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856 Cards in this Set
- Front
- Back
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1035 contract exchange
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a tax-free exchange of one annuity contract for another, one life insurance policy for another, or one life insurance policy for an annuity. The contracts do not have to be issued by the same company.
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1099-DIV
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a tax form sent to investors showing dividends and capital gains distributions from a mutual fund for the tax year.
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12b-1 fee
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annual fee deducted quarterly from a mutual fund’s assets to cover distribution costs, e.g., selling, mailing, printing, advertising. An operating expense, unlike the sales charge that is deducted from the investor’s check.
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200-day moving average
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average closing price over the previous 200 days for a stock or an index.
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401(k) plan
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qualified defined contribution plan offering employer-matched contributions.
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403(b)
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qualified plan for tax-exempt, non-profit organizations.
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529 Plans
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education savings plans offering tax-deferred growth and tax-free distributions at the federal level for qualified educational expenses. Pre-paid tuition plans allow clients to purchase a certain number of tuition credits at today’s prices to be used at a school within a particular state. 529 Savings Plans allow clients to contribute up to the current gift tax exclusion without paying gift taxes. Earnings grow tax-deferred and may be used for qualified education expenses (more than just tuition) later without federal taxation. States can tax the plans—so know the customer’s situation!
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72(t)
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a neat trick under IRS tax code allowing people to take money from retirement plans including annuities without paying penalties, even though they aren’t 59½ yet.
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75-5-10 rule
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diversification formula for a fund advertising itself as “diversified.” 75% of the portfolio must have no more than 5% of assets invested in any one security, and no more than 10% of a company’s outstanding shares may be owned.
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A-Shares
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mutual fund shares sold with a front-end sales load/charge. Lower annual expenses than B- and C-shares.
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Account at maintenance
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the point at which a customer’s equity in a margin account is just high enough to avoid a margin call.
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Account Executive (AE)
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another name for a registered representative or agent.
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Account Statement
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document sent to a broker-dealer customer showing the recent value of all cash and securities, plus all recent activity in an investment account.
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Accounts Payable
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what the company owes its vendors, a current liability.
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Accounts Receivable
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what customers owe a corporation, a current asset.
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Accredited Investors
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large institutional investors, and individuals meeting certain income or net worth requirements allowing them to participate in, for example, a private placement under Reg D of the Securities Act of 1933, or hedge funds.
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Accretion
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increasing the cost basis of a discount bond for tax purposes
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Accrued Interest
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the interest that the buyer of a debt security owes the seller. Bond interest is payable only twice a year, and the buyer will receive the next full interest payment. Therefore, the buyer owes the seller for every day of interest since the last payment up to the day before the transaction settles.
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Accrued Taxes
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taxes that are owed by a corporation, a current liability.
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Accrued Wages
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wages that are owed by a corporation, a current liability.
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Accumulation Stage/Period
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the period during which contributions are made to an annuity, during which the investor holds “accumulation units.”
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Accumulation Units
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what the purchaser of an annuity buys during the pay-in or accumulation phase, an accounting measure representing a proportional share of the separate account during the accumulation/deposit stage.
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Ad Valorem
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property tax. Literally “as to value.”
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Additional Takedown
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the piece of the spread that goes to the various members of the syndicate when the bonds they’ve been allotted are sold.
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Adjustable Rate Preferred Stock
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preferred stock whose dividend is tied to another rate, often the rate paid on T-bills.
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Adjusted Gross Income (AGI)
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earned income plus passive income, portfolio income, and capital gains. The amount upon which we pay income tax.
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Adjustment Bond
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another name for an “income bond,” on which the issuer may skip interest payments without going into default.
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Administrator
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(1) the securities regulator of a particular state; (2) a person or entity authorized by the courts to liquidate an estate.
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ADR/ADS
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American Depository Receipt/Share. A foreign stock on a domestic market. Toyota and Nokia are two examples of foreign companies whose ADRs trade on American stock markets denominated in dollars. Carry all the risks of owning stocks, plus “currency exchange risk.”
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Advance Refunding/Pre-refunding
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issuing new bonds and depositing part of the proceeds in escrow ahead of the first legal call date on the existing bond issue.
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Advance/Decline Line
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the number of stocks whose market prices increased versus the number of stocks whose market prices decreased during a trading session.
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Advertising
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communications by a member firm directed at a general, uncontrolled audience, e.g., billboard, radio/TV/newspaper ads, website.
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Affiliated Investor
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a person who is an officer or director of the issuer, or a 10%+ owner of its common stock.
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Affiliated Person
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anyone in a position to influence decisions at a public corporation, including board members (directors), officers (CEO, CFO), and large shareholders (Warren Buffett at Coca-Cola or Wells Fargo).
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Agency Issue (Agency Bond)
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a debt security issued by an agency authorized by the federal government but not directly backed by the federal government.
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Agency Transaction
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a securities transaction in which the broker-dealer acts as an agent for the buyer or seller, completing the transaction between the customer and another party.
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Agent
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an individual representing a broker-dealer or issuer in effecting/completing transactions in securities for compensation. What you will be after passing your exams and obtaining your securities license.
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Agreement Among Underwriters
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a document used by an underwriting syndicate bringing an issue of securities to the primary market. This document sets forth the terms under which each member of the syndicate will participate and details the duties and responsibilities of the syndicate manager.
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AIR
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Assumed Interest Rate. Determined by an actuary, representing his best estimate of the monthly annualized rate of return from the separate account. Used to determine value of annuity units for annuities and death benefit for variable life contracts.
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All or None
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a type of underwriting in which the syndicate will cancel the offering if a sufficient dollar amount is not raised as opposed to being responsible for the unsold shares (as in a “firm commitment”). Also a type of order on the secondary market in which the investor wants the order to be canceled if the broker cannot acquire the full number of shares on one attempt.
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American Stock Exchange (AMEX)
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a private, not-for-profit corporation that handles roughly 20% of all securities trades in the U.S. One of the big secondary markets, along with NYSE, and the various NASDAQ markets.
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American Style
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an option that can be exercised at any time up to expiration.
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Amortize
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reducing the cost basis on an intangible item, i.e. a bond premium.
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AMT (Alternative Minimum Tax)
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tax computation that adds certain “tax preference items” back into adjusted gross income. Some municipal bond interest is treated as a “tax preference item” that can raise the investor’s tax liability through the AMT.
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Annual Compliance Review
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a broker-dealer’s annual compliance meeting that is mandatory for principals and registered representatives.
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Annual Report
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a formal statement issued by a corporation to the SEC and shareholders discussing the company’s results of operations, challenges/risks facing the company, any lawsuits against the company, etc. Required by the Securities Exchange Act of 1934.
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Annuitant
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the person who receives an annuity contract’s distribution.
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Annuitize
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the process of changing the annuity contract from the “pay-in” or accumulation phase to the “pay-out” or distribution phase. Defined benefit pension plans, such as the ones that have done so much good for GM and Ford, generally offer their pensioners either a lump sum payment or the chance to annuitize. Hint to all pensioners—take the LUMP SUM!
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Annuity Units
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what the annuitant holds during the pay-out phase. Value tied to AIR.
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Annuity
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a contract between an individual and an insurance company that generally guarantees income for the rest of the individual’s life in return for a lump-sum or periodic payment to the insurance company.
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Anticipation Notes
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short-term debt obligations of a municipality typically held primarily by tax-exempt money market mutual funds.
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Appreciation
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the increase in an asset’s value that is not subject to tax until realized.
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Arbitrage
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a word that has no business being mentioned on the Series 7. Arbitrage involves taking advantage of the disparity of two things. If you think GE will buy a small company, you can make a bet that GE will temporarily drop and the small company’s stock will skyrocket. Then, when you make your fantastic and fortuitous gain, you can explain to the SEC how you happened to make that bet.
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Arbitration
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settling a dispute without going to an actual court of law.
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Arbitration Award
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the decision rendered through FINRA Arbitration.
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Ask, Asked
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the higher price in a quote representing what the customer would have to pay/what the dealer is asking the customer to pay. Customers buy at the ASK because dealers sell to customers at the ASK price. Ask/asked is also called “offer/offered.”
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Assessed Value
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the value of property used to calculate property tax. For example, a home with a market value of $300,000 might have an assessed value of $150,000 against which the rate of tax is applied.
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Asset Allocation
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maintaining a percentage mix of equity, debt, and money market investments, based either on the investor’s age (strategic) or market expectations (tactical).
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Assets
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something that a corporation or individual owns, e.g., cash, investments, accounts receivable, inventory, etc.
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Associated Person
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a registered representative or principal of a FINRA member firm.
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Assumed Interest Rate
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see AIR.
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Auction Market
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the NYSE, for example, where buyers and sellers simultaneously enter competitive prices. Sometimes called a “double auction” market because buying and selling occur at the same time.
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Auction Rate Securities
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debt securities with a variable rate of interest or preferred stock with a variable dividend rate that is re-set at regular auctions.
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Authorized Stock
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number of shares a company is allowed to issue by its corporate charter. Can be changed by a majority vote of the outstanding shares.
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Automated Client Account Transfer (ACAT)
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a system that provides instructions among broker-dealers for transfer and delivery of customer assets.
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Automatic Reinvestment
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a feature offered by mutual funds allowing investors to automatically reinvest dividend and capital gains distributions into more shares of the fund, without paying a sales charge.
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Average Cost Basis
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a method of figuring cost basis on securities for purposes of reporting capital gains and/or losses. The investor averages the cost for all purchases made in the stock, as opposed to identifying particular shares to the IRS when selling.
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B-Shares
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mutual fund shares charging a load only when the investor redeems/sells the shares. Associated with “contingent deferred sales charges.” B-shares have higher operating expenses than A-shares by way of a higher 12b-1 fee. Although the back-end load or “contingent deferred sales charges” decline over time, the higher 12b-1 fee usually makes B-shares appropriate only for investors who lack the ability to reach the first or second breakpoint offered on A-shares.
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Backdating
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pre-dating a letter of intent (LOI) for a mutual fund in order to include a prior purchase in the total amount stated in the letter of intent. LOIs may be backdated up to 90 calendar days.
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Back-end Load
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a commission/sales fee charged when mutual fund or variable contracts are redeemed. The back-end load declines gradually, as described in the prospectus. Associated with “B-shares” and, occasionally, “C-shares.”
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Backing Away
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a violation in which a market maker fails to honor a published firm quote to buy or sell a security at a stated price.
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Backup Withholding
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a required withholding from an investment account that results when the customer refuses/fails to provide a tax identification number.
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Balance Sheet
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a financial statement of a corporation or individual showing financial condition (assets vs. liabilities) at a particular moment in time.
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Balance Sheet Equation
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Assets – Liabilities = Shareholders’ Equity, or Assets = Liabilities + Shareholders’ Equity.
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Balanced Fund
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a fund that maintains a mix of stocks and bonds at all times. Asset allocation funds are a type of balanced fund (or so darned close that they should be).
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Bank Qualified Municipal Bond
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municipal bonds that allow banks to deduct 80% of the interest costs incurred to buy them.
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Bankers’ Acceptance (BA)
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money-market security that facilitates importing/exporting. Issued at a discount from face-value. A secured loan.
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Bar
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the most severe sanction that FINRA can impose on an individual, effectively ending his/her career.
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Basis Points
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a way of measuring bond yields or other percentages in the financial industry. Each basis point is 1% of 1%. Example: 2% = .0200 = 200 basis points. 20 basis points = .2% or 2/10ths of 1%.
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Basis Quote
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the price at which a debt security can be bought or sold, based on the yield. A bond purchased at a “5.50 basis” is trading at a price that makes the yield 5.5%.
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Bear Market
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a market for stock or bonds in which prices are falling and/or expected to fall.
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Bear Spread
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a call or put spread in which the investor benefits if the underlying instrument’s value drops. For example, an investor who buys the ABC Aug 50 call and sells the ABC Aug 45 call establishes a bear spread. The spread would also happen to be a “credit spread” in this case.
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Bearer Bond
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an unregistered bond that pays principal to the bearer at maturity. Bonds have not been issued in this way for over two decades, but they still exist on the secondary market.
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Bearish, Bear
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an investor who takes a position based on the belief that the market or a particular security will fall. Short sellers and buyers of puts are “bearish.” They profit when stocks go down. Seriously.
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Beneficiary
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the one who benefits. An insurance policy pays a benefit to the named beneficiary. IRAs and other retirement plans, including annuities, allow the owner to name a beneficiary who will receive the account value when the owner dies. A 529 plan names a beneficiary, who will use the money for educational expenses someday.
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Best Efforts
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a type of underwriting leaving the syndicate at no risk for unsold shares, and allowing them to keep the proceeds on the shares that were sold/subscribed to. Underwriters act as “agents,” not principals, in a best efforts underwriting.
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Beta Coefficient
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another way of referring to “beta.”
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Beta
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a way of measuring the volatility of a security or portfolio compared to the volatility of the overall market. A beta of more than 1 is associated with an investment or portfolio that is more volatile than the overall market. A beta of less than 1 is associated with an investment or portfolio that is less volatile than the overall market.
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Bid Form
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document used by the syndicate to submit a competitive bid to the issuer.
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Bid
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what a dealer is willing to pay to a customer who wants to sell. Customers sell at the bid, buy at the ask.
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Blend Fund
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a fund that can’t decide if it wants to be a growth fund or a value fund.
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Blind Pool Offering
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a direct participation program in which the sponsor does not identify the assets of the partnership.
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Blue Chip
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stock in a well-established company with proven ability to pay dividends in good economic times and bad. Lower risk/reward ratio than other common stock.
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Blue Sky
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state securities law, tested on the Series 63 exam
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Board of Directors
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the group elected by shareholders to run a mutual fund or a public company and establish corporate management policies.
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Bond Anticipation Note (BAN)
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a short-term municipal debt security backed by the proceeds of an upcoming bond issue. Often found in tax-exempt money market funds.
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Bond Buyer
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daily publication covering the municipal securities industry.
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Bond Counsel
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tax law firm that guides a municipal issuer through the legal process of issuing bonds.
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Bond Fund
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a mutual fund with an objective of providing income while minimizing capital risk through a portfolio of—get this—bonds.
