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65 Cards in this Set
- Front
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Accredited Investor
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As defined in Rule 501 of Regulation D, any institution or individual meeting minimum net worth requirements for the purchase of securities qualifying under the Regulation D registration exemption. An individual accredited investor is generally accepted to be one who has a net worth of $1 million or more, or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse), and who has a reasonable expectation of reaching the same income level in the current year.
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Acid test
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Syn. acid test ratio. See Quick Ratio.
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Quick ratio
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A more stringent test of liquidity than the current ratio. It is computed by taking the current assets, less the inventory, and dividing by the current liabilities. Syn. Acid test ratio.
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Act of 1933
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See Securities Act of 1933.
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Securities Act of 1933
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Federal legislation requiring the full and fair disclosure of all material information about the issuance of new securities. Syn. Act of 1933, Full Disclosure Act, New Issues Act, Prospectus Act, Trust in Securities Act, Truth in Securities Act.
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Act of 1934
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See Securities Exchange Act of 1934.
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Securities Exchange Act of 1934
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Federal legislation that established the Securities and Exchange Commission. The act aims to protect investors by regulating the exchanges, the over the counter market, the extension of credit by the Federal Reserve Board, broker/dealers, insider transactions, trading activities, client accounts, and net capital. Syn. Act of 1934; Exchange Act.
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Administrator
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(1) A person authorized by a court of law to liquidate an intestate decedent's estate. (2) An official or agency that administers a state's securities laws.
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Advertisement
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Any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, that offers (1) any analysis, report, or publication concerning securities, or what is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy and sell; or (3) any other investment advisory service with regard to securities.
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Agency cross transaction
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For an advisory client, a transaction in which a person acts as an investment adviser in relation to a transaction in which that investment adviser, or any person controlling, controlled by, or under common control with that investment adviser, acts as broker for both an advisory client and for another person on the other side of the transaction.
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Agency transaction
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A transaction in which a broker/dealer acts for the accounts of others by buying or selling securities on behalf of customers. Syn. agency basis.See also agent; broker; principal transaction.
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Agent
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A securities salesperson who represents a broker/dealer or an issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually receives or simply solicits orders. See also broker,broker/dealer, dealer, principal.
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Aggressive investment strategy
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A method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors place a high percentage of their investable assets in equity securities and a far lower percentage in safer debt securities and cash equivalents, and they pursue aggressive polices including margin trading, arbitrage, and option trading. See also balanced investment strategy; defensive investment strategy.
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Alpha
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The risk-adjusted returns that a portfolio manager in excess of the risk-adjusted returns expected by the Capital Asset Pricing Model( CAPM). Supposed an index return in 10%, the portfolio beta is 1.5, and the actual return is 25%. According to the CAPM, the portfolio should be expected to return 15% (1.5 x 10). This is because the portfolio is 1.5 times riskier than the market. The difference between the actual return of 25% and expected return of 15% represents the alpha of this portfolio. In this case, we have a positive alpha of 10%.
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American depositary receipt(ADR)
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A negotiable certificate representing a given number of shares in a foreign corporation. It is issued by a domestic bank. ADRs are bought and sold in the American securities markets, and are traded in English and US dollars. Syn American depositary share (ADS).
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Anti-dilutive covenant
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A protective clause found in most convertible issues (preferred stock or debentures) that adjusts the conversion rate for stock splits and/ or stock dividends. This ensures that the holder of the convertible will not suffer a dilution in value.
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Appreciation
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The increase in an asset's value.
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Approved plan
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See Qualified retirement plan.
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Qualified retirement plan
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A corporate retirement plan that meets the standards set by the Employee Retirement Income Security Act of 1974. Contributions to a qualified plan are tax deductible. Syn. approved plan. See also individual retirement account; Keogh plan; nonqualified retirement plan.
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Arbitrage
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The simultaneous buying and selling of the same security in two different markets to take advantage of a temporary price disparity. This is not considered market manipulation.
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Assessable stock
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A stock that is issued below its par or stated value. The issuer and/or creditors have the right to "assess" the shareholder for the deficiency. All stock issued today is nonassessable.
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Asset
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(1) Anything that an individual or a corporation owns. (2) A balance sheet item expressing what a corporation owns.
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Balanced investment strategy
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A method of portfolio allocation and management aimed at balancing risk and return. A balanced portfolio may combined stocks, bonds, packaged products, and cash equivalents.
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Basis
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The cost of an asset or security.
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Beta
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A means of measuring the volatility of a security or a portfolio of securities in comparison with the market as a whole. A beta of 1 indicates that the security's price will move with the market. A beta greater than 1 indicates that the security's price will be more volatile than the market. A beta less than 1 means that it will be less volatile that the market. Syn. beta coefficient.
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Blue-chip stock
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The equity issues of financially stable, well established companies that have demonstrated their ability to pay dividends in both good and bad times.
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Blue-sky
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To register a securities offering in a particular state. See also blue-sky laws; registration by coordination;registration by qualification.
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Blue-sky laws
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The nickname for state regulations governing the securities industry. The term was coined in the early 1900s by a Kansas Supreme Court justice who wanted regulations to protect against "speculative schemes that have no more basis than so many feet of blue sky." See also Series 63; Series 65; Uniform Securities Act.
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Broker
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(1) An individual or firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. (2) The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services. See also agent; broker/dealer; dealer.
