This is not an official set of definitions. Our goal is to provide accurate and clear information, but we have not attempted to define terms with absolute legal precision.
ABA (American Banking Association) Number - Routing number used to wire funds to any bank account.
ACAT (Automated Customer Account Transfer) - Process of transferring accounts between different broker dealers.
ACH (Automated Clearing House) - An electronic transmission of money from one institution to another. Can be established for the purpose of automatic investment or SWP.
Acquisition - The acquiring of control of one corporation by another. In "unfriendly" takeover attempts, the potential buying company may offer a price well above current market values, new securities and other inducements to stockholders. The management of the subject company might ask for a better price or try to join up with a third company. (See: Merger, Proxy)
Active Return - Return relative to a benchmark. If the portfolio's return is 8%, and the benchmark's return is 5%, then the portfolio's active return is 3%.
Active Risk - The risk (annualized standard deviation) of the active return. Also known as Tracking Error.
Account Executive - (See: Financial Advisor).
Accrued interest - The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.
Address of Record - Address on account registration. Address to which all formal correspondence and statements are mailed.
Adjustable Rate Mortgages (ARM) - Is a loan which has a coupon or interest rate that is subject to change on predetermined reset dates. These loans use interest rate indices as the benchmark rate. Adjustable Rate Mortgages come in many variations. Typically, the reset dates recur every 1, 3, or 5 years; but there are other periods used as well. These loans may have cap and floor features which constrain each reset change in interest rates. There may also be lifetime cap and floor features. Adjustable Rate Mortgages may be strictly amortizing though some have negative amortization features.
ADV form - Form on file with the Securities and Exchange Commission that contains important financial information about a registered investment advisor.
Agency - Is a security issued by a government organization but not the treasury. These organizations include: the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the Federal National Mortgage Association (FNMA or Fannie Mae), the Government National Mortgage Association (GNMA or Ginnie Mae).
Agent - Is a party who acts on the behalf of another. This occurs when a broker executes a trade for the benefit of the customer. Here, the broker receives a commission. This compares to a dealer transaction.
Aggressive Growth - Type of mutual funds that seek maximum capital gains.
Alpha - The term used to describe the risk adjusted outperformance of an investment. A large alpha indicates good performance relative to the market.
American Depositary Receipt (ADR) - a security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.
American Stock Exchange (AMEX) - The second largest stock exchange in the United States, located in the financial district of New York City. (Formerly known as the Curb Exchange from its origin on a Manhattan street.)
Amortization - Accounting for expenses or charges as applicable rather than as paid. Includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses and deferred charges.
Annual report - The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, expenses and earnings - how the company stood at the close of the business year, how it fared profit-wise during the year, as well as other information of interest to shareowners.
Annual and Semi-Annual Reports - Summaries that a mutual fund sends to its shareholders which discuss the fund's performance over a defined period and identify the securities currently in the fund's portfolio.
Annual return - The percentage of change in a mutual fund's net asset value over a year's time, factoring in income dividend payments, capital gains, and reinvestment of these distributions.
Arbitrage - A technique employed to take advantage of differences in price. If, for example, ABC stock can be bought in New York for $10 a share and sold in London at $10.50, an arbitrageur may simultaneously purchase ABC stock here and sell the same amount in London, making a profit of $.50 a share, less expenses. Arbitrage may also involve the purchase of rights to subscribe to a security, or the purchase of a convertible security - and the sale at or about the same time of the security obtainable through exercise of the rights or of the security obtainable through conversion. (See: Convertible, Rights)
Asset Allocation - Apportioning of investment funds among categories of assets, such as Cash Equivalents, Stock, Fixed-Income Investments, and such tangible assets as real estate and precious metals. Also applies to subcategories such as government, municipal and corporate bonds. Asset allocation affects both risk and return and is a central concept in personal financial planning and investment management.
Asset Backed Securities (ABS) - Is a security backed by notes or receivables against assets other than real estate. Some examples are autos, credit cards, and royalties.
Assets - The investment holdings and cash owned by a mutual fund.
Asset Mix - The percentage breakdown between different asset types in a portfolio including cash and equivalents, fixed income and equities.
Auction market - The system of trading securities through brokers or agents on an exchange such as the New York Stock Exchange. Buyers compete with other buyers while sellers compete with other sellers for the most advantageous price.
Auditor's report - Often called the accountant's opinion, it is the statement of the accounting firm's work and its opinion of the corporation's financial statements, especially if they conform to the normal and generally accepted practices of accountancy.
Automatic Investment - Method of investing in which funds are drafted from any bank account and wired to a mutual fund on a set schedule for the purpose of purchasing shares in a mutual fund account (See: SIP, PIP).
Average Annual Return - Average Annual Return is used to compare returns over different periods on a consistent basis with the unit being years.
Average Maturity - the remaining lifetime of all bonds in a fund's investment portfolio, weighted by the amount of money invested in each bond. (See: Bond)
Averages - Various ways of measuring the trend of securities prices, one of the most popular of which is the Dow Jones Industrial Average of 30 industrial stocks listed on the New York Stock Exchange. The prices of the 30 stocks are totaled and then divided by a divisor that is intended to compensate for past stock splits and stock dividends, and that is changed from time to time. As a result, point changes in the average have only the vaguest relationship to dollar-price changes in stocks included in the average. (See: NYSE Composite Index)
Averaging - (See: Dollar-cost-averaging)
B Notice - The notification to a mutual fund company by the IRS that a client's TIN on file with the fund company is missing or incorrect. A "B" notice will cause a client's distributions from their fund to have backup withholding. The fund company will need a correct W9 in order to stop the withholding.
Back End Load Fund - Type of commission structure where shares are sold without an initial sales charge to the client. A contingent deferred sales charge (CDSC) is charged when the shares are sold. The amount of the CDSC decreases the longer the client holds their shares. Broker dealers are paid by the fund company up front when the shares are purchased. Any CDSC that is charged to the client is retained by the fund company.
Backup Withholding - The withholding of taxes (at a 31% rate) on disbursements from a client's mutual fund if the client or back office has not supplied the fund company with a correct TIN or if the fund is notified that the client has underreported their income to the IRS. There are four types of backup withholding: 1) applied for ( the client has applied for, but not yet received their TIN), 2) B Notice, 3) C Notice, 4) Non-certification.
Balance Sheet - A condensed financial statement showing the nature and amount of a company's assets, liabilities and capital on a given date. In dollar amounts, the balance sheet shows what the company owned, what it owed and the ownership interest in the company of its stockholders. (See: Assets, Earnings report)
Balanced - Type of mutual fund which generally invests in both stocks and bonds, with intent of providing capital gains and income. Preservation of capital is a primary objective.
Basis Points - One one-hundredth of one percent (1/100th of 1% = .0001 = 1 basis point). Commonly used in the calculation of fees, trail commissions and yields of bonds. Fixed income yields vary often and slightly within one percent and the basis point scale easily expresses these changes in hundredths of 1%. For example, the difference between 12.83% and 12.88% is 5 basis points.
B/D - Is a Broker/Dealer or securities firm.
Benchmark - Is the standard to measure, monitor, price or evaluate a security or derivative. The treasury market is the benchmark for the corporate, mortgage backed, international and emerging credit markets. Here, securities are priced in terms of yield pickup relative to a comparable treasury. This comparability is often in terms of maturity though duration or average life.
Beta - Describes the sensitivity of a fund's return to the return of the market portfolio. The market has a beta of 1.0 as it moves in line with itself. A more aggressively positioned portfolio has a beta of greater than one so that if the market rises as expected, the fund will rise more than the market - a higher beta means higher potential returns but also higher risk.
Bid and Asked - Often referred to as a quotation or quote. The bid is the highest price anyone wants to pay for a security at a given time, the asked is the lowest price anyone will take at the same time. (See: Quote)
Block - A large holding or transaction of stock – popularly considered to be 10,000 shares or more.
Blue chip - A company known nationally for the quality and wide acceptance of its products or services, and for its ability to make money and pay dividends.
Blue Sky Laws - A popular name for laws various states have enacted to protect the public against securities frauds. The term is believed to have originated when a judge ruled that a particular stock had about the same value as a patch of blue sky.
Bond - Basically an IOU or promissory note of a corporation, usually issued in multiples of $1,000 or $5,000, although $100 and $500 denominations are not unknown. A bond is evidence of a debt on which the issuing company usually promises to pay the bondholders a specified amount of interest for a specified length of time, and to repay the loan on the expiration date. In every case a bond represents debt - its holder is a creditor of the corporation and not a part owner, as is the shareholder. (See: Collateral, Convertible, Debenture, General mortgage bond, Income bond)
Bond Funds - Are mutual funds that invest in credit instruments. There can be distinctions, such as, treasury, international, sovereign, mortgage backed, investment grade corporate and high yield or junk bonds.
Book Entry Shares - Shares held on deposit at the fund. No certificate exists for the account. (also See: Unissued Shares).
Book Value - An accounting term. Book value of a stock is determined from a company's records, by adding all assets then deducting all debts and other liabilities, plus the liquidation price of any preferred issues. The sum arrived at is divided by the number of common shares outstanding and the result is book value per common share. Book value of the assets of a company or a security may have little relationship to market value.
Bootstrapping - Is the technique the initiate a sample or process. It can use a piece of data to generate or infer other data. These other data are not necessarily observations.
Breakeven Point - Is the level whereby an investor neither profits or loses. It is often used in options and other derivatives trading. Aside from transaction costs such as commissions, fees or spreads, there is usually a premium involved. For example, the breakeven point for a purchase call would be the strike price plus the premium to establish the effective breakeven strike price or breakeven level. In the case of a purchased put, it would be the strike price of the put adjusted by the paid premium. The market has to move down through the strike price by an amount equal to the premium paid. This effectively means that the breakeven level is lower than the contract's exercise price.
Broker - A firm that buys and sells mutual fund shares and other securities from and to the public.
Broker Dealer Services - Mutual fund company department dedicated to servicing Broker/Dealer back offices.
Brokers' Loans - Money borrowed by brokers from banks or other brokers for a variety of uses. It may be used by specialists to help finance inventories of stock they deal in; by brokerage firms to finance the underwriting of new issues of corporate and municipal securities; to help finance a firm's own investments; and to help finance the purchase of securities for customers who prefer to use the broker's credit when they buy securities. (See: Margin)
Buy Side - The portion of the securities business in which institutional orders originate.
Buyer's Market - Refers to a situation when a purchaser has greater flexibility and influence in receiving concessions. Often the choices are more plentiful and the prices lower than previously transacted.
