quality and wide acceptance of its products or services, and for its ability to profit and pay dividends.
BLUE LIST, THE A daily trade publication that lists current dealer to dealer municipal bond offerings.
BLUE SKY LAWS A popular name for laws that various states have enacted to protect the public against securities frauds. The term is believed to have originated when a judge ruled that a particular stock had about the same value as a patch of blue sky.
BOLLINGER BANDS Lines drawn above
and below the moving average, varying in distance from the moving average of
a security's price based on the security's volatility.
BOND Basically an IOU or promissory note of a corporation, municipality, or the U.S. Government. They are usually issued in multiples of $1,000 or $5,000. A bond is evidence of a debt on which the issuer usually promises to pay the bondholder a specified amount of interest for a specified length of time and to repay the loan on the expiration date. In every case, a bond represents debt. Its holder is a creditor of the issuer.
BOND ANTICIPATION NOTE (BAN) A short-term security issued by a municipality. Payment of the note at maturity will be accomplished with the proceeds of a bond issue.
BOND COUNSEL The attorney or law firm who reviews the legal documents pertaining to a municipal new issue and who writes the legal opinion. See: Legal Opinion.
BOND EQUIVALENT YIELD A discount yield restated to make it directly comparable to an interest bearing investment. See: Discount Yield.
BOND INVESTOR GUARANTY CO (BIGI) See: Insured bonds.
BOOK-ENTRY A method of registering securities. There is no physical certificate since ownership is solely reflected by an entry in the books of the issuer.
BOOK VALUE An accounting term. Book value of a stock is determined from a company's balance sheet by adding all current and fixed assets and then deducting all debts, other liabilities, and the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security may have little relationship to market value.
BOX The physical location in a brokerage house where securities are kept. These securities are used to meet immediate obligations. Also known as Active Box.
BREAKOUT Movement of a stock price out of an established trading range either above a resistance level or below a support level.
BREAKPOINT The dollar level of an investment in a mutual fund at which a purchaser qualifies for a reduction in sales charges.
BREAKPOINT SALES Solicited sales at dollar amounts just below the point where a breakpoint (reduced sales charges) would occur. Usually this is within $1,000 of the breakpoint. A breakpoint sale is a violation of NASD rules.
BROKER An agent who handles the public's orders to buy and sell securities, commodities, or other property. For this service a commission is charged. See: Agent.
BROKER'S BROKER A security firm acting as agent on behalf of another security firm. The term can refer to a specialist on an exchange, or a specialized firm servicing municipal bond traders. See: Agent, Specialist.
BROKERS' LOANS Money borrowed by brokers from banks or other brokers for a variety of uses. It may be used by specialists to help finance inventories of stock they deal in, by brokerage firms to finance the underwriting of new issues of corporate and municipal securities, to help finance a firm's own investments, and to help finance the purchase of securities for customers who prefer to use the broker's credit when they buy securities. See: Call Loan, Call Loan Rate.
BULL One who believes the market will rise.
BULL MARKET An advancing market.
BULL SPREAD An option spread position in which the investor profits from a rise in the underlying security's price (vs. Bear Spread).
BUNCHING ORDERS Combining odd-lot orders from different clients into a round lot in order to save the clients the odd-lot differential.
BUSINESS CYCLE As measured by GNP. The recurring periods of expansion and contraction in economic activity which affect inflation, unemployment, business profits, and interest rates.
BUY-IN Procedure that occurs when the seller of a security fails to complete the contract to sell by not delivering the securities according to the contract's terms. The buyer can close-out the contract by buying the securities in the open market and charging them to the account of the seller who failed to complete the contract.
BUYING POWER The amount of securities which could be purchased in a margin account by using the SMA.
CALENDAR SPREAD An option spread position in which the expiration dates of the options are different, but the strike prices are the same. Also called a Horizontal or Time Spread.
CALL (1) An option in which the holder has the right to buy a fixed amount of the underlying security at a stated price within a specified period of time. (2) To redeem a bond before maturity. See: Callable.
CALLABLE A bond issue, all or part of which may be redeemed before maturity by the issuer under specified conditions. The term also applies to preferred shares that may be redeemed by the issuing corporation.
CALL LOAN A brokerage firm collateralized loan that has no fixed maturity date, can be called 9terminated) at any time, and has fluctuating interest rates computed daily. Generally, the loan is payable on demand the day after the loan has been contracted. If not called, the loan is automatically renewed for another day. See: Brokers' Loan.
CALL LOAN RATE The rate of interest a bank charges a brokerage firm on collateralized loans for its margin account clients. Usually firms charge their clients a minimum of ½ of 1% over the call rate which is published daily in the Wall Street Journal..
CALL PRICE The price at which a issuer may redeem a bond prior to maturity, usually at a slight premium to par.
CALL RISK The risk to a bondholder that the bond may be redeemed prior to maturity.
CANADIAN METHOD See: True Interest Cost.
CAPITAL GAIN OR CAPITAL LOSS Profit or loss from the sale of stocks, bonds, options real estate, and other property.
CAPITALIZATION Total amount of the various securities issued by a corporation. Capitalization includes bonds, debentures, preferred stock, common stock, and surplus, which represent the sources of long-term financing of the company. Bonds and debentures are usually carried on the books of the issuing company in terms of their par or face value. Preferred and common shares may be carried in terms of par or stated value.
CAPITALIZE (1) For accounting purposes: to record an outlay as an asset (vs. Expense) which is subject to depreciation or amortization. See: Depreciation, Amortization. (2) In general, to take advantage of an opportunity.
CAPITAL MARKET That segment of the securities market that deals in instruments with more than one year to maturity, e.g. long-term debt and equity securities.
CAPITAL STOCK All shares representing ownership of a business, including preferred and common.
CAPITAL SURPLUS An entry on a corporation's balance sheet in stockholders' equity. It is the amount received from sale of stock by a corporation in excess of the stock's par value. Also known as Paid-in Surplus, or Paid-in Capital.
CASH ACCOUNT A brokerage account in which the client pays in full for any purchases. (vs. Margin Account).
CASH ASSET RATIO The most stringent test of liquidity. It is calculated by adding cash and marketable securities and dividing that sum by the total current liabilities.
CASH FLOW Reported net income of a corporation plus amounts charged off for depreciation, depletion, amortization, and extraordinary charges to reserves. These are bookkeeping deductions and not paid out in actual dollars and cents.
CASH SALE A transaction which calls for delivery of the securities the same day. (vs. "Regular Way") See: Settlement.
CERTIFICATE The actual piece of paper which is evidence of ownership of a security (vs. Book-Entry). Certificates may be issued in registered or bearer form. See Bearer, Book-entry. Registered.
CERTIFICATE OF DEPOSIT (CD) A money market instrument issued by banks. The time CD is characterized by its set date of maturity and interest rate and its wide acceptance among investors, companies, and institutions as a very liquid short term investment vehicle.
CHAPTER 11 See: Bankruptcy.
CHARTIST A technical analyst. See: Technical Analysis.
CHURNING Excessive trading in a customer's account. The term suggests that the registered representative ignores the objective and interests of his client and seeks only to increase his own commissions.
CLASS OF OPTIONS All option contracts of the same type (puts or calls) covering the same underlying security.
CLEARING CORPORATIONS A clearing organization affiliated with a securities exchange that expedites the clearance and settlement of securities purchased or sold by members of that exchange.
CLEARING HOUSE FUNDS A check which is a demand deposit drawn on a commercial bank. These are cash the next day. Most dealer-to-dealer securities transactions settle I clearing house funds (vs. Fed Funds).
CLOSED-END INDENTURE Secured bond indenture which prohibits the re-pledging of collateral for additional bonds.
CLOSED-END INVESTMENT COMPANY See: Investment Company.
CLOSE-OUT To liquidate (sell) the position of a client unable to pay for the purchase within 7 business days. See: Frozen Account.
CLOSING TRANSACTION Sale or purchase of an option contract to eliminate or undo an existing position.
CODE OF PROCEDURE A section of the NASD By-laws. It deals with the procedure to be used when dealing with violations or complaints related to Rules of Fair Practice.
C.O.D. TRANSACTION A type of securities transaction in which the purchaser pays for the securities when they are delivered to him or his bank. Regulation T requires that the purchaser have funds available for payment on the normal settlement date and that the seller make delivery within 35 days of the trade date. It is also known as DVP (Delivery versus Payment).
COLLATERAL Securities or other property pledged by a borrower to secure repayment of a loan.
COLLATERAL TRUST BOND A corporate bond which is secured by securities deposited as collateral by the issuing corporation.
COMBINATION An option position in which an investor either purchases (is long) a call and a put contract or sells (is short) a call and put contract with different expiration months and/or different strike prices.
COMMERCIAL PAPER Debt instruments issued by well established companies to meet short-term financing needs. Commercial paper is unsecured debt and has a maximum maturity of 270 days.
COMMINGLING The mixing of client owned securities or money with that owned by the broker/dealer. This is illegal.
COMMISSION The broker's basic fee for purchasing or selling securities or property as an agent.
COMMISSION BROKER An agent who executes the public's orders for the purchase or sale of securities or commodities.
COMMITTEE ON UNIFORM SECURITIES IDENTIFICATION PROCEDURES (CUSIP) Committee that assigns codes and numbers to securities for identification purposes.
COMMODITY CHANNEL INDEX (CCI) This
oscillator measures how high or low prices are relative to their statistical
mean. A high value means prices are relatively high and while a low value
means the opposite.
COMMODITY FUTURE CONTRACT Is a contract for the purchase or sale of a commodity which is made on an organized exchange under set rules and regulations.
COMMON STOCK (1) Securities which represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater reward in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock. (2) Accounting measure, carried at par value on the books of the company. Common stock plus capital surplus represent the shareholder's initial investment in the company. See: Capital Surplus.
COMPETITIVE ISSUE A new issue brought to market by having a number of underwriting groups (syndicates) competing to win the issue. It is most often used relative to a new municipal issue.
COMPETITIVE TENDER A bid placed to purchase T-bills at the original auction in which the purchaser specifies a particular yield he is willing to accept (i.e. price he will pay).
COMPETITIVE TRADER A member of the Exchange who trades in stocks on the Floor for an account in which he has an interest. Also known as a Registered Trader.
CONCESSION The discount from a dealer's offering price which the dealer will give to another dealer.
CONDUIT THEORY IRS Rule which avoids double taxation by allowing qualifying Investment Companies and REIT'S to pass income (without taxation) directly to investors, who are taxed as individuals.
CONFIRMATION Written notice summarizing the details of a transaction.
CONGLOMERATE A corporation that has diversified its operations usually by acquiring enterprises in widely varied industries.
CONSOLIDATED BALANCE SHEET A balance sheet showing the financial condition of a corporation and its subsidiaries.
CONSOLIDATED TAPE The ticker tape reporting of transactions in NYSE listed securities that take place on the NYSE or anyof the participating regional stock exchanges and other markets. Similarly, transactions in AMEX listed securities, and certain other securities listed on regional stock exchanges, are reported on a separate tape.
CONSTANT DOLLAR PLAN See: Dollar Cost Averaging.
CONSTANT YIELD METHOD Method used for tax purposes to accrete the cost of a bond purchased at an original issue discount. See: Accretion.
CONTRA BROKER The opposing broker in a dealer-to-dealer securities transaction.
CONTRACTUAL PLAN A method of purchasing mutual funds where the investor signs a contract to make equal monthly payments for a period of years. They are referred to as front-end load plans since the sales charge during the first year is 50%. They are also called penalty plans. Contractual plans are usually organized as a unit investment trust. An investor may choose a contractual plan with a spread load option. Rather than the front and 50% sales charge, the sales charge is spread so that the maximum charge during the first four years is 20%.
CONTROL PERSON Any officer, director, or 10% stockholder of a corporation (and immediate family). Also known as affiliates. See: Insider.
CONTROL RELATIONSHIP A relationship in which a securities firm is in a position to influence the issuance of bonds by an issuer.
CONTROL STOCK Registered stock owned by a control person. See: Control Person.
CONSTRUCTION LOAN NOTE (CLN) Municipal note usually issued to finance construction of multi-family housing projects. The notes are usually repaid from the proceeds of a bond issue after the project is completed. CLN's usually have a maximum maturity of three years.
CONSUMER PRICE INDEX (CPI) A measure of prices of consumer goods. Also known as cost of living index. See: Inflation, Deflation.
CONVERSION PRICE The price stated in the indenture at which the convertible bond may be converted.
CONVERSION RATIO The number of shares of stock into which a convertible security may be converted. Conversion ratio equals the par value of the convertible security divided by the conversion price.
CONVERTIBLE A bond, debenture or preferred stock which may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the terms of the issue.
COOLING-OFF PERIOD The time period in a new stock issue beginning with the filing of the registration statement and ending on the effective date. Under federal regulation, it must be a minimum of twenty days. During the cooling-off period, the issuing corporation and underwriters will prepare a preliminary prospectus, Blue Sky the issue, hold a due diligence meeting, and prepare the final prospectus.
CO-OP'S See: Banks for the Co-operatives.
CORPORATE CHARTER The document prepared when a corporation is formed. It will set forth the objectives and goals of the corporation as well as a complete statement as to what the corporation can and cannot do in seeking these goals. When a corporation opens a margin account, the securities firm must obtain a copy of the corporate charter to be sure that the corporation is permitted to engage in transactions on margin.
CORPORATE RESOLUTION A document stating that the corporation's board of directors has authorized a particular individual to act on behalf of the corporation. This document is necessary when the corporation opens a cash or margin account.
CORPORATION A legal, taxable entity chartered by a state or the federal government. Ownership of the corporation is held by stockholders.
CORRESPONDENT A securities firm, bank, or other financial organization which regularly performs services for another in a place or market to which the other does not have direct access. Securities firms may have correspondents in foreign countries or on exchanges of which they are not members. Correspondents are frequently linked by private wires. Member organizations of the NYSE with offices in New York City may also act as correspondents for out-of-town member organizations that do not maintain New York City offices.
COUPON The interest rate on a bond. On a bearer bond, it refers to the collection of interest by presenting the coupons which are attached to the bond.
COUPON BOND A bearer bond with interest coupons attached. The coupons are clipped as they come due and are presented by the holder for payment of interest.
COVENANT Protective clause in an indenture.
COVERAGE The number of times income will meet (or exceed) fixed charges. (1) Municipal bonds: Net revenues divided by annual debt service (2) Corporate interest coverage: E.B.I.T. divided by interest expense. (3) Preferred divided coverage: Net Income divided by preferred dividends.
COVERED Refers to a short option position in which the investor has another investment position which will meet the obligation of the option contract. A covered short call involves owning the underlying security or a security convertible into the underlying security. A covered put requires cash or a short stock position.
CREDIT BALANCE (CR) In a cash account, the amount that the firm owes to the customer. Ina short margin account, it is the sum of the proceeds of the sale and the required margin.
CREDITOR Any person who has lent money, goods, or services. The claim of the creditor may be secured by collateral or unsecured in which case the lender is known as a general creditor. See: Secured bond, Debenture.
CREDIT RISK The risk that the issuer of a security may go into bankruptcy or default on payments and cause the investor to lose all or part of his investment.
CREDT SPREAD An option spread position in which the premium of the option sold is greater than the premium of the option purchased.
CREDIT UNION SHARES Shares in a credit union which represent ownership by its members. They are not considered securities under the Uniform Securities Act.