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Bond Point
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1% of a bond’s par value. 1 bond point = $10.
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Bond Rating
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an evaluation of a bond issue’s chance of default published by companies such as Moody’s, S&P, and Fitch.
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Bond Resolution
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a document that legally authorizes the process of issuing municipal bonds for a specific purpose.
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Bond Swap or Tax Swap
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taking a loss on a bond and replacing it with a substantially different bond to avoid tax problems.
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Bond
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a debt security issued by a corporation or governmental entity that promises to repay principal and pay interest either regularly or at maturity.
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Bonus Annuities
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annuities with special riders/features attached.
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Book Entry
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a security maintained as a computer record rather than a physical certificate. All U.S. Treasuries and many mutual funds are issued in this manner.
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Branch Office
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any location identified by any means to the public or customers as a location at which the member conducts an investment banking or securities business. The small Charles Schwab or E-Trade office at the nearby mall or office complex is a “branch office.”
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Breakeven
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the price at which the underlying security is above or below the strike price of the option by the amount of the premium paid or received. For example, an ABC Aug 50 call @2 has a “breakeven” of $52 for both the buyer and the seller.
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Breakpoint
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a discounted sales charge or “volume discount” on mutual fund purchases offered on A-shares at various levels of investment.
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Breakpoint Selling
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preventing an investor from achieving a breakpoint. A violation.
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Broad-Based Index
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an index such as the S&P 500 or the Value Line Composite Index that represents companies from many industries.
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Broker
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an individual or firm that charges a commission to execute securities buy and sell orders submitted by another individual or firm.
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Broker Call Loan Rate
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interest rate that broker-dealers pay when borrowing on behalf of margin customers.
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Broker’s Broker
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a firm that holds no inventory and executes securities transactions exclusively with other broker-dealers and not with public investors.
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Broker-Dealer
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a person or firm in the business of completing transactions in securities for the accounts of others (broker) or its own account (dealer).
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Bull Market
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a market for stocks or bonds in which prices are rising and/or expected to rise.
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Bull Spread
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a call or put spread in which the investor will benefit if the underlying instrument rises in value. If the investor is “long the lower strike price,” he has established a “bull spread.” For example, if he buys the ABC Aug 50 call and sells the ABC Aug 55 call, he establishes a “bull spread.” The spread would also happen to be a “debit spread” in this case.
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Bulletin Board
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OTC stocks too volatile and low-priced for NASDAQ.
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Bullish, Bull
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an investor who takes a position based on the belief that the market or a particular security will rise. Buyers of stock and call options are bullish.
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Business Cycle
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a progression of expansions, peaks, contractions, troughs, and recoveries for the overall (macro) economy.
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Business Risk
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the (non-systematic) risk that the company whose stock or bond you own will not be successful as a business. Competition, poor management, obsolete products/services are all examples of business risk.
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Buy Limit
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an order to buy a security at a price below the current market price, executable at a specified price or lower/better.
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Buy Stop
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an order to buy a security at a price above the current market price triggered only if the market price hits or passes through the stop price.
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C-Shares
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often called “level load” because of the high 12b-1 fee. Usually involve no front-end load, sometimes have a contingent deferred sales charge for 1 or 1.5 years. Appropriate for shorter-term investing only.
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Call (n.)
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a contract that gives the holder the right to buy something at a stated exercise price.
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Call (v.)
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to buy.
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Call Premium
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the price paid and received on a call option. Or, the amount above the par value paid by the issuer to call/retire a bond.
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Call Protection
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the period during which a security may not be called or bought by the issuer, usually lasting five years or more.
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Call Provision
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agreement between the issuer and the bondholders or preferred stockholders that gives the issuer the ability to repurchase the bonds or preferred stock on a specified date or dates before maturity.
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Call Risk
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the risk that a callable bond or preferred stock will be forcibly called when interest rates fall.
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Call Spread
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buying and selling a call on the same underlying instrument where the strike price, the expiration, or both are different.
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Callable
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a security that may be purchased/called by the issuer as of a certain date, e.g., callable preferred, callable bonds. Generally pays a higher rate of return than non-callable securities, as it gives the issuer flexibility in financing.
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Capital
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a fancy word for “money.” When a corporation raises cash by offering stocks/bonds to investors on the primary market, we dignify the cash by calling it “capital.”
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Capital Appreciation
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the rise in an asset’s market price. The objective of a “growth stock investor.”
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Capital Gain
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the amount by which the proceeds on the sale of a stock or bond exceed your cost basis. If you sell a stock for $22 and have a cost basis of $10, the capital gain or profit is $12.
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Capital Gains Distribution
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distribution from fund to investor based on net capital gains realized by the fund portfolio. Holding period determined by the fund and assumed to be long-term.
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Capital Loss
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loss incurred when selling an asset for less than the purchase price. Capital losses offset an investor’s capital gains and can offset ordinary income to a certain amount.
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Capital Structure
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the make-up of a corporation’s financing through equity (stock) and debt (bonds) securities.
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Capped Index Options
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options that are automatically exercised when the underlying instrument moves by a certain amount known as the “cap interval.”
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Capping
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a form of market manipulation. A violation.
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Cash Account
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an investment account in which the investor must pay for all purchases no later than 2 business days following regular way settlement. Not a margin account.
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Cash Dividend
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money paid to shareholders from a corporation’s current earnings or accumulated profits.
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Cash Equivalent
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a security that can readily be converted to cash, e.g., T-bills, CDs, and money market funds.
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Cash Flow
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net income plus depreciation/amortization.
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Cash Settlement
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same-day settlement of a trade requiring prior broker-dealer approval. Not the “regular way” of doing things.
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Cash Value
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the value of an insurance policy that may be “tapped” by the policyholder through a loan or a surrender.
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Catastrophe Call
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a provision in a municipal bond issue providing for an automatic call of the bonds due to a disaster, e.g., hurricane, flood, etc.
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CEO
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chief executive officer. Individual ultimately responsible for a corporation’s results.
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Certificate of Limited Partnership
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a document filed by the general partner of a direct participation program with a state disclosing who the partnership is and what it does.
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CFO
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chief financial officer. Individual in charge of a corporation’s financial activities.
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Check-Writing Privileges
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a privilege offered by mutual funds, especially money market funds, by which investors can automatically redeem shares by writing checks.
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Chinese Wall
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the separation that is supposed to exist between the investment banking department and the traders and registered representatives in order to prevent insider trading violations.
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Churning
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excessive trading in terms of frequency and size of transactions designed to generate commissions without regard for the customer.
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Clearing Rate
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the interest rate established by auction in connection with auction rate securities.
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CLN
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construction loan note, a type of municipal note backed by the proceeds from a construction loan for a new building project.
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Closed-End Fund
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an investment company that offers a fixed number of shares that are not redeemable. Shares are traded on the secondary market at a price that could be higher or lower than NAV (or even the same as NAV).
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CMO
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Collateralized Mortgage Obligation: A complicated debt security that few people actually understand. Based on a pool of mortgages or a pool of mortgage-backed securities. Pays interest monthly but returns principal to one tranche at a time.
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Code of Arbitration
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FINRA method of resolving disputes (usually money) in the securities business. All decisions are final and binding on all parties.
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Code of Procedure
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FINRA system for enforcing member conduct rules.
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Collateral Trust Certificate
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a bond secured by a pledge of securities as collateral.
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Collection Ratio
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the amount of taxes collected by a municipality divided by the amount of taxes assessed.
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Combination Privilege
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allows investors to combine purchases of many funds within the mutual fund family to reach a breakpoint/reduced sales charge.
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Combination
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a multiple options position that is neither a straddle nor a spread. For example, if an investor buys an ABC Aug 45 call and sells an ABC Aug 50 put, he has established a combination.
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Combined Offering
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an offering of securities in which both the issuer and other large shareholders will be selling to the public.
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Commercial Paper
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a short-term unsecured loan to a corporation. Issued at a discount from the face value. See “money market securities.”
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Commission House Broker
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a broker who works for a particular member of the exchange filling orders for the firm and receiving a commission per-order.
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Commissions
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a service charge an agent earns for arranging a security purchase or sale.
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Common Stock
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the most “junior security,” because it ranks last in line at liquidation. An equity or ownership position that usually allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions, authorizing more shares, etc.
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Competitive Floor Traders
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members of the NYSE who buy and sell exchange-listed securities for their own account.
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Competitive, Sealed Bids
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process used for most general obligation bonds in which the underwriting business is awarded to the syndicate who turns in the lowest cost of borrowing to the issuer.
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Compliance Department
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the principals and supervisors of a broker-dealer responsible for making sure the firm adheres to SEC, exchange, and SRO rules.
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Concession
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the amount that the seller of a new issue of municipal bonds receives, whether a syndicate member or a selling group member.
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Conduct Rules
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an SRO’s rules for member conduct that, if violated, may lead to sanctions and fines.
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Conduit Theory (Tax Treatment)
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a favorable tax treatment achieved if a company (REIT, mutual fund) distributes 90%+ of net income to the shareholders.
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Confirmation
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document stating the trade date, settlement date, and money due/owed for a securities purchase or sale. Delivered on or before the settlement date.
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Consolidated Quotation System (CQS)
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system used for trading in the third market.
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Consolidation
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a stock trading in a narrow price range.
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Constant Dollar Plan
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a defensive investment strategy in which an investor tries to maintain a constant dollar amount in the account, meaning that securities are sold if the account value rises and purchased if it goes down.
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Constructive Receipt
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the date that the IRS considers an investor to have put his grubby little hands on a dividend, interest payment, retirement plan distribution, etc. For example, IRA funds are not taxable until “constructive receipt,” which usually starts somewhere between age 59½ and 70½.
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Consumer Price Index (CPI)
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a measure of inflation/deflation for basic consumer goods and services. A rising CPI represents the greatest risk to most fixed-income investors.
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Consumer
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for purposes of Regulation S-P, a consumer is someone considering a financial relationship with a firm.
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Contingent Deferred Sales Charge
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associated with B-shares, the sales charge is deducted from the investor’s check when she redeems/sells her shares. The charge is deferred until she sells and is contingent upon when she sells—the sales charges decline over time, eventually disappearing after 7 years, at which point the B-shares become A-shares, in order to keep everything nice and simple.
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Continuing Commissions
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the practice of paying retired registered representatives and principals commissions on business written while still employed with the firm, e.g., 12b-1 fees on mutual funds and annuities.
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Contraction
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phase of the business cycle associated with general economic decline, recession or depression.
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Contribution
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the money you put into a retirement plan subject to the limits imposed by the plan.
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Conversion Ratio
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the number of shares of common stock that the holder of a convertible bond or preferred stock would receive upon conversion. A bond “convertible at $50” has a conversion ratio of 20 (20 shares of stock per $1,000 par value).
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Conversion/Exchange Privilege
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a feature offered by many mutual funds whereby the investor may sell shares of one fund in the family and use the proceeds to buy another fund in the family at the NAV (avoiding the sales load). All gains/losses are recognized on the date of sale/conversion for tax purposes.
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Convertible
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a preferred stock or corporate bond allowing the investor to use the par value to “buy” shares of the company’s common stock at a set price.
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Cooling-off Period
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a minimum 20-day period that starts after the registration statement is filed with the SEC. No sales or advertising allowed during this period, which lasts until the effective or release date.
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Corporation
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the most common form of business organization, in which the business’s total value is divided among shares of stock, each representing an ownership interest or share of profits.
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Correspondence
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under FINRA rules = a letter/fax/email to existing clients, or a letter, fax, or email sent to fewer than 25 prospects in a 30-day period.
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Cost Basis
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the amount that has gone into an investment and has been taxed already. For stock, includes the price paid plus commissions. For a variable annuity, equals the after-tax contributions into the account. Investors pay tax only on amounts above their cost basis, and only when they sell or take “constructive receipt.”
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Coterminous
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municipal issuers who overlap, e.g., a village and a school district.
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Coupon Rate
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a.k.a. “nominal yield.” The interest rate stated on a bond representing the percentage of the par value received by the investor each year. For example, a bond with a 5% “coupon rate” or “nominal yield” pays $50 per bond to the holder per year. Period.
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Covered Call
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a position in which an investor generates premium income by selling the right to buy stock the investor already owns, and at a set price.
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CPI
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Consumer Price Index, a measure of inflation/deflation for basic consumer goods and services. A rising CPI represents the greatest risk to most fixed-income investors.
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Credit Agreement
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document that must be signed by a margin customer in which all finance charges are explained in connection to the margin account.
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Credit Risk
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a.k.a. “default” or “financial” risk. The risk that the issuer’s credit rating will be downgraded, or that the issuer will default on a debt security.
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Credit Spread
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selling a more valuable call/put and simultaneously buying a less valuable call/put on the same underlying instrument. For example, an investor who sells an ABC Aug 50 put for $400 and buys an ABC Aug 45 put for $100 establishes a “credit put spread” for a net credit of $300.
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Crossover Point
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the point at which a limited partnership has exhausted the tax shelter and is now beginning to show a profit.
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Cum Rights
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term used when a stock trades with rights, meaning that buyers of the stock will receive rights to subscribe to the upcoming additional offer of stock.
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Cumulative Preferred Stock
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preferred stock where missed dividends go into arrears and must be paid before the issuer may pay dividends to other preferred stock and/or common stock.
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Cumulative Voting
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method of voting whereby the shareholder may take the total votes and split them up any way he chooses. Said to benefit minority over majority shareholders. Total votes are found by multiplying the number of shares owned by the number of seats up for election to the Board of Directors.
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Currency Exchange Risk
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the risk that the value of the U.S. dollar versus another currency will have a negative impact on businesses and investors.
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Currency Transaction Report (CTR)
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a reported submitted to the U.S. Treasury by a broker-dealer when a customer deposits more than $10,000 cash.
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Current Liability
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a debt to be paid by a corporation in the short-term, usually one year or sooner.
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Current Ratio
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a short-term measure of a corporation’s liquidity found by dividing current assets by current liabilities; the higher the number, the more liquid the corporation.
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Current Yield
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annual interest divided by market price of the bond. For example, an 8% bond purchased at $800 has a CY of 10%. $80/$800 = 10%.
