Series 65 Definitions

syndicate

Group of underwriters bringing a new issue to the primary market

Anit-Fraud Statutes

Key sections of the federal and state securities law designed to protect investors from fraudulent, deceptive, or manipulative activities in the securities industry.

Debt Ratio

Measure of a company's long-term solvency found by comparing total liabilities to total assets. The higher the percentage the more leveraged the company.

Times Interest Earned

Measurement from the income statement showing an issuer's ability to pay bond interest EBIT divided by interest.

SEP-IRA

Pre-tax retirement plan available to small business. Favors high-income employees (compared to SIMPLE) only employ-er contributes.

Non-cumulative Preferred Stock

Preferred Stock that does not have to pay missed dividends (dividends in arrears).

Listed

Refers to a security trading on NYSE, NASDAQ or any nationally-recognized exchange that monitors the issuers who list for trading there.

Basis

Synonym for yield. Or, reference to cost basis for tax purposes.

TSA

Tax-sheltered annuity. A retirement vehicle for 403b and 501c3 organization.

Annuity Units

What the annuitant holds during the pay-out phase with the value tied to AIR

Recession

Two quarters (6 months) or more of economic decline. Associated with rising unemployment, falling interest rates and falling gross domestic product.

All or None

Type of underwriting in which the syndicate will cancel the offering if a sufficient dollar amount is not raised as opposed to bring 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.

Tax-Deferred

Account where all earnings remain untaxed until constructive receipt

CFO

Chief Financial Officer. Individual in charge of a corporations financial activities.

Secured Bond

Corporate bond secured by collaborate e.g. mortgage bond collateral trust certificate equipment trust cretificate

Release Date

Date established by the SEC as to when the underwriters my sell new securities to buyers; a.k.a Effective date

Brady Bonds

Debt securities issued primarily by Latin American government and collateralize by US Treasuries.

Agency Issue (Agency Bond)

Debt security issued by an agency authorized by the federal government but not directly backed by the federal government.

SAI

Detailed and long-form disclosure document for a mutual fund. a.k.a Statement of Additional Information

Dividend/Income Distributions

Distributions from a fund to the investors made from net investment income. Typically maybe reinvested at NAV to avoid sales charges.

75-5-10 Rule

Diversification formula for a 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 the company's outstanding shares may be owned.

Trade Confirmation

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 ect.

Stock Power

Document used to transfer ownership of a stock.

Limited Liability Company or LLC

Form of business ownership in which the owners called members receive their share of income/loss and receive protection against personal liability.

Painting the Tape

Form of market manipulation in which bogus trades are reported in order to affect the market price of a security, it is a violation.

Annual Shareholder Report

Formal statement issued by a corporation to the SEC and shareholders discussing the company's results of operations, challenges/risk facing the company, any lawsuits against the company ect. Required by the Securities Exchange Act of 1934. Form 10K

Gross Margin

Gross profit divided into revenue. For example a company with $100 million in revenue and cost-of-good-sold of $70 million has a gross margin of 30%

Prudent Investor Standars

Guidance provided to fiduciaries investing on behalf of a third party e.g. trustee's or custodians of UTMA accounts.

Safety

Investment objective that seeks to avoid loss of principal first and foremost. Bank CD's, Treasury securities, and fixed annuities are generally suitable. a.k.a Capital preservation

Subaccount

Investment options available within the separate account for variable contract holders. Basically these are mutual funds that grow tax deferred

Active Investor

Investor who feels markets are not perfectly efficient and therefore selects particulate investments

Advance Refunding/Pre-Refunding

Issuing new bonds and depositing part of the proceeds in escrow ahead of the first legal call date on an existing bond issue.

Bond Counsel

Law firm advising a municipal issuer on the legality and tax treatment of a bond issue.

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.

CPI or Consumer Price index

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

Debt-to-Equity Ratio

Measure of long-term solvency found by dividing a company's total liabilities by share holder equity. The higher the ratio the more leveraged the company.

Total Return

Measuring growth in share price plus dividend and capital gains distributions

Exclusion Ratio

Method of determining which part of an annuity payment is taxable and which part represents the tax-free return of the annuitants after-tax cost basis

Registration by Coordination

Method of registering a securities offering with the states where they are to be offered in addition to required SEC registration

Registration by Filing

Method of registering a securities offering with the states where they are to be offered in an additional offering that is also registered with the SEC

Distribution State (Annuity)

Period during which an individual receives payments from an annuity.

Accumulation Stage/ Period

Period during which contributions are made to an annuity during which the investor holds accumulation units.

Donor

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

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.

Annuitize

Process of converting an annuity contracts value to a series of payments to the annuitant

Competitive, Sealed 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.

Long-Term Gain

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

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.

Isurance

Protection against loss of income due to death disability long-term car needs ect.

Best Execution

SEC requirement for advisers and broker-deals to execute customers transactions at the best available market price.

Sub-chapter 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 fun using this method is technically a Regulated Investment Company under IRC sub-chapter M

Street Name

Securities held in the name of a broker-dealer on behalf of customers

Commercial Paper

Short-term unsecured loan. Issued at a Discount from the face value. A money market security.

Monty Carol

Simulations used to predict the effects of various factors e.g. bear markets inflation high interest rates ect. Often used to assist with estimating withdrawal rates from a retirement account. The name comes from the city where the main industry is gambling. The idea is that you would use a random number of variables to come up with a general idea of the out come.

Blue Chip

Stock in a well established company with proven ability to pay dividend in good economic times and bad. Lower risk/reward ratio than other common stock.

Stabilizing/Stabilization

Surprising practice by which an underwriting syndicate bids up the price of an IPS whose price is dropping in the secondary market.

Supervision

System implemented by a broker-dealer to ensure that its employees and accociated persons comply with federal and state securities law, and the rules and regulations of the SEC, exchange and SRO's

Automated Client Account Transfer (ACAT)

System that provides instructions among broker-dealers and capital gains distributions into more shares of the fund, without paying a sales charge.

Consolidated Quotation System (CQS)

System used for trading in the third market

Ex-Date or Ex-Dividend Date

The date upon which the buyer is not entitled to the upcoming dividend

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 US dollar with strengthen versus the yen, a.k.a currently exchange risk.

Liabilities

What an individual or a company owes e.g. credit cards debt bonds, mortgage balance or accounts payable.

How do you invest if you believe in Market Efficienicy

a strategic asset allocation would be based on time horizon, risk tolerance, and investment objectives, regardless of what the portfolio manager anticipates the stock and bond markets will do. Since the markets are perfectly efficient, there is no point in trying to select one stock over another or change our mix of investments based on market timing. A tactical asset allocation will shift based on market movements or anticipated market movements, implying that the manager does not believe markets are efficient.

Proxy

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

Funded Debt

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

Designated Examining Authority

Another name for SRO or Self Regulatory Organization e.g. CBOE or FINRA

Assignment of Contract

Transferring an investment advisory clients contract to another party by any means; not allowed without client consent.

Grantor Trust

Trust where the grantor receives an economic benefit and therefore is responsible for taxation of the trust.

Manager's Fee

Typically the smallest piece of the spread paid to the managing underwriter for every share sold by the syndicate

Inverse Relationship

When one goes up the other goes down and vice versa. Interest rates and yield are inversely related to bond prices.

Stock Split

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

Bond Point

1% of a bond's part value. 1 bond point=$1o

Solvency

Ability of a corporation or municipality to meet it's obligations as they come due.

Dow Jones Industrial Average (DJIA)

An index comprised of 30 large-cap companies

Grantor

The party funding a trust with a transfer of assets

Global Fund

A mutual fund investing in companies located and doing business all across the globe including the US

Administrator

(1) The securities regulator of a particular state; (2) A person authorized by the courts to oversee and liquidate an estate.

Simplified Arbitration

FIINRA method of resolving disputes involving small mounts of money (currently $50,000)

Gross Revenue Pledge

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

Premium

1) the amount by which a bond's price exceeds the par value. 2) the amount paid to acquire an options contract 3) the amount paid to maintain an insurance contract.

Standard Deviation

1. A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance. 2. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.

Age-Based Portfolio

A mutual fund or other portfolio adjusting assets allocation to match the needs of a beneficiary in a Plan or an adult in a retirement account. AKA "life-cycle" or "target" funds.

Hybrid REIT

A REIT that owns and operates a portfolio of real estate as well as provides financing for real estate projects.

Equity REIT

A Real Estate Investment Trust that owns and operates a portfolio of real properties

Financial Statment

A balance sheet income statement statement of cash flows or other document showing various aspects of a business's financial condition or results. Found in the 10K and other required reports of public companies.

Jumbo

A band CD of large detonations that can be traded on a secondary market though not usually backed by FDIC insurance.

Negotiable CD

A bank CD that can be traded on a secondary market usually of large denominations

Exempt

Not subject to registration requirements of a particular securities law or rule/regulation

Junk Bond

A bond backed by an issuer experiencing financial difficulties a.k.a high yield, or high income bond

Municipal Bond

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

Unsecured Bond

A bond issued without specific collateral. a.k.a Debenture

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 by non-investment grade bonds.

Collateral Trust Certificate

A bond secured by a pledge of securities as collateral.

Discount Bond

A bond trading below par value

Commission House Broker

A broker who works for a particular member of the exchange filling orders for the firm and receiving a commission per-order.

Member Firm

A broker-dealer and/or underwriting firm that belongs to FINRA or other securities association (MSRB, CBOE)

Investment adviser

A business or professional compensated for advising others as to the value of or advisability of investing in securities.

Period Cetrain

A payout option on an annuity promising payments for a minimum number of years.

Do Not Reduce (DNR)

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

Expected Return

A calculation of the return hoped for based on probabilities of outcomes or CAPM formula

Index Option

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

Dual-Purpose Fund

A closed-end fund with two classes of stock: income shares and capital shares. The income shares receive dividends and the interest while the capital shares receive capital gains distributions.

Investment Company

A company engaged in business of pooling investors money and trading in securities on their behalf. Examples include Unit Investment Trusts (UITs) face-amount certificates companies and management companies.

Blank Check Company

A company with a specific business plan.

Diluted Earnings Per Share

A company's EPS calculated as if all convertible securities have been converted to shares of common stock.

Interest Rate Optoins

Options based on the price or yield of US Treasury securities

Valuation Ratio

A comparison of a stocks market price to the EPS, book value, cash flow, or revenue associated with one share of that stock.

COD or Collateralize Debt Obligation

A complex security like a CMO only rather than underlying mortgages the debt securities are backed by a variety of other debt securities/loans.

Wrap Fee

A comprehensive charge levied by an investment manager or investment adviser to a client for providing a bundle of services, such as investment advice, investment research and brokerage services. Wrap fees allow an investment adviser to charge one straightforward fee to their clients, simplifying the process for both the adviser and the customer. Wrap fees are generally set up to be a percentage of the assets under management. The wrap fee is intended to provide payment for all the direct services the customer receives, as well as cover the administrative costs incurred by the investment firm.

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.

Profit-Sharing Arrangement

A security involving a share of profits from any source.

Book Entry

A security maintained as a computer record rather than a physical certificate. All US Treasuries and M mutual funds are issued in this manner.

Pre-Tax Contribution

A contribution made to a tax-advantaged plan for which the individual receives a current deduction for income tax purposes e.g. contributions to a Traditional IRA or 401k plan

Mortgage Bond

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

Statutory Voting

A corporate voting procedure in which each shareholder is entitled to one vote per share and votes must be divided evenly among the candidates or issues being voted on. Statutory voting, sometimes known as straight voting, is one of two stockholder voting procedures and the more common option. In statutory voting, if you owned 50 shares and were voting on six board positions, you could cast 50 votes for each board member, for a total of 300 votes. You could not cast 20 votes for each of five board members and 200 for the sixth.

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. By definition a primary market transaction in which the issuer receives the proceeds.

UTMA or Uniform Transfers to Minors Act

A custodial account like an UGMA. Some states allow the transfer to happen as late as age 25, while in most states this occurs at age 21

Market Maker

A dealer maintaining an inventory of a particular security and a firm bid and ask price good for a minimum of 100 shares. Acts as a principal on transactions buying and selling for its/their own account.

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 investors purchase price.

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 if goes down.

Profit Sharing Plan

A defined contribution plan whereby the company shares any profits with employees in the form of contributions to a retirement account.

Existing Properties

A direct participation program that purchases operating real estate.

Futures Contract

A derivative contract where the underlying instrument is a commodity or a financial index.

Blind Pool Offering

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

Exploration Programs

A direct participation program that drills for oil or natural gas.

Income Program

A direct participation program that invests in existing producing oil and/or natural gas wells.

Ordinary Dividend

A dividend payment that does not receive qualified-dividend tax treatment but is rather treated as ordinary income.

Material Information

A 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 clients ect. Associated with an 8-K filing

Guardian

A fiduciary who manages the financial affairs of a minor or a person declared mentally incompetent

Federal Covered

A security or an investment adviser whose registration is handled exclusively by the federal government (SEC)

Debt Security

A security representing a loan from an investor or an issuer. Offers a particular 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, CD's and money market funds.

Income Statment

A financial statement showing a corporation's results of operations over the quarter or year. Shows revenue all expenses/costs and the profit or loss the company showed over the period.

Investment Banker

A firm that raises capital for issuers on the primary market a.k.a underwriter

Regressive Tax

A flat tax e.g. gasoline, sales or excise taxes.

Partnership

A flow-through business

Unlisted Security

A security that does not meet the listing requirements of nationally recognized exchange such as NYSE or NASDAQ

Capping

A form of market manipulation, a violation

Pegging

A form of market manipulation, a violation

DVP

A form of settlement in which payment will be made when the securities involved in the transaction are delivered and accepted. AKA Delivery Versus Payment.

Exchange-Listed Security

A security that has met listing requirements to trade on a particular exchange such as NYSE, or NASDAQ. Also a federal covered security by definition

Repurchase Agreement

Agreement in which one party sells something to the other and agrees to repurchase it for a higher price over the short-term

Predispute Arbitration Agreement

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

Diversified Mutual Fund

A fund that complies with an SEC rule so that no more than 5% of assets are invested in a particular stock or bond and so that the fund does not own more than 10% of any issuers outstanding stock. Associated with the 75-5-10 rule.

Blend Fund

A fund that does not stick to just growth or just value stocks.

Non-diversified Fund

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

Deflation

A general drop in demand and the level of prices across the economy usually connected to an economic slump.

Yield Curve

A graph representing the yield of debt securities of similar credit quality across various maturities.

GNMA or Government National Mortgage Association

A governmental 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.

Student Load Marketing Association or Sallie Mae

A governmental sponsored enterprise providing liquidity to institutions making student loads

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 fund invest in surprisingly money market securities.

GTC or Good-till-Canceled

A limit or stop order that is to remain open until executed or canceled by the investor as opposed to a day order

Day Order

A limit or stop order that will be canceled if not executed on the day it is placed as apposed to GTC

Direct Participation Program (DPP)

A limited partnership or similar pass through entity in which the investor receives a share of the income and expense.

Certificate of Deposit or CD

A long-term bank deposit offering higher yields than savings accounts.

Callable

A security that may be purchased by the issuer as of a certain date e.g. callable preferred stock callable bonds.

Passive Loss

A loss derived from rental properties limited partnerships or other enterprises in which the individual is not actively involved.

Bond Ratio

A measure of an issuer's long-term solvency found by comparing long-term debt to total capitalization (long-term debt plus shareholders equity).

Net Asset Value per Bond

A measure of an issuer's long-term solvency found by dividing the net tangible assets of the company (not goodwill and other intangible assets) by the number of bonds issued.

Return on Equity

A measure showing how much in profits each dollar of common stockholders equity generates for the company net income/shareholders equity.

Qualification

A method of registering a securities offering with the Administrator of the state when not registering with the SEC and normally an intrastate offering only

Front-end Load

A mutual fun 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)

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.

