SIE Exam Terms

Letter of Intent

LOI, a feature of many mutual funds whereby an investor may submit a letter or form expressing the intent to invest enough money over 13 months to achieve a breakpoint.

Investment Company

a company engaged in the business of pooling investors' money and trading in securities on their behalf. Examples include unit investment trusts (UITs), face-amount certificate companies, and management companies.

Private Company

a company not subject to reporting requirements under the Securities Exchange Act of 1934 and without securities trading on a secondary market.

Recession

a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales declines.

Block

a large number of securities or dollar amount presented as one transaction. For purposes of different rules "block transactions" are defined differently.

Non-cumulative Preferred Stock

a type of preferred stock that does not have to pay missed dividends (dividends in arrears).

Due Diligence

a meeting, or series of meetings, between the issuer/underwriters and investors with the purpose of answering questions about information contained in a registration statement/prospectus.

Clearing Broker

a member of the clearing agencies who clears trades for itself and other firms.

Income Bond

a bond that will pay interest only if the issuer earns sufficient income and the board of directors declares the payment; a.k.a. "adjustment bond."

Introducing Broker

a broker that has a relationship with customers in which it makes recommendations to customers on how and what to trade, but lets another firm handle the execution of the trades.

Member Firm

a broker-dealer and/or underwriting firm that belongs to FINRA or another securities association (MSRB, CBOE).

Annual Compliance Review

a broker-dealer's annual compliance review process that is mandatory for principals and registered representatives.

Internal Revenue Service (IRS)

a bureau of the U.S. Treasury responsible for collecting federal taxes and for administering tax rules and regulations.

S-corporation

a business entity providing flow-through to the shareholders and protection of personal assets, with a maximum number of owners.

C-corporation

a business entity that does not provide for flow-through to the owners but, rather, is associated with the double taxation of profits/dividends.

Investment Adviser

a business or professional that is compensated for advising others as to the value of or advisability of investing in securities. The entity that manages mutual funds/separate accounts for an asset-based fee. Financial planners are also advisers.

Sole Proprietorship

a business owned as an individual with no protection provided for the owner's personal assets.

Transfer and Hold in Safekeeping

a buy order for securities in which securities are bought and transferred to the customer's name, but held by the broker-dealer.

Transfer and Ship

a buy order for securities in which securities are purchased and transferred to the customer's name, with the certificates sent to the customer.

Do Not Reduce (DNR)

a buy-limit or sell-stop order that will not be reduced for the payment of a cash dividend.

In-the-money

a call option allowing an investor to buy the underlying stock for less than it is worth or a put option allowing an investor to sell the underlying stock for more than it is worth. For example, if ABC trades @50, both the ABC Oct 45 calls and the ABC Oct 55 puts are "in-the-money."

Index Option

a call or put option based on the value of an index, e.g., the Dow Jones Industrial Average or the S&P 500.

Bear Spread

a call or put spread in which the investor benefits if the underlying instrument's value drops. For example, an investor who buys the ABC Aug 50 call and sells the ABC Aug 45 call establishes a bear spread. The spread would also happen to be a "credit spread" in this case.

Stock Split

a change in the number of outstanding shares designed to change the price-per-share; not a taxable event.

Redemption Fee

a charge to a mutual fund investor who sells her shares back to the fund much sooner than the fund would prefer.

Tranche

a class of CMO. Principal is returned to one tranche at a time in a CMO.

Back-end Load

a commission/sales fee charged when mutual fund or variable contracts are redeemed. The back-end load declines gradually, as described in the prospectus. Associated with "B-shares" and, occasionally, "C-shares."

Standby Underwriting

a commitment by an underwriter to purchase any shares that are not subscribed to in a rights offering.

Research Report

a communication put out by a member firm that analyzes the investment merits of a security.

Share Identification

a method of calculating capital gains and losses by which the investor identifies which shares were sold, as opposed to using FIFO or average cost.

PSA Model

a method of estimating the speed of prepayments on a CMO investment.

Average Cost Basis

a method of figuring cost basis on securities for purposes of reporting capital gains and/or losses. The investor averages the cost for all purchases made in the stock, as opposed to identifying shares to the IRS when selling.

Direct Registration

a method of holding securities on the books of the transfer agent without the need for physical certificates to be issued to the investor.

Physical Certificates

a method of owning securities in which paper certificates are issued to and in the name of the investor.

Simplified Arbitration

a method of resolving disputes involving a small amount of money.

Technical Analysis

a method of using stock market data concerning price and volume to spot buying and selling opportunities. For example, following chart patterns and short interest as opposed to following an issuer's profit margins or revenue.

First-In-First-Out (FIFO)

an accounting method used to value a company's inventory or to determine capital gains/losses on an investor's securities transactions.

Direct Participation Program (DPP)

an investment in a limited partnership or similar pass-through entity in which the investor receives a share of income and expenses.

Aggressive Growth

an investment objective associated with a willingness to bear a high amount of investment risk in exchange for potential appreciation in the value of the investment, e.g. emerging market or sector funds.

Speculation

an investment objective involving high-risk bets that an investment's market value will rise significantly. Associated with options, futures, and raw land investments.

Preservation of Capital

an investment objective that places the emphasis on making sure the principal is not lost. Also called "safety."

Safety

an investment objective that seeks to avoid loss of principal first and foremost. Bank CDs, Treasury securities, and fixed annuities are generally suitable.

Security

an investment of money subject to fluctuation in value and negotiable/marketable to other investors. Other than an insurance policy or fixed annuity, a security is any piece of securitized "paper" that can be traded for value.

Local Government Investment Pool (LGIP)

an investment pool created by a state to provide other municipalities and state government entities with a short-term investment vehicle that operates similarly to either a money market mutual fund or a short-term bond fund.

Unsystematic Risk

an investment risk that is specific to an issuer or industry group, e.g. legislative or business risk.

High-Yield

an investment whose income stream is very high relative to its low market price. A high-yield bond is either issued by a shaky company or municipal government forced to offer high nominal yields, or it begins to trade at lower and lower prices on the secondary market as the credit quality or perceived credit strength of the issuer deteriorates.

Non-accredited Purchaser

an investor who does not meet various SEC net worth and/or income requirements for accredited investors.

Retail Investor

an investor who is neither an accredited nor an institutional investor.

Risk-Averse

an investor who sacrifices potentially high returns for safety of income and principal, e.g., a T-Bond investor.

Bearish, Bear

an investor who takes a position based on the belief that the market or a security will fall. Short sellers and buyers of puts are "bearish." They profit when stocks go down. Seriously.

Bullish, Bull

an investor who takes a position based on the belief that the market or a security will rise. Buyers of stock and call options are bullish.

Risk Tolerance

an investor's ability to bear investment risk in terms of financial resources, liquidity needs, investment objectives, and psychological makeup. Risk tolerance is simply an investor's ability to tolerate risk.

Cooling-off Period

a minimum 20-day period that starts after the registration statement is filed with the SEC. No sales or advertising allowed during this period, which lasts until the effective or release date.

Uniform Securities Act

a model act that state securities laws are based on. Designed to prevent fraud and maintain faith in capital markets through registration of securities, agents, broker-dealers, and investment advisers. Main purpose is to provide necessary protection to investors.

Stable Value Fund

a money market mutual fund attempting to keep the NAV at $1.

Depression

a more severe version of a recession, e.g. America in the 1930s.

Liquid Net Worth

a more stringent measure of net worth that excludes hard-to-liquidate assets such as real estate and limited partnerships.

Pass-Through Certificate

a mortgage-backed security (usually GNMA) that takes a pool of mortgages and passes through interest and principal monthly to an investor.

Double Barreled

a municipal bond backed by both the issuer's full faith and credit and revenues.

Escrowed to Maturity

a municipal bond issue in which the issuer has deposited funds sufficient to retire the bonds on the original maturity date with an escrow agent/bank.

General Obligation Bond

a municipal bond that is backed by the issuer's full faith and credit or full taxing authority.

Revenue Bond

a municipal bond whose interest and principal payments are backed by the revenues generated from the project being built by the proceeds of the bonds. Toll roads, for example, are usually built with revenue bonds backed by the tolls collected.

Negotiated Underwriting

a municipal bond—usually a revenue bond—underwritten without a competitive, sealed bid.

Net Overall Debt

a municipal issuer's direct debt plus their overlapping debt.

Voluntary Accumulation Plan

a mutual fund account into which the investor commits to depositing amounts of money on a regular basis.

100% no-load fund

a mutual fund charging neither a sales charge nor a 12b-1 fee.

Front-end Load

a mutual fund commission or sales fee charged when shares are purchased (A-shares). The amount of the load is added to the NAV to determine the public offering price (POP).

Fund of Funds

a mutual fund comprised of many funds within the same family.

Principal-Protected Fund

a mutual fund for people who want their principal protected. Involves holding the investment for several years, at which point the fund guarantees that the value of the investment will be equal to at least what the investor put in.

Tax-Exempt Money Market Fund

a mutual fund holding short-term, tax-exempt obligations issued by municipalities.

International Fund

a mutual fund investing in companies established outside the U.S.

Global Fund

a mutual fund investing in companies located and doing business all across the globe, including the U.S.

Index Fund

a mutual fund or ETF providing investors a passive investment option seeking to match the performance of an index rather than "beating the market."

No-load Fund

a mutual fund sold without a sales charge, but one which may charge an ongoing 12b-1fee or "asset-based sales charge" up to .25% of net assets.

Specialized Fund

a mutual fund specializing its investment approach beyond just "growth, value, or growth & income." Specialized funds might write covered calls, focus on industry groups or geographic areas, provide age-based portfolios, or track indexes for passive investments, etc.

Municipal Bond Fund

a mutual fund that invests in municipal bonds with an objective to maximize federally tax-exempt income.

Bond Fund

a mutual fund with an objective of providing income while minimizing capital risk through a portfolio of bonds.

Income Program

a natural resources DPP that receives income from existing production of oil, natural gas, etc.

Deferred Compensation Plan

a non-qualified business plan that defers some of the employee's compensation until retirement. Usually for highly compensated employees.

Series EE Bond

a nonmarketable, interest-bearing U.S. Government savings bond issued at a discount from the par value. Interest is exempt from state and local taxation.

Series HH Bond

a nonmarketable, interest-bearing U.S. Government savings bond issued at par and purchased only by trading in Series EE bonds at maturity. Interest is exempt from state and local taxation.

DK notice

a notice sent to the other broker-dealer when a firm does not recognize a transaction.

Municipal Fund Security

a packaged product that is similar to, but not defined as, an investment company, e.g. a State 529 Plan, or a local government investment pool (LGIP).

Bond Certificate

a paper or electronic document stating the details of a bond, e.g., the issuer's name, par value or face amount, interest rate, maturity date, and call date (if any).

Pink Markets

a part of the OTC market where thinly traded, volatile stocks change hands. AKA "non-NASDAQ OTC."

Limited Liability Company

a pass-through entity in which the owners are called members, and which provides protection to the owners against claims on their personal assets.

Purchase Payment

a payment made into an annuity contract, either periodically or in a single payment.

Life with Unit Refund

a payout option whereby the insurance/annuity company promises to make at least a certain number of payments to the annuitant or beneficiary.

Life Only/Life Annuity

a payout option whereby the insurance/annuity company promises to make payments only for the rest of the annuitant's life.

Life with Period Certain

a payout option whereby the insurance/annuity company promises to make payments to the annuitant for the rest of his life or a certain period, whichever is greater.

Life with Joint and Last Survivor

a payout option whereby the insurance/annuity company promises to make payments to the annuitant for the rest of his life, then to the survivor for the rest of her life.

Trustee

a person legally appointed to act on a beneficiary's behalf.

Broker-dealer

a person or firm in the business of completing transactions in securities for the accounts of others (broker) or its own account (dealer).

Buy Stop-Limit

an order to buy a security above the current market price triggered only if the market price hits or passes through the stop price, and for no more than the limit price.

Preliminary Prospectus

a prospectus that lacks the POP and the effective date; a.k.a. "red herring." Used to solicit indications of interest.

Catastrophic Call

a provision in a municipal bond issue providing for an automatic call of the bonds due to a disaster, e.g., hurricane, flood, or loss of tax-exempt status, etc.

Market Letter

a publication of a broker-dealer sent to customers or the public and discussing investing, financial markets, economic conditions, etc.

Buy-to-Cover

a purchase order entered by a short seller to close out the short stock or options position.

Defined Benefit Pension Plan

a qualified corporate pension plan that defines the benefit payable to the retiree.

Defined Contribution Plan

a qualified corporate plan that defines the contribution made on behalf of the employee, e.g., profit sharing, 401(k).

10Q

a quarterly report required under the Securities Exchange Act of 1934.

Firm Quote

a quote by a dealer representing a price at which the dealer is prepared to trade.

Inverted Yield Curve

a rare situation in which short-term debt securities pay higher yields than longer-term debt securities.

Simple Interest

a rate of interest applied to a flat principal amount, e.g. a corporate bond.

A.M. Best

a ratings service for insurance company claims paying ability/financial strength.

Existing Properties

a real estate DPP focusing on income rather than speculation or construction projects.

Dilution of Equity

a reduction in the earnings per share of common stock, often due to convertible bonds or preferred stock being converted to common stock.

Associated Person

a registered representative or principal of a FINRA member firm.

Financial Statement

a report of a company's finances in terms of financial condition, profits, and cash flow, made public through a prospectus or 10K filing by a reporting company.

Currency Transaction Report (CTR)

a reported submitted to the U.S. Treasury by a broker-dealer when a customer deposits more than $10,000 cash.

Reverse Repurchase Agreements

a repurchase agreement from the buyer's perspective, who resells the securities to the other side of the transaction at the agreed-upon price.

Backup Withholding

a required withholding from an investment account that results when the customer refuses/fails to provide a tax identification number.

Offer of Settlement

a respondent's offer to the disciplinary committee of FINRA to settle his or her recent rule violations.

Bond Anticipation Note (BAN)

a short-term municipal debt security backed by the proceeds of an upcoming bond issue. Often found in tax-exempt money market funds.

Municipal Note

a short-term obligation of a city, state, school district, etc., backed by the anticipation of funds from revenues, taxes, or upcoming bond issues, e.g., TAN, RAN, BAN.

Commercial Paper

a short-term unsecured loan to a corporation. Issued at a discount from the face value. See "money market securities."

Buy Stop

an order to buy a security at a price above the current market price triggered only if the market price hits or passes through the stop price.

Buy Limit

an order to buy a security at a price below the current market price, executable at a specified price or lower/better.

Market Order

an order to buy or sell a security at the best available market price.

Note

a shorter-term debt security. Numbered Account$ an account identified with a number rather than a name. Allowed if the owner files a statement with the broker-dealer attesting to ownership.

Not Held (order)

an order to buy or sell a specific number of shares of a stock that leaves the time of order placement up to the broker, e.g. "Buy 300 shares of ABC this afternoon."

Unsolicited Order

an order to buy or sell securities placed by the customer rather than recommended by the agent. Outside the agent's suitability obligations.

Sell Limit

an order to sell placed above the current market price that may be executed only if the bid price rises to the limit price or higher.

Sell Stop

an order to sell placed below the current market price, activated only if the market price hits or passes below the stop price.

Sell Stop-Limit

an order to sell placed below the current market price, activated only if the market price hits or passes below the stop/activation price, and filled only at the limit price or better.

North American Securities Administrators Association (NASAA)

an organization of state and provincial securities regulators from the U.S. and Canada.

Stock

an ownership or equity position in a public company whose value is tied to the company's profits (if any) and dividend payouts (if any).

Firm Commitment

an underwriting in which the underwriters agree to purchase all securities from an issuer, even the ones they failed to sell to investors. Involves acting in a "principal" capacity, unlike in "best efforts," "all or none," and "mini-max" offerings.

Bearer Bond

an unregistered bond that pays principal to the bearer at maturity. Bonds have not been issued in this way for over two decades, but they still exist on the secondary market.

Debenture

an unsecured bond backed by the issuer's ability to pay. No collateral.

Stagflation

an unusual macroeconomic state associated with inflation and economic stagnation.

Firm Element

annual continuing education requirement for a registered representative.

Dividend Yield

annual dividends divided by market price of the stock. Equivalent to current yield for a debt security.

12b-1 fee

annual fee deducted quarterly from a mutual fund's assets to cover distribution costs, e.g., selling, mailing, printing, advertising. An operating expense, unlike the sales charge that is deducted from the investor's check.

Current Yield

annual interest divided by market price of the bond. For example, an 8% bond purchased at $800 has a current yield of 10%. $80/$800 = 10%.

Single-Payment Deferred Annuity

annuity purchased with a single payment wherein the individual defers the payout or "annuity" phase of the contract.

Single-Payment Immediate Annuity

annuity purchased with a single payment wherein the individual goes immediately into the payout or "annuity" phase of the contract.

Offer

another name for "ask," or the price an investor must pay if he wants to buy a security from a dealer/market maker.

Financial Risk

another name for "credit risk," or the risk that the issuer of a bond could default.

Systematic Risk

another name for "market risk," or the risk that an investment's value could plummet due to an overall market panic or collapse. Other "systematic risks" include inflation and interest rate risk.

PHA - Public Housing Authority (bonds)

another name for NHA/New Housing Authority municipal revenue bonds.

Government Securities

another name for Treasury securities such as T-Notes and T-Bonds.

Hybrid Security

another name for a convertible bond or convertible preferred stock, which starts as a fixed-income security but may be converted to common stock.

Account Executive (AE)

another name for a registered representative or agent.

Grantor Trust

another name for a revocable or revocable living trust.

Stop Loss

another name for a sell-stop order. So-named because an investor's losses are stopped once the stock trades at a certain price or lower.

Capital Appreciation Bond

another name for a zero-coupon bond.

Adjustment Bond

another name for an "income bond," on which the issuer may skip interest payments without going into default.

Designated Examining Authority

another name for an SRO or Self-Regulatory Organization, e.g., CBOE or FINRA.

Sales

another name for revenue, the top line of an income statement.

Syndicate Letter

another name for the agreement among underwriters. The document detailing the terms of operation for an underwriting syndicate.

