what you are looking for?
Account Executive: A brokerage firm employee who advises and
handles orders for clients. Every account executive must pass certain tests and be
registered with the National Association of Securities Dealers before soliciting or taking
orders from customers.
Accredited Investor: Wealthy investors, generally maintaining a
net worth of at least $1 million or earning at least $200,000 per year, with the privilege
of investing in risky private stock sales or other securities. The term itself is defined
under the Securities and Exchange Commission Regulation D Act.
Accrued Interest: Interest that has accumulated between the
most recent payment and the sale of a bond or other fixed-income security. At the time of
sale, the buyer pays the seller the bonds price plus accrued interest, calculated by
multiplying the coupon rate by the number of days that have elapsed since the last
Acquisition: One company taking over controlling
interest in another company. Investors are always looking out for companies that are
likely to be acquired, because those who want to acquire such companies are often willing
to pay more than the market price for the shares they need to complete the acquisition.
Active Market: Heavy volume of trading in a particular
stock, bond or commodity. Also, heavy volume of trading on an exchange as a whole.
Advance-Decline: Measurement of the number of stocks that
have advanced and the number that have declined over a particular period. It is the ratio
of one to the other and shows the general direction of the market.
Aftermarket Performance: A term typically referring to the difference between a stock's
Offering Price and its current market price.
All or None Order: Buy or sell order marked to signify that no
partial transaction is to be executed. The order will not automatically be canceled,
however, if a complete transaction is not executed; to accomplish that, the order entry
must be marked FOK, meaning fill or kill.
American Depository Receipt (ADR):
Receipt for the shares of a foreign-based
corporation held in the vault of a U.S. bank and entitling the shareholder to all
dividends and capital gains. Instead of buying shares of foreign-based companies in
overseas markets, American investors can buy shares in the U.S. in the form of an ADR.
American Stock Exchange (AMEX): Stock exchange that trades stock and bonds
of small-medium sized companies. Located at 86 Trinity Place in downtown Manhattan, the
Amex was known until 1921 as the Curb Exchange.
Annual Meeting: Once-a-year meeting when the managers of a
company report to stockholders on the years results, and the board of directors
stands for election for the next year. Stockholders unable to attend the annual meeting
may vote for directors and pass on resolutions through the use of proxy material, which
must legally be mailed to all shareholders of record.
Annual Report: Yearly record of a corporations
financial condition that must be distributed to shareholders under Securities and Exchange
Annuity: Form of contract sold by life insurance
companies that guarantees a fixed or variable payment to the annuitant at some future
time, usually retirement. In a fixed annuity the amount will ultimately be paid out in
regular installments varying only with the payout method elected. In a variable annuity,
the payout is based on a guaranteed number of units; unit values and payments depend on
the value of the underlying investments.
Arbitrage: Profiting from differences in price when
the same security, currency, or commodity is traded on two or more markets. By taking
advantage of momentary disparities in prices between markets, arbitrageurs perform the
economic function of making those markets trade more efficiently.
Arbitration: Alternative to suing in court to settle
disputes between brokers and their clients and between brokerage firms.
Asked Price: The lowest round lot price at which a
dealer will sell a security.
Asset: Anything having commercial or exchange
value that is owned by a business, institution, or individual.
Asset Allocation: Apportioning of investment funds, among
categories of assets, such as cash equivalents, stocks, fixed income investments, and such
tangible assets as real estate, precious metals, and collectibles. Also applies to
subcategories such as government, municipal, and corporate bonds, and industry groupings
of common stocks. Asset allocation affects both risk and return and is a central concept
in personal financial planning and investment management.
At The Money: At the current price, as an option with an
exercise price equal to or near the current price of the stock or underlying futures
Audit: Professional examination and verification
of a companys accounting documents and supporting data for the purpose of rendering
an opinion as to their fairness, consistency, and conformity with generally accepted
Authorized Shares: Maximum number of shares of
any class company may legally create under the terms of its Articles of Incorporation.
Normally, a corporation provides for future increases in authorized stock by vote of the
stockholders. The corporation is not required to issue all the shares authorized and may
initially keep issued shares at a minimum to hold down taxes and expenses.
Baby Bond: Convertible or straight debt bond having a
par value of less than $1000, usually $500 to $25. Baby bonds bring the bond market within
reach of small investors and, by the same token, open a source of funds to corporations
that lack entree to the large institutional market.
Balance of Trade: Net difference over a period of time
between the value of a countrys imports and exports of merchandise. Movable goods
such as autos, foodstuffs, and apparel are included in the balance of trade.
Balance Sheet: A financial report showing the status of a
companys assets, liabilities, and owners equity on a given date, usually the
close of a month.
Basis Point: Smallest measure used in quoting yields on
bonds and notes. One basis point is 0.01% of yield.
Bearer Form: Security not registered on the books of the
issuing corporation and thus payable to the one possessing it. A bearer bond has
certificates attached, which the bondholder sends in or presents on the interest date for
payment. The alternative name for this is a coupon bond. Bearer stock certificates are
negotiable without endorsement and are transferred by delivery. Dividends are payable by
presentation of dividend coupons, which are dated or numbered.
Bear Market: Prolonged period of falling prices. A bear
market in stocks is usually brought on by the anticipation of declining economic activity,
and a bear market in bonds is caused by rising interest rates.
Best Efforts: This term is used to describe a deal in which underwriters only agree
to "do their best" in selling shares to the public. An IPO is more commonly done on a Bought or Firm
Commitment basis in which the Underwriters are obligated to sell the allotted shares.
Beta: A measure of risk commonly used to compare
the volatility of stocks and mutual funds to the overall market. The Standard &
Poors 500 Stock Index has a beta coefficient of 1. Any stock with a higher beta is
more volatile than the market, and any with a lower beta can be expected to rise and fall
more slowly than the market. A conservative investor whose main concern is preservation of
capital should focus on stocks with low betas.
Bid and Asked: The bid is the highest price a prospective
buyer is prepared to pay at a particular time for a trading unit of given security; and
the asked is the lowest price acceptable to a prospective seller of the same security.
Big Board: A popular term for the New York Stock
Black Monday: October 19, 1987, when the Dow Jones
Industrial Average plunged a record 508 points following sharp drops the previous week,
reflecting investor anxiety about inflated stock price levels, federal budget and trade
deficits, and foreign market activity.
A company which indicates no specific industry, business or venture when its
securities are publicly offered for sale and the proceeds of the offering are
not specifically allocated. Not usually a very good sign.
Blue Sky Laws: Laws passed by various states to protect
investors against securities fraud. These laws require sellers of new stock issues or
mutual funds to register their offerings and provide financial details on each issue so
that investors can base their judgements on relevant data.
Board of Directors: Group of individuals elected, usually at an
annual meeting, by the shareholders of a corporation and empowered to carry out certain
tasks as spelled out in the corporations charter. Among such powers are appointing
senior management, naming members of executive and finance committees (if any), issuing
additional shares, and declaring dividends.
Bond: Any interest-bearing or discounted
government or corporate security that obligates the issuer to pay the bondholder a
specified sum of money, usually at specific intervals, and to repay the principal amount
of the loan at maturity.