Buying Power - Refers to the amount of securities that can be purchased in a margin account.
C Notice - A notification to a fund company from the IRS that a client has underreported their income. A "C" Notice on a client's account will make them liable for back up withholding. Only the IRS can remove a "C" notice from a client's account.
CDSC - (See: Contingent Deferred Sales Charge).
Call Option - Is a contract whereby the purchaser, owner or holder is given the right but is not obligated to purchase the underlying security or commodity at a fixed strike price within a limited time frame.
Callable - A bond issue, all or part of which may be redeemed by the issuing corporation under specified conditions before maturity. The term also applies to preferred shares that may be redeemed by the issuing corporation.
Cap - Is the ceiling, upper limit price, or interest rate which would be paid. It is analogous to a long call position.
Capital - A lump sum of money. Usually refers to the amount you invest in a fund at the outset e.g. your original capital.
Capital Gain or Capital Loss - Profit or loss realized on the sale of securities or other assets in a fund's portfolio. Long term capital gains refer to a gain on assets owned in the portfolio for longer than one year. Short term capital gains refer to a gain on assets owned in the portfolio of one year or less. Profits are usually paid out to the mutual fund shareholders once a year. The capital gains provisions of the tax law are complicated. You should consult your tax advisor for specific information.
Capital Growth - An increase in market value of a mutual fund's securities, as reflected in the NAV of fund shares. This is a specific long-term objective of many mutual funds. Also known as capital appreciation.
Capitalization - Total amount of the various securities issued by a corporation. Capitalization may include bonds, debentures, preferred and common stock, and surplus. Bonds and debentures are usually carried on the books of the issuing company in terms of their par or face value. Preferred and common shares may be carried in terms of par or stated value. Stated value may be an arbitrary figure decided upon by the director or may represent the amount received by the company from the sale of the securities at the time of issuance. (See: Par)
Cash flow - Reported net income of a corporation plus amounts charged off for depreciation, depletion, amortization, and extraordinary charges to reserves, which are bookkeeping deductions and not paid out in actual dollars and cents. (See: Amortization, Depreciation)
Cash sale - A transaction on the floor of the stock exchange that calls for delivery of the securities the same day. In "" trade, the seller is to deliver on the third business day, except for bonds, which are the next day. (See: Regular way delivery)
Certificate - A document that certifies ownership of mutual fund shares and is negotiable when properly endorsed.
Certificate of Deposit (CD) - A money market instrument characterized by its set date of maturity and interest rate. There are two basic types of CDs: traditional and negotiable. Traditional bank CDs typically incur an early-withdrawal penalty, while negotiable CDs have secondary market liquidity with investors receiving more or less than the original amount depending on market conditions.
Certified Financial Planner (CFP) - Financial planner that obtains a license issued by the College of Financial Planning. The designation shows that the financial planner has had training in budgeting, taxes, savings, and insurance.
Churning - Is an excessive amount of trading of customer funds by a broker. The intent is to generate commission or brokerage fees and not client performance.
Clearing Dealer - Dealer through which other brokerage firms process trades and networking.
Closed End Fund - An investment company that offers a fixed number of shares. The securities are traded on an exchange just like stocks. The Commodity Futures Trading Commission (CFTC) – Created by Congress in 1974 to regulate exchange trading in futures.
Collateral - Securities or other property pledged by a borrower to secure repayment of a loan.
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. Both Moody's and Standard & Poors's assign ratings to commercial paper.
Commission - A fee paid by an investor to a broker or other sales agent for investment advice and assistance with buying and selling securities. The commission makes up most of the sales charge and is determined as a percentage of the offering price. Also referred to as Dealer Concession.
Commission Broker - An agent who executes the public's orders for the purchase or sale of securities or commodities.
Commodity or Commodities - Are often viewed as the futures markets on both physical and financial items. Sometimes, commodities is used more narrowly to refer to physical goods such as, gold, silver, wheat, and pork bellies. Then financial futures would refer to stock indices, eurodollars, treasuries, currencies, and other security-type instruments.
Common Stock - Securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater award in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock.
Competitive Trader - A member of the exchange who trades in stocks on the floor for an account in which there is an interest. Also known as a registered trader.
Confirm Number - Number assigned by a fund company on any trade placed.
Conglomerate - A corporation that has diversified its operations usually by acquiring enterprises in widely varied industries.
Consolidated Tape - The ticker tape reporting transactions in NYSE-listed securities that take place on the NYSE or any of the participating regional stock exchanges and other markets. Similarly, transactions in AMEX-listed securities, and certain other securities listed on regional stock exchanges, are reported on a separate tape.
Constant Dollar Investing - Investment strategy that preserves profits by periodic evaluation and adjustment of a portfolio. You maintain the same amount in your stock fund each year by channeling funds from and to a bond or money market fund.
Contingent Deferred Sales Charge (CDSC) - A commission imposed by the fund when shares are redeemed during the first few years of ownership. Because the fund pays the Broker Dealer at time of purchase, any CDSC charged is retained by the fund. Schedules vary from fund to fund. Also called back end load charge.
Control Number - A unique number assigned to a transaction made through an automated trading system. (See: Fund/SERV)
Conversion - Periodically, mutual fund companies will restructure specific funds or groups of funds. When this takes place, a new CUSIP and/or symbol will be assigned to the security. The back office will then perform a "conversion" of that CUSIP to update all positions on the firm's stock record.
Convertible - A bond, debenture or preferred share that may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the terms of the issue.
Corporate Bonds - Debt instruments issued by corporations.
Correlation - describes the way in which two investments have moved relative to each other. Correlation coefficients range between +1.0 for assets which consistently move in the same direction, and -1.0 for assets which consistently move in the opposite direction. Assets with a correlation of zero were unrelated. Portfolios combining assets with low correlations provide diversification or risk reduction benefits, potentially without decreasing total portfolio return.
Correspondent - A securities firm, bank or other financial organization that regularly performs services for another in a place or market to which the other does not have direct access. Securities firms may have correspondents in foreign countries or on exchanges of which they are not members. Correspondents are frequently linked by private wires. Member organizations of the NYSE with offices in New York may also act as correspondents for out-of-town member organizations that do not maintain New York offices.
Coupon - Is the contractual rate of interest on a credit instrument.
Credit Crunch - Occurs when credit availability is so restricted that normal economic or financial activity is adversely impacted. It is a more extreme case of credit rationing which has tightened.
Credit Risk - Is the risk related to counterparty failure. It is a key concern for Over-the-Counter transactions. This compares to listed trades passing through a clearinghouse.
Cumulative Preferred - A stock having a provision that if one or more dividends are omitted, the omitted dividends must be paid before dividends may be paid on the company's common stock.
Cumulative Voting - A method of voting for corporate directors that enables the shareholders to multiply the number of their shares by the number of directorships being voted on and to cast the total for one director or a selected group of directors. A 10-share holder normally casts 10 votes for each of, say, 12 nominees to the board of directors. One thus has 120 votes. Under the cumulative voting principle, one may do that or may cast 120 (10 x 12) votes for only one nominee, 60 for two, 40 for three, or any other distribution one chooses. Cumulative voting is required under the corporate laws of some states and is permitted in most others.
Custodian - 1. Organization that keeps custody of securities and other assets of a mutual fund. 2. Entity (Such as Raymond James) that acts as in a custodial manner for IRA's and other qualified plans.
Custodial Account - Account controlled by the custodian rather than the owner of the assets. Primarily used for retirement plans, minor children or by an employer for the benefit of an employee.
CUSIP (Committee for Uniform Securities Identification Procedures) - A unique 9 digit number assigned to all securities for identification.
DST - Transfer agent computer system provider.
Day order - An order to buy or sell that, if not executed, expires at the end of trading day on which it was entered.
Dealer - An individual or firm in the securities business who buys and sells stocks and bonds as a principal rather than as an agent. The dealer's profit or loss is the difference between the price paid and the price received for the same security. The dealer's confirmation must disclose to the customer that the principal has been acted upon. The same individual or firm may function, at different times, either as a broker or dealer. (See: FINRA, Specialist)
Dealer Concession - The percentage of the sales charge that is payable to the Broker/Dealer and Financial Advisor on a trade. Typically the dealer concession is withheld from the total amount of the trade when making payment to the mutual fund company.
Dealer Number - Identification number of the specific Broker/Dealer listed on a fund account.
Debit balance - In a customer's margin account, that portion of the purchase price of stock, bonds or commodities that is covered by credit extended by the broker to the margin customer. (See: Margin)
Debt - Refers to a relationship which obligates a borrower to pay interest and principal. The terms are often in writing and define the relationship. Indentures and mortgage notes are common types of these written instruments of indebtedness.
Debt to Equity Ratio - Refers to the capitalization relationship of securities. Here, it is the amount of bonds and preferred stocks relative to the corporate equity position.
Delayed opening - The postponement of trading of an issue on a stock exchange beyond the normal opening of a day's trading because of market conditions that have been judged by exchange officials to warrant such a delay. Reasons for the delay might be an influx of either buy or sell orders, an imbalance of buyers and sellers, or pending corporate news that requires time for dissemination.
Depletion accounting - Natural resources, such as metals, oil, gas and timber, that conceivably can be reduced to zero over the years, present a special problem in capital management. Depletion is an accounting practice consisting of charges against earnings based upon the amount of the asset taken out of the total reserves in the period for which accounting is made. A bookkeeping entry, it does not represent any cash outlay nor are any funds earmarked for the purpose.
Depository Trust Company (DTC) - A central securities certificate depository through which members effect security deliveries between each other via computerized bookkeeping entries thereby reducing the physical movement of stock certificates.
Depreciation - Normally, charges against earnings to write off the cost, less salvage value, of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose.
Derivative - A financial instrument that derives its value from the performance of an underlying asset, index or other investment.
Deviation - This is the difference between the position that a fund holds versus its benchmark. It indicates that the fund holds more than or less than the benchmark of a particular currency, an industry sector or geographical region, or has a duration which is longer or shorter than the benchmark. As such, the fund is said to be overweight or underweight the benchmark in a stock, sector, country or duration.
Director - Person elected by shareholders to serve on the board of directors. The directors appoint the president, vice presidents, and all other operating officers. Directors decide, among other matters, if and when dividends shall be paid. (See: Proxy)
Discount - The amount by which a preferred stock or bond may sell below its par value. Also used as a verb to mean "takes into account" as the price of the stock has discounted the expected dividend cut. (See: Premium)
Discretionary account - An account in which the customer gives the broker or someone else discretion to buy and sell securities or commodities, including selection, timing, amount, and price to be paid or received.