First Market

another name for the exchange market, where the NYSE is the model.

Exercise Price

another name for the strike price; the stated price at which a call or put option may be exercised.

Same-Day Settlement

another term for a "cash" settlement, in which settlement occurs on the day of the trade.

Funded Debt

another term for corporate bonds backed by a sinking fund as opposed to collateral.

Discount Bond

any bond traded below the par value, e.g., @97.

Exchanges

any electronic or physical marketplace where investors can buy and sell securities. For example, NASDAQ, NYSE, AMEX.

Material Information

any fact that could reasonably affect an investor's decision to buy, sell, or hold a security. For example, profits and losses at the company, product liability lawsuits, the loss of key customers, etc.

Investment Objective

any goal that an investor has including current income, capital appreciation (growth), capital preservation (safety), or speculation.

Customer Complaint

any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member or a person associated with the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.

Issuer

any individual or entity who issues or proposes to issue any security. For example, the issuer of Google common stock is Google.

Branch Office

any location identified by any means to the public or customers as a location at which the member conducts an investment banking or securities business. The small Charles Schwab or E-Trade office at the nearby mall or office complex is a "branch office." Registered with a Form BR.

Stock Record Department

department of a broker-dealer that performs regular reconciliations to ensure the accuracy of their books and records concerning securities positions held by the firm and its customers.

Asset Allocation

maintaining a percentage mix of equity, debt, and money market investments, based either on the investor's age (strategic) or market expectations (tactical).

Custodian

maintains custody of a mutual fund's securities and cash. Performs payable/receivable functions for portfolio purchases and sales. In an UGMA, the custodian is the adult named on the account who is responsible for the investment decisions and tax reporting.

Cumulative Voting

method of voting whereby the shareholder may take the total votes and split them up any way he chooses. Said to benefit minority over majority shareholders. Total votes are found by multiplying the number of shares owned by the number of seats up for election to the Board of Directors.

Statement of Additional Information or SAI

detailed registration document for an open- or closed-end management company providing further details than what is contained in the statutory prospectus.

Underwriter

see "investment banker." An underwriter or "investment banker" is a broker-dealer that distributes shares on the primary market.

Investment Banker

see "underwriter." A firm that raises capital for issuers on the primary market.

Tenants in Common

see Joint Tenants in Common, a joint account wherein the interest of the deceased owner reverts to his/her estate.

Treasury Bill

see T-bill.

Treasury Bond

see T-bond.

Treasury Note

see T-note.

Forward Pricing

the method of valuing mutual fund shares, whereby a purchase or redemption order is executed at the next calculated price. Mutual fund shares are bought and sold at the next computed price, not yesterday's stale prices.

Equity Options

standardized options giving the holder the right to buy or sell the underlying stock at a set price (strike/exercise price).

Account Statement

document sent to a broker-dealer customer showing the recent value of all cash and securities, plus all recent activity in an investment account.

Confirmation

document stating the trade date, settlement date, and money due/owed for a securities purchase or sale. Delivered on or before the settlement date.

Hypothecation Agreement

document that gives a broker-dealer the legal authority to pledge a margin customer's securities as collateral to secure the margin loan.

Credit Agreement

document that must be signed by a margin customer in which all finance charges are explained in connection to the margin account.

Bid Form

document used to submit a competitive bid to the issuer of municipal securities.

Bond Power

document used to transfer ownership of a bond, often stamped on the back of the bond certificate.

Stock Power

document used to transfer ownership of a stock.

Articles of Incorporation

documents that a corporation files with the state disclosing the name and purpose of the business, its address, and how many shares of stock the corporation is authorized to issue.

Foreign Currency Options

standardized options in which the underlying instrument is a foreign currency, e.g., the yen, the euro, etc.

Periodic-Payment Deferred Annuity

method of purchasing an annuity whereby the contract holder makes periodic payments into the contract. The pay-out phase must be deferred for all periodic payment plans.

Statutory Voting

method of voting whereby the shareholder may cast no more than the number of shares owned per candidate/item.

Blue Sky

state securities law, tested on the Series 63, 65, and 66 exams.

Minimum Maintenance Requirement

the minimum amount of equity that a margin customer must maintain on either a short or a long position.

Minimum Death Benefit

the minimum death benefit payable to the insured, regardless of how lousy the separate account returns are in a variable policy.

Discretionary Income

the money left over after meeting all living expenses; what an investor has available for saving and investing based on his statement of cash flow. AKA "disposable income."

Contribution

the money you put into a retirement plan subject to the limits imposed by the plan.

Distribution

the money you take out of a retirement plan.

Net Revenue Pledge

the more common method used by the issuer of a revenue bond in which operations & maintenance are covered before debt service.

Common Stock

the most "junior security," because it ranks last in line at liquidation. An equity or ownership position that usually allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions, authorizing more shares, etc.

Trade Reporting and Compliance Engine (TRACE)

system used to report bond transactions in the secondary.

FOMC

the Federal Reserve Board's Federal Open Market Committee. Sets short-term interest rates by setting discount rate, reserve requirement and buying/selling T-bills to/from primary dealers.

Auction Market

the NYSE, for example, where buyers and sellers simultaneously enter competitive prices. Sometimes called a "double auction" market because buying and selling occur at the same time.

Options Disclosure Document (ODD)

the Options Clearing Corporation's "Characteristics and Risks of Standardized Options" delivered to new options customers.

Ask, Asked

the higher price in a quote representing what the customer would have to pay/what the dealer is asking the customer to pay. Ask/asked is also called "offer/offered."

Rumors

the illegal practice of trying to move a stock's market price by publishing unfounded allegations about the issuer.

Market Manipulation

the illegal process of using deception or collusion to move securities prices in favor of the conspirators.

Yield

the income a stock or bond provides to the holder.

Appreciation

the increase in an asset's value that is not subject to tax until realized.

Unrealized Gain

the increase in the value of an asset that has not yet been sold. Unrealized gains are not taxable.

Benchmark

the index against which a portfolio manager is being measured, typically for purposes of performance bonuses.

The Insured

the individual upon whose death a life insurance policy will pay out. Third Market$ exchange-listed stock traded OTC primarily by institutional investors.

(The) Insured

the individual whose life is covered by an insurance policy, typically, the policyholder/policyowner.

Stock Market Data

the information of importance to technical analysts concerning pricing patters, volume, moving averages, etc. for common stock and stock indexes.

Clearing Rate

the interest rate established by auction in connection with auction rate securities.

Nominal Yield

the interest rate paid by a bond or preferred stock. The investor receives this % of the par value each year, regardless of what the bond or preferred stock is trading for on the secondary market.

Corporation

the most common form of business organization, in which the business's total value is divided among shares of stock, each representing an ownership interest or share of profits.

Capital Structure

the make-up of a corporation's financing through equity (stock) and debt (bonds) securities.

General Partner

the manager of a DPP with unlimited liability and a fiduciary obligation to the limited partners.

Price-to-Book

the market price of a stock compared to its book value per share.

Price-to-Cash

the market price of a stock compared to its cash-flow-from-operating-activities-per-share.

Price-to-Earnings

the market price of a stock compared to its earnings-per-share.

Price-to-Sales

the market price of a stock compared to its revenue-per-share.

P/E or Price-to-Earnings Ratio

the market price of a stock compared to the earnings per share. Stocks trading at high P/E ratios are "growth stocks," while those trading at low P/E ratios are "value stocks."

Cap

the maximum that an equity indexed annuity contract's value can rise in a year.

Bar

the most severe sanction that FINRA can impose on an individual, effectively ending his/her career.

Authorized Shares

the number of shares a company can issue by its corporate charter. Can be changed by a majority vote of the outstanding shares.

Shares Outstanding

the number of shares a corporation has outstanding. Found by taking Issued shares minus Treasury stock. AKA "outstanding shares."

Outstanding Shares

the number of shares a corporation has outstanding. Found by taking Issued shares minus Treasury stock. AKA "shares outstanding."

Conversion Ratio

the number of shares of common stock that the holder of a convertible bond or preferred stock would receive upon conversion. A bond "convertible at $50" has a conversion ratio of 20 (20 shares of stock per $1,000 par value).

Issued Shares

the number of shares that have been issued by a corporation.

Pre-emptive Right

the right of common stockholders to maintain their proportional ownership if the company offers more shares of stock.

Interpositioning

unnecessarily inserting another party between the broker-dealer and the customer. A violation.

Hedging

using an options position to protect a long or short stock position, e.g. a covered all.

Leverage

using borrowed money to increase returns. Debt securities and margin accounts are associated with "leverage."

Fraud

using deceit or manipulation to wrongfully take money/property from someone under false pretenses.

Proceeds Transaction

using the proceeds from a sale of securities to buy other securities on the same day.

General Account

where an insurance company invests net premiums to fund guaranteed, fixed payouts.

Secondary Market

where investors trade securities among themselves and proceeds do not go to the issuer.

Primary Market

where securities are issued to raise capital for the issuer.

IDR

"Industrial Development Revenue Bond," a revenue bond that builds a facility that the issuing municipality then leases to a corporation. The lease payments from the corporation back the interest and principal payments on the bonds.

SLGS

"State and Local Government Series" securities, special securities created by the U.S. Treasury to help municipalities do an advance refunding and comply with IRS rules and restrictions on such transactions.

Administrator

(1) the securities regulator of a state; (2) a person or entity authorized by the courts to liquidate an estate.

Bond Point

1% of a bond's par value. 1 bond point = $10.

Income Statement

AKA, "statement of earnings," or "statement of operations," a financial statement showing revenue, expenses and net income/net loss over a reporting period.

Policyholder

AKA, policyowner, the owner of an insurance policy responsible for paying premiums.

Frozen Account

AKA "a frozen account," is an account in which purchase orders will be accepted only if the cash is in the account due to the customer's failure to comply with Reg T.

Revenue

AKA, "sales," the top line of the income statement representing the money the business pulled in by selling its goods and/or services.

ADR/ADS

American Depository Receipt/Share. A foreign stock on a domestic market. Toyota and Nokia are two examples of foreign companies whose ADRs trade on American stock markets denominated in dollars. Carry all the risks of owning stocks, plus "currency exchange risk."

Maloney Act

An amendment to the Securities Exchange Act of 1934 creating the NASD as the self-regulatory organization (SRO) for the over-the-counter (OTC) market.

Balance Sheet Equation

Assets - Liabilities = Shareholders' Equity, or Assets = Liabilities + Shareholders' Equity.

AIR

Assumed Interest Rate. Used to determine the value of annuity units for annuities and the death benefit for variable life contracts.

CDO

Collateralized Debt Obligation. A structured asset-backed security paying cash flows to investors in a predetermined sequence, based on how much cash flow is collected from the package of assets owned

CMO

Collateralized Mortgage Obligation$ A complicated debt security based on a pool of mortgages or a pool of mortgage-backed securities. Pays interest monthly but returns principal to one tranche at a time.

Fiscal Policy

Congress and President. Tax and Spend.

CPI

Consumer Price Index, a measure of inflation/deflation for basic consumer goods and services. A rising CPI represents the greatest risk to most fixed-income investors.

Order Audit Trail System (OATS)

FINRA compliance system that captures order information reported by member firms and then integrates that order information with trade and quotation information from other systems.

Department of Enforcement

FINRA enforcers of the member conduct rules, a group you never want to hear from, especially by certified mail.

Code of Arbitration

FINRA method of resolving disputes (usually money) in the securities business. All decisions are final and binding on all parties.

Member Conduct Rules

FINRA rules that, when violated, subject associated persons and member firms to sanctions, fines, suspensions, etc.

Code of Procedure

FINRA system for enforcing member conduct rules.

GAN

Grant Anticipation Note, short-term debt obligation of a municipal issuer backed by funds to be received in a grant, usually from the federal government.

GDP

Gross Domestic Product, the sum total of all goods and services being produced by the domestic economy, regardless of nationality.

IRA

Individual Retirement Account. A retirement account/arrangement for any individual with earned income. The Traditional IRA offers pre-tax contributions while the Roth IRA is funded with after-tax contributions.

National Adjudicatory Council

NAC, the first level of appeal for a party sanctioned by the DOE under FINRA's Code of Procedure.

NASDAQ

National Association of Securities Dealers Automated Quotation system. The main component of the OTC market. Stocks that meet certain criteria are quoted throughout the day on NASDAQ, e.g., MSFT, ORCL, and INTC.

NYSE

New York Stock Exchange, an auction market where buyers and sellers shout out competitive bid and asked/offered prices throughout the day.

Bulletin Board

OTC stocks too volatile and low-priced for NASDAQ. Stocks trading on the OTCBB do not have to meet requirements for profitability or number of shares and shareholders.

Deficiency Letter

SEC notification of additions or corrections that an issuer must make to a registration statement before the offering can be cleared for distribution.

Reg NMS

SEC regulation concerned with the over-the-counter trading of stocks that trade on NYSE, NYSE Amex, and NASDAQ, as opposed to Over-The-Counter Bulletin Board (OTCBB) and Pink Quote stocks. Concerns over access to quotes and prompt and accurate trade reporting for NMS stocks.

EDGAR

SEC repository for public company filings including annual reports and prospectuses. Stands for Electronic Data Gathering, Analysis, and Retrieval system.

Reg SHO

SEC rule to prevent abusive short selling with its locate requirement for broker-dealers executing short sales.

Securities and Exchange Commission

SEC, empowered by passage of Securities Exchange Act of 1934. A government body, the ultimate securities regulator.

Self-Regulatory Organization

SRO, e.g., FINRA and the CBOE. An organization given the power to regulate its members. Not government bodies like the SEC, which oversees the SROs.

SIPC

Securities Investor Protection Corporation, a non-profit, non-government, industry-funded insurance corporation protecting investors against broker-dealer failure.

STRIPS

Separate Trading of Registered Interest and Principal of Securities. A zero-coupon bond issued by the U.S. Treasury in which all interest income is received at maturity in the form of a higher (accreted) principal value. Avoids "reinvestment risk."

Regular Way Settlement

T + 2, trade date plus two business days. T + 1 for Treasury securities.

Core Inflation

The CPI minus volatile items such as food and energy prices.

FinCEN

U.S. Treasury's "Financial Crimes Enforcement Network." Suspicious Activity Reports must be provided to FinCEN if a broker-dealer notices activity in accounts that appears suspicious or possibly related to fraud or money laundering activities.

UGMA

Uniform Gifts to Minors Act. An account set up for the benefit of a minor, managed by a custodian.

UIT

Unit Investment Trust. A type of investment company where investments are selected, not traded/managed. No management fee is charged. Shares are redeemable.

Exploratory Program

a DPP whose purpose is to explore for oil or natural gas, typically. AKA "wildcatting."

Collateral Trust Certificate

a bond secured by a pledge of securities as collateral.

Distributor

a FINRA member firm that bears distribution costs of a fund, profiting from the sales charges paid by the investors; a.k.a. "sponsor," "underwriter," "wholesaler."

Nolo Contendere

a Latin phrase meaning "no contest." If an agent or applicant has pled "nolo contendere" to any felony charge or specific misdemeanors, he is subject to statutory disqualification.

Zero Coupon Bond

a bond sold at a deep discount to its gradually increasing par value.

Bona Fide

a Latin phrase meaning authentic, true. Or, made or presented without deception or fraud. A bona fide stock certificate, for example, as opposed to a bogus certificate made on a color laser printer.

Mortgage REIT

a Real Estate Investment Trust engaging in the financing of projects as opposed to owning and managing properties.

Hybrid REIT

a Real Estate Investment Trust that both owns operating real estate and also provides financing for real estate projects—a hybrid of an equity and a mortgage REIT.

Equity REIT

a Real Estate Investment Trust that owns and manages real estate, as opposed to a mortgage REIT.

REMIC

a Real Estate Mortgage Investment Conduit, another name for a CMO.

Howey Decision

a U.S. Supreme Court decision that defined an "investment contract" as "an investment of money in a common enterprise where the investor will profit solely through the efforts of others."

Tippee

the guy who listened to the insider information.

Retained Earnings

a balance sheet item reflecting profits not distributed to shareholders over the years but, rather, reinvested into the business. Accumulated net income of the company from which dividends are declared.

ESOP or an Employee Stock Option Plan

a benefit plan in which the company allows all workers to purchase company stock at a discount and through a payroll deduction. The stock and the dividends/cap gains generated on it grow tax-deferred, like a 401(k) plan.

Adjudicator

a body, board, committee, group, or natural person that presides over a proceeding and renders a recommended or proposed decision.

Step-Up Bond

a bond that pays higher interest payments to investors as time goes on.

Junk Bond

a bond backed by a shaky issuer. It was either issued by an entity with shaky credit, or is now trading at a low price on the secondary market because the issuer's credit has suddenly or recently been downgraded. Since the price is low, given the low quality of the debt, the yield is high. High-yield and junk are synonymous.

Balloon Maturity

a bond issue in which some principal is paid in the early years, with most due at end of the term.

Municipal Bond

a bond issued by a state, county, city, school district, etc., in order to build roads, schools, hospitals, etc., or simply to keep the government running long enough to hold another election.

Premium Bond

a bond purchased for more than the par value, usually due to a drop in interest rates.

Investment Grade

a bond rated at least BBB by S&P or Baa by Moody's. The bond does not have severe default risk, so it is said to be appropriate for investors, as opposed to the speculators who buy non-investment grade bonds.

Certificate of Deposit or CD

a (usually) longer-term deposit with a bank or other financial institution that typically offers compounded interest.

Top-Heavy

a 401(k) plan, for example, where 60% or more of the benefits go to key, highly compensated employees.

Direct-sold Plan

a 529 plan available directly from the state that sponsors it.

Advisor-Sold Plan

a 529 plan sold through a financial intermediary, e.g. a registered representative.

Raw Land

a DPP holding speculative raw land and providing no tax benefits.

New Construction

a DPP that builds and sells apartments, condominiums, etc.

Equipment Leasing Program

a DPP that leases, for example, airplanes or mining and drilling equipment to entities that find it more cost-effective to rent rather than own such expensive specialized equipment.

