SIE

Shelf Registration Statement

A shelf registration statement is the filing made by the issuer with the SEC that can cover multiple future primary offerings, secondary offerings, or both. By filing this statement, an issuer can take securities "off the shelf" and then offer them for sale relatively quickly, such as when market conditions are favorable.

Fourth Market

Allows for institutional investors to trade large blocks of securities directly between each other. These trades are processed through the Electronic Communications Network (ECN) and can include both exchange-listed and OTC securities. Fourth market trading is permitted to occur after hours and does not carry any reporting requirements. Retail investors are unable to access this market.

Retail Investors

Also known as individual investors, retail investors are individuals who buy and sell public debt and equity securities through their retirement or brokerage accounts. They invest using their own money for their own personal goals such as retirement or saving up for a house. The SEC considers retail investors to be unsophisticated and, as a result, most securities regulations are targeted at keeping this particular class of investors protected.

ADRs

American Depositary Receipts (ADRs): Certificates that represent shares of a foreign company's stock. Just like domestic shares, ADRs trade on stock exchanges in the United States and are priced in U.S. dollars rather than foreign currency.

Repo

An agreement between two parties where securities are purchased from a seller for a certain amount of time, sometimes overnight, and the seller agrees to repurchase the securities at a slightly higher price than the purchase price. These agreements take the form of short-term loans for tax and accounting purposes. Normally, the instrument traded is of very high quality, like a U.S. Treasury Bond, which enables it to serve as collateral. The Fed may sometimes enter into Repurchase Agreements as part of regulating the money supply.

Prospectus

Document filed with the SEC for public securities offerings, including stocks, bonds, and mutual funds. The prospectus discloses relevant information about the issuer and the investment, such as the company's summary, the number and type of securities being offered, names of the underwriters, and the risks involved in the investment. Companies are required to file both a preliminary prospectus and a final prospectus, with the latter containing the offering price.

Warrants

Certificate that gives the holder the right to buy common shares directly from a corporation at a fixed exercise price until the warrant expires, typically several years in the future. Unlike call options, when a stock warrant is exercised, the shares are issued directly by the corporation and the proceeds become a source of capital for the corporation.

Official Statement

Document prepared for (or on behalf of) a state or local government in relation to a municipal bond offering. It contains information such as interest rate, timing of interest and principal payments, tax considerations, and more.

PPM

Document provided to potential investors in a private placement that discloses relevant issuer information as well as the objectives, terms, and risks of the offering. Though private placements are exempt from SEC registration, the PPM is still required to comply with federal securities laws.

Contraction (Recession)

Economic growth weakens and GDP growth falls below 2 percent. When GDP declines for two or more consecutive quarters, then the economy has entered a recession. Layoffs make headline news and unemployment rate begins to rise. Consumers and businesses find it hard to secure credit.

Program Disclosure Document

Document containing information about 529 plans such as fees and expenses.

Primary Distribution

IPOs and APOs would both be part of the more general category of primary distributions, which are shares issued by a corporation in exchange for direct proceeds.

MSRB

Tasked with writing and enforcing rules and procedures for investment firms and banks who sell municipal bonds, notes, and other municipal securities. Municipal securities are issued by a state, municipality, or a county in order to fund public projects. These projects might include the construction of an airport or a power plant. Municipal bonds are exempt from federal taxes and some state and local taxes, and interest paid on these bonds is frequently tax-free as well.

Leading

Indicate where the economy is headed in the short term. These can be useful when trying to predict the next phase of the business cycle. Examples include stock market returns, index of consumer expectations, building permits, and the money supply.

Intrastate Offerings-Rule 147

Intrastate Offerings — Rule 147: When a corporation goes public but the sales are confined to residents of one state. State registration is required but SEC registration is not. Also known as single state offerings. Interstate: The shares are being offered to residents of multiple states.

Introducing

Introducing brokers do not hold client funds nor do they execute transactions. While they are able to receive orders for securities from customers, they must contract with a clearing firm to process them.