Distribution - Payment of income dividends and capital gains. A client can choose to have their distributions paid in cash or reinvest them in additional shares of the same fund or another fund within the same family.
Diversification - A benefit of mutual fund ownership. Investments are spread among a number of different securities to reduce the risks inherent in investing. The level of diversification may vary between fund investment objectives.
Dividend - The payment designated by the board of directors to be distributed pro rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortunes of the company and the amount of cash on hand, and may be omitted if business is poor or the directors determine to withhold earnings to invest in plant and equipment. Sometimes a company will pay a dividend out of past earnings even if it is not currently operating at a profit. Dividends received by a mutual fund from an asset in its portfolio are distributed to its shareholders (also called income dividend).
Dividend Date - Is sometimes used to refer to the Date of Record for entitlement to the dividend or the actual Payment Date.
Dividend Deduct - When a redemption of an account occurs between record date and payable date of a distribution, the proceeds of the redemption are reduced by the amount of the distribution.
Dividend Option - The manner in which dividends and capital gains are handled. Both dividends and capital gains can either be paid in cash or reinvested back into the fund. A combination of these options is also available, as well as the ability to differentiate between long term and short term capital gains. In all, there are eight possible combinations.
Dollar-cost-averaging - A system of buying securities at regular intervals with a fixed dollar amount. Under this system investors buy by the dollars' worth rather than by the number of shares. If each investment is of the same number of dollars, payments buy more shares when the price is low and fewer when it rises. Thus temporary downswings in price benefit investors if they continue periodic purchases in both good and bad times, and the price at which the shares are sold is more than their average cost. Dollar-cost-averaging does not assure a profit and does not protect against loss in declining markets. Since dollar-cost-averaging involves continuous investment in securities regardless of fluctuating price levels of such securities, investors should consider their financial ability to continue purchases through periods of low price levels. (See: Automatic Investment, SIP, PIP).
Double Taxation - Refers to corporate income which is subject to both corporate taxes and individual taxes. Frequently, it is viewed as the case whereby the company's income is taxed and the distribution of that income in the form of a dividend paid to the shareholder as taxed again.
Downgrade - Is the lowering, reduction, or negative change in an company's or country's credit rating. Often it can refer to one or more issues.
Dow Jones Industrial Average - Model for the overall stock market that tracks the performance of 30 U.S. blue-chip stocks.
Dow theory - A theory of market analysis based upon the performance of the Dow Jones Industrial Average and transportation stock price averages. The theory says that the market is in a basic upward trend if one of these averages advances above a previous important high, accompanied or followed by a similar advance in the other. When both averages dip below previous important lows, this is regarded as confirmation of a downward trend. The Dow Jones is one type of market index. (See: NYSE Composite Index)
Duration - is a measure of the average life of a bond, weighting each repayment by the time until it will be made and reflecting the fact that money flows in the near future are more valuable than the same money flows at a later date. Duration indicates how changes in interest rates will affect the price of a bond (or bond portfolio). The longer the duration of a bond, the greater the extent to which its price is affected by interest rate changes. As such, duration is used as a measure of risk for bond portfolios.
Earning per share - a widely used indicator of the return on equity investments. Any figure quoted represents the total amount of a company's earnings (after deductions) divided by the number of ordinary shares it has issued. (See: Price-to-earnings ratio)
Earnings report - A statement, also called an income statement, issued by a company showing its earnings or losses over a given period. The earnings report lists the income earned, expenses and the net result. (See: Balance sheet)
Elasticity - Refers to the economic concept of the ability or comparative ease to adjust supply or demand within a changing economy.
Emerging Markets - Is a term which broadly categorizes countries in the midst of developing their financial markets and economic infrastructures. This development is viewed in terms of freer, more liquid markets, which facilitate trade. Privatization of former state owned or administered businesses is a key factor in this process.
Equipment trust certificate - A type of security, generally issued by a railroad, to pay for new equipment. Title to the equipment, such as a locomotive, is held by a trustee until the notes are paid off. An equipment trust certificate is usually secured by a first claim on the equipment.
Equity - The ownership interest of common and preferred stockholders in a company. Also refers to excess of value of securities over the debit balance in a margin account.
Equity Fund - A mutual fund that invests primarily in stocks. The value of a share in the fund will vary depending upon the performance of the stocks within the portfolio.
ERISA - Is the Employee Retirement Income Security Act. It was enacted into law in 1974.
Escheat - The process of turning over abandoned property (such as shares in a mutual fund account that is inactive, with an undeliverable mailing address) to the state. The length of time the assets must remain inactive before they are considered abandoned varies from state to state. After the assets have been escheated, the rightful owner can reclaim them from the state.
Escrow - Money or shares held until certain requirements are met. Mutual fund shares may be held in escrow until a client successfully completes an LOI. If the account is redeemed prior to the LOI being completed, the client is not entitled to the shares held in escrow.
Exchange - An option enabling mutual fund shareholders to transfer their investment from one fund to another within the same fund family as their needs or objectives change. Typically, funds allow investors to use their exchange privilege several times a year for a low or no fee per exchange. For tax purposes, an exchange is considered a sell of one fund and the purchase of the other (though generally the purchase is done at NAV).
Ex-dividend - A synonym for "without dividend." The buyer of a stock selling ex-dividend does not receive the recently declared dividend. When stocks go ex-dividend, the stock tables include the symbol "x" following the name. (See: Cash sale, Net change, Transfer)
Ex-dividend date - The day on which a mutual fund deducts the previously declared dividend from the fund's assets before calculating its net asset value. The NAV will drop by the amount on the dividend.
Exempt Securities - Are issues which are not bound by the filing provisions of the Securities Act of 1933. Exempt securities include treasury and municipal notes and bonds, bank securities, and nonprofit organization securities.
Exercise - Is the action taken by the holder of an option or convertible security to convert his derivative position into the underlying security, commodity or futures. In the case of the option the exercise of a call would give the owner of the call the underlying instrument or cash settlement adjustment. In the case of a convertible bond, the owner of the bond terminates that contractual relationship in exchange for shares in the corporation. The owner of the option is the only one that exercises. However, there are mandatory exercises for expiring options that are in-the-money by more than the stipulated threshold amount. Also, there may be built-in event options that take priority over the owner of the securities right to exercise. Nevertheless, this nesting of options still defers to rules that establish which party holds, which options.
Expected Excess Return - Is equal to the nonmarket or alpha return plus the beta-adjusted market or systematic return. Since beta relates an asset's return to the market, then the alpha distinguishes it from the market. Algebraically, this is presented by the expression for a straight line or excess return equals a (alpha) + b (beta) X (market return).
Expected Value - Is viewed as an anticipated, theoretical or fair value for an instrument.
Ex-rights - Without the rights. Corporations raising additional money may do so by offering their stockholders the right to subscribe to new or additional stock, usually at a discount from the prevailing market price. The buyer of a stock selling ex-rights is not entitled to the rights. (See: Ex-dividend, Rights)
Extra - The short form of "extra dividend." A dividend in the form of stock or cash in addition to the regular or usual dividend the company has been paying.
Extrinsic Value - Is the time value component of an option premium.
Face value - The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuing company. Face value is ordinarily the amount the issuing company promises to pay at maturity. Face value is not an indication of market value. Sometimes referred to as par value. (See: Par)
Fidelity Bond - A type of insurance used by the funds to reimburse any fraud by the employees of the distribution company. The amount of Fidelity Bond coverage for each fund is set by law. The trustees of a fund have the responsibility of making sure that the coverage is adequate.
Financial Advisor - A person or organization employed by an individual or mutual fund to manage assets or provide investment advice.
FINRA (The Financial Industry Regulatory Authority) - A self-regulating, voluntary association of Broker dealers and other investment firms. Operating under the supervision of the SEC, it works to standardize practices, establish high moral and ethical standards in securities trading, consult with the government, establish fair rules of trading and discipline violators of the rules. FINRA was created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange.
FINRA Symbol - An alpha designation for a security, typically five characters long. In order to qualify for a symbol, the mutual fund must have over 1,000 shareholders and/or assets of 25 million dollars or have been in operation for at least two years.
Fiscal year - A corporation's accounting year. Due to the nature of their particular business, some companies do not use the calendar year for their bookkeeping. A typical example is the department store that finds December 31 too early a date to close its books after the Christmas rush. For that reason many stores wind up their accounting year January 31. Their fiscal year, therefore, runs from February 1 of one year through January 31 of the next. The fiscal year of other companies may run from July 1 through the following June 30. Most companies, though, operate on a calendar year basis.
Fixed charges - A company's fixed expenses, such as bond interest, which it has agreed to pay whether or not earned, and which are deducted from income before earnings on equity capital are computed.
Flat income bond - This term means that the price at which a bond is traded includes consideration for all unpaid accruals of interest. Bonds that are in default of interest or principal are traded flat. Income bonds that pay interest only to the extent earned are usually traded flat. All other bonds are usually dealt in "and interest," which means that the buyer pays to the seller the market price plus interest accrued since the last payment date.
Flexible Portfolio - Gives the fund manager flexibility in deciding which assets offer the best risk-return trade off at any particular time. Sometimes called "asset-allocation" funds, these funds invest in stocks, bonds, money market instruments, options, futures or foreign securities at various times.
Floor - The huge trading area - about the size of a football field - where stocks, bonds and options are bought and sold on the New York Stock Exchange.
Floor Trader - Is a member of an exchange who trades for his or her own personal account. This compares to a Floor Broker.
Formula investing - An investment technique. One formula calls for the shifting of funds from common shares to preferred shares or bonds as a selected market indicator rises above a certain predetermined point - and the return of funds to common share investments as the market average declines. (See: Dollar-cost-averaging)
Forward Contract - The commitment to buy or sell a currency or commodity on a specified future date at a specified price through an over-the-counter telephone or computer network.
Fractional Shares - Less than one full share. Mutual fund companies usually carry their shares out three decimal places.
Free and open market - A market in which supply and demand are freely expressed in terms of price. Contrasts with a controlled market in which supply, demand and price may all be regulated.
Free Shares - Shares on which a sales charge has already been paid. In the case of back end load funds, reinvested dividend shares and fully aged shares are considered free shares. When a redemption is placed, free shares are always sold first.
Fully Aged Shares - Applies to shares held within a back end loaded fund. When the client has owned them for the stated time (typically four to six years), the shares are no longer liable for CDSC charges.