Holding Company

a company organized to invest in other corporations, e.g., Berkshire-Hathaway, which holds large stakes in other companies such as Coca-Cola, See's Candy, Dairy Queen, and Wells Fargo. Wells Fargo Corporation is, in turn, a bank holding company that owns a bank, a broker-dealer, and an investment adviser among other entities.

Defensive Industry

a company that can perform well even during rough economic times. For example, food and basic clothing represent two products purchased through both good and bad economic times; therefore, stocks of food and basic clothing companies would be "defensive" investments. a/k/a non-cyclical industry.

Public Company

a company with securities owned and traded by public investors.

Exchange Rate

a comparison of the relative strength between two currencies.

Capital Preservation

a conservative investment goal placing safety-of-principal above all else. Associated with U.S. Treasuries, GNMA securities, and bank CDs.

Pension Plan

a contract between an individual and an employer that provides for the distribution of benefits at retirement.

Annuity

a contract between an individual and an insurance company that either guarantees income for the rest of the individual's life or allows him to invest his purchase payments into various subaccounts in return for a lump-sum or periodic payment to the insurance company.

Put (n.)

a contract giving the owner the right to sell something at a stated exercise price.

Call (n.)

a contract that gives the holder the right to buy something at a stated exercise price.

Indenture

a contract that spells out the responsibilities and rights of an issuer in connection with a bond issue.

Equipment Trust Certificate

a corporate bond secured by a pledge of equipment, e.g., airplanes, railroad cars.

Mortgage Bond

a corporate bond secured by a pledge of real estate as collateral.

Secured Bond

a corporate bond secured by collateral, e.g., mortgage bond, collateral trust certificate, equipment trust certificate.

REIT (Real Estate Investment Trust)

a corporation or trust that uses the pooled capital of investors to invest in ownership of either income property or mortgage loans. 90% of net income is paid out to shareholders.

Initial Public Offering (IPO)

a corporation's first sale of stock to public investors.

Stopping Stock

a courtesy in which the specialist will guarantee a price for execution and allow the participant to seek a better price.

Intangible Asset

a current asset such as goodwill, patents, and trademarks.

Market Maker

a dealer maintaining an inventory of a security and a firm Bid and Ask price good for a minimum of 100 shares or one normal trading unit for the security.

Unsecured Bond

a debenture, or bond issued without specific collateral.

Face-Amount Certificate

a debt security bought in a lump-sum or through installments that promises to pay out the stated face amount, which is higher than the investor's purchase price.

Agency Issue (Agency Bond)

a debt security issued by an agency of the US Government such as GNMA or by a government sponsored enterprise, such as FNMA or FHLMC. Agency issues promote the public good through increased home ownership or increased credit to farmers.

Bond

a debt security that offers interest payments—but not a share of profits—to the investor.

Mortgage-backed Security

a debt security whose interest and principal is derived from a defined pool of mortgages, e.g. a FNMA security.

VRDO - variable rate demand obligation

a debt security whose interest rate is regularly re-set and which can be "put" or sold back to the issuer or a designated third party for the par value plus accrued interest.

Exchange-Traded Note (ETN)

a debt security whose interest rate is tied to an underlying instrument, often a stock market index.

Long-Term Liability

a debt to be repaid in the long-run, e.g., the principal value of an outstanding bond issue.

Sales Charge, Sales Load

a deduction from an investor's check that goes to the distributors/sellers of the fund. Deducted from investor's check, either when she buys (A-shares) or sells (B-shares).

Constant Dollar Plan

a defensive investment strategy in which an investor tries to maintain a constant dollar amount in the account, meaning that securities are sold if the account value rises and purchased if it goes down.

Profit Sharing

a defined contribution plan whereby the company makes contributions at its discretion according to a prescribed formula.

Option

a derivative giving the holder the right to buy or sell something for a stated price up to expiration of the contract. Puts and calls.

Stock Record

a detailed list of the broker-dealer's holdings, separated by security, on an account by account basis. AKA "securities record."

Suitability

a determination by a registered representative that a security matches a customer's stated objectives and financial situation.

Specified Program

a direct participation program in which the assets of the partnership are identified.

Blind Pool Offering

a direct participation program in which the sponsor does not identify the assets of the partnership.

Prospectus

a disclosure document that details a company's plans, history, officers, and risks of investment. It's the red herring plus the POP and the effective date.

Breakpoint

a discounted sales charge or "volume discount" on mutual fund purchases offered on A-shares at various levels of investment.

Stock Record Break/Exception

a discrepancy between a broker-dealer's recorded positions in a security versus the actual positions in their DTC account.

Secondary Offering/Distribution

a distribution of securities owned by major stockholders—not the issuer of the securities.

Ordinary Dividend

a dividend subject to the investor's marginal tax rate, not a qualified dividend. REITs, for example, distribute ordinary dividends to the unitholders.

Qualified Dividend

a dividend that qualifies for a lower tax rate vs. ordinary income.

Trade Confirmation

a document containing details of a securities transaction, e.g., price of the security, commissions, stock symbol, number of shares, registered rep code, trade date and settlement date, etc.

Margin Disclosure Statement

a document disclosing key features and risks of margin accounts required to be delivered to new margin customers.

Certificate of Limited Partnership

a document filed by the general partner of a direct participation program with a state disclosing who the partnership is and what it does.

Bond Resolution

a document that legally authorizes the process of issuing municipal bonds for a specific purpose.

Power of Substitution

a document that when signed by the security owner authorizes transfer of the security to another party. AKA "stock power," or "bond power."

Loan Consent

a document that when signed gives the broker-dealer the permission to lend a customer's securities to short sellers.

Agreement Among Underwriters

a document used by an underwriting syndicate bringing an issue of securities to the primary market. This document sets forth the terms under which each member of the syndicate will participate and details the duties and responsibilities of the syndicate manager.

Conduit Theory (Tax Treatment)

a favorable tax treatment achieved if a company (REIT, mutual fund) distributes 90%+ of net income to the shareholders.

Put Feature

a feature of some bonds allowing the investor to sell the bond back for stated prices as of certain dates named in the indenture, protecting the investor from interest rate risk. AKA "puttable" bonds.

Reinstatement Privilege

a feature of some mutual funds allowing investors to make withdrawals and then reinstate the money without paying another sales charge.

Conversion/Exchange Privilege

a feature offered by many mutual funds whereby the investor may sell shares of one fund in the family and use the proceeds to buy another fund in the family at the NAV (avoiding the sales load). All gains/losses are recognized on the date of sale/conversion for tax purposes.

Automatic Reinvestment

a feature offered by mutual funds allowing investors to automatically reinvest dividend and capital gains distributions into more shares of the fund, without paying a sales charge.

Guardian

a fiduciary who manages the financial affairs of a minor or a person declared mentally incompetent by a court of law.

Clearing Corporation

a financial institution that compares member transactions (or reports to members the results of exchange comparison operations), clears those trades and prepares instructions for automated settlement of those trades, and often acts as an intermediary in making those settlements. For example, the Options Clearing Corporation or the National Securities Clearing Corporation.

HOLDR

a financial product created by Merrill Lynch and traded daily on the American Stock Exchange that allows investors to buy and sell a basket of stocks in a sector, industry or other classification in a single transaction. Stands for Holding Company Depository Receipt.

Transfer Agent

a financial services firm maintaining ownership records for an issuer's securities holders. Issues and redeems certificates. Handles name changes, validates/reissues certificates. Distributes dividends, gains, and shareholder reports to mutual fund investors.

Balance Sheet

a financial statement of a corporation or individual showing financial condition (assets vs. liabilities) at a moment in time.

Statement of Cash Flows

a financial statement showing how much cash was provided or exhausted through operations, financing activities, and investment activities.

Carrying Broker

a firm that acts as an introducing broker-dealer's back office, handling customer assets and clearing transactions through a clearing broker-dealer.

Standard & Poor's

a firm that analyses the credit quality of municipal and corporate bonds and puts together various indices to track the performance of the stock market and various segments thereof.

Executing Broker

a firm that executes transactions for an introducing broker-dealer.

Broker's Broker

a firm that holds no inventory and executes securities transactions exclusively with other broker-dealers and not with public investors.

Preferred Stock

a fixed-income equity security whose stated dividends must be paid before common stock can receive any dividend payment. Also gets preference ahead of common stock in a liquidation (but behind all creditors).

Bond Ladder

a fixed-income portfolio in which the maturities are spread evenly among short-term, intermediate-term, and long-term bonds.

Regressive Tax

a flat tax, e.g., gasoline, sales, excise taxes.

Trading Authorization

a form granting another individual the authority to trade on behalf of the account owner. Either "limited" (buy/sell orders only) or "full" (buy/sell orders plus requests for checks/securities) authorization may be granted. Sometimes referred to as "power of attorney."

Proxy Form

a form granting the power to vote according to a shareholder's instructions when the shareholder will not attend the meeting.

Limited Partnership

a form of business ownership in which income and expenses flow through directly to the partners rather than to a separate business entity.

Painting the Tape

a form of market manipulation in which bogus trades are reported to affect the market price of a security. A violation.

Pegging

a form of market manipulation in which parties illegally try to raise the price of a stock, often to force the put options the parties have written on the stock to go out-of-the-money. A violation.

Marking the Open

a form of market manipulation that involves entering a series of trades near the open of the trading session to manipulate the price of a security.

Capping

a form of market manipulation that involves trying to decrease the value of a security, often so that call sellers will not be called. A violation.

Marking the Close

a form of market manipulation that occurs when an investor attempts to influence the closing price of the stock by entering a series of manipulative buy or sell orders at or near the close of trading.

Universal Life Insurance

a form of permanent insurance that offers flexibility in death benefit and both the amount of, and method of paying, premiums.

DVP

a form of settlement in which payment will be made when the securities involved in the transaction are delivered and accepted.

Annual Shareholder Report

a formal statement (10K) issued by a corporation to the SEC and shareholders discussing the company's results of operations, challenges/risks facing the company, any lawsuits against the company, etc. Required by the Securities Exchange Act of 1934.

BrokerCheck

a free tool provided by FINRA to allow investors and others to research the background and credentials of agents and broker-dealers.

Sector Fund

a fund that concentrates heavily in an industry, e.g., the "Technology Fund." Higher risk/reward than funds invested in many industries.

Non-diversified Fund

a fund that doesn't care to meet the 75-5-10 rule, preferring to concentrate more heavily in certain issues.

Blend Fund

a fund that is neither a growth fund nor a value fund but a blend of both.

Balanced Fund

a fund that maintains a mix of stocks and bonds. Close to an asset allocation fund except that an asset allocation fund would typically hold a larger % in money market instruments.

Growth and Income

a fund that purchases stocks for growth potential and also for dividend income. Less volatile than pure growth funds due to the income that calms investors down when the ride becomes turbulent. Also, a common investment objective that seeks both growth and income.

Expense Ratio

a fund's expenses divided by/compared to average net assets. Represents operating efficiency of a mutual fund, where the lower the number the more efficient the fund.

Deflation

a general drop in the level of prices across the economy, usually connected to an economic slump.

Yield Curve

a graph showing securities of similar credit quality across various maturities. In a normal yield curve, yields rise with maturities. With an inverted yield curve, short-term securities yield more than longer-term securities.

Trading Post

a group of monitors around which market participants communicate on the floor of the NYSE.

Syndicate

a group of underwriters bringing a new issue to the primary market.

Fund of Hedge Funds

a higher-risk mutual fund open to non-accredited investors that owns shares of hedge funds.

Money Market Mutual Fund

a highly liquid holding place for cash. Sometimes called "stable value" funds, as the share price is generally maintained at $1. The mutual funds invest in money market securities.

Market Sentiment

a judgment of the overall mood of the market, often found through the put/call ratio and option volatility.

CBOE VIX

a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

Reg A

a laid-back and predictable form of island music. Also, an exempt transaction under the Securities Act of 1933 for small offerings of securities ($5 million issued in a 12-month period).

Estate

a legal entity that represents all assets held by a deceased person at the moment he died—or the assets of a debtor-in-possession, known as the "bankruptcy estate."

Prime Brokerage

a level of service provided to, for example, hedge funds requiring greater margin, securities lending, and other capabilities.

Current Liability

a liability to paid in the short-term, e.g., accounts payable.

Special Memorandum Account (SMA)

a line of credit in a margin account. Special Proceeding$ an option to use telephone, web conference, etc. for an arbitration proceeding.

Short-Term Capital Loss

a loss realized on a security held for 12 months or less, deductible against Short-Term Capital Gains.

Long-Term Loss

a loss realized when selling stock held for at least 12 months plus 1 day. Used to offset long-term capital gains.

Bear Market

a market for stock or bonds in which prices are falling and/or expected to fall.

Bull Market

a market for stocks or bonds in which prices are rising and/or expected to rise.

Negotiated Market

a market in which buyers and sellers negotiate on prices through published bid and ask prices; another name for the "second" or "over-the-counter" market.

Market-On-Close Order

a market order for a security filled on the closing trade for the session, or as close to the closing trade as possible.

Market-On-Open Order

a market order for a security placed before the opening of the next trading session and filled at the opening market price for the security.

S&P 500

a market-cap weighted index of 500 large-company stocks that is used to represent the overall market for purposes of calculating beta.

Debt-to-Equity Ratio

a measure from the balance sheet showing how leveraged an issuer is. Found by comparing total liabilities to stockholders' equity.

Debt Ratio

a measure from the balance sheet showing how leveraged an issuer is. Found by comparing total liabilities to total assets. Similar to debt-to-equity ratio, another measure of long-term solvency.

Bond Ratio

a measure from the balance sheet showing how leveraged the issuer is. Found by taking long-term debt and comparing to (dividing by) total capitalization to show what % of the issuer's capitalization was derived from borrowed money vs. equity.

Asset Coverage

a measure from the balance sheet showing how well an issuer can meet its debt servicing obligations.

Net Interest Cost

a measure of a municipal issuer's total cost of borrowing money by issuing bonds.

True Interest Cost

a measure of a municipal issuer's total cost of borrowing money by issuing bonds. Unlike net interest cost, true interest cost factors in the time value of money.

Net Asset Value per Bond

a measure of asset coverage from the balance sheet showing the net tangible assets of the issuer divided by the number of bonds issued.

Consumer Price Index (CPI)

a measure of inflation/deflation for basic consumer goods and services. A rising CPI represents the greatest risk to most fixed-income investors.

Times Interest Earned

a measure of interest coverage for a bond. Found on the income statement by comparing EBIT to annual interest expense.

Turnover Ratio

a measure of the frequency with which the investment adviser trades portfolio securities for an open- or closed-end fund.

Debt per Capita

a measure that shows a bond analyst how much general obligation debt is outstanding divided by the number of residents of the municipality.

Consolidated Quotation System (CQS)

system used for trading in the third market.

Municipal Advisor

a person that provides advice to or on behalf of a municipal entity with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues.

Dealer

a person who buys or sells securities for his/its own account, taking the other side of the trade. A dealer buys securities from and sells securities directly to a customer, while a broker merely arranges a trade between a customer and another party.

Restricted Person

a person who is ineligible to purchase an equity IPO, including members of the brokerage industry and their immediate family members.

Donor

a person who makes a gift of money or securities to another.

Customer

a person who opens an investment account with a broker-dealer.

Limited Partner

a person who owns a limited partnership interest. Has no managerial responsibility and is shielded from debts of—and lawsuits against—the partnership.

Full Faith and Credit

a phrase used to denote that there are no specific assets backing a bond issue, only the issuer's ability to repay the loan.

Stock Market

a physical or electronic facility allowing investors to buy and sell stock, e.g. the NYSE or NASDAQ.

Systematic Withdrawal Plan

a plan to redeem mutual fund shares according to a certain time frame, monthly check amount, or number of shares, etc., until the account is exhausted.

Fractional Share

a portion of a whole share of stock. Mutual fund shares typically are issued as whole and fractional shares, e.g., 101.45 shares.

Covered Call

a position in which an investor generates premium income by selling the right to buy stock the investor already owns, and at a set price.

Convertible

a preferred stock or corporate bond allowing the investor to use the par value to "buy" shares of the company's common stock at a set price.

Straight Preferred

a preferred stock whose missed dividends do not go into arrears, a.k.a. "non-cumulative preferred."

Flexible Premium

a premium that is flexible. Characteristic of "universal" insurance. Allows the policyholder to adjust the premiums and death benefit according to changing needs.

Clean-Up Price

a price outside the current quote for a security that is used to execute a block transaction.

Quote, Quotation

a price that a dealer is willing to pay or accept for a security.

Swaps

a private agreement in which two parties agree to pay each other various cash flows, e.g. a fixed interest rate for one side versus a floating rate for the other. As opposed to an actual principal amount, swaps use a notional value to calculate interest owed by each side of the agreement.

Hedge Fund

a private investment partnership open to accredited investors only. Illiquid investments that generally must be held one or two years before selling. Typically charge a management fee plus the first 20% of capital gains in most cases.

American Stock Exchange (AMEX)

a private, not-for-profit corporation that handles roughly 20% of all securities trades in the U.S. One of the big secondary markets, along with NYSE, and the various NASDAQ markets.

Check-writing Privileges

a privilege offered by mutual funds, especially money market funds, by which investors can automatically redeem shares by writing checks.

Exchange-Traded Product (ETP)

a product whose returns are based on an underlying index, including ETNs and ETFs.

Short-Term Capital Gain

a profit realized on a security held for 12 months or less.

Long-Term Gain

a profit realized when selling stock held for at least 12 months plus 1 day. Subject to lower capital gains tax rates than short-term gains.

Business Cycle

a progression of expansions, peaks, contractions, troughs, and recoveries for the overall (macro) economy.

Nondiscrimination Covenant

a promise by a municipal revenue bond issuer that all users of a facility must pay to use it, including VIPs of the municipality.

Mortality Guarantee

a promise from an insurance company to pay out no matter how soon the insured dies, or to pay an annuitant no matter how long he lives.

Maintenance Covenant

a promise of a revenue bond issuer to keep the facility properly maintained.

Rate Covenant

a promise that the issuer of a revenue bond will raise rates if necessary to cover the debt service.

Reclamation

document sent by a broker-dealer when delivery of securities is apparently in error.