Book Value: Value at which an asset is carried on the
balance sheet. The book value can be a guide in selecting underpriced stocks and is an
indication of the ultimate value of securities in liquidation.
Breadth of the Market: Percentage of stocks participating in a
particular market move. Breadth-of-the-market indexes are alternatively called
Bridge Loan: Short-term loan, also called a swing
loan, made in anticipation of intermediate-term or long-term financing.
Broker Dealer: Individual or firm acting as a broker or
principal in a securities transaction. Another term for a brokerage firm.
Broker Loan Rate: Interest rate at which brokers borrow from
banks to cover the securities positions of their clients. The broker loan rate usually
hovers a percentage point or so above such short-term interest rates as the federal funds
rate and the Treasury bill rate. Since brokers loans and their customers
margin accounts are usually covered by the same collateral, the term
"rehypothecation" is used synonymously with broker loan borrowing.
Because broker loans are callable on 24-hour notice, the term call loan rate is also used,
particularly in money rate tables published in newspapers.
Bull Market: Prolonged rise in the prices of stocks,
bonds, or commodities. Bull markets usually last at least a few months and are
characterized by high trading volume.
Buy Order: In securities trading, an order to a broker
to purchase a specified quantity of a security at the market price or at another
Buy Stop Order: Buy order marked to be held until the
market price rises to the stop price, then to be entered as a market order to buy
at the best available price. Sometimes called a suspended market order, because it
remains suspended until a market transaction elects, activates, or triggers the stop. Such
an order is not permitted in the over-the-counter market.
The demand to repay a secured loan usually
made when the borrower has failed to meet such contractual obligations as timely payment
of interest. When a banker calls a loan, the entire principal amount is due immediately.
Right to redeem outstanding bonds before
their scheduled maturity. The first dates when an issuer may call bonds are specified in
the prospectus of every issue that has a call provision in its indenture.
Call Option: Right to buy 100 shares of a particular
stock or stock index at a predetermined price before a preset deadline, in exchange for a
premium. For buyers who think a stock will go up dramatically, call options permit a
profit from a smaller investment than it would take to buy the stock. These options can
also produce extra income for the seller, who gives up ownership of the stock if the
option is exercised.
Canceled Order: Voiding an order to buy or sell.
Capital Gain: Gain or profit from the sale of assets or
Cash Flow: In a larger sense, an analysis of all
changes that affect the cash account period. The statement of cash flows included in
annual reports analyzes all changes affecting cash in the categories of operations,
investments, and financing. For example; net operating income is an increase; the purchase
of a new building is a decrease; and the issuance of stocks or bonds is an increase. When
more cash comes in than goes out, we speak of a positive cash flow; the opposite is a
negative cash flow. Companies with assets well in excess of liabilities may nevertheless
go bankrupt because they cannot generate enough cash to meet current obligations.
Certificate Of Deposit (CD): Debt instrument issued by a bank that
usually pays interest. Institutional CDs are issued in denominations of $100,000 or
more, and individual CDs start as low as $100. Maturities range from a few weeks to
several years. Interest rates are set by competitive forces in the marketplace.
Closing Price: Price of last transaction completed during
a days trading session on an organized securities exchange.
Commercial Paper: Short-term obligations with maturities
ranging from 2 to 270 days issued by banks, corporations, and other borrowers to investors
with temporarily idle cash. Such instruments are unsecured and usually discounted,
although some are interest-bearing. They can be issued directly-direct issuers do
it that way-or through brokers equipped to handle enormous clerical volume involved.
Issuers like commercial paper because the maturities are flexible and because the rates
are usually marginally lower than bank rates. Investors-actually lenders, since commercial
paper is a form of debt-like the flexibility and safety of an instrument that is issued
only by top-rated concerns and is nearly always backed by bank lines of credit. Both
Moodys and Standard & Poors assign ratings to commercial paper.
Commodities: Bulk goods such as grains, metals, and
foods traded on a commodities exchange or on the spot market.
Common Stock: Units of ownership of a public corporation.
Owners typically are entitled to vote on the selection of directors and other important
matters as well as to receive dividends on their holdings.
Consumer Price Index (CPI): Measure of change in consumer prices, as
determined by a monthly survey of the U.S. Bureau of Labor Statistics. Many pension and
employment contracts are tied to changes in consumer prices, as protection against
inflation and reduced purchasing power. Among the CPI components are housing costs, food,
transportation, and electricity.
The dollar value at which convertible
bonds, debentures, or preferred stock can be converted into common stock, as announced
when the convertible is issued.
Convertible Bond: Corporate securities (usually preferred
shares or bonds) that are exchangeable for a set number of another form (usually common
shares) at a prestated price. Convertibles are appropriate for investors who want higher
income than is available from common stock together with greater appreciation potential
than regular bonds offer. From the issuers standpoint, the convertible feature is
usually designed as a sweetener, to enhance the marketability of the stock or preferred.
Corporate Bond: Debt instrument issued by a private
corporation, as distinct from one issued by a government agency or a municipality.
Corporate bonds typically have four distinguishing features: (1) they are taxable; (2)
they have a par value of $1000; (3) they have a term maturity-which means they come due
all at once- and are paid for out of a sinking fund accumulated for that purpose; (4) they
are traded on major exchanges, with prices published in newspapers.
Coupon Bond: Bond issued with detachable coupons that
must be presented to a paying agent or the issuer for semiannual interest payment. These
are bearer bonds, so whoever presents the coupon is entitled to the interest. Once
universal, the coupon bond has been gradually giving way to the registered bond,
some of which pay interest through electronic transfers.
Current Yield: Annual interest on a bond divided by the
market price. It is the actual income rate of return as opposed to the coupon rate (the
two would be equal if the bond were bought at par) or the yield to maturity. For example,
a 10% (coupon rate) bond with face (or par) value of $1000 is bought at a market price of
$800. The annual income from the bond is $100. But since only $800 was paid for the bond,
the current yield is $100 divided by $800, or 12 ‡%.
Debenture: General debt obligation backed only by the
integrity of the borrower and documented by an agreement called an indenture. An unsecured
bond is a debenture.
Derivative Instrument: Financial instrument whose value is based
on another security. For example, an option is a derivative instrument because its value
derives from an underlying stock, stock index, or future.
Discount Broker: Brokerage house that executes orders to buy
and sell securities at commission rates sharply lower than those charged by a full service
Discount Rate: Interest rate that the Federal Reserve
charges member banks for loans, using government securities or eligible paper as
Distributions: Payout of realized capital gains on
securities in the portfolio of a mutual fund or closed-end investment company.
Distribution of earnings to shareholders
prorated by class of security and typically paid in the form of money or stock. The amount
is decided by the board of directors and is usually paid quarterly. Dividends must be
declared as income in the year they are received. Mutual fund dividends are paid out of
income, usually on a quarterly basis from the funds investments. The tax on such
dividends depends on whether the distributions resulted from capital gains, interest
income, or dividends received by the fund, although these distinctions largely disappeared
in 1988 under the tax reform act of 1986.
