Chapter 2

Margin Account

A brokerage account for which margin trading is authorized.

underwriting syndicate

A group formed by and investment banker to share the financial risk associated with underwriting new securities.

Selling Group

A large number of brokerage firms that join the originating investment banker(s); each accepts responsibility for selling a certain portion of a new security issue.

Nadaq National Market

A list of national or international Nasdaq stocks that meet certain qualification standarards of financial size, performance, and trading activity.

Restricted Account

A margin account whose equity is less than the initial margin requirement; the investor may not make further margin purchases and must bring the margin back to the initial level when securities are sold.

Prospectus

A portion of a security registration statement that describes the key aspects of the issue, the issurer, and its management and financial position.

Red Herring

A preliminary prospectus made available to prospective investors during the waiting period between the registration statement's filing with the SEC and its approval.

Long Purchase

A transaction in which investors buy securities in the hope that they will increase in value and can be sold at a later date for profit.

Nasdaq (National Association of Securities Dealers Automated Quotation) system

An automated system that provides up-to-date bid and ask prices on certain selected, highly active OCT securities.

Rights Offering

An offer of new shares of stock to existing stockholders on a pro rata basis.

Organized Securitites Exchanges

Centralized institiutions in which transactions are made in already outstanding securities.

American Depository Receipts (ADRs)

Dollar denominations negotiable receipts for the stocks of foreign companies that are held in the vaults of banks in the companies' home countries.

Yankee Bonds

Dollar-dominated debt securities issued by foreign governments or corporations and traded in U.S. securities markets.

Bull Markets

Favorable markets normally associated with rising prices, investor optimism, economic recovery, and government stimulas.

Securities and Exchange Commission (SEC)

Federal Agency that regulates securities offerings and markets.

Investment Banker

Financial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions.

Securities Markets

Forums that allow suppliers and demanders of securities to make financial transactions; they include both the money market and the capital market.

Dual Listing

Listing of a firm's shares on more than one exchange.

Capital Market

Market in which long-term securities such as stocks and bonds are bought.

Money Market

Market in which short-term securities such as stocks and bonds are sold to the public.

Excess Margin

More equity than is required in a margin account.

Margin Call

Notification of the need to bring the equity of an account whose margin is below the maintenance level or to have enough margined holdings sold to reach this standard.

Third Market

Over-the-counter transactions made in securities listed on the NYSE, the AMEX, or one of the other organized exchanges.

Electronic Communications Networks (ECNs)

Privately owned electronic trading networks that automatically match buy and sell orders that customers place electronically.

Ethics

Standards of conduct or moral judgement.

Specialist

Stock exchange member who specializes in marking transactions in one or more stocks.

Mantenance Margin

The abosolute minimum amount of margin (equity) that an investor must maintain in the margin account at all times.

Debt Balance

The amount of money being borrowed in a margin loan.

Initial Public Offering (IPO)

The first public sale of a company's stock.

Bid Price

The highest price offered by a dealer to purchase a given security.

Insider Trading

The illegal use of nonpublic information about a company to make profitable securities transactions.

Diversification

The inclusion of a number of different investment vehicles in a portfolio to increase returns or reduce risk.

Prime Rate

The lowest interest rate charged the best business borrowers.

Ask Price

The lowest price offered by a dealer to purchase a given security.

Primary Market

The market in which new issues of securities are sold to the public.

Secondary Market

The market in which securities are traded after they have been issued.

Marin Requirement

The minimum amount of equity that must be a margin investor's own fuds; set by the Federal Reserve Board (the Fed).

Initial Margin

The minimum amount of equity that must be provided by a margin investor at the time of purchase.

Secondary Distributions

The public sales of large blocks of previously issued securities held by large investors.

Currency Exchange Rate

The relationship between two currencies on a specified date.

Currency Exchange Risk

The risk caused by the varying exchange rates between the currencies of two countries.

Underwritting

The role of the investment banker in bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price.

Public Offering

The sale of a firm's securities to the general public.

Short Selling

The sale of borrowed securities, their eventual repurchase by the short seller, and their return to the lender.

Private Placement

The sale of new securities directly to selected groups of investors, without SEC registration.

Pyramiding

The technique of using paper profits in margin acounts to parly or fully finance the acquisition of additional securities.

Margin Trading

The use of borrowed funds to purchase securities; maginifies returns by reducing the amount of equity that the investor must put up.

Financial Leverage

The use of debt financing to magnify investment returns.

Dealers

Traders who "Make Markets" by offering to buy or sell certain over-the-counter securities at stated prices.

Fourth Market

Transactions made directly between large institutional buyers and sellers of securitites.

Bear Markets

Unfavorable markets normally associated with falling prices, investor pessimism, economic slowdown, and government restraint.

Margin Loan

Vehicle through which borrowed funds are made available, at a stated interest rate, in a margin transaction.

Over-The-Counter (OTC) Market

Widely scattered Telecommunications network through which transactions are made in both initial public offerings (IPOs) and already outstanding securities.