CAPM

A model that attempts to describe the relationship between the risk and the expected return on an investment that is used to determine an investment's appropriate price. The assumption behind the CAPM is that money has two values: a time value and a risk value. Thus, any risky asset or investment must compensate the investor for both the time his/her money is tied up in the investment and the investment's relative riskiness. This compensation must be in addition to the risk-free rate of return. There are a number of variations on the CAPM, notably the multifactor CAPM and the two-factor model. The CAPM is calculated according to the following formula: ra = rf + Betaa(rm - rf) where: ra is the asset price, rf is the risk-free rate of return, Betaa is the risk premium, and rm is the market rate of return.

Double Barreled

A municipal bond backed by both the issuers full faith and credit and revenues

Domestic Equity Fund

A mutual fund that focuses on stock of American Companies

Municipal Bond Fund

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

Depreciation

A non-cash expense on the income statement listed in order to spread the cost of a fixed asset over its useful life. Depreciation is also shown on the balance sheet, usually as accumulated depreciation next to fixed or long-term assets.

DK Notice

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

Dealer

A person who buys or sells securities for his/its own account taking the other side of the trade

Customer

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

Fractional Share

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

Principal Transaction

A potential conflict of interest arising when the investment adviser enters a transaction to by or sell a security on behalf of a client with the transaction done on a principal basis by the affiliated broker-dealer. Requires disclosure and client consent.

Convertible

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

Check-Writing Privileges

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

Business Cycle

A progression of expansions peaks contractions troughs and recoveries for the coverall (macro) economy.

Depression

A prolonged economic slump lasting six quarter (18 months) or longer.

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.

Firm Quote

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

Mortgage REIT

A real estate investment trust that buys and/or loans for real estate 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.

Notice Filing

A requirement under NSMIA for a federal covered adviser to notify any state securities regulator where it maintains a place of business or for investment companies to notify the states where there shares are offered and sold.

Special Tax Bond

A revenue bond backed by taxes on gasoline hotel and motel liquor tobacco.

Stop Order

A securities by or sell order that is activated only if the market price hits or passes through the stop price. Does not name a price for execution. Or a disciplinary order by the Administrator of denial suspension or revocation.

Bond Fund

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

Disintermediation

A situation in which money is being withdrawn from banks and savings & loans by depositors in order to reinvest the funds into higher yielding money market instruments (Treasury Bills, certificates of deposit, money market funds.)

Russell 2,000

A small-cap index

SPECIAL MEMORANDUM ACCOUNT - SMA

A special account where excess margin generated from a client's margin account is deposited. Also known as "special miscellaneous account". The purpose of an SMA is to lock in any gains realized in a client's margin account. Consider the situation where stock within a client's margin account realizes a capital gain and creates excess margin. If this excess amount is held in the account and the stock position produces a capital loss at a later date, the client would lose his or her gain entirely. An SMA can also hold interest and dividend payments from long positions and proceeds from closing out a securities position. Clients can use funds in their SMA to purchase additional securities for their margin account.

Flow of Funds Statement

A statement connected to a revenue bond showing how revenues are to be allocated in terms of operations and maintenance reserve account deposits debt service ect.

Debt Statement

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

Placement Raio

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

Growth Stock

A stock a company expected to out preform the market and trading at a high valuation ratio e.g. P/E

Consolidation

A stock trading in a narrow price range. Sometimes called accumulation.

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

Feasibility Study

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

Eastern/ Undivided Account

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

Fixed Exchange Rate

A system in which a nation ties the value of it's currently to a commodity such as gold or the other currency e.g. the former system of fixing the exchange rate between Swiss Francs and Euro.

Depreciation Recapture

A tax collected when an investor sells an asset that was providing depreciation

Estate Tax

A tax on estates over a certain amount, currently $5 million indexed for inflation

Special Tax

A tax on gasoline hotel and motel liquor tobacco ect.

Gift Tax

A tax paid when a gift exceeds the current exclusion limit.

Progressive Tax

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

Overbought

A technical analysis/chartist term for a security trading near resistance.

Oversold

A technical analysis/chartist term for a security trading near support.

Chartist

A technical analyst making trading decisions based on stock charts and patterns.

Vesting Schedule

A time-table for determining at what point the employers contributions become the property of the employee in a pension plan.

Bull Market

A trading environment for stocks or bonds in which prices are rising and/or expected to rise.

Arbitrage

A trading tactic that involves taking advantage of the disparity of two things. If you think GE will buy a small company you can make a bet that GE will temporarily drop and the small company's stock will skyrocket. Or, you could trade on the disparity between a convertible bond and it's underlying common stock.

Charitable Trust

A trust established to minimize tax liability.

Net Construction

A type of DPP in which the partner ship builds and than sells housing units.

Mortgage-Backed Security

A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Income Bond

A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment. The income bond is a somewhat rare financial instrument which generally serves a corporate purpose similar to that of preferred shares. It may be structured so that unpaid interest payments accumulate and become due upon maturity of the bond issue, but this is usually not the case; as such, it can be a useful tool to help a corporation avoid bankruptcy during times of poor financial health or ongoing reorganization.

Freeriding & Withholding

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

Bottom-Up Analysis

A type of fundamental analysis involving a look at particulate companies rather than the overall economy.

Specialized Fund

A type of mutual fund devoted to a particular strategy or tactic e.g. sector funds asset allocation funds.

Negotiated Market

A type of secondary market exchange in which the prices of each security are bargained out between buyers and sellers. In a negotiated market there are no market-makers or order matching, instead buyers and sellers actively negotiate on the price at which a transaction is finalized either directly or through the use of brokers. These markets are considered very inefficient as the time, effort and lack of transparency in pricing are large issues to be dealt with. Examples of these markets would be the OTC or Pink Sheets.

Discount Cash Flow Analysis

A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

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%

ADV 1

ADV 1 is used either for SEC or state-level registration. ADV 2 is the disclosure document provided to prospects and offered to existing clients.

Anti Fraud

ALL securities are subject to anti-fraud rules. This includes exempt securities. Insurance is not a security item so fraud rules do not apply.

Liquidity

Ability to quickly convert an investment to cash and get a fair price

Maloney Act

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

Paid-In Surplus

Amount above the par value that investors paid when purchasing the company's initial public offering.

CRD or Central Registration Depository

An automated database used by FINRA to store and maintain registration records of former and current associated persons of member firms.

Due Bill

Document sent by a broker-dealer when a dividend payment was sent to the wrong party and belongs to the broker-dealers customer

Target Fund

An age based mutual fund that shifts assets allocation in line with the retirement target date of the investors in the fund. a.k.a Life-cycle or age based fund.

Private Equity Fund

An alternative investment fund open to sophisticated investors only and specializing in buy out companies both public and private.

Reclamation

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

Derivative

An investment that derives its value from some other instrument includes options futures and forwards.

EBIT

Earnings Before Interest and Taxes. The profit that would be shown before interest and taxes are subtracted from revenue on the income statement

Cyclical Industry

An industry sensitive to the business cycle e.g. steel, automobiles, and construction equipment.

Compound Interest

An interest rate applied to an ever-increasing principal to which interest is continuously added, e.g. the rate offered on a bank CD as opposed to simple interest which is applied to a flat principal e.g. a long-term bond.

Alternative Investment

An investment generally open only to sophisticated investors and providing limited or no liquidity e.g. direct participation programs or hedge funds.

Bull, Bullish

An investor who takes a position based on the belief that the markets or a particular security will rise. Buyers of sock and call options are bullish.

Aggressive Investor

An investor willing to risk a large loss of principal in order to earn potentially large returns

Current Yield

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

Bonus Annuities

Annuities with special riders/features attached.

Tax-Sheltered Annuity (TSA)

Annuity funded with pre-tax (tax deductible) contributions. Available to employee's of non-profit organizations such as schools hospitals and church organizations, a.k.a. 403b Plan

Diversifiable Risk

Another name for an unsystematic risk e.g. regulatory or business risk

AIR

Assumed Interest Rate. Rate used to determine the value of annuity units and death benefits for variable contracts

Buy /Sell means?

Be careful how they word this for a market maker they're offering to buy at the Bid and Sell at the price to the customer. While if it's the customer than it's the other way around.

Equipment Trust Certificate

Bond secured by a pledge of equipment e.g. airplanes or railroad cars.

Underwriter

Broker-dealer that distributes shares on the primary market. a.k.a. investment banker

Yield to Maturity

Calculation of all interest payments plus/minus gain/loss on a bond if held to maturity. Or the discount rate at which the sum of all future cash flows from the bond is equal to the price of the bond.

Current Asset

Cash or something to be converted to cash in the short-term e.g. accounts receivable or inventory.

Cash Flows from Operating activities

Cash provided/used by running the business.

Cash Flows from Investing Activities

Cash provided/used by selling or purchasing assets.

When-Issued Confirmations

Confirmations of a purchase on the primary market delivered before the bonds have been issued.

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.

Trade Date

Date that a trade is executed

Working Capital

Difference between a company's current assets and current liabilities measuring short-term liquidity. Related term current ratio.

Markdown

Difference between the highest bid price for a security and the price that a particular dealer pays for investor for her security.

Accretion

Increasing the cost basis of a discount bond for tax purposes.

When does an investment advisers have to provide an audited balance sheet to the client?

If the custodian is not independent, then the adviser is considered to have custody of client assets and would, therefore, have to provide an audited balance sheet along with ADV Part 2. If the prepayment had been > $500 and 6+ months in advance, an audited balance sheet would have had to be provided. For discretion-only, an UN-audited balance sheet is required.

Range

In a set of numbers the difference between the largest and smallest value.

Narrow-Based Index

Index focusing on a particular industry or geographic region e.g. transportation index

Transfer on Death (TOD)

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

Indexed Annuity

Insurance product offering a minimum guaranteed rate of return and some participation in an underlying index usually the S&P 500

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. Also a way of figuring cost basis for income tax purposes usually called Average Cost Basis

Custodial Account

Investment account in which a custodian enters trades on behalf of beneficial owner who is usually a minor child.

Odd Lot Theory

Investment approach that does the opposite of what odd-lot investors are doing

No-Action Relief

Letter to a securities regulator verifying that a particulate action or course of business would be required no registration and lead to no regulatory action on their part if preformed as stated in the request.

Competitive Floor Traders

Members of the NYSE who by and sell exchange-listed securities for their own account.

Share Identification

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

Dividend

Money paid from profits to holders of common and preferred stock if and when the Board of Directors declares.

Cash Dividend

Money paid to shareholders from an issuers current earnings or accumulated profits

Tax-Exempt Bonds

Municipal bonds whose interest is not subject to taxation by the federal government

Coterminouse

Municipal issuers who over lap e.g. a village and a school district.

Value Funds

Mutual funds investing in stocks currently out of favor with investors trading at low multiples

Equity Funds

Mutual funds that primarily invest in equity securities

NASD

National Association of Securities Dealers - Formed 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.

Earnings Available to Common

Net income minus any preferred stock dividends. Dividing this amount by the shares outstanding arrives at the EPS for the company's common stock.

Cash flow

Net income plus depreciation/amortization or cash flow from operations as shown on the company's statement of cash flows.

Outstanding Shares

Number of shares a corporation has outstanding, used to calculate EPS

Bulletin Board

OTC stocks too volatile and low priced for NASDAQ

Tender Offer

Offer to purchase the securities currently held by investors if the investors care to tender their securities for payment.

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.

Registered Secondary

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

Primary Offering

Offering of securities in which the proceeds go to the issuer, e.g. an IPO

Qualified Opinion

Opinion by the bond counsel for a municipal issuer in which some debt or reservations are expressed.

Non-NASDAQ OTC Securities

Over-the-counter securities that do not meet the requirements of NASDAQ. for example Pink Market or OTCBB securities by definition unlisted securities.

Equity

Ownership e.g. common and preferred stock in a public company.

Life with Unit Refund

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

Sector Rotating

Portfolio management technique that involves selling or under-weighting securities of companies in certain areas of the economy and buying, or buying over-weighting securities in other areas. For example reducing holding in pharmaceutical stocks in order to buy more stocks in the telecommunications sector.

Clearance

Post-trade processing done by clearing agencies such as the NSCC

Backdating

Pre-dating a letter of intent (LOI) for a mutual fund in order to include a prior purchase in the total amount state in the letter of intent. LOI's may be backdated up to 90 calendar days.

Break-point Selling

Preventing an investor from achieving a break-point. A violation.

Subscription Price

Price that all buyers of a new issue will pay to buy the security being offered on the primary market.

Conflict of Interest

Primarily a concern for investment advisers and offers/directors of public companies who may find their own interests at odds with those of clients or shareholders to whom they owe a fiduciary duty.

Participation

Provision of ERISA requiring that all employees in a qualified retirement plan be covered within a reasonable length of time after being hired.

Brokers Check

Public disclosure data base provided by FINRA allowing the public to check the qualifications and disciplinary history of member firms principals and agents.

403(b)

Qualified plan for tax-exempt, non-profit organizations

Shelf Registration

Registering securities that will be sold gradually on the primary market.

Form BD

Registration form for a broker-dealer

Form U4

Registration from for a securities agent or principal of a broker-dealer or an investment adviser representative.

Form ADV

Registration from for an investment adviser

Rule (and form) 144

Regulates the sale of control stock by requiring board members officers and large shareholders to report sales of their corporations stock and to adhere to volume limits. The form is filled as often as quarterly - no later than concurrently with the sale.

Form N-1A

SEC form filed by an investment company to register under the Investment Company of 1940 and to register its securities under the Securities Act of 1933

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.

Random Withdrawals

Settlement option in an annuity whereby the annuitant takes the value of the sub-accounts in two or more withdrawals rather than one lump sum.

Tax and Revenue Anticipation Note (TRAN)

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

Equity Options

Standardized derivatives giving the holder the right to buy or sell the underlying stock at a set price (strike/exercise price)

Blue Sky

State securities law

Technical Analysts

Stock traders who relay on market data to spot buying and selling opportunities rather than information on the companies who issue stocks.

1065

Tax for used by partnerships

Account Freeze

Temporary restrictions placed on a customers account for violations of Regulation T.

Partnership Democracy

Term referring to a limited partner's right to vote in certain matters of major importance.

Investment Counsel

Term that may be used by investment advisers providing continuous supervisory management services only (not impersonal advice).

ERISA

The Employee Retirement Income Security Act of 1974 that governs the operation of most corporate pension and benefit plans

Reg T

The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities. According to Regulation T, you may borrow up to 50% of the purchase price of securities that can be purchased on margin. This is known as the initial margin.

FOMC

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

Sharpe Ratio

The Sharpe Ratio is the a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such calculations. It was developed by Nobel laureate William F. Sharpe. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated. One intuition of this calculation is that a portfolio engaging in "zero risk" investment, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return

Purchasing Power

The ability of a dollar to buy things one needs on an inflation-adjusted basis. Inflation erodes the purchasing power of the dollar which is why investors allocate funds to equity investments the best inflation-adjusted investment vehicle historically.

Exercise

The act of using an option to buy or sell the underlying instrument

Total Takedown

The additional take down plus the concession

Call Provision

The 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

Dividend Payout Ratio

The amount of dividends paid divided by the earnings per share. Stocks with high dividend payout ratios are typically found in equity income funds.

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. Found by taking 'earnings available to common" divided by the shares outstanding.

Excess Equity

The amount of equity above the Reg T requirement in a margin acount

Collection Ratio

The amount of taxes collected by a municipality divided by the amount of taxes assessed.

Death Benefit

The amount payable to the beneficiary of a life insurance (or annuity) contract minus any outstanding loads and/or unpaid premiums.

Debit Balance

The amount that a margin customer owes the broker-dealer in a margin account.

Time Horizon

The anticipated holding period for an investment

Time Weighted Return

The average returns over the time period

Managing Underwriter

The broker-dealer who negotiates the underwriting with the issuer and manages the syndicate during the offering

Roll-up Transaction

The combination of business units with for example a DPP investment

Distribution Expense

The cost of distributing/marketing a mutual fund including selling printing prospectuses and sales literature advertising and mailing prospectuses to new/potential clients. Covered by sales charges or 12b-1 fees.

Expiration Date

The date after which an option contract ceases to exist.

Dated Date

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

If a corporation owns another company's subordinated debentures, 30% of interest received is exempt

The exemption is for dividends received, not interest payments. Remember that the issuer deducts the interest paid on their bonds, while dividends come out of after-tax profits (net income after tax).