Monetary Policy

Monetary policy refers to actions taken by the Fed to maintain or promote the health of the U.S. economy, separate from Congress and the President. Within the Fed is the Federal Open Market Committee (FOMC) which meets eight times a year to review economic conditions and evaluate any necessary policy changes.

Prime Brokers

Prime brokers are unique in that they only service large financial institutions as a way for those institutions to outsource certain activities, such as trade clearing and settlement or risk and performance analysis.

Discount Rate

Rate offered to member banks who borrow money from the Fed in order to keep their reserves up.

Investment Advisers

Registered with state regulators and/or the SEC, an investment adviser can be an individual or a company. They are paid by their clients to provide advice about securities investments, manage investment portfolios, or to provide other financial planning or brokerage services. Other common names for investment advisers include portfolio managers, wealth managers, or asset managers. Morgan Stanley Wealth Management is an example of an investment adviser. Individuals who work on behalf of the firm are known as investment adviser representatives.

The Securities Exchange Act of 1934:

Regulates securities trading that takes place over the secondary market. Issuers are required by Congress to disclose information pertinent to the sale of their securities, and certain Issuers are required to file periodic reports with the SEC such as an annual report. These Issuers have over $10 million in assets and their securities are held by more than 500 owners.

Coincident

Statistics that tell analysts how the economy is currently. Examples include gross domestic product, industrial production, personal income, and retail sales.

DTCC

The DTCC manages the daily clearing and settlement processes for most securities transactions in the United States. A good way of thinking about this is that when you write a check, it is not 'good' until it 'clears.' Similarly in the stock market, your purchase isn't 'good' until it clears through the DTCC.

FDIC

The FDIC is an independent U.S. government agency that provides deposit insurance to U.S bank depositors. The FDIC was created by Congress through the 1933 Banking Act as a result of thousands of bank failures that occurred throughout the prior decade. They supervise more than 5,000 banking and savings institutions and provide deposit insurance of up to $250,000 per depositor.

The Federal Reserve

The Fed was established in 1913 under the Federal Reserve Act and is the central bank of the United States. It was created by Congress with a mandate to maximize employment, stabilize prices, and moderate long-term interest rates in order to provide a safe and healthy monetary and financial system. Its duties have expanded since 1913 and now include regulating banks, maintaining the stability of the financial system, and providing financial services to depository institutions.

IRS

The IRS is a bureau of the United States Treasury and is responsible for collecting taxes and administering the tax law of the United States as required by Congress.

secondary market

The secondary market facilitates transactions in securities that are not sold directly by the issuer. Investors purchase securities from other investors in this market, typically through trading accounts held by brokerage firms like Fidelity or Charles Schwab.

Long-Short Equity

When an investor (usually a hedge fund) takes long positions in stocks they expect will rise and short positions in stocks they expect will drop. At their most basic levels, a long position involves owning a stock whereas a short position involves borrowing a stock.

Limit Order

When an investor has a specific maximum price they're willing to pay to buy a specific security or a specific minimum price at which they wish to sell. If their limit price is never reached, then the order will never be executed.

Solicited vs. Un Order

When an investor knows what they want to buy or sell, they contact their RR and place the order. This is known as an unsolicited order since it is 100% the client's idea. A solicited order occurs when the RR makes a recommendation to the client that results in a transaction. All order tickets must be marked solicited or unsolicited to comply with regulations.

Market Order

When an investor wishes to purchase, or sell, a specific security and is willing to pay or sell for whatever its current market price is, with no negotiation or haggling.

Broker-Dealers

While broker and dealer are often written together, they are in fact separate and distinct terms. A broker is an entity that trades in securities on behalf of its clients while a dealer or principal trades on behalf of itself. Both entities are subject to FINRA regulations and, as most firms act as both a broker and a dealer, we refer to many firms as broker-dealers.