Dow Jones Industrial Average (DJIA): Price-weighted average of 30 actively
traded blue chip stocks, primarily industrials but including American Express and
AT&T. Prepared and published by Dow Jones & Company, it is the oldest and most
widely quoted of all the market indicators. The components, which change from time to
time, represent between 15% and 20% of the market value of NYSE stocks. The DJIA is
calculated by adding the closing prices of the component stocks and using a divisor that
is adjusted for splits and stock dividends equal to 10% or more of the market value of an
issue as well as for subscriptions and mergers. The average is quoted in points, not in
Due Diligence: A reasonable investigation conducted by the parties involved in
preparing a disclosure document to form a basis for believing that the
statements contained therein are true and that no material facts are omitted.
Earnings Per Share: Portion of a companys profit
allocated to each outstanding share of common stock. For instance, a corporation that
earned $10 million last year and has 10 million shares outstanding would report earnings
of $1 per share. The figure is calculated after paying taxes and after paying preferred
shareholders and bondholders.
Ex-Dividend: Interval between the announcement and the
payment of the next dividend. An investor who buys shares during that interval is not
entitled to the dividend. Typically, a stocks price moves up by the dollar amount of
the dividend as the ex-dividend date approaches, then falls by the amount of the dividend
after that date. A stock that has gone ex-dividend is marked with an x in newspaper
Face Value: Value of a bond, note, mortgage, or other
security as given on the certificate or instrument. Corporate bonds are usually issued
with $1000 face values, municipal bonds with $5000 face values, and federal government
bonds with $10,000 face values. Although the bonds fluctuate in price from the time they
are issued until redemption, they are redeemed at maturity at their face value, unless the
issuer defaults. If the bonds are retired before maturity, bondholders normally receive a
slight premium over face value. The face value is the amount on which interest payments
are calculated. Thus, a 10% bond with a face value of $1000 pays bondholders $100 per
year. Face value is also referred to as par value or nominal value.
Federal Call: When a customer engages in certain types of
transactions in their margin account, the brokerage firm will issue a call notifying the
client if additional equity is required by the settlement date in order to satisfy
Federal Funds Rate: Interest rate charged by banks with excess
reserves at a Federal Reserve district bank to banks needing overnight loans to meet
Federal Open Market Committee: See FOMC
Fiscal Year: Accounting period covering 12 consecutive
months, 52 consecutive weeks, 13 four-week periods, or 365 consecutive days, at the
end of which the books are closed and profit or loss is determined. A companys
fiscal year is often, but not necessarily, the same as the calendar year. A seasonal
business will frequently select a fiscal rather than a calendar year, so that its year-end
figures will show it in its most liquid condition, which also means having less inventory
to verify physically.
This is when an investor has acquired an IPO at its Offering Price and sells it
immediately for a quick gain soon after it starts trading on the open market. A practice
discouraged by underwriters, that can lead such investors to unfavorable relationships
with their underwriters with future IPOs.
FOMC: Key committee in the Federal Reserve
System, which sets short-term monetary policy for the Federal Reserve. The meetings of the
committee, which are secret, are the subject of much speculation on Wall Street, as
analysts try to guess whether the Fed will tighten or loosen the money supply.
Front End Load: Sales charge applied to an investment at
the time of initial purchase. There may be a front-end load on a mutual fund, for
instance, which is sold by a broker. Annuities, life insurance policies, and limited
partnerships can also have front-end loads. From the investors point of view, the
earnings from the investment should make up for this up-front fee within a relatively
short period of time.
Futures Contract: Agreement to buy or sell a specific amount
of a commodity or financial instrument at a particular price on a stipulated future date.
The price is established between buyer and seller on the floor of a commodity exchange.
General Mortgage Bond: Mortgage covering all the mortgageable
properties of a borrower and not restricted to any particular piece of property. Such a
blanket mortgage can be lower in priority of claim in liquidation than one or more other
mortgages on specific parcels.
General Obligation Bond: Municipal bond backed by the full faith and
credit (which includes the taxing and further borrowing power) of a municipality. A GO
bond, as it is known, is repaid with general revenue and borrowings, in contrast to the
revenue from a specific facility built with the borrowed funds, such as a tunnel or a
Ginnie Mae: Nickname for the Government National
Mortgage Association and the securities guaranteed by that agency.
Good Delivery: Securities industry designation meaning
that a certificate has the necessary endorsements and meets all other requirements
(signature guarantee, proper denomination, and other qualifications), so that title can be
transferred by delivery to the buying broker, who is then obligated to accept it.
Exceptions constitute bad delivery.
Government Bonds: Securities issued by the U.S. government,
such as Treasury bills, bonds, notes and savings bonds. Government bonds are the most
creditworthy of all debt instruments since they are backed by the full faith and credit of
the U.S. Government.
Growth Stock: Stock of a corporation that has exhibited
faster-than-average gains in earnings over the last few years and is expected to continue
to show high levels of profit growth. Over the long run, growth stocks tend to outperform
slower-growing or stagnant stocks. Growth stocks are riskier investments than average
stocks, however, since they usually sport higher price/earnings ratios and make little or
no dividend payments to shareholders.
Gross National Product (GNP):
Total value of goods and services produced
in the U.S. economy over a particular period of time, usually one year. The GNP growth
rate is the primary indicator of the status of the economy. The GNP is made up of consumer
and government purchases, private domestic and foreign investments in the U.S., and the
total value of exports. GNP figures are released every quarter.
GTC Order: Brokerage customers order to buy or
sell a security, usually at a particular price, that remains in effect until executed or
canceled. If the GTC order remains unfilled after a long period of time, a broker will
usually periodically confirm that the customer still wants the transaction occur if the
stock reaches the target price.
Hedge Fund: Private investment fund organized to pursue
an investment strategy involving risky investments such as short selling and naked option
Hedging: A strategy used to offset investment risk.
A perfect hedge is one eliminating the possibility of future gain or loss. A stockholder
worried about declining stock prices, for instance, can hedge his or her holdings by
buying a put option on the stock or selling a call option. Selling short is another widely
used hedging technique. Investors often try to hedge against inflation by purchasing
assets that will rise in value faster than inflation. Large commercial firms that want to
be assured of the price they will receive or pay for a commodity will hedge their position
by buying and selling simultaneously in the futures market. For example, Hersheys,
the chocolate company, will hedge its supplies of cocoa in the futures market to limit the
risk of a rise in cocoa prices.
House Call: Brokerage house notification that the
customers equity in a margin account is below the maintenance level. If the equity
declines below that point, a broker must call the client, asking for more cash or
securities. If the client fails to deliver the required margin, his or her position will
be liquidated. House call limits are usually higher than limits mandated by the National
Association of Securities Dealers (NASD), a self-regulatory group, and the major exchanges
with jurisdiction over these rules. Such a margin maintenance requirement is in addition
to the initial margin requirements set by the regulation T of the Federal Reserve Board.
Index: Statistical composite that measures changes
in the economy or in financial markets, often expressed in percentage changes from a base
year or from the previous month. Indexes also measure the ups and downs of stock, bond,
and commodities markets, reflecting market prices and the number of shares outstanding for
the companies in the index. Some well-known indexes are the New York Exchange Index, the
American Stock Exchange Index, Standard & Poors Index, and the Value Line Index.
Subindexes for industry groups such as beverages, railroads, or computers are also
tracked. Stock market indexes form the basis for trading in index options.