Fund - General term for any investment vehicle which pools together the money of many small individual investors and invests it in certain markets and securities according to a defined set of investment aims and objectives. Covers such investments as unit trusts, investment trusts and pension plans. Fund Manager - professional person responsible for the investment management of an individual fund; the person who takes the day-to-day decisions on what investments to buy or sell on behalf of the fund's investors.
Fund Look-up - Modem access to the various mutual fund companies with whom we network. The access allows us to enter the fund's systems and VIEW the account information. Changes cannot be made through the look-up system.
Fund Manager - professional person responsible for the investment management of an individual fund; the person who takes the day-to-day decisions on what investments to buy or sell on behalf of the fund's investors.
Fundamental research - Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc. (See: Technical research)
Funded debt - Usually interest-bearing bonds or debentures of a company. Could include long-term bank loans. Does not include short-term loans, preferred or common stock.
Futures - short for Futures Contract, which is an obligation to buy or sell a specific amount of a commodity, currency or financial instrument at a particular price on a stipulated future date. The price is established between buyer and seller on the floor of an exchange, such as the London International Financial Futures Exchange (LIFFE), using an 'open outcry' system. The contracts themselves may be traded with third parties. (See: Option)
Futures Contracts - The commitment to buy or sell a currency or commodity on a specified date at a specified price, with standard terms and conditions. The trade takes place on a futures exchange only.
General mortgage bond - A bond that is secured by a blanket mortgage on the company's property but may be outranked by one or more other mortgages.
Gilt-edged - High-grade bond issued by a company that has demonstrated its ability to earn a comfortable profit over a period of years and pay its bondholders their interest without interruption.
Give-up - A term with many different meanings. For one, a member of the exchange on the floor may act for a second member by executing an order for him or her with a third member. The first member tells the third member that he or she is acting on behalf of the second member and "gives up" the second member's name rather than his or her own.
Global Bond Funds - Invest in fixed income securities that for the most part are not denominated in U.S. dollars.
Global Funds - Invest in securities anywhere in the world. Main objective is long-term capital appreciation, although they may provide some current income.
Gold fix - The setting of the price of gold by dealers (especially in a twice-daily London meeting at the central bank); the fix is the fundamental worldwide price for setting prices of gold bullion and gold-related contracts and products.
Good delivery - Certain basic qualifications must be met before a security sold on the Exchange may be delivered. The security must be in proper form to comply with the contract of sale and to transfer title to the purchaser.
Good 'til canceled (GTC) - or Open order - An order to buy or sell that remains in effect until it is either executed or canceled.
Government bonds - Obligations of the U.S. Government, regarded as the highest grade securities issues.
Growth Funds - Invest in the common stock of growth companies. Primary goal is to achieve capital gains.
Growth stock - Stock of a company with a record of growth in earnings at a relatively rapid rate.
Hedge - Is the act of protecting a position. Hedges can be either Long or Short. Hedges are often done with derivative products. A Long Hedge refers to a position whereby a derivative contract is purchased to protect against a short actual position. A Short Hedge is a position whereby a derivative is sold to protect against a long actual position.
Hedging - Is the process of protecting a position. It is the placement of a position to offset exposed cash or physical market position.
High Yield Bond Funds - Portfolios that buy the debt securities issued by non-investment grade corporations and municipalities. These types of funds have a higher risk to default due to high leveraging, however they provide a higher yield.
Holding company - A corporation that owns the securities of another, in most cases with voting control.
Hypothecation - The pledging of securities as collateral - for example, to secure the debit balance in a margin account.
IRA (Individual Retirement Account) - A retirement plan that allows individuals to make tax deferred contributions to a retirement account each year.
Imaging - A system that allows documents such as new account agreements, to be stored as electronic images. The image can then be viewed and printed from a special computer terminal. Mutual fund companies also use imaging technology to store applications and letters related to a client's account.
Immediate or Cancel - Is a variation of the All or None (AON) order. Here, an attempt is made to satisfy as much of the order as possible. What is not immediately filled is canceled. Therefore, partial fills are possible with this type of order.
Income bond - Generally income bonds promise to repay principal but to pay interest only when earned. In some cases unpaid interest on an income bond may accumulate as a claim against the corporation when the bond becomes due. An income bond may also be issued in lieu of preferred stock.
Income Bond Funds - Invest in a variety of bonds to produce high, taxable current income for shareholders. Usually managed more conservatively than bond funds buying high-yield bonds, and therefore offer lower current yields.
Income Equity Funds - Invest in bonds and high yielding stocks with the objective of providing shareholders with a moderate level of current income and a moderate level of long term capital appreciation. Slightly more conservatively managed, usually a higher percentage of their assets in bonds than growth and income funds.
Income Funds - Seek to provide a high level of current income by buying government and corporate bonds as well as high yielding common and preferred stocks. Not designed to provide major capital gains.
Indemnity - Clause included on written requests to mutual fund companies, holding Raymond James responsible for any liability the fund may incur from performing the request. All correspondence including this clause must be signature guaranteed under the Medallion Stamp program.
Indenture - A written agreement under which bonds and debentures are issued, setting forth maturity date, interest rate and other terms.
Independent broker - Member on the floor of the NYSE who executes orders for other brokers having more business at that time than they can handle themselves, or for firms who do not have their exchange member on the floor.
Index - A statistical yardstick expressed in terms of percentages of a base year or years. For instance, the NYSE Composite Index of all NYSE common stocks is based on 1965 as 50. An index is not an average. (See: Averages, NYSE Composite Index)
Indication of Interest - Occurs when a client states his or her interest in purchasing a new issue before its effective date. This interest is non-binding.
Inelastic - Refers to the economic concept of the inability to quickly adjust supply or demand despite changes in market conditions.
Inflation - Rise in prices of goods and services.
Institutional investor - An organization whose primary purpose is to invest its own assets or those held in trust by it for others. Includes pension funds, investment companies, insurance companies, universities and banks.
Interest income - Money earned on investments such as government bonds, corporate bonds, mortgages and short-term securities such as money market funds.
Interest Rate - Is either the coupon or floating rate attached to a credit instrument or lending operation.
Intermarket Trading System (ITS) - An electronic communications network now linking the trading floor of seven registered exchanges and FINRA to foster competition among them in stocks listed on either the NYSE or AMEX and one or more regional exchanges. Through ITS, any broker or market maker on the floor of any participating market can reach out to other participants for an execution whenever the nationwide quote shows a better price is available.
International Funds - Invest in stocks and bonds issued outside the United States by foreign companies and governments.
Interrogation device - A computer terminal that provides market information - last sale price, quotes, volume, etc. - on a screen or paper tape.
Intrinsic Value - Is the amount that an option is in-the-money.
Investment - The use of money for the purpose of making more money, to gain income, increase capital, or both.
Investment Advisor - The firm that manages, organizes and administers a mutual fund company.
Investment banker - Also known as an underwriter. The middleman between the corporation issuing new securities and the public. The usual practice is for one or more investment bankers to buy outright from a corporation a new issue of stocks or bonds. The group forms a syndicate to sell the securities to individuals and institutions. Investment bankers also distribute very large blocks of stocks or bonds - perhaps held by an estate. (See: Primary distribution, Syndicate)
Investment company - A company or trust that uses its capital to invest in other companies. There are two principal types: the closed-end and the open-end, or mutual fund. Shares in closed-end investment companies, some of which are listed on the New York Stock Exchange, are readily transferable in the open market and are bought and sold like other shares. Capitalization of these companies remains the same unless action is taken to change, which is seldom. Open-end funds sell their own shares to investors, stand ready to buy back their old shares, and are not listed. Open-end funds are so called because their capitalization is not fixed; they issue more shares as people want them.
Investment Company Act of 1940 - The basic federal law covering mutual funds. It requires registration of all funds, provides for their regulation, prescribes qualifications of officers and director and requires that certain matters receive prior shareholder approval.
Investment counsel - One whose principal business consists of acting as investment advisor and rendering investment supervisory services.
Investment Portfolio - A collection of investments belonging to one person, group or mutual fund. With a portfolio approach, investors can better manage risk and return by adopting the discipline necessary to endure short-term fluctuations and to achieve long-term goals.
IRA - Individual retirement account. A pension plan with tax advantages. IRAs permit investment through intermediaries like mutual funds, insurance companies and banks, or directly in stocks and bonds through stockbrokers. (See: Keogh Plan)
Issue - Any of a company's securities, or the act of distributing such securities.
JTWROS (Joint Tenants With Rights Of Survivorship) - Type of account registration that designates ownership of the funds is shared equally by two or more individuals. No distributions can be made from the account to an individual without the permission of all. Upon the death of an owner, the shares pass to the remaining owner(s).
Jump Bonds - Are issues which are conditioned on an event or series of events. When the event - such as breaking a prepayment collar - occurs, it triggers a predetermined movement to another payment arrangement. This type of bond occurs in collateralized obligation structures.
Junk Bonds - Refer to non-investment grade debt securities. Sometimes, these issues are called high yield securities. These securities have credit ratings below Baa/BBB-.
LOA (Letter of Authorization) - Signed by the registered parties on an account, entitling the Financial Advisor, the back office, or the mutual fund company to perform a specified action on the client's behalf.
LOI (Letter of Intent) - An agreement between the client and fund in which the client is entitled to a lower sales charge if they purchase a specific dollar amount within a 13 month period. The additional shares the client receives by purchasing under an LOI are held in escrow until the LOI is completed or expires. (See: Linking)
Legal list - A list of investments selected by various states in which certain institutions and fiduciaries, such as insurance companies and banks, may invest. Legal lists are often restricted to high-quality securities meeting certain specifications. (See: Prudent Man Rule)
Legs - Refers to a security or a market which has the capacity to continue an underlying trend.
Level Load Shares - A type of commission structure where shares are sold with a low sales charge up front (typically one percent) and are liable to a back end load (typically one percent) for a set period of time (typically one year).
Leverage - The effect on a company when the company has bonds, preferred stock, or both outstanding. Example: If the earnings of a company with 1,000,000 common shares increases from $1,000,000 to $1,500,000, earnings per share would go up from $1 to $1.50, or an increase of 50%. But if earnings of a company that had to pay $500,000 in bond interest increased that much, earnings per common share would jump from $.50 to $1 a share, or 100%.
Liabilities - All the claims against a corporation. Liabilities include accounts, wages and salaries payable; dividends declared payable; accrued taxes payable; and fixed or long-term liabilities, such as mortgage bonds, debentures and bank loans. (See: Assets, Balance sheet)
Limit, limited order, or limited price order - An order to buy or sell a stated amount of a security at a specified price, or at a better price, if obtainable after the order is represented in the trading crowd.