Follow-On

also known as an additional public offering (APO), is a subsequent offering of shares to the investing public. Both IPOs and APOs must meet strict SEC registration requirements under the Securities Act of 1933.

Secondary Market Offering

not to be confused with a follow-on offering—a block of public company shares is sold by the present holder of the shares rather than the issuing company. No new shares are being created in the transaction.

Public Offering

occurs when an issuer sells its securities to the general investing public. It generally refers to an initial public offering (IPO) which is the first time a company offers its shares to the investing public. The company must file a registration statement with the SEC prior to offering its securities for sale.

Fiscal Policy

refers to actions taken by Congress and the President in setting tax rates and policies. An example of taxation policy would be making retirement savings advantageous, which is currently supported by Congress for pre-tax 401(k) and IRA accounts and their post-tax Roth equivalents.

Balance of Payments

refers to the net transactions completed between one country's government bodies, companies, and individuals, and those of outside countries. For example, let's say U.S. consumers and businesses purchase goods worth 500 billion dollars from Japan in the year 2021, and these expenditures are offset by consumers and businesses in Japan buying goods worth 400 billion dollars from the U.S. The difference would be referred to as a trade 'deficit' for the U.S. and a trade 'surplus' for Japan. Viewed another way, there is a 100-billion-dollar trade imbalance.

Naked Call

specifically is when an investor sells a call option without owning the underlying security, believing the price of the underlying security will trade below the option strike price on the expiration date and thereby collecting a premium (the maximum potential gain). If the price of the underlying security ends up trading above the option strike price, then the maximum potential loss is theoretically unlimited.

SROs

such as FINRA and the securities exchanges—exist in order to protect investors by establishing industry procedures, compliance, and enforcement. Unlike the SEC, FINRA is not a government oversight agency and instead works under the supervision of the SEC. EX: NYSE, CBOE, FINRA, MSRB

Custodian

A custodian is the entity (typically a bank or brokerage firm) that actually holds the assets for safekeeping.

Buybacks

A stock buyback, or share repurchase, occurs when a company buys back its shares from the market using company funds. It is one way for a company to re-invest in itself. The repurchased shares are referred to as treasury stock and may be re-sold to the investing public later or used for a variety of other purposes such as conversions of convertible bonds.

Trustee

A trustee is an individual, broker, bank, or other similar organization charged with governing a trust. They manage and administer investments or other assets on behalf of the beneficiary of the trust and generally have a fiduciary responsibility to the trust.

Stop Order

An investor who already owns a stock may wish to put in an order to sell the stock if it declines below a specific level, called the stop price. This can be an effective way to protect already-existing profits in a stock. In the past, Wall Street referred to these as stop loss orders because they were widely used to stop the erosion of a position, to stop losses from growing excessively.

open market activities

Another way for the Fed to stimulate economic activity is by increasing available lendable money supply at the banks, which leads to a decline in bank interest rates and more spending by consumers. On the other hand, when the Fed wishes to slow down the economy—discourage excessive consumer spending—they will shrink lendable money supply at the banks, thereby increasing interest rates and driving consumer spending down (lowering inflation).

Trade Settlement

As of March 2017, most securities transactions are required to settle within two business days of their transaction date, with rare exceptions. This is known as T+2. T: Transaction date. T+1: For U.S. government bonds and government agencies, one business day after the date of the transaction. T+2: For stocks and most mutual funds, two business days after the date of the transaction. Note that, under Federal Reserve Board Regulation T, two days is the maximum amount of time an investor has to p

Prime Rates

Base interest rate offered by commercial banks for consumer loans, including credit cards. It has a direct relationship with the discount rate—if the discount rate goes up then so does the prime rate, and vice versa.

Bearish

Bearish investors expect prices to decline. They can be bearish about an individual security, sector, or the market as a whole. For example, an investor who believes that the stock price of Company XYZ will decline soon is bearish on that particular company. A bear market is characterized as a prolonged 20% decline in securities prices.