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CUSIP Number
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an identification number/code for a security.
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Custodial Account
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an investment account in which a custodian enters trades on behalf of the beneficial owner, who is usually a minor child.
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Custodian
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maintains custody of a mutual fund’s securities and cash. Performs payable/receivable functions for portfolio purchases and sales. In an UGMA, the custodian is the adult named on the account who is responsible for the investment decisions and tax reporting.
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Customer
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a person who opens an investment account with a broker-dealer.
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Cyclical Industry
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a term of fundamental analysis for an industry that is sensitive to the business cycle. Includes: steel, automobiles, mining and construction equipment.
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Dated Date
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the date on which interest begins to accrue on a new issue of municipal bonds.
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Dealer
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a person who buys or sells securities for his/its own account, taking the other side of the trade. A dealer buys securities from and sells securities directly to a customer, while a broker merely arranges a trade between a customer and another party.
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Death Benefit
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the amount payable to the beneficiary of a life insurance (or annuity) contract, minus any outstanding loans and/or unpaid premiums.
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Debenture
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an unsecured corporate bond backed by the issuer’s ability (or inability) to pay. No collateral.
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Debit Spread
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buying a more expensive call/put and selling a less expensive call/put on the same underlying instrument. If an investor pays $500 to buy an XYZ Jan 50 call and receives $200 for selling an XYZ Jan 55 call, he has established the debit call spread at a net debit of $300.
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Debt Limit
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a self-imposed restriction on the total amount of general obligation debt that an issuer may have outstanding at any one time.
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Debt per Capita
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a measure that shows a bond analyst how much general obligation debt is outstanding divided by the number of residents of the municipality.
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Debt Security
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a security representing a loan from an investor to an issuer. Offers a particular interest rate in return for the loan, not an ownership position.
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Debt Service
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the schedule for repayment of interest and principal on a debt security.
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Debt Statement
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a statement in which a municipal issuer lists all of its outstanding debts.
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Declaration Date
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the date the Board declares a dividend.
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Default
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when the issuer of the bond stiffs you.
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Default Risk
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the risk that the issuer of the bond will stiff you. Measured by S&P and Moody’s (AAA, Aaa and on down the scale).
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Defensive Industry
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a company that can perform well even during rough economic times. For example, food and basic clothing represent two products purchased through both good and bad economic times; therefore, stocks of food and basic clothing companies would be “defensive” investments.
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Deferred Annuity
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an annuity that delays payments of income, installments, or a lump sum until the investor elects to receive it. Usually subject to surrender charges during the deferral period.
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Deferred Compensation Plan
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a non-qualified business plan that defers some of the employee’s compensation until retirement.
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Deficiency Letter
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SEC notification of additions or corrections that an issuer must make to a registration statement before the offering can be cleared for distribution.
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Defined Benefit Plan
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a qualified corporate pension plan that, literally, defines the benefit payable to the retiree.
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Defined Contribution Plan
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a qualified corporate plan that defines the contribution made on behalf of the employee, e.g., profit sharing, 401(k).
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Deflation
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a general drop in the level of prices across the economy, usually connected to an economic slump.
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Delivery
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the change in ownership of a security that takes place when the transaction settles. The seller delivers the securities purchased to the buyer.
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Department of Enforcement
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FINRA enforcers of the member conduct rules, a group you never want to hear from, especially by certified mail.
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Depression
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six quarters (18 months) or longer of economic decline.
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Designated Examining Authority
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another name for an SRO or Self-Regulatory Organization, e.g., CBOE or FINRA.
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Developmental Program
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an oil or gas drilling program in an area in which reserves are known to exist.
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Dilution
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a reduction in the earnings per share of common stock, often due to convertible bonds or preferred stock being converted to common stock.
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Direct Debt
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the general obligation debt of a municipal issuer for which it is solely responsible.
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Direct Participation Program (DPP)
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an investment in a limited partnership or similar pass-through entity in which the investor receives a share of income and expenses.
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Discount
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the difference between the (lower) market price for a bond and the par value.
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Discount Bond
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any bond traded below the par value, e.g., @97.
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Discount Rate
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interest rate charged by the 12 Federal Reserve Banks to member banks who borrow from the FRB.
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Discretion
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authority given to someone other than the account owner to make trading decisions for the account.
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Disintermediation
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a situation in which money is being withdrawn from banks and savings & loans by depositors in order to reinvest the funds into higher yielding money market instruments (Treasury bills, certificates of deposit, money market funds). Disintermediation would occur when interest rates at savings banks are lower than money market instruments. The cause could be that the FRB is pursuing a “tight money policy,” which is causing a rise in interest rates, creating a demand for the higher yielding money market securities.
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Distribution (annuity) Stage
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the period during which an individual receives payments from an annuity.
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Distribution Expenses
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the cost of distributing/marketing a mutual fund, including selling, printing prospectuses and sales literature, advertising, and mailing prospectuses to new/potential clients. Covered by sales charges/12b-1fees.
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Distribution
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the money you take out of a retirement plan.
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Distributor
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a FINRA member firm that bears distribution costs of a fund, profiting from the sales charges paid by the investors; a.k.a. “sponsor,” “underwriter,” “wholesaler.”
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Diversification
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purchasing securities from many different issuers, or industries, or geographic regions, to reduce “nonsystematic risk.”
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Diversified Mutual Fund
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complies with an SEC rule so that no more than 5% of assets are invested in a particular stock or bond and so that the fund does not own more than 10% of any issuer’s outstanding stock. Often called the “75-5-10 rule,” where the 75 means that only 75% of the assets have to be diversified this way just to keep things nice and simple.
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Dividend
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money paid from profits to holders of common and preferred stock whenever the Board of Directors is feeling especially generous.
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Dividend Payout Ratio
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the amount of dividends paid divided by the earnings per share. Stocks with high dividend payout ratios are typically found in “equity income” funds.
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Dividend Yield
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annual dividends divided by market price of the stock. Equivalent to current yield for a debt security.
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Dividend/Income Distributions
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distributions from a fund to the investors made from net investment income. Typically, may be reinvested at the NAV to avoid sales charge.
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DK notice
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a notice sent to the other broker-dealer when a firm does not recognize a transaction.
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Do Not Reduce (DNR)
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a buy-limit or sell-stop order that will not be reduced for the payment of a cash dividend.
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Dollar Cost Averaging
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investing fixed dollar amounts regularly, regardless of share price. Usually results in a lower average cost compared to average of share prices, as investors’ dollars buy majority of shares at lower prices.
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Donor
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a person who makes a gift of money or securities to another.
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Double Barreled
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a municipal bond backed by both the issuer’s full faith and credit and revenues.
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Dow Jones Industrial Average (DJIA)
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an index comprised of 30 large companies.
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Dual-Purpose Fund
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a closed-end fund with two classes of stock: income shares and capital shares. The income shares receive dividends and interest, while the capital shares receive capital gains distributions.
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Due Bill
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document sent by a broker-dealer when a dividend payment was sent to the wrong party and belongs to the broker-dealer’s customer
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Due Diligence
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meeting between issuer and underwriters with the purpose of verifying information contained in a registration statement/prospectus
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DVP
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a form of settlement in which payment will be made when the securities involved in the transaction are delivered and accepted.
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Earned Income
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income derived from active participation in a business, including wages, salary, tips, commissions, and bonuses. Alimony received is also considered earned income. Earned income can be used toward an IRA contribution.
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Earnings per Share (EPS)
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the amount of earnings or “net income” available for each share of common stock. A major driver of the stock’s price on the secondary market.
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Eastern/Undivided Account
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a syndicate account in which participants are responsible for a percentage of all bonds, even if they sell their allotment.
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Education IRA
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another name for the Coverdell Education Savings Account in which after-tax contributions may be made to pay qualified education expenses for the beneficiary.
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Effective Date
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date established by SEC as to when the underwriters may sell new securities to investors; a.k.a. “release date.”
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Electronic Communications Networks (ECNs)
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electronic trading platforms that allow institutional investors to buy and sell securities directly.
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Eligibility
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a section of ERISA that outlines who is/is not eligible to participate in a qualified plan. Those 21 years old who have worked “full time” for one year (1,000 hours or more) are eligible to participate in the plan.
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Emerging Market
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the financial markets of a developing country. Generally, a small market with a short operating history, not as efficient or stable as developed markets. For example, Brazil, China, India.
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Equipment Leasing Program
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a direct participation program that leases computers, mining equipment, etc.
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Equipment Trust Certificate
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a corporate bond secured by a pledge of equipment, e.g., airplanes, railroad cars.
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Equity
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ownership, e.g., common and preferred stock in a public company.
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Equity Funds
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mutual funds that primarily invest in equity securities.
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Equity Income Fund
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a mutual fund that purchases common stocks whose issuers pay consistent and, perhaps, increasing dividends. The fund has less volatility than an equity fund with “growth” as an objective.
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Equity Options
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standardized options giving the holder the right to buy or sell the underlying stock at a set price (strike/exercise price).
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Equity-Indexed Annuity
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an insurance product offering a minimum guaranteed rate and the opportunity to participate in some of the gains of a particular index, usually the S&P 500.
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ERISA
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the Employee Retirement Income Security Act of 1974 that governs the operation of most corporate pension and benefit plans.
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Escrowed to Maturity
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a municipal bond issue in which the issuer has deposited funds sufficient to retire the bonds on the original maturity date.
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Estate
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a legal entity/person that represents all assets held by a deceased person before he died.
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Estate Tax
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an annoying tax on estates over a certain amount, often called the “death tax” by those who don’t like it.
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ETF
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or “Exchange-Traded Fund,” a fund that trades on an exchange, typically an index fund tracking the S&P 500, the Dow Jones Industrial Average, etc. Unlike an open-end index fund, the ETF allows investors to sell short, trade throughout the day, and even purchase shares on margin.
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European Style
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an option that may be exercised at expiration only.
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Excess Equity
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the amount of equity above the Reg T requirement in a margin account.
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Exchange-Listed Security
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a security that has met listing requirements to trade on a particular exchange such as NYSE, AMEX, or NASDAQ.
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Exchanges
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any electronic or physical marketplace where investors can buy and sell securities. For example, NASDAQ, NYSE, AMEX.
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Exclusion Ratio
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method of determining which part of an annuity payment is taxable, and which part represents the tax-free return of the annuitant’s after-tax cost basis.
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Ex-Date
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two days before the Record Date for corporate stock. The date upon which the buyer is not entitled to the upcoming dividend. Note that for mutual funds, this date is established by the board of directors, usually the day after the Record Date.
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Exempt Security
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a security not required to be registered under the Securities Act of 1933. Still subject to anti-fraud rules; not subject to registration requirements, e.g., municipal bonds and bank stock.
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Exempt Transaction
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a transactional exemption from registration requirements based on the manner in which the security is offered and sold, e.g., private placements under Reg D.
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Exercised
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an option that the buyer has used to purchase or sell securities at the strike price.
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Existing Properties
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a direct participation program that purchases operating real estate.
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Expansion
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phase of the business cycle associated with increased activity.
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Expense Ratio
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a fund’s expenses divided by/compared to average net assets. Represents operating efficiency of a mutual fund, where the lower the number the more efficient the fund.
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Exploratory Programs
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a direct participation program that drills for oil or natural gas.
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Ex-Rights
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the term used when a stock begins to trade without rights attached.
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Extension Risk
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the risk that interest rates will rise, and the holder of a CMO or mortgage-backed security will have to wait longer than expected to receive principal.
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Face-Amount Certificate
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a debt security bought in a lump-sum or through installments that promises to pay out the stated face amount, which is higher than the investor’s purchase price.
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Face-Amount Certificate Company
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one of the three types of investment company under the Investment Company Act of 1940. Issues face-amount certificates. Not a UIT of “management company.”
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Fair and Orderly Market
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what the specialist at the NYSE is charged with maintaining.
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FDIC (Federal Deposit Insurance Corporation)
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federal government agency that provides deposit insurance for member banks and prevents bank and “thrift” failures. Bank deposits are currently insured up to $250,000, a number that could have changed by the time you read this definition. A trip to your local bank will give you the updated number.
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Feasibility Study
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a study put together by a consulting firm analyzing the economic merits of a facility to be financed by revenue bonds.
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Fed Funds Rate
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interest rate charged on bank-to-bank loans. Subject to daily fluctuation.
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Federal Covered
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a security or an investment adviser whose registration is handled exclusively by the federal government (SEC)
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Federal Farm Credit System
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organization of privately owned banks providing credit to farmers and mortgages on farm property.
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Federal Open Market Committee (FOMC)
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council of Federal Reserve officials that sets monetary policy based on economic data. The money supply is tightened to fight inflation, loosened to provide stimulus to a faltering economy.
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Federal Reserve Board
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a seven-member board directing the operations of the Federal Reserve System.
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Federal Reserve System
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the central bank system of the United States, with a primary responsibility to manage the flow of money and credit in this country.
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FHLMC
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a.k.a. “Freddie Mac.” Like big sister Fannie Mae, a quasi-agency, public company that purchases mortgages from lenders and sells mortgage-backed securities to investors. Stock is listed on NYSE.
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Fiduciary
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someone responsible for the financial affairs of someone else, e.g., custodian, trustee, or registered rep in a discretionary account.
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FIFO
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first-in-first-out. An accounting method for valuing a company’s inventory or for determining the capital gain/loss for an investor. Using FIFO, an investor indicates that, for example, the 100 shares of ABC that were sold at $55 are the first 100 shares that he purchased.
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Filing Date
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the date that an issuer files a registration statement with the SEC for a new issue of securities.
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Fill or Kill (FOK)
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a specialized order to buy or sell securities at a set price that will be canceled if all the securities are not available at once at the specified price.
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Final Prospectus
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document delivered with final confirmation of a new issue of securities detailing the price, delivery date, and underwriting spread.
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Financial Risk
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another name for “credit risk,” or the risk that the issuer of a bond could default.
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FinCEN
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U.S. Treasury’s “Financial Crimes Enforcement Network.” Suspicious Activity Reports must be provided to FinCEN if a broker-dealer notices activity in accounts that appears suspicious or possibly related to fraud or money laundering activities.
