Definitions Flashcards
Retail Investors
individuals who purchase securities for their own accounts. Retail investors generally execute smaller trades and generally do nor possess the degree of investing sophistication that more seasoned institutional investors have.
Regulation T
used with MARGIN Accounts. The term Regulation T refers to Federal Reserve regulation covering the extension of credit to customers. Basically, you are borrowing up to 50% of the purchase price of securities and 50% is funded with cash. Requires payment for purchases of securities MUST be received by the fourth business day after the trade date… ( T+ 4).
Bonds
bonds are loans. When you buy a bond, you are lending money to an organization whether it be a public corporation, federal government, or a municipality. Bonds differ from common and preferred stock in that they do NOT represent an ownership interest. Instead, bonds represent a DEBT obligation of the issuing organization. Therefore, bonds are classified as debt securities and the investor becomes the CREDITOR who RECIEVES interest payments for lending their capital.
Collateralized Mortgage Obligation(CMO)
is a bond that is secured by a pool of mortgage loans. CMOs are mortgage-backed securities.
Back-end load
The sales load that an investor pays redeeming mutual fund shares.
Balance of Payments
Refers to money flowing into and out of the U.S. If a Balance of Payments deficit exists, the deficit would increase due to the following: 1. An increase in U.S. investments abroad. 2. U.S. loans to other countries. 3. U.S. tourists spending abroad. 4. A raising of interest and dividends owned by foreigners. A U.S. Balance of Payments deficit would improve or lessen with: 1. New foreign investments in the U.S. 2. Commodity exports. 3. Spending by foreign tourists in the U.S. 4. Increase in interest and dividends earned on foreign investments.
Balance Sheet (Corporation)
The Balance Sheet of a corporation shows all of the assets and liabilities as of a particular date, usually by the end of the year. The basic balance sheet equation is: Total Assets = Total Liabilities + Net Worth
Balance Sheet (Personal)
Personal Balance Sheet may be constructed at a point in time and is used to create a trend and calculate estate tax. The basic balance sheet equation is: Assets = Liabilities + Equity
Bank Guarantee Letter
Issued by an Options Clearing Corporation (OCC) approved bank. The Letter states that a particular customer has funds equal to the aggregate exercise of a put option which has been sold. The Bank agrees to deliver the funds to the broker-dealer if the option is exercised against the customer
Bank Secrecy Act
Federal anti-money laundering and counter-terrorism statue.
Banker’s Acceptance
A money market instrument designed primarily to enable businessmen to finance foreign trade. It is a draft or bill exchange that becomes a money market instrument when payment is guaranteed by a bank. Banker’s Acceptance are normally issued on a discount basis and mature within nine months.
Barbell Portfolio
A portfolio of bonds with concentrations of short and long term maturities but very few mid-range maturities. The portfolio is adjusted to maintain the long and short distributions.
Basic Balance Sheet Equation
Assets = Liabilities + Stockholder’s Equity. All of the assets of a corporation equal to the claims against them. Assets are anything of value owned by a corporation. Liabilities are claims of creditors against the assets. Stockholder’s Equity represents the claims of owners against the assets.
Basis Point
Represents 1/100 of one percent in terms of yield. Assume Bond A has a yield of 6.75% and Bond B has a yield of 6.50%; the difference in the two yields is 25 basis points.
Bearish
An investor that expects the market price of the stock to decrease or go down.
Bearish Call Spread
An investor purchases the call with a higher strike price and sells the call with a lower strike price. Assume a customer puts on the following bearish call spread: Long 1 ABC July 60 call at 1, Short 1 ABC July 50 call at 7
Benchmark
A point of reference to measure investor’s portfolio or security returns. Benchmarks vary and are used for many asset classes such as stocks, bonds, and commodities. A benchmark can be an interest rate, the value of a group of stocks, or bonds. However, the most common benchmark are indices, with the S&P 500 the most common benchmark that stock portfolio managers track.
Best Efforts Underwriting
The underwriting group acts as agent in attempting to distribute a new issue to the public.
Best Execution
in any transaction for or with a customer or a customer of another broker-dealer, member firms and persons associated with a member firm must use reasonable diligence to ascertain the best market for the subject security and buy or sell in such market so that the price to the customer is as favorable as possible under prevailing market conditions.
Beta
A statistical measure used to assess the volatility of a particular security to the market as a whole. Stocks with a beta of 1.0 are expected to fluctuate more than the general market, while those with a beta of less than 1.0 are expected to fluctuate less than the general market
Bid
In equities trading, the bid is the price at which a market maker is willing to buy shares from a seller
Bid Form
Underwriters bidding on a new issue of municipal securities during a competitive underwriting submit this form and the interest rate proposed for the issue. The issuer normally grants the issue to the underwriting syndicate with the lowest net interest cost.