Time Value of Money

The fact that a sum of money is worth more now than at some point in the future due to its earnings potential

Investment Company Act of 1940

The federal securities legislation that classified Investment Companies and set rules for registration and operations

Intergration

The final stage in the money laundering process

Emerging Market

The financial markets of a developing country. General a small market with a short operating history not as efficient or stable as developed markets. For example Brazil China and India

Placement

The first state in the cycle of money laundering in which illegally generated funds are placed into the financial system or smuggled out of the courty

Tippee

The guy who listened to the insider information.

Clearing Rate

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

Accrued Interest

The interest that a 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.

Price-to-Earnings Ratio

The market price of a common stock compared to the EPS of that stock. a.k.a P/E ratio

Price-to-Book Ratio

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

Price-To-Cash Ratio

The market price of a common stock compared to the cash flow per share

Net Revenue Pledge

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

Corporation

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

Bar

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

Authorized Stock

The number of shares a company is allowed to issue by its corporate charter. Can be changed by a majority vote of the outstanding shares.

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 ration of 20 (20 shares of stock per $1,000 par value)

Preliminary Official Statement

The official statement for a municipal bond issue subject to further additions and changes.

Trend-line

The overall upward, downward or sideways pricing trend of a stock or index as revealed by a chart.

Sponsor

The party who puts together a direct participation program.

Account at Maintenance

The point at which a customers equity in a margin account is just high enough to avoid a margin call

Fiscal Policy

The process of taxation and spending done by the US Congress

Marginal Tax Bracket

The range of adjusted gross incomes subject to a particular marginal tax rate.

Exchange Rate

The relative value of two currencies e.g. US dollars to Yen impacting exports and imports

Consolidated Tape

The reporting ticker showing last-sale information for NYSE-listed securities where ever they are traded.

Chinese Wall

The separation that is supposed to exist between the investment banking department and the traders and registered representatives in order to prevent insider trading violations

Marginal Tax Rate

The tax rate applied to the last dollar of income earned

Chicago Board Options Exchange Market Volatility Index, VIX

The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge." VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.

Balance of Payments

The total inflow or outflow of capital for imports/ exports and investments/ financial products.

Market Cap

The total value of an issuer's outstanding shares

Who doesn't get ADV part 2

There are two types of clients who don't need to get the adviser's disclosure brochure: investment companies, impersonal advisory clients.

Monetarists

Those who advocate and/or implement monetary policy e.g. the Federal Reserve

Unregistered, non-exempt securities may be sold

Through exempt transactions only if the security is non-exempt it must either be registered or sold through an exempt transaction, i.e. a private placement.

Call (v)

To redeem a bond or preferred stock prior to the redemption date.

Long

To buy or own to begin a securities transaction by making a purchase

Discount (v)

To calculate the present value of future cash flows by some rate known as the "discount rate"

Disclaim an Inheritance

To give up all claims on an inheritance to that it passes to other heirs.

Hedge, Hedging

To modify the risk taken on a stock position by buying or selling options e.g. a covered call

TAC- Targeted Amortization Class

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

PAC or Planned Amortization Class

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

Raw Land

Unimproved real estate providing no cash flow and no depreciation. A speculative investment in land.

Inter-positioning

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

VIX

VIX is the symbol for the Chicago Board Options Exchange's volatility index. It is a measure of the level of implied volatility, not historical or statistical volatility, of a wide range of options, based on the S&P 500. This indicator is known as the "investor fear gauge," because it reflects investors' best predictions of near-term market volatility, or risk. In general, VIX starts to rise during times of financial stress and lessens as investors become complacent. It is the market's best prediction of near-term market volatility.

Backing Away

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

Compound Returns

What investors hope to achieve by reinvesting interest and dividends.

Limited Representative

What one would be after passing the Series 6 to represent one's broker-dealer. One would be a general securities representative once one passed the Series 7 exam.

Fair and Orderly Market

What the DDM's (Designated Market Makers) at the NYSE are charged with maintaining

Default

When the issuer of a bond is unable to pay interest and/or principal

Trust Indenture

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, ect.

Cooling-off Period

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

Registrar

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

Keogh

qualified retirement plan available to sole proprietorship a.k.a qualified plan for self-employed.

Rights of Offering

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

Strategic Asset Allocation

Allocating a portfolio according to the needs of the investor rather than on the expected direction of the stock and bond markets e.g. any age based portfolio for retirement or educational funding.

Inflation Risk

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

AMT

Alternative Minimum Tax: Tax computation that adds certain "tax preference items" back into adjusted grows income. Some municipal bonds interest is treated as "tax preference item" that can raise the investors tax liability through the AMT

Transfer and Hold Safekeeping

Buy order for securities in which securities are bought and transferred to the customers name but held by the broker-dealer.

Transfer and Ship

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

Call Spread

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

Rule 147

DEFINITION of 'Rule 147' A rule that can be used by a company to raise funds without actually registering with the Securities and Exchange Commission (SEC). This rule usually only applies to small companies that wish to raise a small amount of money without incurring the expensive fees associated with registering with the SEC.

Economic Indicator

Data providing economists with important information about the current state and possible future direction of the economy and various sectors of the economy.

Record Date

Date determined by the Board of Directors on 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

Effective DAte

Date established by SEC as to when the underwriters may sell new securities to investors a.k.a release date

Dividend Reinvestment Plan or DRIP

A program allowing investors to automatically reinvest cash dividends into more shares of fractional shares.

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

Preliminary Prospectus

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

Catastrophe Call Provision

A provision for a municipal revenue bond providing for a mandatory call of the bonds due to unforeseen circumstances e.g. a weather disaster or the bonds losing their tax-exempt status.

Nominal Quote

A quote in which a dealer is giving an estimate rather than a firm price at which he is ready to trade. Must be clearly identified as nominal to avoid back away which would be a violation.

HR-10

A reference to a Keogh Plan

Associated Person

A registered representative or principal of a FINRA member broker-dealer

Bear Spread

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

Redemption Fee

A charge to a mutual fund investor who sells her shares back to the fund within a certain time frame.

Assessable stock

A class of stock in which the issuing company is allowed to impose levies on stockholders for more funds. In the past, there was no restriction on how much additional money a company could demand or on how often a company could impose a levy on its stocks. Before the twentieth century, assessable stocks were the prevalent type of equity that companies would issue. In order to entice investors into buying this potentially expensive stock, issuers would initially sell the stock at a discount.

Tranche

A class of tranche found in planned amortization class (PAC) and targeted amortization class (TAC) collateralized mortgage obligations (CMOs) that absorbs variable prepayment rates. The companion trache is so named because it is designed to provide support to the main PAC tranche, which has priority in receiving principal and interest payments so as to give its investors steadier and more predictable cash flows. If the actual rate of prepayments differs from the assumptions made at the time the CMO was issued, the difference is absorbed by the companion tranche.

Sinking Fund

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

Numbered Account

Account identified with a number rather than a name. Allowed if the owner files a statement with the broker-dealer attesting to ownership.

Frozen Account

Account in which purchases orders will be accepted only if the cash is in the account due to the customers failure to comply with Reg T

Separate Account

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

Third-Party Account

Account managed on behalf of a third party e.g. Trust or UGMA

UGMA or Uniform Gifts to Minors Act

Account set up for the benefit of a minor, managed by a custodian

JTIC or Joint Tenants in Common

Account where the assets of the deceased party pass to the deceased's estate not the other way account owners.

Last-In-First-Out (LIFO)

Accounting method used for random withdrawals from annuity. The IRS assumes that all withdrawals represent part of the taxable excess over cost bases first.

STRIPS

Acronym for Separate Trading of Registered interest and Principal of Securities" A zero coupon bond issued by the US Treasury in which all interest income is received at maturity in the form of a higher (accepted) principal value. Avoids "reinvestment risk" 1. For bonds, the process of removing coupons from a bond and then selling the separate parts as a zero coupon bond and interest paying coupons. Also known as a stripped bond or zero coupon bond. 2. In options, a strategy created by being long in one call and two put options, all with the exact same strike price.

Form U5

If a registered representative voluntarily resigns or has their association with a member firm terminated for any reason, the member must fill out and submit a Uniform Termination Notice for Securities Industry Registration, known as Form U5. The member must submit the U5 to FINRA within 30 days of the termination. The member firm is also required to give a copy of the U5 to the representative upon termination. The member must also state the reason for the termination, either voluntary or for cause. An associated person's registration is non-transferable. A representative may not simply move their registration from one firm to another.

Buy and Hold

Investment approach that involves holding securities long-term in order to reduce transaction costs and based on a belief that good companies in general rise in value over time.

Modern Portfolio Theory

Investment approach using optimal portfolios to maximize returns for a given level of risk. Based on the belief that uncorrelated investments can reduce the overall risk of a portfolio associated with efficient frontier.

Generic Advertising

Investment company communications with the public that promote securities as investments but no ta particular security

Open-end Fund

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.

Preservation of Capital

Investment objective placing the emphasis on making sure the principal is not lost.

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.

High-Yield

Investments 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

Investor who does not meet various SEC net worth and/or income requirements. For a Reg D private placement accredited investors may participate but only a limited number of non-accredited investors may purchase the issue.

Passive Investor

Investor who feels markets are efficient and there for does not actively select/trade investments. Associated with the exclusive use of index's funds based on the goals of the investor rather than on the anticipated market movements.

Bear, Bearish

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

Qualified Institutional Buyers

Investors meeting certain SEC criteria allowing them to participate in certain investment opportunities not open to the general public

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.

Registration Statement

Legal document disclosing material information concerning an offering of a security and its issuer. Submitted to SEC under Securities Act of 1933

Securities Exchange Act of 1934

Legislation that prevents fraud in the securities market. No person and no security exempt from anti-fraud regulations. Created/empowered the SEC. Requires broker-dealers exchange and securities associations to register with SEC. Requires public companies to report quarterly and annually to SEC.

FHLMC or Freddie Mac

Like Fannie Mae a special purpose enterprise structured as a public company that purchases mortgages from lenders and sells mortgage-backed securities to investors. Stock is listed on NYSE

FNMA or Fannie May

Like little brother 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

Fixed Assets

Long-term assets that generate revenue but are not intended to be sold. For example a printing press.

Warrant

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

Bankers Acceptance (BA)

Money-market security that facilitates importing/ exporting. Issued at a discount from face-value. A secured loan.

Quick Ratio

More stringent measure of liquidity than the current ratio. Inventory is excluded from current assets before comparing them to the company's current liabilities.

Ordinary Income

Most income received by a taxpayer including salary, wages, bonuses, bond interest, ordinary dividends, alimony

Revenue Bond

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

No-Load Fund

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

A-Shares

Mutual fun shares sold with a front-end sales load/charge. Lower annual expenses than B and C shares.

Voluntary Accumulation Plan

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

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.

Core Fund

Mutual fund that combines growth and value investing or both stock and bond investing to provide a solid "core" holding for conservative investor.

Balanced Fund

Mutual fund that maintains a mix of stocks and bonds at all times. Related term "Core Fund"

Growth Fund

Mutual funds investing in stocks expected to grow faster than the overall market and trading at high price-to-earnings multiples.

National Adjudicatory Council

NAC the first level of appeal for a party sanctioned by teh DOE under FINRA's Code of Procedure. Natural Even Risk

Designated Market Maker

NYSE market participant charged with maintaining a fair and orderly market in the stocks they quote. DMM's 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 signification imbalances and high volatility.

Rate Covenant

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

Customer Complaint

Defined by FINRA as any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member of 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.

IARD or Investment Adviser Registration Depository

Defined by the SEC as an electronic filing system that facilitates investment adviser registration exempt reporting adviser filing regulatory review and the public disclosure information of investment adviser firms. Services a similar purpose for the advisory industry served by CRD for the brokerage industry.

Red Herring

Disclosure document containing essentially the same information that the final prospectus will contain minus the POP and effective date. a.k.a preliminary prospectus.

Final Prospectus

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

Prospectus

Disclosure document that details a company's plans history, offers and risks of investment. It's the read herring plus the POP and effective date.

DRP or Disclosure Reporting Page

Disclosure provided on a Form U4 , Form U5 or Form ADV of prior bad acts relevant to the securities industry.

Credit Agreement

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

Power of Substitution

Document that when signed by the security owner authorizes transfer of the certificate to another party.

Agreement among Underwriters

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.

Adjusted Gross Income (AGI)

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

EBITDA

Earnings Before Interest Taxes Depreciation and Amortization. the profit that would be shown before interest taxes depreciation and amortization are subtracted from revenue on the income statement. Or, revenue minus COGS and general operating expenses only.

Rights of accumulation

Feature of many mutual funds whereby a rise in account value is counted the same as a new money for purposes of achieving a break-point.

Letter of Intent or LOI

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.

Withdrawal Plan

Feature of most mutual funds that allows investors to liquidate their accounts over a fixed time period or using a fixed-share of fixed dollar amount.

Combination Privilege

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

Financial Future

Features contract where the underlying instrument is a stock index interest rate ect.

FDIC (Federal Deposit Insurance Corporation)

Federal government agency that provides deposit insurance for member banks and prevents banks and thrift failures. Bank deposits are currently insurance up to $250,00

Securities and Exchange Commission or SEC

Federal government regulator of broad aspects of securities markets empowered by passage of the Securities Exchange Act of 1934

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 prospects time one and must maintain a do-not-call list also checking the national registry.

12b-1

Fee deducted from a mutual fun's assets to cover distribution costs e.g. selling, mailing, printing, advertising. An operating expense, unlike the sale charge that is deducted from the investor's check.

Settlement

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

Balance Sheet

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

FIFO or First-In-First-Out

First-in-first-out is 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.

Pass-Through Cetrificate

Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by the Government National Mortgage Association (Ginnie Mae). Mortgage-backed certificates are the most common type of pass-through, where homeowners' payments pass from the original bank through a government agency or investment bank to investors.

Per Capita

For an inheritance per capita means if a beneficiary dies his shares are split by the other names beneficiaries.

Per Stripes

For an inheritance per stripes means if a beneficiary dies his share passes to his heirs and not the other named beneficiaries.

Advertising

For investment advisers any written communication delivered to more than one person

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 loans). For bonds the date that principal is returned to the investor.

Chart

Graphical representation of a stocks price and volume information.

Custody

Having possession/ control of an investor's assets or the ability to appropriate them.

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".

Market Manipulation

The illegal process of using deception to move securities prices in favor of the conspirators. Includes terms such as painting the tape or pegging.

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.

Legal Opinion

The opinion of the board counsel attesting to the municipality's legal authority to issue the bonds as well as the tax status of the bonds.

Regular Way Settlement

The typical time frame for purchasing an settling securities transaction e.g. T+3 for common stock trades or T+1 for trades in US Treasury securities.

Round Lot

The usual or normal unit of training, 100 shares for common stock

Cash Value

The value of an insurance policy that may be "tapped" by the policy holder through a loan or surrender.

Present Value

The value today of an amount of money in the future discounted by some compounded rate of return.

Front-running

The violation of taking advantage of a customer order by purchasing securities before entering a customer's buy order or selling securities before entering a customers sell order.

Duration

The weighted average of a bonds cash flows; a bonds price sensitivity to small changes in interest rates.

Yield to Call

The yield received on a bond if held to the date it is called

Rebalance

To sell securities in order to return the stated percentages/goals of a portfolio. Associated with strategic asset allocation.

FinCEN

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

Coupon Rate

a.k.a "nominal yield" the interest rate state 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 holder per year. Period.

Credit Risk

a.k.a Default or Financial risk. The risk that the issuer's credit rating will be down graded or that the issuer will default on a debt security.

Not Held (Orders)

a.k.a Market not held. A market order in which the customers allows the broker-dealer to enter the trade when they fill the price is right as opposed to a market order which is filled as soon as possible.

Inverted Head-and-Shoulders

a.k.a head-and-shoulders bottom a reversal of a down trend.

Model Rule

Publication by NASAA stating accepted regulation approaches to certain aspects of the securities industry faced by state and provincial regulators.