Individual Retirement Account (IRA): Provision of the IRA law that enables
persons receiving lump-sum payments from their companys pension or profit-sharing
plan because of retirement or other termination of employment to roll over the amount into
an IRA investment plan within 60 days. Also, current IRAs may themselves be
transferred to other investment options within the 60-day period. Through an IRA rollover,
the capital continues to accumulate tax-deferred until time of withdrawal.
Initial Public Offering (IPO): Corporations first offering of stock
to the public. IPOs are almost invariably an opportunity for the existing investors
and participating venture capitalists to make big profits, since for the first time their
shares will be given a market value reflecting expectations for the companys future
Institutional Investor: Organization that trades large volumes of
securities. Some examples are mutual funds, banks, insurance companies, pension funds,
labor union funds, corporate profit-sharing plans, and college endowment funds. Typically,
more than 50% and sometimes upwards of 70% of the daily trading on the New York Stock
Exchange is on behalf of institutional investors.
Interest: Cost of using money, expressed as a rate
per period of time, usually one year, in which case it is called an annual rate of
In-The Money: Option contract on a stock whose current
market price is above the striking price of a call option or below the striking price of a
put option. A call option on XYZ at a striking price of 100 would be in the money if XYZ
were selling for 102, for instance, and a put option with the same striking price would be
in the money if XYZ were selling for 98.
Issued and Outstanding Shares: Shares of a corporation, authorized in the
corporate charter, which have been issued and are outstanding. These shares represent
capital invested by the firms shareholders and owners, and may be all or only a
portion of the number of shares authorized. Shares that have been issued and subsequently
repurchased by the company are called treasury stock, because they are held in the
corporate treasury pending reissue or retirement.
Bond with a credit rating of BB or lower by
rating agencies. Although commonly used, the term has a pejorative connotation, and
issuers and holders prefer the securities be called high-yield bonds. Junk bonds
are issued by companies without long track records of sales and earnings, or by those with
questionable credit strength. They are a popular means of financing takeovers. Since they
are more volatile and pay higher yields than investment grade bonds, many risk-oriented
investors specialize in trading them.
Keogh Plan: Tax-deferred pension account designated for
employees of unincorporated businesses or for persons who are self-employed (either
full-time or part-time). As of 1984, eligible people could contribute up to 25% of earned
income, up to a maximum of $30,000. Like the Individual Retirement Account (IRA), the
Keogh plan allows all investment earnings to grow tax deferred until capital is withdrawn,
as early as age 59 ‡ and starting no later than age 70 ‡ . Almost any investment except
precious metals or collectibles can be used for a Keogh account. Typically, people place
Keogh assets in stocks, bonds, money-market funds, certificates of deposit, mutual funds,
or limited partnerships. The Keogh plan was established by Congress in 1962 and was
expanded in 1976 and again in 1981 as part of the Economic Recovery Tax Act.
Lead Underwriter/Manager: The investment bank controlling the IPO process. Two of the most
important duties are setting the Offering Price and the allocation of shares to
Leverage: Means of enhancing return or value without
increasing investment. Buying securities on margin is an example of leverage with borrowed
money, and extra leverage may be possible if the leveraged security is convertible into
common stock. Rights, warrants, and option contracts provide leverage, not involving
borrowings but offering the prospect of high return for little or no investment.
Liabilities: Claim on the assets of a company or
individual-excluding ownership equity. Characteristics: (1) It represents a transfer of
assets or services at a specified or determinable date. (2) The firm or individual has
little or no discretion to avoid the transfer. (3) The event causing the obligation has
Limited Partnership: Organization made up of a general partner,
who manages a project, limited partners, who invest money but have limited liability, are
not involved on day-to-day management, and usually cannot lose more than their capital
contribution. Usually limited partners receive income, capital gains, and tax benefits;
the general partner collects fees and a percentage of capital gains and income. Typical
limited partnerships are in real estate, oil and gas, and equipment leasing, but they also
finance movies, research and development, and other projects.
Limit Order: Order to buy or sell a security at a
specific price or better. The broker will execute the trade only within the price
restriction. For example, a customer puts in a limit order to buy XYZ Corp. at 30 when the
stock is selling for 32. Even if the stock reached 30 1/8 the broker will not execute the
trade. Similarly, if the client put in a limit order to sell XYZ Corp. at 33 when the
price is 31, the trade will not be executed until the stock price hits 33.
Listed Security: Stock or bond that has been accepted for
trading by one of the organized and registered securities exchanges in the United States.
Listed securities include stocks, bonds, convertible bonds, preferred stocks, warrants,
rights, and options.
Loan Value: With respect to regulation T of the Federal
Reserve Board, the maximum percentage of the current market value of eligible securities
that a broker can lend a margin account customer. Regulation T applies only to securities
formally registered or having an unlisted trading privilege on a national securities
exchange. For securities exempt from Regulation T, which comprise U.S. government
securities, municipal bonds, and bonds of the International Bank for Reconstruction and
Development, loan value is a matter of the individual firms policy.
Lock-up Period: A "lock-up" is enforced on certain shares after an IPO. The
lead underwriter bars a company's directors and executives from selling any of their
shares. This period usually extends six months after the IPO date. This practice has also
been instituted by online brokerage firms in an effort to quell the volatility of Internet
Margin: Amount a customer with a broker when
borrowing from the broker to buy securities. Under Federal Reserve Board regulation, the
initial margin required since 1945 has ranged from 50 to 100 percent of the
securitys purchase price. In the mid-1980s the minimum was 50% of the purchase
or short sale price, in cash or eligible securities, with a minimum of $2000. Thereafter,
minimum maintenance requirements are imposed by the National Association of Securities
Dealers (NASD) and the New York Stock Exchange, in the mid-1980s 25% of the market value
of margined securities, and by the individual brokerage firm, whose requirements is
Margin Call: Demand that a customer deposit enough money
or securities to bring a margin account up to the initial margin or minimum maintenance
requirements. If a customer fails to respond, securities in the account may be liquidated.
Margin Requirement: Minimum amount that a client must deposit
in the form of cash or eligible securities in a margin account as spelled out in
Regulation T of the Federal Reserve Board. Reg T requires a minimum of $2000 or 50% of the
purchase price of eligible securities bought on margin or 50% of the proceeds of short
Margin Security: Security that may be bought or sold in a
margin account Regulation T defines margin securities as (1) any registered security (a
listed security or a security having Unlisted Trading privileges); (2) any OTC margin
stock or OTC margin bond, which are defined as any Unlisted Security that the
Federal Reserve Board (FRB) periodically identifies as having the investor interest,
marketability, disclosure, and solid financial position of a listed security; (3) any OTC
security designated as qualified for trading in the National Market System under a plan
approved by the Securities and Exchange Commission; (4) any mutual fund or unit investment
trust registered under the Investment Company Act of 1940. Other securities that are not
Exempt Securities must be transacted in cash.
Market Capitalization: The total amount of a company's shares outstanding multiplied
by the price per share. Due to popularity with investors, Internet stocks often
have "market caps" which are somewhat out of line with their earnings and
Market Maker: A broker-dealer who is registered to trade
in a given security on Nasdaq.