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FINRA (Financial Industry Regulatory Authority)
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the SRO formed when the NASD and the NYSE regulators merged.
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Firm Commitment
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an underwriting in which the underwriters agree to purchase all securities from an issuer, even the ones they failed to sell to investors. Involves acting in a “principal” capacity, unlike in “best efforts,” “all or none,” and “mini-max” offerings.
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Firm Quote
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a quote by a dealer representing a price at which the dealer is prepared to trade.
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First Market
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another name for the exchange market, where the NYSE is the model.
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First-In-First-Out (FIFO)
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an accounting method used to value a company’s inventory or to determine capital gains/losses on an investor’s securities transactions.
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Fiscal Policy
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Congress and President. Tax and Spend.
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Fixed Annuity
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an insurance product (not a security) in which the annuitant receives fixed dollar payments, usually for the rest of his or her life.
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Fixed Assets
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long-term assets that generate revenue but are not intended to be sold. For example, a printing press.
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Flexible Premium
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a premium that is flexible. Characteristic of “universal” insurance. Allows the policyholder to adjust the premiums and death benefit according to changing needs.
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Flow of Funds
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a statement for a revenue bond issue showing the priority of payments to be made with revenue generated from the facility.
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FNMA
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a.k.a. “Fannie Mae.” Like little brother Freddie Mac, Fannie buys mortgages from lenders and sells mortgage-backed securities to investors. A quasi-agency, a public company listed for trading on the NYSE.
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FOMC
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the Federal Reserve Board’s Federal Open Market Committee. Sets short-term interest rates by setting discount rate, reserve requirement and buying/selling T-bills to/from primary dealers.
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Foreign Currency Options
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standardized options in which the underlying instrument is a foreign currency, e.g., the yen, the euro, etc.
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Foreign Exchange Risk
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the risk to an American ADR holder that the American dollar will strengthen versus the currency used by the foreign corporation. For example, an American holding the Toyota ADR is at risk that the U.S. dollar will strengthen versus the yen.
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Forward Pricing
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the method of valuing mutual fund shares, whereby a purchase or redemption order is executed at the next calculated price. Mutual fund shares are bought and sold at the next computed price, not yesterday’s stale prices.
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Fourth Market, INSTINET
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an ECN (electronic communications network) used by institutional investors, bypassing the services of a traditional broker. Institutional = INSTINET.
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Fractional Share
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a portion of a whole share of stock. Mutual fund shares typically are issued as whole and fractional shares, e.g., 101.45 shares.
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Fraud
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using deceit to wrongfully take money/property from someone under false pretenses.
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Free Credit Balance
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the cash in a customer account that can be withdrawn.
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Free-Look
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period during which a contract or policyholder may cancel and receive all sales charges paid. Not a popular phrase among seasoned insurance and annuity salespersons.
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Freeriding & Withholding
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a violation in which underwriters fail to distribute all shares allocated in an offering of a “hot issue.”
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Front-end Load
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a mutual fund commission or sales fee charged when shares are purchased (A-shares). The amount of the load is added to the NAV to determine the public offering price (POP).
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Frozen Account
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an account in which purchase orders will be accepted only if the cash is in the account due to the customer’s failure to comply with Reg T.
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Full Faith and Credit
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a phrase used to denote that there are no specific assets backing a bond issue, only the issuer’s ability to repay the loan.
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Fully Registered Bonds
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bonds whose principal and interest payments are tracked/registered for purposes of taxation. A physical certificate with the owner’s name, and interest payable automatically by the paying agent (no coupons).
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Funded Debt
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another term for corporate bonds backed by a sinking fund as opposed to collateral.
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Funding
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an ERISA guideline that stipulates, among other things, that retirement plan assets must be segregated from other corporate assets.
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Fungible
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interchangeable, e.g., $20 bills or shares of stock, where one is just as good as another.
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GAN – grant anticipation note
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short-term debt obligation of a municipal issuer backed by funds to be received in a grant, usually from the federal government.
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GDP
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Gross Domestic Product, the sum total of all goods and services being produced by the economy. A positive GDP number is evidence of economic expansion.
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General Account
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where an insurance company invests net premiums in order to fund guaranteed, fixed payouts.
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General Obligation Bond
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a municipal bond that is backed by the issuer’s full faith and credit or full taxing authority.
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General Partner
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the manager of a DPP with unlimited liability and a fiduciary obligation to the limited partners.
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General Securities Representative
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an agent who passed the Series 7 and may sell virtually any security, unlike a Series 6 holder, who sells mutual funds and variable contracts only.
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Generic Advertising
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communications with the public that promote securities as investments but not particular securities.
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Gift Tax
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a tax paid when a gift exceeds the current exclusion limit.
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Global Fund
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a mutual fund investing in companies located and doing business all across the globe, including the U.S.
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GNMA
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a.k.a. “Ginnie Mae,” nickname for Government National Mortgage Association. A government agency (not a public company) that buys insured mortgages from lenders, selling pass-through certificates to investors. Monthly payments to investors pay interest and also pass through principal from a pool of mortgages. Recall that bonds pay interest and return principal only at maturity, while “pass-throughs” pass through principal monthly.
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Good Faith Deposit
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the deposit required by a municipal issuer for all syndicates submitting bids for an issue of bonds. Typically 1–2% of par value.
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Green Shoe Clause
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an agreement allowing the underwriters to sell additional shares if demand is high for an offering of securities.
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Gross Margin
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gross profit divided into revenue. For example, a company with $100 million in revenue and cost-of-goods-sold of $70 million has a gross margin of 30%.
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Gross Profit
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a company’s revenues minus their “cost of goods sold.” For example, a company with $100 million in revenue and cost-of-goods-sold of $70 million has a gross profit of $30 million.
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Gross Revenue Pledge
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less common method used by revenue bond issuers in which debt service is paid even before operations & maintenance.
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Growth
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investment objective that seeks “capital appreciation.” Achieved through common stock, primarily.
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Growth & Income
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a fund that purchases stocks for growth potential and also for dividend income. Less volatile than pure growth funds due to the income that calms investors down when the ride becomes turbulent.
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Growth Funds
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mutual funds investing in stocks expected to grow faster than the overall market and trading at high price-to-earnings multiples.
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Guaranteed Bond
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bond that is issued with a promise by a party other than the issuer to maintain payments of interest and principal if the issuer cannot.
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Guardian
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a fiduciary who manages the financial affairs of a minor or a person declared mentally incompetent by a court of law.
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Head and Shoulders
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a chart pattern used by technical analysts to determine that a bull or bear trend is about to reverse.
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Hedge Fund
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a private investment partnership open to accredited investors only. Illiquid investments that generally must be held one or two years before selling. Typically charge a management fee plus the first 20% of capital gains in most cases.
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Hedge
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to bet the other way. If you own stock, you can hedge by purchasing puts, which profit when the stock goes down.
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High-Yield
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an investment whose income stream is very high relative to its low market price. A high-yield bond is either issued by a shaky company or municipal government forced to offer high nominal yields, or it begins to trade at lower and lower prices on the secondary market as the credit quality or perceived credit strength of the issuer deteriorates.
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Holding Company
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a company organized to invest in other corporations, e.g., Berkshire-Hathaway, which holds large stakes in other companies such as Coca-Cola, See’s Candy, Dairy Queen, and Wells Fargo.
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Holding Period
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the period during which a security was held for purposes of determining whether a capital gain or loss is long- or short-term.
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Howey Decision
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a U.S. Supreme Court decision that defined an “investment contract” as “an investment of money in a common enterprise where the investor will profit solely through the efforts of others.”
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HR-10
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a reference to a Keogh plan.
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Hypothecate
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to pledge securities purchased in a margin account as collateral to secure the loan.
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Hypothecation Agreement
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document that gives a broker-dealer the legal authority to pledge a margin customer’s securities as collateral to secure the margin loan.
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IDR
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“Industrial Development Revenue Bond,” a revenue bond that builds a facility that the issuing municipality then leases to a corporation. The lease payments from the corporation back the interest and principal payments on the bonds.
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Immediate Annuity
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an insurance contract purchased with a single premium that starts to pay the annuitant immediately. Purchased by individuals who are afraid of outliving their retirement savings.
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Immediate or Cancel Order
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an order to buy or sell securities in which the customer will accept any part of the order that becomes available at a certain price, with the remainder of shares to be canceled.
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Income
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investment objective that seeks current income, found by investing in fixed-income securities, e.g., bonds, money market, preferred stock. An equity income fund buys stocks that pay dividends; less volatile than a growth & income fund or a pure growth fund.
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Income Bond
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a bond that will pay interest only if the issuer earns sufficient income and the board of directors declares the payment; a.k.a. “adjustment bond.”
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Income Programs
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a direct participation program that invests in existing producing oil and/or natural gas wells.
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Income Statement
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a financial statement showing a corporation’s results of operations over the quarter or year. Shows revenue, all expenses/costs, and the profit or loss the company showed over the period. Found in the annual shareholder report among other places.
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Indenture
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a contract that spells out the responsibilities and rights of an issuer in connection with a bond issue.
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Index
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a theoretical grouping of stocks, bonds, etc., that aids analysts who want to track something. The Consumer Price Index is a theoretical grouping or “basket” of things that consumers buy, used to track inflation. The Dow Jones Industrial Average is a theoretical grouping of 30 large-company stocks that analysts use to track the stock market. The S&P 500 index tracks the stock of 500 large companies and represents the overall stock market for many calculations, including beta.
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Index Option
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a call or put option based on the value of a particular index, e.g., the Dow Jones Industrial Average or the S&P 500.
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Indication of Interest
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an investor’s expression of interest in purchasing a new issue of securities after reading the preliminary prospectus; not a commitment to buy.
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Individual Retirement Account (IRA)
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also called an “individual retirement arrangement” to make sure it has at least two names. A tax-deferred account that generally allows any individual with earned income to contribute 100% of earned income up to the current maximum contribution allowed on a pre-tax basis that reduces the current tax liability and allows investment returns to compound.
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Inflation Risk
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also called “constant dollar risk” or “purchasing power risk,” it is the risk that inflation will erode the value of a fixed-income stream from a bond or preferred stock.
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Inflation
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rising prices, as measured by the Consumer Price Index (CPI). Major risk to fixed-income investors (loss of purchasing power).
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Initial Public Offering (IPO)
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a corporation’s first sale of stock to public investors. By definition, a primary market transaction in which the issuer receives the proceeds.
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Inside Information
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material information about a corporation that has not yet been released to the public and would likely affect the price of the corporation’s stock and/or bonds. Inside information may not be “disseminated” or acted upon.
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Insider
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for purpose of insider trading rules, an “insider” is anyone who has or has access to material non-public information. Officers (CEO ,CFO), members of the board of directors, and investors owning > 10% of the company’s outstanding shares are assumed to possess and have access to inside information. As fiduciaries to the shareholders, insiders may not use inside information to their benefit.
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Insider Trading and Securities Fraud Enforcement Act (ITSFEA) of 1988
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an Act of Congress that addresses insider trading and lists the penalties for violations of the Act. Insider traders may be penalized up to three times the amount of their profit or their loss avoided by using inside information.
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Institutional Investor
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not an individual. An institution is, for example, a pension fund, insurance company, or mutual fund. The large institutions are “accredited investors” who get to do things that retail (individual) investors often do not get to do.
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Insurance
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protection against loss of income due to death, disability, long-term care needs, etc.
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Insurance Covenant
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promise by a revenue bond issuer to keep the facility properly insured.
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Integration
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the final stage in the money laundering process.
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Interdealer
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among dealers. The “interdealer market” is the highest bid and lowest asked price for a security among all dealers/market makers.
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Interest Rate Options
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options based on the price or yield of U.S. Treasury securities.
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Interest Rate Risk
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the risk that interest rates will rise, pushing the market value of a fixed-income security down. Long-term bonds most susceptible.
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Interest Rates
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the cost of a commodity called money. In order to borrow money, borrowers pay a rate called an interest rate on top of the principal they will return at the end of the term. A one-year loan of $1,000 at 5% interest would have the borrower pay $50 on top of the $1,000 that will be returned at the end of the year.
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Internal Revenue Code (IRC)
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tax laws for the U.S. that define, for example, maximum IRA contributions, or the “conduit tax theory” that mutual funds use when distributing 90% of net income to shareholders, etc.
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Internal Revenue Service (IRS)
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an agency for the federal government that no one seems to like very much. Responsible for collecting federal taxes for the U.S. Treasury and for administering tax rules and regulations.
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International Fund
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a mutual fund investing in companies established outside the U.S.
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Interpositioning
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unnecessarily inserting another party between the broker-dealer and the customer. A violation.
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Interstate Offering
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an offering of securities in several states, requiring registration with the SEC.
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In-the-money
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a call option allowing an investor to buy the underlying stock for less than it is worth or a put option allowing an investor to sell the underlying stock for more than it is worth. For example, if ABC trades @50, both the ABC Oct 45 calls and the ABC Oct 55 puts are “in-the-money.”
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Intrastate Offering
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an offering of securities completed in the issuer’s home state with investors who reside in that state, and, therefore, eligible for the Rule 147 Exemption to registration with the SEC. Intrastate offerings generally register with the state Administrator.
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Intrinsic Value
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the amount by which an option is in-the-money. For example, if ABC trades @50, an ABC Oct 45 call has $5 of intrinsic value, regardless of what the premium might be.
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Inventory
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finished goods that have not yet been sold by a corporation. A current asset that is included in the current ratio but excluded in the quick ratio.
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Inverse Relationship
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when one goes up, the other goes down, and vice versa. Interest Rates and Yields are inversely related to Bond Prices. Your rate of speed is inversely related to your travel time to and from the office.
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Investment Adviser
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a business or professional that is compensated for advising others as to the value of or advisability of investing in securities. The entity that manages mutual funds/separate accounts for an asset-based fee. Financial planners are also advisers.
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Investment Banker
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see “underwriter.” A firm that raises capital for issuers on the primary market.