LEAPS

Publicly traded options contracts with expiration dates that are longer than one year. Structurally, LEAPS are no different than short-term options, but the later expiration dates offer the opportunity for long-term investors to gain exposure to prolonged price changes without needing to use a combination of shorter-term option contracts. LEAPS are an excellent way for a longer-term trader to gain exposure to a prolonged trend in a given security without having to roll several short-term contracts together. The ability to buy a call/put option that expires one or two years in the future is very alluring because it gives the holder exposure to the long-term price movement without the need to invest the larger amount of capital that would be required to own the underlying asset outright. These long-term options can be purchased not only for individual stocks, but also for equity indexes (such as the S&P 500).

Day-trading

Purchasing and selling or selling and purchasing the same security on the same day in a margin account.

Diversification

Purchasing securities from many different issuers or industries or geographic regions to reduce non-systematic risk.

Defined Benefit Pension Plan

Qualified corporate pension plan that literally defines the benefit payable to the retiree

Defined Contribution Plan

Qualified corporate plan that defines the contribution made on behalf of the employee, e.g. profit sharing 401K

401(k) Plan

Qualified defined contribution plan offering employer-matched contributions.

Subject Quotes

Quotes in which the dealer/market maker is sharing information and not yet ready to trade at those prices.

Issuing Securities

Raising capital by offering securities to investors on the primary market.

Tax-Equivalent Yield

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%-investors tax bracket.

What is a true statement concerning minimum net worth requirements imposed by the Administrator?

Rather than using a fixed dollar amount, some states use the ratio of net capital to aggregate indebtedness when determining minimum net worth requirements. The Administrator can not impose minimum net capital requirements on broker-dealers higher than what's required under the federal Securities Exchange Act of 1934, and can not impose requirements on advisers higher than what's required by the Investment Advisers Act of 1940. Advisers with custody of assets and those accepting prepayment over $500 six or more months in advance must meet specified net capital requirements—not just firms with discretion.

RVP

Receipt Versus Payment a method of settlement whereby payment on the transaction is made when delivery of the securities is received and accepted.

Refunding

Replacing an outstanding bond issue by issuing a new bond at a lower interest rate. Also known as calling a bond issue.

Currency Transaction Report (CTR)

Report submitted to the US treasury by a broker-dealer when a customer deposits more than $10,000 cash.

Disclosure Brochure

Required information of an investment adviser provided to prospects and offered to clients either a copy of ADV-2 or a document containing the same information

Backup Withholding

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

Reg D

Reserve Requirements for Depository Institutions (12 C.F.R. 204, Regulation D) is a Federal Reserve Board regulation that limits the number of pre-authorized withdrawals and transfers from a savings account or money market account. The regulation applies to all United States banking institutions offering such accounts.

Cash Settlement

Same day settlement of a trade requiring prior broker-dealer approval. Not the regular way of doing business.

1035 Contract Excange

Section 1035 Exchange refers to the replacement of an annuity or life insurance policy for a new one without incurring any tax consequence for the exchange. The IRS allows holders of these types of contracts to do this in order to replace outdated contracts with new contracts with improved benefits, lower fees and different investment options. The following exchanges of insurance contracts are considered tax-free by the IRS: replacing one annuity contract for another annuity contract with identical annuitant replacing one life insurance policy for another life insurance policy, endowment policy or annuity contract replacing one endowment policy for an identical endowment policy or an annuity contract Any other variation from those acceptable exchanges listed above (annuity contract for life insurance) will not be considered a tax-free exchange. The IRS has provided strict guidelines that the owner, insured and annuitant must be the same on the new contract as listed on the old in order to qualify for the tax-free treatment. The contract must also exchange directly between the insurance companies to retain the tax-free status. The IRS has ruled in several previous cases that if an owner cashes out of a current contract and immediately applies the proceeds to a new contract it will not be treated as a tax-free event or Section 1035 Exchange.

EFGAR

Section of the SEC's website where various required filings are made by reporting companies and accessible by the public. To pull up a prospectus, 10Q or 10K for example go to the EDGAR section of www.sec.gov EDGAR is an acronym for Electronic Data Gather, Analysis and Retrieval

Treasury Securities

Securities guaranteed by US Treasury including T-Bills, T-Notes, T-bonds, and STRIPS

Redeemable Security

Security that may be presented to the issuer for payment e.g. open-end funds.

Credit Spread

Selling a more valuable call/put and simultaneously buying a less valuable call/put on the same underlying instrument. Trader Joe expects XYZ to fall from its current price of $35 a share. Write 10 January 36 calls at 1.10 $1100 Buy 10 January 37 calls at .75 ($ 750) net credit $350 Consider the following scenarios: The stock falls or remains BELOW $36 by expiration. In this case all the options expire worthless and the trader keeps the net credit of $350 minus commissions (probably about $20 on this transaction) netting approx $330 profit. If the stock rises above $37 by expiration, you must unwind the position by buying the 36 calls BACK, and selling the 37 calls you bought; this difference will be $1, the difference in strike prices. For all ten calls this costs you $1000; when you subtract the $350 credit, this gives you a MAXIMUM Loss of $650.

Fiduciary

Someone responsible for the financial affairs of someone else e.g. investment adviser, trustee who woes the beneficiary a duty of loyalty and a duty of good faith.

Assets

Something that a corporation or individual owns e.g. cash, investments, accounts receivable, inventory, etc.

Anticipation Notes

Sort-term debt obligations of a municipality often held by tax-exempt money market mutual funds

User Fee

Source of revenue used to retire a revenue bond, e.g. park entrance fees, tolls, sky-box rentals ect.

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.

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.

8-K

SEC report required by the Securities Exchange Act of 1934 of public companies announcing unusual material events. A report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the Securities and Exchange Commission. Examples of events reported on an 8-K include acquisition, bankruptcy, resignation of directors, loss of major customers or a change in the fiscal year. Also known as Form 8k.

10-K

SEC report required by the Securities Exchange act of 1934 annually of public companies.

10-Q

SEC report required by the Securities Exchange act of 1934 quarterly of public companies.

Self-Regulator Organization

SRO e.g. FINRA an organization given the power to regulate its members. Not government bodies like SEC which oversees the SRO's.

An example of a self-regulatory organization (SRO) registered under the Securities Exchange Act of 1934

SROs registered with the SEC include FINRA, NYSE, NASDAQ and CBOE. The SEC is not a mere SRO--they are the federal government. The Commodity Futures Trading Commission (CFTC) regulates commodities markets the way the SEC regulates securities markets.

404(c)

Safe-harbor provisions allowing employers to pass off risk to participants of defined contribution plans.

Restricted Stock

Stock whose transfer is subject to restrictions e.g. holding period. Stock purchased in private placements is an example of restricted stock

Western/Divided Account

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

Trade Reporting and Compliance Engine (TRACE)

System used to report corporate bond transactions in the secondary market

K-1

Tax form required of people who own direct participation interest (limited partnership, S-corp.)

1099-DIV

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

1120

Tax form used by corporations

1040

Tax form used by individuals and sole proprietors.

1041

Tax form used by trusts and estates

1099-OID

Tax form used to pay annual accretion on a zero coupon or any taxable original issue discount (OID) bond

Internal Revenue Code (IRC)

Tax laws for the US written by Congress with all blame passed off conveniently to the IRS

457 Plan

Tax-advantaged retirement accounts for state and municipal government employees. AKA Section 457 Plan

Accrued Taxes

Taxes that are owed by a company over the short-term a current liability

3 Pronged Approach

Test used by SEC to determine if an entity meets the definition of an investment adviser. Does the Person provide investment advice-relating to securities and based on the clients situation? Does the person receive compensation as a result of providing investment advice? Is the person in the business of providing investment advice?

Proceeds

The amount an investor receives when selling a capital asset less any commissions or fees to execute the sale.

Intrinsic Value

The amount by which an option is in-the-money for example if 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 or bond exceed your costs basis. If you sell a stock for $22 and have a costs basis of $10 the capital gain or profit is $12

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 costs basis, and only when they sell or take constructive receipt.

Concession

The amount that the seller of a new issue of municipals bonds receives whether a syndicate member or a selling group meter.

Future Value

The amount to which an investment will grow by a future date given a compounded rate of return.

Current Account

The difference between a nation's imports and exports. A current account deficit is synonymous with a trade deficit.

Balance of Trade

The difference between a nation's imports and exports. See also trade surplus, trade deficit.

Discount (n)

The difference between the (lower) market price for a bond and the part value

Markup

The difference between the lowest ask/offer price for a security and the price that a particular dealer charges.

Yield Spread

The difference in yields between two types of debt securities e.g. junk bonds vs. investment grade or junk bonds vs. US Treasury's

Direct Debt

The general obligation of debt of a municipal issuer for which it is solely responsible.

Board of Directors

The group elected by the shares holders to run a mutual fund or a public company and establish corporate management policies.

Tipper

The guy who told him

Book Value or Book Value Per-Share

The hard tangible asset value associated with each share of common stock. Calculated by taking stockholders equity minus preferred shares, divided by the number of shares out standing.

One of your investing clients is a married couple interested in gifting various relatives as much as possible without incurring tax liability. In 2014 the husband gave his nephew, Jason, $18,000, and the wife gave her niece, Jennifer, $19,000. Therefore, which of the following accurately addresses the tax ramifications?

the couple can choose to split the gift without incurring gift tax liability, but must file a return - gift-splitting requires that a return be filed. But, no gift tax liability exists here, as $9, 000 of the $18,000 gift came from each spouse, and $9, 500 of the $19,000 gift came from each spouse.

Investment Risk

potential factors that can have a negative effect on the value of an investment or the income if produces

Financial Planner

professional who provides total financial strategies to clients involving insurance needs retirement needs estate planning investing tax reduction ect. usually required to register as an investment adviser unless securities are never part of any plan.

Section 529

the 529 plan allows account owners to invest in all kinds of different mutual funds (stock, bond, money market), so there is no reason to call them "fixed income securities." The other three statements are clearly accurate: the account owner can fund her own education, contributions are subject to the annual gift tax exclusion, and once per 12 months the funds can be moved to a different plan.

In-The-Money

A call option allowing an investor to buy the underlying stock for less than it's worth or a put option allowing the investor to sell the underlying stock for more than it is worth.

Quick Assets

Current assets that are easily liquidated cash & equivalents and accounts receivable minus inventory. Quick assets are used to calculate the company's quick ratio from the balance sheet.

Due Diligence

Meeting between issuer and underwriters with the purpose of verifying information contained in a restoration statement/ prospectus.

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

CAPM or Capital Asset Pricing Model

Method of calculating expected return based on the risk-less rate expected market return and beta. Based on idea that equity investors expect the time value of money plus a risk premium to compensate for the risk taken by investing in the stock market. Required (or expected) Return = RF Rate + (Market Return - RF Rate)*Beta

PSA Model

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

Average Cost Basis

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 particular shares to the IRS when selling.

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.

Cumulative Voting

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

Uniform Securities Act

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.

Statutory Disqualification

Prohibiting a person from associating with an SRO due to disciplinary or criminal action within the past 10 years or due to fling a false or misleading application or report with a regulator.

Combination

A multiple options position that is neither a straddle nor a spread. For example if an investor buys an ABC Aug 45 call and sells an ABC Aug 50 put he has established a combination. AKA "Combo"

Private Activity Bond

A municipal bond subjecting investors to AMT because the issuer does not qualify under the Internal Revenue Code as a municipal issuer. For example a parking garage built with the proceeds of a revenue bond may benefit a corporate entity as opposed to a city government or subdivision.

Limited Tax Bonds

A municipal bond with two distinguishing features. First, as a general obligation bond, it is secured by all revenues the issuing municipality generates that are not otherwise secured. That is, unless a municipality's revenue specifically secures another bond, the municipality must theoretically use all of its other revenue to pay the bond. Secondly, because it is a limited-tax bond, its provisions place a maximum possible tax increase that the municipality can levy if its other revenues come up short. The first provision reduces the bond's risk, while the second provision increases it.

Negotiated Underwriting

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

IDR or Industrial Development Revenue Bond

A municipal revenue bond that builds a facility that issuing municipality leases to a corporation. The lease payments from the corporation back the interest and principal payments on the bond.

Broker's Broker

A municipal securities firm acting as a broker for other firms who are not active in the municipal securities market in order to obtain pricing superior to what the firm could obtain itself.

International Fund

A mutual fund investing in companies established outside the US

Equity Income Fund

A mutual fund that purchases common stocks whose issuer pay consistent and perhaps increasing dividends. The fund has less volatility than an equity fund with growth as an objective.

Unsolicaited

A transaction placed by the investor at no prompting from an agent/broker-dealer

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.

ADR/ADS

Abbreviation for an American Depository Receipt/Share. A foreign stock on a domestic market. Toyota and Nokia are two example of foreign companies whose ADRs trade on American Stock Markets dominated in dollars.

Pension Plan

Contract between an individual and an employer that provides for the distribution of benefits at retirement

Annaity

Contract between an individual and an insurance company that provides income for the rest of the individuals life in return for a lump-sum or periodic payment to the insurance company.

Subordinated Debenture

Corporate Bonds with a claim that is subordinated or junior to a debenture and/or general creditor.

T-Bills

Direct obligation of US Government. Sold at discount mature at face amount. Maximum maturity is 1 year

T-Notes

Direct obligation of US Government. Pay semi-annual interest. Quoted as % of part value plus 32nds. 2-10-year maturities.

Specified Program

Direct participation program in which the assets of the partnership are identified

Sector Fund

Fund that concentrates heavily in a particular industry e.g. the "Technology Fund". Higher rise/reward than funds invested in many industries.

Selling, General and Administrative

General operating expense listed on the company's income statement. Expenses not directly related to the production of the company's product or delivery of its' product or delivery of its' services. a.k.a Operating expense

Spread

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

Annualized Return

The rate of return adjusted for increments of one year. For example a 5% return over 1 month represents a 60% annualized rate of return while a 15% return over three years represents a 5% annualized rate of return

Dollar Weighted Return

The rate of return weighted by the dollars invested rather than taking a simple average of annual returns (time-weighted return)

Required Minimum Distribution (RMD)

The required minimum amount that must be taken from a retirement plan to avoid IRS penalties. Usually must occur by April 1st of the year following the individuals 70 1/2 birthday.

Opportunity Costs

The return on an investment given up in order to pursue another opportunity.

Residual Claim

The right of common stockholders to claim assets after the claims of all creditors and preferred stockholders have been satisfied.

Preemptive Right

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

Capital Appreciation

The rise in an assets market price. The objective of a growth investor.

Countrparty Risk

The risk faced by parties to a forward contract that the other side will default.

Liquidity Risk

The risk of being unable to sell a security quickly for a fair price a.k.a marketability risk.

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.

Purchasing Power Risk

The risk that a fixed payment will not be sufficient to keep up with rising inflation (as measured through a CPI). a.k.a inflation risk or constant dollar risk.

Reinvestment Risk

The risk that a fixed-income investor will not be able to reinvest interest payments or par value at attractive interest rates. Happens when rates are falling.

Capital Risk

The risk that an investor could lose some or all of her investment principal. For securities investors avoided only purchasing US Treasury Securities and holding to maturity.

Extension Risk

The risk that interest rates will rise and the holder of a CMO or mortgage-backed security will have to wait longer to expect to receive principal.

Interest Rate Risk

The risk that interest rates will rise, pushing the market value of a fixed-income security down.

Business Risk

The risk that the company whose stocks or bonds you own will not be successful as a business. Competition poor management obsolete products/services are all examples of business risk.

Default Risk

The risk that the issuer of the bond will stiff you. Measured by S&P and Moody's

Prepayment Risk

The risk that the mortgages underlying a mortgage-backed securities/pass-through will be paid off sooner than expected due to a drop in interest rates. Investors reinvest the principal at a lower rate going forward.

Currency Exchange Risk

The risk that the value of the US dollar versus another currency will have a negative impact on businesses and investors.

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 plummet.

Viatical Settlement

The sale and purchase of a life insurance policy wherein investors buys the death benefit at a discount and profits when the insured dies. a.k.a. life settlement.

Debt Service

The schedule for repayment of interest and principal on a debt security

Buy-to-Cover

The trade entered by a trader who has sold short in order to buy and replace the securities borrowed.

