LEM Glossary Flashcards
1
Q
accredited investor
A
defined in rule 501 of Regulation D
any institution or individual meeting minimum net worth requirements for the purchase of securities qualifying under the Regulation D registration exemption.
an individual accredited investor is generally accepted to be one who, individually or with spouse, has a net worth, including the net equity in the primary residence, of $1 million or more, or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse), and who has a reasonable expectation of reaching the same level of income in the current year
2
Q
accumulation stage
A
the period during which contributions are made to an annuity account.`
3
Q
accumulation unit
A
an accounting measure used to determine an annuitant’s proportionate interest in the insurer’s separate account during an annuity’s accumulation (deposit) stage.
4
Q
acid test
A
acid test ratio; asset ratio
5
Q
active management style
A
unlike the passive cycle, analysts believe they can identify industries that are undervalued or overvalued in order to weight them appropriately and achieve returns in excess of the market.
some managers engage in sector rotation, which is overweighting or underweighting industries based on the current phase of the business cycle
6
Q
adjusted basis
A
the value contributed to an asset or security that reflects any deductions taken on, or capital improvements to, the asset or security.
adjusted basis is used to compute the gain or loss on the sale or other disposition of the asset or security.
7
Q
adjusted gross income (AGI)
A
gross income from all sources minus certain adjustments to income, such as deductible contributions to an IRA and net capital losses.
it is basically the amount of income that will be subject to tax.
8
Q
administrator
A
an official or agency that administers state’s securities laws.
9
Q
adoption
A
a social media term meaning that a securities firm links to a third-party site and indicates that it endorses the content on that site.
10
Q
advertisement
A
any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any publication, or by radio or television, that offers (1) any analysis, report, or publication concerning securities, or that is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or (3) any other investment advisory service with regard to securities
11
Q
agency cross transaction
A
for an advisory client, a transaction in which a person acts as an investment adviser in relation to a transaction in which that investment adviser, or any person controlling, controlled by, or under common control with that investment adviser, acts as a broker for both an advisory client and for another person on the other side of the transaction.
12
Q
agency issue
A
a debt security issued by an authorized agency of the federal government. such an issue is backed by the issuing agency itself, not by the full faith and credit of the U.S. government (except GNMA issues).
13
Q
agency transaction
A
a transaction in which a broker-dealer acts for the accounts of others by buying or selling securities on behalf of customers.
14
Q
agent
A
(1) an individual who effects securities transactions for the accounts of others
(2) under state securities laws, a securities salesperson who represents a broker-dealer or an issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually receives or solicits orders.
15
Q
back-end load
A
a commission or sales fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It declines annually, decreasing to zero over an extended holding period–up to eight years– as described in the prospectus.
16
Q
balanced fund
A
a mutual fund whose stated investment policy is to have at all times some portion of its investment assets in bonds and preferred stock, as well as in common stock, in an attempt to provide both growth and income.
17
Q
balanced investment strategy
A
a method of portfolio allocation and management aimed at balancing risk and return. a balanced portfolio may combine stocks, bonds, packaged products such as investment companies, DPPs, or REITs and cash equivalents.
18
Q
balance of payments
A
an international accounting record of all transactions made by one particular country with others during a certain period; it compares the amount of foreign currency the country has taken in with the amount of its own currency it has paid out.
19
Q
balance of trade
A
the largest component of a country’s balance of payments; it concerns the export and import of merchandise (not services). debit items include imports, foreign aid, domestic spending abroad. credit items include exports, foreign spending in the domestic economy, and foreign investments in the domestic economy.
20
Q
balance sheet
A
a report of a corporation’s financial condition at a specific time
21
Q
balance sheet equation
A
a formula stating that a corporation’s assets equal the sum of its liabilities plus shareholder’s equity
22
Q
bank holding company
A
a holding company whose primary asset is a commercial bank.
23
Q
aggressive investment strategy
A
a method of portfolio allocation and management aimed at achieving maximum return. aggressive investors place a high percentage of their investable assets in equity securities and a far lower percentage in safer debt securities and cash equivalents, and they pursue aggressive policies including margin trading, arbitrage, and option trading.
24
Q
AGI
A
adjusted gross income
25
algorithmic trading
computerized trading using proprietary algorithms. there are two types of algorithmic trading
it is estimated that more than 50% of stock trading volume in the US is currently being driven by algorithmic trading
(1) execution trading
(2) high frequency trading
26
execution trading
when an order (often a large order) is executed via an algorithmic trade.
the program is designed to get the best possible price. it may split the order into smaller pieces and execute at different times
27
high-frequency trading
looking for small trading opportunities in the market.
it is estimated that more than 50% of stock trading volume in the US is currently being driven by algorithmic trading
28
all or none order (AON)
an order that instructs the floor broker to execute the entire order in one transaction; if the order cannot be executed in its entirety, it is allowed to expire
29
alpha
the risk-adjusted returns that a portfolio manager generates in excess of the risk-adjusted returns expected by the capital asset pricing model (CAPM).
suppose an index return is 10%; the risk-free rate is 3%, the portfolio beta is 1.5, and the actual return is 25%.
according to the CAPM, the portfolio should expect to return 1.5 times the index after netting out the risk-free rate. this is because the portfolio is 1.5x riskier than the market.
if we take the index return after subtracting the 3% has risk-free rate, we get 7%. multiple that times 1.5 and the measured portfolio should have returned 10.5% for taking extra risk. it actually returned 22% over the risk-free rate giving us an alpha 11.5.
30
alternative minimum tax (AMT)
an alternative tax computation that adds certain tax preference items back intro adjusted gross income. if the AMT is higher than the regular tax and the amount by which the AMT exceeds the regular tax are paid.
31
American depositoty receipt (ADR)
a negotiable certificate representing a given number of shares in a foreign corporation. it is issued by a domestic bank. ADRs are bought and sold in the American securities markets, and are traded in English and U.S. dollars
32
anti-dilutive covenant
a protective clause found in most convertible issues (preferred stock or debentures) that adjusts the conversion rate for stock splits and/or stock dividends. this ensures that the holder of the convertible will not suffer a dilution in value.
33
appreciation
the increase in an asset's value.
34
arbitrage
a legal strategy that generates a guaranteed profit from transaction. a common form of the same security in different markets at different prices to lock in a profit.
this is not considered market manipulation.
35
arithmetic mean
the average of a set of numbers, such as annual returns on investment.
36
ask
an indication by a trader or a dealer of willingness to sell a security or a commodity; the price at which an investor can buy from a broker-dealer;
offer; bid; public offering price; quotation
37
assessable stock
a stock that is issued below its par or stated value. the issuer and/or creditors have the right to assess the shareholder for the deficiency. all stock issues today is nonassesable.
38
asset
(1) anything that an individual or a corporation owns
| (2) a balance sheet item expressing what a corporation owns
39
asset class allocation
dividing an investment portfolio among different asset categories, such as stocks, bonds, cash, and tangible assets such as real estate, and precious metals and commodities; asset allocation
40
auction market
a market in which buyers enter competitive bids and sellers enter competitive offers simultaneously. the NYSE is an auction market; double action market
41
audited financial statement
a financial statement of a program, a corporation, or an issuer (including the profit and loss statement, cash flow, and source and application of revenues statement, and balance sheet) that has been examined and verified by an independent certified public accountant.
42
average basis
an accounting method used when an investor has made multiple purchases at different prices of the same security; the method averages the purchase prices to calculate an investor's cost basis in shares being liquidated.
the difference between the average cost basis and the selling price determined the investor's tax liability.
first in, first out; last in, first out
43
basis
another term for yield to maturity (e.g., this bond is selling at a 5.78 basis)
44
basis point
a measure of a bond's yield, equal to 1/100 of 1% of yield.
a bond whose yield increases form 5.00% to 5.50% is said to increase by 50 basis points.
45
bear
an investor who acts on the belief that a security or the market is falling or will fall.
46
bear market
a market in which prices of a certain group of securities are falling on or are expected to fall.
47
benchmark portfolio
a model portfolio of a larger number of assets, such as the S&P 500, against which the performance of a fund or portfolio is measured.
48
beta
a means of measuring the co-movement of the return of security or a portfolio of securities to the return on the overall market.
a beta of 1 indicates that the security's returns will be expected to move in tandem with the market.
a beta greater than 1 indicates that the security's returns will be expected to succeed those of the market.
a beta less than 1 means returns will be expected to be lower than those of the markert.
49
bid
an indication by an investor, a trader, or a dealer of a willingness to buy a security; the price at which at which an investor can sell to a broker- dealer;
public offering price; quotation
50
Black-Scholes
one of the most popular options pricing models. appears frequently on the exam as an incorrect choice.
51
block trade
a large trading order, defined as an order that consists of 10,000 or more of shares of a given stock or at a total market value of $200,000 or more; block sale
52
blue-sky laws
the nickname for state regulations governing the securities industry. the term was coined in 1911 by a Kansas Supreme Court justice who wanted regulation to protect against "speculative schemes that have no more basis than so many feet of blue sky."
53
board of directors
individuals elected by stockholders to establish corporate management policies. a board of directors decides, among other issues, if and when dividends will be paid to stockholders.
54
bona fide
from the latin "good faith"
55
call
(1) an option contract giving the owner the right to buy a specified amount of an underlying security at a specified price within a specified time.
(2) the act of exercising a call option.
56
callable bond
a type of bond issued with a provision allowing the issuer to redeem the bond before maturity at a predetermined price.
57
callable preferred stock
a type of preferred stock issued with a provision allowing the corporation to call in the stock at a certain price and retire it;
call price; preferred stock
58
call buyer
an investor who pays a premium for an option contract and receives, for a specified time, the right to buy an underlying security at a specified price;
call writer; put
59
call date
the date, specified in the prospectus of every callable security, after which the security's issuer has the option to redeem the issue at par or at par plus a premium
60
call feature; call provision
the written agreement between an issuer an its bondholders or preferred stockholders giving the issuer the option to redeem its senior securities at a specified price before maturity and under certain conditions.
61
call protection
a provision in a bond indenture stating that the issue is noncallable for a certain period (e.g., 5 years or 10 years) after the original issue date; call provision
62
call risk
the potential for a bond to be called before maturity, leaving the investor without the bond's current income. because this is more likely to occur during times of falling interest rates, the investor may not be able to reinvest his principal at a comparable rate of return.
63
call writer
an investor who receives a premium and takes on, for a specified time, the obligation to sell the underlying security at a specified price at the call buyer's discretion.
64
capital appreciation
an increase in an asset's market price
65
capital asset
all tangible property, including securities, real estate, and other property, held for the long term.
66
capital asset pricing model (CAPM)
a securities market investment theory that attempts to derive the expected return on an asset on the basis of the asset's systematic risk.
67
capital gain
the profit realized when a capital asset is sold for a higher price than the purchase price.
68
capitalization
the sum of a corporation's long-term debt, stock, and surpluses.
69
capitalization ratio
a measure of an issuer's financial status that calculates the value of its bonds, preferred stock, or common stock as a percentage of its total capitalization.
70
capital loss
the loss incurred when a capital asset is sold for a price lower than the purchase price.
71
capital market
the segment of the securities market that deals in instruments with more than one year to maturity-- that is, long-term debt and equity securities. in contrast, the money market is the raising of short-term capital such as Treasury bills and commercial paper.
72
capital stock
all of a corporation's outstanding preferred stock and common stock, listed at par value.
73
capital structure
the composition of long-term funds (equity and debt) a corporation has a source for financing.
74
capital surplus
the money a corporation receives in excess of the status value of stock at the time of the first sale.
75
capping
an illegal form of market manipulation that attempts to keep the price of a subject security from rising. it is used by those with a short position.
76
cash account
an account in which the customer is required by the SEC's Regulation T to pay in full for securities not purchased not later than two days after the standard period set by industry practice codes;
special cash account
77
cash dividend
money paid to a corporation's stockholders out of the corporation's current earnings or accumulated profits. the board of directors must declare all dividends.
78
cash equivalent
a security that can be readily converted into cash
ex. Treasury bills, certificates of deposit, and money market instruments and funds.
79
cash flow
the money received by a business minus the money paid out. cash flow is also equal to net income plus depreciation or depletion.
80
CBOE
Chicago Board Options Echange
81
CD
negotiable certificate of deposit
82
cease and desist order
used by the Administrator when it appears that a registered person has or is about to commit a violation. may be issued with or without a prior hearing.
83
certificate of deposit (CD)
a traditional CD pays a fixed interest rate over a specific period of time. when that term ends, you can withdraw your money or roll it into another CD. these are insured up to $250,000 by the FDIC and are considered the best method of preservation of captial.
84
chartist
a securities analyst who uses charts and graphs of the past price movements of a security to predict its future movements;
technician; technical analysis
85
Chicago Board Options Exchange (CBOE)
the self-regulatory organization (SRO) with jurisdiction over all writing and trading of standardized options and related contracts listed on that exchange. also, the first national securities exchange for the trading of listed options.
86
Chicago Stock Exchange
registered stock exchange located in Chicago's downtown "loop"; CHX
87
Chinese Wall
a descriptive name for the division within a brokerage firm that prevents insider information from passing from corporate advisers to investment traders, who could make use of the information to reap illicit profits;
information barriers
88
churning
excessive trading in a customer's account by an agent who ignores the customer's interests and seeks only to increase commissions; violates NASAA's policies on unethical business practices.
89
Class A share
a class of mutual fund shares issued with a front-end sales load. a mutual fund offers the type of sales charge they will pay;
front-end load
90
Class B share
a class of mutual fund share issued with a back-end load. a mutual fund offers the type of sales charge they will pay;
back-end load
91
Class C share
a class of mutual fund share issued with a level load. a mutual fund offers the type of sales charge they will pay.