Bullish

Bullish investors expect prices to rise. Like bearish investors, this can apply to an individual security, sector, or the market as a whole. A bull market is generally characterized as a prolonged rise in securities prices, though there is no specific percentage to meet as with bear markets.

Cyclical

Businesses that follow the standard business cycle, thus the name 'cyclical.' Think of the leisure, luxury, and cruises/travel industries, which do well in a good economy but poor in a down economy.

Defensive

Businesses that make goods we use as a part of our daily lives and are not impacted in a material way by how the economy is doing. Examples would be public utilities, basic food and clothing, consumer goods such as soap, shampoo, cosmetics, etc. You don't use more electricity when you get a raise at work, and you don't use less if your hours get cut. That's what defensive refers to.

Clearing

Clearing firms hold customer accounts and are responsible for clearing trades and ensuring those trades reach settlement.

Municipal Advisors

Firms that provide municipal advisory services are required to register with both the SEC and the MSRB. Section 15B of the Securities Exchange Act defines "municipal advisor" as a person that: Provides advice to or on behalf of a municipal entity or obligated person 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; or Undertakes a solicitation of a municipal entity.

Secondary Market

Following an IPO, the shares of a publicly traded corporation are bought and sold during trading hours on stock exchanges like the New York Stock Exchange (NYSE) or Nasdaq. The secondary market (typically referred to as the stock market) facilitates these transactions in securities that are not sold directly by the issuer. Investors purchase securities from other investors through trading accounts held by brokerage firms such as Fidelity or Charles Schwab.

GDP and GNP

Gross Domestic Product (GDP): The total value of all goods and services produced within a country by its nationals and foreigners alike. It is one measurement that economists and analysts use to determine the rate at which an economy is growing from one year to the next. Gross National Product (GNP): The total value of all goods and services produced by the citizens of a country, no matter where they live.

Good-till-canceled order

If an investor places an order which has a specific limit price, or stop price, then they must inform their brokerage firm how long they want the order to remain on the books. A day order is good for today only and, if not executed, will be canceled at the close of the market. A good-til-canceled (GTC) order is one in which the investor wants the order to remain on the books until it is filled, or until they change their mind and cancel it.

Capital Gains

If an investor purchases ABC stock at $80 and it rises to $110, we would call that a $30 appreciation (or increase in value). Is that rise in value taxable? Not unless—and until—the investor sells the stock and takes the $30 gain. This would be called a realized gain once the sale takes place and an unrealized gain if the investor hangs on to the stock.

Private Offering

In a private offering, the issuer does not sell its securities to the investing public but rather to a narrowly defined group of investors who meet strict wealth and sophistication requirements. Private offerings are more commonly referred to as private placements.

Covered Options

In contrast to naked options, this is when an investor sells an options contract while owning the underlying security. Covered call writing specifically is when an investor sells a call option on a security they already own and, similarly, covered put writing is when an investor sells a put option on a security for which they have enough cash on hand to purchase if the option gets exercised.

Stepped-Up Basis

In the case of an inherited mutual fund, the shares may receive a stepped-up basis, meaning their market value is determined as of the benefactor's time of death. If the beneficiary later decides to sell the shares, then their cost basis (original value—or purchase price—of an investment for tax purposes) is the net asset value of the shares at market close on the day of the benefactor's death. The capital gains tax to be paid by the beneficiary is calculated according to this basis, if one occurred. Otherwise, it will be calculated on the difference between the shares' initial net asset value and their net asset value at redemption

Issuers

Issuers are legal entities that fund their operations by selling securities (such as common stock) to investors. If an issuer sells securities to the general investing public, through an IPO for example, then they are required to make certain filings with the SEC.

Regulation A

Large public offerings are those exceeding $50 million. Small offerings enjoy certain relaxed SEC paperwork/filing requirements under Regulation A (Reg A), which provides an exemption from registration for public offerings up to $20 million (Tier 1) or $50M (Tier 2) in any 12-month period. Tier 1 offerings require the issuer to file with state regulators in each state it plans to sell its securities.