Linking - The act of combining various client accounts within the same family of funds for a breakpoint under an LOI or an ROA. Generally, you can link retail and IRA accounts for the same family group (husband, wife and minor children).
Liquidation - The process of converting securities or other property into cash. The dissolution of a company, with cash remaining after sale of its assets and payment of all indebtedness being distributed to the shareholders.
Liquidity - The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. Liquidity is one of the most important characteristics of a good market. The ability to cash in all or part of your mutual fund shares on any business day and receive their current value (which may be more or less than your original cost).
Listed stock - The stock of a company that is traded on a securities exchange.
Load - The portion of the offering price of shares of open-end investment companies in excess of the value of the underlying assets. Covers sales commissions and all other costs of distribution. The load is usually incurred only on purchase, there being, in most cases, no charge when the shares are sold (redeemed). (See: Investment company, sales charge)
Load Credit - A credit for paying a load on a certain dollar amount that allows you to move within the fund family without paying a load on the new shares.
Locked in - Investors are said to be locked in when they have profit on a security they own but do not sell because their profit would immediately become subject to the capital gains tax.
Long Coupon - Refers to the initial coupon for a municipal security which reflects more than 6 months of accrued interest. The time of accrual is measure from the start of the Dated Date and continues until the end of the initial accrual period. Compare to Short Coupon.
Long Term Funds - An industry designation for all funds other than short-term funds (taxable and tax-exempt money market funds). Long term funds are broadly divided into equity (stock) and bond and income funds.
Lot - Is one contract, car, or unit of trading in the commodities markets.
Manipulation - An illegal operation. Buying or selling a security for the purpose of creating false or misleading appearance of active trading or for the purpose of raising or depressing the price to induce purchase or sale by others.
Margin - The amount paid by the customer when using a broker's credit to buy or sell a security. Under Federal Reserve regulations, the initial margin requirement since 1945 has ranged from the current rate of 50% of the purchase price up to 100%. (See: Brokers' loan, Equity)
Margin Account - A client account in which a securities firm extends credit to the client to buy securities. The amount of credit that may be extended is governed by Regulation T of the Federal Reserve Board. Mutual fund shares that are on margin (being borrowed against) are held in a dealer controlled account.
Margin call - A demand upon a customer to put up money or securities with the broker. The call is made when a purchase is made; also if a customer's account declines below a minimum standard set by the exchange or by the firm.
Margin Requirement - Is the amount of funds necessary for a position or a portfolio's entire holdings.
Market Capitalization - the value of a company as measured by the total stockmarket price of its issued and outstanding shares. This is calculated by multiplying the number of shares by the current market price of a share. It is also widely used as a definition of company size - hence, big corporations are usually referred to as large cap stocks (See: Small Caps)
Market on Close - Is an order to buy or sell on the close of a market. Typically, there is a brief period prior to the day's cessation of trading which is defined as the close. This period varies from market-to-market and exchange-to-exchange.
Market on Opening - Is an order to buy or sell on the opening of a market. Typically, there is a brief period at the commencement of the day's trading which is defined as the opening. This period varies from market-to-market and exchange-to-exchange.
Market order - An order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order is represented in the trading crowd. (See: Good 'til canceled order, Limit order, Stop order)
Market Timing - The shifting of assets in and out of a mutual fund based on performance of one or more market indicators, such as the Dow Jones Industrial Average, the Index of Leading Economic Indicators, or the Prime Rate. Market timers often exchange between a specific fund and the fund's money market fund for this purpose.
Maturity - The date on which a loan or bond comes due and is to be paid off.
Medallion Stamp - An industry program to simplify the process of providing signature guarantees. Authorized financial institutions receive a stamp, and guarantees accompanied by the stamp can be accepted up to a certain limit without any further authentication necessary by the delivering financial institution.
Member corporation - A securities brokerage firm, organized as a corporation, with at least one member of the New York Stock Exchange who is an officer or employee of the corporation.
Member firm - A securities brokerage firm organized as a partnership and having at least one general partner or employee who is a member of the New York Stock Exchange.
Member organization - The term includes New York Stock Exchange member firms and member corporations.
Merger - Combination of two or more corporations.
Money Market Fund - A fund designed to provide safety of principal and current income by investing in securities that mature in one year or less, such as bank CD's, commercial paper and U.S. Treasury bills. The price is typically fixed (but not guaranteed to remain) at $1. Money market funds have the lowest level of risk of any type of mutual fund. Due to our firm's internal policy, as well as some system limitations, we do not process money market transactions. Branches/clients need to go directly to the fund. (See: Certificate of deposit, Commercial paper)
Monetary Policy - influencing the direction of an economy through control of the money supply.
Municipal bond - A bond issued by a state or a political subdivision, such as county, city, town or village. The term also designates bonds issued by state agencies and authorities. In general, interest paid on municipal bonds is exempt from federal income taxes and state and local taxes within the state of issue. However, interest may be subject to the alternative minimum tax (AMT).
Mutual Fund - An Investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds, and money market instruments. A mutual fund stands ready to buy back (redeem) shares at current NAV; this value depends on the market value of the fund's portfolio at time of redemption. Most mutual funds continuously offer new shares to investors (open ended fund). Mutual funds are priced once per business day, after market close (4 PM EST).
Nasdaq - An automated information network that provides brokers and dealers with price quotations on securities traded over-the-counter. Nasdaq is an acronym for National Association of Securities Dealers Automated Quotations.
NSCC (National Securities Clearing Corporation) - The nation's largest registered securities clearing corporation. Provides centralized trade processing, clearing and settlement and information to Broker dealers, banks, mutual fund companies and other financial institutions. The NSCC helped to develop and continues to coordinate Fund/SERV, Comm/SERV and networking.
NAV (Net Asset Value) - The market worth of one share of a mutual fund. This figure is derived by taking a fund's total assets (securities, cash and any accrued earnings), deducting liabilities, and dividing by the number of shares outstanding.
NAV Purchase - The option that allows certain clients to purchase shares of a fund without a sales charge under very specific conditions. Examples include employees of a Broker/Dealer, wrap accounts, or a trade to process some type of correction.
NAV Transfer of Assets - A marketing initiative offered by certain funds, often for a limited time. The fund gives clients the opportunity to purchase shares of their funds at NAV when transferring proceeds from the liquidation of another fund company on which the client paid a front end load.
Negotiable - Refers to a security, the title to which is transferable by delivery.
Net change - The change in the price of a security from the closing price on one day to the closing price the next day on which the stock is traded. The net change is ordinarily the last figure in the newspaper stock price list. The mark +1 1/8 means up $1.125 a share from the last sale on the previous day the stock traded.
Net Coupon - Is the coupon or interest payment made to the investor of a mortgage backed security. It is lower than the gross coupon of the collateral by an amount equal to the servicing, guarantee, and other applicable fees.
Net Interest Margin - Is the difference between the interest revenue and the interest expense. Sometimes, it is referred to as the spread.
Net Position - Is the difference between longs and comparable shorts. It can also refer to the dollar difference for the combined market values of all long and short positions. Often it refers to the net trading exposure on a market directional basis. However, some firms use different definitions depending on whether the analysis is originating from accounting or trading.
Net Present Value - Is one of the building block processes for finance. It provides a methodology for evaluating and pricing securities and projects. In a simple case it is the discount mechanism for a zero coupon security. Here, there is one payment predicated either on interest or principal. By knowing the time left to maturity, assuming no option features, and knowing the discount rate, one can price or evaluate the zero coupon. Pricing bonds is an extension of this process. Now, instead of evaluating, one payment, there is an entire interest and principal payment stream. For equities, the process evaluates expected cash or dividend flows and the residual value of the enterprise. Complexity arises when there are multiple discount rates (bids and offers), yield curve shapes, and credit differences. Even the selection of discrete, compounding or accretion modeling can make a substantial impact on the value of a simple zero coupon bond.
Netting - Is a process used by institutions and clearinghouses to determine the marginal risks and demands for funds.
Networking - An automated communication system offered from the NSCC, providing broker dealers with fund account daily activity and maintenance as well as providing funds with dealer requests for account maintenance.
Network Master - The Fund/SERV screen used to reflect fund account information and to input changes to be sent to the fund accounts.
New issue - A stock or bond sold by a corporation for the first time. Proceeds may be used to retire outstanding securities of the company, for new plant or equipment, for additional working capital, or to acquire a public ownership interest in the company for private owners.
New York Futures Exchange (NYFE) - A subsidiary of the New York Stock Exchange devoted to the trading of futures products.
New York Stock Exchange (NYSE) - The largest organized securities market in the United States, founded in 1792. The Exchange itself does not buy, sell, own or set the prices of securities traded there. The prices are determined by public supply and demand. The Exchange is a non-profit corporation of 1,366 individual members, governed by a board of directors consisting of 10 public representatives, 10 Exchange members or allied members and a full-time chairman, executive vice chairman and president.
Nominal - Is used in the sense of an indication. For example, a security may have a nominal price, nominal bid, or nominal offer. This not reflects a broker or dealer's willingness to execute at that price, for that security, and at that time. It shows a level or point from which subsequent price discovery may evolve.
Non-Discretionary - Is an order which given a client gives to the broker. All the terms are specified.
Non-Discretionary Account - Is an account which the client makes all the trading decisions. However, the client may give very limited discretion to the broker or account executive. This limited discretion is in terms of price or time. However, an order as to whether to buy or sell, quantity and exact instrument is required to be given.
Non-resident Alien - A person who is not a tax resident of the United States, as certified by IRS form W-8. Taxes are withheld on taxable income, but the tax rate varies dependent upon treaties signed by the country of origin for the client and the U.S.
Noncumulative - A type of preferred stock on which unpaid dividends do not accrue. Omitted dividends are, as a rule, gone forever. (See: Cumulative preferred)
Note - Is the instrument which represents the actual indebtedness. Another word for short-term bond.
NYSE Composite Index - The composite index covering price movements of all common stocks listed on the New York Stock Exchange. It is based on the close of the market December 31, 1965, as 50 and is weighted according to the number of shares listed for each issue. The index is computed continuously and printed on the ticker tape. Point changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility and finance. (See: Averages)
Off-board - This term may refer to transactions over-the-counter in unlisted securities or to transactions of listed shares that are not executed on a national securities exchange.
Offering - Is comparable to a prospectus.
Operating Expenses - The normal costs a mutual fund incurs in conducting business, such as the expenses associated with maintaining offices, staff, and equipment. There are also expenses related to maintaining the fund's portfolio of securities. These expenses are paid from the fund's assets before any earnings are paid to the shareholder.