92
closed-end investment company
an investment company that issues a fixed number of shares in an actively managed portfolio of securities. the shares may be of several classes; they are traded in the secondary marketplace, either on a stock exchange or over the counter. the market price of the shares is determined by supply and demand and not by net asset value;
publicly traded fund; closed-end management compnay
93
closing purchase
an options transaction in which the seller buys back an option in the same series; the two transactions effectively cancel each other our and the position is liquidated
94
coincident indicator
a measurable economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy;
examples: nonagricultural employment, personal income, and industrial production
95
collateral
certain assets set aside and pledged to a lender for the duration of a loan. if the borrower fails to meet obligations to pay principal or interest, the lender has claim to the assets
96
collateralized mortgage obligation (CMO)
a mortgage-backed corporate security. these issues attempt to return interest and principal at a predetermined rate
97
collateral trust bond
a secured bond backed by stocks or bonds of another issuer. the collateral is held by a trustee for safekeeping;
collateral trust certificate
98
combination privilege
a benefit offered by a mutual fund whereby the investor may qualify for a sales charge breakpoint by combining separate investments in two or more mutual funds under the same management.
99
commercial paper
an unsecured, short-term promissory note issued by a corporation or financing accounts receivable and inventories. it is usually issued at a discount reflecting prevailing market interest rates. maturities range up to nine months.
100
commingling
the combining by a brokerage firm of one customer's securities with another customer's securities and pledging them as joint collateral for a bank loan; unless authorized by the customers, this violates SEC Rule 15c2-1.
101
commission
a service charge an agent assess in return for arranging a security's purchase or sale. a commission must be fair and reasonable, consider all the relevant factors of the transaction;
sales charge
102
common stock
a security that represents ownership in a corporation. holders of common stock exercise control by electing a board of directors and voting on corporate policy
103
complex trust
a trust that accumulates income over time and is not required to make scheduled distributions to its beneficiaries.
104
conduit theory
a means for an investment company to avoid taxation on net investment income distributed to shareholders. if a mutual fund acts as a conduit for the distribution of net investment income, it may qualify as a regulated investment company and be taxed only on the income and fund retains;
pipeline theory
105
confirmation
a printed document that states the trade date, settlement date, and money due from or owed to a customer; it is sent or given to the customer on or before the settlement date
106
constant dollar plan
a formula method of investing that attempts to maintain a fixed dollar, rather than ratio, amount in a specific asset class. periodically, the account is reviewed and the specified asset class is either sold or purchased in order to get the fixed dollar level
107
constant ratio plan
a formula method of investing that contemplates maintaining a fixed ratio, rather than dollar amount, between specific asset classes in the portfolio. periodically, the account is reviewed and the specified asset class is either sold or purchased in order to get to the fixed ratio level.
108
Consumer Price Index (CPI)
a measure of price changes in a "market basket" of consumer goods and services used to identify periods of inflation and deflation.
109
consumption
a term used by economists to refer to the purchase by household units of newly produced goods and services.
110
contraction
a period of general economic decline, of the business cycle's four stages.
111
contributory plan
a retirement plan to which both the employee and the employer make contributions
112
control person
(1) a director or an officer of an issuer.
(2) a stockholder who owns more than 10% of any class of a corporation's outstanding securities.
(3) spouse or other immediate family of any of the previous. under the Investment Company Act of 1940, a control person owns more than 25% of the voting securities and, under the Investment Advisers Act of 1940, it is 25% or more.
113
control security
any security owned by a director or an officer of the issuer or by a stockholder who owns more than 10% of an class of a corporation's outstanding securities. who owns a security, not the security itself, determines whether it is a control security.
114
conversion parity
two securities, one of which can be converted into the other, of equal dollar value. a convertible security holder can calculate parity to help decide whether converting would lead to gain or loss.
115
conversion price
the dollar amount of a convertible security's par value that is exchangeable for one share of common stock.
116
conversion privilege
a feature the issuer adds to a security that allows the holder to change the security into shares of common stock. this makes the security attractive to investors and, therefore, more marketable.
117
conversion ratio
the number of shares of common stock per par value amount that the holder would receive for converting a convertible bond or preferred share;
conversion rate
118
convertible bond
a debt security, usually in the form of a debenture, that can be exchanged for equity securities of the issuing corporation at specified prices or rates.
119
convertible preferred stock
an equity security that can be exchanged for common stock at specified prices or rates. dividends may be cumulative or noncumulative.
120
convexity
the most accurate way of indicating a debt security's sensitivity to changes in interest rates.
121
cooling-off period
the period (a minimum of 20 days) between a registration statement's filing date with the SEC and the registration's effective date. in practice, the period varies in length.
122
corporate account
an account held in a corporation's name. the corporate agreement, signed when the account is opened, specifies which officers are authorized to trade in the account. in addition to standard margin account documents, a corporation must provide a copy of its charter and bylaws authorizing a margin account.
123
corporate bond
a debt security issued by a corporation. a corporate bond typically has a par value of $1,000, its interest is taxable, and it has a term maturity
124
corporation
the most common form of business organization, in which the organization's total worth is divided into shares of stock, each share representing a unit of ownership. a corporation is characterized by a continuous life span and its owners' limited liability.
125
correlation
the extent to which two or more securities or portfolios move together. the correlation coefficient is a number that ranges from -1 to +1. a perfect correlation would have a coefficient of +1, whereas two securities that move in total opposite would have a -1. a coefficient of 0 would reflect a totally random correlation between the two securities.
126
cost basis
the price paid for an asset, including any commissions or fees, used to calculate capital gains or losses when the asset is sold.
127
covered call writer
an investor who sells a call option while owning the underlying security or some other asset that guarantees the ability to deliver if the call is exercised.
128
credit risk
the degree of probability that the issuer of a debt security will default the payment of either principal or interest. securities issued by the U.S. government are considered to have virtually no credit risk.
note: credit risk only refers to debt securities -- common stock has no credit risk because there is no debt obligation to the owner;
default risk; financial risk
129
credit spread
(1) a position established when the premium received for the option sold exceeds the premium paid for the option bought; debt spread
(2) the difference in yields between two securities; yield spread
130
cumulative preferred stock
an equity that offers the holder any unpaid dividends in arrears. these dividends accumulate and must be paid to the cumulative preferred stockholder before any dividends can be paid to the common stockholders.
131
current assets
cash and other assets that are expected to be converted into cash within the next 12 months.
examples: liquid items (cash and equivalents), accounts receivable, inventory, prepaid expenses
132
current liabilities
a corporation's debt obligations due for payment within the next 12 months.
examples: accounts payable, accrued wages payable, current long-term debt
133
current market value (CMV)
the worth of the securities in an account. the market value of listed securities is based on the closing prices on the previous business day;
long market value
134
current ratio
a measure of a corporation's liquidity; that is, its ability to transfer assets into cash to meet current short-term obligations. it is calculated by dividing total current assets by total current liabilities;
working capital ratio
135
current yield
the annual rate of return on a security, calculated by dividing the interest or dividends paid by the security's current market price.
136
custodial account
an account in which a custodian enters trades on behalf of the beneficial owner, often a minor.
137
custodian
an institution or person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another. mutual funds have custodian banks responsible for safeguarding certificates and performing clerical duties.
138
custody
maintaining physical possession of a customer's assets. state-registered investment advisers must notify the Administrator if they intend to take custody, assuming the state law permits such.
139
customer
any person who opens a trading account with a broker-dealer. a customer may be classified in terms of account ownership, trading authorization, payment method, or types of securities traded.
140
customer statement
a document showing a customer's trading activity, positions, and account balance. the SEC requires that customer statements be sent quarterly, but customers generally receive them monthly.
141
cyclical industry
a fundamental analysis term for an industry that is sensitive to the business cycle and price changes. most cyclical industries produce durable goods, raw materials, and heavy equipment.
142
dark pool
this term refers to an alternative trading system (ATS) where a supply of shares exists that is not displayed for all to see. dark pools are akin to members-only trading platforms for those desiring to execute larger trades without their interest being made known through an open book. a dark pool provides anonymity to investors and sensitivity of share prices to movement when any sizable demand appears.
143
day order
an order that is valid only until the close of trading on the day it is entered; if it is not executed by the close of trading, it is canceled.
144
dealer
(1) an individual or a firm engaged in the business of buying and selling securities for its own account, either directly or through a broker.
(2) the role of a firm when it acts as a principal and charged the customer a markup or markdown;
principal
145
debenture
a debt obligation backed by the issuing corporation's general credit;
unsecured bond
146
debit spread
a position established when the premium paid for the option bought exceeds the premium received for the option sold.
147
debt security
a security representing an investor's loan to an issuer, such as a corporation, a municipality, the federal government, or a federal agency. in return for the loan, the issuer promises to repay the debt on a specified date and to pay interest.
148
debt-to-equity ratio
the ratio of total long-term debt to total stockholders' equity; it is used to measure leverage
149
decumulation
disposal of something accumulated. investors spend much of their working years accumulating for retirement; taking the funds out is decumulation.
150
default
the failure to pay interest or principal promptly when due.
151
defensive industry
a fundamental analysis term for an industry that is relatively unaffected by the business cycle. most defensive industries produce nondurable goods for which demand remains steady throughout the business cycle;
examples: food industry and utilities
152
defensive investment strategy
a method of portfolio allocation and management aimed at minimizing risk of losing principal. defensive investors place a high percentage of their investable assets in bonds, cash equivalents, and stocks that are less volatile than average.
153
deferred annuity
an annuity contract that delays payment of income, installments, or a lump sum until the investor elects to receive it.
154
deferred compensation plan
a non-qualified retirement plan whereby the employee defers receiving current compensation in favor of a larger payout at retirement (or in the case of disability or death).
155
deficiency letter
the SEC's notification of additions or corrections that a prospective issuer must make to a registration statement before the SEC will clear the offering for distribution.
156
defined benefit plan
a qualified retirement plan that specifies the total amount of money that the employee will receive at retirement.
157
defined contribution plan
a qualified retirement plan that specifies the amount of money that the employer will contribute annually to the plan.
158
deflation
a persistent and measurable fall in the general level of prices.
159
delta
one of the four Greeks used by option analysts. an option's delta is the rate of change of the price of the option with respect to its underlying security's price. the delta of an option ranges in value from 0 to 1 for calls (0 to -1 for puts) and reflects the increase or decrease in the price of the option in response to a 1 point movement of the underlying asset price.
160
demand
a consumer's desire and willingness to pay for a good or service.
161
demand deposit
(DDA) refers to a type of account held at banks and financial institutions that may be withdrawn at any time by the consumer. the majority of such demand deposit accounts are checking accounts, although many now include savings accounts in the definition as well.
162
demutualization
demutualization is the process through which a member-owned company becomes shareholder-owned. historically, this has usually been done by mutual life insurance companies (think MetLife or Prudential), but, in recent years has been done by other member-owned entities such as the New York Stock Exchange (NYSE).
163
depreciation
(1) a tax deduction that compensates a business for the cost of certain tangible assets.
(2) a decrease in the value of a particular currency relative to other currencies.
164
depreciation expense
a bookkeeping entry of a noncash expense charged against earnings to recover the cost of an asset over its useful life.
165
depression
a prolonged period of general economic decline.
166
derivative
an investment vehicle, the value of which is based on another security's value. futures contracts, forward contracts, and options are among the most common types. institutional investors generally use derivatives to increase overall portfolio return or to hedge portfolio risk.
167
dilution
a reduction in earnings per share of common stock. dilution occurs through the issuance of additional shares of common stock and the conversion of convertible securities.
168
directed brokerage
the ability of an investment adviser or a client to determine broker-dealers to be used in the execution of transactions in their advisory accounts.
169
direct participation program (DPP)
a business organized so as to pass all income, gains, losses, and tax benefits to its owners, the investors; the business is usually structured as a limited partnership.
examples: oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, and S corporation offerings.
170
discount
the difference between the lower price paid for a security and the security's face amount at issue.
171
discount bond
a bond that sells at a lower price than its face value.
172
discount rate
the interest rate charged by the 12 Federal Reserve Banks for short-term loans made to member banks.
173
discounted cash flow
(DCF) is a model or method of valuation in which future cash flows are discounted back to a present value using the time-value of money. an investment's worth is equal to the present value of all projected future cash flows.
174
discretion
the authority given to someone other than an account's beneficial owner to make investment decisions for the account concerning the security, the number of shares or units, and whether to buy or sell. the authority to decide only timing or price does not constitute discretion.
175
discretionary account
an account in which the customer has given the agent authority to enter transactions at the representative's discretion.
176
disgorge(ment)
in legal usage, the forced giving up of profits made through illegal activity, most commonly insider trading.
177
disposable income (DI)
the sum that people divide between spending and personal savings.
178
distributable net income (DNI)
taxable income from a trust that determines the amount of income that may be taxable to beneficiaries.
179
diversification
a risk management technique that mixes a wide variety of investments within a portfolio, thus minimizing the impact of any one security on overall portfolio performance.
180
diversified common stock fund
a mutual fund that invests its assets in a wide range of common stocks. the fund's objectives may be growth, income, or a combination of both.
181
dividend
a distribution of a corporation's earnings. dividends may be in the form of cash, stock, or property. the board of directors must declare all dividends.
182
dividend discount model
(DDM) the simplest model for valuing equity is the dividend discount model -- the value of a stock is the present value of expected dividends on it.
183
dividend exclusion rule
an IRS provision that permits a corporation to exclude from its taxable income 70% of dividends received from domestic preferred and common stocks. the Tax Reform Act of 1986 repealed the dividend exclusion for individual investors.
184
dividend growth model
a valuation method which takes into consideration dividend per share and its expected growth. the model assumes that dividends grow at the same rate forever. therefore, it is most commonly used to value companies belonging to for mature and stable industries, having steady dividend growth. it will show a higher valuation than the DDM.
185
dividend payout ratio
a measure of a corporation's policy of paying cash dividends, calculated by dividing the dividends paid on common stock by the net income available for common stockholders. the ratio is the complement of the retained earnings ratio.