Volatility

Up and down movements of an investment that makes investors dizzy and occasionally nauseated.

Fraud

Using deceit or manipulation to wrongfully take money/property from someone under false pretense.

Risk Modification Techniques

Using options and other strategies to reduce the risks presented by current holdings, e.g. buying a put to protect against a large loss on a particular stock holding

Portfolio Optimization

Using the efficient frontier to match an investor's risk tolerance and objectives with the most efficient portfolio possible on a risk-adjusted basis.

Proceeds Transcation

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

Marketability Risk

Usually called liquidity risk the risk that a thinly traded security can not be converted to cash without experiencing a loss of principal.

Selling Away

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

Accrued Wages

Wages that are owed by the company over the short-term a current liability

Accounts Payable

What a company owes its vendors in the short-term a current liability

Accounts receivable

What a customer owe a company in the short-term a current asset.

Bid

What a dealer is willing to pay to a customer who wants to sell. Customers sell at the bid buy at the ask.

Discretionary Income

What an investor has to invest after all expenses are met.

Unit of Beneficial Interest

What an investor in a Unit Investment Trust (UIT) owns.

Purchase Payment

What annuitants pay into the annuity contract

Open Market Operations

What the FOMC engages in when buying or selling US Treasuries to achieve targets for short-term rates.

Monetary Policy

What the FRB implements through the discount rate reserve requirement and FOMC open market operations. Monetary policy tightens or loosens credit in other to affect short-term interest rates and therefore the economy.

Accumulation Units

What the purchaser of an annuity receives in exchange for his purchase payments during the accumulation phase and accounting measure representing a proportional share of the separate account.

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 or wholesaler.

Simple Trust

A bare trust (sometimes referred to as a simple trust or mandatory trust) is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. A simple trust requires that any income it receives be distributed within the tax period it is earned. This is opposite to a complex trust where the funds are not required to be paid out right away, so it can keep gaining income without having to distribute the money or property.

Guaranteed Bond

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

Bond

A debt security issued by a corporation or governmental entity that promises to repay principal and pay interest either regularly or at maturity.

Current Liability

A debt to be paid in the short-term usually one year or sooner.

Long-Term Liability

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

Equipment Leasing Program

A direct participation program that leases computers mining equipment ect. Depreciation is a major tax-advantage of such a program.

Default Hearing

A disciplinary hearing held by FINRA or a state regulator when the respondent fails to cooperate and in the respondents's absence after proper notice has been served.

Breakpoint

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

Selling Dividends

A dishonest broker tactic that involves convincing a client to purchase a stock because it's about to pay a dividend. The broker pretends that this recommendation is in the client's best interest because the dividend will supposedly generate instant returns for the client. In reality, the trade is in the broker's best interest because of the commissions it will generate. The recommendation is dishonest because once a stock is trading ex-dividend, its price decreases by the amount of the dividend, and the investor does not come out ahead.

Qualified Dividend

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

Expense Ratio

A funds operating expense divided by/compared to average net assets. Represents operating efficiency of a mutual fun where the lower the number the more efficient the fund

Face-Amount Certificate Company

A face-amount certificate company is an investment company which offers an investment certificate as defined by the Investment Company Act of 1940. In general, these companies issue fixed income debt securities that obligate the issuer to pay a fixed sum at a future date. They are generally sold on an installment basis.[1] A face-amount certificate (FAC) is a contract between an investor and an issuer in which the issuer guarantees payment of a stated (face amount) sum to the investor at some set date in the future. In return for this future payment, the investor agrees to pay the issuer a set amount of money either as a lump sum or in periodic installments. If the investor pays for the certificate in a lump sum, the investment is known as a fully paid face amount certificate. Alongside with FAC, other company types that fall under the scope of the Investment Company Act of 1940 are Unit Investment Trusts and Management Companies

Conduit Theory (Tax Treatment)

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

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.

Securities Act of 1933

A federal piece of legislation enacted as a result of the market crash of 1929. The legislation had two main goals: (1) to ensure more transparency in financial statements so investors can make informed decisions about investments, and (2) to establish laws against misrepresentation and fraudulent activities in the securities markets. In general, the legislation was enacted as the need for more information within and about the securities markets was acknowledged. The legislation addressed the need for better disclosure by requiring companies to register with the Securities and Exchange Commission. Registration ensures companies provide the SEC and potential investors with all relevant information by means of the prospectus and registration statement.

S-Corporation or S-Corp

A form of corporation that meets the IRS requirements to be taxed under Subchapter S of the Internal Revenue Code. This gives a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. This means that any profits earned by the corporation are not taxed at the corporate level, but rather at the level of the shareholders. Also known as "S corporation". Having S corporation status can prove a huge benefit for a corporation. The corporation can pass income directly to shareholders and avoid the double taxation that is inherent with the dividends of public companies, while still enjoying the advantages of the corporate structure. In order to qualify, a corporation must be a small business corporation

Management Company

A formal name for a company that sells and manages a portfolio of securities. A management investment company is one of the three fundamental types of investment companies, the other two being unit investment trusts and face-amount certificate companies. Management investment companies allow investors to pool their capital with that of other investors in order to purchase professionally-managed groups of diversified securities. A management investment company is headed by a CEO, a team of officers and a board of directors. These company leaders choose the types of investment products the company will offer, define the fund's objectives and select the people who will run each fund. Management investment companies are subject to rules set forth in the Investment Company Act of 1940. Registered management investment companies are also subject to the Securities Exchange Act of 1934.

Growth & Income

A fund that purchases stocks of growth potential and also for dividend income. Less volatile than pure growth funds due to the income that clams investors down when the ride becomes turbulent. Or, the investment objective of an investor seeking both growth and income.

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.

Trust Indenture Act of 1939

A law passed in 1939 that prohibits bond issues valued at over $5 million from being offered for sale without a formal written agreement (an indenture), signed by both the bond issuer and the bondholder, that fully discloses the particulars of the bond issue. The act also requires that a trustee be appointed for all bond issues, so that the rights of bondholders are not compromised. The Trust Indenture Act of 1939 was passed for the protection of bond investors. In the event that a bond issuer becomes insolvent, the appointed trustee may be given the right to seize the bond issuer's assets and sell them in order to recoup the bondholders' investments.

Estate

A legal entity/person that represents all assets held by a deceased person before he died.

Straddle

A long straddle involves going long, i.e., purchasing, both a call option and a put option on some stock, interest rate, index or other underlying. The two options are bought at the same strike price and expire at the same time. The owner of a long straddle makes a profit if the underlying price moves a long way from the strike price, either above or below. Thus, an investor may take a long straddle position if he thinks the market is highly volatile, but does not know in which direction it is going to move. This position is a limited risk, since the most a purchaser may lose is the cost of both options. At the same time, there is unlimited profit potential.[1] For example, company XYZ is set to release its quarterly financial results in two weeks. A trader believes that the release of these results will cause a large movement in the price of XYZ's stock, but does not know whether the price will go up or down. He can enter into a long straddle, where he gets a profit no matter which way the price of XYZ stock moves, if the price changes enough either way. If the price goes up enough, he uses the call option and ignores the put option. If the price goes down, he uses the put option and ignores the call option. If the price does not change enough, he loses money, up to the total amount paid for the two options. The risk is limited by the total premium paid for the options, as opposed to the short straddle where the risk is virtually unlimited.

Auction Market

A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. The price a stock is traded represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to sell at. Matching bids and offers are then paired together and the orders are executed. The New York Stock Exchange (NYSE) is an example of an auction market. Auction markets differ from over the counter where trades are negotiated. For example, 4 buyers want to buy a share of XYZ and make the following bids: $10.00, 10.02, 10.03 and $10.06. Conversely, there are 4 sellers that desire to sell XYZ and they submitted offers to sell their shares at the following prices: $10.06, 10.09, 10.12 and $10.13. In this scenario, the individuals that made bids/offers for XYZ at $10.06 will have their orders executed. All remaining orders will not immediately be executed and the current price of XYZ will then be $10.06.

Soft-dollar Compensation

A means of paying brokerage firms for their services through commission revenue, as opposed to through normal direct payments (hard dollar fees). The investing public tends to have a negative perception of soft dollar arrangements because they believe that buy-side firms should pay expenses out of their profits, rather than from investors' pockets. As such, the use of hard dollar compensation is becoming more common.

Mean

A measure of central tendency the average of a set of numbers.

PPI or Producer Price Index

A measure of costs to seller/producers as opposed to CPI which measures the cost to consumers

Inventory Turnover Ratio

A measure of how effectively a company deploys its capital found by taking cost of goods sold from the income statement and dividing that amount by the average inventory over the period.

Asset Coverage

A measure of how strong a company's balance sheet is relative to it's obligations to bond holders.

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.

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.

Series I Bond

A non-marketable, interest-bearing U.S. government savings bond that earns a combined: 1) fixed interest rate; and 2) variable inflation rate (adjusted semiannually). Series I bonds are meant to give investors a return plus protection on their purchasing power. Additionally, the interest income is only taxable at the federal level, not at the state and local levels. Most Series I bonds are issued electronically, but it is possible to purchase paper certificates with a minimum of $50 using your income tax refund.

Series EE Bond

A non-marketable, interest-bearing U.S. government savings bond that is guaranteed to at least double in value over the initial term of the bond, typically 20 years. Most Series EE bonds have a total interest-paying life that extends beyond the original maturity date, up to 30 years from issuance.

Deferred Compensation Plan

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

General Partnership

A pass-through entity that provides no protection to the owners against debts and lawsuits.

Broker-Dealer

A person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction. The term broker-dealer is used in U.S. securities regulation parlance to describe stock brokerages, because most of them act as both agents and principals. A brokerage acts as a broker (or agent) when it executes orders on behalf of clients, whereas it acts as a dealer (or principal) when it trades for its own account. Broker-dealers fulfill several important functions in the financial industry; these include providing investment advice to customers, supplying liquidity through market-making activities, facilitating trading activities, publishing investment research and raising capital for companies. Broker-dealers may range in size from small independent boutiques to large subsidiaries of giant commercial and investment banks.

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

Flexible Premium

A premium that may be changed as time goes on, a characteristic of universal insurance.

MSRB (Municipal Securities Rule-making Board)

A regulating body that creates rules and policies for investment firms and banks in the issuing and sale of municipal bonds, notes and other municipal securities by states, cities and counties. Activities regulated by the MSRB include the underwriting, trading and selling of municipal securities financing public projects. The MSRB was established by the United States Congress in 1975. Like the New York Stock Exchange or the National Association of Securities Dealers, the MSRB is a self-regulatory organization that is subject to supervision by the Securities and Exchange Commission (SEC).

Reg SHO

A regulation implemented on January 3, 2005 that seeks to update legislation concerning short sale practices. Regulation SHO established "locate" and "close-out" standards that are primarily aimed at preventing the opportunity for unethical traders to engage in naked short selling practices. The "locate" requirement requires that a broker has reasonable belief that the equity to be short sold can be borrowed and delivered to a short seller on a specific date before short selling can occur. The "close-out" requirement represents the increased amount of delivery requirements imposed upon securities that have many extended delivery failures at a clearing agency.

Reverse Repurchase Agreement

A repurchase agreement, also known as a repo, currency repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest. A repo is almost equivalent to a spot sale combined with a forward contract. The spot sale results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan, while the settlement date of the forward contract is the maturity date of the loan

Form ADV-2

A required submission to the Securities and Exchange Commission (SEC) by a professional investment advisor that specifies the investment style, assets under management and key officers of the firm. The form must be updated annually and be made available as public record for companies managing in excess of $25 million. Form ADV is divided into two parts. The first discloses specific information about an RIA that is important to regulators (name, number of employees, form of the organization, nature of the business, etc.). The second part acts as a disclosure document for clients of the business and includes information such as services provided and fees levied, whether the investment adviser acts as a broker-dealer and transacts securities, and so on. Most advisers will offer a current Form ADV to any potential client early in the marketing process; in fact, investors should be immediately cautious of an adviser that does not freely offer the form upon request.

offer of Settlement

A respondents offer to the disciplinary committee of FINRA to settle his or her recent rule violations.

IRA or Individual Retirement Account

A retirement account/arrangement for an individual with earned income and no older than 70 1/2 The traditional IRA offers tax-deductible contributions while the Roth IRA is founded with non-deductible contributions.

Money Purchase Plan

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

Reg FD

A rule passed by the Securities and Exchange Commission in an effort to prevent selective disclosure by public companies to market professionals and certain shareholders. The Reg FD rule reads as follows: "Whenever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to [certain enumerated persons], the issuer shall make public disclosure of that information... simultaneously, in the case of an intentional disclosure; and... promptly, in the case of a non-intentional disclosure."

When does the SEC consider that a securities transaction has been "completed"?

A securities transaction has been "completed" when it settles/clears, at which point payment has been made, and the securities have been delivered. An investment adviser, for example, must disclose that it intends to act in a 'principal' capacity on a customer transaction and get the customer's consent no later than completion of the transaction, which is settlement. Settlement is usually T + 3 business days.

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.

Debt Limit

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

Efficient Frontier

A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal, because they do not provide enough return for the level of risk. It is not possible to have a portfolio above the line. Portfolios that cluster to the right of the efficient frontier are also sub-optimal, because they have a higher level of risk for the defined rate of return. Since the efficient frontier is curved, rather than linear, a key finding of the concept was the benefit of diversification. Optimal portfolios that comprise the efficient frontier tend to have a higher degree of diversification than the sub-optimal ones, which are typically less diversified. The efficient frontier concept was introduced by Harry Markowitz in 1952 and is a cornerstone of modern portfolio theory.

Lump Sum Payment

A settlement/payout option for annuities or insurance where the annuitant or beneficiary receives one payment opposed to a series of payments

Money Market Security

A short-term debt obligation e.g. commercial paper banker's acceptance or T-Bills

Revenue Anticipation Note (RAN)

A short-term debt obligation of a municipal issuer backed by upcoming revenue

Note

A short-term debt security

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 ect backed by the anticipation of funds from revenues taxes, or upcoming bond issue e.g. TAN, RAN, BAN

Control Relationship

A situation in which the broker-dealer is related to the issuer of the securities involved in a transaction requiring disclosure.

Z-Tranche

A special type of bond class in a sequential pay collateralized mortgage obligation. This class of bond does not receive any interest or principal payments until all other tranches have been completely paid off. In a Z-tranche, the interest that is not paid is accrued and added to the principal for future interest calculation purposes. The main purpose of the Z-tranche is to speed up the maturity of the senior tranches by disbursing payment that the Z-tranche was supposed to receive to the higher priority tranches. Investors that possess long-term liabilities or those who worry about reinvestment risk would benefit from investing in a Z-tranche bond.

R-Squared

A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index. A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

Summary Prospectus

A summary prospectus is the disclosure document provided to investors by mutual fund companies prior to or at the time of sale. The written document is a truncated version of the final prospectus that allows investors to see pertinent information regarding the fund's investment objectives and goals, sales charges and expense ratio, focused investment strategy, and data on the fund's management team. Relevant tax information and broker compensation are also included in the disclosure document. A summary prospectus provides investors the information they need from the final prospectus quickly and in plain English.

Floating-Rate Currency

A system allowing the value of a nations currency to rise and fall due to supply and demand.

FEIN or Federal Employer Identification Number

A tax ID number assigned to an entity such as a corporation trust or estate.

Ad Valorem

A tax based on the assessed value of real estate or personal property. Ad valorem taxes can be property tax or even duty on imported items. Property ad valorem taxes are the major source of revenue for state and municipal governments. Municipal property ad valorem taxes are also known as "property taxes". The phrase ad valorem is Latin for "according to value". In the case of municipal property taxes, property owners have their property assessed on a periodic basis by a public tax assessor. The assessed value of the property is then used to compute an annual tax, which is levied on the owner by his or her municipality. Ad valorem taxes are incurred through ownership of an asset, in contrast to transnational taxes, such as sales taxes, which are incurred only at the time of transaction.