Mark to Market: Adjust the valuation of a security or
portfolio to reflect current market values. For example, margin accounts are marked to the
market to ensure compliance with maintenance requirements. Option and future contracts are
marked to the market at year end with paper profit or loss recognized for tax
Maturity: Date on which the principal amount of a
note, draft, acceptance, bond, or other debt instrument becomes due and payable. Also,
termination or due date on which an installment loan must paid in full.
Merger: Combination of two or more companies,
either through a pooling of interests, where the accounts are combined; a purchase, where
the amount paid over and above the acquired companys book value is carried on the
books of the purchaser as goodwill; or a consolidation, where a new company is formed to
acquire the net assets of the combining companies. Strictly speaking, only combinations in
which one of the companies survives as a legal entity are called mergers or, more
formally, statutory mergers; thus consolidations, or statutory consolidations, are
technically not mergers, though the term merger is commonly applied to them.
Money Market Fund: Open-ended mutual fund that invests in
commercial paper, bankers acceptances, repurchase agreements, government securities,
certificates of deposit, and other highly liquid and safe securities, and pays money
market rates of interest. Launched in the middle 1970s, these funds were especially
popular in the early 1980s when interest rates and inflation soared.
Managements fee is less than 1% of an investors assets; interest over and
above that amount is credited to shareholders monthly. The funds net asset value
remains a constant $1 a share-only the interest rate goes up or down. Most funds are not
federally insured, but some are covered by private insurance. Some funds invest only in
government-backed-securities, which give shareholders an extra degree of safety. Many
money market funds are part of fund families. This means that investors can switch their
money from one fund to another and back again without charge. Money in an asset management
account usually is automatically swept into a money market fund until the accountholder
decides where to invest it next.
Mortgage Bond: Bond issue secured by a mortgage on the
issuers property, the lien on which is conveyed to the bondholders by a deed of
trust. A mortgage bond may be designated senior, underlying, first, prior, overlying,
junior, senior, third, and so forth, depending on the priority of the lien. Most of those
issued by corporation are first mortgage bonds secured by specific real property and also
representing unsecured claims on the general assets of the firm. As such, these bonds
enjoy a preferred position relative to unsecured bonds of the issuing corporation.
Municipal Bond: Debt obligation of a state or local
government entity. The funds may support general government needs or special projects.
Issuance must be approved by referendum or by an electoral body. Prior to the Tax Reform
Act of 1986, the terms municipal and tax-exempt were synonymous, since virtually all
municipal obligations were exempt from federal income taxes and most from state and local
income taxes, at least in the state of issue. The 1986 Act, however, divided municipals
into two broad groups: (1) public purpose bonds, which remain tax-exempt and can be issued
without limitation, and (2) private purpose bonds, which are taxable unless specifically
exempted. The tax distinction between public and private purpose is based on the
percentage extent to which the bonds benefit private parties; if a tax-exempt public
purpose bond involves more than a 10% benefit to private parties, it is taxable. Permitted
private purpose bonds (those specified as tax-exempt) are generally tax preference
items in computing the alternative minimum tax and, effective August 15, 1986, are subject
to volume caps.
Mutual Fund: Fund operated by an investment company that
raises money from shareholders and invests it in stocks, bonds, options, commodities, or
money market securities. These funds offer investors the advantages of diversification and
professional management. For these services they charge a management fee, typically 1% or
less of assets per year. Mutual funds may invest aggressively or conservatively. Investors
should assess their own tolerance for risk before they decide which fund would be
appropriate for them. In addition, the timing of buying or selling depends on the outlook
for the economy, the state of the stock and bond markets, interest, and other factors.
NASD: Nonprofit organization formed under the
joint sponsorship of the Investment Bankers Conference and the Securities and
Exchange Commission to comply with the Maloney Act. NASD members include virtually all
investment banking houses and firms dealing in the over the counter market. Operating
under the supervision of the SEC, the NASDs basic purposes are to (1) standardize
practices in the field, (2) establish high moral and ethical standards in securities
trading, (3) provide a representative body to consult with the government and investors on
matters of common interest, (4) establish and enforce fair and equitable rules of
securities trading, and (5) establish a disciplinary body capable of enforcing the above
provisions. The NASD also requires members to maintain quick assets in excess of current
liabilities at all times. Periodic examinations and audits are conducted to ensure a high
level of solvency and financial integrity among members.
Nasdaq: National Association of Securities Dealers
Automated Quotations System, which is owned and operated by the National Association of
Securities Dealers. NASDAQ is a computerized system that provides brokers and dealers with
price quotations for securities traded over the counter as well as for many New York Stock
Exchange listed securities. NASDAQ quotes are published in the financial pages of most
National Securities Clearing Corporation
Securities clearing organization formed in
1977 by merging subsidiaries of the New York and American Stock Exchanges with the
National Clearing Corporation. It functions essentially as a medium through which
brokerage firms, exchanges, and other clearing corporations reconcile accounts with each
Net Asset Value (NAV):
Market value of a mutual fund share,
synonymous with bid price. In the case of no-load funds, the NAV, market price, and
offering price are all the same figure, which the public pays to buy shares; load fund
market or offer prices are quoted after adding the sales charge to the net asset value.
NAV is calculated by most funds after the close of the exchanges each day by taking the
closing market value of all securities owned plus all other assets such as cash,
subtracting all liabilities, then dividing the result (total net assets) by the total
number of shares outstanding. The number of shares outstanding can vary each day depending
on the number of purchases and redemptions.
Difference between total sales and total
costs and expenses. Total costs comprise cost of goods sold including depreciation; total
expenses comprise selling, general, and administrative expenses, plus income deductions.
Net income is usually specified as to whether it is before income taxes or after income
taxes. Net income after taxes is the bottom line referred to in popular vernacular.
It is out of this figure that dividends are normally paid.
Mutual fund offered by an open-end
investment company that imposes no sales charge (load) on its shareholders. Investors buy
shares in no-load funds directly from the fund companies, rather than through a broker, as
is done in load funds. Many no-load fund families (see family of funds) allow switching of
assets between stock, bond, and money market funds. The listing of the price of a no-load
fund in a newspaper is accompanied with the designation NL. The net asset value, market
price, and offer prices of this type of fund are exactly the same, since there is no sales
Preferred stock or bond that cannot be
redeemed at the option of the issuer. A bond may offer call protection for a particular
length of time, such as ten years. After that, the issuer may redeem the bond if it
chooses and can justify doing so. U.S. government bond obligations are not callable until
close to maturity. Provisions for noncallability are spelled put in detail in a
bonds indenture agreement or in the prospectus issued at the time a new preferred
stock is floated. Bond yields are often quoted to the first date at which the bonds could
See National Securities Clearing
Odd Lot: Securities trade made for less than the
normal trading unit (termed a round lot). In stock trading, any purchase or sale of less
than 100 shares is considered an odd-lot.
Offering Price: Price per share at which a new secondary
distribution of securities is offered for sale to the public; also called public offering
Offering Range: This is the price range which the company expects to sell its
stock. This can be found on the front page of the Prospectus and by no means
must be adhered to. As with everything traded, market conditions and demand
dictate the final Offering Price.