Stock Options

Like warrants, stock options give the holder the right to buy common shares at a set price until the options expire, but the timeframe is typically shorter than that of a warrant and the set price is often lower. Additionally, unlike warrants, stock options tend to take the form of employee compensation. Like many other forms of deferred compensation, stock options typically follow a vesting schedule.

The Investment Advisers Act of 1940

Limits the advertising investment advisers may engage in. The SEC's implementation regulation is SEC Regulation 206 (4), named for it being covered by Section 206(4) of the Act. This section prohibits advertising that is "fraudulent, deceptive, and manipulative", such as by referring to an external testimonial, or including an externally produced chart without providing full disclosure of limitations of its use. Another provision of this Act is the designation of "accredited investor" and "qualified client", which is described in Section 205(3).

Recovery

Low prices help foster demand. Employment and production begin to rise, and lenders are more willing to lend.

Municipal Bond Offering

Municipal bonds are typically offered under a negotiated sale or a competitive sale. In competitive sales, issuers advertise that their bonds are for sale by releasing a notice of sale to the public. This advertisement contains terms of both the sale and the bond issue. From there, broker-dealers and/or banks (the underwriters) place bids on the bonds at a specified time on a specified date and the bidder offering the lowest interest rate wins. In negotiated sales, issuers are allowed to select the underwriter(s), with whom they directly negotiate the terms of the bonds and the terms of the sale in a "two-party" process. Additionally, investors are able to submit indications of interest (IOIs) in negotiated sales which then help the underwriter(s) finalize the offering price and sell the bonds.

Dividends

On the declaration date, a company announces the type and size of the dividend as well as the record date and the payment date. The record date is the date a shareholder must be on the company's books in order to receive the dividend. To clarify, if a shareholder owns shares on or before this date, then they will receive the dividend. The payment date is when the dividend actually gets paid. For new shareholders, the ex-dividend date is the date of disqualification for the next dividend payment; those who purchase shares on or after this date will not receive the dividend. Therefore, investors would need to purchase shares prior to the ex-dividend date in order to qualify.

The Investment Company Act of 1940

Regulates the organization of companies, including mutual funds and unit investment trusts, that engage primarily in investing, reinvesting, and trading in securities, and whose own securities are offered to the investing public. The motivation is to reduce conflict of interests by requiring investment companies to disclose their financial condition and investment policies to investors, information about the fund and its investment objectives, as well as its investment company structure and operations. This Act does not give the SEC authority to directly supervise the investment decisions or activities of these companies or judge the merits of their investments. Section 22 of the Act requires the redemption price to be based on the daily computation of net asset value and requires redemption prices to be paid within seven days. To ensure such proceeds are readily available, the SEC requires 85% of investment company assets to be in liquid securities, for which there are readily available market prices.

Rule 144

Restricted and Control Securities — Rule 144 Limitations: Securities acquired in private, unregistered sales by an issuer or an affiliate of the issuer are called restricted securities. Affiliates are generally defined as an issuer's officers, directors, and investors owning 10% or more of the voting stock of the issuer.

Lagging

Reveals trends in the economy after major economic, financial, or business events have occurred. The unemployment rate is the most prominent lagging indicator, since employment tends to increase for two or three quarters following an upswing in the economy. Other examples include corporate profits and the consumer price index (CPI).

SIPC

SIPC was created by Congress in 1970 through the Securities Investor Protection Act in order to restore trust in the U.S. securities industry. Between the years of 1968 and 1970, stock prices declined significantly as a result of hundreds of broker-dealers getting acquired or going bankrupt, and many investors subsequently lost all of their cash and/or securities. Eligible investors are insured by SIPC for up to $250,000 in cash in their brokerage accounts.