Top-Heavy

A tax problem incurred by 401k plans providing too much benefit to key employees

Charitable Remainder Trust

A tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity. The whole idea of a charitable remainder trust is to reduce taxes. This is done by first donating assets into the trust and then having it pay the beneficiary for a stated period of time. Once this time-frame expires, the remainder of the estate is transferred to the charities deemed as beneficiaries.

Index

A theoretical grouping of stocks bonds ect. 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.

Short Interest Theory

A theory which holds that a security with a high degree of short interest may be poised to increase in price. The short-interest theory suggests that some heavily shorted stocks may be prime candidates for significant price appreciation in the near term, as short sellers buy the stock to cover their short positions. This buying pressure fosters a "short squeeze" and creates a price spike that may trigger more short covering. Since high short interest in a stock is generally a bearish indicator, the short-interest theory's premise that such a stock will advance amounts to a contrarian bet. The theory focuses on stocks with high short interest, which is measured in terms of shares sold short either as a percentage of shares outstanding, or as a percentage of float.

Bear Market

A trading market for stocks or bonds in which prices are falling and/or expected to fall. characterized by a series of lower highs and lower lows.

Exempt Transaction

A transaction exemption from registration requirements based on the manner in which the security is offered and sold e.g. private placements or offers to institutional investors only.

Agency Cross Transaction

A transaction in which an investment adviser acts as the broker for both his client and the other party to the transaction. Investment advisers are not required to obtain the client's consent for each individual agency cross transaction, but must have the client's prior consent to engage in such transactions. As in all transactions, advisers are required to obtain the best possible price and execution in agency cross transactions. If an affiliate of the adviser brokers such a transaction, it is still considered an agency cross transaction, just as if the adviser had brokered it. Agency cross transactions are governed by Rule 206(3)-2 of the Investment Advisers Act of 1940.

JTWROS or Joint Tenants with Rights of Suvivorship

A type of brokerage account which is owned by at least two people, where all tenants have an equal right to the account's assets and are afforded survivorship rights in the event of the death of another account holder. In this type of brokerage account, a surviving member will inherit the total value of the other member's share of account assets upon the death of that other member. All members of the account are afforded the power to conduct investment transactions within the account as well.

Top-Down Analysis

A type of fundamental analysis starting with overall economic trends and then moving down to industry sectors and particular companies

Tax Preference Item

A type of income, normally tax-free, that may trigger the alternative minimum tax (AMT) for taxpayers. Tax preference items include private-activity municipal-bond interest, the qualifying exclusion for small business stock and excess intangible drilling costs for oil and gas, if this amount exceeds 40% of AMT income. Tax preference items are added to the amount of AMT income in the tax formula. Like the AMT itself, tax preference items are designed to prevent high-income taxpayers from being able to avoid too much income tax via participation in certain activities. For example, investors who own private-activity bonds issued after August or September of 1986 must declare all income received from these bonds, minus investment expenses. This rule thereby prevents taxpayers from shielding all of their investment income in this type of bond issue.

CMO or Collateralize mortgage obligation

A type of mortgage-backed security in which principal repayments are organized according to their maturities and into different classes based on risk. A collateralized mortgage obligation is a special purpose entity that receives the mortgage repayments and owns the mortgages it receives cash flows from (called a pool). The mortgages serve as collateral, and are organized into classes based on their risk profile. Income received from the mortgages is passed to investors based on a predetermined set of rules, and investors receive money based on the specific slice of mortgages invested in (called a tranche). Collateralize mortgage obligations are complex financial instruments. Each CMO tranche can have different principal balances, interest rates, maturities and repayment risks. They are sensitive to interest rate changes as well as changes in economic conditions, such as foreclosure rates, refinance rates and the rate at which properties are sold.

C-Shares

A type of mutual funds share often called level load because of the high 12b-1 fee. Appropriate for shorter-term investing only.

Participating Preferred Stock

A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition. The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount. Furthermore, in the event of liquidation, participating preferred shareholders can also have the right to receive the stock's purchasing price back as well as a pro-rata share of any remaining proceeds that the common shareholders receive.

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 ect.

Wrap Fee Broachure

A wrap account is an account under which investment advisory services and brokerage trades are "wrapped" into a single fee that is not based on the number of transactions in an account. The wrap fee disclosure in Schedule H must include the following information (where applicable): 1. The amount of the wrap fee, the services that are included and whether the fees are negotiable 2. Any additional fees that might be required 3. What methods are used to select portfolio managers 4. What compensation is paid to the person who recommended the program

Treasury Receipts

A zero-coupon bond that doesn't pay interest at regular intervals between the date of issue and maturity, but instead accrues the interest and pays it with the principal at maturity. Treasury receipts are sold by an intermediary, such as a brokerage firm, that issues a receipt to the purchaser representing the underlying treasury securities. 'Treasury receipts have many different acronyms, including: STRIPS (Separate Trading of Registered Interest and Principal Securities), CATS (Certificates of Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts) and COUGRs (Certificate of Government Receipts). Generally, the receipts were created when a brokerage house would separate the coupon from the principal of a Treasury bond or certain mortgage-backed security bonds, and repackage them so that the principal and coupon were paid at maturity, a process that was permitted by the 1986 Tax Act. Now, the Treasury Department can issue its own zero-coupon bonds, lessening the appeal of the brokerage receipts. This is not a direct responsibility of the Federal Government

ATM

AMT is designed to prevent taxpayers from escaping their fair share of tax liability through certain tax breaks, although the structure is rife with controversy as it is not indexed to inflation or tax cuts. This causes a condition known as "bracket creep", whereby upper-middle-income taxpayers are becoming subject to this tax. In 2006, the IRS National Taxpayer Advocate reported that the AMT often punishes taxpayers for having children or living in high-tax states.

Omitting Prospectus

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.

official Notice of Sale

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

NASAA's policy statement on using the Internet for General Dissemination of Information on Products and Services

Affiliation with the broker-dealer must be prominently displayed, and there must be a "legend" explaining that she may only transact business in this state if first registered, excluded or exempted. Also, she can't follow up with investors in states where she is not registered.

Internal Revenue Service (IRS)

Agency for the federal government responsible for collecting federal taxes for the US Treasury and for administering tax rules and regulations

Green Shoe Clause

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

Partnership Agreement

Agreement govering the operation of a general or limited partership

Margin

Amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.

Realized Gain

Amount of profit an investor earns when selling a security

Tax Credit

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

72-t

An Internal Revenue Service (IRS) rule that allows for penalty-free withdrawals from an IRA account. The rule requires that, in order for the IRA owner to take penalty-free early withdrawals, he or she must take at least five "substantially equal periodic payments" (SEPPs). The amount depends on the IRA owner's life expectancy calculated with various IRS-approved methods. Allows you to take advantage of your retirement savings before the age of 59.5, when there is otherwise a 10% penalty on early withdrawal. The withdrawals, however, are still taxed at your income rate. The drawback to taking advantage of Rule 72(t) is that you may deplete your retirement accounts well before the end of your life expectancy. By taking out your funds early you are putting yourself in jeopardy in the future

Wash Sale

An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security in a wash sale. The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a "substantially identical" stock or security, or acquires a contract or option to do so. A wash sale also results if an individual sells a security, and the spouse or a company controlled by the individual buys a substantially equivalent security.

Rule 145

An SEC rule allowing the sale of certain securities without first registering the securities with the SEC. Specifically, stocks an investor has acquired as the result of a merger, acquisition, or reclassification do not need to be registered prior to sale. Rule 145 allows investors more flexibility following the uncertainty of, say, a merger.

Conduct Rules

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

Wrap Account or Warp Fee Program

An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. Sometimes this also includes funds of funds. The advantage of a wrap is that it protects you from overtrading. This is when your broker trades your account excessively to make more commission. Furthermore, because the broker gets a flat annual fee, then he or she only trades when it is advantageous to you. A traditional wrap typically requires an initial investment of at least $50,000 to $100,000.

Variable Annuity

Annuity whose payment 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.

Offer

Another name for "ask" or the rice an investor must pay if he wants to buy a security from a dealer/market maker

Emergency Fund

An account that is used to set aside funds to be used in an emergency, such as the loss of a job, an illness or a major expense. The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to use high interest debt, such as credit cards, as a last resort. This should be the first priory for a client even before saving for retirement.

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

An act of congress that addresses insider trading and list 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.

Lifecycle Fund

An ages based or target portfolio automatically adjusting asset allocation to match the investors needs based on the age of the beneficiary or retiree.

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.

Investment Style

An approach to investing such as active passive or buy-and-hold

Intangible Asset

An asset not easily valued or converted into cash e.g. Goodwill

Developed Markets

An economy with mature financial systems and infrastructures as opposed to an "emerging market"

Adjustment Bond

Another name for an income bond on which the issuer may miss interest payments without going into default.

Financial Risk

Another name for credit risk or the risk that the issuer of a bond could default.

Legal Person

An entity rather than a human being/natural person. For example a trust, estate or corporation

Clearing Agency

An entity such as the NSCC that performs post-trade processing for the clearing and settlement of securities transactions.

Common Stock

An equity or ownership position that allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions authorizing more share ect.

Investment Contract

An example of a security defined by the Supreme Court's Howey Decision in which a security is defined as: Is it an investment of money? Is it in a common enterprise? Are its profits to come solely from the efforts of others?

CUSIP Number

An identification code for a security. Lost securities maybe re-issued by the transfer agent if the Committee on Uniform Securities Identification Procedures (CUSIP) numbers are available among other required proof of ownership.

Producer Price Index

An index measuring price changes at the wholesale or producer level a.k.a PPI

Broad-Based Index

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

Solicitor

An individual or entity who does not provide investment advice but rather sells the services of an investment adviser in exchange for compensation. In most states requires registration as an IAR.

Issuer

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

Broker

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

Defensive

An industry or company that can perform well even during bad 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.

Fixed Annuity

An insurance product in which the annuitant receives fixed 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 a particular index usually the S&P 500. a.k.a Indexed annuity.

Broker Call Loan Rate

An interest rate relating to margin accounts

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.

Systematic Risk

Another name for market risk or the risk that an investments value could plummet due to an overall market panic or collapse. Other systematic risks include inflation, interest rate and natural event risk

Investment Advisory Representative - IAR

An investment adviser representative is: An individual employed by or associated with an investment adviser (business). An individual employed by or associated with a federal covered investment adviser, who makes any recommendations or otherwise gives investment advice regarding securities; manages accounts or portfolios of clients; determines which recommendation or advice regarding securities should be given; and/or provides investment advice. Anyone who holds herself or himself out as providing investment advice and/or receives compensation for such. Anyone who supervises employees who perform any of the foregoing.

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) also closed-end management company.

UIT or Unit Investment Trust

An investment company that offers a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable "units" to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income. Unit investment trusts are one of three types of investment companies; the other two are mutual funds and closed-end funds. Each unit typically costs $1,000 and is sold to investors by brokers. UITs can be resold in the secondary market. A UIT may be either a regulated investment corporation (RIC) or a grantor trust. The former is a corporation in which the investors are joint owners; the latter grants investors proportional ownership in the UIT's underlying securities.

Regulated Investment Company

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

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 security paper that can be traded for value.

Efficient Market Hypothesis

An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

Real Rate of Return

An investment's return after inflation/deflation has been factored in. a.k.a. inflation-adjusted return.

Inflation-Adjusted Return

An investment's return after the rate of inflation/deflation has been factored in. a.k.a Real rate of return

Limited Liability

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

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.

Contingency Offer

An offer of securities that will be canceled if a minimum amount is not raised with all investor payments placed in escrow.

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 registration by qualification.

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 the other large shareholders will be selling to the public.

Delopmental Program

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

American Style

An option that can be exercised at any time up to expiration as opposed to "European Style"

Out-of-the-money

An option that gives the holder no benefit because it has no intrinsic value.

European Style

An option that may be exercised at expiration only.

At-The-Money

An option whose strike price is equal to the market price of the underlying instrument.

Education IRA

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

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.

Beta Coeffiecient

Another way of referring to Beta.

Covered Call

An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium. For example, let's say that you own shares of the TSJ Sports Conglomerate and like its long-term prospects as well as its share price but feel in the shorter term the stock will likely trade relatively flat, perhaps within a few dollars of its current price of, say, $25. If you sell a call option on TSJ for $26, you earn the premium from the option sale but cap your upside. One of three scenarios is going to play out: a) TSJ shares trade flat (below the $26 strike price) - the option will expire worthless and you keep the premium from the option. In this case, by using the buy-write strategy you have successfully outperformed the stock. b) TSJ shares fall - the option expires worthless, you keep the premium, and again you outperform the stock. c) TSJ shares rise above $26 - the option is exercised, and your upside is capped at $26, plus the option premium. In this case, if the stock price goes higher than $26, plus the premium, your buy-write strategy has unperformed the TSJ shares.

Stop Loss

An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor's loss on a position in a security. Although most investors associate a stop-loss order only with a long position, it can also be used for a short position, in which case the security would be bought if it trades above a defined price. A stop-loss order takes the emotion out of trading decisions and can be especially handy when one is on vacation or cannot watch his/her position. However, execution is not guaranteed, particularly in situations where trading in the stock is halted or gaps down (or up) in price. Also known as a "stop order" or "stop-market order."

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.

Firm Commitment

An underwriting commitment in which the underwriter 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.

Forward

An unregulated derivative security

Uniform Prudent Investor Act

An updated trust investment law that reflects the changes that have occurred in investment practice since the late 1960s, specifically with regard to modern portfolio theory. The Uniform Prudent Investor Act (UPIA) made five fundamental changes to the previous Prudent Investor Act standard. The most important change was that the standard of prudence would henceforth be applied to any investment in the context of the total portfolio, rather than to individual investments. Another key change was the extension of permission to the trustee to delegate investment management functions, subject to appropriate safeguards; such delegation was expressly forbidden by the former trust law.

Dividend Yield

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

Demand Deposit

Any deposit at a bank where the funds may be withdrawn at any time e.g. checking and savings accounts

Exchanges

Any electronic or physical marketplace where investors can buy and sell securities for example NSDAQ or NYSE

Investment Objective

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

Contemporaneous Trader

Any investor harmed by another's manipulative/deceptive actions in the securities markets especially in insider trading cases.

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.

Margin Account

As apposed to a cash account allows investors to engage in short sales and investing borrowed money.

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.

Value Stock

As opposed to a growth stock a value stock trades at a low P/E or price-to-book ratio

Balance Sheet Equation

Assets - Liabilities= Shareholders' Equity, or Assets=Liabilities+Shareholders' Equity. Forms the foundation for all of accounting.

200-Day Moving Average

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

Collateral

Assets pledged to a lender to support the load e.g. the house in a mortgage loan.

Contingent Deferred Sales Charge or CDSC

Associated with B- Shares the sales charged is deducted from the investors 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

Discretion

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

Limited Trading Authorization

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

Networking Arrangement

Banks typically enter into networking arrangements with securities broker/dealers to offer NDIP on bank premises. For BSA/AML purposes, under a networking arrangement, the customer is a customer of the broker/dealer, although the customer may also be a bank customer for other financial services. Bank examiners recognize that the U.S. Securities and Exchange Commission (SEC) is the primary regulator for NDIP offerings through broker/dealers, and the agencies will observe functional supervision requirements of the Gramm-Leach-Bliley Act.231 Federal banking agencies are responsible for supervising NDIP activity conducted directly by the bank. Different types of networking arrangements may include co-branded products, dual-employee arrangements, or third-party arrangements.

VRDO - Variable Rate Demand Obligation

Because money market interest rates, such as the bank prime rate, are variable over time, the interest rate applicable to this type of demand note is variable as well. Every time the prevailing money market rate changes, a variable rate demand note's interest rate is adjusted accordingly. As the name implies, these debt instruments are payable on demand. This means that the lender of the funds can request repayment of the entire debt amount at its discretion, and the funds must be repaid once the demand has been made.

Zero Coupon Bond

Bond sold at a deep discount to its gradually increasing par value

Registered as to Principal Only

Bond with only the principal registered. Interest coupons must be presented for payment.

Sovereign Debt

Bonds issued by a national government payable in foreign currency.

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 coupon)

Cash Flows from Financing Activities

Cash provided/used through issuing securities paying interest/dividends redeeming bonds or repurchasing stock.