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Investment Banking
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the business of helping companies with mergers and acquisitions, performing IPOs and additional offerings. In other words, investment bankers raise capital for issuers not by loaning money (like a traditional bank) but by finding investors willing to contribute to the cause.
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Investment Company Act of 1940
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classified Investment Companies and set rules for registration and operation.
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Investment Company
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a company engaged in the business of pooling investors’ money and trading in securities on their behalf. Examples include unit investment trusts (UITs), face-amount certificate companies, and management companies.
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Investment Grade
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a bond rated at least BBB by S&P or Baa by Moody’s. The bond does not have severe default risk, so it is said to be appropriate for investors, as opposed to the speculators who buy non-investment grade bonds.
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Investment Objective
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any goal that an investor has including current income, capital appreciation (growth), capital preservation (safety), or speculation
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Investment Style
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an approach to investing, such as active, passive, or buy-and-hold.
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IRA
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Individual Retirement Account. A retirement account/arrangement for any individual with earned income. The Traditional IRA offers pre-tax contributions while the Roth IRA is funded with after-tax contributions.
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Issued Shares
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the number of shares that have been issued by a corporation.
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Issued Stock
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the shares that have been issued to investors by the corporation at this time. Often a lower number than the number of shares authorized.
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Issuer
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any individual or entity who issues or proposes to issue any security. For example, the issuer of Google common stock is Google.
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Issuing Securities
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raising capital by offering securities to investors on the primary market.
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Joint Account
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investment account owned by more than one individual. Account owners sign a joint account agreement that stipulates which % of the assets is owned by each individual. Joint accounts are either “tenants in common” or “tenants with rights of survivorship.”
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Joint With Last Survivor
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a settlement/payout option on an annuity that requires the insurance company to make payments to the annuitants as long as they are alive.
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JTIC (Joint Tenants In Common)
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account where the assets of the deceased party pass to the deceased’s estate, not the other account owner(s)
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JTWROS (Joint Tenants With Rights Of Survivorship)
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account where the assets of the deceased party pass to the other account owner(s).
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Junk Bond
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a bond backed by a shaky issuer. It was either issued by an entity with shaky credit, or is now trading at a frightfully low price on the secondary market because the issuer’s credit has suddenly or recently been downgraded. Since the price is low, given the low quality of the debt, the yield is high. High-yield and junk are synonymous.
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K-1
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a tax form required of people who own direct participation interests (limited partnership, S-corp).
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Keogh
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qualified retirement plan available to sole proprietorships.
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Keynesian Economics
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economic school of thought that advocates government intervention through fiscal policy as a way to stimulate demand for goods and services.
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Large Cap
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a stock where the total value of the outstanding shares is large, generally greater than $10 billion. For example, GE, MSFT, IBM.
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Last-In-First-Out (LIFO)
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an accounting method used for random withdrawals from an annuity. The IRS assumes that all withdrawals represent part of the taxable “excess over cost basis” first.
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Layering
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the phase of money laundering in which the first attempt at disguising the source of the ownership of the funds is made by creating complex layers of transactions.
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LEAPS
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long-term standardized options.
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Legal Opinion
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the opinion of the bond counsel attesting to the municipality’s legal authority to issue the bonds as well as the tax status of the bonds.
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Legislative Risk
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the risk to an investor that laws will change and have a negative impact on an investment. For example, if municipal bonds lose their tax-exempt interest, their value would plummet.
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Letter of Intent
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LOI, a feature of many mutual funds whereby an investor may submit a letter or form expressing the intent to invest enough money over 13 months to achieve a breakpoint.
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Level Load
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an ongoing asset-based sales charge (12b-1 fee) associated with mutual fund C-shares. Appropriate for short-term investments only.
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Leverage
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using borrowed money to increase returns. Debt securities and margin accounts are associated with “leverage.”
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Liabilities
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what an individual or corporation owes, e.g., credit card debt, bonds, mortgage balance, accounts payable.
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Life Only/Life Annuity
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a payout option whereby the insurance/annuity company promises to make payments only for the rest of the annuitant’s life.
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Life With Joint and Last Survivor
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a payout option whereby the insurance/annuity company promises to make payments to the annuitant for the rest of his life, then to the survivor for the rest of her life.
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Life With Period Certain
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a payout option whereby the insurance/annuity company promises to make payments to the annuitant for the rest of his life or a certain period of time, whichever is greater.
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Life With Unit Refund
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a payout option whereby the insurance/annuity company promises to make at least a certain number of payments to the annuitant or beneficiary.
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Limit Orders
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orders to buy or sell a security at a specified price or better.
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Limited Liability
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an investor’s ability to limit losses to no more than the amount invested. Holders of common stock and limited partnership interests enjoy “limited liability,” which means they can only lose 100% of what they invest.
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Limited Partner
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a person who owns a limited partnership interest. Has no managerial responsibility and is shielded from debts of—and lawsuits against—the partnership.
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Limited Partnership
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a form of business ownership in which income and expenses flow through directly to the partners rather than to a separate business entity.
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Limited Representative
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what one would be after passing the Series 6 and getting registered to represent one’s broker-dealer. You will be a “general securities representative” once you pass the Series 7 exam.
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Limited Tax Bonds
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general obligation bonds backed by a tax whose rate may not be increased above a certain limit.
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Limited Trading Authorization
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an authorization for someone other than the account owner to enter purchase and sale orders but make no withdrawals of cash or securities.
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Liquidation Priority
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the priority of claims on a bankrupt entity’s assets that places creditors (bondholders) ahead of stockholders and preferred stockholders ahead of common stockholders.
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Liquidity Risk
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the risk of being unable to sell a security quickly for a fair price; a.k.a. “marketability risk.”
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Liquidity
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ability to quickly convert an investment to cash and get a fair price. A home is not a liquid investment—100 shares of GE are extremely liquid. Mutual funds are very liquid, since the issuer has to pay the NAV promptly. The most liquid investment imaginable is the money market mutual fund—just write checks and the fund redeems enough shares to cover it.
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Loan Consent
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a document that when signed gives the broker-dealer the permission to lend a customer’s securities to short sellers.
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Long
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to buy or own.
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Long Straddle
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a position created by purchasing a call and a put with the same strike price in order to bet on the volatility of the underlying instrument.
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Long-Term Gain
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a profit realized when selling stock held for at least 12 months plus 1 day. Subject to lower capital gains tax rates than short-term gains.
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Long-Term Liability
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a debt to be repaid in the long-run, e.g., the principal value of an outstanding bond issue.
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Long-Term Loss
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a loss realized when selling stock held for at least 12 months plus 1 day. Used to offset long-term capital gains.
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Long-Term Options (LEAPS)
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standardized options contracts with expiration terms of several years, unlike ordinary options, which expire in nine months or sooner.
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Lump Sum Payment
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a settlement/payout option for annuities or insurance where the annuitant or beneficiary receives a lump sum payment. Go figure.
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Maintenance Covenant
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a promise of a revenue bond issuer to keep the facility properly maintained.
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Maloney Act
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An amendment to the Securities Exchange Act of 1934 creating the NASD as the self-regulatory organization (SRO) for the over-the-counter (OTC) market.
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Management Company
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one of the three types of Investment Companies, including both open-end and closed-end funds.
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Management Fee
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the % of assets charged to a mutual fund portfolio to cover the cost of portfolio management.
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Manager’s Fee
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typically the smallest piece of the spread, paid to the managing underwriter for every share sold by the syndicate.
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Margin
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amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.
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Marginal Tax Rate
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the tax rate applied to the next dollar of income earned.
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Markdown
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the difference between the highest bid price for a security and the price that a particular dealer pays an investor for her security.
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Market Letter
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a publication of a broker-dealer sent to clients or the public and discussing investing, financial markets, economic conditions, etc. Can be considered correspondence if sent to a limited number of clients; otherwise, considered sales literature and subject to pre-approval.
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Market Maker
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a dealer in the OTC market maintaining an inventory of a particular security and a firm Bid and Ask price good for a minimum of 100 shares. Acts as a “principal” on transactions, buying and selling for its/their own account.
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Market Manipulation
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the illegal process of using deception to move securities prices in favor of the conspirators. Includes terms such as “painting the tape” or “pegging.”
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Market Order
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an order to buy or sell a security at the best available market price.
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Market Risk
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also called “systematic risk,” the risk inherent to the entire market rather than a specific security. The risk that the stock market may suffer violent upheavals due to unpredictable events including natural disaster, war, disease, famine, credit crises, etc. Market risk can be reduced by hedging with options or ETFs.
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Marketability Risk
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the risk of being unable to sell a security quickly for a fair price; a.k.a. “liquidity risk.”
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Marketability
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a.k.a. liquidity; the ease or difficulty an investor has when trying to sell a security for cash without losing his shirt. Thinly traded securities have poor marketability.
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Marking to the Market
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process of calculating margin requirements based on the most current market values for the securities in a margin account.
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Markup
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the difference between the lowest ask/offer price for a security and the price that a particular dealer charges.
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Material Information
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any fact that could reasonably affect an investor’s decision to buy, sell, or hold a security. For example, profits and losses at the company, product liability lawsuits, the loss of key clients, etc.
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Maturity Date
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the date that a bond pays out the principal, and interest payments cease. Also called “redemption.”
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Member Firm
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a broker-dealer and/or underwriting firm that belongs to FINRA or other securities association (MSRB, CBOE).
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Millage Rate
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the property tax rate used to calculate a property owner’s tax bill.
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Mini-Max
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a type of best efforts underwriting where the syndicate must sell a minimum amount and may sell up to a higher, maximum amount.
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Minimum Death Benefit
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the minimum death benefit payable to the insured, regardless of how lousy the separate account returns are in a variable policy.
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Minimum Maintenance Requirement
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the minimum amount of equity that a margin customer must maintain on either a short or a long position.
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Monetary Policy
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what the FRB implements through the discount rate, reserve requirement, and FOMC open market operations. Monetary policy tightens or loosens credit in order to affect short-term interest rates and, therefore, the economy.
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Money Laundering
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the process of turning profits from illegal enterprises into seemingly legitimate assets.
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Money Market Mutual Fund
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a highly liquid holding place for cash. Sometimes called “stable value” funds, as the share price is generally maintained at $1. The mutual funds invest in—surprisingly—money market securities.
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Money Market
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the short-term (1 year or less) debt security market. Examples include commercial paper, bankers’ acceptance, T-bills.
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Money Purchase
|
a retirement plan in which the employer must contribute a set percentage of the employee’s salary, regardless of profitability.
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Moody’s Investors Service
|
one of the top three credit rating agencies for corporate and municipal bonds as well as stocks.
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Moral Obligation Bond
|
type of revenue bond with a provision to seek emergency funding from the state legislature should the issuer run into financial problems.
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Mortality Guarantee
|
a promise from an insurance company to pay out no matter how soon the insured dies, or to pay an annuitant no matter how long he lives.
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Mortgage Bond
|
a corporate bond secured by a pledge of real estate as collateral.
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MSRB (Municipal Securities Rulemaking Board)
|
the self-regulatory organization overseeing municipal securities dealers.
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Municipal Bond
|
a bond issued by a state, county, city, school district, etc., in order to build roads, schools, hospitals, etc., or simply to keep the government running long enough to hold another election.
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Municipal Bond Fund
|
a mutual fund that invests in municipal bonds with an objective to maximize federally tax-exempt income.
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Municipal Note
|
a short-term obligation of a city, state, school district, etc., backed by the anticipation of funds from revenues, taxes, or upcoming bond issues, e.g., TAN, RAN, BAN.
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Mutual Fund
|
an investment company offering equity stakes in a portfolio that is usually managed actively and that always charges management fees and other expenses.
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Narrow-based Index
|
an index focusing on a particular industry or geographic region, e.g., a transportation index.
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NASD (National Association of Securities Dealers)
|
former name of the SRO empowered with the passage of the Maloney Act of 1938. Regulates its own members and enforces SEC rules and regulations. Now called FINRA after a merger with the regulators from the NYSE.
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NASDAQ
|
National Association of Securities Dealers Automated Quotation system. The main component of the OTC market. Stocks that meet certain criteria are quoted throughout the day on NASDAQ, e.g., MSFT, ORCL, and INTC.
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National Adjudicatory Council
|
NAC, the first level of appeal for a party sanctioned by the DOE under FINRA’s Code of Procedure.
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NAV
|
the net asset value of a mutual fund share. Assets – Liabilities/Outstanding Shares.
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Negotiable
|
the characteristic of a security that allows an investor to sell or transfer ownership to another party. For example, savings bonds are not negotiable, while Treasury Bills are negotiable (able to be traded).
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Negotiated Market
|
another name for the “second” or “over-the-counter” market.
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Negotiated Underwriting
|
a municipal bond—usually a revenue bond—underwritten without a competitive, sealed bid.
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Net Income
|
the “bottom line” of a corporation’s income statement. Revenue minus all expenses. Also known as a “profit” or a “loss,” depending on whether it’s a positive or negative number.
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Net Interest Cost
|
a measure of a municipal issuer’s total cost of borrowing money by issuing bonds.
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Net Investment Income
|
the source of an investment company’s dividend distributions to shareholders. It is calculated by taking the fund’s dividends and interest collected on portfolio securities, minus the operating expenses. Funds using the “conduit tax theory” distribute at least 90% of net investment income to avoid paying taxes on the amount distributed to shareholders.
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Net Overall Debt
|
a municipal issuer’s direct debt plus their overlapping debt.
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Net Revenue Pledge
|
the more common method used by the issuer of a revenue bond in which operations & maintenance are covered before debt service.
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Net Worth
|
the difference between assets and liabilities. For example, the difference between the market value of a home and the mortgage balance still owed would represent the total net worth for many Americans. Other components would be checking, savings, and retirement accounts minus credit card debt. Add the pluses, subtract the minuses, and you have the individual’s financial net worth.
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New Account Form
|
the form that must be filled out for each new account opened with a broker-dealer. The form specifies, at a minimum, the name of the account owner, trading authorization, method of payment, and the type of investment securities that are appropriate for this particular account.
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New Construction
|
a type of DPP in which the partnership builds and then sells housing units.
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New Issue Market
|
the primary market, where securities are issued to investors with the proceeds going to the issuer of the securities. Initial public offerings (IPOs), for example, take place on the “new issue market.”