CROSSED MARKET A situation in which one broker's bid exceeds the lowest offer of another or vice versa. NASD rules prohibit a broker from intentionally entering such bids or offers.
CROWDING OUT The situation in which government borrowing forces interest rates up, squeezing the private sector (business and consumer) from the credit markets.
CUM- "With" (vs. Ex-).
CUM-RIGHTS With right: During a rights offering, the time period during which the purchaser of stock will receive the rights.
CUMULATIVE PREFERRED A stock having a provision that if one or more dividends are omitted, the omitted dividends (arrearage) must be paid before dividends may be paid on the company's common stock.
CUMULATIVE VOTING A method of voting for corporate directors that enables the shareholder to multiply the number of his shares by the number of directorships being voted on and cast the total for one director or a selected group of directors. For example, if a corporation has 12 openings to the Board of Directors, in statutory voting, a 10-share holder casts 10 votes for each opening thus having 120 votes. Under the cumulative voting principle he may do that or he may cast 120 (10 x 12) votes for only one nominee, 60 for two, 40 for three, or any other distribution he chooses. Cumulative voting is required under the corporate laws of some states, and is permitted in most others (vs. Statutory Voting).
CURB EXCHANGE See: American stock Exchange CURRENT ASSETS Those assets of a company which are reasonably expected to be realized in cash, or sold, or consumed during one year. These include cash, marketable securities, accounts receivable, and inventories.
CURRENT LIABILITIES Money owed and payable by a company, usually within one year.
CURRENT RATIO A test of a corporation's liquidity. It is found by dividing current assets by current liabilities.
CURRENT YIELD Also called current return. It is found by dividing the yearly interest by the price of the bond.
CUSIP See: Committee on Uniform Securities Identification Procedures.
CUSTODIAN ACCOUNT See: Uniform Gift to Minors Act.
CUSTODIAN BANK The bank designated by a mutual fund to act as its custodian. The custodian bank hold the cash and securities of the fund and usually provides clerical functions. It does not perform any management function.
CYCLE A system regulating the expiration of equity (stock) options resulting in a maximum option life of nine months, and three expiration months available for trading at any point in time.
CYCLICAL STOCK Stocks which are strongly affected by the business cycle, i.e. changes in economic activity. Examples of cyclical stocks are automobile, steel, and paper stocks (vs. Defensive Stock).
DAILY BOND BUYER The daily newspaper of the municipal industry. It contains news and announcements. It is primarily new issue oriented. The Bond Buyer publishes a variety of statistics which are used in the municipal industry. These include: Visible Supply, Placement Ratio, Twenty Bond Index, Eleven Bond Index, and Revenue Bond Index.
DATED DATE The date from which interest begins accruing on a new municipal issue.
DAY ORDER An order to buy or sell which, if not executed, expires at the end of the trading day on which it was entered.
DEALER An individual or firm in the securities business who buys and sells securities for its own account rather than as an agent. The dealer's profit or loss is the difference between the price he pays and the price he receives for the same security. The dealer's confirmation must disclose to his customer that he has acted as principal. An individual or firm may function, at different times, either as broker or dealer.
DESENTURE A promissory note backed by the general credit of a company and not secured by a mortgage or lien on any specific property.
DEBIT BALANCE (DR) In a customer's margin account, that portion of the purchase price of stocks or bonds that is covered by credit extended by the broker to the margin customer.
DEBIT SPREAD An option spread position in which the premium of the purchased option is greater than the premium of the option sold.
DEBT A legal obligation to pay. The written agreement promising to pay is known as a debt instrument. Examples include bonds, notes, bills mortgages, etc.
DEBT CEILING See: Debt Limit.
DEBT LIMIT The maximum amount of debt which a municipality may incur.
DEBT SERVICE The yearly amount of interest and principal payable on a bond issue.
DEBT TO EQUITY The ratio of those securities which create fixed charges for a corporation to the company's common stock. It is calculated by dividing the total amount of bonds and preferred stock by the amount of common stock.
DEDUCTION An expense allowed by the IRS in calculating tax liability. See: Expense.
DEED OF TRUST See: Indenture.
DEEP DISCOUNT A bond trading substantially below its face value; a term typically used in reference to zero coupon bonds. See: Discount.
DEFAULT Failure of a debtor to make principal and/or interest payments. See: Bankruptcy.
DEFEASED BONDS Another term for advanced refunded bonds. Debt service is provided by escrowed government obligations and the defeased bonds are no longer an obligation of the issuer. See: Advanced Refunding.
DEFENSE COMPANY A company engaged in the production of armaments.
DEFENSIVE STOCK A stock which is relatively resistant to changes in general economic activity. Examples include food, utility, and tobacco stocks.
DEFICIENCY LETTER A notice sent by the SEC to the issuer of a new issue regarding omissions of material fact in the registration statement.
DEFLATION A persistent and appreciable fall in the general level of prices. It is characterized by production exceeding demand and normally takes place during a recession.
DELAYED OPENING The postponement of trading of an issue on a stock exchange beyond the normal opening of a day's trading because of market conditions that have been judged by exchange officials to warrant such a delay. Reasons for the delay might be an influx of either buy or sell orders, an imbalance of buyers and sellers, or pending corporate news that requires time for dissemination.
DELIVERY The physical act of exchanging securities and monies on settlement data. The industry has established rules regarding the condition of the securities which are considered in good "deliverable form".
DELIVERY VERSUS PAYMENT (DVP) See: COD Transactions.
DELTA A statistical measure of the price movement of an option contract in relation to the price movement of the underlying security. For example, if the underlying security increased by 2 points and the price of a call option on that security increased by 1 point that call option would have a Delta of ½.
DEMAND DEPOSIT A deposit in a bank where the depositor retains the right to withdraw at any time (on demand) without giving prior notice. Checking accounts are demand deposits.
DEPLETION ACCOUNTING Natural resources, such as metals, oil, gas, and timber, which conceivably can be reduced to zero over the years, present a special problem in capital management. Depletion is an accounting practice consisting of charges against earnings based upon the amount of the asset taken out of the total reserves in the period for which accounting is made. A bookkeeping entry, it does not represent any cash outlay nor are any funds earmarked for the purpose.
DEPOSITORY TRUST COMPANY (DTC) A central securities certificate depository through which members effect security deliveries between each other via computerized bookkeeping entries thereby reducing the physical movement of stock certificates.
DEPPRECIATION Normally, charges against earnings to write off the cost of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose. See: Accelerate, Straight-line.
DESCENDING YIELD CURVE See: Inverted Yield Curve.
DESIGNATED ORDER An order given to a municipal syndicate which designates one or more members to receive credit for the sale. The order is generally from a large institution.
DESIGNATED ORDER TURNAROUND (DOT) NYSE's automated order entry system. See: Automated Order Entry System.
DEVELOPMENTAL PROGRAM A type of oil and gas program which drills in areas of proven reserves (vs. Wildcatting).
DIAGONAL SPREAD An option spread position in which both the expiration dates and strike prices of the options are different.
DIRECTIONAL MOVEMENT INDEX (DMI)
A trend-following designed to determine whether a security is in a
trending or non-trending market.
DIRECTOR Person elected by shareholders to serve on the Board of Directors. The directors appoint the president, vice presidents, and all other operating officers. Directors decide, among other matters, if and when dividends shall be paid.
DIRECT PARTICIPATION PROGRAM (DPP) A business venture structured to pass-through income and "tax losses" to investors. Commonly structured as a limited partnership. See: Tax Shelter, Limited Partnership.
DISCLOSURE DOCUMENT A booklet outlining the risk associated with option trading, which must be given to clients at or before their account is approved for option trades.
DISCOUNT (1) A bond trading in the market at a price below its face value. (2) The amount a bond's market price is below its face value. (3) Securities which are issued for less than their face value and mature at per such at T-bills. At maturity the difference between purchase price and face is considered interest. (4) As a verb, to apply all available information in evaluating the price of a security.
DISCOUNT RATE The rate of interest charged by a Federal Reserve Bank on a loan to a member bank.
DISCOUNT WINDOW The mechanism by which member banks may borrow from the federal reserve. See: Discount Rate.
DISCOUNT YIELD Yield on a discount security (most notably T-bills). The computation of a discount yield differs from the calculation of yield to maturity on interest bearing securities. Therefore, one must adjust the discount yield in order to compare it with yields on interest bearing securities. See: Discount, Bond Equivalent Yield, Yield to Maturity.
DISCRETIONARY ACCOUNT An account in which the customer gives the broker or someone else authorization to buy and sell securities or commodities including selection, timing, amount, and price to be paid or received.
DISINTERMEDIATION The withdrawal of monies from a low yielding financial intermediary, such as a bank saving account, and the reinvestment into other, higher yielding securities.
DISPROPORTIONATE A sharing arrangement in an oil and gas D.P.P., in which the general partner bears a part of the program's cost in return for a greater percentage of the income.
DISSOLUTION The termination of a business venture.
DISTRICT BUSINESS CONDUCT COMMITTEE (DBCC) NASD committee that has original jurisdiction in handling violations by or complaints against NASD members. See: Code of Procedure.
DIVERSIFICATION Spreading investments among different types of securities and various companies in different fields.
DIVERSIFIED INVESTMENT COMPANY Under the Investment Company Act of '40, an Investment Company with respect to 75% of its portfolio, has no more than 5% of its portfolio invested in any one security and owns no more than 10% of the voting shares of any one company.
DIVIDEND The payments designated by the Board of Directors to be distributed pro rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortunes of the company and the amount of cash on hand and may be omitted if business is poor or the directors determine to withhold earnings to invest in plant and equipment. Sometimes a company will pay a dividend out of past earnings even if it is not currently operating at a profit.
DIVIDEND ACCOUNT A form of a new issue syndicate where a member is liable to sell a percentage of the issue equal to his participation. The member's liability ceases after selling his participation amount. A divided account is also known as a Western Account.
DIVIDEND FREQUENCY How often an issue pays dividends.
DIVIDEND PAYOUT RATIO This ratio analyzes a company's policy of paying cash dividends and is calculated by dividing the dividends paid on common stock by the net income available for common (earnings per share).
DIVIDEND REINVESTMENT A program in which a dividend paying company (especially mutual funds) will automatically apply an investor's dividend to the purchase of additional shares. The IRS taxes the dividend as a cash dividend whether received as cash or reinvested.
DIVIDEND YIELD The annual percentage of return that an investor receives on either common or preferred stock. The yield is based on the amount of the dividend divided by the market price 9at the time of purchase) of the stock.
DK (Don't Know) NOTICE A term used when dealers compare confirmations on a transaction. If a dealer receives a confirmation and the dealer does not recognize the trade, the dealer would send the other dealer a D.K. notice.
DOLLAR BOND A municipal term issue which is quoted and traded at a dollar price rather than at a yield to maturity.
DOLLAR COST AVERAGING A system of buying securities at regular intervals with a fixed dollar amount. Under this system the investor periodically purchases a certain dollars worth of a security rather than a certain number of shares. If each investment is for the same number of dollars, payments buy more shares when the price is low and fewer when it rises. Thus temporary downswings in price benefit the investor if he continues periodic purchases in both good times and bad. Dollar cost averaging will result in a lower average cost than the average price of the stock.
DOLLAR PRICE The price of a bond expressed as a percentage of face value. A dollar price of 85 represents 85% of face value or $850 per $1,000 face value.
DO NOT REDUCE (DNR) A designation on an order that the price should not be reduced for cash dividends.
DOT See: Designated order turnaround.
DOUBLE-BARRELED BOND A municipal bond with two separate pledged sources of security. Generally the revenues of the project or special revenues provide the initial security with secondary security provided by the general obligation taxing powers of the issuer.
DOW JONES AVERAGES See: Averages.
DOWN TICK See: Up Tick.
DOW THEORY A theory of market analysis based upon the performance of the Dow Jones industrial and transportation stock price averages. The theory states that the market is in a basic upward trend if one of these averages advances above a previous important high, accompanied or followed by a similar advance in the other. When the averages both dip below previous important lows, this is regarded as confirmation of a downward trend.
DUAL LISTINGS Same security listed both on the New York Stock Exchange and on a regional exchange.
DUAL-PURPOSE FUND A closed-end investment company that issues two types of shares: Income and capital. The income shares receive all the income, and the capital shares receive all the capital gains.
DUE-BILL A printed statement showing the transfer of a security's title or rights, or showing the obligation of a seller to deliver the securities or rights to the purchaser. If a security is purchased prior to the ex-date but delivered after the record date, the security will be delivered with a due-bill attached. The due-bill states that the purchaser is entitled to receive the dividend, rights, or additional shares of stock.
DUE DILIGENCE A phrase referring to careful consideration of a new issue. Underwriters will conduct meeting to asure that all pertinent information has been considered before issuance.
DUTCH AUCTION A method sometimes used when the Treasury is selling new notes or bonds. The Treasury opens all bids and determines the lowest acceptable bid price 9stop-out price). All successful bidders pay the stop-out price.
EARNED INCOME Income generated form employment: Wages, salary, commissions, bonuses, etc.
EARNED SURPLUS See: Retained Earnings.
EARNINGS BEFORE INTEREST AND TAXES (EBIT) Earning Before Interest and Taxes: The earnings of a company prior to paying bond interest taxes.
EARNINGS PER SHARE (EPS) (1) The amount of a corporation's earnings which is available to each share of common stock. It is calculated by dividing net income minus preferred dividends by the number of outstanding common shares. (2) "fully diluted" earnings per share assumes that all common stock equivalents (convertible bonds, preferred, warrants, rights) have been changed into common stock.
EARNINGS REPORT A statement (also called a profit and loss, or income statement) issued by a company that shows its earnings or losses over a given period. The earnings report lists the revenues, expenses, and the net result.
EARNINGS TEST See: Additional Bonds Test.
EASTERN ACCOUNT See: Undivided account.
EASY MONEY Loose Credit - A period during which there is an ample supply of money available for loan purposes.
EFFECTIVE DATE The day on which a new stock issue begins trading in the secondary market.
ELEVEN BOND INDEX The average yield (on a particular day) of eleven selected general obligation municipal bonds with 20 year maturities. It is comprised of eleven out of the twenty bonds from the Twenty Bond Index. It is calculated on Thursday afternoon and published in the Daily bond Buyer on Friday.
ENGINEERING REPORT A study followed by a report which is done by an engineering firm. It is done as part of the feasability study for a proposed municipal revenue issue.
EQUIPMENT TRUST CERTIFICATE A type of security, generally issued by a railroad to pay for new equipment. Title to the equipment, such as a locomotive, is held by a trustee until the notes are paid of. An equipment trust certificate is usually secured by a first claim on the equipment.
EQUITY (1) The ownership interest in a business venture; net worth. (2) Securities evidencing ownership: Preferred, common stock. (3) Margin Account: The customers ownership in the account, defined as market value of long positions minus debit balance, or credit balance minus market value of short positions.
EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) OR 1974 Federal law regulating private sector pension and retirement plans.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) A plan that encourages employees to buy the stock of their employer.
ERISA See: Employment Retirement Income Security Act of 1974.
ERRONEOUS REPORT RULE A rule of the NYSE in which a client must accept a valid execution as it occurred, regardless of any mistake in reporting.
ESCROW Money or securities held by a third party until conditions of a contract are met.
ESCROW RECEIPT The certificate provided by an approved bank which guarantees that the underlying securities of an option contract are on deposit at the bank and will be delivered if the option is exercised.
ESCROWED TO MATURITY (ETM) See: Advanced Refunding.