186
dividends per share
the dollar amount of cash dividends paid on each common share during one year.
187
dividend reinvestment plan
frequently referred to as a DRIP, the plan allows shareholders the option of having cash dividends automatically reinvested in shares of the issuer's stock, frequently at a discounted price and/or without commissions. in most plans, additional investments are permitted.
188
dividend yield
the annual rate of return on a common or preferred stock investment. the yield is calculated by dividing the annual dividend by the stock's purchase price.
189
Dodd-Frank Bill
the general term by which the Wall Street Reform and Consumer Protection Act of 2010 is known. considered to be the most significant legislation impacting the securities industry since the 1930s.
190
dollar cost averaging
a system of buying mutual fund shares in fixed dollar amounts at regular fixed intervals, regardless of the share's price. the investor purchases more shares when prices are low and fewer shares when prices are high, thus lowering the average cost per share over time.
191
donor
a person who makes a gift of money or securities to another. once the gift is donated, the donor gives up all rights to it. Gifts of securities to minors under the Uniform Gift to Minors Act provide tax advantages to the donor.
192
Dow Jones avergaes
the most widely quotes and oldest measures of change in stock prices. each of the four averages is based on the prices of a limited number of stocks in a particular category.
193
Dow Jones Composite Average (DJCA)
a market indicator composed of the 65 stocks that make up the Dow Jones Industrial, Transportation, and Utilities Averages.
194
Dow Jones Industrial Average (DJIA)
The most widely used market indicator, composed of 30 large, actively traded issues of industrial stocks.
195
Dow Jones Transportation Average (DJTA)
a market indicator composed of 20 transportation stocks.
196
Dow Jones Utilities Average (DJUA)
a market indicator composed of 15 utilities stocks.
197
DRIP
dividend reinvestment plan
198
durable power of attorney
a document giving either full or limited authority to a third party that survives the mental or physical incompetence (but not death) of the grantor.
199
duration
an approximate measure of a bond's price sensitivity to changes in interest rates. can be used to compare bonds with different issue and maturity dates, coupon rates, and yields to maturity. the duration of a bond is expressed as a number of years from its purchase date.
200
EAFE
the EAFE index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Austalasia, and Far East, but not the U.S. or Canada.
201
earned income
income derived from active participation in a trade or business, including wages, salary, tips commissions, and bonuses. also included is alimony received. one must have earned income in order to make contributions to an IRA.
202
earnings momentum
a term used to describe that earnings are growing at an increasing rate. that is, if they grew at a rate of 10% in the first quarter, 11% in the second quarter, and 14% in the most recent quarter, this shows earnings increasing at an accelerating rate. that is positive earnings momentum. used by those following a growth style of portfolio management.
203
earnings multiplier
another term for the price-to-earning (PE) ratio. the earnings multiplier is the price of the stock divided by its earnings per share.
204
earnings per share (EPS)
a corporation's net income available for common stock divided by its number of shares of common stock outstanding.
205
economically targeted investing (ETI)
a form of impact investing in investments selected for the economic benefits they create apart from their investment return to the employee benefit plan.
206
effective date
the date the registration of an issue of securities becomes effective, allowing the underwriters to sell the newly issued securities to the public and confirm sales to investors who have given indications of interest.
207
effective tax rate
the overall rate paid on a taxpayer's total taxable income. it will always be less than the margin tax rate.
208
efficient market theory
a theory based on the premise that the stock market processes information efficiently. the theory postulates that, as new information becomes known, it is reflected immediately in the price of a stock and therefore stock prices represent fair prices.
there are three forms of this theory: weak, semistrong, and strong;
efficient market hypothesis
209
employee stock options
a form of employee compensation where the employing corporation makes available the opportunity for employees to acquire the issuer's stock.
there are two forms: nonqualified (NSOs) and incentive (ISOs)
210
enjoined
this term includes being subject to a mandatory injunction, prohibitory injunction, preliminary injunction, or a temporary restraining order issued by a court of competent jurisdiction.
211
entangled
a social media term meaning that a securities firm has participated in the development of content on a third-party site to which it publishes links.
212
environmental, social, and governance (ESG)
a form of impact investing. it is a set of standards for a company's operations that socially conscious investors use to screen investments.
213
equity
common and preferred stockholders' ownership interests in a corporation.
214
equity financing
raising money for working capital or for capital expenditures by selling common or preferred stock to individual or institutional investors. in return for the money paid, the investors receive ownership interests in the corporation.
215
equity security
a security representing ownership in a corporation or another enterprise.
examples: common and preferred stock, interests in a limited partnership or joint venture; securities that carry the right to be traded for equity securities, such as convertible bonds, rights, and warrants; and put and call options on equity securities.
216
eurobond
a long-term debt instrument of a government or corporation that is denominated in the currency of the issuer's country but is issued and sold in a different country.
217
Eurodollar
U.S. currency held in banks outside the United States
218
exchange-listed security
a security that has met certain requirements an dhas been admitted to full trading privileges on a stock exchange. the NYSE and regional exchanges set listing requirements for volume of shares outstanding, corporate earnings, and other characteristics.
219
exchange privilege
a feature offered by a mutual fund allowing an individual to transfer an investment in one fund to another fund under the same sponsor without incurring an additional sales charge;
conversion privilege
220
exchange traded fund (ETF)
an investment company originally designed to track a specific index that is traded on a stock exchange. rather than basing the price on NAV, the ETF's market price is constantly changing as does the price of any other listed stock. ETFs may be purchased on margin and sold short. although most ETFs still track indexes, there are a number of ETFs that are actively managed.
221
executor, (f. executrix)
a person given fiduciary authorization to manage the affairs of a decedent's estate. an executor's authority is established by the decedent's last will.
222
exempt reporting adviser
ERAs are advisers that are exempt from registration relying on either the venture capital fund adviser or the private fund adviser exemption. although exempt from registration, an ERA is subject to certain reporting, recordkeeping, and other obligations.
223
exempt security
a security exempt from the registration requirements (although not from the antifraud requirements) of the Securities Act of 1933 or the Uniform Securities Act
examples: U.S. government securities and municipal securities
224
exempt transaction
a transaction that does not trigger a state's registration and advertising requirements under the USA.
examples: nonissuer transactions in outstanding securities (normal market trading); transactions with financial institutions; unsolicited transactions; and private placement transactions.
no transaction is exempt from the USA's antifraud provisions.
225
exercise price
the cost per share at which an option or a warrant holder may buy or sell the underlying security;
strike price
226
expansion
a period of increased business activity throughout the economy; one of the four stages of the business cycle
227
expansionary policy
a monetary policy that increases the money supply, usually with the intention of lowering interest rates and combating deflation.
228
expense ratio
a ratio for comparing a mutual fund's efficiency by dividing the fund's expenses by its net assets.
229
Farm Credit Administration (FCA)
the government agency that coordinates the activities of the banks in the Farm Credit System.
230
Farm Credit System (FCS)
an organization of 37 privately owned banks that provide credit services to farmers and mortgages on farm property. included in the system are the Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives.
231
federal covered adviser
as defined by the NSMIA of 1996, either an IA registered with the SEC or excluded from the definition of IA under the Investment Advisers Act of 1940.
under Dodd-Frank, these advisers registering with the SEC must generally meet a threshold of $100 million or more AUM.
232
Federal covered security
under the NSMIA of 1996, a new definition was created: covered security, generally referred to as a federal covered security on the exam.
state securities registration requirements were preempted with respect to covered securities, other than the ability to require notice filing, particularly in the case of registered investment companies. the most tested federal covered securities include those on the major U.S. exchanges and Nasdaq as well as investment companies registered with the SEC and securities offered pursuant to the provisions of Rule 506 of Regulation D under the Securities Act of 1933 (private placements).
233
Federal Deposit Insurance Corporation (FDIC)
the government agency that provides deposit insurance for member banks and prevents banks from thrift failures.
234
federal funds
the reserves of banks and certain other institutions greater than the reserve requirements or excess reserves. these funds are available immediately.
235
federal funds rate
the interest rate charged by one institution lending federal funds to another.
236
Federal Home Loan Bank (FHLB)
a government-regulated organization that operates a credit reserve system for the nation's savings and loan institutions.
237
Federal Home Loan Mortgage Corporation (FHLMC)
a publicly traded corporation that promotes the nationwide secondary market in mortgages by issuing mortgage-backed pass-through debt certificate;
Freddie Mac
238
Federal Intermediate Credit Bank (FICB)
one of 12 banks that provide short-term financing to farmers as part of the Farm Credit System.
239
Federal National Mortgage Association (FNMA)
a publicly held corporation that purchases conventional mortgages and mortgages from government agencies, including the Federal Housing Administration, Department of Veterans Affairs, and Farmers Home Administration;
Fannie Mae
240
Federal Open Market Committee (FOMC)
a committee that makes decisions concerning the Fed's operations to control the money supply.
241
Federal Reserve Board (FRB)
a committee that makes decisions concerning the Fed's operations to control the money supply;
242
Federal Reserve System
the central bank system of the U.S. its primary responsibility is to regulate the flow of money and credit. the system includes 12 regional banks, 24 branch breaks, and hundreds of national and state banks;
fed; the fed
243
fiduciary
a person legally appointed and authorized to hold assets in trust for another person and manage those assets for that person's benefit.
244
filing date
the day on which an issuer submits tot he SEC the registration statement for a new securities issue.
245
fill-or-kill order (FOK)
an order that instructs the floor broker to fill the entire order immediately; if the entire order cannot be executed immediately, it is cancelled.
246
final prospectus
the legal document that states a new issue security's price, delivery date, and underwriting spread, as well as other material information. it must be given to every investor who purchases a new issue of registered securities;
prospectus
247
final roder
a term used in both state and federal law to refer to a decision rendered by a regulatory body. the final order may result in a suspension, revocation, or denial of registration. it is analogous to the judge passing sentence in trial.
248
Financial Industry Regulatory Authority (FINRA)
organized in July 2007 as a joint effort of NASD and the NYSE to harmonize regulation in the securities industry.
249
firm quote
the actual price at which a trading unit of a security (such as 100 shares od stock or five bonds) may be bought or sold. all quotes are firm quotes unless otherwise indicated.
250
first in, first out (FIFO)
an accoutning method used to assess a company's inventory, in which it is assumed that the first goods acquired are the first to be sold. the same method is used by the IRS to determine cost basis for tax purposes.
251
fiscal policy
the federal tax and spending policies set by Congress and the President. these policies affect tax rates, interest rates, and government spending in an effort to control the economy.
252
fiscal year
term used to describe an accounting years that ends other than December 21st (calendar year accounting)
253
fixed annuity
an insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. the insurance company guarantees both earnings and principal.
fixed dollar annuity; guaranteed dollar annuity
254
fixed asset
a tangible, physical property used in the course of a corporation's everyday operations, including buildings, equipment, and land.
255
flat yield curve
a chart showing the yields of bonds with short maturities as equal to the yields of bonds with long maturities;
even yield curve
256
flow-through
a term that describes the way income, deductions, and credits resulting from the activities of a business are applied to individual taxes and expenses as though each incurred the income and deductions directly.
257
FNMA
Federal National Mortgage Association
258
FOK
fill-or-kill order
259
FOMC
Federal Open Market Committee
260
foreign curency
money issued by a country other than the one in which the investor resides. options and futures contracts on numerous foreign currencies are traded on U.S. exchanges.
261
foreign exchange rate
the price of one country's currency in terms of another currency;
exchange rate
262
Form 706
the IRS form used for the computation of estate tax. it must be filed within nine months of death unless an extension has been obtained.
263
Form 709
the United States Gift (and Generation-Skipping Transfer) Tax Return is filed on Form 709.
264
Form 1040
the IRS form used to file individual income tax. schedule C of the Form 1040 is used to report business income for sole proprietorships.
265
Form 1041
the IRS form used by estates and trusts to report their income for tax purposes.
266
Form 1065
the information return field by a partnership or LLC. because income and losses flow through to owners, the entity pays no tax.
267
Form 1120 & 1120S
the tax returns filed by corporations. the "S" is for an S corporation.
268
Form D
the SEC form required to be filed when engaging in a Regulation D private placement.
269
forward contract
a forward contract is a direct commitment between one buyer and one seller for a specific commodity. because forward contracts are direct obligations between a specific buyer and seller (unlike futures and options, they are not standardized), they are not easily transferred and are considered illiquid.
270
forward pricing
the valuation process for mutual fund shares, whereby an order to purchase or redeem shares is executed at the price determined by the portfolio valuation calculated after the order is received. portfolio valuations occur at least once per business day.
271
fractional share
a portion of a whole share of stock. mutual fund shares are frequently issued in fractional amounts. fractional shares used to be generated when corporations declared stock dividends, merged, or voted to split stock, but today it is more common for corporations to issue the cash equivalent of fractional shares.
272
fraud
the deliberate concealment, misrepresentation, or omission of material information or the truth, so as to deceive or manipulate another party for unlawful or unfair gain.
273
Freddie Mac
Federal Home Loan Mortgage Corporation
274
front-end load
a mutual fund commission or sales fee that is charged at the time shares are purchased. the load is added to the share's net asset value when calculating the public offering price.
275
front runnings
the prohibited practice of entering an order for the benefit of a firm or a securities professional before entering customer orders.
276
full power of attorney
a written authorization for someone other than an account's beneficial owner to make deposits and withdrawals and to execute trades in the account.
277
full trading authorization
an authorization, usually provided by a full power of attorney, for someone other than the customer to have full trading privileges in an account.
278
fundamental analysis
a method of evaluating securities by attempting to measure the intrinsic value of a particular stock. fundamental analysts study the overall economy, industry conditions, and the financial condition and management of particular companies.