Open Order: Buy or sell order for securities that has
not yet been executed or canceled; a Good Till-Canceled Order.
Opening Price: This is the fist price that the company's stock trades on its
first day of trading.
Option: Securities transaction agreement tied to
stocks, commodities, or stock indexes. Also, See Call Option and Put Option
Out-of-the-Money: Term used to describe an option whose
strike price for a strike is either higher than the current market value, in the case of a
call, or lower, in the case of a put. For example, an XYZ December 60 call option would be
out of the money when XYZ stock was selling for $55 a share. Similarly, an XYZ December 60
put option would be out of the money when XYZ stock was selling for $65 a share. Someone
buying an out-of-the money option hopes that the option will move in the money, or at
least in that direction. The buyer of the above XYZ call would want the sock to climb
above $60 a share, whereas the put buyer would like the stock to drop below $60 a share.
Over-the-Counter (OTC): Security that is not listed and traded on
an organized exchange. Market in which securities transactions are conducted through
telephone and computer network connecting dealers in stocks and bonds, rather than on the
floor of an exchange. Over-the-counter stocks are traditionally those of smaller companies
that do not meet the Listing Requirements of the New York Stock Exchange or the American
Stock Exchange. In recent years, however, many companies that qualify for listing have
chosen to remain with over-the-counter trading, because they feel that the system of
multiple trading by many dealers is preferable to the centralized trading approach of the
New York Stock Exchange, where all trading in a stock has to go through the exchange
Specialist in that stock. The rules of over-the-counter stock trading are written and
enforced largely by the National Association of Securities Dealers (NASD), a
Penny Stocks: Stock that typically sell for less than $1
a share. Penny stocks are issued by companies with short or erratic history of revenues
and earnings, and therefore such stocks are more volatile than those of large, well
established firms traded on the New York or American stock exchanges. Many brokerage
houses therefore have precautionary rules about trading in these stocks. Penny stocks
should always be considered very speculative investments and not suitable for conservative
Pink Sheets: Daily publication of the national quotation
bureau that details the bid and asked prices of thousands of over the counter (OTC)
stocks. Many of these stocks are not carried in daily OTC newspaper listings. Brokerage
firms subscribe to the pink sheets- named for their color-because the sheets not only give
current prices but list market makers who trade each stock. Debt securities are listed
separately on the yellow sheets.
Preferred Stock: Class of capital stock that pays dividends
at a specified rate and that has preference over common stock in the payment of dividends
and the liquidation of assets. Preferred stock does not ordinarily carry voting rights.
Most preferred stock is cumulative; if dividends are passed (not paid for any
reason), they accumulate and must be paid before common dividends.
Price Earnings Ratio (P/E):
Price of a stock divided by its earnings
per share. The P/E ratio may either use the reported earnings from the latest year (called
a trailing P/E) or employ an analysts forecast of next years earnings
(called a forward P/E). The trailing P/E is listed along with a stocks price
and trading activity in the daily newspapers. For instance, a stock selling for $20 a
share that earned $1 last year has a trailing P/E of 20. If the same stock has projected
earnings of $2 next year, it will have a forward P/E of 10.The price/earnings ratio, also
known as the multiple, gives investors an idea of how much they are paying for a
companys earning power. The higher the P/E, the more investors are paying, and
therefore the more earnings growth they are expecting.
Pricing Date: This date usually refers to the night before shares are sold to
the general public. Companies and their Underwriters customarily set an IPO's
price after the markets have closed in anticipation the commencement of trading
in the morning.
Primary Market: Where shares are distributed at the Offering Price to
Prime Rate: Interest rate banks charge to their most
creditworthy customers. The rate is determined by the market forces affecting a
banks cost of funds and the rates that borrowers will accept. The prime rate tends
to become standard across the banking industry when a major bank moves its prime rate up
or down. The rate is a key interest rate, since loans to less-creditworthy customers are
often tied to the prime rate.
Private Placement: An offering of a limited amount of shares or units, in which
the recipients receive restricted stock from the issuer.
Producer Price Index (PPI): Measure of change in wholesale prices
(formerly called the wholesale price index), as released monthly by the U.S. Bureau
of Labor Statistics. The index is broken down into components by commodity, industry
sector, and stage of processing. The consumer equivalent of this index is the Consumer
Prospectus: Formal written offer to sell securities
that set forth the plan for a proposed business enterprise or the facts concerning an
existing one that an investor needs to make an informed decision. Prospectuses are also
issued by mutual funds, describing the history, background of managers, fund objectives, a
financial statement, and other essential data. A prospectus for a public offering must be
filed with the Securities and Exchange Commission and given to prospective buyers of the
offering. The prospectus contains financial information and a description of a
companys business history, officers, operations, pending litigation (if any), and
plans (including the use of the proceeds from the issue). Offerings of limited
partnerships are also accompanied by prospectuses. Real estate, oil and gas, equipment
leasing, and other types of limited partnerships are described in detail, and pertinent
financial information, the background of the general partners, and supporting legal
opinions are also given.
Proxy: Written power of attorney given by
shareholders of a corporation, authorizing a specific vote on their behalf at corporate
meetings. Such proxies normally pertain to election of the board of directors or to
various resolutions submitted for shareholders approval.
Put Option: Contract that grants the right to sell at a
specified price a specific number of shares by a certain date. The put option buyer gains
this right in return for payment of an option premium. The put option seller grants this
right in return for receiving this premium. For instance, a buyer of an XYZ May 70 put has
the right to sell 100 shares of XYZ at $70 to the put seller at any time until the
contract expires in May. A put option buyer hopes the stock will drop in price, while the
put option seller (called a writer) hopes the stock will remain stable, rise, or
drop by an amount less than his or her profit on the premium.
This period starts once a company has filed its S-1 or SB-2 form
with the SEC and extends 25 days after the company's stock has started trading
on the open market. During this time the company and Syndicate are prohibited
from making any statements which are not included in the Prospectus. That is,
the company may not say or do anything which might affect the IPO or the stock's
performance in the Aftermarket.
Record Date: Date on which a shareholder must officially
own shares in order to be entitled to a dividend. For example, the board of directors of a
corporation might declare a dividend on November 1 payable on December 1 to stockholders
of record on November 15. After the date of record the stock is said to be ex-dividend.
Red Herring: Before investors receive the final copy of
the prospectus, called the statutory prospectus, they may receive a preliminary
prospectus, commonly called a red herring. This document is not complete in all
details, though most of the major facts of the offering are usually included. The final
prospectus is also called the offering circular.
Registered Bond: Bond that is recorded in the name of the
holder on the books of the issuers registrar and can be transferred to another owner
only when endorsed by the registered owner. A bond registered for principal only, and not
for interest, is called a registered coupon bond. One that is not registered is
called a bearer bond; one issued with detachable coupons for presentation to
the issuer or a paying agent when interest or principal payments are due is termed a
coupon bond. bearer bonds are negotiable instruments payable to the holder and therefore
do not legally require endorsement. Bearer bonds that may be changed to registered bonds
are called interchangeable bonds.
Regulation T: Federal Reserve Board regulation covering
the extension of credit to customers by securities brokers, dealers, and members of the
national securities exchanges. It establishes initial margin requirements and defines
registered (eligible), unregistered (ineligible), and exempt securities.