EX- "Without" (vs. Cum).
EXCHANGE (1) A centralized location where security or commodity transactions take place. (2) To switch form one mutual fund to another at little or no cost. See: Family of Funds. (3) An offer made by a corporation to replace one type of security with another.
EXCHANGE DISTRIBUTION A "cross" of a large block of stock where one broker is representing both the buyer and seller. Represented on the ticker by "DIST".
EXCHANGE RATE Price at which one country's currency can be converted into another currency.
EX-DIVIDEND A synonym for "without dividend". The buyer of a stock selling ex-dividend does not receive the recently declared dividend. Every dividend is payable on a fixed date to all shareholders recorded on the books of the company as of a specific date of record. For example, a dividend may be declared as payable to holders of record on the books of the company o a given Friday. Since five business days are allowed for delivery of stock in a "regular way" transaction on the New York stock Exchange, the exchange would declare the stock "ex-dividend" as of the opening of the market on the preceding Monday (four business days prior to the record date). That means anyone who bought it on and after Monday would not be entitled to that dividend. When stocks go ex-dividend, the stock tables include the symbol "x" following the name.
EX-DIVIDEND DATE The date when a stock is adjusted for its dividend.
EXEMPT SECURITIES Those securities which are exempt form the filing provision of the Securities Act of 1933 and from many of the provisions of the Securities Exchange Act of 1934. Exempt securities include municipals, governments, nonprofit organizations, and bank securities (vs. Non-Exempt).
EXEMPT TRANSACTION Is a securities transaction which is exempt from the requirements of registration, advertising, and sales literature.
EXERCISE PRICE The price at which the underlying security in an option contract can be bought (called) or sold (put).
EX-LEGAL The situation in which a municipal bond will be delivered without a legal opinion.
EXPENSE (1) For accounting purpose to record an outlay against revenue in the period incurred (vs. Capitalize). (2) An item which reduces income.
EXPIRATION The day on which an option contract becomes void.
EXPLORATORY PROGRAM See: Wildcatting.
EXPORT-IMPORT BANK (EXIM) A federal agency which facilitates exports by providing financing. It is backed by the full faith and credit of the U.S. Government.
EX-RIGHTS Without rights: During a rights offering, when the purchaser of stock does not receive rights. If stock is purchased on or after the ex-rights date (four business days prior to the record date), the purchaser does not receive rights.
EXTRA The short-term of "extra dividend". A dividend in the form of stock or cash in addition to the regular or usual dividend the company has been paying.
FACE AMOUNT CERTIFICATE A type of investment company where an investor makes periodic payments and at the end of a specified time period, the company pays the investor the face amount of the plan.
FACE VALUE The value of a bond that appears on the face of the bond. Face value is ordinarily the amount the issuer promises to pay at maturity. Face value is not an indication of market value. Face Value is also referred to as par value or principal amount.
FAMILY OF FUNDS A group of mutual funds managed by the same sponsor. Typically investors may apply purchases in all funds (within the family) toward sales charge breakpoints, as well as allowing investors to switch from one fund to another as conditions change. See: Breakpoint.
FANNIE MAE See: Federal National Mortgage Association.
FEASIBILITY STUDY A study done for a new municipal revenue issue to determine the feasibility of the project. It would estimate the service needs, construction costs, and future revenues and expenses.
FEDERAL FARM CREDIT SYSTEM A group of government agencies which extend credit to farmers. The system will raise money by selling "system-wide" debt instruments. See: Banks for Co-Ops, Consolidated Federal Intermediate Credit Banks, or Federal Land Bank.
FEDERAL FINANCING BANK (FFB) Established by Congress. It is authorized to acquire any obligation that is issued or guaranteed by a federal agency with the exception of the Farm Credit System, the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Corporation. This aids agencies in issuing obligations. The FFB borrows from the Treasury.
FED FUNDS (FEDERAL FUNDS) (1) The overnight borrowing of reserves by a bank from another bank. (2) Immediately available funds (vs. Clearing House Funds).
FED FUNDS RATE The rate banks charge each other on overnight loans of reserves held at the FRB. See: FED Funds.
FEDERAL HOME LOAN BANKS (FHLB) Operate as a credit reserve system for savings-related institutions in the U.S. They are supervised by the Federal Home Bank Board.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) Freddie Mae: Provides a secondary market for conventional residential mortgages. It issues a number of mortgage backed securities.
FEDERAL HOUSING ADMINISTRATION (FHA) Federal agency that insures lenders against defaults on residential mortgages.
FEDERAL INTERMEDIATE CREDIT BANKS (FICB) FICB's: Part of the Federal Farm Credit System. It provides intermediate-term loans for agricultural purposes.
FEDERAL LAND BANK (FLB) Part of the Federal Farm Credit System. It provides long-term loans to farmers an ranchers for various agricultural purposes.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) Fannie Mae: A privately owned corporation which provides a secondary market for federally guaranteed or insured mortgages as well as conventional mortgages. Its stock trades on the NYSE. It issues a number of different mortgage-backed securities.
FEDERAL OPEN MARKET COMMITTEE (FOMC) A committee of the Federal Reserve Board which operates by buying and selling government securities in the open market. The Fed's open market operation is its most effective tool of monetary control. It is also referred to as the Open Market Committee or FOMC.
FEDERAL RESERVE BOARD Governmental entity responsible for monetary policy within the United States. It seeks to control the supply of money and credit to control inflation and create a stable, growing economy.
FIDELITY BOND Each securities firm is required to have a fidelity bond (insurance policy) to provide protection for its customers in the event of fraud.
FIDUCIARY A person who is acting for another person and is therefore in a position of trust.
FIFO See: First-in - first-out FILL OR KILL (FOK) Immediately execute a transaction in its entirety, or cancel it.
FINANCIAL ADVISORY RELATIONSHIP An agreement where by a broker/dealer is paid to provide advice to a municipality regarding a new issue of bonds.
FINANCIAL FUTURES Futures contracts based on financial instruments such as U.S. Treasury bonds, CD's, and other interest-sensitive issues, currencies, and stock market indicators.
FINANCIAL GUARANTY INSURANCE COMPANY (FGIC) See: Insured Bonds.
FINDER A person who helps to arrange a transaction.
FIRM COMMITMENT A type of underwriting where the underwriters agree to purchase the entire issue from the issuer. If they do not sell the entire issue, they cannot return the unsold portion to the issuer.
FIRST-IN FIRST-OUT (FIFO) A method of inventory valuation which assumes the oldest inventory (first-in) is sold first (first-out) (vs. LIFO).
FISCAL POLICY Involves taxation and government spending. It is conceived by the Office of Management and Budget and is approved by Congress.
FISCAL YEAR A corporation's accounting year. Due to the nature of their particular business, some companies do not use the calendar year for their bookkeeping. A typical example is the department store which finds December 31 too early a date to close its books after the Christmas rush. For that reason many stores wind up their accounting year January 31. Their fiscal year, therefore, runs from February 1 of one year through January 31 on the next. The fiscal year of other companies may run from July 1 through the following June 30.
FITCH'S RATING SERVICE A rating agency for certain specific types of municipal bonds.
FIVE PERCENT (5%) MARK-UP POLICY An NASD guideline used when determining the price that a broker/dealer charges a customer or pays a customer for securities.
FIXED ANNUITY An annuity contract in which the insurance company makes fixed (or guaranteed) dollar payments to the annuitant for the term of the contract (usually until he or she dies).
FIXED ASSETS Those assets of a corporation which are not intended for sale. These include buildings, machinery, equipment, furniture, and fixtures.
FIXED CHARGES A company's fixed expenses, such as bond interest, which it has agreed to pay whether or not earned, and which are deducted from income before earnings on equity capital are computed.
FLAT This term means that the price at which a bond is traded includes consideration for all unpaid accruals of interest. Bonds which are in default of interest or principal are traded flat. Income bonds, which pay interest only to the extent earned are usually traded flat. All other bonds are usually dealt in "and interest", which means that the buyer pays to the seller the market price plus interest accrued since the last payment date. See: Accrued Interest.
FLOAT (1) to issue or underwrite securities. (2) The number of shares of a corporation available to the investing public. (3) The time it takes for a check to clear the banking system.
FLOOR Trading area where stocks and bonds are bought and sold on an exchange.
FLOOR BROKER A member of an exchange who executes orders on the floor of the exchange to buy or sell any listed securities. See: Commission Broker and Two-Dollar Broker.
FLOWER BOND A U.S. Treasury Bond which is accepted at face value to pay estate tax. It trades at a discount since it has a relatively low interest rate (3% to 4%).
FLOW OF FUNDS The sequence of payment to different funds which will be used in a revenue issue. Usually Revenue Fund to Operations & Maintenance Fund to Debt Service Fund etc.
FOREIGN CURRENCY OPTIONS PRINCIPAL (FCOP) See: Registered Options Principal.
FORMULA INVESTING An investment technique. One formula calls for the shifting of funds from common shares to preferred shares or bonds as a selected market indicator rises above a certain predetermined point and the return of funds to common shares investments as the market average declines.
FORWARD PRICING The method in which the price of a mutual fund transactions determined. Orders for the purchase of mutual fund shares will be executed at the next calculated NAV (plus sales charge if any). Likewise for shares being redeemed by the fund.
FOURTH MARKET Direct trading of stock between institutional investors to avoid brokerage commissions. In some cases, this is done through the "Instinet" system.
FREDDIE MAC See: Federal Home Loan Mortgage Corporation.
FREE AND OPEN MARKET A market in which supply and demand are freely expressed in terms of price. Contrast with a controlled market in which supply, demand, and price may all be regulated.
FREE-RIDING (1) When an underwriter does not make a legitimate offering of a hot issue, but instead holds back (retains) some securities for its own use. (2) When a client buys and sells securities without paying for them. See: Frozen Account.
FRONT-END LOAD See: Contractual Plan.
FROZEN ACCOUNT An account in which the customer has violated Reg. T by not paying within seven business days. A purchase or sale in a frozen account will only be done when sufficient funds or the securities are I the account.
FUNCTIONAL ALLOCATION An arrangement between the general partner and limited partner of an oil and gas program in which the limited partners are charged the tax deductible expenses and the general partner bears non-deductible costs.
FUNDAMENTAL RESEARCH Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets, and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc.
FUNDED DEBT Usually interest-bearing bonds or debentures of a company. Could include long-term bank loans. Does not include short-term loans, preferred, or common stock. Relative to municipalities, it is the total outstanding bonded debt.
FUTURES Exchange traded contracts specifying a future date of delivery or receipt of a certain amount of a specific tangible or intangible product. The commodities traded in futures markets include agricultural products like wheat, soybeans, and port bellies, metals, and financial instruments. Futures are used by business as a hedge against unfavorable price changes and by speculators who hope to profit from such changes.
GENERAL MORTGAGE BOND A bond which is secured by a blanket mortgage on the company's property, but which may be outranked by one or more other mortgages.
GENERAL OBLIGATION BOND (G.O.) A municipal bond secured by the taxing power of the issuer. It is also known as a full faith and credit bond since it is secured by the full faith, credit, and taxing power of the issuer.
GENERAL PARTNER The partner in a limited partnership responsible for all management decisions of the partnership. The general partner has a fiduciary responsibility to act for the benefit of the limited partners. The general partner is fully liable for its actions. See: Limited Partner.
GILT-EDGED High-grade bond issued by a company which has demonstrated its ability to earn a comfortable profit over a period of years and pay its bondholders their interest without interruption.
GINNIE MAE See: Government National Mortgage Association.
GIVE-UP A term with many different meanings. For one, a member of the Exchange on the floor may act for a second member by executing an order for him with a third member. The first member tells the third member that he is acting on behalf of the second member and "gives up" the second member's name rather than his own.
GOLD FIX The setting of the price of gold by dealers (especially in a twice-daily London meeting at the central bank). The fix is the fundamental worldwide price for setting prices of gold bullion and gold-related contracts and products.
GOOD DELIVERY Certain basic qualifications must be met before a security which has been sold may be delivered. The security must be in proper form to comply with the contact of sale and to transfer title to the purchaser.
GOOD FAITH DEPOSIT The check which accompanies a syndicate's bid for a new municipal issue.
GOOD TILL CANCELLED ORDER (GTC) OR OPEN ORDER An order to buy or sell which remains in effect until it is either executed or cancelled.
GOVERNMENT BONDS Obligations of the U.S. Government, regarded as the highest grade securities issues.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATIN (GNMA) Ginnie Mae: A wholly owned government corporation within the Department of Housing and Urban Development. It help raise funds for the mortgage market by guaranteeing securities backed by pools of mortgages.
GROSS NATIONAL PRODUCT (GNP) The total value of goods and services produced by the economy in a given period. "Real GNP" measures economic production in constant dollars; which takes into account the effect of inflation.
GROUP ORDER An order placed with a municipal syndicate where the entire syndicate (group) will share in the sales credit.
GROWTH STOCK Stock of a company with a record of growth in earnings at a relatively rapid rate.
GUARANTEED Refers to securities that have a guarantee, from a source other than the issuer; as to payment of principal, interest, or dividend.
HEAD AND SHOULDERS A technical trading pattern that resembles a head and two shoulders. In a head and shoulders top formation,t eh stock reaches one plateau (the left shoulder), then goes still 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. A head and shoulders bottom pattern signifies the reversal of a downward trend.
HEDGING The use of two nearly opposite-direction securities, instruments, or futures contracts as a means of attempting to reduce market risk.
HIGH The highest price an issue has traded at during the trading day on any exchange.
HISTORIC REHABILITATION A type of real estate D.P.P. designed to take advantage of a tax credit allowed for the restoration of older buildings.
HSTORICAL VOLATILITY (beta) This number is based on the standard deviation of weekly returns over the last 26 weeks annualized by multiplication by the square root of 52. Returns are computed close to close. The higher the number the more volatile the stock.
HOLDER The buyer or owner of a security; long.
HOLDING COMPANY A corporation which owns the securities of another, in most cases with voting control.
HOLDING PERIOD The time period that an investor has owned a security. It commences on the day after the purchase (day after trade date) and ends on the day of the sale (trade date). It determines whether a gain or loss is considered short-term or long-term.
HORIZONTAL SPREAD See: Calendar Spread.
HOT ISSUE When a new stock issue trades at an immediate premium (secondary market price on the effective date is above the new issue offering price). Purchase of shares of a hot issue by employees of brokerage firms, their immediate families, and other individuals is either prohibited or restricted.
HYPOTHECATION The pledging of securities as collateral. For example, to secure the debit balance in a margin account.
IMMEDIATE OR CANCEL ORDER (IOC) An order where as much of the order as possible must be executed immediately. Any part of the order that is not executed, is cancelled.
IMPLIED VOLATILITY A mathematical calculation made using one of the option evaluation models, which includes the option premium observed on the market, as well as other important factors to help determine the option's volatility.
INCOME BOND Generally income bonds promise to repay principal but to pay interest only when earned. In some cases unpaid interest on an income bond may accumulate as a claim against the corporation when the bond becomes due. An income bond may also be issued in lieu of preferred stock. Also called an Adjustment Bond.
INCOME FUND A type of mutual fund whose portfolio consists of income producing securities such as bonds and preferred stock.
INCOME PROGRAM An oil and gas D.P.P. designed to primarily generate income by purchasing and operating producing wells. (vs. Drilling Program).
INCOME STATEMENT See: Earnings Report.
INCOME STOCK A stock which pays a relatively high dividend.