Selling Group

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

Tactical Asset Allocation

Changing the allocation of a portfolio based on anticipated market movements. Associated with active management and market timing.

Head and Shoulders

Chart pattern used by technical analysts to determine that a full or bear trend is about to reverse

CEO

Chief Executive Officer. Individual ultimately responsible for a corporations results.

Gift Splitting

Claiming a gift amount both husband-and-wife to avoid exceeding the annual gift tax exclusion.

Back-end Load

Commission/ sales charge added when mutual fund or variable contracts are redeemed. The black-end load declines gradually as described in the prospectus. Associated with B- Shares.

Standby Underwriting

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

Tombstone

Communication 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.

Holding Company

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

Bank Holding Company

Company that owns banks and often other financial services firms including broker-dealers and investment advisers.

T-Bonds

Direct obligation of US Government. Pay semi-annual interest. quoted as % of part value plus 32nds. 10-30-year maturities.

Good Faith Deposit

Deposit required by a municipal issuer for all syndicates submitting bids for an issue of bonds. Typically 1-2% of par value

Suitability

Determination by a registered representative that a security matches a customers stated objectives and financial situation.

Secondary Offering/Distribution

Distribution of securities owned by major stockholders- not the issuer of the securities. Not the same as an additional primary offer of securities.

SEC Release IA-1092

Document explaining the SEC's approach to defining investment advisers based on a so-called "three-pronged approach".

Certificate of Limited Partnership

Document filed by the General Partner of a direct participation program with a state disclosing who the partnership is and what it does.

Loan Consent

Document giving the broker-dealer permission to lend a customer's securities to short sellers.

Operating Agreement

Document governing the structure and operation of an LLC

Account Statement

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

Subscription Agreement

Document signed by a potential limited partner in a Direct Participation Program - DPP - An application by an investor to join a limited partnership. In most cases, the investor will have to fill out a form created by the general partner evaluating the investor's suitability for the investment in the partnership All limited partners must be approved by the general partner. Becoming a limited partner rather than a partner is an attractive option since it means the investor's liability is limited to the amount he or she has invested in the partnership.

Confirmations

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

Official Statement

Document that discloses detailed information about a municipal bond issuer's financial condition

Bond Resolution

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

Inventory Levels

Economic indicator showing finished goods not yet sold a lagging indicator.

Lagging Indicator

Economic indicator used to confirm a recent trend, e.g. duration of unemployment or inventory

Coincident Indicator

Economic indicator used to determine where the economy is currently e.g. personal income manufacturing & trade sales.

Leading Indicator

Economic indicator used to predict future developments in the economy e.g. new claims for unemployment or building permits.

Employment Indicators

Economic indicators relating to employment e.g. weekly unemployment claims non-farm payroll.

Keynesian Economics

Economic school of thought that advocates government intervention through fiscal policy as a way to stimulate demand for goods and services

529 Plans

Education savings plans offering tax-free distributions at the federal level for qualified education expenses.

Fourth Market

Electronic Communications Networks used by institutional investors to trade directly through an electronic alternative display facility.

An investment adviser's duty to maintain client records

Electronic records are acceptable provided they are bonafide and unalterable advisers have to keep records not just up to the point when they retire or go out of business; they keep records "in an easily accessible place for a period of five years from the end of the fiscal year during which the last entry was made and, for the first two years, the records must be maintained in the adviser's principal office."

Electronic Communications Networks (ECNs)

Electronic trading platforms that allow institutional investors to buy and sell securities directly. a.k.a the fourth market

AM Best

Entity that rates the credit strength of insurance companies a key to evaluating fixed annuities and other pure insurance products backed by the claims paying ability of the insurance company.

Aggressive Growth

Equity investments that face a higher risk of loss but also a higher potential return e.g. emerging market or sector funds

Bond Rating

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

Trade Deficit

Excess of imports over exports in a nation's balance of trade with trading partner

Churning

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

What are some of the volition NASAA's policy statement "Dishonest or Unethical Business Practices of Broker-Dealers and Agents

Executing a discretionary transaction when notified by the customer that discretionary authorization has been mailed Charging a nominal fee to offset the expense of forwarding proxy materials Holding customer and firm securities in the same account

Private Placement

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 that is subject to change by the SEC before selling them through Rule 144. Or an exempt transaction under state securities law in which the security is offered to no more than 10 persons in the state.

Footnotes

Explanatory notes provided to explain financial statements more clearly. For example accounting methods for inventory or one-time expenses might require further explanation after the numbers are presented in the company's 10K.

Mortality & Expense Risk Fees

Extra changes in addition to charges for investment services for variable contracts.

Department of Enforcement (DOE)

FINRA enforcers of the member conduct rules

Code of Arbitration

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

Code of Procedure

FINRA system for enforcing member conduct rules

Insider

For purpose of insider trading rules an insider is anyone who has or has access to material non-public information. This would included Officers of the company, board of directors, investors with greater than 10% of company shares outstanding. 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.

Limited Parnership

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

Speculation

High-risk investment objective for investors willing to bet on a large priced-charge in an asset irrespective of any income it might product. Short-term speculators trade options and futures while long-term speculation is evidenced by holding warrants or raw land.

Why would you have a 50% insufficient withdrawal penalty

If you have an IRA, or 401k plan and you don't start making withdraws by 70.5 you could lose half of what you should have taken out to penalties.

buy/sell stop-limit

If you want to sell or buy at a specific price you need to have a limit order. If you want wait to buy or sell than you have to have a stop order. For example a sell/stop/limit/45 would be an order to sell once it goes below 45 an to sell at specifically at 45. Which might mean that your order won't be done if the market goes through 45 and keeps going down before the sell can be made. Better with a stop/sell 45 and than your order would be placed as soon as it goes through 45 but not specifically at 45.

complex trust

In a complex trust, trust income and expenses for the trust are separated by principal and income. The income part of the trust can be distributed to the beneficiaries, and the principal will stay within the trust until the trust expires, regardless of whether there are losses to the amount of principal within the trust. At that time, the expenses can be allocated to both principal and income. This allocation is determined by state law. Expenses for the trust include any item that is relevant and allowable for managing the trust, including financial management fees, state taxes and so on. The ordinary income from the trust can be from various sources, including interest, dividends, rental income, royalties, and so on, and this income can be distributed to the beneficiaries or stay inside the trust and the trust will pay taxes on the income. The capital gains and losses will stay inside the trust until its expiration. The trust instrument will determine whether tax on distributions are payable by the trust or by the individual beneficiary.

Credit

In a margin account the amount of the proceeds from the short sale plus the initial Reg T deposit. For example a short sales of $20,000 of ABC created a credit of that $20,000 plus $10,000 or $30,000 in total.

Combined Equity

In a margin account with both long and short positions combined equity is found by adding the Credit and the Long Market Value and subtracting the Short Market Value and the Debit Balance

Debenture

In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.[1] Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories. Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights to vote in the company's general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company's financial statements.

Auction Rate Securities

In essence, an auction rate security is a long-term debt issue, but it acts as if it were a shorter term issue. This is because interest rates are reset approximately every month, depending on whether the issue is tax exempt, and the interest is paid either shortly after the auction yield is settled or every quarter or half year. Since February 2008, most such auctions have failed, and the auction market has been largely frozen. In late 2008, investment banks that had marketed and distributed auction rate securities agreed to repurchase most of them at par.

Pink Markets

In the over-the-counter (OTC) market, pink sheets are daily publications with bid and ask prices of over-the-counter stocks. The modern publication is electronic, but the original pink sheets were actually printed and distributed on pink pieces of paper. The system that is responsible for compiling the OTC pink sheets is called the OTC Link LLC, which is owned and operated by OTC Markets Group Inc. Shares listed on pink sheets tend to be very inexpensive; it is not uncommon to see some valued at less than $1 per share. Sometimes, companies that were once listed on major exchanges land on the pink sheets because they hit hard times and no longer qualified for listing. Movements in the opposite direction are also possible, when a small company listed on the OTC market grows and is eventually admitted to a major exchange.

Earned Income

Income derived from active participation in a business including wages, salary, tips, commissions, bonuses and alimony. Earned income can be used towards an IRA contribution

Unearned Income

Income derived from investments and other sources not related to employment e.g. savings accounts interest, dividends from stock, capital gains, and rental income. Not eligible for an IRA contribution

Portfolio Income

Income from investments, dividends, interest, royalties and capital gains. Portfolio income does not come from passive investments and is not earned through normal business activity. Typically, income from interest on money that has been loaned does not count as portfolio income. The three main categories of income are active income, passive income and portfolio income. These categories of income are important because losses in passive income generally cannot be offset against active or portfolio income.

Two-dollar Broker

Independent broker on the floor of the NYSE

Agent

Individual representing a broker-dealer or issuer in effecting/completing transactions in securities for compensation.

Order Ticket/ Trade Ticket

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

Surety Bond

Insurance providing protection to a broker-dealer investment adviser or agent against actions related to losses in client accounts

Goodwill

Intangible asset representing the price paid to acquire a company above its hard tangible value.

Amortized

Intangible assets that have been written down over the estimated useful life of the assets.

Discount Rate

Interest rate charged by the 12 Federal Reserve Banks to member banks who borrow from the FRB. Or, the rate used when performing discounted cash flow analysis.

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.

Nominal Yield

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.

Breaking the Buck

Jargon used for extremely rare case in which a money market mutual fund is unable to maintain the NAV-per-share at $1

Tenants in Common

Joint account wherein the interest of the deceased owner reverts to his/her estate. a.k.a. joint tenants in common or JTIC

Capital Loss

Loss incurred when selling an asset for less than purchase price. Capital losses offset an investors capital gains and can offset ordinary income to a certain amount.

Short-Term Capital Loss

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

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).

Inside Informatoin

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.

True Interest Cost

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

Rollover

Moving retirement funds from a 401k to an IRA, or from one IRA to another. In a 60-day rollover the check is cut to the individual who must than send a check to a new custodian within 60 days to avoid early distribution penalties.

General Obligation Bond

Municipal bond backed by the issuer's full faith and credit or full taxing authority

Liquid Net Worth

Net worth figured without including hard-to-sell assets such as real estate or art work.

Nolo Contendere

Nolo contendere is a legal term that comes from the Latin for "I do not wish to contend." It is also referred to as a plea of no contest. In criminal trials in certain U.S. jurisdictions, it is a plea where the defendant neither admits nor disputes a charge, serving as an alternative to a pleading of guilty or not guilty. A no-contest plea, while not technically a guilty plea, has the same immediate effect as a guilty plea, and is often offered as a part of a plea bargain.[1] In many jurisdictions a plea of nolo contendere is not a right, and carries various restrictions on its use. This would be a problem when completing Form U4 or Form ADV

Institutional Investor

Not an individual but for example a pension fund insurance company or mutual fund.

Recourse Note

Obligation of a limited partnership for which a limited partner is responsible personally beyond any collateral pledged to secure the loan.

Unfunded Pension Liabilities

Obligations to retiring municipal workers that outweigh the funds set aside to actually pay them. A negative factor whenanalyzing general obligation municipal bonds.

Signature Guarantee

Official stamp/medallion that officers of a bank affix to a stock power to attest to its validity

Criminal Proceedings

Once the Administrator issues an order (which may result in denial, suspension or revocation of registration), the offending person or entity may appeal the Administrator's order to the appropriate court, but must do so within 60 days of the order, under the Uniform Securities Act. Simultaneously, the affected member (agent or broker-dealer) must serve notice of the appeal to the Administrator as well. Upon receipt of the notice of appeal, the Administrator is obligated to provide the appropriate court with all evidence relevant to the case. Unlike the normal judicial process, once the Administrator issues an order, it remains in effect unless reversed by court order. The fact that an appeal has been filed does not negate the Administrator's order unless directed by a court. The finding of courts regarding appeals is final, and the court has the right to change any part of the order. Conviction: If the offender is convicted of criminally violating the USA, he/she may be imprisoned for up to 3 years, or fined up to $5,000 (per violation). Statute of Limitations: The statute of limitations for criminal penalties is 5 years.

Moody's Investment Service

One of the top three credit rating agencies for corporate and municipal bonds as well as stocks

Sales Charge, Sales Load

One-time 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-Share) or sells (B-Share)

Under the Investment Company Act of 1940 what is defined as a non-redeemable security?

Open-end funds, UIT's and face-amount certificates are redeemable. Only the closed-end fund is non-redeemable, meaning it has to be traded with another investor.

Immediate or Cancel Order

Order to buy or sell securities in which the customer will accept any part of the order that becomes available at a certain price with the remainder of shares being canceled.

Sell Limit

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

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

Odd Lot

Orders for leas than the usual trading unit for a security, e.g. fewer than 100 shares of common stock

Limit Orders

Orders to buy or sell a security at a specified price or better

NASAA or North American Securities Administrators Association

Organization of State and Canadian provincial securities regulators responsible for the Series 65, Series 66 and Series 63 exams.

Federal Farm Credit Sysstem

Organization of privately owned banks providing credit to farmers and mortgages on farm property.

Investment Company Products

Packaged investment products in which the pooled capital of many investors is managed by an investment adviser according to the stated objectives and policies. For example mutual funds.

Transfer Agent

Party that maintains an issuer's shareholder records

Custodian

Party that maintains custody of a mutual funds 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.

NSMIA or National Securities Markets Improvement Act

Passed by the U.S. Congress in 1996, the NSMIA was an attempt to update and amend previous security acts and create one uniform code that companies and regulators could follow. This bill deals with securities, brokers, advisers, and dealers. Its goal is to provide a federally imposed set of rules, instead of having to deal with each individual state's rules and regulations.

Statutory Prospectus

Per SEC rules, each full-length prospectus must contain the following information: minimum investment amounts; all associated fees and expenses related to investing; detailed steps explaining how to purchase and redeem shares; any and all history of performance by the mutual fund; list of other mutual funds or different types of investment products available with the company; breakdown of different share types and how their respective fees are assessed; and any other information available and how investors can receive it. Does not have to be given to prospective customers if it can be found on line for free though summary prospectus still has to be delivered to the customer.

Call Protection

Period during which a security may not be called or bought by the issuer usually lasting 5+ years.

Holding Period

Period during which a security was held for purposes of determining whether a capital gain or loss is long or short-term.

Affiliated Investor Person

Person who is an officer or director of the issuer or a 10%+ owner of its common stock.

Restricted Person

Person who is ineligible to purchase an equity IPO including members of the brokerage industry and their immediate family members

Contraction

Phase of the business cycle associated with general economic decline recession or depression

Expansion

Phase of the business cycle associated with increased activity.

Peak

Phase of the business cycle between expansion (good times) and contraction (bad times)

Trough

Phase of the business cycle representing the bottoming out of a contraction just before the next expansion/recovery.

Adjustable Rate Preferred Stock

Preferred stock whose dividend is tied to another rate often the rate paid on a T-Bills

Straight Preferred Stock

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

Hedge Fund

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.

GSE or Government-Sponsored Enterprise

Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Members of these sectors include students, farmers and homeowners. GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries. Some consider GSEs to be stealth recipients of corporate welfare.

Marking to the Market

Problems can arise when the market-based measurement does not accurately reflect the underlying asset's true value. This can occur when a company is forced to calculate the selling price of these assets or liabilities during unfavorable or volatile times, such as a financial crisis. For example, if the liquidity is low or investors are fearful, the current selling price of a bank's assets could be much lower than the actual value. The result would be a lowered shareholders' equity.

Annual Updating Amendment

Process of annually updating all answers to an investment adviser's Form ADV-1 filing.

Voter Approval

Process of approving the issuance of general obligation bonds by referendum

Short-Term Capital Gain

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

Registration by Qualification

Registration by qualification pertains to all other offerings (that are not federally exempt) that are made within a state. Examples of such include offerings that are intrastate and/or are SEC exempt, based on their smaller size. The registration period is usually one year, and all persons registering a security must pay the applicable fee. In the resources portion of the text, you will find a link for a sample registration by qualification application for the state of Utah. Utah was chosen randomly and does not constitute what you will see in all states. However, on the front page of the application website, the site mentions: "Any security may be registered by qualification. Securities should be registered by qualification when no other method is available." While this point is not specifically highlighted in the USA, it is important to recognize. Registration by qualification is generally the final method of registration if a security cannot be registered another way.