Bid Wanted
For inactively traded securities, a Bid Wanted (BW) indication may be placed in the Pink Sheets by a dealer. For example, a quotation for XYZ may be indicated as follows: XYZ BW - 14 This means the dealer is indicating an interest to sell shares at $14, but is seeking a bid from another dealer.
Binary Options
Options that have one of two outcomes: If the option is at-the-money or in-the-money, the investor gets the fixed amount depending on the option ($100 or $1,000). If the option is out-of-the-money, the investor gets $0.
Black-Scholes Pricing Model
Attempts to determine whether an option is fairly priced, over-valued or undervalued. It considers the price of the underlying stock, the strike price, time until expiration, volatility of the underlying stock, interest rates, and the risk-free rate of return.
Block Trade
A large number of shares traded at one time. Under NYSE rules, it is defined as at least 10,000 shares or a quantity of stock with a market of value of $200,000 or more.
Blotter-Blotters are records of original entry such as journals, diaries, and day books.
Blotter
A list or log generally of activity which takes place in the branch office of a broker-dealer. It is a temporary record until such activities are transferred to permanent record books.
Blue Chip Stock
Stock issued by a nationally known company that has a good reputation for quality of management, products, and services. Blue Chip Stocks are expected to pay dividends in good times and in bad times. They will generally maintain about a 50% Dividend Payout Ratio.
Blue List
It is a daily publication which lists municipal bonds being offered by dealers. It contains information such as the name of the issuer, par value, interest rate, maturity date, price or yield, and the dealer offering the bond
Blue Sky Laws
State securities laws are referred to as “blue sky laws.” The purpose of these laws is to protect against fraudulent transactions with a particular state.
Board of Directors
Elected by stockholders of a corporation to manage the entity. The Board of Directors appoints the management of the corporation.
Bond
Bonds are loans. When an investor buys a bond, the investor is lending money to an organization whether it be a public corporation, the federal government, or a municipality. Bonds represent a debt obligation of the issuing organization and are classified as debt securities.
Bond Buyer
The name of an organization that publishes the Daily Bond Buyer and Weekly Bond Buyer. Any significant new issue of a municipal bond will be advertised in the Daily Bond Buyer through a Notice of Sale
Bonus Annuity
New annuity contract that provides an extra 3% to 5% premium credit as an incentive to buy the annuity. This benefit typically comes with higher contract costs and longer surrender periods subject to surrender charges.
Book Entry
A security issue which is not available to a purchaser in physical form. The owner of a book entry security has a book entry advice of confirmation as proof of ownership. Book entry securities transfer by journal entry.
Book value per share
Total shareholder’s equity - preferred stock/ Common shares outstanding
Bottom-Up Investing
An investment analysis approach that starts with a company-by-company analysis of individual firms.
Brady Bond
U.S. Dollar- denominated bonds issued by Latin American countries that are collateralized by U.S. Treasury zero-coupon bonds.
Branch Office
FINRA definition: Any location where one or more associated persons of a member regularly conducts the business of effecting any transactions in, or inducing, or attempting to induce the purchase or sale of any security, or a location that is held out as such.
Breakeven
Options- The point at which the buyer or seller of an option will not realize a gain or loss.
Breakpoint
Refers to the minimum dollar amount of mutual fund shares purchased that will give the customer a volume discount. For example, a customer who invests $20,000 pays a sales charge of 8% on mutual fund while a customer who invests less than $20,000 would pay a sales charge of 8 1/2%.
Brochure Rule
Part 2 of Form ADV which requires that investment advisers to make certain disclosures to prospective clients and existing clients.
Broker
A broker acts in an agency capacity bringing a buyer and seller together in a securities transaction for compensation via commission.
Broker Loan Rate
The interest rate that banks charge broker-dealers who borrow money using customers’ securities as collateral. This is also referred to as the “Call Loan Rate”.
BrokerCheck
FINRA has developed Broker Check to provide information about FINRA-registered firms and brokers to help investors determine whether to conduct, or continue to conduct, business with these brokerage firms and brokers.
Broker-Dealer
Any person engaged in the business of effecting or attempting to effect transactions in securities for the accounts of others or for his/her own account.
Bullish
An investor that expects the market price of a stock to increase or go higher.
Bullish Call Spread- Buying a call with a lower strike price and selling a call with a higher strike price. For example, assume a customer engages in the following: Sell 1 ABC July 30 call @ 1, and Buy 1 ABC July 20 call @ 5
Business Continuity Plan
Business Continuity Plans are designed to address natural disasters and other forms of disruption that may occur due to unforeseen circumstances. They include planning for alternative means of communication, data back-up and recovery methods, and even alternative physical locations for an office. BCPs do not deal with day-to-day business issues such as customer fraud, margin deficiencies, or technological advancements.
Business Cycle
Refers to increases and decreases in economic activity over a period of time. The Business Cycle has four major phases: Peak - Recession - Trough - Recovery.