SIMPLE Plan

a retirement plan for businesses with no more than 100 employees that have no other retirement plan in place. Pre-tax contributions, fully taxable distributions. Both employer and employees may contribute—through elective deferrals. Set up either as an IRA or 401(k).

Money Purchase Plan

a retirement plan in which the employer must contribute a set percentage of the employee's salary.

Pre-Tax Plan

a retirement plan offering a tax deduction for the contribution made to the account.

Qualified Plan

a retirement plan that qualifies for deductible contributions on behalf of employers and/or employees and covered by ERISA. For example, 401(k), defined benefit, Keogh. Must meet IRS approval, unlike more informal "non-qualified plans."

Special Tax Bond

a revenue bond backed by taxes on gasoline, hotel and motel, liquor, tobacco, etc.

Series I Bond

a savings bond issued by the U.S. Treasury that protects investors from inflation or purchasing power risk.

Vesting

a schedule for determining at what point the employer's contributions become the property of the employee.

Eligibility

a section of ERISA that outlines who is/is not eligible to participate in a qualified plan. Those at least 21 years old who have worked "full time" for one year (1,000 hours or more) are eligible to participate in the plan.

Packaged Security

a securities portfolio that pools capital from many investors and is typically managed by an investment adviser, e.g. an open-end or closed-end fund.

Agency Transaction

a securities transaction in which the broker-dealer acts as an agent for the buyer or seller, completing the transaction between the customer and another party.

Book Entry

a security maintained as a computer record rather than a physical certificate. All U.S. Treasuries and many mutual funds are issued in this manner.

Exempt Security

a security not required to be registered under the Securities Act of 1933. Still subject to anti-fraud rules; not subject to registration requirements, e.g., municipal bonds and bank stock.

Federal Covered

a security or an investment adviser whose registration is handled exclusively by the federal government (SEC) and subject only to notice filings at the state/blue sky level.

Fixed-Income Security

a security promising a stated stream of income to the investor, e.g., a bond as opposed to common stock.

Debt Security

a security representing a loan from an investor to an issuer. Offers an interest rate in return for the loan, not an ownership position.

Cash Equivalent

a security that can readily be converted to cash, e.g., T-bills, CDs, and money market funds. Listed with cash as a current asset on a company's balance sheet.

Senior Security

a security that grants the holder a higher claim on the issuer's assets in the event of a liquidation/bankruptcy.

Exchange-Listed Security

a security that has met listing requirements to trade on an exchange such as NYSE, AMEX, or NASDAQ.

Callable

a security that may be purchased/called by the issuer as of a certain date, e.g., callable preferred, callable bonds. Generally, pays a higher rate of return than non-callable securities, as it gives the issuer flexibility in financing.

Redeemable Security

a security that may be redeemed or presented to the issuer for payment, e.g., open-end (but not closed-end) funds.

Interest-Rate Sensitive

a security whose price rises and falls when interest rates change, e.g. a fixed-income security such as preferred stock, or a bond.

Debt Limit

a self-imposed restriction on the total amount of general obligation debt that an issuer may have outstanding at any one time.

Commissions

a service charge an agent earns for arranging a security purchase or sale.

Random Withdrawal

a settlement option in an annuity whereby the investor takes the value of the subaccounts in two or more withdrawals, rather than one lump sum.

Straight Life Annuity

a settlement option in which the annuity company pays the annuitant only as long as he or she is alive. Also called "straight life" or "life only."

Period Certain

a settlement option that promises to pay either the annuitant or his beneficiaries for at least a stated period, no matter how soon the annuitant passes.

Lump Sum Payment

a settlement/payout option for annuities or insurance where the annuitant or beneficiary receives a lump sum payment.

Joint with Last Survivor

a settlement/payout option on an annuity that requires the insurance company to make payments to the annuitants as long as they are alive.

Federal Reserve Board

a seven-member board directing the operations of the Federal Reserve System.

Naked Call

a short call position that is not backed up by ownership of the shares the writer is obligated to deliver upon exercise. As opposed to a "covered call," wherein the writer already owns all shares he would be required to deliver upon exercise.

Tax and Revenue Anticipation Note (TRAN)

a short-term debt obligation of a municipal issuer backed by future tax and revenue receipts.

Tax Anticipation Note (TAN)

a short-term debt obligation of a municipal issuer backed by future tax receipts.

Revenue Anticipation Note (RAN)

a short-term debt obligation of a municipal issuer backed by upcoming revenues.

Disintermediation

a situation in which money is being withdrawn from banks and savings & loans by depositors to reinvest the funds into higher yielding money market instruments (Treasury bills, certificates of deposit, money market funds). Disintermediation would occur when interest rates at savings banks are lower than money market instruments. The cause could be that the FRB is pursuing a "tight money policy," which is causing a rise in interest rates, creating a demand for the higher yielding money market securities.

Russell 2,000

a small cap stock index often used as a benchmark for small cap portfolios.

8K

a special report of a material event required under the Securities Exchange Act of 1934.

Seller's Option

a special type of trade settlement that is not to happen sooner than the third business day following execution and is to occur on a future date specified by the seller, alterable only with a one-day advance written notice to the buyer.

Asset Allocation Fund

a specialized mutual fund focusing on asset allocation strategies.

Flow of Funds

a statement for a revenue bond issue showing the priority of payments to be made with revenue generated from the facility.

Debt Statement

a statement in which a municipal issuer lists all of its outstanding debts.

Economic Indicator

a statistic about economic activity, including employment, housing starts, and purchases of certain goods. Divided into leading, coincident, and lagging indicators.

Placement Ratio

a statistic published in the Bond Buyer showing the dollar amount of municipal securities sold on the primary market out of the dollar amount offered the previous week; a.k.a. the "acceptance ratio."

Market-Out Clause

a stipulation in an underwriting agreement allowing the underwriter(s) to back out of a securities offering if certain catastrophic events occur.

Consolidation

a stock trading in a narrow price range, trading "sideways."

Overbought

a stock trading near resistance.

Oversold

a stock trading near support.

Small Cap

a stock where the total value of all outstanding shares is considered "small," typically between $50 million and $2 billion.

Large Cap

a stock where the total value of the outstanding shares is large, generally greater than $10 billion. For example, GE, MSFT, IBM.

GTC or Good-Til-Canceled

a stop or limit order that will remain open until either filled or canceled by the customer.

Stop-limit Order

a stop order that once triggered must be filled at an exact price (or better).

Feasibility Study

a study put together by a consulting firm analyzing the economic merits of a facility to be financed by revenue bonds.

Fixed Income Clearing Corporation

a subsidiary of the Depository Trust Clearing Corporation that clears transactions in corporate, municipal, and government debt securities among member firms.

Wrap Fee Brochure

a supplement to an adviser's ADV Part 2 explaining the details of the wrap fee program they sponsor.

Western/Divided Account

a syndicate account in which each participant is responsible for their share of the bonds only.

Eastern/Undivided Account

a syndicate account in which participants are responsible for a percentage of all bonds, even if they sell their allotment.

Basis

a synonym for yield. A bond trading at a "550 basis" trades at a price making its yield to maturity 5.5%.

Supervision

a system implemented by a broker-dealer to ensure that its employees and associated persons comply with federal and state securities law, and the rules and regulations of the SEC, exchanges, and SROs.

Floating Rate Currency

a system in which a country allows the value of its currency to rise and fall with supply and demand and also influenced by central bank policies, e.g. the Federal Reserve Board's monetary policy.

Fixed Exchange Rate

a system in which a country ties the value of its currency to a commodity—such as gold or silver—or to another currency, such as the peso or the dollar.

Automated Customer Account Transfer (ACAT)

a system that provides instructions among broker-dealers for transfer and delivery of customer assets.

Depreciation Recapture

a tax collected when an asset that had been used for depreciation is sold for a capital gain.

TAC - Targeted Amortization Class

a type of CMO (collateralized mortgage obligation) that leaves the investor with greater extension risk as compared to a PAC (planned amortization class).

PAC - Planned Amortization Class

a type of CMO (collateralized mortgage obligation) that provides more protection against extension risk vs. a TAC.

K-1

a tax form required of individuals who own direct participation interests (limited partnership, S-Corp).

1099-DIV

a tax form sent to investors showing dividends and capital gains distributions from a mutual fund for the tax year.

Gift Tax

a tax liability when a gift exceeds the current annual exclusion limit.

Estate Tax

a tax on estates over a certain amount, often called the "death tax." ETF$ or "Exchange-Traded Fund," a fund that trades on an exchange, typically an index fund tracking the S&P 500, the Dow Jones Industrial Average, etc. Unlike an open-end index fund, the ETF allows investors to sell short, trade throughout the day, and even purchase shares on margin.

Special Tax

a tax on gasoline, hotel and motel, liquor, tobacco, etc.

Progressive Tax

a tax that increases as a percentage as the thing being taxed increases, including gift, estate, and income taxes. Not a flat tax.

ABLE Account

a tax-advantaged account under IRC Section 529A for people with disabilities, referred to as "designated beneficiaries," that helps pay for qualified disability expenses.

Coverdell Education Savings Account

a tax-advantaged account whose earnings may be withdrawn tax-free for qualified education expenses.

1035 contract exchange

a tax-free exchange of one annuity contract for another, one life insurance policy for another, or one life insurance policy for an annuity. The contracts do not have to be issued by the same company.

Effective Tax Rate

a taxpayer's total tax divided by his taxable income, sometimes called an "average rate of tax."

Cyclical Industry

a term of fundamental analysis for an industry that is sensitive to the business cycle. Includes$ steel, automobiles, mining and construction equipment.

Index

a theoretical grouping of stocks, bonds, etc., that aids analysts who want to track something. The Consumer Price Index is a theoretical grouping or "basket" of things that consumers buy, used to track inflation. The Dow Jones Industrial Average is a theoretical grouping of 30 large-company stocks that analysts use to track the stock market. The S&P 500 index tracks the stock of 500 large companies and represents the overall stock market for many calculations, including beta.

Order Ticket/Trade Ticket

a ticket filled out by a registered representative when placing an order to buy or sell securities.

Statute of Limitations

a time limit that, once reached, prevents criminal or civil action from being filed.

Put/Call Ratio or Puts-to-Calls

a tool of technical analysis showing the ratio of puts purchased to calls, with a higher ratio a bearish indicator revealing that many stock investors have hedged by buying protective puts.

Option Volatility

a tool of technical analysis to measure market sentiment.

Stochastics

a tool of technical analysts measuring the momentum of stocks and stock indexes.

RTRS

a trade reporting system used for transactions in municipal securities on the secondary market.

When-Issued

a transaction made conditionally, because a security has not yet been issued—only authorized. U.S. Treasury securities—sold at auctions—new issues of stocks and bonds, and stocks that are offered continuously or over time are all examples of when-issued securities.

Exempt Transaction

a transactional exemption from registration requirements based on the way the security is offered and sold, e.g., private placements under Reg D.

Irrevocable Trust

a trust in which the grantor may not revoke/take back the assets.

Revocable Trust

a trust in which the grantor may revoke/take back the assets. AKA "grantor trust."

Simple Trust

a trust that accumulates income and distributes it to the beneficiaries annually.

Market Risk

a type of "systematic risk," the risk inherent to the entire market rather than a specific security. The risk that the stock market may suffer violent upheavals due to unpredictable events including natural disaster, war, disease, famine, credit crises, etc. Market risk can be reduced by hedging with options or ETFs.

Prepaid Tuition

a type of 529 Plan in which tuition credits to be used in the future are purchased at today's prices.

Mini-Max

a type of best efforts underwriting where the syndicate must sell a minimum amount and may sell up to a higher, maximum amount.

All-or-None

a type of underwriting in which the syndicate will cancel the offering if a sufficient dollar amount is not raised as opposed to being responsible for the unsold shares (as in a "firm commitment"). Also, a type of order on the secondary market in which the investor wants the order to be canceled if the broker cannot acquire the full number of shares on one attempt.

Best Efforts

a type of underwriting leaving the syndicate at no risk for unsold shares, and allowing them to keep the proceeds on the shares that were sold/subscribed to. Underwriters act as "agents," not principals, in a best-efforts underwriting.

Backing Away

a violation in which a market maker fails to honor a published firm quote to buy or sell a security at a stated price.

Late Trading

a violation in which select investors are allowed to buy or sell mutual fund shares after the NAV has already been determined.

Freeriding & Withholding

a violation in which underwriters fail to distribute all shares allocated in an offering of a "hot issue."

Mutual Fund Timing

a violation that occurs when a fund allows certain investors to redeem their shares frequently without being assessed any redemption fees.

Selling Away

a violation that occurs when a registered representative offers investment opportunities not sponsored by the firm.

Commingling

a violation that occurs when the firm fails to segregate its securities from customer fully paid securities, or when it mixes customer fully-paid securities with those that are not fully paid.

Selling Dividends

a violation where an investor is deceived into thinking that she needs to purchase a stock in order to receive an upcoming dividend.

Basis Points

a way of measuring bond yields or other percentages in the financial industry. Each basis point is 1% of 1%. Example$ 2% = .0200 = 200 basis points. 20 basis points = .2% or 2/10ths of 1%.

Trust Indenture

a written agreement between an issuer and creditors wherein the terms of a debt security issue are set forth, e.g., interest rate, means of payment, maturity date, name of the trustee, etc.

FNMA

a.k.a. "Fannie Mae." Like little brother Freddie Mac, Fannie buys mortgages from lenders and sells mortgage-backed securities to investors. A quasi-agency, a public company listed for trading on the NYSE.

FHLMC

a.k.a. "Freddie Mac." Like big sister Fannie Mae, a quasi-agency, public company that purchases mortgages from lenders and sells mortgage-backed securities to investors. Stock is listed on NYSE.

Tax-Advantaged Account

an account that provides tax benefits for purposes of saving and investing for retirement, education, or healthcare expenses.

GNMA

a.k.a. "Ginnie Mae," nickname for Government National Mortgage Association. A government agency (not a public company) that buys insured mortgages from lenders, selling pass-through certificates to investors. Monthly payments to investors pay interest and also pass through principal from a pool of mortgages. Recall that bonds pay interest and return principal only at maturity, while "pass-throughs" pass through principal monthly.

Credit Risk

a.k.a. "default" or "financial" risk. The risk that the issuer's credit rating will be downgraded, or that the issuer will default on a debt security.

Viatical Settlement

a.k.a. "life settlement," the sale and purchase of a life insurance policy wherein the investor buys the death benefit at a discount and profits as soon as the insured dies.

Coupon Rate

a.k.a. "nominal yield." The interest rate stated on a bond representing the percentage of the par value received by the investor each year. For example, a bond with a 5% "coupon rate" or "nominal yield" pays $50 per bond to the holder per year. Period.

Red Herring

a.k.a. "preliminary prospectus." Contains essentially the same information that the final prospectus will contain, minus the POP and effective date.

User Fee

a.k.a. "user charge," a source of revenue used to retire a revenue bond, e.g., park entrance fees, tolls, skybox rentals, etc.

Order Room

a.k.a. "wire room." The department of a broker-dealer that places trades.

Marketability

a.k.a. liquidity; the ease or difficulty an investor has when trying to sell a security for cash without losing his shirt. Thinly traded securities have poor marketability.

Self-Clearing Broker

a/k/a "clearing broker," a member of the clearing agencies who clears trades for itself and other firms.

Liquidity

ability to convert an investment to cash without taking a large hit to principal.

Third-party Account

account managed on behalf of a third party, e.g., trust or UGMA.

JTIC (Joint Tenants In Common)

account where the assets of the deceased party pass to the deceased's estate, not the other account owner(s).

JTWROS (Joint Tenants With Rights Of Survivorship)

account where the assets of the deceased party pass to the other account owner(s).

Rights Offering

additional offer of stock accompanied by the opportunity for each shareholder to maintain his/her proportionate ownership in the company.

Official Notice of Sale

advertisement in the Bond Buyer in which a municipal issuer hopes to attract potential underwriters.

Call Provision

agreement between the issuer and the bondholders or preferred stockholders that gives the issuer the ability to repurchase the bonds or preferred stock on a specified date or dates before maturity.

Tax-Deferred

an account where all earnings remain untaxed until "constructive receipt."

Cost of Goods Sold (COGS)

all costs associated with producing the company's products, e.g., ingredients or raw materials.

Depletion

an accounting charge taken when a natural resources DPP sells oil or natural gas.

ETN

an exchange-traded note, an unsecured debt security with interest payments made at maturity and tied to an underlying benchmark.

Overallotment

allowing underwriters to sell additional shares of an offering, up to 15% more.

Combination Privilege

allows investors to combine purchases of many funds within the mutual fund family to reach a breakpoint/reduced sales charge.

Inflation Risk

also called "constant dollar risk" or "purchasing power risk," it is the risk that inflation will erode the value of a fixed-income stream from a bond or preferred stock.

Purchasing Power Risk

also called "constant dollar" or "inflation" risk, the risk that a fixed payment will not be sufficient to keep up with inflation (as measured through the CPI).

Individual Retirement Account (IRA)

also called an "individual retirement arrangement." A tax-deferred account that generally allows an individual no older than 70 and with earned income to contribute 100% of earned income up to the current maximum contribution allowed on a pre-tax basis that reduces the current tax liability and allows investment returns to compound.

Age-Based Portfolio

also known as a lifecycle fund, a fund whose asset allocation shifts automatically over time to match the goal and time horizon of the investors in the fund. Many 529 Savings Plans offer age-based portfolios, similar to target-date retirement funds.

Last-In-First-Out (LIFO)

an accounting method used for random withdrawals from an annuity. The IRS assumes that all withdrawals represent part of the taxable "excess over cost basis" first.

Interdealer

among dealers. The "interdealer market" is the highest bid and lowest asked price for a security among all dealers/market makers.

Margin

amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account. Or profit margin, showing the percentage of revenue left on various lines of the income statement—gross margin, net profit margin.

Reserve Requirement

amount of money a bank must lock up in reserve, established by the FRB.

Insider Trading and Securities Fraud Enforcement Act (ITSFEA) of 1988

an Act of Congress that addresses insider trading and lists the penalties for violations of the Act. Insider traders may be penalized up to three times the amount of their profit or their loss avoided by using inside information.