Opportunity Accounts - Wrap account program offered through Raymond James's correspondent branches. Opportunity accounts allow the clients to make their own decision regarding transactions with the FA acting as their adviser. For one annual fee and low transaction charges, the clients can enjoy unlimited trading of stocks, bonds, load and no load mutual funds and receive quarterly performance reports which include gain/losses of investments, asset allocation and performance data.
Option - The right or obligation to buy or sell a specific quantity of a security at a specific price within a predetermined time period. An option is considered as a Wasting Asset because it has a stipulated life to expiration and may expire worthless. Hence, the premium would be wasted.
Outside View - A Terminal Emulation program which allows for SIS connectivity.
Overbought - An opinion as to price levels. May refer to a security that has had a sharp rise or to the market as a whole after a period of vigorous buying which, it may be argued, has left prices "too high."
Oversold - The reverse of overbought. A single security or a market which, it is believed, has declined to an unreasonable level.
Over-the-counter - A market for securities made up of securities dealers who may or may not be members of a securities exchange. The over-the-counter market is conducted over the telephone and deals mainly with stocks of companies without sufficient shares, stockholders or earnings to warrant listing on an exchange. Over-the-counter dealers may act either as principals or as brokers for customers. The over-the-counter market is the principal market for bonds of all types. (See: FINRA, Nasdaq)
Par - In the case of a common share, par means a dollar amount assigned to the share by the company's charter. Par value may also be used to compute the dollar amount of common shares on the balance sheet. Par value has little relationship to the market value of common stock. Many companies issue no-par stock but give a stated per share value on the balance sheet. In the case of preferred stocks it signifies the dollar value upon which dividends are figured. With bonds, par value is the face amount, usually $1,000.
Partial Fill - Is the result where only a portion of an order was filled. For example, less than the indicated amount was bought or sold at a stipulated price limit.
Participating preferred - A preferred stock that is entitled to its stated dividend and to additional dividends on a specified basis upon payment of dividends on the common stock.
Passed dividend - Omission of a regular or scheduled dividend.
Passport Account - The Passport Account is a fee based, non-discretionary account. Clients make their own decisions regarding transactions with the FA acting as their advisor. They pay one annual fee and low transaction charges. Features include regular monthly brokerage statements, quarterly performance reports and an annual recap of all activity, including realized gain/loss reports.
Payable Date - Date a distribution is paid to a client.
Payout Ratio - The ratio of dividends to earnings. The percent of earnings paid out as dividends.
Payroll Deduction Plan - An arrangement that some employers offer employees to accumulate mutual fund shares. Employees authorize their employer to deduct a specified amount from their salary at stated times and transfer the proceeds to the fund.
Penny stocks - Low-priced issues, often highly speculative, selling at less than $1 a share. Frequently used as a term of disparagement, although some penny stocks have developed into investment-caliber issues.
Point - In the case of shares of stock, a point means $1. If ABC shares rise 3 points, each share has risen $3. In the case of bonds a point means $10, since a bond is quoted as a percentage of $1,000. A bond that rises 3 points gains 3% in $1,000, or $30 in value. An advance from 87 to 90 would mean an advance in dollar value from $870 to $900. In the case of market averages, the word point means merely that and no more. If, for example, the NYSE Composite Index rises from 90.25 to 91.25, it has risen a point. A point in this index, however, is not equivalent to $1. (See: Index)
Pooling - Basic concept behind mutual funds. A fund pools the money of thousands of individual investors who share a common investment objective. The fund uses this pool to buy a diversified portfolio of investments. Each mutual fund share represents ownership in all the fund's underlying securities.
Portfolio Manager - The individual or team of individuals responsible for investing the pool of shareholder dollars within a mutual fund. The portfolio manger(s) decide which securities to hold, when to buy, and when to sell.
Portfolio Turnover - A measure of the trading activity in the fund's portfolio of investments; how often securities are bought and sold by the fund.
Preferred stock - A class of stock with a claim on the company's earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. Usually entitled to dividends at a specified rate - when declared by the board of directors and before payment of a dividend on the common stock - depending upon the terms of the issue. (See: Cumulative preferred, Participating preferred)
Premium - The amount by which a bond or preferred stock may sell above its par value. May refer, also, to redemption price of a bond or preferred stock if it is higher than face value.
Pre-Pay - Early pay out of a liquidation to the client before settlement of trade; this must be authorized by Mutual Fund Trade Clearance. There is a $10 prepay fee plus interest charged depending on how many days until settlement. The fee can be charged to the client, FA or branch.
Price-to-Book Ratio - Is computed by dividing the current share price by the book value per share. Book value per share is determined by dividing assets less the liabilities (the book value) by the number of shares outstanding.
Price-to-earnings ratio - A popular way to compare stocks selling at various price levels. The P/E ratio is the price of a share of stock divided by earnings per share for a 12-month period. For example, a stock selling for $50 a share and earning $5 a share is said to be selling at a price-to-earnings ratio of 10.
Primary Dealer - Is an institution that is entitled and obligated to purchase and sell government securities with the Federal Reserve directly. They serve as the conduits for Federal Reserve open market activities.
Prime rate - The lowest interest rate charged by commercial banks to their most credit-worthy customers; other interest rates, such as personal, automobile, commercial and financing loans are often pegged to the prime.
Principal - The person for whom a broker executes an order, or dealers buying or selling for their own accounts. The term "principal" may also refer to a person's initial amount of money invested
Prior Year Contribution - A contribution to an IRA made for the previous tax year. Prior year contributions may be made January 1st through April 15th of the current year for the previous year, as long as the contribution is received or postmarked by April 15th.
Professional Management - The full-time, experienced team of professionals that decides what securities to buy, hold and sell for a mutual fund.
Profit-taking - Selling stock that has appreciated in value since purchase, in order to realize the profit. The term is often used to explain a downturn in the market following a period of rising prices. (See: Paper profit)
Prospectus - The official document that describes a mutual fund. It contains information required by the SEC on such subjects as the fund's investment objectives, policies, services, and fees. By law, a prospectus must be provided to all investors prior to placing a trade.
Proxy - Written authorization given by a shareholder to someone else to represent him or her and vote his or her shares at a shareholders meeting.
Proxy statement - Information given to stockholders in conjunction with the solicitation of proxies.
Prudent Man Rule - An investment standard. In some states, the law requires that a fiduciary, such as a trustee, may invest the fund's money only in a list of securities designated by the state - the so-called legal list. In other states, the trustee may invest in a security if it is one that would be bought by a prudent person of discretion and intelligence, who is Seeking a reasonable income and preservation of capital. (See: Legal list)
Put Option - Is a derivative contract which grants to the purchaser the right but not the obligation to exercise. In the case of stocks, the put holder or owner would transfer 100 shares of stock upon exercise to the seller of the put at the stipulated strike price. In the case of futures, the holder or owner of the put would effectively receive a short position in the market which would be priced at the strike. The seller of the put would receive the corresponding long futures position.
Quant - Is a person who is mathematical by training or inclination and applies various numerical approaches in analyzing or trading securities or markets.
Quantitative Analysis - Is the practice of using numerical techniques in researching securities, markets, strategies and structures.
Quote - The highest bid to buy and the lowest offer to sell a security in a given market at a given time. If you ask your financial advisor for a "quote" on a stock, he or she may come back with something like "45 1/4 to 45 1/2." This means that $45.25 is the highest price any buyer wanted to pay at the time the quote was given on the floor of the exchange and that $45.50 was the lowest price that any seller would take at the same time. (See: Bid and ask)
R-Square - The fraction of variation in the dependent variable that is explained by variation in the independent variable. A high value indicates a strong relationship between the two variables.
Rally - A brisk rise following a decline in the general price level of the market, or in an individual stock.
Real Estate Investment Trust (REIT) - An organization similar to an investment company in some respects but concentrating its holdings in real estate investments. The yield is generally liberal since REITs are required to distribute as much as 90% of their income. (See: Investment company)
Record date - The date on which you must be registered as a shareholder of a company in order to receive a declared dividend or, among other things, to vote on company affairs. (See: Ex-dividend, Transfer)
Redeem - To cash in your shares by selling them back to the mutual fund. Mutual fund shares may be redeemed on any business day.
Redemption Price - The amount per share (shown as "bid" price in many newspapers) that a mutual fund shareholder will receive when they cash in (redeem) shares. The value of a fund's shares on any given day depends on the market value of its underlying investment portfolio at that time. This price would also include any back-end sales load (also known as CDSC).
Red herring - A registration statement filed with but not yet approved by the Securities and Exchange Commission (SEC). (See: prospectus)
Refinancing - Same as refunding. New securities are sold by a company and the money is used to retire existing securities. The object may be to save interest costs, extend the maturity of the loan, or both.
Registered bond - A bond that is registered on the books of the issuing company in the name of the owner. It can be transferred only when endorsed by the registered owner. (See: Bearer bond, Coupon bond)
Registered competitive market maker - Members of the New York Stock Exchange who trade on the floor for their own or their firm's account and who have an obligation, when called upon by an exchange official, to narrow a quote or improve the depth of an existing quote by their own bid or offer.
Registered Representative - A person who serves the investor customers of a broker/dealer. In a New York Stock Exchange-member organization, a registered representative must meet the requirements of the exchange as to background and knowledge of the securities business. Also known as a financial advisor or customer's broker. (See: Financial Advisor)
Registrar - Usually a trust company or bank charged with the responsibility of keeping record of the owners of a corporation's securities and preventing the issuance of more than the authorized amount. (See: Transfer)
Registration - Before an initial public offering may be made of new securities by a company, the securities must be registered under the Securities Act of 1933. A registration statement is filed with the SEC by the issuer. It must disclose pertinent information relating to the company's operations, securities, management and purpose of the public offering. Before a security may be admitted to dealings on a national securities exchange, it must be registered under the Securities Exchange Act of 1934. The application for registration must be filed with the exchange and the SEC by the company issuing the securities.
Registration Instructions - Instructions sent to the fund on how to set up an account, showing complete registration, Dividend option, fund account number (if subsequent purchase), FA and branch information and withholding status. These instructions can be transmitted automatically through Fund/SERV or sent manually by letter or fax.