INDENTURE A written agreement under which bonds and debentures are issued, setting forth maturity date, interest rate, and other terms. It is the contract executed by the issuer and trustee (who acts for the bondholders). Also known as Deed of Trust.
INDEPENDENT BROKER Member on the floor of the NYSE who executes orders for other brokers having more business at that time than they can handle themselves, or for firms who do not have their Exchange member on the floor. Formerly known as Two-Dollar Brokers from the time when these independent brokers received $2 per hundred shares for executing such orders. Their fees are paid by the commission brokers.
INDEX (1) A statistical yardstick expressed in terms of percentages of a base year or years. For instance, the Federal Reserve Board's index of industrial production is based on 1967 as 100. An index is not an average. (2) Statistical measure of a group of stocks such as the S&P 500. The indices can be broad based 9which cover a wide range of companies and mirror the "market" as a whole) or narrow based 9which consist of securities from a particular industry).
INDEX FUND A mutual fund with the objective to approximate the general market.
INDEX OPTION Option contracts traded on an underlying index, not any particular security. Examples are S&P 100, Major Market Index, and NYSE Index Option Contracts.
INDICATION OF INTEREST Non-binding indication of a client received before the effective date for the possible purchase of a new issue.
INDICATORS (1) Measures of economic activity used by economics to predict or confirm the general direction of the economy as a whole. (2) Measures used by technical analysts to forecast the movement of a stock or the market in general.
INDUSTRIAL DEVELOPMENT BOND A bond issued by a municipality which is secured by a lease agreement with a corporation.
INFLATION The persistent and appreciable rise in the general level of prices. It is normally associated with periods of expansion and high employment.
INITIAL PUBLIC OFFERING (IPO) The first public issue of stock from a company which has not been publicly traded before.
INSIDER An officer or director of a corporation or any person owning 10% of the company's stock (and their families), or anyone with non-public (inside) information. Transactions in a corporation's stock by insiders is regulated by federal regulations. See: Rule 144.
INSTINET See: Fourth Market.
INSTITUTIONAL INVESTOR An organization whose primary purpose is to invest its own assets or those held in trust by it for others. Includes pension funds, investment companies, insurance companies, universities, and banks.
INSURED BONDS Municipal bonds which are covered by a insurance policy which pledges that should the issuer fail to make a payment, the insurance company will pay all interest and principal due. Major insurers include MBIAC, AMBAC, FGIC, and BIGI.
INTANGIBLE ASSETS Those assets of a corporation which are not physical. These include good will, trade marks, and patents.
INTANGIBLE DRILLING COSTS The outlays associated with drilling an oil or gas well, which upon completion of the well have no physical value such as labor, geologist expense, core analysis, etc. Most of these costs are tax deductible in the year they are incurred.
INTERBANK MARKET The unregulated international trading of foreign currencies between banks, which establishes foreign exchange rates.
INTEREST Payments a borrower pays a lender for the use of his money. A corporation pays interest on its bonds to the bondholders.
INTEREST RATE OPTIONS Option contracts traded on underlying debt instruments.
INTEREST RATE RISK The risk that should interest rates rise, an investment in a fixed income security will decrease in value. This will cause a decrease in the overall return which the investor receives as it relates to newly issued securities.
INTERMEDIATION The placement of money with financial intermediaries (banks, thrifts, insurance companies) which in turn invest in stocks, bonds, and/or mortgages. See: Disintermediation.
IN-THE-MONEY Refers to an option with intrinsic value. For example: A call option in which the underlying security is selling above the strike price, or a put option in which the underlying security is selling below the strike price.
INTRA-STATE OFFERING A new issue of securities which will be sold only to investors residing in one state. An intra-state issue is exempt from the filing provisions of the Securities Act of 1933 under Rule 147.
INTRINSIC VALUE The amount that the market price of a stock is above the strike price of a call option or below the strike price of a put option o that stock (the in-the-money amount).
INVENTORY TURNOVER Used by a fundamental analyst when examining a corporation's financial statement. It is the company's cost of goods sold (from the income statement) divided by the year-end inventory (from the balance sheet).
INVERTED YIELD CURVE The curve formed when plotting yield vs. maturity during a period when short-term yields (interest rates) are higher than long-term yields. This occurs during periods of tight money and tight credit. It is also called a negative yield curve and descending yield curve.
INVESTMENT The use of money for the purpose of making more money, to gain income or increase capital, or both.
INVESTMENT BANKER Also known as an underwriter. An investment banker assists corporations in issuing new securities to the public. The usual practice is for one or more investment bankers to buy outright from a corporation a new issue of stocks or bonds. The group forms a syndicate to sell the securities to individuals and institutions. Investment bankers also distribute very large blocks of stock or bonds, perhaps held by an estate.
INVESTMENT COMPANY A company or trust engaged in the business of investing in (and trading) securities. The definition includes face amount certificates, unit investment trusts, and management companies. There are two types of management companies, closed-end and open-end (mutual fund). Shares in closed-end investment companies, some of which are listed on the New York Exchange, are readily transferable in the open market and are bought and sold like other shares. Capitalization of these companies remains the same unless action is taken to change, which is seldom. Open-end funds (mutual funds) sell their own new shares to investors, stand ready to buy back their old shares, and are not listed. Open-end funds are so called because their capitalization is not fixed; they issue more shares as people want them.
INVESTMENT COMPANY ACT OF 1940 The federal law which regulates investment companies.
INVESTMENT COUNSEL One whose principal business consists of acting as investment adviser and rendering investment supervisory services.
INVESTMENT GRADE Refers to bonds rated in the top four rating categories by Moody's or Standard & Poors which are eligible for investment by fiduciaries. See: Legal List.
INVESTMENT INCOME See: Portfolio Income.
INVESTMENT LETTER A letter signed by an investor purchasing unregistered long securities under Regulation D in which the investor attests to the long-term investment nature of the purchase. These securities, also known as letter stock, must be held for a minimum of 2 years before they can be sold. See: Rule 144.
IRA Individual Retirement Account. A pension plan with major tax advantages. Any worker with earned income can begin an IRA and contribute up to $2,000 annually. An IRA permits investment through intermediaries like mutual funds, insurance companies, and banks or directly in stocks and bonds through stock brokers.
IRA ROLLOVER The reinvestment of assets received as a lump-sum distribution from a qualified tax-deferred retirement plan. Reinvestment may be the entire lump sum or a portion of that sum. If the reinvestment is done within 60 days, there are no tax consequences.
ISSUE Any of a company's securities or the act of distributing such securities.
ISSUED SHARES The amount of common shares which a corporation has sold (issued).
ISSUER Refers to the organization issuing or proposing to issue a security.
INTERMARKET TRADING SYSTEM (ITS) An electronic communications network now linking the trading floors of seven registered exchanges to foster competition among them in stocks listed on either the NYSE or AMEX and one or more regional exchanges. Through ITS, any broker or market-maker on the floor of any participating market can reach out to other participants for an execution whenever the nationwide quote shows a better price is available.
JAWBONING See: moral Suasion.
JOINT TENANTS (JT) An account with two owners. (1) "WROS": With Rights of Survivorship. In the event of the death of one party, the survivor receives total ownership. (2) "TIC": Tenants in Common: In the event of the death of one party, the survivor receives one half of the account, the other half goes to the deceased's estate.
KEOGH PLAN (HR 10 PLAN) Tax advantaged personal retirement program that can be established by a self-employed individual. Currently, annual contributions to a plan can be up to $30,000. Such contributions and reinvestments are not taxed as they accumulate but will be when withdrawn (presumably at retirement when taxable income may be less).
LAST-IN FIRST-OUT (LIFO) An inventory valuation method which assumes the newest inventory (last-in) is sold first (first-out) (vs. FIFO).
LAST SALE The last price a stock was traded at (includes all exchanges).
LEGAL LIST A list of investments selected by various states in which certain institutions and fiduciaries, such as insurance companies and banks, may invest. Legal lists are often restricted to high quality securities meeting certain specifications.
LEGAL OPINION The written opinion of bond counsel which attests to the fact that the municipal issue was legally authorized and issued and to the tax status of the interest. See: Qualified Legal Opinion.
LEGAL TRANSFER Transfer of securities registered in the name of decedents, fiduciaries, trusts, bankruptcy, corporation, partnership, clubs, institutions, etc. Transfer of items which are not generally recognized as good delivery items.
LETTER OF CREDIT Usually issued by a commercial bank or private corporation which provides the primary or secondary security for the bond issue.
LETTER OF INTENT (LOT) A document signed by an investor when purchasing shares of a mutual fund. It indicates the investor's intention to invest enough during the coming 13 months to reach a breakpoint and thereby receive a reduced sales charge. The letter of intent may be backdated a maximum of 90 days. See: Breakpoint.
LETTER OF NOTIFICATION Document filed with regional SEC office by issuers utilizing Regulation A. See: Regulation A.
LETTER OF TRANSMITTAL A form used in transmitting securities to the transfer agent. Generally used for exchanges and tenders.
LETTER STOCK See: Investment Letter.
LETTERS TESTAMENTARY A certificate issued by the court evidencing the appointment of the executor of an estate.
LEVEL DEBT SERVICE Yearly interest and principal payments which remain relatively constant for the life of the bond issue.
LEVE I, II, AND III See: NASDAQ LEVERAGE The effect on a company when the company has bonds, preferred stock, or both outstanding. Example: If the earnings of a company with 1,000,000 common shares increase form $1,000,000 to $1,500,000, earnings per share would go from $1 to $1.50, or an increase of 50 per cent. But if earnings of a company which had to pay $500,000 in bond interest increased that much, earnings per common share would jump from 50 cents to $1 a share, or 100 per cent.
LEVERAGED BUYOUT (LBO) Taking over a company using borrowed funds. In many cases, the loans for a LBO are secured by the assets of the ocmpany being acquired.
LIABILITIES All the claims by creditors against a corporation. Liabilities include accounts payable, wages and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term liabilities such as mortgage bonds, debentures and bank loans.
LIFO See; Last-in - first-out LIMIT, LIMITED ORDER, OR LIMITED PRICE ORDER An order to buy or sell a stated amount of a security at a specified price or at a better price.
LIMITED LIABILITY A situation in which an investor can lose no more than the amount invested.
LIMITED PARTNER An investor in a limited partnership who has no voice in the management of the partnership. Limited Partners have limited liability and usually have priority over general partners upon liquidation of the partnership. See: Limited Partnership.
LIMITED PARTNERSHIP A non-taxable business entity used primarily in D.P.P.'s. Each investor is responsible for the taxes on their portion of the business' income or loss. See: Direct Participation Program.
LIMITED TAX BOND A municipal bond issue which is secured by a pledge of taxes but limited as to the rate or amount.
LINEAR REGRESSION a statistical
tool used for forecasting future price. The concept behind linear
regression is to find the best estimate of the trend given a noisy sample
of data points.
LIQUIDATION (1) The process of converting securities or other property into cash. (2) The dissolution of a company, with cash remaining after sale of its assets and payment of all indebtedness being distributed to the shareholders.
LIQUIDITY The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. Liquidity is one of the most important characteristics of a good market.
LISTED STOCK The stock of a company which is traded on a securities exchange. The various stock exchanges have different standards for listing.
LOAD The portion of the offering price of shares of open-end investment companies (mutual funds) in excess of the value of the underlying assets which covers sales commissions and all other costs of distribution. The load is usually incurred only on purchase, there being in most cases, no charge when the shares are sold (redeemed).
LOAN CONSENT An agreement signed by a margin client which allow the broker/dealer to lend securities to a third party.
LOAN VALUE The maximum amount of credit a broker/dealer can extend to a client under Reg. T of the FRB.
LOCKED IN An investor is said to be locked in when he has a profit on a security he owns but does not sell because his profit would immediately become subject to the capital gains tax.
LONG Signifies ownership of securities: "I am long 100 IBM" means the speaker owns 100 shares of IBM.
LONG COUPON Refers to the first interest payment (from dated date to first payment date) on a municipal bond. A long coupon represents interest for less than six months.
LONG-TERM EQUITY ANTICIPATION SECURITY (LEAPS) A long-term (usually more than one year) exchange traded equity option.
LONG-TERM LIABILITIES A corporation's liabilities which are due in more than one year. These include bonds and long-term loans.
LOOSE CREDIT See: Easy Money.
M1 Basic money supply - it includes currency in circulation and demand deposits (checking accounts). NOW accounts and Super-NOW accounts are included in demand deposits.
M2 Wider money supply - it includes M1 (currency in circulation and demand deposits) plus savings accounts and other time deposits.
MAINTENANCE Minimum equity required to be kept in a margin account. Current NASD/NYSE maintenance requirements are 25% in a long account and 30% in a short account.
MALONEY ACT OF 1938 An amendment to the Securities Exchange Act of 1934. It allowed self-regulation by securities firms involved in the over-the-counter market. The NASD was formed as a result of this act.
MANAGEMENT COMPANY A type of investment company organized as a corporation which actively manages (trades) the portfolio of securities held by the investment company. See: Investment Company.
MANAGEMENT FEE Expense paid by an investment company to the investment advisor for managing the portfolio.
MANAGER The syndicate manager. See: Syndicate.
MANAGER'S FEE A portion of the underwriting spread paid to the syndicate manager.
MANIPULATION An illegal operation. Buying or selling a security for the purpose of creating false or misleading appearance of active trading or for the purpose of raising or depressing the price to induce purchase or sale by others.
MARGIN (1) Profit e.g. "Gross Margin". (2) "On Margin": To use credit to finance securities transactions. (3) "Account": An account established by a broker/dealer to extend credit (4) "Dept": The area of brokerage operations supervising the extension of credit.
MARGIN CALL A demand upon a customer to deposit money or securities with the broker. A Reg. T margin call is sent when a purchase is made an a maintenance margin call is sent when equity falls below specific levels. See: Maintenance Requirements, and Regulation T.
MARK DOWN Reducing the price of a security. Usually when a dealer buys a security from a customer.
MARKET ORDER A order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order is entered.
MARKET PRICE The last reported price at which the stock or bond sold or the current quote.
MARKET RISK The risk that the value of a security will decline. Relating to fixed income securities, it is closely related to interest rate risk since as interest rates rise, prices will decline.
MARK TO MARKET To compare (and adjust) contract price to market price.
MARK UP Increasing the price of a security. Usually when a dealer sells a security to a customer.
MARRIED PUT The purchase of a put option and the underlying stock on the same day. Special tax rules apply if the put expires.
MATCHED SALE See: Reverse Repo.
MATURITY The date on which a loan or bond comes due and is to be paid off.
MEMBER ORDER An order given to a municipal syndicate in which a single member receives credit for the sale. Typically the last type of order to be filled by the syndicate.
MEMBER ORGANIZATION A securities brokerage firm having at least one general partner, officer. It employee who is a member of the New York Stock Exchange.
MERGER Combination of two or more corporations in which greater efficiencies are supposed to be achieved by the elimination of duplicated plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarge company.
MILL Used in computing the property tax which is owed on real estate. A mill equals 0.1% (.001) of assessed value or $1 per $1,000 of assessed value.
A relatively straightforward indicator that measures the rate of change
in price as opposed to price itself.
MONETARY POLICY Control of the availability of money and credit. It is the province of the Federal Reserve Board.
NONEY MAKET The market for short term debt instruments maturing in one year or less. Money market instruments include T-bills, Commercial Paper, Banker's Acceptances, CD's, Repo's, and Federal Funds.