279
futures
futures contracts are exchange-traded obligations for a specific commodity. a buyer goes long, or establishes a long position, and is obligated to take delivery of the commodity on the future date specified. a seller goes short, or establishes a short position, and is obligated to deliver the commodity on the specified future date. if the seller does not own the commodity, his potential loss is unlimited because he has promised delivery and must pay any price to acquire the commodity to deliver. futures may be highly leveraged.
280
future value
the amount to which a current deposit will grow at a given rate of compound interest to a specific date in the future.
281
GAAP
the acronym for generally accepted accounting principles, the standard method used in the U.S. by professional accountants.
282
gamma
one of the four Greeks used by options and analysts. an option's gamma is a measure of the rate of change of its delta. the gamma of an option is expressed as a percentage and reflects the change in the delta in response to a one point movement of the underlying stock price.
283
general obligation bond (GO)
a municipal debt issue backed by the full faith, credit, and taxing power of the issuer for payment of interest and principal;
full faith and credit bond
284
general partnership (GP)
an association of two or more entities formed to conduct business jointly. the partnership does not require documents for formation, and the general partners are jointly and severally liable for the partnership's liabilities.
285
generation skipping trust
a form of bypass trust that is designed to have assets pass to grandchildren (or great-grandchildren) in order to "skip" a generation of estate tax.
286
geometric mean
a type of average that indicates the central tendency of a set of numbers that, instead of finding the sum as with the arithmetic mean, takes the product of the numbers and divides that by the nth root (where n is the count of numbers). it will always be lower than the arithmetic mean [unless all od the numbers are the same (.e.g, 6, 6, and 6)].
287
good-til-canceled order (GTC)
an order that is left on the specialist's book until it is either executed or canceled;
open order
288
goodwill
an intangible asset that represents the value that a firm's business reputation adds to its perceived value. it is not included in net worth for purposes of computing book value per share.
289
Government National Mortgage Association (GNMA)
a wholly government-owned corporation that issues pass-through mortgage debt certificates backed by the full faith and credit of the U.S. government;
Ginnie Mae
290
grantor
an individual or organization that gives assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries;
settlor, trustor
291
grantor trust
a trust that requires that the grantor be taxed on income produced by trust property if trust income is distributed to the grantor or to the grantor's spouse; trust income discharges a legal obligation of the grantor or grantor's family; and the grantor retains power to revoke or amend the trust.
292
gross domestic product (GDP)
the market value of all final goods and services produced within a country in a given period of time.
GDP = consumption + investment + government spending + (exports - imports) investment
to account for inflation, GDP is based on a constant dollar, currently the value in 2005.
293
gross income
all income of a taxpayer, from whatever source derived.
294
gross margin
the operating profit of a business prior to interest and taxes.
is frequently expressed as a percentage, called the margin of profit.
the calculation is the gross margin divided by the sales (revenues).
computed by subtracting the cost of goods sold (COGS) from the company's sales (or revenues).
ex. a company has sales of $5 million and COGS of $3.5 million resulting in a gross margin of $1.5 million and a margin of profit of 30% ($1.5 million/$5 million)
295
gross revenues
all money received by a business from its operations. the term typically does not include interest income or income from the sale, refinancing, or other disposition of properties.
296
growth fund
a diversified common stock fund that has capital appreciation as its primary goal. it invests in companies that reinvest most of their earnings for expansion, research, or development.
297
growth industry
an industry that is growing faster than the economy as a whole os a result of technological changes, new products, or changing consumer rates.
298
growth stock
a common stock that is believed to offer significant potential for capital gains. it often pays low dividends and sells at high price-earnings ratio.
299
growth style investing
a management style that attempts to find stocks with positive earnings momentum. these stocks typically sell at the upper end of their 52-week price range, have high P/E ratios and lower than average dividend payout ratios.
300
guaranteed security
under the USA, the term guaranteed means guaranteed by a third party as to payment of principal, interest, or dividends, but not capital gains.
301
guardian
a court-appointed fiduciary who manages the assets of a minor or an incompetent for that person's benefit.
302
head and shoulders
on a technical analyst's trading chart, a pattern that has three peaks resembling a head and two shoulders. the stock price moves up to its first peak (the left shoulder), drops back, then moves to a higher peak (the top of the head), drops again but recovers to another, lower peak (the right shoulder). a head and shoulders top typically forms after a substantial rise that indicates a market reversal. a head and shoulders bottom (an inverted head and shoulders) indicates a market advance.
303
hedge
an investment made to reduce the risk of adverse price movements in a security. normally, a hedge consists of a protecting position in a related security.
304
hedge clause
any legend, clause or other provision that is likely to lead an investor to believe that he has in any way waived any right of action he may have.
305
hedge fund
a fund that can use one or more alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage. these funds tend to have very high minimum investment requirements.
306
high net worth individual
an individual with at least $1 million managed by the IA or whose net worth the firm reasonably believes exceeds $2 million. the net worth of an individual may include assets held jointly with that individual's spouse. performance-based fees may be charged to these clients.
307
high-yield bond
a bond with less than investment grate rating, characterized by a return commensurate with the higher risk;
junk bond
308
holder
the owner of a security.
309
holding company
a company organized to invest in and manage other corporations. control can occur through the ownership of 50% or more of the voting rights or through the exercise of a dominant influence. it is sometimes referred to as a parent organization.
310
holding period
a time period signifying how long the owner possesses a security. it starts the day after a purchase and ends on the day of the sale.
311
home state
if an investment adviser is registered with a state Administrator (state-registered adviser), the firm's home state is the state where it maintains its principal office and place of business.
312
HR-10 plan
keogh plan
313
hypothecation
pledging to a broker-dealer securities bought on margin as collateral for the margin loan.
314
immediate annuity
an annuity contract that provides for monthly payments to begin immediately after deposit of the invested funds. payments usually commence within 30 to 60 days.
315
immediate-or-cancel order (IRC)
an order that instructs the floor banker to execute it immediately, in full or in part. any portion of the order that remains unexecuted is canceled.
316
impersonal investment advice
investment advisory services that do not purport to meet the objectives or needs of specific individuals or accounts.
317
incentive stock option
a type of employee stock option. as long as stock purchased through exercise of an ISO is. held at least twp years after the date of grant and one year after the date of exercise, any profits are reported as long-term capital gains. if these time limits are broached, the ISO is taxed like an NSO.
318
income fund
a mutual fund that seeks to provide stable current income by investing in securities that pay interest or dividends.
319
income statement
the summary of a corporation's revenues and expenses for a specific fiscal period.
320
indenture
the agreement between a lender and a borrower that details specific terms of the bond issuance. the indenture specifies the legal obligations of the bond issuer and rights of the bondholders. it is sometimes called the deed of trust.
321
index fund
investors who wish to invest passively can invest in an index fund, which seeks to replicate the performance of a security market index. there are index mutual funds and index exchange-traded funds.
322
indication of interest
an investor's expression of conditional interest in buying an upcoming securities issue after the investor has reviewed a preliminary prospectus. an indication of interest is not a commitment to buy.
323
individual retirement account (IRA)
a retirement investing tool for employed individuals that allows an annual contribution of 100% of earned income up to a maximum of $5,500 ($6,500 for those 50 and older)
324
industrial development bond (IDB)
a debt security issued by a municipal authority, which uses the proceeds to finance the construction of purchase or facilities to be leased or purchased by a private company. the bonds are backed by the credit of the private company, which is ultimately responsible for principal and interest payments;
industrial revenue bond
325
inflation
a persistent and measurable increase in the general level of prices.
326
initial public offering (IPO)
a corporation's first sale of common stock to the public.
327
information barriers
policies and procedures created to prevent misuse of material nonpublic information (MNPI) are commonly referred to as information barriers. formerly referred to as Chinese Walls.
328
inside information
material information that has not been disseminated to or is not readily available to the general public.
329
inside market
when viewing the quotes of all of the market makers in a security, the inside market, or inside quote, is the best (highest) bid and the best (lowest) offer (or ask).
330
insider
any person who possesses or has access to material nonpublic information about a corporation. insiders include directors, officers, and stockholders who own more than 10% of many class of equity security of a corporation.
331
Insider Trading and Securities Fraud Enforcement Act of 1988
legislation that defines what constitutes the illicit use of nonpublic information in making securities trades and the liabilities and penalties that apply;
Insider Trading Act
332
institutional investor
a person or an organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment and lower commissions. an institutional order can be of any size. institutional investors are covered by fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves.
333
intangibele asset
a property owned that is not physical, such as formula, a copyright, or goodwill.
334
interactive content
social media content that can be added by anyone with access to the link.
example: a chat room
335
interest
the charge for the privilege of borrowing money, usually expressed as an annual percentage rate.
336
interest rate risk
the risk associated with investments relating to the sensitivity of price or value to fluctuation in the current level of interest rates; also, the risk that involves the competitive cost of money. this term is generally associated with bond prices, but it applies to all investments. in bonds, prices carry interest rate risk because if bond prices rise, outstanding bonds will not remain competitive unless their yields and prices adjust to reflect the current marker internal rate of return. The discount rate that sets the net present value of an investment equal to zero;
337
internal rate of return
the discount rate that sets the net present value of an investment equal to zero.
338
internal revenue code (IRC)
the legislations that defines tax liabilities and deductions for U.S. tax payers.
339
internal revenue service (IRS)
the U.S. government agency responsible for collecting most federal taxes and for administering tax rules and regulations.
340
interstate offering
an issue of securities registered with the SEC sold to residents of states other than the state in which the issuer does business.
341
intestate
dying with a legal will. usually the probate court will appoint an administrator to handle the deceased's estate. for purposes of the USA, transactions by the administrator (a fiduciary) are considered exempt transactions.
342
in-the-money
the term used to describe an option that has intrinsic value, such as a call option when the stock is selling below the exercise price.
343
intrastate offering
an issue of securities exempt from SEC registrations, available to companies that do business in one state and sell their securities only to residents of that same state.
344
intrinsic value
the potential profit to be made from exercising an option. a call option is said to have intrinsic value when the underlying stock is trading above the exercise price.
345
inverted yield curve
a chart showing long-term debt instruments that have lower yields than short-term debt instruments;
negative yield curve
346
investment adviser
(1) any person who makes investment recommendations in return for a flat fee or a percentage of assets managed.
(2) for an investment company, the individual who bears the day-to-day responsibility of investing the cash and securities held in the fund's portfolio in accordance with objectives stated in the fund's prospectus.
347
investment adviser representative (IAR)
any partner, officer, director, or other individual employed by or associated with an investment adviser whose job function involves the rendering of advice, solicitation for clients, or supervision of those who do.
348
Investmetn Advisers Act of 1940
legislation governing who must register with the SEC as an investment adviser.
349
investment banker
an institution in the business of raising capital for corporations and municipalities. an investment banker may not accept deposits or make commercial loans;
investment bank
350
investment banking business
a broker, dealer, or municipal of government securities dealer that underwrites or distributes new issues of securities as a dealer or that buys and sells securities for the accounts of others as a broker;
investment securities business
351
investment company
a company engaged in the business of pooling investors' money and trading in securities for them;
examples: face-amoutn certificate companies, unit investment trusts, management companies
352
Investment Company Act Amendments of 1970
amendments to the Investment Company Act of 1940 requiring, in particular, that sales charges relate to the services a fund provides its shareholders.
353
Investment Company Act of 1940
congressional legislation regulating companies that invest and reinvest in securities. the act requires an investment company engaged in interstate commerce to register with the SEC.
354
investment constraints
limitations or restrictions that are specific to the adviser's client.
examples: liquidity needs, time horizon, and personal ethics choices (no tobacco or alcohol stocks).
355
investment-grade security
a security to which the rating services (e..g, Standard & Poor's and Moody's) have assigned a rating of BBB/Baa or above.
356
investment objective
any goal a client hopes to achieve through investing.
examples: current income, capital growth, preservation of capital.
357
investment policy statement
used by those administering employee benefit plans to set out the objectives, policies, investment selections, and monitoring procedures for the plan. may also be used by investment advisers to determine policies to be followed with their clients.
358
investor
the purchaser of an asset or security with the intent of profiting from the transaction.
359
IRA rollover
the reinvestment of assets that an individual receives as a distribution from a qualified tax-deferred retirement plan into an individual retirement account within 60 days of receiving the distribution. the individual may reinvest either the entire sum or a portion of the sun, although any portion not reinvested is taxed as ordinary income.
360
IRA transfer
the direct reinvesting of retirement assets from one qualified tax-deferred retirement plan to an individual retirement account. the account owner never takes possession of the assets but directs that they can be transferred directly from the existing plan custodian to the new plan custodian.
361
irrevocable trust
a trust that cannot be altered or canceled by the grantor at any time.
362
issuer
the entity, such as a corporation, or municipality, that offers or proposes to offers its securities for sale.
363
joint account
an account in which two or more individuals possess some form of control over the account and may transact business in the account. the account must be designated as either joint tenants in common or joint tenants with right of survivorship.
364
joint life with last survivor
an annuity payout option that covers two or more people, with annuity payments continuing as long as one of the annuitants remains alive.
365
joint tenants with right of survivorship (JTWROS)
a form of joint ownership of an account whereby a deceased tenant's fractional interest in the account passes to the surviving tenant(s). used almost exclusively by husbands and wives.
366
Keogh plan
a qualified tax-deferred retirement plan for persons who are self-employed and unincorporated or who earn extra income through personal services aside from their regular employment;
HR-10 plan
367
Keynesian economics
the theory that active government intervention in the marketplace is the best method of ensuring economic growth and stability.
368
lagging indicator
a measurable economic factor that changes after the economy has started to follow a particular pattern or trend. lagging indicators are believed to confirm long-term trends.
examples: average duration of unemployment, corporate profits, and labor cost per unit of output
369
large-cap
stocks with a market capitalization of $10 billion or more
370
last in, first out (LIFO)
an accounting method used to assess a corporation's inventory in which it is assumed that the last goods acquired are the first to be sold. the method is used to determine cost basis for tax purposes; the IRS designates last in, first out as the order in which sales or withdrawals fro an investment are made. it is the system used for random withdrawals from a nonqualified annuity where the earnings are taxed first before receiving back a return of original principal.