Regular way delivery - Unless otherwise specified, securities sold on the New York Stock Exchange are to be delivered to the buying broker by the selling broker and payment made to the selling broker by the buying broker on the third business day after the transaction. Regular way delivery for bonds is the following business day. (See: Transfer)
Regulation T - The federal regulation governing the amount of credit that may be advanced by brokers and dealers to customers for the purchase of securities. (See: Margin)
Regulation U - The federal regulation governing the amount of credit that may be advanced by banks to customers for the purchase of listed stocks. (See: Margin)
Reinvestment Privilege - An option that allows mutual fund shareholders to reinvest dividends and capital gain distributions automatically in new fund shares. This increases the shareholders total holdings in the fund.
Reinstatement Privilege - An option available to mutual fund shareholders that allows them to reinvest any part of the proceeds from a liquidation back into the same family of funds at NAV. Typically the reinvestment must be made within 90 days of the sell. Also called a buy-back.
Residual Return - Return independent of the benchmark. The residual return is the return relative to beta times the benchmark return.
Residual Risk - The risk (annualized standard deviation) of the residual return.
Revenue Bonds - Are debt securities which have a defined source of anticipated funds to pay both the principal and the interest. These funds come from an activity, project, or revenue source which is not related to a municipality's capacity to enact taxes.
Risk / Reward Tradeoff - Investment principle that holds that an investment must offer the potential for increasing returns in order to compensate for increasing levels of risk.
Risk Management - Is the practice of adjusting exposures for the firm's positions or portfolios. It tries to stabilize variability of returns while trimming large - dominant - net exposures as well. It can also be used to secure more favorable financing for inventories or pricing of securities or commodities.
Risk-Free Return - The return achievable with absolute certainty. In the U.S. market, short maturity treasury bills exhibit effectively risk-free returns.
Risk Premium - The demand for higher rates of return in exchange for bearing more risk.
Risk tolerance - Amount of money you can stomach losing in a given year.
Roth IRA - Is a retirement account created by the Taxpayer Relief Act of 1997. It is established with after-tax dollars but enjoys the benefits of nontaxable growth and nontaxable withdrawals. These nontaxable withdrawals are subject to certain criteria. Unlike the ordinary IRA account, the Roth IRA does not require minimum distributions at a specified age. Also, there may be favorable tax treatment for estate purposes.
Rights - When a company wants to raise more funds by issuing additional securities, it may give its stockholders the opportunity, ahead of others, to buy the new securities in proportion to the number of shares each owns. The piece of paper evidencing this privilege is called a right. Because the additional stock is usually offered to stockholders below the current market price, rights ordinarily have a market value of their own and are actively traded. In most cases they must be exercised within a relatively short period. Failure to exercise or sell rights may result in monetary loss to the holder. (See: Warrants)
Round lot - A unit of trading or a multiple thereof. On the NYSE, the unit of trading is generally 100 shares in stocks and $1,000 or $5,000 par value in the case of bonds. In some inactive stocks, the unit of trading is 10 shares. (See: Odd lot)
S&P 500 index - Measure of the performance of a large group of blue-chip stocks in the U.S.
Sales Charge - Amount charged to purchase (front end load) or redeem (back end load) shares in many mutual funds. The maximum charge is 8.5 percent of the initial investment. The charge is added to the NAV per share when determining the offering price. Also referred to as load.
Scale order - An order to buy (or sell) a security, that specifies the total amount to be bought (or sold) at specified price variations.
Scripophily - A term coined in the mid-1970s to describe the hobby of collecting antique bonds, stocks and other financial instruments. Values are affected by beauty of the certificate and the issuer's role in world finance and economic development.
Seat - A traditional figure of speech for a membership on an exchange.
SEC (Securities and Exchange Commission) - Established by Congress to help protect investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, the Investment Advisers Act and the Public Utility Holding Company Act.
SIPC - SIPC insurance covers the value of a clients securities and cash (to specified limits) if a brokerage firm goes under and the securities and cash are seized by creditors. SIPC would cover any instance of this up to the limits specified. Funds do not need SIPC type insurance because mutual fund assets are required by law to be held in a segregated account in the fund's name for the benefit of the client. Only a creditor of the fund may access these monies.
Secondary distribution - Also known as secondary offering. The redistribution of a block of stock some time after it has been sold by the issuing company. The sale is handled off the NYSE by a securities firm or group of firms and the shares are usually offered at a fixed price related to the current market price of the stock. Usually the block is a large one, such as might be involved in the settlement of an estate. The security may be listed or unlisted. (See: Investment banker, Primary distribution)
Sector Funds - Mutual funds that invest in equities from one sector of the market such as pharmaceutical, biotechnology or precious metals.
Securities - Stocks, bonds, or rights to ownership, such as options, typically sold by a broker.
Securities Industry Automation Corporation (SIAC) - An independent organization established by the New York and American Stock Exchanges as a jointly owned subsidiary to provide automation, data processing, clearing and communications services.
Securities Investor Protection Corporation (SIPC) - Provides funds for use, if necessary, to protect customers' cash and securities that may be on deposit with a SIPC member firm in the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a government agency. It is a non-profit membership corporation created, however, by an act of Congress.
Seller's option - A special transaction on the NYSE that gives the seller the right to deliver the stock or bond at any time within a specified period, ranging from not less than two business days to not more than 60 days.
Sell side - The portion of the securities business in which orders are transacted. The sell side includes retail brokers, institutional brokers and traders, and research departments. If an institutional portfolio manager changes jobs and becomes a registered representative, he or she has moved from the buy side to the sell side.
Serial bond - An issue that matures in part at periodic stated intervals.
Settlement - Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivers securities sold and receives from the broker the proceeds of a sale. (See: Regular way delivery, Cash sale)
Settlement Date - Date the purchase or liquidation settles; T + 3 (trade date plus three days) All purchases should be paid for in full by this date, and all securities must be available for delivery at this time. All shares must be registered in client's name, if paid for, at this time.
Shares/Equities - A Unit of ownership in the assets of a public limited company (PLC). Shares/equities can be purchased on stock exchanges.
Share Balance - The total number of shares in an account.
Share Class - A designation, usually alphabetic, given to a fund's shares based on calculation of sales charge. Typically A class is used for front end load funds, B class shares for back end load funds and C class is used for level load funds.
Shareholder - An investor; the individual owner of shares in a mutual fund.
Sharpe Ratio - A risk-adjusted measure of return. Calculated by dividing the annualized excess return of a portfolio by its total risk.
Short Coupon - Refers to the initial coupon for a municipal security which reflects less than 6 months of accrued interest. The time of accrual is measure from the start of the Dated Date and continues until the end of the initial accrual period. Compare to Long Coupon.
Short covering - Buying stock to return stock previously borrowed to make delivery on a short sale.
Short sale - A transaction by a person who believes a security will decline and sells it, though the person does not own any. For instance: You instruct your broker to sell short 100 shares of XYZ. Your broker borrows the stock so delivery can be made to the buyer. The money value of the shares borrowed is deposited by your broker with the lender. Sooner or later you must cover your short sale by buying the same amount of stock you borrowed for return to the lender. If you are able to buy XYZ at a lower price than you sold it for, your profit is the difference between the two prices - not counting commissions and taxes. But if you have to pay more for the stock than the price you received, that is the amount of your loss. Stock exchange and federal regulations govern and limit the conditions under which a short sale may be made on a national securities exchange. Sometimes people will sell short a stock they already own in order to protect a paper profit. This is know as selling short against the box.
Short Term Funds - An industry designation for funds that invest primarily in securities with maturities of less than one year. Short-term funds include taxable money market funds and tax exempt money market funds (also known as short-term municipal bond funds).
Signature Guarantee - An assurance from a financial institution that indicates the signature of the person making a request is true and correct. The guarantor assumes liability for circumstances that arise from a signature that is proved to be invalid. (See: Medallion Stamp)
Sinking fund - Money regularly set aside by a company to redeem its bonds, debentures or preferred stock from time to time as specified in the indenture or charter.
Small Caps - Another name for smaller companies, as measured by their market capitalization. Our definition of a smaller company is one which has a market capitalization of less than US$500 million, which is still quite sizable by most standards. Usually a switch discount of up to 3% off the offer price is given.
Specialist - A member of the New York Stock Exchange who has two primary functions: first, to maintain an orderly market in the securities registered to the specialist. In order to maintain an orderly market, the exchange expects specialists to buy or sell for their own account, to a reasonable degree, when there is a temporary disparity between supply and demand. Second, the specialist acts as a broker's broker. When commission brokers on the exchange floor receive a limit order, say, to buy at $50 a stock then selling at $60 - they cannot wait at the post where the stock is traded to See: if the price reaches the specified level. They leave the order with a specialist, who will try to execute it in the market if and when the stock declines to the specified price. At all times the specialists must put their customers' interests above their own. (See: Limit order)
Speculator - One who is willing to assume a relatively large risk in the hope of gain.
Spin off - The separation of a subsidiary or division of a corporation from its parent company by issuing shares in a new corporate entity. Shareowners in the parent company receive shares in the new company in proportion to their original holding and the total value remains approximately the same.
Split - The division of the outstanding shares of a corporation into a larger number of shares. A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding. Each holder of 100 shares before the 3-for-1 split would have 300 shares, although the proportionate equity in the company would remain the same; 100 parts of 1 million are the equivalent of 300 parts of 3 million. Ordinarily, splits must be voted by directors and approved by shareholders. (See: Stock dividend)
Spread - Is the simultaneous purchase and sale of two related instruments. This strategy tries to transform outright price risk into a basis or relationship risk position. It is also viewed as the difference between the bid and the offer or the profit margin.
Spread - the spread is the term used to describe the difference between the offer price and the bid price.
Standard Deviation (SD) - SD is a statistical measure of the historic volatility of an investment that investors commonly use to determine the volatility of the portfolio in achieving its average return.
SAI (Statement of Additional Information) - This document (also known as part B of the registration statement) contains more detailed, information about a mutual fund. It is available upon request at no charge from the fund.
Stock exchange - An organized marketplace for securities featured by the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors. (See: New York Stock Exchange)
Stock dividend - A dividend paid in securities rather than in cash. The dividend may be additional shares of the issuing company, or in shares of another company (usually a subsidiary) held by the company.
Stock Power - A form that transfers ownership of a certificate from the registered owner to another party.
Stock Record - A listing, by CUSIP number, for each security that a Broker/Dealer holds for its clients. The stock record must always be in balance. In other words, the shares we show on the stock record must match to the shares our clients purchase, sell or bring in to be held in street name or networked.
Stockholder of record - A stockholder whose name is registered on the books of the issuing corporation. (See: Registrar)
Stock index futures - Futures contracts based on market indexes, e.g. NYSE Composite Index Futures Contracts.