Regulation U: Federal Reserve Board limit on the amount
of credit a bank may extend a customer for purchasing and carrying margin securities.
REIT: A company, usually traded publicly, that
manages a portfolio of real estate to earn profits traded publicly, that manages a
portfolio of real estate to earn profits for shareholders. Patterned after investment
companies, REITS make investments in a diverse array of real estate from shopping centers
and office buildings to apartment complexes and hotels.
Round Lot: Generally accepted unit of trading on a
securities exchange. On the New York Stock Exchange, for example, a round lot is 100
shares of stock and $1000 or $5000 par value for bonds. In inactive stocks, the round lot
is 10 shares. Increasingly, there seems to be recognition of a 500-share round lot for
trading by institutions.
This a type of form filed with the Securities and Exchange
Commission. It announces a company's intent to go public. The Prospectus section
is an integral part of this filing.
Savings Bond: U.S. government bond issued in face value
denominations ranging from $50 to $10,000. From 1941 to 1979, the government issued Series
E bonds. Starting in 1980, Series EE and HH bonds were issued. Series EE bonds, issued at
a discount, range from $50 to $10,000; Series HH bonds, which are interest bearing, range
from $500 to $10,000. Both earn interest for ten years, though the U.S. Congress often
extends that date. The interest from savings bonds is exempt from state and local taxes,
and no federal tax is due until the bonds are redeemed. Bond holders wanting to defer the
tax liability on their maturing Series EE bonds can exchange them for Series HH. Taxpayers
meeting income qualifications can buy EE bonds to save for a childs higher education
and enjoy total or partial federal tax exemption.
Secondary Distribution: Public sale of previously issued securities
held by large investors, usually corporations, institutions, or other affiliated persons,
as distinguished from a new issue or primary distribution, where the seller
is the issuing corporation. As with a primary offering, secondaries are usually
handled by investment bankers, acting alone or as a syndicate, who purchase the
shares from the seller at an agreed price, then resell them, sometimes with the help of a
selling group, at a higher public offering price, making their profit on the difference,
called the spread. Since the offering is registered with the Securities and Exchange
Commission, the syndicate manager can legally stabilize-or peg-the market price by bidding
for shares in the open market. Buyers of securities offered this way pay no commissions,
since all costs are borne by the selling investor.
Secondary Market: Better known as the Stock Market, where shares are openly
Security: Investment: instrument that signifies an
ownership position in a corporation (a stock), a creditor relationship with a corporation
or governmental body (a bond), or rights to ownership such as those represented by an
option, subscription right, and subscription warrant.
Selling Short: Sale of a security or commodity futures
contract not owned by the seller; a technique used (1) to take advantage of an anticipated
decline in the price or (2) to protect a profit in a long position (known as selling short
against the box). An investor borrows stock certificates for delivery at the time of short
sale. If the seller can buy that stock later at a lower price, a profit results; if the
price rises, however, a loss results.
Issued, usually of a municipality, with
various maturity dates scheduled at regular intervals until the entire issue is retired.
Each bond certificate in the series has an indicated redemption date.
Series EE Bond:
see Savings Bond
Settlement Date: Date by which an executed order must be
settled, either by a buyer paying for the securities with cash or by a seller delivering
the securities and receiving the proceeds of the sale for them. In a regular-way delivery
of stocks and bonds, the settlement date is five business days after the trade was
executed. For listed options and government securities, settlement is required by the next
Simplified Employee Pension Plan (SEP): Pension plan in which both the employee and
the employer contribute to an Individual Retirement Account (IRA). Under the Tax Reform
Act of 1986, employees (except those participating in SEPs of state or local governments)
may elect to have employer contributions made to the SEP or paid to the employee in cash
as with cash or deferred arrangements [401(K)Plans]. Elective contributions, which are
excludable from earnings for income tax purposes but includable for employment tax (FICA
and FUTA) purposes, are limited to $7000, while employer contributions may not exceed
$30,000. SEPs are limited to small employers (25 or fewer employees) and at least 50% of
employees must participate. Special provisions concern the integration of SEP
contributions and social security benefits and limit tax deferrals for highly compensated
Standard & Poors Index (S&P
500): Broad-based measurement of changes on
stock-market conditions based on the average performance of 500 widely held common stocks;
commonly known as the S&P 500. The selection of stocks, their relative weightings to
reflect differences in the number of outstanding shares, and publication of the index
itself are services of Standard & Poors Corporation, a financial advisory,
securities rating, and publishing firm.
Stock Split: Increase in a corporations number of
outstanding shares of stock without any change in the shareholders Equity or the
aggregate market value at the time of the split. In a split, also called a split
up, the share price declines. If a stock at $100 par value splits 2-for-1, the number
of authorized shares doubles (for example, from 10 million to 20 million) and the price
per share drops by half, to $50. A holder of 50 shares before the split now has 100 shares
before the split now has 100 shares at the lower price. If the same stock splits 4-for-1,
the number of shares quadruples to 40 million and the share price falls to $25. Dividends
per share also fall proportionately. Directors of a corporation will authorize a split to
make ownership more affordable to a broader base of investors. Where stock splits require
an increase in authorized shares and/or a change in par value of the stock, shareholders
must approve an amendment of the corporate charter.
Stop Limit Order: Order to a securities broker with
instructions to buy or sell at a specified price or better (called the stop-limit price)
but only after a given stop price has been reached or passed. It is a combination
of a stop order and a limit order. For example, the instruction to the broker might be
"buy 100 XYZ 55 STOP 56 LIMIT" meaning that if the market price reaches $55, the
broker enters a limit order to be executed at $56 or a better (lower) price. A stop-limit
order avoids some of the risks of a stop or order, which becomes a market order
when the stop price is reached; like all price-limit orders, however, it carries the risk
of missing the market altogether, since the specified limit price or better may never
occur. The American Stock Exchange prohibits stop-limit orders unless the stop and limit
prices are equal.
Stop Order: Order to a securities broker to buy or sell
at the market price once the security has traded at a specified price called the stop
price. A stop order may be a day order, a good-till-canceled order, or any other form
of time-limit order. A stop order to buy, always at a stop price above the current market
price, is usually designed to protect a profit or to limit a loss on a short sale. A stop
order to sell, always at a price below the current market price, is usually designed to
protect or to limit a loss on a security already purchased at a higher price. The risk of
stop orders is that they may be triggered by temporary market movements or that they may
be executed at prices several points higher or lower than the stop price because of market
orders placed ahead of them. Also called a Stop- loss order.
Strike Price: Price at which the stock or commodity
underlying a call or put option can be purchased (call) or sold (put) over the specified
period. For instance, a call contract may allow the buyer to purchase 100 shares of XYZ at
any time in the next three months at an exercise or strike price of $65.
Supporting Companies: These are the companies which help the underlying company go public.
This group is comprised of the auditors, the attorneys, and the transfer agent. There are
currently five auditing firms which control an estimated 90% of the IPO Market:
Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, and
This term is used to refer to the group made up of the Underwriters and
other Supporting Companies.