Freely-Tradeable vs. Restricted and Control Stock

Shareholders typically have the right to sell the stock they own without any limitations or restrictions, referred to as freely tradeable. There are, however, some cases in which reselling stock is restricted by SEC regulations: Unregistered securities acquired through a private sale, which are thereby designated as restricted securities. Control securities are those held by an affiliate of the issuer and, because of resale limitations, are also considered restricted securities. SEC Rule 144 permits the resale of restricted securities under certain conditions, including a minimum prior holding period and adequate information being made available to the public before the sale.

State Regulators

Similar to FINRA, state regulators aim to protect the investing public from fraud. They achieve this primarily through providing education to investors and ensuring market transparency. One such example of state regulators is the North American Securities Administrators Association (NASAA), which is an organization comprised of securities regulators from the United States, Canada, and Mexico. Membership in the NASAA is voluntary.

Exchange Offers

Similar to tender offers, exchange offers are optional events directly targeting company shareholders. They are given the option to exchange one type of security, such as common stock, for another type of security such as preferred stock or debt. The securities being exchanged can be with the same firm or with another; for example, ABC Inc. might offer shareholders common shares of its subsidiary company XYZ Inc. in exchange for common shares of ABC Inc.

Preferred

Some corporations have preferred stock in addition to common stock. The word preferred means this stock has certain advantages, including fixed cumulative dividends and priority repayment in the event of corporation liquidation.

US Treasury

The United States Treasury is an executive department of the federal government that was established by Congress in 1789 to manage government revenue. They oversee the Internal Revenue Service, the United States Mint, and the Bureau of Engraving and Printing. In 2014, the Financial Crimes Enforcement Network (FinCEN) was established as a bureau within the Treasury and was given a mandate to enforce the Currency and Foreign Transactions Reporting Act of 1970, which requires U.S. financial institutions to assist U.S. government agencies with detecting and preventing money laundering.

Peak

The economy can be said to be "overheated." Prices hit their highest level and economic indicators stop growing.

Expansion

The economy is growing. Gross Domestic Product (GDP) shows healthy growth in the 2% to 3% range.

Trough

The economy reaches its lowest point before transitioning from the contraction phase to the recovery phase.

The Securities Act of 1933

The first major federal law regulating the securities industry. It requires firms issuing new stock in a public offering to file a registration statement with the SEC.

Best Efforts

The investment bank agrees only to use its best professional efforts to market and sell the issuer's securities and any unsold shares are returned to the issuer.

Firm Commitment

The investment bank commits to purchase all the securities in an offering from the issuer and then resell them to the public. They assume the financial responsibility for these securities; any unsold shares are paid for and held by the investment bank.

OCC

The largest options clearing house is the Options Clearing Corporation (OCC) which is governed by the Commodities Futures Trading Commission (CFTC) and the SEC.

Common and Common Stock Equivalents

The most fundamental way of taking an ownership position in a corporation is to purchase its common stock. The holders of common stock are responsible for voting on corporate policies and electing the board of directors. Some companies decide to distribute their net earnings to shareholders in the form of cash or stock dividends as a reward for their investments. In the event of liquidation, common shareholders are entitled to company assets (such as cash) only after creditors, bondholders, and preferred shareholders have received theirs. However, they do have limited liability which means they cannot lose more than what they paid for the stock. Common Stock Equivalents: Securities that can be converted into common stock, typically once the market price of the security is trading above the exercise price. Types of common stock equivalents include convertible bonds, convertible preferred stock, options, warrants, and some bonds. Employee stock option plans (ESOPs) often introduce common stock equivalents by offering discounted options or warrants which can be converted to common stock once vested.

Primary Market

The primary market refers broadly to newly created debt and equity securities. For example, companies will often generate cash by offering shares of ownership (stock) to public investors for the first time through initial public offerings (IPOs). The investment banks who underwrite these IPOs price the shares and then issue them directly to investors. It's important to keep in mind that investors do not trade securities between each other in the primary market; they purchase securities directly from issuers.