MONEY MARKET FUND A mutual fund investing in money market instruments.
MONEY SPREAD See: Price Spread.
MONEY SUPPLY The amount of money in the economy. It is defined as M1 or M2 measurements. See: M1; M2.
MOODY'S A company which publishes a variety of resource materials relating to securities. It provides a rating service for both municipal and corporate securities.
MORAL OBLIGATION BOND A bond secured by revenues which is additionally secured by a moral, but not legal pledge from the state to make up any deficiencies. The state legislature would have to approve any makeup funds.
MORAL SUASION Influence the Federal Reserve uses to persuade the banking system to comply with Federal objectives. Also known as Jawboning.
MORTGAGE BOND A bond secured by a mortgage on a property. The value of the property may or may not equal the value of the bonds issued against it.
MOVING AVERAGE (MA) Shows
the average value of a security's price over time. Our charts use
exponential moving averages.
MOVING AVERAGE CONVERGENCE AND DIVERGENCE (MACD) The difference between a fast exponential moving average (fast EMA) and a slow exponential moving average (slow EMA).
MULTIPLIER (1) "Effect": The ability of the commercial banking system to "create money" through lending activity. (2) Options: Refers to the $100 multiplier used to determine aggregate strike price and premiums on index options.
MUNICIPAL BOND A bond issued by a state or a political subdivision, such as county, city, town or village. The term also designates bonds issued by state agencies and authorities. In general, interest paid on municipal bonds is exempt from federal income taxes and state and local income taxes within the state of issue.
MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION (MBIAC) See: Insured Bonds.
MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB) The self-regulatory organization of the municipal securities industry. Created in 1975, it has primary responsibility for development of rules and regulations to govern the activities of municipal securities dealers.
MUNIFACTS The newswire service for the municipal bond industry. This is a product of the Blue List. Both news items and secondary market offerings are printed throughout the day.
MUTUAL FUND A type of investment company that offers for sale or has outstanding securities which it has issued and which are redeemable on demand by the fund at current net asset value. All owners in the fund share in the gains or losses of the fund. Also see Investment Company.
NAKED See: Uncovered.
NASD The National Association of Securities Dealers - an association of brokers and dealers in the over-the-current securities business. NASD is dedicated to "adopt, administer, and enforce rules of fair practice and in general to promote just and equitable principles of trade for the protection of investors".
NASDAQ An automated information network which provides brokers and dealers with price quotations on securities traded over-the-counter. NASDAQ is an acronym for National Association of Securities Dealers Automated Quotations. The system has three levels. Level I shows highest bid and lowest offer in the system. Level II shows individual market maker's quotes. Level III is used by market makers to enter their quotes into the system.
NATIONAL MARKET SYSTEM (NMS) Part of the NASDAQ system that shows actual transactions, last trade, and volume data. See: NASDAQ.
NEAR-THE-MONEY Those strikes (puts and call) which are nearest the underlying stock price.
NEGATIVE YIELD CURVE See: Inverted Yield Curve.
NEGOTIABLE A security whose title is transferable by delivery; a security which can be sold.
NEGOTIATED ISSUES A new issue where the issuer appoints an underwriter rather than having a number of underwriters compete for the issue.
NET ASSET VALUE (NAV) Usually used in connection with investment companies to mean net asset value per share. An investment company computes its assets daily, or even twice daily, by totaling the market value of all securities owned. All liabilities are deducted, and the balance divided by the number of shares outstanding. The resulting figure is the net asset value per share. The net asset value of a mutual fund (open-end investment company) is the bid and redemption price.
NET BONDED DEBT Total general obligation debt minus self-supporting debt.
NET CHANGE The change in the price of a security from the closing price of the previous day. The net change is ordinarily the last figure in the newspaper stock price list.
NET INCOME The net earnings of a corporation after deducting all costs of selling, depreciation, interest expense, and taxes.
NET INTEREST COST (NIC) Indicates the average weighted coupon rate for a new municipal issue. For a competitive issue the issuer may request that the syndicates submit their bids in the form of an NIC. The lowest NIC bid will be awarded the issue. See: True Interest Cost.
NET YIELD The after tax adjusted yield o a taxable bond, used for comparison with a tax exempt municipal yield.
NEW HOUSING AUTHORITY (NHA) See: Public Housing Authority.
NEW ISSUE A security sold by an issuer for the first time. Proceeds may be used to retire outstanding securities of the issuer, for new plant or equipment, or for additional working capital.
NEW YORK FUTURES EXCHANGE (NYFE) A subsidiary of the New York Stock Exchange devoted to the trading of financial futures contracts.
NEWYORK STOCK EXCHANGE (NYSE) The largest organized securities market in the United States, founded I 1792. The Exchange itself does not buy, sell, own, or set the prices of stocks traded there. The prices are determined by public supply and demand. The Exchange is a not-for-profit corporation of 1,366 individual members, governed by a Board of Directors consisting of 10 public representatives, 10 Exchange members or allied member, and a full-time paid chairman and president. Also known as the Big Board.
NO LOAD FUND A mutual fund which charges no sales charge on the purchase of shares.
NOMINAL OWNER See: Beneficial Owner, Street Name.
NOMINAL YIELD The state rate of interest that a bond pays the holder, based on par value. It is also known as the coupon, coupon rate, and interest rate.
NON-ACCREDITED An investor not considered accredited for a Reg. D offering. See: Accredited.
NON-COMPETITIVE TENDER A method that a small investor can use to purchase Treasury bills at the original auction. The individual enters a non-competitive tender for a minimum of $10,000 and a maximum of $1,000,000. T-bills will be awarded to the individual at the average yield of the accepted competitive bids.
NON-CUMULATIVE A type of preferred stock on which unpaid dividends do not accrue. Omitted dividends are, as a rule, gone forever.
NONEXEMPT SECURITIES Securities which are subject to the filing requirements of the Securities Act of 1933 and the provisions of the other federal securities acts (vs. Exempt).
NON-ISSUER Refers to securities transactions made for the benefit of someone other than the issuer.
NON-QUALIFIED A retirement plan (or annuity) in which after-tax dollars are invested and payments form the plan are considered part return of principal (not taxed) and part earnings (taxed). (vs. Qualified Plan).
NON-RECOURSE LOAN A loan obtained by a limited partnership in which the lender has claim only against the partnership as a whole, not against the individual limited partners. For tax purposes, if the partnership invests in real estate, the limited partner can include its portion of the non-recourse loan in its basis. See: Basis.
NORMAL YIELD CURVE See: Positive yield Curve.
NOT HELD ORDER An order which gives the floor broker discretion as to time and price.
NOTICE OF SALE The advertisement used by a municipal issuer announcing its intention to sell a new issue and inviting municipal underwriters to enter bids for the issue.
NYSE COMMON STOCK INDEX A composite index covering price movements of all common stocks listed on the New York Stock Exchange. It is based on the close of the market December 31, 1965 as 50.00 and is weighted according to the number of shares listed for each issue. The index is computed continuously and printed on the ticker tape each half hour. Point changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility, and finance.
ODD LOT An amount of stock less than the established unit of trading (round lot): from 1 to 99 shares for the great majority of issues, 1 to 9 for certain inactive stocks.
ODD LOT THEORY An investment strategy which assumes that the small investor is always wrong. Using odd lot buying and selling patterns as indicators of small investor activity, this theory maintains that one should buy as odd lot selling increases and vice versa.
OFF-BOARD This term may refer to transactions over-the-counter in unlisted securities, or to a transaction of listed shares that is not executed on a national securities exchange.
OFFER The price at which a person is ready to sell. Opposed to bid, the price at which one is ready to buy.
OFFERING CIRCULAR See: Prospectus.
OFFICIAL STATEMENT Prepared for a new municipal issue by or for the issuer. It contains a complete description of the issue and financial details about the issuer. MSRB rules require that a copy of the official statement be given to each purchaser of a new issue, if one has been prepared.
OIL DEPLETION ALLOWANCE An allowable (by congress) percentage of tax-free income that an investor in an oil and gas limited partnership can receive from the gross revenues generated by the sale of gas and oil from a producing property.
ON BALANCE VOLUME (OBV) relates price to volume, and tries to capture the buying and selling pressure in the market. It assumes that when a security closes up for the day, the number of shares transacted represent buying power. Conversely, the amount of volume on a down day represents selling power.
OPEN-END INDENTURE A secured bond indenture which allows the repledging of collateral for additional bonds. Usually subject to certain limitations. See: Additional Bonds Test.
OPEN-END INVESTMENT COMPANY See: Investment Company.
OPENING TRANSACTION The purchase or sale of an option transaction to establish or increase a position.
OPEN MARKET COMMITTEE See: Federal Open Market Committee.
OPEN ORDER See: Good Till Cancelled Order.
OPERATING INCOME An entry on a company's income statement. It is the company's net sales minus cost of goods sold, selling and administrative costs, and depreciation. It is an indication of the company's profit directly related to its primary business.
OPERATING PROFIT MARGIN A ratio used fundamental analysts. It is a company's operating income divided by net sales.
OPTION A right to buy (call) or sell (put) a fixed amount of a given stock at a specified price within a limited period of time. The purchase 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.
OPTIONS CLEARING OCRPORATION (OCC) The OCC is the organization through which the various options exchanges clear their trades. It supervises the listing of options and guarantees performance on option contracts.
ORDER BOOK OFFICIAL (OBO): Found on the CBOE, the OBO maintains a book of public orders for future execution.
ORDER ROOM A department in a brokerage firm that receives all orders to buy or sell securities.
ORDER SUPPORT SYSTEM (OSS) Automated order execution system used on the CBOE. See: Automated Order Execution System.
ORIGINAL ISSUE DISCOUNT (OID) A new issue bond offered at a discount (below par). The bond's value must be increased (accreted) over its life from the original discounted price up to par. See: Accretion.
OUT-OF-THE-MONEY Refers to an option that has no intrinsic value. For example, a put option in which the stock is selling above the exercise price or a call option in which the stock is selling below the exercise price.
OUTSTANDING STOCK The amount of common shares of a corporation which are in the hands of investors. It is equal to the amount of issued shares less treasury stock.
OVERBOUGHT An opinion as to price levels. May refer to a security which has had a sharp rise or to the market as a whole after a period of vigorous buying, which it may be argued, has left prices "too high" (vs. Oversold). See: Resistance.
OVERLAPPING DEBT Debt of a political entity such as a county where its tax base overlaps the tax base of another political entity such as a city within the county.
OVERRIDING ROYALTY An arrangement between the general partner and limited partner of an oil and gas program in which the general partner receives a flat fee per barrel produced.
OVERSOLD The reverse of overbought. A single security or a market which, it is believed, has declined to an unreasonable level (vs. Overbought). See: Support.
OVER-THE-COUNTER (OTC) A market for securities made up of securities dealers who may or may not be members of a securities exchange. The over-the-counter market is conducted over the telephone and is a negotiated market rather than at auction market such as the NYSE. Over-the-counter dealers may act either as principals or as brokers for customers. The over-the-counter market is the main market for bonds of all types.
P/E RATIO Price of a stock divided by its earnings per share.
PAID-IN SURPLUS See: Capital Surplus.
PAPER DEALER A securities dealer specializing in commercial paper.
PAPER PROFIT An unrealized profit or loss on a security still held. Paper profits and losses become realized (and taxable) only when the security is sold.
PAR: (1) Face value or principal value of a bond, typically $1,000 per bond. (2) A bond trading in the market at its face value. (3) Face value of a preferred stock on which book value, liquidating value and dividend payments are based; typically $100 per share. (4) The stated value of common stock used primarily for bookkeeping purposes. It has no relationship to market value.
PARITY Equality between a convertible security's price and the value of the underlying stock if converted.
PARTICIPATING PREFERRED A preferred stock which is entitled to its stated dividend and also to additional dividends on a specified basis upon payment of dividends on the common stock.
PARTNERSHIP A non-taxable entity in which each partner shares in the profits, losses, and liabilities of the partnership. Each partner is responsible for the taxes on its share of profits and losses. See Limited Partnership.
PASSED DIVIDEND Omission of a regular or scheduled dividend.
PASSIVE INCOME A category of income, for tax purposes, consisting of income (or losses) generated by limited partnerships and rental activities.
PENALTY BID A term used to refer to a syndicates bid to stabilize the price of a new issue in the after market. See Stabilization.
PENALTY PLAN See: Contractual Plan.
PENNY STOCKS Low-priced issues, often highly speculative, selling at less than $1 a share.
PERIOD CERTAIN An annuity policy which assures a minimum number of annuity payments to the annuitant (or beneficiaries).
PERSONAL PROFPERTY Assets not considered real estate.
PHANTOM INCOME Non-cash income on which taxes must be paid. For example, accreted interest on an OID Corporate Bond.
PHILADELPHIA AUTOMATED COMMUNICATION AND EXECUTION (PACE) Automated Order Execution System found on the Philadelphia Stock Exchange. See: Automated Order Execution System.
PINK SHEETS The interdealer, wholesale quotes for over-the-counter stocks that are published daily.
PLACEMENT RATIO A statistic published in the Daily Bond Buyer. It is the ratio of the par value of new issues sold (placed) compared to the total par value of new issues that came to market during a one week period.
PLAN COMPLETION INSURANCE A low cost, declining term insurance policy purchased by the owner of a contractual plan. Should the owner die, the insurance policy will pay the policy's amount to the custodian bank for the purpose of completing the contractual payments.
POINT In the case of shares of stock, a point mean $1. If ABC shares rise 3 points, each share has risen $3. In the case of bonds a point mean $10, since a bond is quoted as a percentage of $1,000. A bond which rises 3 points gains 3 per cent of $1,000, or $30 in value. An advance from 87 to 90 would mean an advance in dollar value from $870 to $900. In the case of market averages, the word point means merely that and no more. If, for example, the Dow-Jones Industrial average rises from 870.25 to 871.25, it has risen a point. A point in this average, however, is not equivalent to $1.
PORTFOLIO Holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, common stocks, and other securities.
PORTFOLIO INCOME Also investment income. A category of income, for tax purposes generated by investments in securities. Portfolio income consists of dividends, interest, and capital gains.
POSITION LIMIT The limitation established by the listed options exchanges that prohibits an investor from having a position of more than an established number of option contracts of the same security on the same side of the market.
POSITIVE YIELD CURVE The curve formed when plotting yield vs. maturity during a period when short-term yield (interest rates) are lower than long-term yields. This is the typical curve during periods of easy money and loose credit. It is also called an ascending or normal yield curve.
POWER OF ATTORNEY See: Trading Authorization.
PRE-EMPTIVE RIGHT The right of a shareholder to retain his percentage ownership of a corporation. When new shares of a corporation are to be sold, current shareholders are given the opportunity to purchase additional shares. This enables them to maintain the same proportional ownership as they had prior to the new issue. See: Rights.
PREFERRED STOCK: (1) A class of stock with a claim on the company's earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. It is usually entitled to dividends at a specified rate when declared by the Board of Directors and before payment of a dividend on the common stock. (2) Accounting measure carried at par on the books of the corporation.
PRELIMARY PROSPECTUS See: Prospectus.
PREMIUM: (1) A bond trading in the market above its face value. (2) The amount a bond's current price exceeds its face value. (3) The amount a bond's redemption price exceeds its face value. Known as the "call premium". (4) The market price of an option contract set by supply and demand. (5) Fee paid an insurance company for an annuity policy.
PRE-REFUNDED See: Advanced Refunding.