371
leading indicator
a measurable economic factor that changes before the economy starts to follow a particular pattern or trend. leading indicators are believed to predict changes in the economy.
examples: new orders for durable goods, slowdowns in deliveries by vendors, numbers of building permits issued
372
legal list
the selection of securities a state agency (usually a state banking or insurance commission) determines to be appropriate investments for fiduciary accounts such as mutual savings banks, pension funds, and insurance companies. this is used in states that do not have the prudent investor rule.
373
legislative risk
the potential for an investor to be adversely affected by changes in investment or tax laws.
374
letter of intent (LOI)
a signed agreement allowing an investor to buy mutual fund shares at a lower overall sales charge based on the total dollar amount of the intended investment. a letter of intent is valid only if the investor completes the terms of the agreement within 13 months of signing the agreement. a letter of intent may be backdated 90 days;
statement of intention
375
level load
a mutual fund ales fee charged annually and based on the net asset value of a share.
376
leverage
using borrowed capital to increase investment return;
trading on the quity
377
liability
a legal obligation to pay a debt owed. current liabilities are debts payable within 12 months. long-term liabilities are debts payable over a period of more than 12 months.
378
LIBOR
a benchmark interest rate based on the rates at which banks lend unsecured funds to each other on the London interbank market. published daily, the rate was previously administered by the British Bankers' Association (BBA). but in the aftermath of a scandal in 2012, Britain's primary financial regulator, the Financial Conduct Authority (FCA), shifted supervision of LIBOR to a new entity, the ICE Benchmark Administrator, an independent subsidiary of the private exchange operator Intercontinental Exchange, or ICE.
379
limited liability
an investor's right to limit potential losses to no more than the amount invested. equity shareholders, such as corporate stockholders and limited partners, have limited liability.
380
limited liability company (LLC)
a hybrid between a partnership and a corporation in that it combines the pass-through treatment of a paternship with the limited liability accorded to corporate shareholders.
381
limited partnership (LP)
an association of two or more partners formed to conduct a business jointly and in which one or more of the partners is liable only to the extent of the amount of money they have invested. limited partners do not receive dividends but enjoy direct flow-through of income and expenses.
382
limited power of attorney
a written authorization for someone other than an account's beneficial owner to make certain investment decisions regarding transactions in the account.
383
limited trading authorization
an authorization, usually provided by a limited power of attorney, for someone other than the customer to have trading privileges in an account. these privileges are limited to purchases and sales; withdrawal of assets is not authorized.
384
limit order
an order that instructs the broker-dealer to buy a specified security below a certain price or to sell a specified seucirty above a certain price. these orders are entered either for the day or good-til-canceled (GTC).
385
liquidation priority
in the case of a corporation's liquidated, the order that is strictly followed for paying off creditors and stockholders;
(1) secured claims like mortgage bonds, equipment trust certificates, and collateral trust bonds;
(2) unpaid wages;
(3) taxes;
(4) unsecured liabilities; (debentures) and general creditors;
(5) subordinated debt;
(6) preferred stockholders;
(7) common stockholders
386
liquidity
the ease at which an asset can be converted to cash at its fair market value;
a large number of buyers and sellers and a high volume of trading activity provide high liquidity.
387
liquidity risk
the potential that an investor might not be able to sell an investment when desired without adverse price disruption;
marketability risk
388
listed option
an option contract that can be bought and sold on a national securities exchange in a continuous secondary market. listed options carry standardized strike prices and expiration dates;
standardized option
389
listed security
a stock, a bond, or another security that satisfies certain minimum requirements and is traded on a regional or national securities exchange such as the New York Stock Exchange.
390
living trust
a trust created during the lifetime of the grantor; also known as an inter vivos trust.
391
long
the term used to describe the owning of a security, contract, or commodity.
392
longevity annuity
a deferred income annuity that generally does not begin payout until the age of 85. if a QLAC (qualified longevity annuity contract), it is exempt from RMDs for up to 15 years in a qualified retirement plans.
393
Long-term Equity Anticipation Securities (LEAPS)
LEAPS options have the same characteristics as standard options, but with expiration dates up to three years in the future.
394
long-term gain
the profit earned on the sale of a capital asset that has been owned for more than 12 months.
395
long-term loss
the loss realized on the sale of a capital asset that has been owned for more than 12 months.
396
loss carryover
a capital loss incurred in one tax year that is carried over to the next year or later years for use as a capital loss deduction.
397
make a market
to stand ready to buy or sell a particular security as a dealer for its own account. a market maker accepts the risk of holding the position in the security.
398
Maloney Act
an amendment enacted in 1938 to broaden Section 15 of the Securities Exchange Act or 1934. Named for its sponsor, the late Sen. Francis Maloney of Conneticut, the amendment provided for the creation of a self-regulatory organization for the specific purpose of supervising the over-the-counter securities market.
399
management compnay
an investment company that trades various types of securities in a portfolio in accordance with specific objectives stated in the prospectus.
400
margin
the amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.
401
marginal tax rate
the rate of taxation of any additional taxable income received. it is sometimes referred to as the tax on the "next" dollar or the "last" dollar of income.
402
margin of profit ratio
a measure of a corporation's relative profitability. it is calculated by dividing the operating profit by the net sales;
operating profit ratio; profit margin.
403
marital trust
a trust that seeks to pass property to a survivor spouse while taking advantage of the marital deduction; also known as an A trust.
404
market capitalization
the number of outstanding shares multiplied by the current market price. classed as large-cap, mid-cap, small-cap, and micro-cap.
405
market maker
a dealer willing to accept the risk of holding a particular security in its own account to facilitate trading in that security.
406
market order
an order to be executed immediately at the best available price.
is the only order that guarantees execution;
unrestricted order
407
market risk
the potential for an investor to experience losses owing to day-to-day fluctuations in the prices at which securities can be bought or sold.
408
market value
the price at which investors buy or sell a share of common stock or a bond at a given time.
determined by buyers' and sellers' interaction.
409
markup
the difference between the lowest current offering price among dealers and the higher price a dealer charges a customer.
410
matched orders
simultaneously entering identical (or nearly identical) buy and sell orders for a security to create the appearance of active trading in that security. this violates the antifraud provisions of the Securities Exchange Act of 1934 and the USA.
411
material information
any fact that could affect an investor's decision to trade a security.
412
maturity date
the date on which a bond's principal is repaid to the investor and interest payments cease.
413
mean
when referring to a series of values, such as portfolio returns, the average. a measure of central tendency known as the arithmetic mean. could also refer to the geometric mean.
414
median
when viewing a series of values, such as portfolio returns, the number that has as many occurrences above as below. a measure of central tendency.
415
mid-cap
stocks with a market capitalization of $2 billion to $10 billion.
416
mode
when viewing a series of values, the one that occurs the most frequently. a measure of central tendency.
417
modern portfolio theory (MPT)
a method of choosing investments that focuses on the importance of the relationships among all of the investments in a portfolio rather than the individual merits of each investment. the method allows investors to quantify and control the amount of risk they accept and return they achieve.
418
monetarist theory
an economic theory holding that the money supply is the major determinant of price levels and that therefore a well-controlled money supply will have the most beneficial impact on the economy.
419
monetary policy
the Federal Reserve Board's actions that determine the size and rate of the money supply's growth, which in turn affect interest rates.
420
money market
the securities market that deals in high quality, short-term debt. money market instruments ar every liquid forms of debt that mature in one year or less.
examples: treasury bills, commercial paper, jumbo CDs.
421
money market fund
a mutual fund that invests in short-term debt instruments. the fund's objective is to earn interest while maintaining a stable net asset value of $1 per share. always sold with no load, the fund may also offer check-writing privileges and a low initial minimum investment.
422
Monte Carlo simulation
a statistical method to determine. thereturn profile of a security or portfolio that recreates potential outcomes by generating random values on the basis of the risk and return characteristics. of the securities themselves.
423
Moody's Investors Service
one of the best known investment rating agencies in the US. a subsidiary of Dun & Bradstreet, Moody's rates bonds, commercial paper, preferred and common stocks, and municipal short-term issues.
424
mortgage bond
a debt obligation secured by a property pledge. it represents a lien or mortgage against the issuing corporation's properties and real estate assets.
425
moving average chart
a tool used by technical analysts to track the price movements of a commodity. it plots average daily settlement prices over a defined period of time (for example, over three days for a three-day moving average).
426
MRD
minimum required distribution
427
municipal bond
a debt security issued by a state, a municipality, or another subdivision (such as a school, a park, a sanitation, or another local taxing district) to finance its capital expenditures. such expenditures might include the construction of highways, public works, or school buildings.
428
municipal bond fund
a mutual fund that invests in municipal bonds and operates either as a unit investment trust or as an open-end fund. the fund's objective is to maximize federally tax-exempt income.
429
municipal note
a short-term municipal security issued in anticipation of funds from another source.
430
Municipal Securities Rulemaking Board (MSRB)
a self-regulatory organization that regulates the issuance and trading of municipal securities. the Board functions under the SEC's supervision; it has no enforcement powers
431
mutual fund
an investment company that continuously offers new equity shares in an actively managed portfolio of securities. all shareholders participate in the fund's gains or losses. the shares are redeemable on any business day at the net asset value. each mutual fund's portfolio is invested to match the objective stated in the prospectus;
open-end investment company;
open-end management company
432
NASAA
North American Securities Administrators Association
433
Nasdaq
National Association of Securities Dealers Automated Quotation System
434
NASD 5% markup policy
a guideline for reasonable markups, markdowns, and commissions for secondary over-the-counter transactions. according to the policy, all commissions on broker transactions and all markups or markdowns on principal transactions should equal 5% or should be fair and reasonable for a particular transaction;
markup policy
435
National Association of Securities Dealers, Inc. (NASD)
the self-regulatory organization for the over-the-counter market. NASD was organized under the provisions of the 1938 Maloney Act
436
National Association of Securities Dealers Automatied Quotation System (NASDAQ)
the nationwise electronic quotation system for up-to-the-second on approximately 3,100 over-the-counter stocks trade information. sometimes referred to as the Nasdaq Stock Market. all securities traded here are federal covered as defined in the NSMIA of 1996.
437
NAV per share
the value of a mutual fund share, calculated by dividing the fund's total net asset value bu the number of shares outstanding.
438
negotiability
a characteristic of a security that permits the owner to assign, give, transfer, or sell it to another person without a third party's permission.
439
negotiable certificate of deposit (CD)
an unsecured promissory note issued with a minimum face value of $100,000. it evidences a time deposit of funds with the issuing bank and is guaranteed by the bank.
440
net asset value (NAV)
a mutual fund share's value, as calculated once a day on the basis of the closing market price for each security in the fund's portfolio. it is computed by deducting the fund's liabilities from the portfolio's total assets and dividing this amount by the number of shares outstanding.
441
net investment income
the source of an investment company's dividend payments. it is calculated by subtracting the company's operating expense from the total dividends and interest the company receives from the securities in its portfolio.
442
net present value
the difference between the present value of the future cash flows from an investment and the current market price;
NPV
443
net worth
the amount by which assets exceed liabilites.
444
new account form
the form that must be filled out for each new account opened with a brokerage firm. the form specifies, at a minimum, the account owner, trading authorization, payment method, and types of securities appropriate for the customer.
445
new issue market
the securities market for shares in privately owned businesses that are raising capital by selling common stock to the public for the first time;
primary market
446
no-load fund
a mutual fund whose shares are sold without a commission or sales charge. the investment company distributes the shares directly.
447
nominal yield
the interest rate stated on the face of a bond that represents the percentage of interest the issuer pays on the bond's face value;
coupon rate; stated yield
448
nominee
a person or company whose name is given as having title to a stock, real estate, and so forth, but who is not the actual owner.
449
nonaccredited investor
an investor not meeting the net worth requirements of Regulation D. nonaccredited investors are counted for purposes of the 35-investor limitation for Rule 506(b) Regulation D private placements.
450
noncontributory plan
a retirement plan to which only the employer makes contributions.
451
noncumulatibe preferred stock
an equity security that des not have to pay any dividends in arrears to the holder.
452
nondiversification
a portfolio management strategy that seeks to concentrate investments in a particular industry or geographic area in hopes of achieving higher returns.
453
nonqualified retirement plan
a corporate retirement plan that does not meet the standards set by the Employee Retirement Income Security Act of 1974. contributions to a nonqualified plan are not tax deductible.
454
nonqualified stock option
a type of employee stock option. when NSOs are exercised, the difference between the current market price at the time of the exercise and the strike price is reported as wages on the tax return of the employer and employee.
455
nonrecourse financing
debt incurred for the purchase of an asset that pledges the asset as security for the debt but that does not hold the borrower personally liable.
456
nonsystematic risk
the potential for an unforseen event ot affect the value of a specific investment.
this risk is diversifiable;
Examples: strikes, natural disasters, poor management decisions, introductions of new product lines, attempted takeovers;
unsystematic risk
457
no-par stock
an equity security issued without a stated value.
458
normal yield curve
a chart showing long-term debt instruments having higher yields that short-term debt instruments;
positive yield curve
459
North American Securities Administrators Association
organized in 1919, NASAA is the oldest international organization devoted to investor protection.
NASAA is a voluntary association whose membership consists of 67 state, provincial, and territorial securities Administrators in the 50 states, DC, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.
460
note
a short-term debt security usually maturing in five years or less.
461
notice filing
(1) method by which a registered investment company and certain other federal covered securities file records with state securities Administrators.
(2) SEC-registered advisers (federal covered) may have to provide state securities authorities (the Administrator) with copies of documents that are filed with the SEC and pay a filing fee.