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Broker/dealer
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A person or firm in the business of buying and selling securities. A firm may act as both broker (agent) and dealer (principal), but not in the same transaction. Broker/dealers normally must register with the SEC, the appropriate SROs, and any state in which they do business. See also agent; broker;dealer;principal.
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Bypass trust
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A trust that is funded with property in an amount equal to the exemption equivalent of the transfer tax credit amount applicable to the decedent ($3.5 million in 2009); thus, the property is not subject to federal estate tax. See generation skipping trust.
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Capital appreciation
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A rise in an asset's market price.
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Capital asset
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All tangible property, including securities, real estate, and other property, held for the long term.
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Capital asset pricing model (CAPM)
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See Alpha.
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Capital gain
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The profit realized when a capital asset is sold for a higher price than the purchase price. See also capital loss; long-term gain.
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Capital loss
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The loss incurred when a capital asset is sold for a lower price than the purchase price. See also capital gain; long-term loss.
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Capital risk
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The potential for an investor to lose all money invested owning to circumstances unrelated to an issuer's financial strength. For example, derivative instruments such as options carry risk independent of the underlying securities' changing value.
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Capping
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An illegal form of market manipulation that attempts to keep the price of a subject security from rising. It is used by those with a short position. See pegging.
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Cash dividend
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Money paid to a corporation's stockholders out of the corporation's current earnings or accumulated profits. The board of directors must declare all dividends.
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CD
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See negotiable certificate of deposit.
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Negotiable certificate of deposit (CD)
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An unsecured promissory note issued with a minimum face value of $100,000. It evidences a time deposit of funds with the issuing bank and is guaranteed by the bank.
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Cease and desist order
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Used by the Administrator when it appears that a registered person has or is about to commit a violation. May be issued with or without a prior hearing.
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Certificate of deposit (CD)
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See Negotiable certificate of deposit .
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Churning
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Excessive trading in a customer's account by an agent or investment adviser representative who ignores the customer's objectives and financial resources and seeks only to increase commissions. This violates the NASAA Statements of Policy on Unethical Business Practices. Syn. overtrading.
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Closed-end investment company
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An investment management company that issues a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes; they are traded in the secondary marketplace, either on an exchange or over the counter. The market price of the shares is determined by supply and demand and not by the fund's net asset value. Syn. publicly traded fund.
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Commission
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a service charge an agent assess in return for arranging a security's purchase or sale. A commission must be fair and reasonable, considering all the relevant factors of the transaction.
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Common stock
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a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy.
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Confirmation
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a printed document that states the trade date, settlement date, and money due from or owed to a customer. It is sent or given to the customer on or before a settlement date.
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Constate dollar plan
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a defensive investment strategy in which the total sum of money invested is kept constant, regardless of any price fluctuation in the portfolio. as a result, the investor sells when the market is high and buys when it is low.
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Constant ratio plan
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An investment strategy in which the investor maintains an appropriate ratio of debt to equity securities by making purchases and sales to maintain the desired balance.
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Consumer price index (CPI)
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a measure of price changes in consumer goods and services used to identify periods of inflation or deflation.
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Coordination
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See registration by coordination.
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Registration by coordination
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A process that allows a security to be sold in a state. It is available to an issuer that files for the security's registration under the Securities Act of 1933 and files duplicates of the registration documents with the state administrator. The state registration becomes effective at the same time the federal registration statement becomes effective, as long as paperwork is on file with the Administrator for the required time period, which ranges from 10 to 20 days depending upon the state.
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Corporate account
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an account held in a corporation's name. the corporate agreement, signed when the account is opened, specifies which officers are authorized to trade in the account. In addition to standard margin account documents, a corporation must provide a copy of its charter and by laws authorizing a margin account.
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Corporation
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the most common form of business organization, in which the organization's total worth is divided into shares of stock, each share representing a unit of ownership. A corporation is characterized by a continuous life span and its owners' limited liability.
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Correlation
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the extent to which two or more securities or portfolios move together. the correlation coefficient is a number that ranges from -1 to +1. A perfect correlation would have a coefficient of +1 while two that move in total opposite directions would have a -1.A coefficient of 0 would reflect a totally random correlation between the two.
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Cost basis
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the price paid for an asset, including any commissions or fees, used to calculate capital gains or losses when the asset is sold.
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Covered security
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See federal covered security.
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Federal covered security
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under the NSMIA of 1996, a new definition was created: covered security, generally referred to as federal covered security on the exam. State securities registration requirements were pre-empted with respect to covered securities, other than the ability to require notice filing, particularly in the case of registered investment companies. The most tested federal covered securities included those listed on the major US exchanges and Nasdaq as well as investment companies registered with the SEC and securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933 (private placements).
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CPI
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See consumer price index
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Credit risk
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the degree of probability that a bond's issuer will default in the payment of either principal or interest. Syn. default risk, financial risk.
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Custodial account
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an account in which a custodian enters trades on behalf of the beneficial owner, often a minor. See also custodian.
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Custodian
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an instituion or a persoan responsible for making all investment, management, and distribution decision in an account maintained in the best interests of another. Mutual funds have custodian banks responsible for safeguarding certificates and performing clerical duties. See also mutual fund custodian.
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Customer
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any person who opens a trading account with a broker/dealer. A customer may be classified in terms of account ownership, trading authorization, payment method, or types of securities traded.
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Customer statement
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a document showing a customer's trading activity, positions, and account balance. the SEC requires that customer statements be sent quarterly, but customers generally receive them monthly.
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