Fourth Market, INSTINET

an ECN (electronic communications network) used by institutional investors, bypassing the services of a traditional broker. Institutional = INSTINET.

Funding

an ERISA guideline that stipulates, among other things, that retirement plan assets must be segregated from other corporate assets.

Leveraged ETF

an ETF that uses derivatives to increase the fund's exposure to the underlying index.

Conduct Rules

an SRO's rules for member conduct that, if violated, may lead to sanctions and fines.

Sinking Fund

an account established by an issuing corporation or municipality to provide funds required to redeem a bond issue.

Escrow Account

an account held by an escrow agent/bank on behalf of, for example, investors subscribing to a contingent offer in which proceeds will be returned if the offer of securities is canceled. Also used by homeowners to automatically pay insurance and taxes.

Wrap Account

an account in which the customer pays one fee to cover the costs of investment advisory services, execution of transactions, etc.

Separate Account

an account maintained by an insurance/annuity company that is separate from the company's general account. Used to invest customers' money for variable annuities and variable insurance contracts. Registered as an investment company under Investment Company Act of 1940.

Specified Adult

an account owner who is (A) a natural person age 65 and older; or (B) a natural person age 18 and older who the member reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.

Discretionary Account

an account that has granted discretion to one or more registered representatives and the member firm he /they represent.

ETP

an exchange-traded product such as an ETN or ETF.

Follow-on Offering

an additional offer of securities occurring after the issuer's IPO. Some are primary offers, some are secondary offers.

Tombstone

an advertisement allowed during the cooling-off period to announce an offer of securities, listing the issuer, the type of security, the underwriters, and directions for obtaining a prospectus.

Omitting Prospectus

an advertisement for a mutual fund that typically shows performance figures without providing (omitting) the full disclosure contained in the prospectus. Therefore, it must present caveats and encourage readers to read the prospectus and consider all the risks before investing in the fund.

Recommendation

an affirmative statement or implication that an investor should consider buying, selling, or holding a security or pursuing an investment strategy.

Target Funds

an age-based asset allocation fund that automatically rebalances to match the investors' time horizon, e.g. a "Target 2040" fund is designed for investors planning to retire in or around the year 2040.

Lifecycle Fund

an age-based portfolio whose asset allocation shifts automatically over time, e.g. a target retirement fund.

General Securities Representative

an agent who passed the Series 99 and may sell virtually any security, unlike a Series 6 holder, who sells mutual funds and variable contracts only.

Green Shoe Clause

an agreement allowing the underwriters to sell additional shares if demand is high for an offering of securities.

Repurchase Agreement

an agreement in which one party sells securities to the other and agrees to repurchase them for a higher price over the short-term.

Pre-dispute Arbitration Agreement

an agreement signed by the customer of a broker-dealer in which the customer agrees to use arbitration rather than civil court to settle disputes.

Private Equity Fund

an alternative investment fund open to sophisticated investors and focusing on purchasing companies both public and private.

Venture Capital

an alternative investment fund that typically takes minority stakes in start-up companies.

Tax Credit

an amount that can be subtracted from the amount of taxes owed.

10K

an annual report required under the Securities Exchange Act of 1934.

Tax-Sheltered Annuity (TSA)

an annuity funded with pre-tax (tax-deductible) contributions. Available to employees of non-profit organizations such as schools, hospitals, and church organizations.

Deferred Annuity

an annuity that delays payments of income, installments, or a lump sum until the investor elects to receive it. Usually subject to surrender charges during the deferral period.

Variable Annuity

an annuity whose payout varies. Investments allocated to separate account as instructed by annuitant. Similar to investing in mutual funds, except that annuities offer tax deferral. No taxation until excess over cost basis is withdrawn.

Bonus Annuity

an annuity with special riders/enhancements attached.

Bond Rating

an evaluation of a bond issue's chance of default published by companies such as Moody's, S&P, and Fitch.

Forex

an exchange for trading foreign currencies, e.g. British Pound, Swiss Franc, and Yen, etc.

Investment Style

an approach to investing, such as active, passive, or buy-and-hold.

Current Asset

an asset that is either cash or will be turned into cash in the short-term, e.g., accounts receivable.

Fixed Asset

an asset with a long estimated useful life, e.g., equipment or factories.

Registered Representative

an associated person of an investment banker or broker-dealer who effects transactions in securities for compensation.

Limited Trading Authorization

an authorization for someone other than the account owner to enter purchase and sale orders but make no withdrawals of cash or securities.

Moving Average

an average found by regularly replacing the oldest data in the set with the most current information.

Employment Indicator

an economic indicator concerning employment figures, e.g., average weekly claims for unemployment and non-farm payroll.

Coincident Indicator

an economic indicator measuring the current state of economic affairs, e.g., personal income.

Leading Indicator

an economic indicator that predicts economic activity, e.g., building permits.

Lagging Indicator

an economic indicator that shows up after-the-fact to confirm a trend, e.g., inventory.

Trader

an employee of an institution such as a mutual or pension fund who enters purchase and sale orders for the securities portfolio.

Private Placement

an exempt transaction under Reg D (Rule 506) of the Securities Act of 1933, allowing issuers to sell securities without registration to accredited investors, who agree to hold them for a required period. Under state law, an offer to 10 individuals residing in the state.

Reg D

an exempt transaction under the Securities Act of 1933 for private placements.

72(t)

an exemption under IRS tax code allowing people to take money from retirement plans including annuities without paying penalties, even though they aren't 59½ yet.

Hold Recommendation

an explicit recommendation to refrain from selling a security currently held by an investor, subject to the agent's suitability obligations.

CUSIP Number

an identification number/code for a security.

Two-dollar Broker

an independent broker on the floor of the NYSE.

Narrow-based Index

an index focusing on an industry or geographic region, e.g., a transportation index.

Dow Jones Industrial Average (DJIA)

an index of 30 large cap stocks weighted by share price.

NASDAQ 100

an index of the largest non-financial domestic and international securities listed on The Nasdaq Stock Market based on market capitalization.

Broad-Based Index

an index such as the S&P 500 or the Value Line Composite Index that represents companies from many industries.

Broker

an individual or firm that charges a commission to execute securities buy and sell orders submitted by another individual or firm.

Agent

an individual representing a broker-dealer or issuer in effecting/completing transactions in securities for compensation. What you will be after passing your exams and obtaining your securities license.

Investment Adviser Representative or IAR

an individual representing an investment adviser for compensation.

Floor Broker

an individual who works for a member of the exchange filling orders for the firm and receiving a commission per-order. Present during open-outcry auctions to open and close each session.

Non-Cyclical

an industry not as dependent on the business cycle as cyclical stocks. Also called defensive industries, including food, alcohol, and consumer staples in general.

Countercyclical

an industry or stock that performs better during bad economic times, e.g. employment placement agencies.

Immediate Annuity

an insurance contract purchased with a single premium that starts to pay the annuitant immediately. Purchased by individuals who are afraid of outliving their retirement savings.

Fixed Annuity

an insurance product (not a security) in which the annuitant receives fixed dollar payments, usually for the rest of his or her life.

Equity-Indexed Annuity

an insurance product offering a minimum guaranteed rate and the opportunity to participate in some of the gains of an index, usually the S&P 500.

Goodwill

an intangible asset listed on the balance sheet representing the amount paid for an acquired entity above its hard, tangible asset value.

Developed Market

an international market that is more stable than an "emerging market," e.g. Japan as opposed to Brazil.

Custodial Account

an investment account in which a custodian enters trades on behalf of the beneficial owner, who is usually a minor child.

Cash Account

an investment account in which the investor must pay for all purchases no later than 2 business days following regular way settlement. Not a margin account.

Financial Planner

an investment adviser providing financial plans to clients that include securities, estate planning, educational funding, and other matters.

Mutual Fund

an investment company offering equity stakes in a portfolio that is usually managed actively and that always charges management fees and other expenses.

Closed-end Fund

an investment company that offers a fixed number of shares that are not redeemable. Shares are traded on the secondary market at a price that could be higher or lower than NAV (or even the same as NAV).

Open-end Fund

an investment company that sells an unlimited number of shares to an unlimited number of investors on a continuous basis. Shares are redeemed by the company rather than traded among investors.

Regulated Investment Company

an investment company using the conduit tax theory by distributing 90% or more of net investment income to shareholders.

Limited Liability

an investor's ability to limit losses to no more than the amount invested. Holders of common stock and limited partnership interests enjoy "limited liability," which means they can only lose 100% of what they invest.

Time Horizon

an investor's anticipated holding period, used to determine how much volatility can be withstood and how much liquidity is required.

Indication of Interest

an investor's expression of interest in purchasing a new issue of securities after reading the preliminary prospectus; not a commitment to buy.

Real Rate of Return

an investor's return minus the rate of inflation as measured by the CPI. AKA "inflation-adjusted return."

Recourse Note

an obligation of a limited partnership for which a limited partner is responsible personally.

Tender Offer

an offer by the issuer of securities to repurchase the securities if the investors care to "tender" their securities for payment, or an offer to acquire the shares currently held by shareholders of another company in a merger or acquisition.

Contingency Offering

an offer of securities that will be canceled if a certain amount is not raised, with investor funds going into an escrow account from which they are returned if the offer is, in fact, canceled. A mini-max offering is an example of a contingency offering, as is an all-or-none offering.

At-The-Market

an offer of securities to be sold over time, often at different prices to different investors depending on when the investment is made.

Regulation A

an offer under the Securities Act of 1933 with less stringent registration requirements. For small offers.

Registered Secondary

an offering of securities by persons other than the issuer. For example, the former CEO of a corporation may offer a large block of restricted (unregistered) stock to the public through a broker-dealer.

Intrastate Offering

an offering of securities completed in the issuer's home state with investors who reside in that state, and, therefore, eligible for the Rule 147 Exemption to registration with the SEC. Intrastate offerings generally register with the state Administrator.

Interstate Offering

an offering of securities in several states, requiring registration with the SEC.

Combined Offering

an offering of securities in which both the issuer and other large shareholders will be selling to the public.

Spin-Off

an offering of stock in a unit that is being divested from the issuer.

Signature Guarantee

an official stamp/medallion that officers of a bank affix to a stock power to attest to its validity.

Developmental Program

an oil or gas drilling program in an area in which reserves are known to exist.

Level Load

an ongoing asset-based sales charge (12b-1 fee) associated with mutual fund C-shares. Appropriate for short-term investments only.

Diversified Mutual Fund

an open- or closed-end fund hat complies with an SEC rule so that no more than 5% of assets are invested in a stock or bond and so that the fund does not own more than 10% of any issuer's outstanding stock. Often called the "75-5-10 rule," where the 75 means that only 75% of the assets must be diversified this way just to keep things nice and simple.

Unqualified Opinion

an opinion issued by the bond counsel expressing no doubts and requiring no qualifiers.

American Style

an option that can be exercised at any time up to expiration.

European Style

an option that may be exercised at expiration only.

Exercised

an option that the buyer has used to purchase or sell securities at the strike price.

CBOE

an options exchange and SRO registered with the SEC under the Securities Exchange Act of 1934.

Odd Lot

an order for less than the normal unit of trading in a security, e.g. 8 shares of stock.

Solicited Order

an order placed for a customer pursuant to an agent's recommendation and subject to suitability requirements.

Stop Order

an order that is activated only if the market price hits or passes through the stop price. Does not name a price for execution.

Retail Communications

any written (paper or electronic) communication made available to more than 25 retail investors in a 30-day period.

Affiliated Person or Affiliates

anyone in a position to influence decisions at a public corporation, including board members (directors), officers (CEO, CFO), and large shareholders (Warren Buffett at Coca-Cola or Wells Fargo) owning 10%+ of any class of the issuer's securities.

Pattern Day Trader

anyone who trades in the same security 4 or more times in the same day over a 5-day period, and whose same-day trades account for at least 6% of his trading activity over that period.

Value

as in "value investing" or a "value fund," the practice of purchasing stock in companies whose share price is currently depressed.

Passive Income

as opposed to "earned income," the income derived from rental properties, limited partnerships, or other enterprises in which the individual is not actively involved.

Nominal Quote

as opposed to a firm quote, an indication of what a market participant might be willing to pay or accept for a security. Nominal quotes must be clearly identified as such.

Legal Person

as opposed to a natural person—an entity including a trust, an estate, or a corporation.

Sharing Arrangement

as stated in the subscription agreement, the way in which income and capital contributions are to be allocated among the GP and the LPs.

Research Analyst

associated person of a member firm who prepares research reports.

Contingent Deferred Sales Charge

associated with B-shares, the sales charge is deducted from the investor's check when she redeems/sells her shares. The charge is deferred until she sells and is contingent upon when she sells—the sales charges decline over time, eventually disappearing after 7 years, at which point the B-shares become A-shares.

Dated Date

the date on which interest begins to accrue on a new issue of bonds.

Registrar

audits the transfer agent to make sure the number of authorized shares is never exceeded.

Discretion

authority given to someone other than the account owner to make trading decisions for the account.

Durable Power of Attorney

authorizing another party to make legal, health-related, and financial decisions if the individual should become incapacitated.

200-day moving average

average closing price over the previous 200 days for a stock or an index.

Reorganization Department

back office operation of a broker-dealer handling changes to securities ownership due to mergers, acquisitions, bankruptcies, bond calls, and tender offers.

Guaranteed Bond

bond that is issued with a promise by a party other than the issuer to maintain payments of interest and principal if the issuer cannot.

Sovereign Debt

bonds issued by a national government and payable in a foreign currency.

Brady Bonds

bonds issued by emerging-market nations and collateralized by U.S. Treasury securities to keep yields down and help such nations pay off their debt to the developed world.

Fully Registered Bonds

bonds whose principal and interest payments are tracked/registered for purposes of taxation. A physical certificate with the owner's name, and interest payable automatically by the paying agent (no coupons).

Legend

box of text printed or stamped on a security certificate indicating restrictions on its transfer. Securities bought in a private placement frequently have such a legend, stamped usually on the back of the certificate.

Leveraged Buyout

buying a company with the proceeds of a debt issue, frequently performed in private equity deals.

Call Spread

buying and selling a call on the same underlying instrument where the strike price, the expiration, or both are different.

Freeriding

buying securities and, then, selling them to cover the purchase. Leads to an account freeze under Reg T.

Yield to Maturity

calculation of all interest payments plus/minus gain/loss on a bond if held to maturity.

OTC/Over-the-Counter

called a "negotiated market." Securities traded among dealers rather than on physical exchanges. Includes NASDAQ and Bulletin Board and Pink Sheet stocks, plus government, corporate, and municipal bonds.

Depository Trust Company or DTC

centralized depository of securities involved with the final settlement process of a transaction in which securities and cash are moved to the appropriate parties.

Selling Group

certain broker-dealers with an agreement to act as selling agents for the syndicate (underwriters) with no capital at risk.

Tax Preference Item

certain items that must be added back to an investor's income for purposes of AMT, including interest on certain municipal bonds.

Brokered CDs

certificates of deposit offered by selling agents and paying competitive yields among a larger universe of banks.

CEO

chief executive officer. Individual ultimately responsible for a corporation's results.

CFO

chief financial officer. Individual in charge of a corporation's financial activities.

Gift Splitting

claiming a gift as coming from both husband and wife to avoid gift tax liability.

Footnotes

clarifications of the financial statements provided by management in a 10Q or 10K report.

Investment Company Act of 1940

classified Investment Companies and set rules for registration and operation.

National Securities Clearing Corporation

clearing agency for stock transactions that uses Continuous Net Settlement and guarantees the performance of all transactions between member firms.

Generic Advertising

communications with the public that promote securities as investments but not particular securities.

Settlement

completion of a securities transaction wherein payment has been made by the buyer and delivery has been made by the seller.

Written Supervisory Procedures (WSP)

compliance manual/systems implemented by member firms and monitored regularly for adequacy.

When-issued Confirmations

confirmations of a purchase on the primary market delivered before the securities have been issued.

Tipper

the guy who told him.

CLN

construction loan note, a type of municipal note backed by the proceeds from a construction loan for a new building project.

Durable Goods

consumer purchases of goods expected to last, as opposed to food and beverage. Examples include books, sports equipment, and home appliances.

Regulatory Element

continuing education requirement completed on second anniversary of registration and every three years thereafter. Failure to complete within 120 days of anniversary leads to "inactive" status.

Derivatives

contracts to buy or sell an underlying instrument at a stated price within a stated time frame, e.g., call and put options.

Trust Indenture Act of 1939

corporate bond issues in excess of $5 million with maturities greater than 1 year must be issued with an indenture.

Subordinated Debenture

corporate bond with a claim that is subordinated or "junior" to a debenture and/or general creditor.

Federal Open Market Committee (FOMC)

council of Federal Reserve officials that sets monetary policy based on economic data. The money supply is tightened to fight inflation, loosened to provide stimulus to a faltering economy.

Bond Buyer

daily publication covering the municipal securities industry.

Effective Date

date established by SEC and/or a state securities Administrator as to when the underwriters may sell new securities to investors; a.k.a. "release date."

Release Date

date established by the SEC as to when the underwriters may sell new securities to the buyers; a.k.a. "effective date."

Auction Rate Securities

debt securities with a variable rate of interest or preferred stock with a variable dividend rate that is re-set at regular auctions.

Producer Price Index or PPI

defined by the Bureau of Labor Statistics as "the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services."

Corporate Financing Department or CFD

department of FINRA reviewing the terms of compensation for member firms involved with a securities offering.

Treasury Securities

securities guaranteed by U.S. Treasury, including T-bills, T-notes, T-bonds, and STRIPS.

T-bonds

direct obligation of U.S. Government. Pay semi-annual interest. Quoted as % of par value plus 32nds. 10-30-year maturities.

T-notes

direct obligation of U.S. Government. Pay semi-annual interest. Quoted as % of par value plus 32nds. 2-10-year maturities.

T-bills

direct obligation of U.S. Government. Sold at discount, mature at face amount. Maximum maturity is 1 year.

Due Bill

document sent by a broker-dealer when a dividend payment was sent to the wrong party and belongs to the broker-dealer's customer.

Capital Gains Distribution

distribution from fund to investor based on net capital gains realized by the fund portfolio. Holding period determined by the fund and assumed to be long-term.