462
offer
(1) under the USA, any attempt to solicit a purchase or sale in a security for value.
(2) an indication by an investor, a trader, or a dealer of a willingness to sell a security; the price at which an investor can buy from a broker-dealer.
463
opening purchase
entering the options market by buying calls or puts.
464
opening sale
entering the options market by selling calls or puts.
465
open-market operations
the buying and selling of securities (primarily government or agency debt) by the Federal Open Market Comittee to effect control of the money supply. these transactions increase or decrease the level of bank reserves available for lending.
466
operating income
the profit realized from one year of operation of a business.
467
operating ratio
the ratio of operating expenses to net sales; the complement to the margin of profit ratio.
468
optimal portfolio
the optimal portfolio under modern portfolio theory assumes that investors seek a portfolio of assets that minimizes risks while offering the highest possible return.
469
ordinary income
earnings other than capital gain.
470
OTC Bulletin Board (OTCBB)
an electronic quotation system for equity securities that are not listed on a national exchange or included in the Nasdaq system. these are not federal covered securities and generally require registration with both the SEC and the states.
471
OTC Link
an electronic inter-dealer quotation system that displays quotes from broker-dealers fro many over-the-counter securities. formerly known as the Pink Sheets, OTC Link does not require companies whose securities are quoted on its systems to meet any listing requirements.
472
OTC Market
the security trading system in which broker-dealers negotiate directly with one another rather than through an auction on an exchange floor. the trading takes place over computer and telephone networks that link brokers and dealers around the world. both listed and OTC securities, as well as municipal and U.S. government securities, trade in the OTC market.
473
out-of-the-money
the term used to describe an option that has no intrinsic value, such as a call option when the stock is selling below the exercise price or a put option when the stock is above the exercise price.
474
over the counter (OTC)
the term used to describe a security traded through the telephone-linked and computer-connected OTC market rather than though a stock exchange.
475
oversubscribed
the term used to describe a new security issue where the demand for the shares greatly exceeds the available supply. the issues usually appreciate rapidly on the first day of trading and failure to properly allocate them is a prohibited practice.
476
par
the dollar amount the issuer assigns to a security. for an equity security, par is usually a small dollar amount that ears no relationship to the security's market price. for a debt security, par is the amount repaid to the investor when the bond matures, usually $1,000;
face value; principal; stated value
477
partiy price of common
the dollar amount at which a common stock is equal in value to its corresponding convertible security. it is calculated by dividing the convertible security's market by its conversion ratio.
478
partiy price of convertible
the dollar amount at which a convertible security is equal in value to its corresponding common stock. it is calculated by multiplying the market price of the common stock by its conversion ratio.
479
participation
the provision of the Employee Retirement Income Security Act of 1974 requiring that all employees in a qualified retirement plan be covered within a reasonable time of their dates of hire.
480
partnership
a form of business organization in which two or more individuals manage the business and are equally and personally liable for its debts.
481
partnership account
an account that empowers the individual members of a partnership. toact on the behalf of the partnership as a whole.
482
partnership management fee
the amount payable to the general partners of a limited partnership, or to other persons, for managing the day-to-day partnership operations;
program management fee; property management fee
483
par value
the dollar amount assigned to a security by the issuer. for an equity security, par value is usually a small dollar amount that bears no relationship to the security's market price. for a debt security, par value is the amount repaid to the investor when the bond matures, usually $1,000;
face value; principal; stated value
484
passive income
earnings derived from a rental property, limited partnership, or other enterprise in which the individual is not actively involved. passive income therefore does not include earnings from wages or active business participation, nor does it include income fro dividends, interest, and capital gains.
485
passive loss
a loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not actively involved. passive losses can be used to offset passive income only, not wage or portfolio income.
486
passive management style
in a perfectly efficient market, investors should use a passive investment strategy (i.e., buying a broad market index of stocks and holding it) because active investment strategies will underperform due to transactions costs and management fees. however, to the extent that market prices are inefficient, active investment strategies can generate positive risk-adjusted returns.
487
pass-through certificate
a security representing an interest in a pool of conventional, Veterans Administration, Farmers Home Administration, or other agency mortgages. the pool receives the principal and interest payments, which it passes through to each certificate holder. payments may or may not be guaranteed.
488
pattern
a repetitive series of price movements on. achart used by a technical analyst to predict future movement of the market.
489
payment date
the day on which a declared dividend is paid to all stockholders owning shares on the record date.
490
peak
the end of a period of increasing business activity throughout the economy, one of the four stages of the business cycle;
prosperity
491
pecuniary
of or relating to money, such as operating or pecuniary profit
492
pegging
an illegal form of market manipulation that attempts to keep the price of a subject security from falling. it is used by those with a long position.
493
pension plan
a contract between an individual and an employer, a labor union, a government entity, or another institution that provides for the distribution of pension benefits for retirement.
494
peformance-based fee
an investment advisory fee based on a share of capital gains on, or capital appreciation of, client assets. a fee that is based upon a percentage of assets that the IA manages is not performance-based fee. this fee may only be charged to certain high net worth clients.
495
person
as defined in securities law, an individual, corporation, partnership, association, fund, joint stock company, unincorporated organization, trust, government, or political subdivision of a government.
496
personal income (PI)
an individual's total earnings dervied from wages, passive business enterprises, and investments.
497
point
a measure of a bond's price; $10 or 1% of the par value of $1,000.
498
political risk
the risk that an investment's returns could suffer as a result of political changes or instability in a country such as from change in government, orderly or note, nationalization of industries, or military control.
499
portfolio income
earnings from interest, dividends, and all nonbusiness investments.
500
porotfolio manager
the entity responsible for investing a mutual fund's assets, implementing its investment strategy, and managing day-to-day portfolio trading;
fund manager
501
position
the amount of a security either owned (a long position) or owed (a short position) by an individual or a dealer. dealers take long positions in specific securities to maintain inventories thereby facilitate trading.
502
preferred stock
an equity security that represents ownership in a corporation. it is issued with a stated dividend, which must be paid before dividends are paid to common stockholders. it generally carries no voting rights.
503
preferred stock fund
a mutual fund whose investment objective is to provide stable income with minimal capital risk. it invests in income-producing instruments such as preferred stock.
504
preliminary prospectus
an abbreviated prospectus that is distributed while the SEC is reviewing an issuer's registration statement. it contains all of the essential facts about the forthcoming offering except the underwriting spread, final public offering price, and date on which shares will be delivered;
red herring
505
premium
(1) the amoun of cash that an option buyer pays to an option seller.
(2) the difference between the higher price paid for a security and the security's face amount at issue.
506
premium bond
a bond that sells at a higher price than its face value.
507
premium mode
insurance companies give policyowners the choice to pay premiums annually, semiannually, quarterly, or monthly.
508
present value
the sum of money needed to invest now at a given rate of compound interest to reach a specified amount at a specified future date.
509
price-earnings ratio (PE)
a tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. it is calculated by dividing the current market price of a stock by the earnings per share;
earnings multiplier
510
primary offer
an offering in which the proceeds of the underwriting go to the issuing corporation, agency, or municipality. the issuer seeks to increase its capitalization either by selling shares of stock, representing ownership, or by selling bonds, representing loans to the issuer;
primary distribution
511
prime rate
the interest rate that commercial banks charge their prime or most creditworthy customers, generally large corporations
512
principal
(1) every business transaction has two principals--the buyer and the seller. when a broker-dealer trades for its own account, it is acting in the capacity of a principal;
(2) dealer;
(3) par
513
principal office and place of business
the firm's executive office from which the firm's officers, partners, or managers direct, control, and coordinate the activities of the firm.
514
principal transacrion
a transaction in which. abroker-dealer either buys securities from customers and takes them into its own inventory or sells securities to customers from its inventory
515
private placement
an offering of new securities that complies with Regulation D of the Securities Act of 1933. according to Regulation D, a security generally is not required to be registered with the SEC if it is offered to no more than 35 nonaccredited investors or to an unlimited number of accredited investors.
516
profitability
the ability to generate a level of income and gain in excess of expenses.
517
profitability ratio
one of several measures of a corporation's relative profit or income in relation to its sales.
518
profit-sharing plan
an employee benefit plan established and maintained by an employer whereby the employees receive a share of the business's profits. the money many be paid directly to the employees or deferred until retirement. a combination of both approaches is also possible.
519
progressive tax
a tax that takes a larger percentage of the income of high-income earner than that of low-income earners. an example is the graduated income tax.
520
proscribed
a term commonly used in legal situations to describe a prohibited action.
521
prospectus
any notice, circular, advertisement, letter, or communication, in written form or by radio or television, which offers any security for sale.
522
proxy
a limited power of attorney from a stockholder authorizing another person to vote on stockholder issues according to the first stockholer's instructions. to vote on corporate. matters, a stockholder must either attend the annual meeting or vote by proxy.
523
prudent expert rule
a modern application of the prudent man rule to those with fiduciary responsibility over qualified plans coming under the jurisdiction of ERISA.
524
prudent investor rule
legally known as the Uniform Prudent Investors Act (UPIA). a modern adaption of the prudent man rule, which, as a result of the development of modern portfolio theory, applies the standard of prudence to the entire portfolio rather than to individual investments. it requires the fiduciary to measure risk with respect to return.
525
public offering
the sale of an issue of common stock, either by a corporation going public or by an offering of additional shares.
526
public offering price (POP)
(1) the price of new shares that is established in. the issuing corporation's prospectus.
(2) the price to investors for mutual fund shares, equal to the net asset value plus the sales charge.
527
purchasing power risk
the potential that, because of inflation, a certain amount of money will not purchase as much in the future as it does today;
inflation risk
528
put
(1) an option contract giving the owner the right to sell a certain amount of an underlying security at a specified price within a specified time.
(2) the act of exercising a put option.
529
QLAC
a qualified longevity annuity contract. if certain limits prescribed by the IRS are met, RMDs do not have to include the value of these contracts until age 85.
530
QTIP trust
a trust that is funded with qualified terminable interest property, meaning that the spouse's interest in the property terminates upon his death; also known as a Q trust, C trust, or current income trust.
531
Qualified Domestic Relations Orders (QDROs)
premature distributions that are taken pursuant to a qualified domestic relations order, or QDRO, are exempt from the 10% penalty. a QDRO is a court-issued order that gives someone the right to an individual's qualified plan assets, typically an ex- (or soon-to-be-ex-) spouse, and the QDRO is usually issued in the course of divorce proceedings or to satisfy child support obligations. a QDRO applies only to assets in a qualified employer plan; it would not be applicable to an IRA or a SEP.
532
qualified person
under both state and federal law, a client for whom an investment adviser may charge performance-based fees. currently, the requirements are a minimum net worth of $2.1 million or at least $1 million in AUM with that adviser.
533
qualified retirement plan
a corporate retirement plan that meets the standards set by the Employee Retirement Income Security Act of 1974. contributions to a qualified plan are tax deductible;
approved plan
534
qualified tuition program
the technical name for 529 plans;
QTP
535
quick asset ratio
a more stringent test of liquidity than the current ratio. it is computed. bytaking the current assets, less the inventory, and dividing by the current liabilities;
acid test ratio
536
quick ratio
acid test ratio; quick asset ratio
537
quotation
the price or bid a market maker or broker-dealer offers for a particular security;
quote
538
quote machine
a computer that provides representatives and market makers with the information that appears on the Consolidated Tape. the information on the screen is condensed into symbols and numbers.
539
rating
an evaluation of a corporate or municipal bond's relative safety, according to the issuer's ability to repay principal and make interest payments. bonds are rated by various organizations, such as Standard & Poor's and Moody's. Ratings range from AAA or Aaa (the highest) to C or D, which represents a company in default.
540
rating service
a company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or divided. the issuing company or municipality pays a fee for the rating.
541
real estate investment trust (REIT)
a corporation or trust that uses teh pooled capital of many investors to invest in direct ownership or either income property or mortageg loans. these investments offer tax benefits in addition to interest and capital gains distributions. however, unlike DPP's, these are not "flow-through" vehicles.
542
realized gain
the amount a taxpayer earns when he sells an asset.
543
recession
a general economic decline lasting from 6 to 18 months (at least two consecutive quarters of declining or negative GDP growth).
544
record date
the date a corporation's board of directors establishes that determines which of its stockholders are entitled to receive dividend distributions or be eligible to vote.
545
redeemable security
a security that the issuer redeems upon the holder's request.
examples: shares in an open-investment company; Treasury notes.
546
redemption
the return of an investor's principal in a security, such as a bond, preferred stock, or mutual fund shares. by law, redemption of mutual fund shares must occur within seven days of receiving the investor's request for redemption.
547
refunding
retiring an outstanding bond issue before maturity by using money from the sale of a new debt offering.
548
regional exchange
a stock exchange that services the financial community in a particular region of the country. these exchanges tend to focus on securities issued within their regions, but also offer trading in NYSE and Nasdaq-listed securities.
549
registration by coordination
a process that allows a security to be sold in a state. it is available to an issuer that files for the security's registration under the Securities Act of 1033 and files duplicates of the registration documents with the state Administrator. the state registration becomes effective at the same time the federal registration statement becomes effective as long as paperwork is on file with the Administrator for the required period, which ranges from 10 to 20 days depending on the state.
550
registration by qualification
a process that allows a security to be sold in a state. it is available to an issuer who files for the security's registration with the state Administrator, meets minimum bet worth, disclosure, and other requirements, and files appropriate registration fees. the state registration becomes effective when the Administrator so orders.
551
registration statement
the legal document that discloses all pertinent information concerning an offering of a security and its issuer. it is submitted to the SEC (and/or the Administrator) in accordance with the requirements of the Securities Act of 1933 and/or the USA, and it forms the basis of the final prospectus distributed to investors.
552
regnant
considered to be the ruling or general position, such as the pregnant view on registration requirements.