PRE-SALE ORDER An order placed with a municipal new issue syndicate prior to the time the syndicate actually wins the issue. This type of order is usually given the highest priority by the syndicate.
PREVIOUS CLOSE The last price a stock traded at during the previous trading day.
PRICE-EARNINGS RATIO (P/E) A popular way to compare stocks selling at various price levels. The PE ratio is the price of a share of stock divided by earnings per share for a twelve-month period. For example, a stock selling for $50 a share and earning $5 a share is said to be selling at a price-earning ratio of 10.
PRICE SPREAD An option spread position in which the strike prices of the options are different, but the expiration dates are the same. Also called a Vertical or Money Spread.
PRIMARY DEALER A dealer in government securities with whom the Federal Reserve will conduct open market operations.
PRIMARY DISTRIBUTION Also called primary or public offering. The original sale of a company's securities.
PRIMARY EARNINGS "Undiluted" earnings per share. See: Earnings per Share.
PRIMARY MARKET The market for new issues or underwritings. (vs. Secondary Market). See: New Issues.
PRIME RATE The lowest interest rate charged by commercial banks to their most credit-worthy and largest corporate customers. Other interest rates, such as personal, automobile, commercial and financing loans are often pegged to the prime.
PRINCIPAL: (1) The face value or par value of a debt instrument. (2) A transaction in which a security firm buys or sells for its own account (vs. Agent). See: Dealer. (3) In general a person's capital, or the amount invested.
PRIVATE ACTIVITY BONDS A category of municipal bonds. The interest on which may (or may not) be taxable for Federal income tax purposes.
PRIVATE PLACEMENT See: Regulation D Offering.
PRODUCTION Another term for the public offering price of a new municipal issue.
PROFIT-TAKING Selling stock which has appreciated in value since purchase, in order to realize the profit. The term is often used to explain a downturn in the market following a period of rising prices.
PROGRESSIVE TAX A tax that takes a larger fraction of the income of high-income people. The best example is the graduated income tax.
PROPRIETORSHIP An unincorporated business owned by one person who is entitled to all income (or losses) of the business and responsible for all taxes and other liabilities of the business.
PROSPECTUS The official selling circular that must be given to purchasers of new securities registered with the Securities and Exchange Commission. It highlights the much longer Registration Statement filed with the Commission. It warns that the issue has not been approved (or disapproved) by the Commission and discloses such material information as the issuer's property and business, the nature of the security offered, use of proceeds, issuer's competition and prospects, management's experience, history, and remuneration and certified financial statements. A preliminary version of the prospectus, used by brokers t obtain indications of interest from investors, is called a red herring. This is because of a front-page notice (printed in red ink) that the preliminary prospectus is "subject to completion or amendment" and "shall not constitute an offer to sell " PROXY Written authorization given by a shareholder to someone else to represent him and vote his shares at a shareholders' meeting.
PROXY STATEMENT Information given to stockholders in conjunction with the solicitation of proxies.
PRUDENT MAN RULE An investment standard. In some states, the law requires that a fiduciary, such as a trustee, may invest the fund's money only in a list of securities designated by the state (the so-called legal list). In other states, the trustee may invest in a security if it is one which would be bought by a prudent man of discretion and intelligence, who is seeking a reasonable income and preservation of capital.
PUBLIC HOUSING AUTHORITY (PHA) Municipal bonds issued by local housing authorities to build low income housing. The bonds are secured by the revenues of the local authority and are further secured by the U.S. Government acting through HUD (Department of Housing and Urban Development). These bonds have not been issued since 1974, but since they had original maturities of up to 40 years, they will continue to be available in the secondary market. They are also called NHA's (New Housing Authority Bonds).
PUBLIC INFORMATION OFFICE A facility of the new York Stock Exchange that answers inquiries from individual investors on various aspects of securities investing. Major areas of inquiries involve: finding local brokerage firms that take small orders or accounts, explaining investing methods, and providing instructions for tracing dubious securities.
PUBLIC OFFERING See: Primary Distribution.
PURCHASE AND SALES DEPARTMENT (P & S) A department in a brokerage firm responsible for trade and customer confirmation. Liaison with clearing corporation for clearance and settlement activities.
PURCHASING POWER RISK The risk that, because of inflation, the money returned form an investment will not be worth as much as the original amount invested (the returned dollars will not purchase as much as the original invested dollars).
PUT BOND A bond which can be redeemed at the holder's option on a specific date or dates.
PUTS AND CALLS See: Option.
PYRAMIDING The practice of using unrealized paper profits in stock trading for making addition commitments.
QUALIFIED LEGAL OPINION Conditional affirmation of the legal issuance of a municipal bond issue. For example, if there is a lawsuit seeking to block a new issue, the bond counsel will analyze the situation. If he believes there may be a basis for the suit, he would issue a qualified opinion that expresses doubt as to the outcome of the lawsuit. A non-qualified opinion has no reservations concerning the issuance of the bonds.
QUALIFIED PLAN A retirement plan (or annuity) into which tax deductible contributions are made and invested. The investment's earnings are tax deferred. Taxes are paid only when money is withdrawn. Keogh Plans, IRA's, and most corporate pension plans are qualified.
QUICK ASSETS Those current assets which can be converted to cash very quickly. Defined as current assets less inventory. See: Acid Test Ratio.
QUICK ASSET RATIO See: Acid Test Ratio.
QUOTE The highest bid to buy and the lowest offer to sell a security in a given market at a given time. If you ask your broker for a "quote" on a stock, he may come back with something like "45 1/2." This means that $45.25 is the highest price any buyer wanted to pay and that $45.50 was the lowest price which any seller would take at the same time. A market maker is obligated to purchase or sell a minimum quantity if the quote is "firm". A nominal quote is one in which the market maker is not obligated to trade at the prices quoted.
RALLY A brisk rise following a decline in the general price level of the market or an individual stock.
RANDOM WALK A theory which assumes that the future price movement of a security can not be predicted from past price movement (directly refuting technical analysts' use of charts as a method of forecasting stock prices). In effect, the theory argues that prices move in a random pattern and that they are no more predictable than the waling pattern of a drunken person.
RATE COVENANT A revenue bond issuer's commitment to maintain rates at a level sufficient to produce of specif8ed debt service coverage.
RATING Evaluation of credit risk of securities by an established rating service such as Moody's, Standard & Poors, or Fitch.
REALLOWNACE In a new corporate issue, the amount received by a broker/dealer which is not a member of the syndicate or selling group.
REAL ESTAT INVESTMETN TRUST (REIT) An organization similar to an investment company in some respects but concentrating its holdings in real estate investments. The yield is generally liberal since REIT's are required to distribute as much as 95% of their income.
REAL PROPERTY Real Estate; land and/or buildings.
RECAPTURE The reclamation by the IRS, of tax deductions or credits previously taken by a taxpayer. In particular depletion, accelerated depreciation; tax credits are subject to recapture.
RECEIVERSHIP A form of bankruptcy in which a court-appointed person (receiver) manages the affairs of the business.
RECLAMATION The process whereby securities, once already accepted at settlement, are returned because of non-deliverable form. See: Good Delivery, Rejection.
RECORD DATE The date on which you must be registered as a shareholder of a company in order to receive a declared dividend or, among other things, to vote on company affairs.
RECOURSE LOAN A note or loan signed by a limited partner, for which the signer is personally responsible ("at risk"). Recourse loans are included in the partner's basis for tax purposes. See: Basis.
REDEMPTION: (1) Repayment of a debt security at or before maturity (2) Repayment or a preferred stock. (3) Sale of mutual fund shares to the fund sponsor.
REDEMPTION PRICE For bonds and preferred stocks. See: Call Price. For Mutual Funds. See: Net Asset Value.
RED HERRING See: Prospectus.
REFINANCING Same as refunding. New securities are sold by a company and the money is used to retire existing securities. The object may be to save interest costs, extend the maturity of the loan, or both.
REFUNDING BOND Issuance of a new bond issue for the purpose of retiring an outstanding bond issue.
REGIONALS The exchanges at which options trade, including the Chicago Board Options Exchange (CBOE), American Stock Exchange Options (ASOP), Pacific Exchange Options (PSOP), and Pacific Exchange Options (PHILOP).
REGISTRED: (1) A certificate in which the name of the owner is recorded on the books of the issuer. It can be transferred only when endorsed by the registered owner. (vs. Bearer). See: Certificate. (2) A security which has been issued in compliance with the registration requirements of the Security Act of 1933. See: Registration Statement.
REGISTERED COMPETITIVE MARKET MAKER A member of the New York Stock Exchange who trades on the floor for his own or his firm's account and who has an obligation, when called upon by an Exchange official, to narrow a quote or improve the depth of a existing quote by his own bid or offer.
REGISTERED OPTIONS PRINCIPAL (ROP) An individual who supervises registered representatives regarding options account activities.
REGISTERED REPRESENTATIVE The man or woman who serves the investor customers of a broker/dealer. In a New York Stock Exchange member organization, a Registered Representative must meet the requirements of the Exchange as to background and knowledge of the securities business. Also known as an Account Executive or Customer's Broker.
REGISTRAR Usually a trust company or bank charged with the responsibility of keeping a record of the owners of a corporation's securities and preventing the issuance of more than the authorized amount.
REGISTRATION STATEMENT Before a public offering may be made of new securities by a company, the securities must be registered under the Securities Act of 1933. A registration statement is filed with the SEC by the issuer. It must disclose pertinent information relating to the company's operations, securities, management, and purpose of the public offering. Before a security may be admitted to dealings on a national securities exchange, it must be registered under the Securities Exchange Act of 1934. The application for registration must be filed with the exchange and the SEC by the company issuing the securities. It must disclose pertinent information relating to the company's operations, securities, and management.
REGRESSIVE A tax which taxes low income persons more heavily as a proportion of income, e.g. a sales tax 9vs. Progressive Tax).
REGULAR WAY DELIVERY The normal industry standard for settlement. Unless otherwise specified, most securities sold are to be delivered to the buying broker by the selling broker and payment made to the selling broker by the buying broker on the fifth business day after the transaction. Regular way delivery for government securities and options is the following business day. See: Settlement.
REGULATION A OFFERING A type of new issue which is partially exempt from the filing provisions of the Securities Act of 1933. The exemption is given if the issue is a maximum of $1,500,000.
REGULATION D OFFERING Private Placement: A type of issue which is sold by the issuer directly to investors without the use of an underwriter. The size of the issue is not limited, but its sale is limited to a maximum of thirty-five non-accredited investors.
REGULATION G The federal regulation governing the amount of credit which may be advanced by a financial establishment other than a broker or bank to a customer for the purpose of purchasing securities.
REGULATION T The federal regulation governing the amount of credit which may be advanced by brokers and dealers to customers for the purchase of securities.
REGULATION U The federal regulation governing the amount of credit which may be advanced by a bank to its customers for the purchase of listed stocks.
REINVESTMENT RISK The risk that an investor in bonds who chooses to spend the interest, or is unable to reinvest the coupon payments, will not receive the calculated yield to maturity. Yield to maturity assumes the reinvestment (or compounding) of interest.
REJECTION Refusal to accept securities in non-deliverable form on settlement date. See: Good Delivery, Reclamation.
RELATED PORTFOLIO ORDER An order placed by a syndicate member on behalf of a Unit Investment Trust its sponsors.
RELATIVE STRENGTH INDEX (RSI)
An oscillator that compares the price of a security relative to itself.
The RSI is based upon the difference between the average of the closing
price on up days vs. the average closing price on the down days over a
REOFFERING The yield at which a municipal new issue will be offered to the public. (Based on current market conditions.)
REORGANIZATION: (1) The financial restructuring of a company in bankruptcy. See: Bankruptcy. (2) The department within a brokerage firm which handles mergers, conversions, etc. Sometimes simply called Reorg.
RESISTANCE The upper bound of an established trading range where selling pressure tends to cause the price of a stock to decline (vs. Support). See: Overbought.
RESOLUTION: (1) Another term for indenture. See: Indenture (2) See: Corporate Resolution.
RESTRICTED ACCOUNT A margin account in which the equity is below the initial FRB equity requirement.
REPURCHASE AGREEMET (REPO OR RP) A transaction usually associated with the activities of the Federal Open Market Committee (FOMC). The FOMC buys securities (T-bills) from a non-bank dealer and the non-bank dealer agrees to repurchase them a short time later at a pre-determined price. Also known as a Repo or RP.
RESERVE REQUIREMENT The federal regulation that governs the percentage of deposits which a bank must keep in reserve. The remainder of the deposits are available for loans.
RESTRICTED STOCK Stock which was not registered under the Securities Act of 1933. Stock purchased through a company's stock option plan or a private placement will be unregistered. The purchaser will sign a letter agreeing that the purchase is for investment and not a short-swing profit. The holding period for restricted stock is two years. Sale of restricted stock is covered by Rule 144. See: Rule 144, Letter Stock, Short Swing Profit.
RETAINED EARNINGS The profits which a corporation does not payout in dividends. They are kept by the company to help finance expansion. Also known as earned surplus.
RETIREMENT: (1) End of employment. (2) Repayment of debt obligation.
REVENUE ANTICIPATION NOTE (RAN) A short-term municipal security used by a municipality to help its cash flow. They have a maximum maturity of one year and repayment is based on certain anticipated revenues of the municipality.
REVENUE BOND A bond issue which is secured by a pledge of the revenues of the specific project.
REVENUE BOND INDEX The average yield (on a particular day) on twenty-five selected revenue bonds with thirty year maturities. It is computed on Thursday afternoon and published in the Daily Bond Buyer on Friday.
REVERSE REPO The opposite of a Repurchase Agreement. Also called a matched sale.
REVERSE SPLIT A stock "split" in which the number of outstanding shares is reduced. See: Split.
REVERSIONARY WORKING INTEREST An arrangement in an oil and gas limited partnership in which the limited partners bear all expenses. The general partner's claim on revenues is subordinated to the limited partner's until the limited partner's costs are reimbursed. Also known as a subordinated working interest.
RIGHTS When a company wants to raise more funds by issuing additional securities, it may give its stockholders the opportunity, ahead of others, to buy the new securities in proportion to the number of shares each owns. The piece of paper evidencing this privilege is called a right. Because the market price, rights ordinarily have a market value of their own and are actively traded. In most cases they must be exercised within a relatively short period. Failure to exercise or sell rights may result in monetary loss to the holder.
RIGHTS OF ACCUMULATION The ability of "related" mutual fund investors to pool their combined purchases to meet breakpoints See: Breakpoint.
RISK The chance of loss on an investment due to many factors including, inflation, interest rates, default, politics, foreign exchange, call provisions, etc.
RISKLESS TRANSACTION See: Simultaneous Transaction.
ROLLOVER See: IRA Rollover.
ROUND LOT A unit of trading or a multiple thereof. On the NYSE the unit of trading is generally 100 shares in stocks and $1,000 or $5,000 par value in the case of bonds. In some inactive stocks, the unit of trading is 10 shares.
RULE 144 Provides for the sale of restricted stock and control stock. Filing with the SEC is required prior to selling restricted and control stock. The number of shares which may be sold is limited.
RULE 15c3-1 The SEC rule which establishes minimum net capital requirements for brokers/dealers.
RULE 15c3-3 Known as the Customer protection Rule. It requires a broker/dealer to establish a special reserve account for the protection of its customers. It also requires a broker/dealer to have custody or control of certain customer securities.
RULE 405 NYSE's "Know Your Customer" rule.