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NHA – New Housing Authority (bonds)
|
revenue bonds issued by a municipal government but ultimately backed by the United States Government, who guarantees rental payments for the residents of the housing project.
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Nolo Contendere
|
a phrase you hope you’ve never uttered in open court when it comes time to complete the U4. Curious? Look it up under item 14 on Form U4. Latin for “no contest,” which means, “Yeah, I done it—now what?”
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No-load Fund
|
a mutual fund sold without a sales charge, but one which may charge an ongoing 12b-1fee or “asset-based sales charge” up to .25% of net assets.
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Nominal Yield
|
the interest rate paid by a bond or preferred stock. The investor receives this % of the par value each year, regardless of what the bond or preferred stock is trading for on the secondary market.
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Non-accredited Investor
|
an investor who does not meet various SEC net worth and/or income requirements. For a Reg D private placement, accredited investors may participate, but only a limited number of non-accredited investors may purchase the issue.
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Non-cumulative Preferred Stock
|
a type of preferred stock that does not have to pay missed dividends (dividends in arrears).
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Nondiscrimination Covenant
|
a promise by a municipal revenue bond issuer that all users of a facility must pay to use it, including VIPs of the municipality.
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Non-diversified Fund
|
a fund that doesn’t care to meet the 75-5-10 rule, preferring to concentrate more heavily in certain issues.
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Non-equity Options
|
standardized options based on things other than equity securities, e.g., indexes or foreign currency options.
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Non-NASDAQ OTC Securities
|
over-the-counter securities that do not meet the requirements of NASDAQ. For example, Pink Sheet securities.
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Non-systematic Risk
|
the risk of holding any one particular stock or bond. Diversification spreads this risk among different issuers and different industries in order to minimize the impact of a bankruptcy or unexpected collapse of any one issuer.
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Not Held (order)
|
a.k.a. “market not held.” A market order in which the customer allows the broker-dealer to enter the trade when they feel the price is right, as opposed to a market order, which is filled as soon as possible.
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Note
|
a short-term debt security.
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Numbered Account
|
an account identified with a number rather than a name. Allowed if the owner files a statement with the broker-dealer attesting to ownership.
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NYSE
|
New York Stock Exchange, an auction market where buyers and sellers shout out competitive bid and asked/offered prices throughout the day.
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Odd Lot
|
an order for fewer than 100 shares of common stock or 5 bonds.
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Offer
|
another name for “ask,” or the price an investor must pay if he wants to buy a security from a dealer/market maker.
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Offer of Settlement
|
a respondent’s offer to the disciplinary committee of FINRA to settle his or her recent rule violations.
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Officers
|
high-level executives at a public corporation, e.g., the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the Chief Operating Officer (COO).
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Official Notice of Sale
|
advertisement in the Bond Buyer in which a municipal issuer hopes to attract potential underwriters.
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Official Statement
|
the document that discloses detailed information about a municipal bond issuer’s financial condition.
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OID
|
original issue discount. A bond purchased for less than the par value on the primary market, e.g., a zero coupon bond.
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Omitting Prospectus
|
an advertisement for a mutual fund that typically shows performance figures without providing (omitting) the full disclosure contained in the prospectus. Therefore, it must present caveats and encourage readers to read the prospectus and consider all the risks before investing in the fund.
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Open-end Fund
|
an investment company that sells an unlimited number of shares to an unlimited number of investors on a continuous basis. Shares are redeemed by the company rather than traded among investors.
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Operating Expenses
|
expenses that a mutual fund deducts from the assets of the fund, including board of director salaries, custodial and transfer agent services, management fees, 12b-1 fees, etc.
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Option
|
a derivative giving the holder the right to buy or sell something for a stated price up to expiration of the contract. Puts and calls.
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Order Room
|
a.k.a. “wire room.” The department of a broker-dealer that places trades.
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Order Ticket/Trade Ticket
|
a ticket filled out by a registered representative when placing an order to buy or sell securities.
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Ordinary Income Rate
|
tax rate paid on earned income and some forms of investment income, e.g., corporate or Treasury bond interest.
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OTC/Over-the-Counter
|
called a “negotiated market.” Securities traded among dealers rather than on exchanges. Includes NASDAQ and also Bulletin Board and Pink Sheet stocks, plus government, corporate, and municipal bonds.
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Outstanding Shares
|
the number of shares a corporation has outstanding. Found by taking Issued shares minus Treasury stock.
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Overlapping Debt
|
the debt that a municipal issuer is responsible for along with a coterminous issuer.
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PACs – Planned Amortization Class
|
a type of CMO (collateralized mortgage obligation) that provides more protection against extension risk vs. a TAC.
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Paid-in Surplus
|
the amount above the par value that investors paid when purchasing the company’s initial public offering. For example, if the stock has a par value of $1 and was sold to investors at a public offering price of $5, the paid-in surplus is $4 per share.
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Painting the Tape
|
a form of market manipulation in which bogus trades are reported in order to affect the market price of a security. A violation.
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Par, Principal
|
the face amount of a bond payable at maturity. Also, the face amount of a preferred stock. Preferred = $100, Bond = $1,000.
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Partial Surrender
|
life insurance policyholder cashes in part of the cash value. Excess over premiums is taxable.
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Participating Preferred Stock
|
preferred stock whose dividend is often raised above the stated rate.
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Participation
|
provision of ERISA requiring that all employees in a qualified retirement plan be covered within a reasonable length of time after being hired.
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Partnership Agreement
|
the agreement between the LPs and the GP for a direct participation program.
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Passive Income
|
as opposed to “earned income,” the income derived from rental properties, limited partnerships, or other enterprises in which the individual is not actively involved.
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Pass-Through Certificate
|
a mortgage-backed security (usually GNMA) that takes a pool of mortgages and passes through interest and principal monthly to an investor.
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Payable (or Payment) Date
|
the date that the dividend check is paid to investors.
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Payroll Deduction
|
non-qualified retirement plan offered by some businesses.
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P/E or Price-to-Earnings Ratio
|
the market price of a stock compared to the earnings per share. Stocks trading at high P/E ratios are “growth stocks,” while those trading at low P/E ratios are “value stocks.”
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Peak
|
the phase of the business cycle between expansion (good times) and contraction (bad times).
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Pegging
|
a form of market manipulation. A violation.
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Penny Stock Cold Calling Rules
|
rules to protect consumers receiving telemarketing pitches to buy risky stocks trading below $5 a share. Rules require special disclosure and investor signatures when selling penny stocks.
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Pension Plan
|
a contract between an individual and an employer that provides for the distribution of benefits at retirement.
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Performance Figures
|
total return for a mutual fund over 1, 5, and 10 years, and/or “life of fund.” Only past performance may be indicated, and there must be a caveat that past performance does not guarantee future results.
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Periodic-Payment Deferred Annuity
|
method of purchasing an annuity whereby the contract holder makes periodic payments into the contract. The pay-out phase must be deferred for all periodic payment plans.
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Permanent Insurance
|
life insurance other than “term.”
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PHA – Public Housing Authority (bonds)
|
another name for NHA/New Housing Authority municipal revenue bonds.
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Pink Sheets
|
a virtually unregulated part of the OTC market where thinly traded, volatile stocks change hands.
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Placement
|
the first stage in the cycle of money laundering in which illegally generated funds are placed into the financial system or are smuggled out of the country.
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Placement Ratio
|
a statistic published in the Bond Buyer showing the dollar amount of municipal securities sold on the primary market out of the dollar amount offered the previous week; a.k.a. the “acceptance ratio.”
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Political Risk
|
the risk that a country’s government will radically change policies or that the political climate will become hostile or counterproductive to business and financial markets.
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POP
|
public offering price. For an IPO, this includes the spread to the underwriters. For a mutual fund, this includes any sales loads that go to the underwriter/distributor.
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Portfolio
|
a batch of stocks, bonds, money market securities, or any combination thereof that an investor owns.
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Position Limit
|
maximum number of options contracts that a trader can have on the same side of the market (bull/bear) and/or may exercise over a five day period.
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Power of Substitution
|
a document that when signed by the security owner authorizes transfer of the certificate to another party.
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Pre-dispute Arbitration Agreement
|
an agreement signed by the customer of a broker-dealer in which the customer agrees to use arbitration rather than civil court to settle disputes.
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Pre-emptive Right
|
the right of common stockholders to maintain their proportional ownership if the company offers more shares of stock.
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Preferred Stock
|
a fixed-income equity security whose stated dividends must be paid before common stock can receive any dividend payment. Also gets preference ahead of common stock in a liquidation (but behind all bonds and general creditors).
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Preliminary Official Statement
|
the official statement for a municipal bond issue subject to further additions and changes.
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Preliminary Prospectus
|
a prospectus that lacks the POP and the effective date; a.k.a. “red herring.” Used to solicit indications of interest.
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Premium Bond
|
a bond purchased for more than the par value, usually due to a drop in interest rates.
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Prepayment Risk
|
the risk that the mortgages underlying a mortgage-backed security/pass-through will be paid off sooner than expected due to a drop in interest rates. Investors reinvest the principal at a lower rate going forward.
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Preservation of Capital
|
an investment objective that places the emphasis on making sure the principal is not lost. Also called “safety.”
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Price-based Options
|
standardized interest rate options based on the price of various U.S. Treasury securities.
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Primary Market
|
where securities are issued to raise capital for the issuer.
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Primary Offering
|
offering of securities in which the proceeds go to the issuer.
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Prime Rate
|
interest rate charged to corporations with high credit ratings for unsecured loans.
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Principal-Protected Fund
|
a mutual fund for people who want their principal protected. Involves holding the investment for several years, at which point the fund guarantees that the value of the investment will be equal to at least what the investor put in.
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Private Placement
|
an exempt transaction under Reg D (Rule 506) of the Securities Act of 1933, allowing issuers to sell securities without registration to accredited investors, who agree to hold them for a required period that is subject to change by the SEC before selling them through Rule 144.
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Private Securities Transaction
|
offering an investment opportunity not sponsored by the firm. Requires permission from the firm and any disclosure demanded; otherwise, a violation called “selling away.”
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Proceeds Transaction
|
using the proceeds from a sale of securities to buy other securities on the same day.
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Profit Sharing
|
a defined contribution plan whereby the company shares any profits with employees in the form of contributions to a retirement account.
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Progressive Tax
|
a tax that increases as a percentage as the thing being taxed increases, including gift, estate, and income taxes. Not a flat tax.
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Prospectus
|
a disclosure document that details a company’s plans, history, officers, and risks of investment. It’s the red herring plus the POP and the effective date.
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Protective Covenants
|
promises from the issuer of a revenue bond to the bondholders designed to protect the bondholders against default.
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Proxy
|
a form granting the power to vote according to a shareholder’s instructions when the shareholder will not attend the meeting.
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Prudent Investor Standards
|
guidance provided to fiduciaries investing on behalf of a third party, e.g., trustees or custodians of UTMA accounts.
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PSA Model
|
a method of estimating the speed of prepayments on a CMO investment.
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Public Appearance
|
addressing an audience on topics related to securities. Before speaking at a local Chamber of Commerce function, for example, registered representatives need prior principal approval.
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Public Offering Price (POP)
|
the price an investor pays for a mutual fund or an initial public offering. For a mutual fund, POP = NAV + the sales charge.
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Public Offering
|
the sale of an issue of common stock, either an IPO or an additional offer of shares.
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Purchasing Power Risk
|
also called “constant dollar” or “inflation” risk, the risk that a fixed payment will not be sufficient to keep up with rising inflation (as measured through the CPI).
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Put (n.)
|
a contract giving the owner the right to sell something at a stated exercise price.
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Put (v.)
|
to sell.
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Put Spread
|
the act of buying and selling puts on the same underlying instrument where the two options are different in terms of strike price, expiration, or both.
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Qualified Dividend
|
a dividend that qualifies for a lower tax rate vs. ordinary income.
|
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Qualified Institutional Buyers
|
investors meeting certain SEC criteria allowing them to participate in certain investment opportunities not open to the general public.
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Qualified Opinion
|
opinion by the bond counsel for a municipal issuer in which some doubt or reservations are expressed.
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Qualified Plan
|
a retirement plan that qualifies for deductible contributions on behalf of employers and/or employees and covered by ERISA. For example, 401(k), defined benefit, Keogh. Must meet IRS approval, unlike more informal “non-qualified plans.”
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Quick Ratio
|
a more stringent measure of liquidity than the current ratio. Inventory is excluded from current assets before comparing to the company’s current liabilities.
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Quote, Quotation
|
a price that a dealer is willing to pay or accept for a security. A two-sided quote has both a bid and an asked/offer price.
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Random Withdrawals
|
a settlement option in an annuity whereby the investor takes the value of the subaccounts in two or more withdrawals, rather than one lump sum.
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Rate Covenant
|
a promise that the issuer of a revenue bond will raise rates if necessary to cover the debt service.
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Rating Service
|
e.g., S&P and Moody’s; a company that assigns credit ratings to corporate and municipal bonds.
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Raw Land
|
unimproved real estate providing no cash flow and no depreciation. A speculative investment in land.
|
|
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Realized Gain
|
the amount of the “profit” an investor earns when selling a security.
|
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Recession
|
two quarters (6 months) or more of economic decline. Associated with rising unemployment, falling interest rates, and falling gross domestic product.
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Reclamation
|
document sent by a broker-dealer when delivery of securities is apparently in error.
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Record Date
|
the date determined by the Board of Directors upon which the investor must be the holder “of record” in order to receive the upcoming dividend. Settlement of a trade must occur by the record date for the buyer to receive the dividend.
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Recourse Note
|
an obligation of a limited partnership for which a limited partner is responsible personally.
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Red Herring
|
a.k.a. “preliminary prospectus.” Contains essentially the same information that the final prospectus will contain, minus the POP and effective date.
|
|
|
Redeemable Security
|
a security that may be redeemed or presented to the issuer for payment, i.e. open-end (but not closed-end) funds.
|
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Redemption
|
for mutual funds, redemption involves the sale of mutual fund shares back to the fund at the NAV (less any redemption fees, back-end loads). For bonds, the date that principal is returned to the investor, along with the final interest payment.