Third Market

The third market facilitates the over-the-counter (OTC) trading of exchange-listed securities between institutional investors and broker-dealers. Investors who engage in third-market trading are able to bypass broker fees and the involvement of a formal exchange like the NYSE. OTC refers to trading that is done through a broker-dealer network rather than a centralized exchange; outside of the third market, securities that are traded OTC are typically not listed on an exchange.

Keynesian

Theorizes that an increase in government expenditures and a decrease in taxes can prevent or repair an economic recession. The government's role is significant.

Monetarist

Theorizes that controlling the money supply and letting the market work itself out can curb inflation and is essential for a healthy economy. The government's role is minimal.

Discretionary vs. Non Order

There are instances in which a client wishes to give their registered representative (RR) limited power of attorney, enabling the RR to make trading decisions on behalf of the client without having to contact the client in advance. This is referred to as discretionary power and the account is a discretionary account. Discretion may not be used until the proper documents are signed by the client and returned to the brokerage firm.

IPO

There will typically be an underwriting syndicate comprised of more than one investment bank or broker-dealer, with one of these firms acting as the lead underwriter and the others acting as syndicate members. By forming a temporary syndicate, the lead underwriter is able to spread out the risk of the deal.

Mini-Max

This is a variation on all or none. In this instance, instead of having to sell 100% of the shares, a lesser minimum percentage is set, such as 50%. As long as that percentage is sold to the public, then the deal goes through.

All or None

This is a variation on best efforts. In this instance, if 100% of the shares don't sell, then the entire offering is nullified and the shares are returned to the issuer.

Transfer Agents

Typically a bank or a trust company, transfer agents act as intermediaries between securities issuers and securities holders. They are primarily responsible for maintaining security holder records and distributing dividends on behalf of the issuing company. In some cases, companies might elect to act as their own transfer agents. Transfer agents are required to be registered with the SEC. If the transfer agent is a bank, then they are required to be registered with a bank regulatory agency.

Underwriters

Underwriters facilitate the sale and distribution of an issuer's securities by pricing the securities, purchasing the securities directly from the issuer, and then finally selling the securities to investors.

Institutional Investor

Unlike retail and accredited investors, institutional investors can only be legal entities, such as real estate investment trusts, venture capital funds, insurance companies, credit unions, banks, pension funds, hedge funds, and mutual funds. These investors trade in securities on behalf of their clients or shareholders and they buy and sell in large quantities. Known to have "smart money", institutional investors are considered sophisticated enough to make their own investment decisions and are thus subject to fewer rules and regulations. For example, there is an exemption made for institutional investors in FINRA Rule 2111 regarding suitability requirements

Pre-emptive rights

When a corporation plans to raise additional capital by issuing a new round of common stock, they will often offer these shares to their existing shareholders first before the general public (right of first refusal). Though not required, these rights are intended to permit existing shareholders to maintain the share ratio they hold among all total shareholders.

Naked Options

When a sophisticated investor sells an options contract without owning the underlying security. If the option ends up being exercised, then the seller will have to buy the security at market price in order to meet their obligation of delivering the security at the option strike price.

Tender Offers

When an investor (commonly referred to as an acquirer) makes a public offer directly to a target company's shareholders to buy some or all of their shares, often at a price higher than the current market price. The offer can be conditional on a minimum or maximum number of shares being purchased though shareholders are not required to participate. Tender offers are one way to acquire a company and can sometimes be hostile, depending on whether the target company's board approves.

Accredited Investor

defined as an individual/couple with net worth exceeding $1 million, or which earned in excess of $200K / $300 K for three successive years.

Qualified Client

designation is granted upon meeting one of five criteria, many of which relate to assets under management.

Naked Put

when an investor sells a put option without owning the underlying security, believing the price of the underlying security will trade above the option strike price on the expiration date and thereby collecting a premium (the maximum potential gain). If the price of the underlying security ends up trading below the option strike price, then the maximum potential loss is theoretically unlimited. Using naked options as a trading strategy carries significant risk and is thus reserved only for sophisticated investors.