RULES OF FAIR PRACTICE NASD rules relating to a broker/dealer's transactions with the public. Every exchange and securities association has a similar set of rules.
SALES CHARGE The amount of the purchase price of mutual fund shares which the underwriter will receive and will therefore not be invested in shares.
SALLIE MAE See: Student Loan Marketing Association.
SAME SIDE OF THE MARKET Relates to option investor's expectations for the underlying security - i.e. bullish or bearish. Long calls and short puts are bullish. Short calls and long puts are bearish. See: Position Limits.
SCALE Reoffering yields for each maturity of a serial bond issue.
SCIP CERTIFICATE A fractional share of a stock issued by a corporation.
SEASONAL STOCK A company whose earnings and sales vary because of weather, holidays, etc. e.g. A toy manufacturer with heavy sales at Christmas.
SEAT A traditional figure-of-speech for a membership on an exchange.
SECONDARY DISTRIBUTION Also known as a secondary offering. The redistribution of a block of stock some time after it has been sold by the issuing company. The sale is handled off the NYSE by a securities firm or group of firms and the shares are usually offered at a fixed price which is related to the current market price of the stock. Usually the block is a large one, such as might be involved in the settlement of an estate. The security may be listed or unlisted.
SECONDARY MARKET The trading in existing or outstanding securities (vs. new issues). Secondary market transactions take place on exchanges or over the counter.
SECONDARY OFFERING See: Secondary Distribution.
SECTION 8 PROGRAM Refers to Section 8 of the U.S. Housing Code which allows for government subsidies of rent for low income individuals. A D.P.P. designed to take advantage of tax benefits in providing government assisted housing.
SECURED BOND A corporate bond which has asset pledged as collateral (vs. debenture). See: Open-End and Closed-End Indenture.
SECURITIES ACT OF 1933 The federal law which covers new issues of securities. It provides for full-disclosure of pertinent information relating to the new issue and also contains anti-fraud provisions.
SECURITIES AND EXCHANGE COMMISSION (SEC) The Securities and Exchange Commission, established by Congress to help protect investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, the Investment Advisers Act, and the Public Utility Holding Company Act.
SECURITIES EXCHANGE ACT OF 1934 The federal law which regulates broker/dealers and secondary market securities transactions.
SECURITIES INDUSTRY AUTOMATION CORPORATION (SIAC) An independent organization established by the New York and American Stock Exchange as a jointly owned subsidiary to provide automation, data processing, clearing, and communication services.
SECURITIES INVESTOR PROTECTION CORPORATION (SIPC) A nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms that are forced into bankruptcy. Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most NASD members. SIPC provides customers of these firms protection of up to $500,000 of coverage for their cash and securities held by the firm.
SECURITY Any document such as stocks, bonds, or notes. However, an insurance or endowment policy, credit union shares, or fixed annuities are not considered securities.
SELF REGULATORY ORGANIZATION (SRO) Organizations and associations, such as exchanges, the NASD and MSRB, which set industry rules.
SELLER'S OPTION A special transaction on the NYSE which gives the seller the right to deliver the stock or bond at any time within a specified period, ranging from not less than six business days to not more than 60 calendar days.
SELLING GROUP A group of securities firms, acting as agents and receiving a concession, which help to distribute a new issue. Not members of the syndicate.
SEP Simplified Employee Pension - A type of pension plan which combines a corporate pension plan and an IRA. Under a SEP, the employer makes a contribution to the employee's IRA.
SEPARATE ACCOUNT Used with a variable annuity. Investors' payments to the insurance company are invested in securities which are kept separate from the insurer's general investments.
SERIAL ISSUE An issue which has bonds maturing each year for a set number of years.
SERIES OF OPTION A complete description of an option contract including the name of the underlying security, the contract size, expiration date, and strike price.
SETTLEMENT Conclusion of a securities transaction when a broker/dealer pays for securities purchased or delivers securities sold and receives from the contra broker the proceeds of a sale. Regular way settlement, for most securities, is five business days from trade date. Government bonds and options settle the next business day. A transaction done for cash settles on the same day.
SHARES OUTSTANDING Amount (x1000) of stock held by shareholders.
SHARING ARRANGEMENT The details of how costs will be borne and revenues split among the partners in a limited partnership.
SHELF A type of new issue registration which allows the issuer some flexibility as to the timing of the issue. (Up to 2 years from filing).
SHORT AGAINST THE BOX A type of short sale where the investor owns other shares of the same company, but does not wish to deliver hem at that time. This is done to lock in a profit but delay the tax consequences to another tax year.
SHORT COUPON Buying stock to return stock previously borrowed to make delivery on a short sale.
SHORT INTEREST The total number of shares of a particular stock which have been sold short and remain uncovered (not repurchased). Followers of the short interest theory believe an increase in short interest is a bullish signal since the short sellers will eventually need to purchase stock to cover their shorts. This cushion of potential buyers will tend to support a declining market or accelerate a rising market.
SHORT POSITION The amount of stock an individual has sold short and has not covered, as of a particular date.
SHORT SALE When selling short, a customer is selling securities which he does not own. He anticipates that the market price of the stock will decline and he can then purchase the stock (cover his short position) at a lower price and thus make a profit. Since the customer has sold stock which he does not own, the brokerage firm must lend him the stock.
SHORT SWING PROFIT Profits made on stock held less than six months. Insiders are prohibited from taking short swing profits on the stock of their firm.
SIMULTANEOUS TRANSACTION A transaction in which the dealer matches purchase and sale orders and therefore assumes no risk in the trades.
SINKING FUND Money regularly set aside by a company to redeem its bonds, debentures, or preferred stock from time to time as specified in the indenture or charter. Relative to a municipality, monies set aside to provide for retirement of a term issue at or before maturity.
SIZE OF BID & ASK The number (x100) of shares the prospective buyers and sellers are willing to trade.
SKIP DAY Settlement for U.S. Government bond trades which occurs 2 business days after trade date (vs. Regular Way).
SMALL BUSINESS ADMINISTRATION (SBA) Provides loans to small business investment companies (SBIC's) which supply venture capital and financing to small businesses. Debentures sold by SBIC's are fully guaranteed by the SBA.
SMALL ORDER EXECUTION SYSTEM (SOES) Automated order entry system used in the over-the-counter market. See: Automated Order Entry System.
SPECIAL ASSESSMENT BOND A bond secured by a compulsory levy on the benefited property.
SPECIAL ORDER ROUTING AND EXECUTION SYSTEM (SOREX) Automated Order Entry System used on the Pacific Coast Stock Exchange. See: Automated Order Execution System.
SPECIALIST A member of the New York Stock Exchange who has two primary functions. First, to maintain an orderly market, insofar as reasonably practicable, in the stocks in which he is registered as a specialist. In order to maintain an orderly market, the Exchange expects the specialist to buy or sell for his own account to a reasonable degree when there is a temporary disparity between supply and demand. Second, the specialist acts as a broker's broker. When a commission broker on the Exchange floor receives a limit order, say, to buy at $50 a stock then selling at $60, he cannot wait at the post where the stock is traded to see if the price reaches the specified level. So he leaves the order with the specialist, who will try to execute it in the market if and when the stock declines to the specified price. At all times the specialist must put his customers interest above his own.
SPECIALIST'S SALE A private placement of a large block of stock that takes place off the floor.
SPECIALIZED FUND A type of mutual fund whose portfolio consists of stocks in a specific industry or geographical area.
SPECIAL MEMORANDUM ACCOUNT (SMA) A sub-account of a margin account. Any excess equity (above FRB initial requirement) is journaled to the SMA. Any SMA may be withdrawn by the client or used to purchase more securities.
SPECIAL OFFER An offer to sell a large block of stock that is announced on the tape, takes place on the floor, and is reported on the tape.
SPECIAL TAX BOND A municipal bond which is secured by a pledge of a specific, special tax. It is not a general obligation since it is limited to one specific tax.
SPECULATION The employment of funds by a speculator, whose primary concern is for high return on investment. Safety of principal is a secondary factor.
SPECULATOR One who is willing to assume a relatively large risk in the hope of gain. The speculator may buy and sell the same day or speculate in an enterprise which he does not expect to be profitable for years.
SPLIT The division of the outstanding shares of a corporation into a larger number of shares. A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding. Each holder of 100 shares before the 3-for-1 split would have 300 shares, but his proportionate equity in the company would remain the same; 100 parts of 1 million are the equivalent of 300 parts of 3 million. Ordinarily splits must be voted by directors and approved by shareholders.
SPONSOR: (1) Limited partnerships: The general partner which organizes and sells the partnership. (2) Mutual fund: The underwriter of the fund.
SPOT PRICE The current exchange rate of foreign currencies set in the interbank market. Spot prices are used in analyzing foreign currency options, and are made public by the FRB.
SPREAD: (1) The difference between the bid and offer price of a security. (2) The difference between the public offering price of a new issue and the proceeds received by the issuer; the "underlying spread". (3) The purchase and sale of puts or calls on the same underlying security with different expirations and/or strike prices. (4) The difference in the premium paid and premium received ina n option spread position (#3 above).
SPREAD LOAN PLAN See: Contractual Plan.
STABILIZATION When an underwriter of a new issue acts in the secondary market to maintain the price of a security at the original new issue offering price. To accomplish this, the underwriter would enter a bid in the secondary market that is at or slightly below the new issue offering price.
STANDARD AND POOR'S (S&P) A company which publishes a variety of resource materials relating to securities. It provides a rating service for both municipal and corporate securities.
STANDARD & POOR'S 500 INDEX (S&P 500) A composite index consisting of 500 stocks. It consists of four other indexes: S&P Industrial (400 stocks), S&P Transportation (20 stocks), S&P Utilities (40 stocks), and S&P Financial (40 stocks).
STANDBY UNDERWRITING An arrangement in which securities firm is used to underwrite any unsubsidized shares of a rights offering. See: Rights.
STATUTORY DISQUALIFICATION An automatic disqualification of a person seeking to be associated with a securities firm. A person will have a statutory disqualification if he is expelled form membership in a self-regulatory organization or from association with a member. Only the SEC has the ability to reinstate a person having a statutory disqualification.
STATUTORY VOTING A method of voting for members of the board of directors of a corporation. Under this method, a shareholder receives one vote for each share and may cast his votes for each of the directorships. For example: An individual owning 100 shares of stock of a corporation that is electing six directors could cast 100 votes for each of six candidates. This method tends to favor the larger stockholder (vs. Cumulative Voting).
STOCK AHEAD Sometimes an investor who has entered an order to buy or sell a stock at a certain price will see transactions at that price reported on the ticker tape while his own order has not been executed. The reason is that other buy and sell orders at the same price came in to the specialist ahead of his and had priority.
STOCK DIVIDEND A dividend paid in securities rather than cash. The dividend may be additional shares of the issuing company, or in shares of another company (usually a subsidiary) held by the company.
STOCK EXCHANGE See: Exchange.
STOCHASTICS Measures at what
point the price of a security is within the entire price range of the
security over a given period.
STOCKHOLDER The owner of common or preferred stock, which evidences ownership interest (equity) in a corporation.
STOCKHOLDER OF RECORD A stockholder whose name is registered on the books of the issuing corporation.
STOCKHOLDERS' EQUITY Net Worth - The total equity ownership of a corporation by its stockholders. It consists of preferred stock, common stock, retained earnings, and capital surplus.
STOCK POWER See: Assignment.
STOCK SYMBOLS Every corporation whose transactions are reported on the NYSE or AMEX ticker or on NASDAQ has been given a unique identification symbol of up to five letters. These symbols abbreviate the complete corporate name and facilitate trading and ticker reporting. Some of the most famous symbols are: T (American Telephone & Telegraph) XON (Exxon), GM (General Motors), IBM (International Business Machines), S (Sears Roebuck), and XRX (Xerox).
STOP LIMIT ORDER A stop order which becomes a limit order after the specified stop price has been reached.
STOP ORDER: (1) An order to buy at a price above or sell at a price below the current market. Stop buy orders are generally used to limit loss or protect unrealized profit on a short sale. Stop sell orders are generally used to protect unrealized profit or limit loss on a holding. A stop order becomes a market order when the stock sells at or beyond the specified price and, thus, may not necessarily be executed at that price. (2) Notice sent by the SEC which prevents an offering of a new issue.
STRADDLE An option position in which the investor purchases or sells a call option and a put option on the same underlying stock. The expiration month and exercise price of each contract must be the same.
STRAIGHT LINE A method of calculating depreciation or amortization which results in a uniform expense spread evenly over the life of the asset. (vs. Accelerated Depreciation.) See: Depreciation, Amortization.
STREET NAME Securities held in the name of a broker instead of his customer's name are said to be carried in "street name". This occurs when the securities have been bought on margin or when the customer (the beneficial owner) wishes the security to be held by the broker (the nominal owner).
STRIKE PRICE See: Exercise Price.
STRIP Brokerage house practice of separating a bond (which is held in trust) into its face and coupons, which are then sold separately as zero coupon bonds. Stripped U.S. Government bonds are generally referred to as "Treasury Receipts", but are better known as CATS, TIGRS, etc.
STRUCTURE When a municipal bond issue will mature. See: Term Bonds, Serial Bonds, Balloon.
STUDENT LOAN MARKETING ASSOCIATION (SLMA) Provides a secondary market for insured student loans made under the Guaranteed Student Loan Program. This private, for-profit corporation is also known as Sallie Mae.
SUBJECT A nominal quote. See: Quote.
SUBORDINATE To place a claim below others. (1) Subordinated Debenture: An unsecured bond which has a junior claim to all other general creditors. (2) Subordinated working interest. See: Reversionary Working Interest.
SUBSCRIPTION The purchase of stock under the terms of a right or warrant, at the subscription price which may be higher or lower than the market price.
SUBSCRIPTON AGREEMENT The application submitted by an investor wishing to join a limited partnership. All prospective investors must be approved by the general partner prior to admission as a partner.
SUITABILITY An investment which meets a client's investment objectives and financial situation.
SUPPORT The lower bound of an established trading range where buying pressure tends to bid up the price of the stock. (vs. Resistance). See: Oversold.
SNAPPING The act of selling securities which you own and almost simultaneously purchasing different securities. A swap is often done to establish losses for tax purposes (tax-swap). Relative to bonds, a swap may be done to increase income, alter maturity, and/or upgrade quality.
SYNDICATE A group of investment bankers who together underwrite and distribute a new issue of securities or a large block of an outstanding issue.
SYNDICATE LETTER An invitation to participate in an underwriting syndicate which will detail the "rules" of the syndicate.
TAKEDOWN The discount from the public offering price which a member will receive when buying bonds from the syndicate.
TAPE See: Ticker.
TAXABLE EQUIVALENT YIELD An adjustment made to a tax-free yield for comparison to taxable yields.
TAX ANTICIPATION NOTE (TAN) A short-term municipal security used by a municipality to help its cash flow. They have a maximum maturity of one year and repayment is based on specific future tax collections of the municipality.
TAX CREDIT A direct dollar for dollar offset of tax liability (vs. a deduction which offsets taxable income). See: Deduction.
TAX EXEMPT COMMERCIAL PAPER A short term (less than 270 days) note of a tax exempt issuer for the purpose of working capital.
TAX PREFERENCE ITEM Items deductible for Federal income tax purposes which are included in the calculation of the alternative minimum tax. See: Alternative Minimum Tax.