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Redemption Fee
|
a charge to a mutual fund investor who sells her shares back to the fund much sooner than the fund would prefer.
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Refunding
|
replacing an outstanding bond issue by issuing new bonds at a lower interest rate. Also known as “calling” a bond issue.
|
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Reg A
|
a laid-back and predictable form of island music. Also, an exempt transaction under the Securities Act of 1933 for small offerings of securities ($5 million issued in a 12-month period).
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Reg D
|
an exempt transaction under the Securities Act of 1933 for private placements.
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Reg FD
|
legislation requiring that any material non-public information disclosed by a public corporation to analysts or other investors must be made public.
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Reg T
|
established by the FRB as the amount of credit a broker-dealer may extend to a customer pledging a security as collateral for a margin loan. In a margin account, customers must put down ½ of the security’s value, or at least $2,000.
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Reg U
|
established by the FRB as the amount of credit a bank may extend to a broker-dealer or public customer pledging a security as collateral.
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Registered as to Principal Only
|
a bond with only the principal registered. Interest coupons must be presented for payment.
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Registered Representative
|
an associated person of an investment banker or broker-dealer who effects transactions in securities for compensation.
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Registered Secondary
|
an offering of securities by persons other than the issuer. For example, the former CEO of a corporation may offer a large block of restricted (unregistered) stock to the public through a broker-dealer.
|
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Registrar
|
audits the transfer agent to make sure the number of authorized shares is never exceeded.
|
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Registration Statement
|
the legal document disclosing material information concerning an offering of a security and its issuer. Submitted to SEC under Securities Act of 1933.
|
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|
Regressive Tax
|
a flat tax, e.g., gasoline, sales, excise taxes.
|
|
|
Regular Way Settlement
|
T + 3, trade date plus three business days. T + 1 for Treasury securities.
|
|
|
Regulated Investment Company
|
an investment company using the conduit tax theory by distributing 90% or more of net investment income to shareholders.
|
|
|
Reinstatement Privilege
|
a feature of some mutual funds allowing investors to make withdrawals and then reinstate the money without paying another sales charge.
|
|
|
Reinvestment Risk
|
the risk that a fixed-income investor will not be able to reinvest interest payments or the par value at attractive interest rates. Happens when rates are falling.
|
|
|
REIT (Real Estate Investment Trust)
|
a corporation or trust that uses the pooled capital of investors to invest in ownership of either income property or mortgage loans. 90% of net income is paid out to shareholders.
|
|
|
Release Date
|
date established by the SEC as to when the underwriters may sell new securities to the buyers; a.k.a. “effective date.”
|
|
|
Repurchase Agreement
|
an agreement in which one party sells something to the other and agrees to repurchase it for a higher price over the short-term.
|
|
|
Required Minimum Distribution (RMD)
|
the required minimum distribution that must be taken from a retirement plan to avoid IRS penalties. Usually April 1st of the year following the individual’s 70½th birthday.
|
|
|
Reserve Requirement
|
amount of money a bank must lock up in reserve, established by the FRB.
|
|
|
Residual Claim
|
the right of common stockholders to claim assets after the claims of all creditors and preferred stockholders have been satisfied.
|
|
|
Restricted Person
|
a person who is ineligible to purchase an equity IPO, including members of the brokerage industry and their immediate family members.
|
|
|
Restricted Stock
|
stock whose transfer is subject to restrictions, e.g., a holding period. Stock purchased in private placements is an example of restricted stock.
|
|
|
Revenue
|
the proceeds a company receives when selling products and services.
|
|
|
Revenue Anticipation Note (RAN)
|
a short-term debt obligation of a municipal issuer backed by upcoming revenues.
|
|
|
Revenue Bond
|
a municipal bond whose interest and principal payments are backed by the revenues generated from the project being built by the proceeds of the bonds. Toll roads, for example, are usually built with revenue bonds backed by the tolls collected.
|
|
|
Reverse Repurchase Agreements
|
an agreement between two parties to buy and sell securities for a set price.
|
|
|
Rights of Accumulation
|
feature of many mutual funds whereby a rise in account value is counted the same as new money for purposes of achieving a breakpoint.
|
|
|
Rights Offering
|
additional offer of stock accompanied by the opportunity for each shareholder to maintain his/her proportionate ownership in the company.
|
|
|
Rights
|
short-term equity securities that allow the holder to buy new shares below the current market price.
|
|
|
Riskless Principal Transaction
|
transaction in which a broker-dealer chooses to act as a principal when they could have acted as an agent for the customer.
|
|
|
Rollover
|
moving retirement funds from a 401(k) to an IRA, or from one IRA to another. In a “60-day rollover,” the check is cut to the individual, who must then send a check to the new custodian within 60 days to avoid early distribution penalties.
|
|
|
Roth IRA
|
individual retirement account funded with non-deductible (after-tax) contributions. All distributions are tax-free provided the individual is 59½ and has had the account at least five years.
|
|
|
Round Lot
|
the usual or normal unit of trading. 100 shares for common stock.
|
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|
RTRS
|
a trade reporting system used for transactions in municipal securities on the secondary market.
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Rule (and Form) 144
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regulates the sale of “control stock” by requiring board members, officers, and large shareholders to report sales of their corporation’s stock and to adhere to volume limits. The form is filed as often as quarterly and no later than concurrently with the sale.
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Rule 144a
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rule that allows restricted securities to be re-sold to institutional investors including banks, insurance companies, broker-dealers, investment advisers, pension plans, and investment companies without violating holding period requirements.
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Rule 145
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rule that requires corporations in a proposed merger/acquisition to solicit the vote of the shareholders of both the purchasing and the acquired corporation.
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Rule 147
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exemption under the Securities Act of 1933 for intra-state offerings of securities.
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RVP
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receipt versus payment, a method of settlement whereby payment on the transaction is made when delivery of the securities is received and accepted.
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Safety
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an investment objective that seeks to avoid loss of principal first and foremost. Bank CDs, Treasury securities, and fixed annuities are generally suitable.
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Sales Charge, Sales Load
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a deduction from an investor’s check that goes to the distributors/sellers of the fund. Deducted from investor’s check, either when she buys (A-shares) or sells (B-shares).
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Sales Literature
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communications of a member broker-dealer delivered to a targeted, controlled audience, e.g., brochures, research reports, cold calling scripts.
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Savings Bond
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a U.S. Government debt security that is not “negotiable,” meaning it can’t be traded or pledged as collateral for a loan. Includes EE and HH series bonds.
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Scheduled Premium
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life insurance with established, scheduled premium payments, e.g., whole life, variable life. As opposed to “universal” insurance, which is “flexible premium.”
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Secondary Market
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where investors trade securities among themselves and proceeds do not go to the issuer.
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Secondary Offering/Distribution
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a distribution of securities owned by major stockholders—not the issuer of the securities.
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Sector Fund
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a.k.a. “specialized.” A fund that concentrates heavily in a particular industry or geographic area, e.g., “The Japan Fund,” or the “Technology Fund.” Higher risk/reward than funds invested in many industries.
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Secured Bond
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a corporate bond secured by collateral, e.g., mortgage bond, collateral trust certificate, equipment trust certificate.
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Securities Act of 1933
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a.k.a. “Paper Act,” regulates the new-issue or primary market, requiring non-exempt issuers to register securities and provide full disclosure.
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Securities and Exchange Commission
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SEC, empowered by passage of Securities Exchange Act of 1934. A government body, the ultimate securities regulator.
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Securities Exchange Act of 1934
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prevents fraud in the securities markets. No person and no person exempt from anti-fraud regulations. Created/empowered the SEC. Requires broker-dealers, exchanges and securities associations to register with SEC. Requires public companies to report quarterly and annually to SEC.
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Security
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an investment of money subject to fluctuation in value and negotiable/marketable to other investors. Other than an insurance policy or fixed annuity, a security is any piece of securitized “paper” that can be traded for value.
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Self-Regulatory Organization
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SRO, e.g., FINRA. An organization given the power to regulate its members. Not government bodies like the SEC, which oversees the SROs.
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Sell Limit
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an order to sell placed above the current market price that may be executed only if the bid price rises to the limit price or higher.
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Sell Stop
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an order to sell placed below the current market price, activated only if the market price hits or passes below the stop price.
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Selling Away
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a violation that occurs when a registered representative offers investment opportunities not sponsored by the firm.
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Selling Concession
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typically, the largest piece of the underwriting spread going to the firm credited with making the sale.
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Selling Dividends
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a violation where an investor is deceived into thinking that she needs to purchase a stock in order to receive an upcoming dividend.
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Selling Group
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certain broker-dealers with an agreement to act as selling agents for the syndicate (underwriters) with no capital at risk.
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Selling, General, and Administrative
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general operating expenses listed on the company’s income statement.
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Semi-Annual
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twice per year, or “at the half year,” literally. Note that “bi-annually” means “every two years.” Bond interest is paid semi-annually. Mutual funds report to their shareholders semi-annually and annually. Nothing happens “bi-annually” as a general rule of thumb.
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Senior Security
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a security that grants the holder a higher claim on the issuer’s assets in the event of a liquidation/bankruptcy.
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Separate Account
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an account maintained by an insurance/annuity company that is separate from the company’s general account. Used to invest clients’ money for variable annuities and variable insurance contracts. Registered as an investment company under Investment Company Act of 1940.
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SEP-IRA
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pre-tax retirement plan available to small businesses. Favors high-income employees (compared to SIMPLE). Only employ-er contributes.
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Series EE Bond
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a nonmarketable, interest-bearing U.S. Government savings bond issued at a discount from the par value. Interest is exempt from state and local taxation.
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Series HH Bond
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a nonmarketable, interest-bearing U.S. Government savings bond issued at par and purchased only by trading in Series EE bonds at maturity. Interest is exempt from state and local taxation.
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Series I Bond
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a savings bond issued by the U.S. Treasury that protects investors from inflation or purchasing power risk.
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Settlement Options
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payout options on annuities and life insurance including life-only, life with period certain, and joint and last survivorship.
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Settlement
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final completion of a securities transaction wherein payment has been made by the buyer and delivery has been made by the seller.
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Share Identification
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a method of calculating capital gains and losses by which the investor identifies which shares were sold, as opposed to using FIFO or average cost.
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Shelf Registration
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registering securities that will be sold gradually on the primary market.
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Short Interest Theory
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theory that a high level of short sales is a bullish indicator, as it creates potential buying pressure on a particular security.
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Short Sale
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method of attempting to profit from a security whose price is expected to fall. Trader borrows certificates through a broker-dealer and sells them, with the obligation to replace them at a later date, hopefully at a lower price. Bearish position.
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Short-Term Capital Gain
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a profit realized on a security held for 12 months or less.
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Short-Term Capital Loss
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a loss realized on a security held for 12 months or less, deductible against Short-Term Capital Gains.
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Signature Guarantee
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an official stamp/medallion that officers of a bank affix to a stock power to attest to its validity.
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SIMPLE IRA
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a retirement plan for businesses with no more than 100 employees that have no other retirement plan in place. Pre-tax contributions, fully taxable distributions. Both employer and employees may contribute.
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Simple Trust
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a trust that accumulates income and distributes it to the beneficiaries annually.
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Simplified Arbitration
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a method of resolving disputes involving a small amount of money (currently $25,000).
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Single-Payment Deferred Annuity
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annuity purchased with a single payment wherein the individual defers the payout or “annuity” phase of the contract.
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Single-Payment Immediate Annuity
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annuity purchased with a single payment wherein the individual goes immediately into the payout or “annuity” phase of the contract.
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Sinking Fund
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an account established by an issuing corporation or municipality to provide funds required to redeem a bond issue.
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SIPC
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Securities Investor Protection Corporation, a non-profit, non-government, industry-funded insurance corporation protecting investors against broker-dealer failure.
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SLGS
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“State and Local Government Series” securities, special securities created by the U.S. Treasury to help municipalities do an advance refunding and comply with IRS rules and restrictions on such transactions.
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Small Cap
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a stock where the total value of all outstanding shares is considered “small,” typically between $50 million and $2 billion.
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Solvency
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the ability of a corporation or municipality to meet its obligations as they come due.
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Special Assessment Bonds
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revenue bonds backed by an assessment on only those properties benefiting from the project.
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Special Memorandum Account (SMA)
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a line of credit in a margin account.
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Special Tax
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a tax on gasoline, hotel and motel, liquor, tobacco, etc.
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Special Tax Bond
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a revenue bond backed by taxes on gasoline, hotel and motel, liquor, tobacco, etc.
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Specialist
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NYSE member that maintains a fair and orderly market in a particular exchange-listed security.
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Specialized Fund
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another name for a sector fund, e.g., “Telecommunications Fund,” or “Financial Services Fund” focusing on a particular industry sector.
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Specified Program
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a direct participation program in which the assets of the partnership are identified.
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Sponsor
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the party who puts together a direct participation program.
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Spousal Account
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an IRA established for a non-working spouse.
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Spread
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generally, the difference between a dealer’s purchase price and selling price, both for new offerings (underwriting spread) and secondary market quotes. For underwritings the spread is the difference between the proceeds to the issuer and the POP.
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Spread Load
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sales charges for a mutual fund contractual plan that permits a maximum charge of 20% in any one year and 9% over the life of the plan.
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Stabilizing/Stabilization
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the surprising practice by which an underwriting syndicate bids up the price of an IPO whose price is dropping in the secondary market.
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Standby Underwriting
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a commitment by an underwriter to purchase any shares that are not subscribed to in a rights offering.
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Statute of Limitations
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a time limit that, once reached, prevents criminal or civil action from being filed.
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Statutory Disqualification
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prohibiting a person from associating with an SRO due to disciplinary or criminal actions within the past 10 years, or due to filing a false or misleading application or report with a regulator.
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Statutory Voting
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method of voting whereby the shareholder may cast no more than the number of shares owned per candidate/item.
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Stock
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an ownership or equity position in a public company whose value is tied to the company’s profits (if any) and dividend payouts (if any).
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Stock Dividend
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payment of a dividend in the form of more shares of stock; not a taxable event.