Dividend/Income Distributions

distributions from a fund to the investors made from net investment income. Typically, may be reinvested at the NAV to avoid sales charge.

75-5-10 rule

diversification formula for an open- or closed-end fund advertising itself as "diversified." 75% of the portfolio must have no more than 5% of assets invested in any one security, and no more than 10% of a company's outstanding shares may be owned.

Final Prospectus

document delivered with final confirmation of a new issue of securities detailing the price, delivery date, and underwriting spread.

Rating Service

e.g., S&P and Moody's; a company that assigns credit ratings to corporate and municipal bonds.

Education IRA

earlier name for the Coverdell Education Savings Account in which after-tax contributions may be made to pay qualified education expenses for the beneficiary.

Adjusted Gross Income (AGI)

earned income plus passive income, portfolio income, and capital gains. The amount upon which we pay income tax.

Diluted EPS

earnings per share after factoring in the dilution that would occur due to warrants and convertible securities.

Keynesian Economics

economic school of thought that advocates government intervention through fiscal policy to stimulate demand for goods and services.

529 Plans

education savings plans offering tax-deferred growth and tax-free distributions at the federal level for qualified educational expenses. Pre-paid tuition plans allow customers to purchase a certain number of tuition credits at today's prices to be used at a school within a state. 529 Savings Plans allow customers to contribute up to the current gift tax exclusion without paying gift taxes. Earnings grow tax-deferred and may be used for qualified education expenses (more than just tuition) later without federal taxation. States can tax the plans—so know the customer's situation!

Electronic Communications Networks (ECNs)

electronic trading platforms that allow institutional investors to buy and sell securities directly.

Parity

equal, e.g. when a convertible bond trades for exactly what the underlying shares are worth.

Reg U

established by the FRB as the amount of credit a bank may extend to a broker-dealer or public customer pledging a security as collateral.

Reg T

established by the FRB as the amount of credit a broker-dealer may extend to a customer pledging a security as collateral for a margin loan. In a margin account, customers must put down ½ of the security's value, or at least $2,000.

Regulation D

exempt transactions under the Securities Act of 1933 associated, typically, with accredited investors. AKA "private placements."

Rule 147

exemption under the Securities Act of 1933 for intra-state offerings of securities.

Monetarists

officials who implement monetary policy designed to fight inflation or stimulate the economy, e.g. the Federal Reserve Board.

Escrow Receipt

evidence that securities are held by an escrow agent, sometimes used when selling call options to show the broker-dealer that the underlying shares can be delivered if the contract is assigned.

Churning

excessive trading in terms of frequency and size of transactions designed to generate commissions without regard for the customer.

OTC Options

exotic options traded on the over-the-counter market, where participants can choose the characteristics of the options traded.

Operating Expenses

expenses that a mutual fund deducts from the assets of the fund, including board of director salaries, custodial and transfer agent services, management fees, 12b-1 fees, etc. Or, on the income statement for a business, the expenses not directly related to producing product or delivering services, e.g., administrative salaries.

Investment Risks

factors that may have a negative effect on a securities investment, e.g. interest rate or inflation risk.

Rights of Accumulation

feature of many mutual funds whereby a rise in account value is counted the same as new money for purposes of achieving a breakpoint.

FDIC (Federal Deposit Insurance Corporation)

federal government agency that provides deposit insurance for member banks and prevents bank and "thrift" failures. Bank deposits are currently insured up to $250,000, a number that could have changed by the time you read this definition.

Office of Foreign Asset Control (OFAC)

federal government office that maintains a list of individuals and organizations viewed as a threat to the U.S., called Specially Designated Nationals.

Fair and Accurate Credit Transactions or FACT Act

federal legislation allowing consumers to monitor their credit reports and attempting to reduce identity theft.

Telephone Consumer Protection Act of 1991

federal legislation restricting the activities of telemarketers, who generally may only call prospects between 8 a.m. and 9 p.m. in the prospect's time zone and must maintain a do-not-call list, also checking the national registry.

Check Kiting

financial crime in which the criminal exploits the lag time involved with clearing checks by writing bogus checks on two or multiple accounts.

Inventory

finished goods that have not yet been sold. A current asset. Inverse ETF$ an ETF that bets against the underlying index.

Clearing Agencies

firms that clear/process transactions between clearing member firms. Includes both clearing agencies and depositories.

FIFO

first-in-first-out. An accounting method for valuing a company's inventory or for determining the capital gain/loss for an investor. Using FIFO, an investor indicates that, for example, the 100 shares of ABC that were sold at $55 are the first 100 shares that he purchased.

Cancel and rebill

fixing a trade error by placing the transaction in the proper customer account.

Variable Universal Life Insurance

flexible-premium insurance with cash value and death benefit tied to the performance of the separate account.

Class

for example, all MSFT calls, or all IBM puts.

Credit Enhancement

for example, an insured municipal bond backed by MBIA or AMBAC.

Tax Shelter

offsetting passive income with a share of passive losses from a direct participation program.

Control Relationship

for municipal securities, a situation in which a person is in a position of control both for the issuer and any underwriter. For broker-dealers, a situation in which the member executes a transaction in a security of an issuer related to the broker-dealer. Both situations require full disclosure of the nature of the conflict.

Redemption

for mutual funds, redemption involves the sale of mutual fund shares back to the fund at the NAV (less any redemption fees, back-end loads). For bonds, the date that principal is returned to the investor, along with the final interest payment—AKA, maturity.

Insider

for purpose of insider trading rules, an "insider" is anyone who has or has access to material non-public information. Officers (CEO, CFO), members of the board of directors, and investors owning > 10% of the company's outstanding shares are assumed to possess and have access to inside information. As fiduciaries to the shareholders, insiders may not use inside information to their benefit.

Consumer

for purposes of Regulation S-P, a consumer is someone considering a financial relationship with a firm.

Execution Quality

for purposes of determining best execution, execution quality considers aspects other than price, such as a market maker's fill rate and speed of execution.

Municipal Finance Professional

for purposes of rules on political contributions, the term includes principals, registered representatives, and any paid solicitors who help firms land underwriting deals.

Complex Trust

for tax purposes, a trust that makes charitable contributions, makes a distribution from corpus, or retains some income for the tax year.

Variable Life Insurance

form of insurance where death benefit and cash value fluctuate according to fluctuations of the separate account.

Whole Life Insurance

form of permanent insurance with a guaranteed death benefit and minimum guaranteed cash value.

Term Life Insurance

form of temporary insurance that builds no cash value and must be renewed at a higher premium at the end of the term. Renting rather than buying insurance.

NASD (National Association of Securities Dealers)

former name of the SRO empowered with the passage of the Maloney Act of 1938. Regulates its own members and enforces SEC rules and regulations. Now called FINRA after a merger with the regulators from the NYSE.

Stockholders' Equity

from the balance sheet, the difference between assets and liabilities. AKA "net worth."

Total Liabilities

from the balance sheet, the sum of current and long-term liabilities.

Total Assets

from the balance sheet, the sum of current, fixed, and intangible assets.

Proxy Statement

full disclosure document required by an issuer before soliciting votes by proxy at any annual or special shareholder meeting.

Top-Down Analysis

fundamental analysis that starts with the overall economy, then moves down to industry groups and issuers to make buy or sell decisions.

Security Index Future

futures contracts deriving their value from various indexes, often used to predict the movement of the stock movement when it opens.

Limited Tax Bonds

general obligation bonds backed by a tax whose rate may not be increased above a certain limit.

Spread

generally, the difference between a dealer's purchase price and selling price, both for new offerings (underwriting spread) and secondary market quotes. For underwritings the spread is the difference between the proceeds to the issuer and the POP.

Prudent Investor Standards

guidance provided to fiduciaries investing on behalf of a third party, e.g., trustees or custodians of UTMA accounts.

Stock Dividend

payment of a dividend in the form of more shares of stock; not a taxable event.

Officers

high-level executives at a public corporation, e.g., the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the Chief Operating Officer (COO).

Uniform Practice Code

how FINRA promotes "cooperative effort," standardizing settlement dates, ex-dates, accrued interest calculations, etc.

Purchasing Power

how much a dollar can buy relative to consumer prices.

Open Market Operations

how the FOMC achieves monetary targets by buying and selling U.S. Treasury securities on the open market.

Balance of Payments

imports versus exports and also financial transactions. A surplus = more $ coming into the country. A deficit = more $ flowing out of the country.

Balance of Trade

imports versus exports. A surplus= more exports than imports. A deficit = more imports than exports.

Acceptance, Waiver and Consent (AWC)

in a disciplinary proceeding, when the member or associated person accepts a finding of violation, consents to the imposition of sanctions, and agrees to waive such member's or associated person's right to a hearing.

Street Name

in the name of the broker-dealer holding securities on behalf of customers.

Earned Income

income derived from active participation in a business, including wages, salary, tips, commissions, and bonuses. Alimony received is also considered earned income. Earned income can be used toward an IRA contribution.

Unearned Income

income derived from investments and other sources not related to employment, e.g., savings account interest, dividends from stock, capital gains, and rental income.

Transfer on Death (TOD)

individual account with a named beneficiary—assets transferred directly to the named beneficiary upon death of the account holder.

Traditional IRA

individual retirement account funded typically with tax-deductible contributions.

Roth IRA

individual retirement account funded with non-deductible (after-tax) contributions. All distributions are tax-free provided the individual is 59½ and has had the account at least five years.

Specially Designated National (SDN)

individuals and entities whose assets have been blocked by the Department of Treasury.

Mediation

informal process of dispute resolution that sometimes avoids arbitration claims.

U5

information provided to CRD when an associated person terminates employment with a member firm.

Variable Insurance

insurance whose death benefit and cash values fluctuate with the investment performance of the separate account.

Fungible

interchangeable, e.g., $20 bills or shares of stock, where one is just as good as another.

Discount Rate

interest rate charged by the 12 Federal Reserve Banks to member banks who borrow from the FRB.

Fed Funds Rate

interest rate charged on bank-to-bank loans. Subject to daily fluctuation.

Prime Rate

interest rate charged to corporations with high credit ratings for unsecured loans.

Broker Call Loan Rate

interest rate that broker-dealers pay when borrowing on behalf of margin customers.

Compound Interest

interest that is added to the principal for each successive calculation of interest payments to the investor, e.g., a certificate of deposit.

Dollar Cost Averaging

investing fixed dollar amounts regularly, regardless of share price. Usually results in a lower average cost compared to average of share prices, as investors' dollars buy majority of shares at lower prices.

Joint Account

investment account owned by more than one individual. Account owners sign a joint account agreement that stipulates which % of the assets is owned by each individual. Joint accounts are either "tenants in common" or "tenants with rights of survivorship."

Growth

investment objective that seeks "capital appreciation." Achieved through common stock, primarily.

Income

investment objective that seeks current income, found by investing in fixed-income securities, e.g., bonds, money market, preferred stock. An equity income fund buys stocks that pay dividends; less volatile than a growth & income fund or a pure growth fund.

Subaccount

investment options available within the separate account for variable contract holders.

Structured Products

investments created and sold by financial intermediaries with terms that are mutually agreed upon by both parties, e.g., an ETN or HOLDR.

Qualified Institutional Buyers

investors meeting certain SEC criteria allowing them to participate in certain investment opportunities not open to the public.

Advance Refunding/Pre-refunding

issuing new bonds and depositing part of the proceeds in escrow more than 90 days ahead of the first legal call date on the existing bond issue.

Treasury, Treasury Securities

securities representing direct obligations of the U.S. Treasury, e.g., T-Bills.

Capital Assets

items of value including securities, real estate, artwork, collectibles, etc.

UTMA

just like UGMA, only the minor typically must wait until 21 years of age to have the assets re-registered solely in his/her name. The "T" stands for "transfer."

Securities Exchange Act of 1934

landmark securities legislation that prevents fraud in the securities markets. Created/empowered the SEC. Requires broker-dealers, exchanges and securities associations to register with SEC. Requires public companies to report quarterly and annually to SEC.

Accredited Investors

large institutional investors, and individuals meeting certain income or net worth requirements allowing them to participate in, for example, a private placement under Reg D of the Securities Act of 1933, or hedge funds.

Dark Pools of Liquidity

large institutional orders for securities that are concealed from the public and executed typically on the fourth market.

Regulation AC

legislation requiring research analysts to certify the accuracy and truthfulness of their research reports.

Reg FD

legislation requiring that any material non-public information disclosed by a public corporation to analysts or other investors must be made public.

Gross Revenue Pledge

less common method used by revenue bond issuers in which debt service is paid even before operations & maintenance.

Permanent Insurance

life insurance other than "term."

Partial Surrender

life insurance policyholder cashes in part of the cash value. Excess over premiums is taxable.

Scheduled Premium

life insurance with established, scheduled premium payments, e.g., whole life, variable life. As opposed to "universal" insurance, which is "flexible premium."

Warrants

long-term derivative securities giving the owner the right to purchase stock at a set price. Often attached as a "sweetener" that makes the other security more attractive.

LEAPS

long-term standardized options.

Capital Loss

loss incurred when selling a capital asset for less than the purchase price. Capital losses offset an investor's capital gains and can offset ordinary income to a certain amount.

Designated Market Maker

market participant charged with maintaining a fair and orderly market in the stocks they quote. DMMs must quote at the national best-bid-or-offer (NBBO) a specified percentage of the time, and facilitate price discovery throughout the day as well as at the open, close and in periods of significant imbalances and high volatility.

Inside Information

material information about a corporation that has not yet been released to the public and would likely affect the price of the corporation's stock and/or bonds. Inside information may not be "disseminated" or acted upon.

Position Limit

maximum number of options contracts that a trader can have on the same side of the market (bull/bear) and/or may exercise over a five-day period.

Total Return

measuring growth in share price plus dividend and capital gains distributions.

Precious Metals

metals with industrial uses or intrinsic worth including gold, silver, palladium, and platinum.

Short Sale

method of attempting to profit from a security whose price is expected to fall. Trader borrows certificates through a broker-dealer and sells them, with the obligation to replace them at a later date, hopefully at a lower price. Bearish position.

Specific Identification

method of determining cost basis on securities for purposes of capital gains/loss reporting.

Exclusion Ratio

method of determining which part of an annuity payment is taxable, and which part represents the tax-free return of the annuitant's after-tax cost basis.

Sweep Program

method of holding customer cash in either FDIC-insured or SPIC-insured accounts.

Continuous Net Settlement

method used by clearing agencies that involves the netting of all purchases and sales in a security or options contract for a member firm, as opposed to forcing firms to settle with the other side of each trade. After all trading ceases for the day, a member firm is either a net buyer or net seller of ABC common stock and either owes money or securities to the clearing corporation.

Dividend

money paid from profits to holders of common and preferred stock whenever the Board of Directors declares it.

Cash Dividend

money paid to shareholders from a corporation's current earnings or accumulated profits.

Capital

money raised from investors by issuing stocks, bonds, etc.

Bankers' Acceptance (BA)

money-market security that facilitates importing/exporting. Issued at a discount from face-value. A secured loan.

Rollover

moving retirement funds from a 401(k) to an IRA, or from one IRA to another. In a "60-day rollover," the check is cut to the individual, who must then send a check to the new custodian within 60 days to avoid early distribution penalties.

Direct Transfer

moving the proceeds of a tax-deferred account to another custodian rather than the individual taking possession or control of the assets.

Bank Qualified Municipal Bond

municipal bonds that allow banks to deduct 80% of the interest costs incurred to buy them.

Non-Bank Qualified Municipal Bond

municipal bonds that do not allow banks to deduct 80% of the interest costs incurred to buy them.

Tax-Exempt Bonds

municipal bonds whose interest is not subject to taxation by the federal government.

B-Shares

mutual fund shares charging a load only when the investor redeems/sells the shares. Associated with "contingent deferred sales charges." B-shares have higher operating expenses than A-shares by way of a higher 12b-1 fee.

A-Shares

mutual fund shares sold with a front-end sales load/charge. Lower annual expenses than B- and C-shares.

Value Funds

mutual funds investing in stocks currently out of favor with investors.

Growth Funds

mutual funds investing in stocks expected to grow faster than the overall market and trading at high price-to-earnings multiples.

Equity Funds

mutual funds that primarily invest in equity securities. Equity Income Fund$ a mutual fund that purchases common stocks whose issuers pay consistent and, perhaps, increasing dividends. The fund has less volatility than an equity fund with "growth" as an objective.

Earnings Available to Common

net income after the preferred stock dividend is deducted. Used to find EPS.

Institutional Investor

not an individual. An institution is, for example, a pension fund, insurance company, or mutual fund. The large institutions are "accredited investors" who get to do things that retail (individual) investors often do not get to do.

Maintenance Call

notification provided by a broker-dealer to a margin customer requiring him to bring his equity up to the minimum required maintenance.

Exercise Notice

notification sent by a firm to the OCC when a customer exercises an options contract.

Best Execution

obligation to fill customer orders at the best available price, while considering other factors, e.g. execution quality.

Unfunded Pension Liabilities

obligations to retiring municipal workers that outweigh the funds set aside to pay them.

Private Securities Transaction

offering an investment opportunity not sponsored by the firm. Requires permission from the firm and any disclosure demanded; otherwise, a violation called "selling away."

Offering Circular

offering document used when a prospectus is not required under the Securities Act of 1933.

Primary Offering

offering of securities in which the proceeds go to the issuer.

C-Shares

often called "level load" because of the high 12b-1 fee. Usually involve no front-end load, sometimes have a contingent deferred sales charge for 1 or 1.5 years. Appropriate for shorter-term investing only.

Management Company

one of the three types of Investment Companies, including both open-end and closed-end funds.

Face-Amount Certificate Company

one of the three types of investment company under the Investment Company Act of 1940. Issues face-amount certificates. Not a UIT or "management company."

Moody's Investors Service

one of the top three credit rating agencies for corporate and municipal bonds as well as stocks.

Settlement Options

payout options on annuities and life insurance including life-only, life with period certain, and joint and last survivorship.

Qualified Opinion

opinion by the bond counsel for a municipal issuer in which some doubt or reservations are expressed.

