Thursday, 2 February 2012

Glossary of Financial Terms:

Glossary of Financial Terms:
Accrued interest – The interest due on a bond since the last interest payment was made. The
buyer of the bond pays the market price plus accrued interest.

Acquisition – The acquiring of control of one corporation by another. In "unfriendly"
takeover attempts, the potential buying company may offer a price well above current market
values, new securities and other inducements to stockholders. The management of the subject
company might ask for a better price or try to join up with a third company.

American Depositary Receipt (ADR) – a security issued by a U.S. bank in place of the
foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in
U.S. markets.

American Stock Exchange (AMEX) – The second largest stock exchange in the United
States, located in the financial district of New York City. (Formerly known as the Curb
Exchange from its origin on a Manhattan street.).

Amortization – Accounting for expenses or charges as applicable rather than as paid.
Includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses
and deferred charges.

Annual report – The formal financial statement issued yearly by a corporation. The annual
report shows assets, liabilities, revenues, expenses and earnings - how the company stood at
the close of the business year, how it fared profit-wise during the year, as well as other
information of interest to shareowners.

Arbitrage – A technique employed to take advantage of differences in price. If, for example,
ABC stock can be bought in New York for $10 a share and sold in London at $10.50, an
arbitrageur may simultaneously purchase ABC stock here and sell the same amount in
London, making a profit of $.50 a share, less expenses. Arbitrage may also involve the
purchase of rights to subscribe to a security, or the purchase of a convertible security - and
the sale at or about the same time of the security obtainable through exercise of the rights or
of the security obtainable through conversion. (See: Convertible, Rights).

Auction market – The system of trading securities through brokers or agents on an exchange
such as the New York Stock Exchange. Buyers compete with other buyers while sellers
compete with other sellers for the most advantageous price.

Auditor's report – Often called the accountant's opinion, it is the statement of the accounting
firm's work and its opinion of the corporation's financial statements, especially if they
conform to the normal and generally accepted practices of accountancy.

Averages – Various ways of measuring the trend of securities prices, one of the most popular
of which is the Dow Jones Industrial Average of 30 industrial stocks listed on the New York.
Stock Exchange. The prices of the 30 stocks are totaled and then divided by a divisor that is
intended to compensate for past stock splits and stock dividends, and that is changed from
time to time. As a result, point changes in the average have only the vaguest relationship to
dollar-price changes in stocks included in the average. (See: NYSE Composite Index)
Averaging – (See: Dollar-cost-averaging).

Balance sheet – A condensed financial statement showing the nature and amount of a
company's assets, liabilities and capital on a given date. In dollar amounts, the balance sheet
shows what the company owned, what it owed and the ownership interest in the company of
its stockholders. (See: Assets, Earnings report).

Basis point – One gradation on a 100-point scale representing 1%; used especially in
expressing variations in the yields of bonds. Fixed income yields vary often and slightly
within one percent and the basis point scale easily expresses these changes in hundredths of
1%. For example, the difference between 12.83% and 12.88% is 5 basis points.
Bear – Someone who believes the market will decline. (See: Bull).

Bear market – A declining market. (See: Bull market)
Bearer bond – A bond that does not have the owner's name registered on the books of the
issuer. Interest and principal, when due, are payable to the holder. (See: Coupon bond,
Registered bond).

Bid and Asked – Often referred to as a quotation or quote. The bid is the highest price
anyone wants to pay for a security at a given time, the asked is the lowest price anyone will
take at the same time. (See: Quote).

Block – A large holding or transaction of stock – popularly considered to be 10,000 shares or

Blue chip – A company known nationally for the quality and wide acceptance of its products
or services, and for its ability to make money and pay dividends.

Blue Sky Laws – A popular name for laws various states have enacted to protect the public
against securities frauds. The term is believed to have originated when a judge ruled that a
particular stock had about the same value as a patch of blue sky.

Bond – Basically an IOU or promissory note of a corporation, usually issued in multiples of
$1,000 or $5,000, although $100 and $500 denominations are not unknown. A bond is
evidence of a debt on which the issuing company usually promises to pay the bondholders a
specified amount of interest for a specified length of time, and to repay the loan on the
expiration date. In every case a bond represents debt - its holder is a creditor of the
corporation and not a part owner, as is the shareholder. (See: Collateral, Convertible,
Debenture, General mortgage bond, Income bond) .

Book value – An accounting term. Book value of a stock is determined from a company's
records, by adding all assets then deducting all debts and other liabilities, plus the liquidation
price of any preferred issues. The sum arrived at is divided by the number of common shares
outstanding and the result is book value per common share. Book value of the assets of a
company or a security may have little relationship to market value.

Broker – An agent who handles the public's orders to buy and sell securities, commodities or
other property. A commission is charged for this service. (See: Commission broker, Dealer).