553
regressive tax
a tax that takes a larger percentage of the income of low-income earners than that of high-income earners;
examples: gasoline and cigarette tax
554
regulated investment company
an investment company to which Subchapter M of the Internal Revenue Code grants special status that allows the flow-through of tax consequences on a distribution to shareholders. if 90% of its income is passed through to the shareholders, the company is not subject to tax on this income.
555
Regularion D
the provision of the Securities Act of 1033 that exempts from registration offerings sold in private placements. Rule 506(b) liomits the sale to a minimum of 35 nonaccredited investors during a 12-month period with no advertising permitted. while Rule 506(c) permits advertising but requires that all purchasers be accredited investors.
556
Regulation 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. Regulation T currently sets the loan value of marginable securities at 50% and the payment deadline at two days beyond regular way settlement;
Reg T
557
regulatory risk
the risk that changes in regulations may negatively affect the operations of a company.
558
reinstatement privilege
a benefit offered by some mutual funds, allowing an investor to withdraw money from a fund account and then redeposit the money without paying a second sales charge.
559
remainderman
the person who inherits or is entitled under law to inherit property upon termination of the estate of the former owner. usually, this occurs due to the death or termination of the former owner's life estate.
560
remuneration
money paid for work performed or a service provided.
561
repurchase agreement
sometimes just referred to as a REPO, this is widely used in the money market where the seller of a security agrees to buy it back (repurchase it) at a higher price (the imputed interest rate).
562
required minimum distribution (RMD)
the amount that traditional and SEP IRA owners and qualified plan participants must begin withdrawing from their retirement accounts by April 1, following the year they reach are 70 1/2. exceptions apply to those covered under a qualified plan who are still employed. RMD amounts must then be distributed by December 31 that year and each subsequent year.
563
reserve requirement
the percentage of depositors' money that the Federal Reserve Board requires a commercial bank to keep on deposit in the form of cash or in its vault;
reserves
564
residual claim
the right of a common stockholder to corporate assets in the event that the corporation ceases to exist. a common stockholder may claim assets only after the claims of all creditors and other security holders have been satisfied.
565
resistance level
a technical analysis term describing. thetop of a stock's historical trading range.
566
restricted security
an unregistered, nonexempt security acquired either directly or indirectly from the issuer, or an affiliate of the issuer, in a transaction that does not involve a public offering.
567
retained earnings
the amount of a corporation's net income that remains after all dividends have been paid to preferred and common stockholders;
earned surplus; reinvested earnings
568
retiring bonds
ending an issuer's debt obligation by calling the outstanding bonds, by purchasing bonds in the open market, or by repaying bondholders the principal amount at maturity
569
return on common equity
a measure of. acorporation's profitability, calculated by dividing after-tax income by common shareholders' equity.
570
return on equity
a measure of a corporation's profitability, specifically in return on assets, calculated by dividing after-tax income by tangible assets.
571
return on investment (ROI)
the profit or loss resulting from a security transaction, often expressed as an annual percentage rate.
572
revenue bond
a municipal debt issue whose interest and principal are payable only from the specific earnings of an income-producing public project.
573
reverse churning
the prohibited practice of parking assets that will only by traded infrequently in a fee-based advisory account.
574
reverse split
a reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. the market value of the total number of shares remains the same.
575
revocable trust
a trust that can be altered or canceled by. the grantor. during the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.
576
right
a security representing a stockholder's entitelement to the first opportunity to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. rights are issued for a short time only, after which they expire;
subscription right; subscription right certificate
577
right of accumulation
a benefit offered by a mutual fund that allows the investor to qualify for reduced sales loads on additional purchases according to the fund account's total dollar value.
578
risk-adjusted return
return from a security adjusted for the market risk associated with it. usually measured by the Sharpe ratio.
579
risk-free rate
generally refers to the interest rate of 13 week (91-day) U.S. Treasury bills.
580
risk premium
the amount in excess of the risk-free rate demanded by investors to compensate for the additional risks inherent in the specific security being described.
581
risk tolerance
an investor's ability and willingness to lose some or all of the original investment in exchange for greater potential returns. an aggressive investor, or one with a high risk tolerance, is more likely to risk losing money in order to get better results. a conservative investor, or one with a low-risk tolerance, tends to favor investments that will preserve the original investment.
582
Roth 401(k)
as with a Roth IRA, contributions are not tax deductible, but qualified withdrawals are free from income tax. there are no earnings limits in order to participate, but it is required that distributions begin no later than age 70 1/2.
583
Roth IRA
funded with after-tax contributions, but, if qualfiied, withdrawals are tax-free. there are earnings limits but no required distributions at age 70 1/2.
584
Rule 144
SEC rule requiring that persons whos hold control or restricted securities may sell them only in limited quantities, and that all sales of restricted stock by control person must be reported to the SEC by filing a Form 144, Notice of Proposed Sale of Securities.
585
Rule 147
SEC rule that provides exemption from the registration statement and prospectus requirements of the 1933 Act for securities offered and sold exclusively intrastate.
586
safe harbor
a provision in a regulatory scheme that provides protection against legal action if stated procedures are followed. in this exam, it may apply in three different cases:
(1) Section 28(e) of the Securities Exchange Act of 1934 describes those research and brokerage activities that may be received by an investment adviser in exchange for directed brokerage transactions;
(2) Section 404c of ERISA which describes what a fiduciary of a qualified plan must do to minimize personal responsibility;
(3) top-heavy 401(k) concerns are minimized if the employer covers all employees with immediate vesting
587
sales load
the amount adde to a mutual fund share's net asset value to arrive at the offering price
588
Savings Incentive Match Plan for Employees
a form of employer sponsored IRA for businesses that have 100 or fewer employees who earned $5,000 or more during the preceding calendar year. in addition, the employer cannot currently have another retirement plan.
589
S corporation
a small business corporation that meets certain requirements and is taxed as a partnership while retaining limited liability;
Subchapter S corporation
590
Schedule K-1
the form supplied by a partnership, LLC, or S corporation to owners indicating their proportionate share of income/loss to be reported on their Form 1040 tax returns
591
secondary distribuition
a distribition, with a prospectus, that incolves securities owned by major stockholders (typically founders or principal owners of a corporation). the sale proceeds go to the sellers of the stock, not the issuer.
592
secondary market
the market in which secuirities are bougth and sold subsequent to their being sold to the public for the first time.
593
secondary offeting
a sale of securities in which one or more major stockholders in a company sell all or a large portion of their holdings; the underwriting proceeds are paid to the stockholders rather than to the corporation. typically, such an offering occurs when the founder of a business (and perhaps some of the original financial backers) determine that there is more to be gained by going public rather than staying private. the offering does not increase the number of shares of stock outstanding.
594
Section 457 Plan
a deferred compensation plan set up under Section 457 of the tax code that may be used by employees of a state, political subdivision of a state, and any agency or instrumentality of a state. this plan may also be offered to employees of certain tax-exempt organizations (hospitals, charitable organizations, unions, and so forth), but not churches. even independent contractors may be covered under these plans.
595
Section 28(e)
a code section of the Securities Exchange Act of 1934 that deals with soft dollar compensation.
596
sector fund
a mutual fund whose investment objective is to capitalize on the return potential provided by investing primarily in a particular industry or sector of the economy;
industry fund; specialized fund
597
sector rotation
an active portfolio management technique that attempts to take advantage of the fact that different sectors of the economy rise and fall in the business cycle at different times. rotating from one to the other at the right times can lead to investment success;
sector rotating
598
secured bond
a debt security backed by identifiable assets set aside as collateral. in the event that the issuer defaults on payment, the bondholders may lay claim to the collateral
599
Securities Act of 1933
Federal legislation requiring the full and fair disclosure of all material information about the issuance of new securities;
Act of 1933; Full Disclosure Act; New Issues Act; Prospecus Act; Trust in Securities Act; Truth in Securities Act
600
Securities Amendmentd Act of 1975
Federal legislation that established the Municipal Securities Rulemaking Board
601
Securities and Exchange Commision (SECO
commission created by Congress to regulate the securities markets and protect investors. it is composed of five commissioners appointed by the President of the US with the advice and consent of the Senate. the SEC enforced, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.
602
Securities Exchange Act of 1934
Federal legislation that established the SEC. the act aims to protect investors by regulating the exchanges, the OTC, the extension of credit by the Federal Reserve Board, broker-dealers, insider transactions, trading activities, client accounts, and net capital;
Act of 1934; Exchange Act
603
Securities Information Processor (SIP)
a system that consolidates quote and trade data for U.S. stocks.
604
Securities Investor Protection Corporation (SIPC)
a nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms that are forced into bankruptcy. membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most FINRA members. SIPC provides brokerage firm customers up to $500,000 coverage for cash and securities held by the firms (although cash coverage is limited to $250,000).
605
security
other than an insurance policy or a fixed annuity, any piece of securitized paper that can be traded for value.
under the USA this includes any note; stock; treasury stock; bond; debenture; evidence of indebtness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificate; reorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas, or mining title or lease; or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or right to subscribe to or purchase, any of the foregoing.
606
security market index
used to represent the performane of an asset class, security market, or segment of a market. they are usually created as portfolios of individual securities, which are referred to as the constituent securities of the index. an index has a numerical value that is calculated from the market prices (actual when available, or estimated) of its constituent securities at a point in time. an index return is the percentage change in the index's value over a period of time.
popular examples: S&P 500 and the Russell 2000
607
self-regulatory oragnization (SRO)
one of eight organizations accountable to the SEC for the enforcement of federal securities laws and the supervision of securities practices within an assigned field of jurisdiction. for example, the National Association of Securities Dealers regulates the over-the-counter market; the Municipal Secureities Rulemaking Board supervises state and municipal securities; and certain stock exchanges, such as the New York Stock Exchange and the Chicago Board Options Exchange, act as self-regulatory bodies to promote ethical conduct and standard trading practices.
608
sell
to convey ownership of a security or another asset for money or value. this includes giving or delivering a security with or as a bonus for a purchase of securities, a gift of assessable stock, and selling or offering a warrant or right to purchase or subscribe to another security. not included in the definition is a bona fide pledge or loan or a stock dividend if nothing of value is given by the stockholders for the dividend;
sale
609
selling away
an associated person engaged in private securities transactions without the employing broker-dealer's knowledge and consent. this violates the NASAA Policy on prohibited practices.
610
selling dividends
inducing customers to buy mutual fund shares by implying than an upcoming distribution will benefit them. this practice is illegal.
611
sell stop order
an order to sell a security that is entered at a price below the current market price and that is triggered when the market price touches or goes through the sell stop price.
612
senior security
a security that grants its holder a prior claim to the issuer's assets over the claims of another security's holders. for example, a bond is a senior security over common stock.
613
separate account
the account that holds funds paid by variable annuity contract holders. the funds are kept separate from the insurer's general account and are invested in a portfolio of securities that match the contract holders' objectives.
614
settlor
an individual or organization that gifts assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries;
grantor, trustor
615
Sharpe ratio
measures the risk adjusted return of an investment. it is calculated by dividing the excess return of an asset over the 91-day Treasury bill rate by its standard deviation. it measures the reward per unity of risk so the higher the ratiom the better.
616
short
teh term used to describe the selling of a security, contract, or commodity that the seller does not own. for example, an investor who borrows shares of stock from a broker-dealer and sells them on the open market is said to have a short position in the stock.
617
short sale
the sale of a security that the seller does not own, or any sale consummated by the delivery of a security borrowed by or for the account of the seller.
618
short-term capital gain
the profit realized on the sale of an asset that has been owned for 12 months or less.
619
short-term capital loss
the loss incurred on the sale of a capital asset that has been owned for 12 months or less.
620
side-by-side management
the practice of managing accounts that are charged performance-based fees while at the same time managing accounts that are not charged performance-based fees.
621
SIMPLE plan
Savings Incentive Match Plan for Employees
622
simple trust
a trust that accumulates income and distributes it to its beneficiaries on an annual basis.
623
small-cap
stocks with a market capitalization of $300 million to $2 billion.
624
socially responsible investing (SRI)
also known as sustainable, socially conscious, "green" or ethical investing--is an impact investment strategy which seeks to consider both financial return and social good. in general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity.
625
soft dollar compensation
noncash compensation received by an investment adviser from a broker-dealer, generally in exchange for directed brokerage transactions. must always be disclosed and should come under the safe harbor provisions of Section 28(e).
626
soliciter
a person either contracted or employed by an IA for the purpose of bringing in advisory business. if an employee, registration as an IAR is required. if contracted, the person must not be statutorily disqualified from registration and is subject to the terms of a written agreement between the IA and the solicitor.
627
solvency
the ability of a corporation to both meet its long-term fixed expenses and to have adequate money for long-term expansion and growth.
628
specialist
stock exchange member who stands ready to quote and trade certain securities either fro his own account or for customer accounts. the specialist's role is to maintain a fair and orderly market in the stocks for which he is responsible;
designated market maker, DMM
629
special situation fund
a mutual fund whose objective is to capitalize on the profit potential of corporations in nonrecurring circumstances, such as those undergoing reorganizations or being considered as takeover candidates.
630
speculation
trading a security with a higher than average risk in return for a higher than average profit potential. the trade is effected solely for the purpose of profiting from it and not as a means of hedging or protecting other positions.
631
spousal IRA
a separate individual retirement account established for a spouse with little or no earned income. contributions to the account made by the working spouse grow tax deferred until withdrawal.
632
spread
in quotation, the difference between a security's bid and ask prices.
633
Standard & Poor's Composite Index of 500 Stocks (S&P 500)
a value-weighted index that offers broad coverage of the securities market. it is composed of 400 industrial stocks, 40 financial stocks, 40 public utility stocks, and 20 transportation stocks. the index is owned and compiled by Standard & Poor's Corporation.