Type

option term used to separate a call from a put, the only two "types" of options.

Interest Rate Options

options based on the price or yield of U.S. Treasury securities.

Certificate of Participation

or "COP," a municipal security paying a share of lease revenues to the investor as opposed to a bond backed by such revenues from a project.

Managing Underwriter

or "lead underwriter," the syndicate member in charge of keeping the many required records involved with an offer of securities and usually taking the largest allocation of all members.

Net Revenue

or "net operating revenue," represents revenue after accounting for any returns or discounting. Especially relevant for the retail sector.

Asset-Backed Securities

or ABS, bonds or notes backed by financial assets, e.g., credit card receivables or auto loans.

FEIN

or Federal Employer Identification Number, a tax identification number used by various entities including a corporation, estate, or trust.

Limit Orders

orders to buy or sell a security at a specified price or better.

Federal Farm Credit System

organization of privately owned banks providing credit to farmers and mortgages on farm property.

OID

original issue discount. A bond purchased for less than the par value on the primary market, e.g., a zero-coupon bond.

Non-NASDAQ OTC Securities

over-the-counter securities that do not meet the requirements of NASDAQ. For example, OTCBB securities.

Equity

ownership, e.g., common and preferred stock in a public company. In a margin account, the difference between the market value of stock held long and the debit balance.

Specially Designated Nationals

parties whose names are on a special list with the Office of Foreign Asset Control (OFAC) of persons that U.S. entities are not to do business with.

Surrender Charge

penalties paid to the insurance/annuity company when cashing in a contract early.

Matching Contribution

percentage of the employee's elective deferral that the employer contributes to a retirement plan.

Free-Look

period during which a contract or policyholder may cancel and receive all sales charges paid. Not a popular phrase among seasoned insurance and annuity salespersons.

Contraction

phase of the business cycle associated with general economic decline, recession or depression.

Expansion

phase of the business cycle associated with increased activity.

Custody

possession or control of investor securities and cash.

Backdating

pre-dating a letter of intent (LOI) for a mutual fund to include a prior purchase in the total amount stated in the letter of intent. LOIs may be backdated up to 90 calendar days.

SEP-IRA

pre-tax retirement plan available to small businesses. Only the employer contributes. Series$ e.g., a MSFT Nov 40 call. The standardized contracts available on the secondary market naming the underlying stock, the expiration, and the strike price.

Cumulative Preferred Stock

preferred stock where missed dividends go into arrears and must be paid before the issuer may pay dividends to other preferred stock and/or common stock.

Participating Preferred Stock

preferred stock whose dividend is often raised above the stated rate.

Adjustable Rate Preferred Stock

preferred stock whose dividend is tied to another rate, often the rate paid on T-bills.

Keogh

qualified retirement plan available to sole proprietorships.

Breakpoint Selling

preventing an investor from achieving a breakpoint. A violation.

Mark to the Market

process of calculating margin requirements based on the most current market values for the securities in a margin account.

Reconciliation

process of matching bank records to the broker-dealer's own ledgers, or matching securities records from the DTC with the firm's stock record.

Competitive Bids

process used for most general obligation bonds in which the underwriting business is awarded to the syndicate that turns in the lowest cost of borrowing to the issuer.

Front-running

prohibited practice of taking advantage of a customer order by trading ahead and using the customer order to benefit the registered representative or firm at the expense of the customer.

Statutory Disqualification

prohibiting a person from associating with an SRO due to disciplinary or criminal actions within the past 10 years, or due to filing a false or misleading application or report with a regulator.

Insurance Covenant

promise by a revenue bond issuer to keep the facility properly insured.

Protective Covenants

promises from the issuer of a revenue bond to the bondholders designed to protect the bondholders against default.

Ad Valorem

property tax. Literally "as to value."

Issuing Securities

raising capital by offering securities to investors on the primary market.

Equity Securities

securities representing ownership, e.g., common and preferred stock.

Insurance

protection against loss of income due to death, disability, long-term care needs, etc.

Reg S-K

provides guidance on forward-looking statements made by an issuer and lays out the information required in various types of securities registration statements.

Participation

provision of ERISA requiring that all employees in a qualified retirement plan be covered within a reasonable length of time after being hired.

POP

public offering price. For an IPO, this includes the spread to the underwriters. For a mutual fund, this includes any sales loads that go to the underwriter/distributor.

Diversification

purchasing securities from many different issuers, or industries, or geographic regions, to reduce "nonsystematic risk."

401(k)

qualified defined contribution plan typically offering employer-matched contributions.

(Section) 457 plan

qualified plan for state and municipal government employees.

403(b)

qualified plan for tax-exempt, non-profit organizations.

RVP

receipt versus payment, a method of settlement whereby payment on the transaction is made when delivery of the securities is received and accepted.

Sales Blotter

record of original entry showing "an itemized daily record of all purchases and sales of securities, all receipts and deliveries of securities (including certificate numbers), all receipts and disbursements of cash and all other debits and credits.

Current Refunding

refunding a bond issue where the existing bonds are redeemed within 90 days.

Shelf Registration

registering securities that will be sold gradually on the primary market.

U4

registration information for an associated person of a member firm. Used to apply for registration and subject to regular updating requirements.

Box Counts

regular check of a broker-dealer's securities versus what is indicated on its stock record.

T + 2

regular way settlement, trade date plus two business days.

Securities Act of 1933

regulates the new-issue or primary market, requiring non-exempt issuers to register securities and provide full disclosure.

Rule (and Form) 144

regulates the sale of "control stock" by requiring board members, officers, and large shareholders to report sales of their corporation's stock and to adhere to volume limits. The form is filed as often as quarterly, no later than concurrently with the sale.

Refunding

replacing an outstanding bond issue by issuing new bonds at a lower interest rate. Also known as "calling" a bond issue.

Suspicious Activity Report (SAR)

required reports of broker-dealers who suspect activity in a customer account that appears to involve money laundering activities. Filed with the U.S. Treasury's FinCEN.

Customer Identification Program (CIP)

requirements to probably identify customers when opening accounts and documenting how the customer's identity was verified by the broker-dealer, e.g. passport or other government-issued photo ID.

Payroll Deduction IRA

retirement plan offered by some businesses in which employees direct the employer to deposit a certain amount of his paycheck into his IRA.

Special Assessment Bonds

revenue bonds backed by an assessment on only those properties benefiting from the project.

NHA - New Housing Authority (bonds)

revenue bonds issued by a municipal government but ultimately backed by the United States Government, who guarantees rental payments for the residents of the housing project.

Inflation

rising prices, as measured by the Consumer Price Index (CPI). Major risk to fixed-income investors (loss of purchasing power).

Rule 144a

rule that allows restricted securities to be re-sold to institutional investors including banks, insurance companies, broker-dealers, investment advisers, pension plans, and investment companies without violating holding period requirements.

Rule 145

rule that requires corporations in a proposed merger/acquisition to solicit the vote of the shareholders of both the purchasing and the acquired corporation.

Penny Stock Cold Calling Rules

rules to protect consumers receiving telemarketing pitches to buy risky stocks trading below $5 a share. Rules require special disclosure and investor signatures when selling penny stocks.

Cash Settlement

same-day settlement of a trade requiring prior broker-dealer approval. Not the "regular way" of doing things.

Subchapter M

section of the Internal Revenue Code providing the "conduit tax treatment" used by REITs and mutual funds distributing 90% or more of net income to shareholders. A mutual fund using this method is technically a Regulated Investment Company under IRC Subchapter M.

Wash Sale

selling a security at a loss but then messing up by repurchasing it within 30 days and, therefore, not being able to use it to offset capital gains for that year. Also, a type of market manipulation in which a security is traded among the same or related parties without a "change in beneficial ownership" but only with the purpose of manipulating its market price.

Next-Day Settlement

settlement of a trade occurring on the first business day following the transaction. AKA "T + 1."

Arbitration

settling a dispute without going to an actual court of law.

Treasury Stock

shares that have been issued and repurchased by the corporation. Has nothing to do with the U.S. Treasury.

Market Cap

short for "market capitalization," it is the total value of the issuer's outstanding shares.

LIBOR

short for the London Interbank Offered Rate, an average of the world's most creditworthy banks' interbank deposit rates for large loans with maturities between overnight and one year. LIBOR is the most frequently used benchmark for short-term interest rates.

Rights

short-term equity securities that allow the holder to buy new shares below the current market price.

Anticipation Notes

short-term obligations of a municipality often held by tax-exempt money market mutual funds.

Subscription Rights

short-term securities used to avoid dilution pursuant to an additional offer of common stock. AKA, rights or stock rights.

Long-Term Options (LEAPS)

standardized options contracts with expiration terms of several years, unlike ordinary options, which expire in nine months or sooner.

Amortize, Amortization

similar to depreciation, the act of spreading an intangible asset's cost over its estimated useful life, or the schedule of interest/principal payments for a mortgage.

Fiduciary

someone responsible for the financial affairs of someone else, e.g., custodian, trustee, or registered rep in a discretionary account.

Assets

something that a corporation or individual owns, e.g., cash, investments, accounts receivable, inventory, etc.

Mortality & Expense Risk Fee

sometimes referred to as "M&E" expenses, annual charges levied by the annuity company to cover the cost of death benefits and any guaranteed income associated with an annuity.

Precious Metals Funds

specialized mutual funds typically investing in the shares of mining/extraction companies.

Supplemental Liquidity Providers

specially designated off-floor members of the NYSE who play a unique role in the trading of securities on the secondary market. These participants use sophisticated computerized trading strategies to create high volume on exchanges to add liquidity to the markets. As an incentive to provide liquidity, the exchange pays the Supplemental Liquidity Provider (SLP) a fee/rebate.

Depreciation

spreading the cost of a fixed asset over its useful life by taking a series of non-cash charges on the income statement.

Price-based Options

standardized interest rate options based on the price of various U.S. Treasury securities.

Yield-based Options

standardized options based on the yield of various U.S. Treasury securities.

Non-equity Options

standardized options based on things other than equity securities, e.g., indexes or foreign currency options.

Blue Chip

stock in a well-established company with proven ability to pay dividends in good economic times and bad. Lower risk/reward ratio than other common stock.

Control Stock

stock owned by persons in a position of control at the issuer, e.g., the CEO and large shareholders.

Technical Analysts

stock traders who rely on market data to spot buying and selling opportunities.

Restricted Stock

stock whose transfer is subject to restrictions, e.g., a holding period. Stock purchased in private placements is an example of restricted stock.

Inflation-Adjusted

subtracting out the CPI or rate of inflation from an investor's return or from GDP calculations. Associated the word "real," e.g. "real rate or return" or "real GDP."

Trade Reporting and Comparison Service (TRACS)

system developed for ADF members, requiring them to report trades executed through the Alternative Display Facility within 10 seconds of execution.

Display Book

system of matching electronic orders automatically.

Bond Swap

taking a loss on a bond and replacing it with a substantially different bond to avoid a wash sale.

Arbitrage

taking advantage of the disparity in pricing between two things. In a proposed merger, some traders bet against the acquiring company and bet on the company to be acquired in an arbitrage trade. Or, some specialized traders buy or sell convertible bonds versus the underlying security when there is a temporary price disparity.

Bond Counsel

tax law firm that guides a municipal issuer through the legal process of issuing bonds and determines the tax treatment of the interest based on research and knowledge of the Internal Revenue Code.

Internal Revenue Code (IRC)

tax laws for the U.S. that define, for example, maximum IRA contributions, or the "conduit tax theory" that mutual funds use when distributing 90% of net income to shareholders, etc.

Ordinary Income Rate

tax rate paid on ordinary income, as opposed to the rate paid on capital gains.

Accrued Taxes

taxes assessed on a company that have not yet been paid. A current liability.

And Interest

term used for a debt security that trades subject to accrued interest, as opposed to "flat."

Flat

term used for a debt security that trades without accrued interest, e.g. a zero coupon or a bond currently in default.

Net Income

the "bottom line" of a corporation's income statement. Revenue minus all expenses. Also known as a "profit" or a "loss," depending on whether it's a positive or negative number.

Management Fee

the % of assets charged by an investment adviser to a mutual fund or other client.

Business Risk

the (unsystematic) risk that the company whose stock or bond you own will not be successful as a business. Competition, poor management, obsolete products/services are all examples of business risk.

VIX

the CBOE VIX, which is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

ERISA

the Employee Retirement Income Security Act of 1974 that governs the operation of most corporate pension and benefit plans.

OTCBB

the Over-the-Counter Bulletin Board. An electronic quotation medium for subscribing members to reflect market making interest in OTCBB-eligible securities. Subscribing market makers can utilize the Service to enter, update, and display their proprietary quotations in individual securities on a real-time basis.

FINRA (Financial Industry Regulatory Authority)

the SRO formed when the NASD and the NYSE regulators merged.

Solvency

the ability of a corporation or municipality to meet its obligations as they come due.

Market Momentum

the ability of the market to sustain up or downswings in price.

Securities Investor Protection Act of 1970

the act of Congress that created the SIPC.

Put Spread

the act of buying and selling puts on the same underlying instrument where the two options are different in terms of strike price, expiration, or both.

Gift

the act of giving something of value or economic benefit and expecting nothing in return.

Foreign Currencies

the actual currencies of various nations traded through Forex.

Total Takedown

the additional takedown plus the concession.

Partnership Agreement

the agreement between the LPs and the GP for a direct participation program.

Operating Agreement

the agreement governing the structure and operation of an LLC.

Paid-In Surplus

the amount above par value investors paid for the issuer's common stock; a balance-sheet item.

Intrinsic Value

the amount by which an option is in-the-money. For example, if ABC trades @50, an ABC Oct 45 call has $5 of intrinsic value, regardless of what the premium might be.

Capital Gain

the amount by which the proceeds on the sale of a stock, bond, or other capital asset exceed your cost basis. If you sell a stock for $22 and have a cost basis of $10, the capital gain or profit is $12.

Elective Deferrals

the amount of each paycheck a retirement plan participant directs the employer to deposit into his account, with that amount often matched in, for example, a 401(k) or SIMPLE plan up to a certain amount.

Earnings per Share (EPS)

the amount of earnings or "net income" available for each share of common stock. A major driver of the stock's price on the secondary market.

Excess Equity

the amount of equity above the Reg T requirement in a margin account.

Accrued Wages

the amount of liability remaining at the end of a reporting period for wages earned by hourly employees but not yet paid; a current liability on the balance sheet.

Collection Ratio

the amount of taxes collected by a municipality divided by the amount of taxes assessed.

Realized Gain

the amount of the "profit" an investor earns when selling a security.

Death Benefit

the amount payable to the beneficiary of a life insurance (or annuity) contract, minus any outstanding loans and/or unpaid premiums.

Surrender Value

the amount received for an insurance or annuity contract if surrendered early. For life insurance, it is, typically, the cash value minus any outstanding loans and interest, minus any surrender and administrative fees.

Face Amount

the amount that a debt security pays out upon maturity.

Cost Basis

the amount that has gone into an investment and has been taxed already. For stock, includes the price paid plus commissions. For a variable annuity, equals the after-tax contributions into the account. Investors pay tax only on amounts above their cost basis, and only when they sell or take "constructive receipt."

Concession

the amount that the seller of a new issue of municipal bonds receives, whether a syndicate member or a selling group member.

Refunding Issue

the bonds being issued to replace a more expensive and existing issue of bonds when the issuer performs a refunding.

Maturity Date

the date that a bond pays out the principal, and interest payments cease. Also called "redemption."

Trade Date

the date that a trade is executed.

Filing Date

the date that an issuer files a registration statement with the SEC for a new issue of securities.

Constructive Receipt

the date that the IRS considers an investor to have put his grubby little hands on a dividend, interest payment, retirement plan distribution, etc. For example, IRA funds are not taxable until "constructive receipt," which usually starts somewhere between age 59½ and 70½.

Payable Date

the date that the dividend is paid to investors by the transfer or paying agent.

Investment Banking

the business of helping companies with mergers and acquisitions, performing IPOs and additional offerings. Investment bankers raise capital for issuers not by loaning money (like a traditional bank) but by finding investors willing to contribute to the cause.

Declaration Date

the date the Board declares a dividend.

Expected Return

the calculation of what a stock should return. When calculated by CAPM, involves the risk-free rate, the beta, and the overall expected return for the market.

Free Credit Balance

the cash in a customer account that can be withdrawn.

Cash Flow

the cash provided or used by a business over a reporting period through operating, investing, and financing activities.

Federal Reserve System

the central bank system of the United States, with a primary responsibility to manage the flow of money and credit in this country.

Central Registration Depository or CRD

the central licensing and registration system for the U.S. securities industry and its regulators, operated by FINRA. Agents, principals, and member firms are assigned CRD numbers. Broker-Check provides disclosure information from a registrant's CRD information.

Delivery

the change in ownership of a security that takes place when the transaction settles. The seller delivers the securities purchased to the buyer.

Negotiable

the characteristic of a security that allows an investor to sell or transfer ownership to another party. For example, savings bonds are not negotiable, while Treasury Bills are negotiable (able to be traded).

Valuation Ratio

the comparison of a stock's market price to the EPS, book value, etc.

Bond Indenture

the contract spelling out the rights of bondholders and the obligations of the bond issuer.

Employer's Contribution

the contributions to a retirement account made by the employer on behalf of an employee, whether matching or otherwise. As opposed to the participant's elective deferrals.

Interest Rates

the cost of borrowing money. To borrow money, borrowers pay a rate called an interest rate on top of the principal they will return at the end of the term.

Distribution Expenses

the cost of distributing/marketing a mutual fund, including selling, printing prospectuses and sales literature, advertising, and mailing prospectuses to new/potential customers. Covered by sales charges/12b-1fees.

Record Date

the date determined by the Board of Directors upon which the investor must be the holder "of record" in order to receive the upcoming dividend. Settlement of a trade must occur by the record date for the buyer to receive the dividend.

Ex-Date

the date upon which the buyer is not entitled to the upcoming dividend. Note that for mutual funds, this date is established by the board of directors, usually the day after the Record Date.

Overlapping Debt

the debt that a municipal issuer is responsible for along with a coterminous issuer.

Award

the decision rendered through FINRA Arbitration.