Tax-Exempt Security: Obligation whose interest is exempt from
taxation by federal, state, and/or local authorities. It is frequently called a municipal
bond (or simply a municipal), even though it may have been issued by a state
government or agency or by a county, town, or other political district or subdivision. The
security is backed by the full faith and credit or by anticipated revenues of the issuing
authority. Interest income from tax-exempt municipals is free from federal income taxation
as well as from taxation in the jurisdiction where the securities have been issued. The
return to investors from a tax-exempt bond is less than that from a corporate bond,
because the tax exemption provides extra compensation; the higher the tax bracket of the
investor, the more attractive the tax-free alternative becomes. Municipal bond yields vary
according to local economic factors, the issuers perceived ability to repay, and the
securitys quality rating assigned by one of the bond rating agencies.
Tender Offer: Offer to buy shares of a corporation,
usually at a premium above the shares market price, for cash, securities, or both,
often with the objective of taking control of the target company. A tender offer may arise
from friendly negotiations between the company and a corporate suitor or may unsolicited
and possibly unfriendly, resulting in countermeasures being taken by the target firm. The
Securities and Exchange Commission requires and corporate suitor accumulating 5% or more
of a target company to make disclosures to the SEC, the target company, and the relevant
Trade: To carry out a transaction of buying or
selling a stock, a bond, or a commodity future contract. A trade is consummated when a
buyer and seller agree on a price at which the trade will be executed. A trader frequently
buys and sells for his or her own account securities for short-term profits, as contrasted
with an investor who holds his positions in hopes of long-term gains.
Transfer Agent: This agency handles the transfer of shares from one person to another.
It records the names and addresses of a company's stockholders, as well as the share
amounts they own.
Treasury Bills (T-Bills): Short-term securities with maturities of
one year or less issued at a discount from face value. Auctions of 91-day and 182-day take
place weekly, and the yields are watched closely in the money markets for signs of
interest rate trends. Many floating rate loans and variable-rate mortgages have interest
rates tied to these bills. The Treasury also auctions 52-week bills once every four weeks.
At times it also issues very short-term cash management bills, tax anticipation bills,
and treasury certificates of indebtedness. Treasury bills are issued in minimum
denominations of $10,000, with $5000 increments above $10,000 (except for cash management
bills, which are sold in minimum $10 million blocks). Individual investors who do not
submit a competitive bid sold bills at the average price of the winning competitive bids.
Treasury bills are the primary instrument used by the Federal Reserve in its regulation of
money supply through open market operations.
Treasury Stock: Stock reacquired by the issuing company and
available for retirement or resale. It is issued but not outstanding. It cannot be voted
and it pays or accrues no dividends. It is not included in any of the ratio measuring
values per common share. Among the reasons treasury stock is created are (1) to provide an
alternative to paying taxable dividends, since the decreased amount of outstanding shares
increases the per share value and often the market price; (2) to provide for the exercise
of stock options and warrants and the conversion of convertible securities; (3) in
countering a tender offer by a potential acquirer; (4) to alter the debt-to-equity ratio
by issuing bonds to finance the reacquisition of shares; (5) as a result of the
stabilization of the market price during a new issue.
Uncovered Options: Option contract for which the owner does
not hold the underlying investment (should delivery on the option be required).
Unit Investment Trust: Investment vehicle, registered with the
securities and exchange commission under the Investment Company Act of 1940, that
purchases a fixed portfolio of income producing securities, such as corporate, municipal,
or government bonds, mortgage-backed securities, or preferred stock. Units in the trust,
which usually cost a least $1000, are sold to investors by brokers, for a load charge of
about 4%. Unit holders receive an undivided interest in both the principal and the income
portion of the portfolio in proportion to the amount of capital they invest. The portfolio
of securities remains fixed until all the securities mature and unit holders have
recovered their principle. Most brokerage firms maintain a secondary market in the trusts
they sell, so that units can be resold if necessary. In Britain, open-end mutual funds are
called unit trusts.
Value Line Composite Index:
Equally-weighted geometric average of
approximately 1700 NYSE, AMEX, and over the counter stocks tracked by the Value Line
Investment Survey. The index uses a base value by the Value line Investment Survey. The
index uses a base value of 100.00 established June 30, 1961, and changes are expressed in
index numbers rather than dollars and cents. This index is designed to reflect price
changes of typical industrial stocks and being neither price nor market value-weighted, it
largely succeeds. Options are not traded on this index, though futures are available on
the Kansas City Board of Trade and futures options on the Philadelphia Exchange.
Variable Annuity: Life insurance annuity contract whose value
fluctuates with that of an underlying securities portfolio or other index of performance.
The variable annuity contrasts with a conventional or fixed annuity, whose rate of return
is constant and therefore vulnerable to the effects of inflation. Income on a variable
annuity may be taken periodically, beginning immediately or at any future time. The
annuity may be a single-premium or multiple-premium contract. The return to investors may
be a single-premium or multi-premium contract. The return to investors may be in the form
of a periodic payment that varies with the market value of the portfolio or a fixed
minimum payment with add-ons based on the rate of portfolio appreciation.
Vesting: Right an employee gradually acquires by
length of service at a company to receive employer-contributing benefits, such as payments
from a pension fund, profit-sharing, or other qualified plan or trust. Under the tax
reform act of 1986, employees must be vested 100% after years of service or at 20% a year
starting in the third year and becoming 100% vested after seven years.
Volume: Total number of stock shares, bonds, or
commodities futures contracts traded in a particular period. Volume figures are reported
daily by exchanges, both for individual issues trading and for the total amount of trading
executed on the exchange. Technical analysts place great emphasis on the amount of volume
that occurs in the trading of a security or a commodity futures contract. A sharp rise in
volume is believed to signify future sharp rises or falls in price, because it reflects
increased investor interest in a security, commodity, or market.
Warrant: Type of security, usually held together
with a bond or preferred stock, that entitles the holder to buy a proportionate amount of
common stock at a specified price, usually higher than the market price at the time of
issuance, for a period of years or to perpetuity.
Wash Sale: Purchase and sale of the same security
either simultaneously or within a short period of time. Wash sales taking place within 30
days of the underlying purchase do not qualify as tax losses under Internal Revenue
Wilshire 5000 Equity Index: The Wilshire Index is market value-weighted
and represents the value, in billions of dollars, of all NYSE, AMEX and over the counter
issues for which quotes are available, some 5000 stocks in all. Changes are measured
against a base value established December 31, 1980. Options and futures are not traded on
the Wilshire Index, which is prepared by the Wilshire Associates of Santa Monica,
Withdrawn/Postponed: From time to time a company will decide that market conditions
are out of favor and not conducive to a successful IPO. There are many reasons
why a company will decide to Withdraw its IPO. Among these reasons are: a simple
lack of willing investors at at that time, market volatility, or the emergence
of a bear market. When a company withdraws its filings with the SEC, the IPO is
usually delayed for at least six months.
Yield: Rate of return on a bond, taking into
account the total of annual interest payments, the purchase price, the redemption value,
and the amount of time remaining until maturity; called maturity yield or yield to
Zero Coupon Bond: Security that makes no periodic interest
payments but instead is sold at a deep discount from its face value. The buyer of such a
bond receives the rate of return by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date.