634
Standard & Poor's Corporation (S&P)
a company that rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes. the company also publishes a variety of financial and investment reports:
- Moody's Investors Service;
- Standard & Poor's 100 Stock Index;
- Standard & Poor's Composite Index of 500 stocks.
635
standard deviation
a measurement of a security's or a portfolio's total risk. the greater the standard deviation, the more the securtiy's returns deviate from its average return, hence indicating greater volatility.
636
standardized contract
a futures contract in which all the contract terms are set by the exchange except for price.
637
standardized options
options contracts trading on a national securities exchange, or an automated quotation system of a registered securities association, which relate to options classes the terms of which are limited to specific expiration dates and exercise prices.
638
static content
social mediat content that rarely changes and can only be changed by the author of the content. examples would be an IA's website.
639
stock certificate
printed evidence of ownership in a corporation.
640
stock dividend
a dividend paid in additional shares of the issuer's stock rather than in cash. unlike cash dividends, stock dividends are not taxable when received. they lower the cost basis of the current shareholdings and are only subject to capital gains tax when sold.
641
stock exchange
any organization, association, or group of persons that maintains or provides a marketplace in which securities can be bought and sold;
examples:
- New York Stock Exchange (NYSE);
- London Stock Exchange (LSE);
- Tokyo Stock Exchange (TSE)
642
stock split
an increase in the number of a corporation's outstanding shares, which decreases its stock's par value. the market value of the total number of shares remains the same. the proportional reductions in orders heldon the books for a split stock are calculated by dividing the stock's market price by the fraction that represents the split.
643
stop limit order
a customer order that becomes a limit order when the market price of the security reaches or passes a specific price by the fraction that represents the split.
644
stop order
(1) a directive from the SEC or the Administrator that suspends the sale of new issue securities to the public when fraud is suspected or filing materials are deficient;
(2) a customer order that becomes a market order when the market price of the security reaches or passes a specific price
645
street name
term used in the industry to refer to customer securities held in the name of the broker-dealer as nominee.
646
subordinated debenture
a debt obligation, backed by the general credit of the issuing corporation, that has claims to interest and principal subordinated to ordinary debentures and all other liabilities.
647
successor firm
a new entity which takes over (succeeds) an existing one and continues the business, generally under a new name.
648
suitability
a determination made by an agent as to whether a particular security matches a customer's objectives and financial capability. the agent must have enough information about the customer to make this judgment.
649
supply
the total amount of a good or service available for purchase by consumers.
650
supply-side theory
an economic theory holding that bolstering an economy's ability to supply more goods is the most effective way to stimulate economic growth. supply-side theorists advocate income tax reduction insofar as this increases private investment corporations, facilities, and equipment.
651
support level
a technical analysis term describing the bottom of a stock's historical trading range.
652
systematic risk
the potential for a security to decrease in value owing its inherent tendency to move together with all securities of the same type. neither diversification nor any other investment strategy can eliminate this risk. systematic risks are sometimes referred to as external risk factors because they take place outside of the company being analyzed.
653
taxable gain
the portion of a sale or distribution of mutual fund shares subject to taxation.
654
tax credit
an amount that can be subtracted from a tax liability, often in connection with real-estate development, energy conservation, and research and development programs. every dollar of tax credit reduces the amount of tax due, dollar for dollar.
655
tax-equivalent yield
the rate of return a taxable bond must earn before taxes in order to equal the tax-exempt earnings on a municipal bond. this number varies with the investor's tax bracket.
656
tax-exempt bond fund
a mutual fund whose investment objective is to provide maximum tax-free income. it invests primarily in municipal bonds and short-term debt;
tax-free bond fund
657
tax liability
the amount of tax payable on earnings, usually calculated by subtracting standard and itemized deductions and personal exemptions from adjusted gross income, then multiplying by the tax rate.
658
tax preference item
an element of income that receives favorable tax treatment. the item must be added to taxable income when computing alternative minimum tax. tax preference items include accelerated depreciation on property, research and development costs, intangible drilling costs, tax-exempt interest on municipal private purpose bonds, and certain incentive stock options.
659
tax-sheltered annuity (TSA)
an annuity contract that entitles the holder to exclude all contributions from gross income in the year they are made. taxes payable on the earnings are deferred until the holder withdraws funds at retirement. TSAs are available primarily through a 403(b) plan to employees of public schools, church organizations, and other tax-exempt organizations;
tax-deferred annuity
660
technical analysis
a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. technical analysts do no attempt to measure a security's intrinsic value.
661
Telephone Consumer Protection Act of 1991 (TCPA)
federal legislation restricting the use of telephone lines for solicitation purposes. a company soliciting sales via telephone, facsimile, or email must disclose its name and address to the called party and must not call any person who has requested not to be called.
662
tenants in common (TIC)
a form of joint ownershiop of an account whereby a deceased tenant's fractional interest in the account is retained by his estate.
663
tenants by the entirety
a form of joint ownership only availble to married couples. unlike other forms, it requires consent of both parties in order to effect transactions.
664
tergiversation
the practice of continually changing one's mind, attitude, or opinion.
665
testamenary trust
a trust created as a result of instructions from a deceased's last will and testament.
666
testator
the legal term for a person who makes a will.
667
testimonai
an endorsement of an investment service by a celebrity or public opinion influencer. the use of testimonials by IAs is prohibited.
668
theta
one of the four Greeks used by options analysts. an option's theta is a measurement of the option's time decay. the theta measures the rate at which options lose their value, specifically the time value, as the expiration date draws nearer. generally expressed as a negative number, the theta of an option reflects the amount by which the option's value will decrease every day.
669
time horizon
the expected numebr of months, years, or decades over which the investments will be made to achieve a particular financial goal.
an investor with a longer time horizon may feel more comfortable taking on a riskier, more volatile, investment because that investor can wait out slow economic cycles and the inevitable ups and downs of our markets.
by contrast, an investor saving up for a teenager's college education would likely take on less risk because of the shorter time horizon.
670
time value
the amount an investor pays for an option above its intrinsic value; it reflects the amount of time left until expiration. the amount is calculated by subtracting the intrinsic value from the premium paid.
671
tombstone advertisement
a printed advertisement that is used to generate interest in a securities offering. the text is limited to basic information about the offering, such as the name of the issuer, type of security, names of the underwriters, and where a prospectus is available. a tombstone ad is not considered to be an offering of the subject security.
672
top heavy
the term used to describe a 401(k) plan that offers a disproportionate benefit to key employees. topheavy testing must be done on an annual basis unless the plan qualifies as a safe harbor 401(k)
673
total capitalization
the sum of a corporation's long-term debt, stock accounts, and capital in excess of par.
674
total risk
(as measured by standard deviation) can be broken down into its component parts: unsystemmatic risk and systematic risk. that is,
total risk = systematic risk + unsystematic risk
675
toxic debt
debt whose quality has dropped and is now indicating a high likelihood of default. this can be toxic for the investor's portfolio.
676
tranche
a class of bonds. collateralized mortgage obligations are structured with several tranches of bonds that have various maturities. it comes from the French word for slice.
677
transfer agent
a person or corporation responsible for recording the names and holdings of registered security owners, seeing that certificates are signed by the appropriate corporate officers, affixing the corporate seal, and delivering securities to the new owners.
678
Treasury bill
a marketable U.S. government debt security with a maturity of less than one year. Treasury bills are issued through a competitive bidding process at a discount from par; they have no fixed interest rate;
T-bill
679
Treasury bond
a marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years;
T-bond
680
Treasury note
a marketable, fixed-interest U.S. government debt security with a maturity of between 2 and 10 years;
T-note
681
trendline
a tool used by technical analysts to trace a security's movement by connecting the reaction lows in an upward trend or the rally highs in a downward trend.
682
trough
the end of a period of declining business activity throughout the economy, one of the four stages of the business cycle.
683
trustee
a person legally appointed to act on a beneficiary's behalf.
684
trustor
an individual or organization that gifts assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries;
settlor, grantor
685
12b-1 asset-based fees
Investment Company Act of 1940 provision that allows a mutual fund to collect a fee for the promotion or sale of or another activity connected with the distribution of its shares;
this fee will not exceed .75%.
686
underlying securities
the securities that are bought or sold when an option, right, or warrant is exercised.
687
underwriter
an investment banker that works with an issuer to help bring a security to the market and sell it to the public.
688
underwriting
the procedure by which investment bankers channel investment capital from investors to corporations and municipalities that are issuing securities.
689
unearned income
income derived from investments and other sources not related to employment services.
examples:
- interest from a savings account;
- bond interest;
- dividends from stock
690
Unifrom Gift to Minors Act (UGMA)
legislation that permits a gift of money or securities to be given to a minor and held in a custodial account that an adult manages for the minor's benefit. income and capital gains transferred to a minor's name are usually taxed at the minor's rate. however, if the child is undeer a specified age and has unearned income above a certain level, those earnings are taxed as trust rates.
691
Uniform Securities Act (USA)
model legislation for securities industry regulation at the state level. each. state may adopt the legislation in its entirety or may adapt it (within limits) to suit its needs.
692
Uniform Transers to Minors Act (UTMA)
legislation adopted in most states that permits a gift of money or securities to be given to a minor and held in a custodial account that an adult manages for the minor's benefit until the minor reaches a certain age (not necessarily the age of majority). income and capital gains transferred to a minor's name are usually taxed at the minor's rate. however, just as with UGMA, if the child is under a specified age and has unearned income above a certain level, those earnings are taxed at trust rates.
693
unit
a share in the ownership of a direct participation program that entitles the investor to an interest in the program's net income, net loss, and distributions.
694
unit investmetn trust (UIT)
an investment company that sells redeemable shares in a professionally selected portfolio of securities. it is organized under a trust indenture, not a corporate charter.
695
unit of beneficial interest
a redeemable share in a unit investment trust, representing ownership of an undivided interest in the underlying portfolio;
share of beneficial interest
696
unrealized gain
the amount by which a security appreciates in value before it is sold. until it is sold, the investor does not actually possess the sale proceeds.
697
unsystematic risk
the potential for an unforseen event to affect the value of a specific investment; this risk is diversifiable. sometimes referred to as internal risk factors because they deal with risk arising from events taking place within the company;
nonsytematic risk;
examples:
- strikes
- natural disasters
- poor management decisions
- introductions of new product lines
- attempted takeovers
698
U.S. government and agency bond fund
a mutual fund whose investment objective is to provide current income while preserving safety of capital through investing in securities backed by the U.S. Treasury or issued by a government agency.
699
value style investing
a management style that looks for stocks currently selling at distressed prices that have solid underlying fundamentals. these stocks typically sell at the lower end of their 52-week price range and have low P/E ratios and higher than average dividend payout ratios.
700
vega
one of the four Greeks used by options analysts. an option's vega is a measure of the impact of changes in the underlying volatility on the option price. specifically, the vega of an option expresses the change in the price of the option for every 1% change in underlying volatility.
701
vesting
(1) an ERISA guideline stipulating that employees must be entitled to0 their entire retirement benefits within a certain period of time even if no longer employed
(2) the amount of time that an employee must work before retirement or before benefit plan contributions made by the employer become the employee's property without penatly. the IRS and the Employee Retirement Income Security ct of 1974 set minimum requirements for vesting in a qualified plan.
702
volatility
the magnitude and frequency of changes in the price of a security or commodity within a given period.
703
volume of trading theory
a technical analysis theory holding that the ratio of the number of shares traded to total outstanding shares indicates whether a market is strong or weak.
704
voting trust certificate
a certificate issued by a voting trustee to the beneficial holders of shares held by the voting trust. it is readily transferable and is considered a security.
705
warrant
a security that gives the holder the right to purchase securities from the warrant issuer at a stipulated subscription price. warrants are usually long-term instruments, with wash salexpiration dates years in the future.
706
wash sale
selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. the IRS disallows the claimed loss.
707
wash trade
occurs when a customer neters a purchase order and a sale order from the same security at the time same time. it is done to create a false appearance of activity in a security. this is a prohibited practice.
708
Wells notice
indicates that the regulator intends to bring an enforcement action against an individual or a business. if the notice is against a publicly traded company, it usually has the effect of depressing the current market price.
709
Wilshire 5000
the Wilshire 5000 Total Market Index represents the broadest index for the U.S> equity market, measuring the performance of all U.S> equity securities with readily available price data. as of the date of printing, it includes some 3,700 issues.
710
withdrawal plan
a benefit offered by a mutual fund whereby a customer receives the proceeds of periodic systematic liquidation of shares in the account. the amounts received may be based on a fixed dollar amount, a fixed number of shares, a fixed percentage, or a fixed period.
711
working capital
a measure of a corporation's liquidty -- that is, its ability to transfer assets into cash to meet current short-term obligations. it is calculated by subtracting total current liabilities from total current assets.
712
wrap fee program
any advisory program under which a specified fee or fees not based directly upon transactions in a client's account is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other iAs) and the execution of client transactions. the exclusion from the definition of IA available under both state and federal law to broker-dealers is not in effect for those offering wrap free programs.
713
yield
the rate of return on an investment, usually expressed as an annual percentage rate.
714
yield curve
a graphic representation of the actual or projected yields of fixed-income securities in relation to their maturities. in most cases, the securities of a single issuer are plotted over varying maturities.
715
yield spread
the difference in y ield between two debt securities, usually with similar quality and different maturities or similar maturities and different quality;
credit spread
716
yield to call (YTC)
the rate of return on a bond that accounts for the difference between the bond's acquisition cost and its proceeds, including interest income, calculated to the earliest date that the bond may be called by the issuing corporation.
717
yield to maturity (TYM)
the rate of return on a bond that accounts for. the difference between the bond's acquisition cost and its maturity proceeds, including interest income.
718
zero-coupon bond
a debt security usually issued at a deep discount from face value. the bond pays no interest; rather, it may be surrendered at maturity for its full face value. the duration of a zero-coupon bond is equal to its maturity.