SIMPLE IRA

Retirement place for businesses with no more than 100 employees that have no other retirement plan in place. Pretax contributions fully taxable distributions. Both employer and employees may contribute.

Qualified Plan

Retirement plan that qualifies for deducible contributions on behalf of employers and/or employees and covered by ERISA for example 401k defined benefit, Keogh.

Risk-Adjusted Return

Returns adjusted for risk most commonly through Sharpe Ratio

Special Assessment Bond

Revenue bond backed by an assessment on only those properties benefiting from the project.

Public Housing Authority (PHA) Bonds

Revenue bonds backed by guaranteed rental payments from the US Treasury. See NHA/New housing Authority Bonds.

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.

Beta

Risk measurement that compares the volatility of a security or portfolio to the volatility of the over all market. A beta of more than 1 is associated with an investment or portfolio that is more volatile than the overall market. A beta of less than 1 is associated with an investment or portfolio that is less volatile than the overall market.

Natural Event Risk

Risk that a weather related event could have a negative effect on securities or securities markets

Idiosyncratic Risk

Risk that is specific to an asset or a small group of assets. Idiosyncratic risk has little or no correlation with market risk, and can therefore be substantially mitigated or eliminated from a portfolio by using adequate diversification. Research suggests that idiosyncratic risk, rather than market risk, accounts for most of the variation in the risk of an individual stock over time. Similar to unsystematic risk.

Bond Swap or Tax Swap

Selling one debt instrument in order to use the proceeds to purchase another debt instrument. Investors engage in bond swapping with the goal of improving their financial positions. Bond swapping can reduce an investor's tax liability, give an investor a higher rate of return or help an investor to diversify a portfolio. The pure yield pickup swap and the tax swap are two common bond-swapping strategies. For example, selling a bond at a loss and using the proceeds of the sale to buy a different bond with better performance is a type of bond swap. This swap has two potential benefits: the investor can write-off the losses from the bond he or she sold to lower their tax liability, and they can potentially earn a better return with the newly purchased bond.

Arbitration

Settling a dispute without going to an actual court of law.

Federal Reserve Board

Seven-member board directing the operations of the Federal Reserve System

Rights

Short-term equity securities that allow the holder to buy new shares below the current market price.

Current Ratio

Short-term measure of a corporation's liquidity found by dividing current assets by current liabilities; the higher the number the more liquid the corporation.

Amortization

Spreading the cost of an intangible item e.g. a patent or trademark over its useful life

Non-equity Optoins

Standardized options based on things other than equity securities e.g. Indexes or foreign currency options.

Foreign Currency Options

Standardized options in which the underlying instrument is a foreign currency e.g. the yen the euro ect.

SIPC

Stands for Securities Investors Protection Corporation a non-profit, non-governmental, industry funded insurance corporation protecting investors against broker-dealer failure.

Fundamental Analysis

Studying companies in terms of their competitive position and financial strength to determine the advisability of investing in their securities.

The following statements concerning securities registrations under the Uniform Securities Act are true

The Administrator may rule that the securities registered by coordination or qualification may only be sold on a specified form of subscription The registration statement must specify the amount of securities, states in which the offering is to be made, and any adverse order or judgment by a regulatory authority The Administrator may by rule permit omission of any item of information or document from any registration statement

Core Inflation

The CPI after food and energy costs are excluded. Core inflation removes the more weather-related and volatile pricing accociated with food, oil, natural gas, ect. When measuring the overall rise or drop in pricing.

Delivery

The Change in ownership of a security that takes place when the transaction settles. The seller delivers the securities purchased to the buyer or the clearing agency.

Reg U

The Federal Reserve Board regulation that governs loans by banks for the purchase of securities on margin. Regulation U limits the amount of leverage a bank or brokerage can extend to a borrower for the purposes of purchasing stocks, mutual funds and other market-traded securities. Regulation U is designed to mitigate the adherent risk that exists when using leverage, especially when too much leverage is granted to an individual or business. By limiting the margin amount, Regulation U aims to limit the potential losses that both borrowers and banks or lenders can sustain in instances where leverage can lead to very large losses relative to the physical capital extended.

Continuing Commissions

The accepted 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.

Investment Banking

The business of helping companies with mergers and acquisitions performing IPO's and additional offerings. Investment bankers raise capital for issuers not by loading money but by finding investors willing to contribute to the cause.

Free Credit Balance

The cash in a customers account that can be writhdrawn

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.

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.

Interest Rate

The charge for borrowing money. In a loan the borrower pays some rate against the principal amount borrowed until the loan is retired. That rate is the interest rate on the loan.

Cost of Goods Sold, COGS

The cost of materials and direct labor going into the production of a company's products or delivery of its services as opposed to general operating expenses and other costs/expenses listed on the income statement. A company subtracts COGS from revenue to arrives at it's gross margin.

Maturity Date

The date that a bond pays out the principal and interest payments cease also called redemption.

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 ect. For example IRA funds are not taxable until constructive receipt which usually starts somewhere between age 59 1/2 and 70 1/2

Declaration Date

The date the Board declares a dividend

Overlapping Debt

The debt that a municipal issuer is responsible for along with a coterminous (another bond that has the same issue date or end date from the same municipality) issuer.

Arbitration award

The decision rendered through FINRA arbitration

Assumed Interest Rate

The full name for AIR, used to calculate payments in a variable annuity.

Internal Rate of Return

The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first. IRR is sometimes referred to as "economic rate of return (ERR)." You can think of IRR as the rate of growth a project is expected to generate. While the actual rate of return that a given project ends up generating will often differ from its estimated IRR rate, a project with a substantially higher IRR value than other available options would still provide a much better chance of strong growth. IRRs can also be compared against prevailing rates of return in the securities market. If a firm can't find any projects with IRRs greater than the returns that can be generated in the financial markets, it may simply choose to invest its retained earnings into the market

Billing Statement

The document an investment adviser delivers in connection with an advisory fee deduction explaining how the fee was computed.

Marketability

The ease or difficulty an investor has when trying to sell a security for cash without losing his shirt. More often called liquidity

Direct Transfer

The easiest method of moving funds from a qualified retirement account to a Traditional IRA or among such accounts. In a direct transfer the existing custodian sends assets to the new custodian bypassing the account owner.

GNP

The economic output of a nation's citizens wherever they are located.

Hypothecate

The established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom. With hypothecation, the lender has the right to seize the asset if the borrower cannot service the loan as stipulated by the terms in the loan agreement. Hypothecation also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage.

Hypothecation

The established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom. With hypothecation, the lender has the right to seize the asset if the borrower cannot service the loan as stipulated by the terms in the loan agreement. Hypothecation also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage. Mortgages and margin loans are the most common examples of hypothecation. While it enables the borrower to obtain loans on more favorable terms than unsecured loans, the borrower risks losing the asset if prices plunge precipitously and the loan cannot be serviced.

Hypothecation Agreement

The established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom. With hypothecation, the lender has the right to seize the asset if the borrower cannot service the loan as stipulated by the terms in the loan agreement. Hypothecation also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage. Since the practice of hypothecation provides security to the lender because of the collateral pledged by the borrower, the lender generally offers the loan at a lower rate of interest than on an unsecured loan. Mortgages and margin loans are the most common examples of hypothecation. While it enables the borrower to obtain loans on more favorable terms than unsecured loans, the borrower risks losing the asset if prices plunge precipitously and the loan cannot be serviced

Turnover Rate

The frequency of trading that a mutual fund portfolio engages in.

Appreciation

The increase in an asst's value that is not subject to tax until realized

Unrealized Gain

The increase in the value of a security that has not yet been sold. Unrealized gains are not taxable.

Catch Up Contribution

The increased amount that a person 50+ can make to a retirement account

Bencharmark

The index to which an investment managers results are compared.

Reg A

The issuer of a Regulation A offering has to provide buyers of the issue with an offering document whose content is similar to the prospectus in a registered offering. However, the advantages of a Reg A offering over a fully registered offering make up for this somewhat onerous requirement. These advantages include - simpler financial statements that do not have to be audited, no Exchange Act reporting requirements until the company has more than $10 million in assets and no more than 500 shareholders, and the choice of three formats to prepare the offering circular.

Capital Structure

The make-up of a corporations financing through equity (stock) an debt (bonds) securities.

Price-to-Sales Ratio

The market price of a common stock compared to the revenue per share

P/E 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 are value stocks.

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 compounded price not yesterdays stale prices.

Median

The middle value in a set of numbers

Minimum Maintenance Requirement

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

Contribution

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

Distribution

The money taken out of a retirement plan or annuity.

NAV or Net Asset VAlue

The net asset value of a mutual fund share. Assets-Liabilities/Outstanding Shares.

Mode

The number in a data set occurring the most frequently

Issued Shares

The number of shares that have been issued by a corporation a number usually lower than the number of shares authorized by the charter.

Advance/Decline Ratio

The number of stocks whose market pricing increased versus the number of stocks whose market prices decreased during a trading session.

OID or Original Issue Discount

The original issue discount is the different between a bond's (or any other debt's) face value and the amount for which it is sold by the issuer. Many bonds, especially those with low interest rates, are issued at a price less than par in order to entice buyers. For example, a $1,000 bond offering a 0.5 per cent coupon at maturity might be sold for less than $1,000. Generally, the lower the interest rate, the greater the original issue discount. Zero coupon bonds will often have the largest original issue discount. Original issue discounts on bonds expose the buyer to tax liabilities. The discount is counted as income because should the buyer wish to sell the bond, he will sell it at face value.

General Partner

The owner of a General Partnership or the manager of a limited partnership with unlimited liability and a fiduciary obligation to the limited partners.

An S-corporation is different from an LLC in which of the following ways?

The owners of an S-corp are shareholders, and they have a right to their % of the profits, period. An LLC has more flexibility in how (if, or when) it distributes profits to the owners, called "members." Members can vote not to distribute any profits, for example, in an LLC. LLCs have more flexibility in this regard than limited partnerships, too.

Capital Gains Distribution

The payment of proceeds prompted by a fund manager's liquidation of underlying stocks and securities in a mutual fund. Capital gains distribution occurs when a mutual fund manager liquidates underlying positions that have made gains since they were added to the fund. Capital gains distributions will be taxed as capital gains to the person receiving the distribution. Holders of mutual fund shares will be required to pay capital gains tax on any capital gains distributions made by the funds they own. Before 1986, all mutual fund shareholders were charged long-term capital gains on distributions, regardless of how long they'd held the funds. With the passing of the 1986 Tax Reform Act, shareholders now pay long- or short-term capital gains tax based on the time they've owned the fund.

Management Fee

The percentage of assets charged to a manual fund portfolio to cover the cost of portfolio management services provided by the investment adviser to the fund.

Assessed Valued

The percentage of market value used to calculate property taxes owed.

Surrender Charge

The percentage of the contract value retained by the insurance company when an annuity is clashed in during the surrender period.

Participation Rate

The percentage of the index's increase credited to the value of an index annuity.

Annuitant

The person who receives an annuity contracts payments

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

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

Crossover Point

The point at which a limited partnership has exhausted the tax shelter and is now beginning to show a profit.

Time Value

The portion of an option's premium that is attributable to the amount of time remaining until the expiration of the option contract. An option's premium is comprised of two components: its intrinsic value and its time value. The intrinsic value is the difference between the price of the underlying (for example, the underlying stock or commodity) and the strike price of the option. Any premium that is in excess of the option's intrinsic value is referred to as its time value.

Treasury Stock

The portion of shares that a company keeps in their own treasury. Treasury stock may have come from a repurchase or buyback from shareholders; or it may have never been issued to the public in the first place. These shares don't pay dividends, have no voting rights, and should not be included in shares outstanding calculations.

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.

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%

Exercise Price

The price at which the underlying security can be bought (call) or sold in an options contract a.k.a strike price.

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 break even 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 part value paid by the issuer to call/retire a bond.

POP or Public Offering Price

The price paid by an investor purchasing a new offering of securities. 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.

New Issue Market

The primary market where securities are issued to investors while the proceeds going to the issuer of the securities. Initial public offerings (IPO) for example taking place on the new issue market.

Trading Authorization

The principal of the firm must accept the account and review it more frequently to ensure against abuses. The customer is required sign a limited power of attorney that awards discretion to the registered representative. The limited power of attorney is good for up to three years and the customer is bound by the decisions of the representative, but may still enter orders for themselves. Once discretion is given to the representative, they may not in turn give discretion to another party. If the representative leaves the firm or stops managing the customer's account, the discretionary authority is automatically terminated. A full power of attorney allows an individual to deposit and withdraw cash and securities from the account. A full power of attorney is usually not given to a registered representative. A full power of attorney is more appropriate for fiduciaries such as a trustee, custodian, or a guardian. The power of attorney will be revoked upon the death or incapacitation of the grantor. A durable power of attorney will survive the incapacitation of the grantor. If a FINRA or MSRB broker dealer has a control relationship with an issuer of securities, the customer must be informed of the relationship and must give specific authorization for the purchase of the securities

Compliance Department

The principals and supervisors of a broker-dealer responsible for making sure the firm adheres to SEC exchange and SRO rules.

Liquidation Pariority

The priority of claims on a bankrupt entity's assets that places creditors (bond holders) ahead of stockholders and preferred stockholders ahead of common stockholders.

Needs Analysis

The process of determining how much insurance an individual should buy based on mortgage and other debts, income, final expenses ect.

Probate

The process of proving a will through the submission of various legal documents used to gather the assets of the deceased pay off debts, and distribute assets to any names beneficiaries.

Money Laundering

The process of turning profits from illegal enterprises into seemingly legitimate assests

Underwriting Spread

The profit to the syndicate. The difference between the proceeds to the issuer and the POP

Debt Service Coverage

The projected ability of a project built with revenue bond proceeds to cover the debt service

Millage Rate

The property tax rate used to calculate a property owners tax bill. The assessed value times the millage rate is the property tax owed before any exemptions or other factors are included.

GDP

Total of goods and services being produced by the economy; economic output regardless of the nationality of the workers.

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.

T+3

Trade date plus three business days

RTRS

Trade reporting system used for transactions in municipal securities on the secondary market. a.k.a Real-Time Transaction Reporting System.

Third Market

Trading by non exchange-member brokers/dealers and institutional investors of exchange-listed stocks. In other words, the third market involves exchange-listed securities that are being traded over-the-counter between brokers/dealers and large institutional investors.

Risk-less Principal Transaction

Transaction in which a broker-dealer choose to act as a principal when they could have acted as an agent for the customer.

Debit Spread

Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction. For example, assume that there is a investor holding a call option who sells it for $2.50. Immediately following this sale, the investor buys another call option on the same underlying security for $2.65. The debit spread is $0.15, which results in a loss of $15 ($0.15 * 100). Although there is an initial loss on the transaction, the investor is betting that there will be a significant change in the price of the underlying security, making the purchased option more valuable in the future.

Fixed-Income

Type of investor who seeks a stream of income usually form bonds but also from preferred stock.

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.

Best Efforts

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 effort underwriting.

Selling Concession

Typically the largest piece of the underwriting spread going to the firm credited with making the sale

When completing the U-4 form an applicant is asked if she has ever been convicted of a securities-related misdemeanor. Although convicted 13 years earlier of misdemeanor embezzlement from a credit union ($450), the applicant responds "no" to this question is that correct?

U-4 doesn't mention anything about "in the past 10 years." Only Form ADV asks the question that way. This is "securities-related" because it's a "money crime" and people handle money in the securities industry.

Howey Decision

US 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.

Freeriding

Under Regulation T freeriding occurs when a customer buys stock and then uses the sales proceeds rather than sending funds to pay for the buy side. Leads to an account freeze.

Parity

When a convertible bond's or convertible preferred stock's market price is exactly equal to the value of the shares to which it converts.

Partial Surrender

When a life insurance policy holder cashes in part of the cash value, Excess over premiums is taxable.

General Account

Where an insurance company invests net premiums in order to fund guaranteed fixed payouts.

Leverage

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