Stock ticker symbols - Every corporation whose transactions are reported on the NYSE or AMEX ticker or on Nasdaq has been given a unique identification symbol of up to four letters. These symbols abbreviate the complete corporate name and facilitate trading and ticker reporting. Some of the most famous symbols are: T (American Telephone & Telegraph), XON (Exxon), GM (General Motors), IBM (International Business Machines) and XRX (Xerox).
Stop order - An order to buy at a price above or sell at a price below the current market. Stop buy orders are generally used to limit loss or protect unrealized profits on a short sale. Stop sell orders are generally used to protect unrealized profits or limit loss on a holding. A stop order becomes a market order when the stock sells at or beyond the specified price and, thus, may not necessarily be executed at that price.
Street name - Securities held in the name of a broker instead of a customer's name are said to be carried in "street name." This occurs when the securities have been bought on margin or when the customer wishes the security to be held by the broker.
Strike Price - Is the stipulated price of an option at which level the underlying security, futures, or commodity will be priced or valued upon exercise.
Stripped Mortgage Backed Securities - Are securities which are constructed from MBS pass-throughs. Essentially, these securities strip the cash flow stream into a separate interest only (IO) and principal only (PO) securities.
Swapping - Selling one security and buying a similar one almost at the same time to take a loss, usually for tax purposes.
Syndicate - A group of investment bankers who together underwrite and distribute a new issue of securities or a large block of an outstanding issue.
SWP (Systematic Withdrawal Plan) - A client can choose to have a set amount of money withdrawn (redeemed) periodically from their mutual fund account.
Systematic Exchange - A program by which a client can automatically exchange a set amount of money from one mutual fund into one or more other funds within the same family of funds. Can be established on a monthly or quarterly basis.
T + 3 - Trade date plus 3 business days. Standard settlement timeframe.
TIN (Taxpayer Identification Number) - The 9 digit number assigned by the IRS or Social Security Administration to identify an individual (Social Security number) or inanimate entities such as corporations and trusts.
TEFRA - TEFRA is an acronym for the Tax Equity and Fiscal Responsibility Act of 1982 which was repealed in 1983 by the Interest and Dividend Tax Compliance Act of 1983 (IDTCA). IDTCA actually created backup withholding. Backup withholding is currently 31% and still referred to as TEFRA. We are required to withhold 31% on all dividends, interest and sale proceeds if we don't have a correct social security or tax ID number on file.
TOD (Transfer On Death) - A type of account that designates a beneficiary who will automatically become the new owner when the current owner dies. This type of registration has not been approved by all states.
Technical research - Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, trends and patterns, which are revealed by charting these factors, and attempts to assess the possible effect of current market action on future supply and demand for securities and individual issues. (See: Fundamental research)
Telephone Redemption - An account option that allows a client or Broker/Dealer to liquidate shares by telephone. The proceeds will be sent to the address of record. Often fund companies will establish limits to the dollar amount that can be sold per day.
Tender offer - A public offer to buy shares from existing stockholders of one public corporation by another public corporation under specified terms good for a certain time period. Stockholders are asked to "tender" (surrender) their holdings for stated value, usually at a premium above current market price, subject to the tendering of a minimum and maximum number of shares.
Third market - Trading of stock exchange-listed securities in the over-the-counter market by non-exchange member brokers.
Ticker - A telegraphic system that continuously provides the last sale prices and volume of securities transactions on exchanges. Information is either printed or displayed on a moving tape after each trade.
Total Return - A way for investors to calculate how much they have made or lost on an investment over time. Calculated as a percentage; it's figured by dividing the current value of the investment, plus distributions, by the cost of the initial investment. In the case of mutual funds, if dividends are reinvested into the fund, they are included in the current value and don't have to be done as a separate item.
Total Risk - Total Risk is measured as the standard deviation of a portfolio's returns.
Trader - Individuals who buy and sell for their own accounts for short-term profit. Also, an employee of a broker/dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients. (See: Speculator)
Trading post - The structure on the floor of the New York Stock Exchange at which stocks or options are bought and sold.
Trail Commission - commission paid to a Broker/Dealer each year the client's money remains in a mutual fund account, as compensation for services to the client. Typically the annual rate ranges from 10 to 50 basis points on the account's assets.
Transfer - This term may refer to two different operations. For one, the delivery of a stock certificate from the seller's broker to the buyer's broker and legal change of ownership, normally accomplished within a few days and not a taxable event to the fund.. For another, to record the change of ownership on the books of the corporation by the transfer agent. When the purchaser's name is recorded, dividends, notices of meetings, proxies, financial reports and all pertinent literature sent by the issuer to its securities holders are mailed directly to the new owner. (See: Registrar)
Transfer Agent - A transfer agent keeps a record of the name of each registered shareowner, his or her address, the number of shares owned, and See's that certificates presented for transfer are properly canceled and new certificates issued in the name of the new owner. (See: Registrar)
Transfer Agency - The organization employed by the mutual fund to prepare and maintain records relating to the accounts of its shareholders. Some funds serve as their own transfer agency, or utilize an outside transfer agent in a very limited capacity (remote).
Treasury Bills (T bills) - Issued at a discount, T-bills are short-term debt securities issued or guaranteed by federal, provincial or other governments that mature at par. The return is calculated based on the difference between the price paid and the par value.
Treasury stock - Stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public or retired. Treasury stock receives no dividends and has no vote while held by the company.
Trust - Legal document that does not have to be approved by probate court before your loved ones can inherit your wealth.
Turnover rate - The volume of shares traded in a year as a percentage of total shares listed on an exchange, outstanding for an individual issue or held in an institutional portfolio.
U/A DTD - Abbreviation meaning "under the agreement dated".
UGMA/UTMA - Abbreviation meaning Uniform Gift/Transfer to Minors Act. Laws vary from state to state. The agreement allows an adult to fund an investment for a child. The investment is owned by the child and is taxed at the child's rate.
Underwriter - (See: Investment banker)
Unissued Shares - Shares held on deposit at the mutual fund company. No certificate is issued.
Units - Issued by a mutual fund trust to represent investment in a mutual fund.
Unit Investment Trust - Is an investment vehicle which is funded at the beginning and once investments are acquired acts like a liquidating investment. For example, corporate bonds, sovereign bonds, or mortgage backed securities would be acquired. The interest, principal repayments and accelerated payments would be passed on to the investors. These funds would not be retained by the fund for further investment. It is more nearly analogous to a closed-end fund and different from an open-
Up tick - A term used to designate a transaction made at a price higher than the preceding transaction. Also called a "plus" tick. A "zero-plus" tick is a term used for a transaction at the same price as the preceding trade but higher than the preceding different price. Conversely, a down tick, or "minus" tick, is a term used to designate a transaction made at a price lower than the preceding trade. A plus sign, or a minus sign, is displayed throughout the day next to the last price of each stock at the trading post on the floor of the New York Stock Exchange.
U.S. government agency bonds - Debt instruments issued by federally sponsored agencies of the U.S. government.
U.S. Treasury bond funds - Mutual funds that invest in U.S. Treasury bonds and notes.
U.S. Treasury bonds - Debt instruments directly backed by the U.S. Treasury.
U.S. Treasury-only money funds - Funds that invest in Treasury bills, or T-bills, which are short-term I.O.U.s to the U.S. Treasury. These funds typically pay the lowest yields but are considered the least risky money funds.
U.S. Treasury securities - Generally, Treasury notes, bills, or bonds issued and guaranteed by the U.S. government.
Value at Risk (VAR) - A technique which uses the statistical analysis of historical market trends and volatilities to estimate the likelihood that a given portfolio's losses will exceed a certain amount.
Value Funds - Are mutual or hedge funds which invest in apparently undervalued companies. These companies on a quantitative basis may exhibit lower-than-average ratios, such as price/earnings, price/sales, or book value. Nevertheless, these stocks are viewed by participants as being bargain priced or value attractive.
Variable annuity - A life insurance policy where the annuity premium (a set amount of dollars) is immediately turned into units of a portfolio of stocks. Upon retirement, the policyholder is paid according to accumulated units, the dollar value of which varies according to the performance of the stock portfolio. Its objective is to preserve, through stock investment, the purchasing value of the annuity which otherwise is subject to erosion through inflation.
Volatility - The degree to which the price of an investment moves up and down. Stocks with prices that fluctuate quickly in a short time frame are considered to have high volatility while stocks with virtually stable prices are considered to have low volatility.
Volume - The number of shares or contracts traded in a security or an entire market during a given period. Volume is usually considered on a daily basis and a daily average is computed for longer periods.
Voting right - Common stockholders' right to vote their stock in affairs of a company. Preferred stock usually has the right to vote when preferred dividends are in default for a specified period. The right to vote may be delegated by the stockholder to another person. (See: Cumulative voting, Proxy)
W-8 - An IRS form that designates a shareholder as a foreign tax resident. Mutual fund companies require a W8 from all non-resident aliens in order to withhold at the reduced treaty rate.
Warrants - Certificates giving the holder the right to purchase securities at a stipulated price within a specified time limit or perpetually. Sometimes a warrant is offered with securities as an inducement to buy. (See: Rights)
When issued - A short form of "when, as and if issued." The term indicates a conditional transaction in a security authorized for issuance but not as yet actually issued. All "when issued" transactions are on an "if" basis, to be settled if and when the actual security is issued and the exchange or National Association of Securities Dealers rules the transactions are to be settled.
Wire Order Trade - A purchase or redemption transmitted via the telephone or an automated trading system (Fund/SERV) from a Broker/Dealer to a mutual fund company. One advantage of wire order trades is locking in a price the day the trade is placed.
Working control - Theoretically, ownership of 51% of a company's voting stock is necessary to exercise control. In practice - and this is particularly true in the case of a large corporation - effective control sometimes can be exerted through ownership, individually or by a group acting in concert, of less than 50%.
Wrap or Wrap Accounts - Refer to accounts domiciled at brokerage firms for which the client or beneficial owner of the account pays a fee. This fee is often in lieu of paying commissions at least for a certain level of activity. The amount of the fee structure typically ranges between 1-2 percent of the assets.
Yield - The income per share paid to a shareholder over a specified period of time. Yield is expressed as a percent of the fund's current price per share. For example, if your fund distributed $1 per share over a year and, at the end of the year, its price was $20 per share, its yield would be 5 percent: $1 / $20 = 5%
Yield to maturity - The yield of a bond to maturity takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bond is selling at a discount and less than the current yield when the bond is selling at a premium.
Zero coupon bond - A bond that pays no interest but is priced, at issue, at a discount from its redemption price.