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Stock Power
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document used to transfer ownership of a stock.
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Stock Split
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a change in the number of outstanding shares designed to change the price-per-share; not a taxable event.
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Stop Loss
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another name for a sell-stop order. So named because an investor’s losses are stopped once the stock trades at a certain price or lower.
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Stop Order
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an order that is activated only if the market price hits or passes through the stop price. Does not name a price for execution.
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Stop-limit Order
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a stop order that once triggered must be filled at an exact price (or better).
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Stopping Stock
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a courtesy in which the specialist will guarantee a price for execution and allow the participant to seek a better price.
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Straddle
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buying a call and a put on the same underlying instrument with the same strike price and expiration…or selling a call and a put on the same underlying instrument with the same strike price and expiration. For example, an investor who buys an ABC Aug 50 call and buys an ABC Aug 50 put is establishing a “long straddle.”
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Straight Life Annuity
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a settlement option in which the annuity company pays the annuitant only as long as he or she is alive. Also called “straight life” or “life only.”
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Straight Preferred
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a preferred stock whose missed dividends do not go into arrears, a.k.a. “non-cumulative preferred.”
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Street Name
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in the name of the broker-dealer holding securities on behalf of customers.
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Strike Price or Exercise Price
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the price at which a call or put option allows the holder to buy or sell the underlying security.
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STRIPS
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Separate Trading of Registered Interest and Principal of Securities. A zero coupon bond issued by the U.S. Treasury in which all interest income is received at maturity in the form of a higher (accreted) principal value. Avoids “reinvestment risk.”
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Subaccount
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investment options available within the separate account for variable contract holders. Basically, these are mutual funds that grow tax-deferred.
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Subchapter M
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section of the Internal Revenue Code providing the “conduit tax treatment” used by REITs and mutual funds distributing 90% or more of net income to shareholders. A mutual fund using this method is technically a Regulated Investment Company under IRC Subchapter M.
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Subject Quotes
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quotes in which the dealer/market maker is sharing information and not yet ready to trade at those prices.
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Subordinated Debenture
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corporate bond with a claim that is subordinated or “junior” to a debenture and/or general creditor.
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Subscription Price
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the price that all buyers of a new issue will pay to buy the security being offered on the primary market.
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Suitability
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a determination by a registered representative that a security matches a customer’s stated objectives and financial situation.
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Supervision
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a system implemented by a broker-dealer to ensure that its employees and associated persons comply with federal and state securities law, and the rules and regulations of the SEC, exchanges, and SROs.
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Surrender
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to cash out an annuity or life insurance policy for its surrender value.
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Syndicate
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a group of underwriters bringing a new issue to the primary market.
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Syndicate Letter
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another name for the agreement among underwriters. The document detailing the terms of operation for an underwriting syndicate.
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Systematic Risk
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another name for “market risk,” or the risk that an investment’s value could plummet due to an overall market panic or collapse. Other “systematic risks” include inflation, interest rate, and natural event risk.
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T + 3
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regular way settlement, trade date plus three business days.
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TACs – Targeted Amortization Class
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a type of CMO (collateralized mortgage obligation) that leaves the investor with greater extension risk as compared to a PAC (planned amortization class).
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Tax and Revenue Anticipation Note (TRAN)
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a short-term debt obligation of a municipal issuer backed by future tax and revenue receipts.
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Tax Anticipation Note (TAN)
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a short-term debt obligation of a municipal issuer backed by future tax receipts.
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Tax Credit
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an amount that can be subtracted from the amount of taxes owed.
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Tax-Deferred
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an account where all earnings remain untaxed until “constructive receipt.”
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Tax-Equivalent Yield
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the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. To calculate, take the municipal yield and divide that by (100% – investor’s tax bracket).
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Tax-Exempt Bonds
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municipal bonds whose interest is not subject to taxation by the federal government.
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Tax Preference Item
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certain items that must be added back to an investor’s income for purposes of AMT, including interest on certain municipal bonds.
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Tax-Sheltered Annuity (TSA)
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an annuity funded with pre-tax (tax-deductible) contributions. Available to employees of non-profit organizations such as schools, hospitals, and church organizations.
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T-bills
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direct obligation of U.S. Government. Sold at discount, mature at face amount. Maximum maturity is 1 year.
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T-bonds
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direct obligation of U.S. Government. Pay semi-annual interest. Quoted as % of par value plus 32nds. 10–30-year maturities.
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Technical Analysts
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stock traders who rely on market data to spot buying and selling opportunities.
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Telemarketing
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to market by telephone. Assuming you can get past the caller ID.
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Telephone Consumer Protection Act of 1991
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federal legislation restricting the activities of telemarketers, who generally may only call prospects between 8 a.m. and 9 p.m. in the prospect’s time zone and must maintain a do-not-call list, also checking the national registry.
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Tenants in Common
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see Joint Tenants in Common, a joint account wherein the interest of the deceased owner reverts to his/her estate.
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Tender Offer
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an offer by the issuer of securities to repurchase the securities if the investors care to “tender” their securities for payment.
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Term Life Insurance
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form of temporary insurance that builds no cash value and must be renewed at a higher premium at the end of the term. Renting rather than buying insurance.
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Third Market
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exchange-listed stock traded OTC primarily by institutional investors.
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Third-Party Account
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account managed on behalf of a third party, e.g., trust or UGMA.
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Time Value
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the value of an option above its intrinsic value. For example, if XYZ trades @50, an XYZ Oct 50 call @1 has no intrinsic value but has $1 of time value.
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Timing Risk
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the risk of purchasing an investment at a peak price not likely to be sustained or seen again. Timing risk can be reduced through dollar cost averaging, rather than investing in a stock with one purchase.
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Tippee
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the guy who listened to the insider information.
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Tipper
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the guy who told him.
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T-notes
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direct obligation of U.S. Government. Pay semi-annual interest. Quoted as % of par value plus 32nds. 2–10-year maturities.
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Tombstone
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an advertisement allowed during the cooling-off period to announce an offer of securities, listing the issuer, the type of security, the underwriters, and directions for obtaining a prospectus.
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Total Return
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measuring growth in share price plus dividend and capital gains distributions.
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Total Takedown
|
the additional takedown plus the concession.
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Trade Confirmation
|
a document containing details of a securities transaction, e.g., price of the security, commissions, stock symbol, number of shares, registered rep code, trade date and settlement date, etc.
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Trade Date
|
the date that a trade is executed.
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Trade Reporting and Compliance Engine (TRACE)
|
system used to report corporate bond transactions in the secondary market.
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Trading Authorization
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a form granting another individual the authority to trade on behalf of the account owner. Either “limited” (buy/sell orders only) or “full” (buy/sell orders plus requests for checks/securities) authorization may be granted. Sometimes referred to as “power of attorney.”
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Traditional IRA
|
individual retirement account funded typically with tax-deductible contributions.
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Tranche
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a class of CMO. Principal is returned to one tranche at a time in a CMO.
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Transfer Agent
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issues and redeems certificates. Handles name changes, validates mutilated certificates. Distributes dividends, gains, and shareholder reports to mutual fund investors.
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Transfer and Hold in Safekeeping
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a buy order for securities in which securities are bought and transferred to the customer’s name, but held by the broker-dealer.
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Transfer and Ship
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a buy order for securities in which securities are purchased and transferred to the customer’s name, with the certificates sent to the customer.
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Transfer on Death (TOD)
|
individual account with a named beneficiary—assets transferred directly to the named beneficiary upon death of the account holder.
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Treasury Bill
|
see T-bill.
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Treasury Bond
|
see T-bond.
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Treasury Note
|
see T-note.
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Treasury Receipts
|
zero coupon bonds created by broker-dealers backed by Treasury securities held in escrow. Not a direct obligation of U.S. Government.
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Treasury Securities
|
securities guaranteed by U.S. Treasury, including T-bills, T-notes, T-bonds, and STRIPS.
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Treasury Stock
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shares that have been issued and repurchased by the corporation. Has nothing to do with the U.S. Treasury.
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Trough
|
phase of the business cycle representing the “bottoming out” of a contraction, just before the next expansion/recovery.
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True Interest Cost
|
a measure of a municipal issuer’s total cost of borrowing money by issuing bonds. Unlike net interest cost, true interest cost factors in the time value of money.
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Trust Indenture
|
a written agreement between an issuer and creditors wherein the terms of a debt security issue are set forth, e.g., interest rate, means of payment, maturity date, name of the trustee, etc.
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Trust Indenture Act of 1939
|
corporate bond issues in excess of $5 million with maturities greater than 1 year must be issued with an indenture.
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Trustee
|
a person legally appointed to act on a beneficiary’s behalf.
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TSA
|
Tax-Sheltered Annuity. A retirement vehicle for 403(b) and 501c3 organizations.
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Two-dollar Broker
|
an independent broker on the floor of the NYSE.
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UGMA
|
Uniform Gifts to Minors Act. An account set up for the benefit of a minor, managed by a custodian.
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UIT
|
Unit Investment Trust. A type of investment company where investments are selected, not traded/managed. No management fee is charged. Shares are redeemable.
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Underwriter
|
see “investment banker.” An underwriter or “investment banker” is a broker-dealer that distributes shares on the primary market.
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Underwriting Spread
|
the profit to the syndicate. The difference between the proceeds to the issuer and the POP.
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Unearned Income
|
income derived from investments and other sources not related to employment, e.g., savings account interest, dividends from stock, capital gains, and rental income.
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Unfunded Pension Liabilities
|
obligations to retiring municipal workers that outweigh the funds set aside to actually pay them.
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Uniform Practice Code
|
how FINRA promotes “cooperative effort,” standardizing settlement dates, ex-dates, accrued interest calculations, etc.
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Uniform Securities Act
|
a model act that state securities laws are based on. Designed to prevent fraud and maintain faith in capital markets through registration of securities, agents, broker-dealers, and investment advisers. Main purpose is to provide necessary protection to investors.
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Unit of Beneficial Interest
|
what an investor in a Unit Investment Trust (UIT) owns.
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Universal Life Insurance
|
a form of permanent insurance that offers flexibility in death benefit and both the amount of, and method of paying, premiums.
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Unqualified Opinion
|
an opinion issued by the bond counsel expressing no doubts and requiring no qualifiers.
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Unrealized Gain
|
the increase in the value of a security that has not yet been sold. Unrealized gains are not taxable.
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Unsecured Bond
|
a debenture, or bond issued without specific collateral.
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User Fee
|
a.k.a. “user charge,” a source of revenue used to retire a revenue bond, e.g., park entrance fees, tolls, skybox rentals, etc.
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UTMA
|
just like UGMA, only the kid has to wait as late as 25 years of age to have the assets re-registered solely in his/her name. The “T” stands for “transfer.”
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Value
|
as in “value investing” or a “value fund,” the practice of purchasing stock in companies whose share price is currently depressed. The value investor feels that the stock is trading below its “estimated intrinsic value” and, therefore, sees an opportunity to buy a good company for less than it’s really worth. Like a “fixer-upper” house in need of a little “TLC.” With a few quick improvements, this property is going to be worth a lot more than people realize.
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Value Funds
|
mutual funds investing in stocks currently out of favor with investors.
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Variable Annuity
|
an annuity whose payment varies. Investments allocated to separate account as instructed by annuitant. Similar to investing in mutual funds, except that annuities offer tax deferral. No taxation until excess over cost basis is withdrawn.
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Variable Insurance
|
insurance whose death benefit and cash values fluctuate with the investment performance of the separate account.
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Variable Life Insurance
|
form of insurance where death benefit and cash value fluctuate according to fluctuations of the separate account.
|
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Variable Universal Life Insurance
|
flexible-premium insurance with cash value and death benefit tied to the performance of the separate account.
|
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Vesting
|
a schedule for determining at what point the employer’s contributions become the property of the employee.
|
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Viatical Settlement
|
a.k.a. “life settlement,” the sale and purchase of a life insurance policy wherein the investor buys the death benefit at a discount and profits as soon as the insured dies.
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|
Visible Supply
|
total par value of municipal bonds to be issued over the next 30 days, published in the Bond Buyer.
|
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Volatility
|
the up and down movements of an investment that make investors dizzy and occasionally nauseated.
|
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Volume
|
total number of shares traded over a given period (daily, weekly, etc.)
|
|
|
Voluntary Accumulation Plan
|
a mutual fund account into which the investor commits to depositing amounts of money on a regular basis.
|
|
|
Voter Approval
|
the process of approving the issuance of a general obligation bond by referendum.
|
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|
VRDO – variable rate demand obligation
|
a debt security whose interest rate is regularly re-set and which can be “put” or sold back to the issuer or a designated third party for the par value plus accrued interest.
|
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Warrants
|
long-term equity securities giving the owner the right to purchase stock at a set price. Often attached as a “sweetener” that makes the other security more attractive.
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Wash Sale
|
selling a security at a loss but then messing up by repurchasing it within 30 days and, therefore, not being able to use it to offset capital gains for that year.
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|
Western/Divided Account
|
a syndicate account in which each participant is responsible for their share of the bonds only.
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|
When-issued Confirmations
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confirmations of a purchase on the primary market delivered before the bonds have been issued.
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Whole Life Insurance
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form of permanent insurance with a guaranteed death benefit and minimum guaranteed cash value.
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Withdrawal Plan
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a feature of most mutual funds that allows investors to liquidate their accounts over a fixed time period, or using a fixed-share or fixed-dollar amount.
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Working Capital
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difference between a company’s current assets and current liabilities measuring short-term liquidity.
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Wrap Account
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an account in which the customer pays one fee to cover the costs of investment advisory services, execution of transactions, etc.
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Wrap Fee
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the fee charged in a wrap account, believe it or not.
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Yield
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the income a security produces to the holder just for holding it.
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Yield-based Options
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standardized options based on the yield of various U.S. Treasury securities.
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Yield to Call
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the yield received on a bond if held to the date it is called.
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Yield to Maturity
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calculation of all interest payments plus/minus gain/loss on a bond if held to maturity.
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Zero Coupon Bond
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a bond sold at a deep discount to its gradually increasing par value.
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Z-Tranche
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the last tranche to receive principal in a CMO.
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