TAX SHELTER A medium or process intended to reduce or eliminate the tax burden of an individual. They range from such conventional ones as tax exempt municipal securities to sophisticated D.P.P.'s in real estate, cattle raising, equipment leasing, oil drilling, research and development activities, and motion picture production.
TECHNICAL RESEARCH Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, and trends and patterns which are revealed by charting these factors and attempts to assess the possible effect of current market action on future supply and demand for securities and individual issues.
TENANTS-IN-COMMON (TIC) See: Joint Tenants.
TENDER: (1) Act of surrendering securities in response to an offer to buy them at a set price as in a sinking fund call or tender offer. See: Tender Offer. (2) To submit a bid to buy a security, as in a U.S. Treasury bill auction.
TENDER OFFER A public offer to buy shares from existing stockholders of one public corporation by another company or other organization under specified terms good for a certain time period. Stockholders are asked to "tender" (surrender) their holdings for stated value, usually at a premium above current market price, subject to the tendering of a minimum and maximum number of shares.
TERM BOND Bonds of a new municipal issue where the entire issue has one maturity. A term issue will usually have a mandatory sinking fund.
THIRD MARKET Trading a stock exchange listed security in the over-the-counter market by non-exchange member brokers.
TICKER The telegraphic system which prints or displays last sale prices and volume of securities transactions on exchanges on a moving tape within a minute after each trade. Also known as the "tape".
TIGHT CREDIT See: Tight Money.
TIGHT MONEY Tight Credit - a period during which there is little money available for loans.
TIME DEPOSIT Deposits where the depositor has agreed to leave the money in for a period of time. It is not available on demand.
TIME SPREAD See: Calendar Spread.
TIME VALUE The amount of premium which exceeds the intrinsic value of an option contract.
TIP Supposedly "inside" information on corporation affairs that might give one a trading advantage.
TOMBSTONE AD An advertisement of a new issue of securities. It is placed by the underwriters and gets its name from the fact tat it is bordered in black.
TRADE DATE Day on which a transaction is executed.
TRADER An individual who buys and sells for his own account for short-term profit. Also, an employee of a broker/dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients.
TRADING AUTHORIZATION Written permission, signed by the account owners naming a third party to transact business on behalf of the owners. Also called Power of Attorney.
TRADING FLOOR See: Floor.
TRADING POST The structure on the floor of the New York Stock Exchange at which stocks are bought and sold. About 100 stocks are traded at each post.
TRANSFER: (1) The delivery of a stock certificate from the seller's broker to the buyer's broker and legal change of ownership, normally accomplished within a few days. (2) To record the change of ownership on the books of the corporation by the transfer agent. When the purchaser's name is recorded, dividends, notices of meetings, proxies, financial reports and all pertinent literature sent by the issuer to its securities holders are mailed direct to the new owner.
TRANSFER AGENT A transfer agent keeps a record of the name of each registered shareowner, his or her address, the number of shares owned, and sees that certificates presented to his office for transfer are properly cancelled and new certificates issued in the name of the new owner.
TREASURY BILLS (T-BILLS) Short-term obligations of the U.S. Government. They have 13 week, 26 week, and 52 week maturities. They are purchased at a discount and mature at face value. The difference between the purchase price and maturity value (the amount of the discount) is considered interest.
TREASURY BONDS U.S. Government obligations with original maturities of more than one year up to ten years. They are issued in $1,000 denominations and pay interest semi-annually.
TREASURY RECEIPT See: Strip.
TREASURY STRIP (T-STRIP) See: Strip.
TREASURY STOCK Stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired. Treasury stock receives no dividends and has no vote while held by the company.
TRIPLE NET LEASE A lease arrangement in which the lessee will pay rent to the lessor, plus taxes, insurance, and maintenance on the property.
TRIPLE TAX EXEMPT Municipal bonds in which the bondholder pays no federal, state, or local taxes on the interest. In general, bonds issued by possessions and territories of the U.S. (e.g. Puerto Rico) are triple tax exempt.
TRUST: (1) A fiduciary relationship in which a person (the trustee) holds title to property for benefit of another party(s). (2) Trust Indenture Act requires a corporation to appoint a trustee to act for benefit of the bondholders as a class. See: Indenture.
TRUE INTEREST COST A calculation used when bidding on a new municipal issue. New issues are usually awarded to the syndicate submitting the lowest NIC (net interest cost), but some issues are awarded on the basis of TIC, which takes into account the time value of money (compounding of interest). It is also known as the Canadian ethod. See: Net Interest Cost.
TRUST INDENTURE See: Indenture.
TWENTY BOND INDEX The average yield to maturity (on a particular day) on twenty select general obligation bonds with twenty year maturities. The BBI is computed on Thursday afternoon and published in the Daily Bond Buyer of Friday.
TWO DOLLAR BROKER See: Independent Broker.
TYPE OF OPTION Call or put.
UNCOVERED Refers to a short option position in which the investor does not currently have another investment position which will meet the obligation of the option contract (vs. Covered). Also known as "naked".
UNDERWRITER See: Investment Banker.
UNDERWRITING The process of selling a new issue.
UNDIVIDED ACCOUNT A form of a new issue syndicate where a member will be liable for a percentage equal to its participation, of any unsold balance regardless of the amount the member has sold. An undivided account is also known as an Eastern Account.
UNFOUNDED PENSION LIABILITIES Monies owed by an employer to a retirement fund which will be paid in the future.
UNIFORM GIFT TO MINORS ACT (UGMA) The act which establishes rules governing the purchase of securities for a minor. Each state has adopted the UGMA with few changes. A gift to a minor is irrevocable and securities must be registered in the name of an adult as custodian for the minor.
UNIFORM PRACTICE CODE The rules established by an exchange or securities association which establish proper methods and procedures for transactions between members.
UNIT INVESTMENT TRUST A type of investment company in which a portfolio is purchased and held with little or no change to the investments. Commonly used with municipal bond investments.
UNLISTED STOCK A security not listed on a stock exchange. See: Over-the-Counter.
UNSECURED BOND See: Debenture.
UP-TICK A term used to designate a transaction made at a price higher than the preceding transaction. Also called a "plus-tick". A "zero-plus-tick" is a term used for a transaction at the same price as the preceding trade but higher than the preceding different price. Conversely, a down-tick, or "minus" tick, is a term used to designate a transaction made at a price lower than the preceding trade. A plus sign, or a minus sign, is displayed throughout the day next to the last price of each stock at the trading post on the floor of the New York Stock Exchange.
VARIABLE ANNUITY A life insurance annuity contract where the annuity premium (a set amount of dollars) is immediately turned into units of a portfolio of stocks. Upon retirement, the policyholder is paid according to his accumulated units whose dollar value varies according to the performance of the stock portfolio. Its objective is to preserve, through stock investment, the purchasing value of the annuity which otherwise is subject to erosion through inflation.
VERSUS PURCHASE (VSP) See: Vs. Purchase.
VERTICAL SPREAD See: price Spread.
VESTING The process by which an employee becomes entitled to benefits in a retirement plan.
VETERANS ADMINISTRATION (VA) MORTGAGE Mortgages granted to Veterans of the U.S. Armed Forces which are guaranteed by the VA.
VISIBLE SUPPLY Published each day in the Daily Bond Buyer. It is the total par value of all competitive and negotiated issues scheduled to come to market during the upcoming thirty days. Issues with maturities of one year or less are excluded.
VOLATILITY Price fluctuation.
VOLUME The number of shares traded in a security or an entire market during a given period. Volume is usually considered on a daily basis and a daily average is computed for longer periods.
VOTING RIGHT The common stockholder's right to vote his stock in the affairs of his company. Preferred stock usually has the right to vote when preferred dividends are in default for a specified period. The right to vote may be delegated by the stockholder to another person. See: Statutory voting, cumulative voting, proxy.
VS. PURCHASE (VSP) A method of identifying specific securities to be sold for tax purposes. Unless otherwise state, the IRS assumes securities are sold on a FIFO basis.
WARRANT A certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit or perpetually. Sometimes a warrant is offered with securities as an inducement to buy.
WASH SALE A sale of securities at a loss with the subsequent disallowance of the loss by the IRS. If an individual sells a security at a loss and, within 30 days, repurchases substantially the same security, the IRS will consider it a wash sale and will disallow the loss.
WESTERN ACCOUNT See: Divided Account.
WHEN ISSUED (WI) A short form of "when, as, and if issued". The term indicates a conditional transaction in a security authorized for issuance but not as yet actually issued. All "when issued" transactions are on an "if" basis, to be settled if and when the actual security is issued and the exchange or National Association of Securities Dealers rules the transactions are to be settled.
WILDCATTING Drilling for oil or gas in an unproven are (vs. Developmental Program). Also called Exploratory Drilling.
WIRE HOUSE A brokerage firm with branch office network. Branches linked together various communications devices.
WITHHOLDING: (1) Shares of a hot issue retained by an underwriter for its own purposes. A violation of NASD rules. See: Freeriding. (2) IRS requires financial institutions to report social security numbers, payments of interest, dividends, and sale proceeds, known as backup withholding.
WITH RIGHTS OF SURVIVORSHIP (WROS) See: Joint Tenants.
WORKING CAPITAL A financial calculation equal to a corporation's current assets minus its current liabilities.
WORKING CONTROL Theoretically, ownership of 51 per cent of a company's voting stock is necessary to exercise control. In practice, and this is particularly true in the case of a large corporation, effective control sometimes can be exerted through ownership, individually or by a group acting in concert, of less than 50 per cent.
WORKING INTEREST Direct participation with unlimited liability in a drilling program (vs. Limited Liability in a Limited Partnership).
WORKOUT A nominal quote. See: quote.
WRITER The seller of an option contract.
YELLOW SHEETS The daily quotation sheets in which interdealer, wholesale quotes for over-the-counter corporate bonds are published.
YIELD Also known as return. The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $40 a share paying dividends at the rate of $3.20 is said to return 8 per cent ($3.20 / $40.00). May also refer to yield to maturity.
YIELD TO CALL (YTC) Rate of return an investor earns from a bond assuming the bond is redeemed (called) prior to the maturity date.
YIELD TO MATURITY (YTM) The yield of a bond to maturity takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bonds is selling at a discount and less than the current yield when the bond is selling at a premium.
ZERO-COUPON BONDS A bond sold at a substantial discount which does not pay periodic interest.
ZERO-PLUS-TICK See: Up-tick.
COMMONLY USED ABBREVIATIONS
ACQ - Acquisition (ticker symbol)
ACRS - Accelerated Cost Recovery System
ADR - American Depository Receipt
AE - Account Executive
AIR - Assumed Interest Rate
AMBAC - AMBAC Indemnity Corporation
AMEX - American Stock Exchange
AMT - Alternative Minimum Tax
AON - All or None
ASE - American Stock Exchange
AUTO - EX Automated Execution System
BA - Bankers Acceptance
BAN - Bond Anticipation Note
B/D - Broker/Dealer
BIGI - Bond Investors Guaranty Inc.
BOM - Branch Office Manager
BW - Bid Wanted
CATS - Certificates of Accrual on Treasury Securities
CBOE - Chicago Board of Options Exchange
CBT - Chicago Board of Trade
CD - Certificate of Deposit
CEO - Chief Executive Officer
CFF - Certified Financial Planner
CFTC - Commodity Futures Trading Commission
CLN - Construction Loan Note
CME - Chicago Mercantile Exchange
CMV - Current Market Value
COD - Cash on Delivery
COMEX - Commodity Exchange (New York)
CPA - Certified Public Accountant
CPI - Consumer Price Index
cr - Credit
CUSIP - Committee on Uniform Securities Identification Procedures
DBCC - District Business Conduct Committee
DIST - Exchange Distribution (ticker symbol)
DK - Dont Know
DNR - Do Not Reduce
DOT - Designated Order Turnaround
DPP - Direct Participation Plan
dr - Debit
DTC - Depository Trust Company
DVP - Delivery vs. Payment (COD)
EBIT - Earnings Before Interest and Taxes
ECU - European Currency Unit
EPS - Earnings per Share
ERISA - Employment Retirement Income Security Act
ESOP - Employee Stock Ownership Plan
ETM - Escrowed to Maturity
EXIM - Export - Import Bank
FCOP - Foreign Currency Option Principal
FDIC - Federal deposit Insurance Corporation
FFCB - Federal Farm Credit Bank
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Administration
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corporation
FICB - Federal Intermediate Credit Bank
FIFO - First-in First-out
FLB - Federal Land Bank
FNMA - Federal National Mortgage Association
FOK - Fill or Kill
FOMC - Federal Open Market Committee
FRB - Federal Reserve Board
GNMA - Government National Mortgage Association
GNP - Gross National Product
GO - General Obligation
GTC - Good Til Canceled
HR10 - Keogh Plan
HUD - Department Housing and Housing Development
IDB - Industrial Development Bond
IDC - Intangible Drilling Costs
IMM - International Monetary Market
IOC - Immediate or Cancel
IPO - Initial Public Offering
IRA - Individual Retirement Account
IRS - Internal Revenue Service
JT - Joint Tenants
LBO - Leveraged Buyout
LIFO - Last-in First-out
LOI - Letter of Intent
LP - Limited Partnership
LV - Loan Value
M1 - Money Supply
M2 - Money Supply
MBIAC - Municipal bond Investors Assurance Corporation
MKT - Market
MSRB - Municipal Security Rulemaking Board
NASD - National Association of Securities Dealers
NASDAQ - NASD Automated Quotations System
NAV - Net Asset Value
NFA - National Futures Association
NHA - New Housing Authority
NIC - Net Interest Cost
NMS - National Market System
NR - Not Rated
NYFE - New York Futures Exchange
NYSE - New York Stock Exchange
OB - Or Better
OCC - Options Clearing Corporation
OEX - S & P 100 Index (ticker symbol)
OID - Original Issue Discount
OPD - Delayed Opening (ticker symbol)
OSS - Order Support System
OTC - Over-the-Counter
OW - Offer Wanted
PACE - Philadelphia Automated Communication and Execution
P/E - Price-Earning Ratio
PFD - Preferred Stock
PHA - Public Housing Authority
PHLX - Philadelphia Stock Exchange
P&L - Profit and Loss Statement
POP - Public Offering Price
P&S - Purchase and Sales
PSE - Pacific Stock Exchange
RAN - Revenue Anticipation Note
REG - Regulation
REIT - Real Estate Investment Trust
REORG - Reorganization
REPO - Repurchase Agreement
ROE - Return on Equity
ROP - Registered options Principal
RP - Repurchase Agreement
RR - Registered Representative
SRA - Small Business Administration
S/D - Settlement Date
SEC - Securities and Exchange Commission
SEP - Simplified Employee Pension
SIAC - Securities Industry Automation Corporation
SIPC - Securities Investor Protection Corporation
S&L - Savings and Loan
SLD - Delayed Report (ticker symbol)
SLMA - Student Loan Marketing Association
SMA - Special Memorandum Account
SOES - Small Order Entry System
SOREX - Special Order Routing and Execution System
S&P - Standard & Poors
TA - Trading Authorization
TAN - Tax Anticipation Note
T/D - Trade Date
TIC - True Interest Cost
TIGR - Treasury Investment Growth Receipt
UGMA - Uniform Gift to Minors Act
UIT - Unit Investment Trust
ULPA - Uniform Limited Partnership Act
VA - Veterans Administration
VSP - Versus Purchase
WI - When Issued
WROS - With Rights of Survivorship
YTC - Yield to Call
YTM - Yield to Maturity
Zr - Zero Coupon Bond