Liquidity

the degree to which an asset can be quickly converted to cash without having to sell at a discount. Also, the ability of a company to meet its short-term obligations as measured through, for example, their current or quick ratio.

Tracking Error

the degree to which an index fund fails to match the performance of the underlying index.

Good Faith Deposit

the deposit required by a municipal issuer for all syndicates submitting bids for an issue of bonds. Typically, 1-2% of par value.

Net Worth

the difference between assets and liabilities. The term can be applied to individuals and business entities, although for business entities the terms "shareholders' equity" or "stockholders' equity" are typically used instead.

Discount

the difference between the (lower) market price for a bond and the par value.

Markdown

the difference between the highest bid price for a security and the price that a dealer pays an investor for her security.

Markup

the difference between the lowest ask/offer price for a security and the price that a dealer charges.

Yield Spread

the difference in yields between debt securities of different credit quality and similar maturities. Also known as a "credit spread."

Credit Spread

the different yields offered by bonds of similar maturities with different credit ratings, e.g. the spread between yields on Treasuries and junk bonds.

Dividend Payout Ratio

the dividends paid divided by the earnings per share. Stocks with high dividend payout ratios are typically found in "equity income" funds.

Official Statement

the document that discloses detailed information about a municipal bond issuer's financial condition.

Catch-Up Contribution

the extra amount that a person 50 or older can contribute annually to a retirement account.

Risk Premium

the extra yield demanded by investors holding securities at greater risk of default, e.g. the difference in yield demanded by corporate bond investors versus Treasury security investors for securities of the same term to maturity.

Par, Principal

the face amount of a bond payable at maturity. Also, the face amount of a preferred stock. Preferred = $100, Bond = $1,000.

Wrap Fee

the fee charged in a wrap account to cover trade execution, portfolio management and other related services.

Expiration Date

the final day of trading for an options contract. The only day on which a European-style option may be exercised.

Integration

the final stage in the money laundering process.

Emerging Market

the financial markets of a developing country. Generally, a market with a short operating history, not as efficient or stable as developed markets. For example, Brazil, China, and India.

Placement

the first stage in the cycle of money laundering in which illegally generated funds are placed into the financial system or are smuggled out of the country.

New Account Form

the form that must be filled out for each new account opened with a broker-dealer. The form specifies, at a minimum, the name of the account owner, trading authorization, method of payment, and the type of investment securities that are appropriate for this account.

Identity Theft

the fraudulent use of another party's identity to make unauthorized purchases and other financial transactions.

Turnover

the frequency of trading within a portfolio.

Direct Debt

the general obligation debt of a municipal issuer for which it is solely responsible.

Board of Directors

the group elected by shareholders to run a mutual fund or a public company and establish corporate management policies.

Accrued Interest

the interest that the buyer of a debt security owes the seller. Bond interest is payable only twice a year, and the buyer will receive the next full interest payment. Therefore, the buyer owes the seller for every day of interest since the last payment up to the day before the transaction settles.

Options Clearing Corporation (OCC)

the issuer of standardized options who guarantees performance of each contract.

Registration Statement

the legal document disclosing material information concerning an offering of a security and its issuer. Submitted to SEC under Securities Act of 1933.

Manager Tenure

the length of time a portfolio manager has managed a particular mutual fund.

NAV or Net Asset Value

the liquidating value of an open-end mutual fund share. Found by taking Assets - Liabilities/Outstanding Shares.

Passive Losses

the losses received from a DPP investment, for example, which can be used to offset only passive (not earned or portfolio) income.

Private Placement Memorandum or PPM

the offering document for a private placement of unregistered securities.

Preliminary Official Statement

the official statement for a municipal bond issue subject to further additions and changes.

Beneficiary

the one who benefits. An insurance policy pays a benefit to the named beneficiary. IRAs and other retirement plans, including annuities, allow the owner to name a beneficiary who will receive the account value when the owner dies. A 529 plan names a beneficiary, who will use the money for educational expenses someday.

Legal Opinion

the opinion of the bond counsel attesting to the municipality's legal authority to issue the bonds as well as the tax status of the bonds.

Multiplier Effect

the outsized effect that can occur when the FRB changes the reserve requirement.

Underwriting Fee

the part of the underwriting spread remitted to all syndicate members when their securities are sold.

Respondent

the party named in a disciplinary proceeding.

Grantor

the party who establishes and funds a trust account.

Sponsor

the party who puts together a direct participation program. Spousal Account$ an IRA established for a non-working spouse.

Participation Rate

the percentage of the underlying index's increase credited to the account value of an equity indexed annuity.

Call Protection

the period during which a security may not be called or bought by the issuer, usually lasting five years or more.

Holding Period

the period during which a security was held for purposes of determining whether a capital gain or loss is long- or short-term.

Distribution (Annuity) Stage

the period during which an individual receives payments from an annuity.

Surrender Period

the period during which any surrender charge applies to an insurance or annuity contract.

Accumulation Phase/Period

the period during which contributions are made to an annuity, during which the investor holds "accumulation units."

Annuity Phase

the period of an annuity during which the annuitant is receiving payments and not making contributions.

Trusted Contact Person

the person indicated by a specified adult as the person a broker-dealer should contact if they suspect financial exploitation may be occurring.

Annuitant

the person who receives an annuity contract's distribution.

Layering

the phase of money laundering in which the first attempt at disguising the source of the ownership of the funds is made by creating complex layers of transactions.

Peak

the phase of the business cycle between expansion (good times) and contraction (bad times).

Additional Takedown

the piece of the spread that goes to the various members of the syndicate when the bonds they've been allotted are sold.

Residual Claim

the right of common stockholders to claim assets after the claims of all creditors and preferred stockholders have been satisfied.

Account at maintenance

the point at which a customer's equity in a margin account is just high enough to avoid a margin call.

Reallowance

the portion of the selling concession remitted to a seller of securities in a primary offer.

Stabilizing/Stabilization

the practice by which an underwriting syndicate bids up the price of an IPO whose price is dropping in the secondary market.

Continuing Commissions

the practice of paying retired registered representatives and principals commissions on business written while still employed with the firm, e.g., 12b-1 fees on mutual funds and annuities.

Public Offering Price (POP)

the price an investor pays for a mutual fund or an initial public offering. For a mutual fund, POP = NAV + the sales charge.

Strike Price or Exercise Price

the price at which a call or put option allows the holder to buy or sell the underlying security.

Basis Quote

the price at which a debt security can be bought or sold, based on the yield. A bond purchased at a "5.50 basis" is trading at a price that makes the yield 5.5%.

Breakeven

the price at which the underlying security is above or below the strike price of the option by the amount of the premium paid or received. For example, an ABC Aug 50 call @2 has a "breakeven" of $52 for both the buyer and the seller.

Call Premium

the price paid and received on a call option. Or, the amount above the par value paid by the issuer to call/retire a bond.

Premium

the price paid by a buyer of an option to the seller. Also, the payment for a life insurance policy.

Subscription Price

the price that all buyers of a new issue will pay to buy the security being offered on the primary market.

New Issue Market

the primary market, where securities are issued to investors with the proceeds going to the issuer of the securities. Initial public offerings (IPOs), for example, take place on the "new issue market."

Compliance Department

the principals and supervisors of a broker-dealer responsible for making sure the firm adheres to SEC, exchange, and SRO rules.

Liquidation Priority

the priority of claims on a bankrupt entity's assets that places creditors (bondholders) ahead of stockholders and preferred stockholders ahead of common stockholders.

Probate

the process of "proving" the will and distributing assets of the deceased.

Voter Approval

the process of approving the issuance of a general obligation bond by referendum.

Annuitize

the process of changing the annuity contract from the "pay-in" or accumulation phase to the "pay-out" or distribution phase. Defined benefit pension plans generally offer their pensioners either a lump sum payment or the option to annuitize and receive monthly payments going forward.

Endorsement

the process of signing over title of a security to another party due to a sale, gift, donation, etc.

Securitization

the process of turning financial assets such as receivables or mortgages into securities that are packaged and sold to investors.

Money Laundering

the process of turning profits from illegal enterprises into seemingly legitimate assets.

GNP or Gross National Product

the productivity of a nation's citizens, including those working overseas.

Underwriting Spread

the profit to the syndicate. The difference between the proceeds to the issuer and the POP.

Millage Rate

the property tax rate used to calculate a property owner's tax bill.

Tax-Equivalent Yield

the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. To calculate, take the municipal yield and divide that by (100% - investor's tax bracket).

Required Minimum Distribution (RMD)

the required minimum distribution that must be taken from a retirement plan to avoid IRS penalties. Usually must occur by April 1st of the year following the individual's 70½th birthday.

Opportunity Cost

the return on the investment you could have made but didn't when you chose another one.

Capital Appreciation

the rise in an asset's market price. The objective of a "growth investor."

Marketability Risk

the risk of being unable to sell a security quickly for a fair price; a.k.a. "liquidity risk."

Liquidity Risk

the risk of being unable to sell a security quickly for a fair price; a.k.a. "marketability risk."

Non-systematic Risk

the risk of holding any one stock or bond. Diversification spreads this risk among different issuers and different industries to minimize the impact of a bankruptcy or unexpected collapse of any one issuer.

Timing Risk

the risk of purchasing an investment at a peak price not likely to be sustained or seen again. Timing risk can be reduced through dollar cost averaging, rather than investing in a stock with one purchase.

Call Risk

the risk that a callable bond or preferred stock will be forcibly called when interest rates fall, reducing the investor's total return.

Political Risk

the risk that a country's government will radically change policies or that the political climate will become hostile or counterproductive to business and financial markets.

Reinvestment Risk

the risk that a fixed-income investor will not be able to reinvest interest payments or the par value at attractive interest rates. Happens when rates are falling.

Natural Event Risk

the risk that a weather-related or other catastrophic event will disrupt securities markets and have a material negative effect on an investor's holdings, e.g. a tsunami or a terrorist attack.

Capital Risk

the risk that an investor will lose some or all his invested principal.

Obsolescence Risk

the risk that an issuer's products or services will become irrelevant.

Extension Risk

the risk that interest rates will rise, and the holder of a CMO or mortgage-backed security will have to wait longer than expected to receive principal.

Interest Rate Risk

the risk that interest rates will rise, pushing the market value of a fixed-income security down. Long-term bonds and preferred stock is most susceptible.

Default Risk

the risk that the issuer of the bond will not pay interest and/or principal. Measured by S&P and Moody's.

Prepayment Risk

the risk that the mortgages underlying a mortgage-backed security will be paid off sooner than expected due to a drop in interest rates. Investors reinvest the principal at a lower rate going forward.

Counterparty Risk

the risk that the other party to a derivatives contract or repurchase agreement will not be able to meet its obligations upon exercise.

Currency Exchange Risk

the risk that the value of the U.S. dollar versus another currency will have a negative impact on businesses and investors. AKA, currency risk, exchange risk, foreign exchange risk.

Foreign Exchange Risk

the risk to an American ADR holder that the American dollar will strengthen versus the currency used by the foreign corporation. For example, an American holding the Toyota ADR is at risk that the U.S. dollar will strengthen versus the yen.

Mortality Risk

the risk to an insurance/annuity company that the insured or the annuitant will live less than or longer than predicted.

Legislative Risk

the risk to an investor that laws will change and have a negative impact on an investment. For example, if municipal bonds lose their tax-exempt interest, their value would drop.

Public Offering

the sale of an issue of common stock, either an IPO or an additional offer of shares.

Debt Service

the schedule for repayment of interest and principal on a debt security.

MSRB (Municipal Securities Rulemaking Board)

the self-regulatory organization overseeing municipal securities dealers.

Chinese Wall

the separation that is supposed to exist between the investment banking department and the traders and registered representatives to prevent insider trading violations.

Money Market Instruments/Securities

the short-term (1 year or less) debt security market. Examples include commercial paper, bankers' acceptance, T-bills.

Net Investment Income

the source of an investment company's dividend distributions to shareholders. It is calculated by taking the fund's dividends and interest collected on portfolio securities, minus the operating expenses. Funds using the "conduit tax theory" distribute at least 90% of net investment income to avoid paying taxes on the amount distributed to shareholders.

Portfolio

the stocks, bonds, money market securities, or any combination thereof that an investor owns.

Marginal Tax Rate

the tax rate applied to the last dollar of income earned. AKA "marginal tax bracket."

Flow Through

the term used when the net income or net loss flows to the owners of the business rather than the business itself, e.g., a limited partnership or LLC.

Fiscal Year

the twelve-month period used by an entity for preparing financial reports, e.g. income statements.

Volatility

the up and down movements of an investment that make investors dizzy and occasionally nauseated.

Round Lot

the usual or normal unit of trading. 100 shares for common stock.

Normal Yield Curve

the usual situation in which yields rise as maturities lengthen for debt securities.

Cash Value

the value of an insurance policy that may be accessed by the policyholder through a loan or a surrender.

Time Value

the value of an option above its intrinsic value. For example, if XYZ trades @50, an XYZ Oct 50 call @1 has no intrinsic value but has $1 of time value.

Assessed Value

the value of property used to calculate property tax. For example, a home with a market value of $300,000 might have an assessed value of $150,000 against which the rate of tax is applied.

Risk

the variability of returns an investment produces; e.g. standard deviation.

Yield to Call

the yield received on a bond if held to the date it is called.

Odd Lot Theory

theory used by some technical analysts that assumes odd-lot investors are typically wrong.

Long

to buy or own.

Call (v.)

to buy.

Surrender

to cash out an annuity or life insurance policy for its surrender value.

Intestate

to die without a will or trust.

Telemarketing

to market by telephone. Assuming you can get past the caller ID.

Hypothecate

to pledge securities purchased in a margin account as collateral to secure the loan.

Put (v.)

to sell.

Volume

total number of shares traded over a given period (daily, weekly, etc.). Of interest to technical—but not fundamental—analysts.

Visible Supply

total par value of municipal bonds to be issued over the next 30 days, published in the Bond Buyer.

Performance Figures

total return for a mutual fund over 1, 5, and 10 years, and/or "life of fund." Only past performance may be indicated, and there must be a caveat that past performance does not guarantee future results.

Riskless Principal Transaction

transaction in which a broker-dealer chooses to act as a principal when they could have acted as an agent for the customer.

Self-Trades

transactions that unwittingly occur within the same firm due to electronic trading algorithms.

Semi-Annual

twice per year, or "at the half year," literally. Note that "bi-annually" means "every two years." Bond interest is paid semi-annually. Mutual funds report to their shareholders semi-annually and annually. Nothing happens "bi-annually" as a general rule of thumb.

Moral Obligation Bond

type of revenue bond with a provision to seek emergency funding from the state legislature should the issuer run into financial problems.

Exchange-Traded Fund (ETF)

typically, an index fund whose shares are traded rather than redeemed.

Selling Concession

typically, the largest piece of the underwriting spread going to the firm credited with making the sale.

Manager's Fee

typically, the smallest piece of the spread, paid to the managing underwriter for every share sold by the syndicate.

Public Appearance

under FINRA communications rules, defined as a seminar, forum, radio or television interview, or when otherwise engaged in public appearances or speaking activities that are unscripted and do not constitute retail communications, institutional communications or correspondence.

Correspondence

under FINRA rules = a communication sent to no more than 25 retail investors in a 30-day period.

Product Advertisement

under MSRB rules, any advertisement concerning one or more specific municipal securities, one or more specific issues of municipal securities, the municipal securities of one or more specific issuers, or the specific features of municipal securities.

Professional Advertisement

under MSRB rules, any advertisement concerning the facilities, services or skills with respect to municipal securities of such broker, dealer or municipal securities dealer or of another broker, dealer, or municipal securities dealer.

Ordinary Income

virtually all income that is not a capital gain or a qualified dividend. Includes wages, tips, bonuses and commissions; profit from an ownership interest in a sole proprietorship, partnership, LLC or Subchapter S corporation; interest income; alimony; gambling winnings; taxable distributions from retirement accounts, pensions and annuities; and income from rents, royalties and trusts.

Partnership Democracy

voting process for a DPP.

Bid

what a dealer is willing to pay to a customer who wants to sell. Customers sell at the bid, buy at the ask.

Subscription Agreement

what a potential Limited Partner/investor signs to invest into a DPP.

Investment Profile

what an agent must learn through due diligence. Defined by FINRA as, "the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation."

Liabilities

what an individual or corporation owes, e.g., credit card debt, bonds, mortgage balance, accounts payable.

Unit of Beneficial Interest

what an investor in a Unit Investment Trust (UIT) owns.

Accounts Receivable

what customers owe a corporation, a current asset.

Limited Representative

what one would be after passing the Series 6 and getting registered to represent one's broker-dealer.

Monetary Policy

what the FRB implements through the discount rate, reserve requirement, and FOMC open market operations. Monetary policy tightens or loosens credit to affect short-term interest rates and, therefore, the economy.

Annuity Units

what the annuitant holds during the pay-out phase. Value tied to AIR.

Accounts Payable

what the company owes its vendors, a current liability.

Debit Balance

what the margin customer owes the broker-dealer in a long margin account.

Accumulation Units

what the purchaser of an annuity buys during the pay-in or accumulation phase, an accounting measure representing a proportional share of the separate account during the accumulation/deposit stage.

Assignment Notice

what the seller of an option receives when the buyer exercises the contract.

Fair and Orderly Market

what the specialist at the NYSE is charged with maintaining.

Networking Arrangement

when a broker-dealer operates on the premises of a bank where retail deposits are taken.

Fail to Deliver

when a customer of a broker-dealer sells stock but fails to deliver by settlement.

Expiration

when an option contract ceases to trade.

Flat Yield Curve

when interest rates for short-, intermediate-, and long-term bonds are similar.

Inverse Relationship

when one goes up, the other goes down, and vice versa. Interest Rates and Yields are inversely related to Bond Prices. Your rate of speed is inversely related to your travel time to and from the office.

Default

when the issuer of the bond is unable to pay interest or principal.

Institutional Communication

written communication made available only to institutional investors, e.g., banks and insurance companies.

Treasury Receipts

zero coupon bonds created by broker-dealers backed by Treasury securities held in escrow. Not a direct obligation of U.S. Government.