Brokers' loans – Money borrowed by brokers from banks or other brokers for a variety of
uses. It may be used by specialists to help finance inventories of stock they deal in; by
brokerage firms to finance the underwriting of new issues of corporate and municipal
securities; to help finance a firm's own investments; and to help finance the purchase of
securities for customers who prefer to use the broker's credit when they buy securities. (See:

Bull – One who believes the market will rise. (See: Bear)
Bull market – An advancing market. (See: Bear market).

Buy side – The portion of the securities business in which institutional orders originate.
Callable – A bond issue, all or part of which may be redeemed by the issuing corporation
under specified conditions before maturity. The term also applies to preferred shares that may
be redeemed by the issuing corporation.

Capital gain or capital loss – Profit or loss from the sale of a capital asset. The capital gains
provisions of the tax law are complicated. You should consult your tax advisor for specific

Capital stock – All shares representing ownership of a business, including preferred and
common. (See: Common stock, Preferred stock).

Capitalization – Total amount of the various securities issued by a corporation.
Capitalization may include bonds, debentures, preferred and common stock, and surplus.
Bonds and debentures are usually carried on the books of the issuing company in terms of
their par or face value. Preferred and common shares may be carried in terms of par or stated
value. Stated value may be an arbitrary figure decided upon by the director or may represent
the amount received by the company from the sale of the securities at the time of issuance.
(See: Par)

Cash flow – Reported net income of a corporation plus amounts charged off for depreciation,
depletion, amortization, and extraordinary charges to reserves, which are bookkeeping.
deductions and not paid out in actual dollars and cents. (See: Amortization, Depreciation).

Cash sale – A transaction on the floor of the stock exchange that calls for delivery of the
securities the same day. In "regular way" trade, the seller is to deliver on the third business
day, except for bonds, which are the next day. (See: Regular way delivery).

Certificate – The actual piece of paper that is evidence of ownership of stock in a
corporation. Watermarked paper is finely engraved with delicate etchings to discourage

Certificate of deposit (CD) – A money market instrument characterized by its set date of
maturity and interest rate. There are two basic types of CDs: traditional and negotiable.
Traditional bank CDs typically incur an early-withdrawal penalty, while negotiable CDs have
secondary market liquidity with investors receiving more or less than the original amount
depending on market conditions.

The Commodity Futures Trading Commission (CFTC) – Created by Congress in 1974 to
regulate exchange trading in futures.
Collateral – Securities or other property pledged by a borrower to secure repayment of a

Commercial paper – Debt instruments issued by companies to meet short-term financing

Commission – The broker's basic fee for purchasing or selling securities or property as an
Commission broker – An agent who executes the public's orders for the purchase or sale of
securities or commodities.

Common stock – Securities that represent an ownership interest in a corporation. If the
company has also issued preferred stock, both common and preferred have ownership rights.
Common stockholders assume the greater risk, but generally exercise the greater control and
may gain the greater award in the form of dividends and capital appreciation. The terms
common stock and capital stock are often used interchangeably when the company has no
preferred stock.

Competitive trader – A member of the exchange who trades in stocks on the floor for an
account in which there is an interest. Also known as a registered trader.

Conglomerate – A corporation that has diversified its operations usually by acquiring
enterprises in widely varied industries.

Consolidated balance sheet – A balance sheet showing the financial condition of a
corporation and its subsidiaries. (See: Balance sheet).

Consolidated tape – The ticker tape reporting transactions in NYSE-listed securities that
take place on the NYSE or any of the participating regional stock exchanges and other
markets. Similarly, transactions in AMEX-listed securities, and certain other securities listed
on regional stock exchanges, are reported on a separate tape.

Convertible – A bond, debenture or preferred share that may be exchanged by the owner for
common stock or another security, usually of the same company, in accordance with the
terms of the issue.

Correspondent – A securities firm, bank or other financial organization that regularly
performs services for another in a place or market to which the other does not have direct
access. Securities firms may have correspondents in foreign countries or on exchanges of
which they are not members. Correspondents are frequently linked by private wires. Member
organizations of the NYSE with offices in New York may also act as correspondents for outof-
town member organizations that do not maintain New York offices.

Coupon bond – Bond with interest coupons attached. The coupons are clipped as they come
due and presented by the holder for payment of interest. (See: Bearer bond, Registered bond)
Cumulative preferred – A stock having a provision that if one or more dividends are
omitted, the omitted dividends must be paid before dividends may be paid on the company's
common stock.

Cumulative voting – A method of voting for corporate directors that enables the
shareholders to multiply the number of their shares by the number of directorships being
voted on and to cast the total for one director or a selected group of directors. A 10-share
holder normally casts 10 votes for each of, say, 12 nominees to the board of directors. One
thus has 120 votes. Under the cumulative voting principle, one may do that or may cast 120
(10 x 12) votes for only one nominee, 60 for two, 40 for three, or any other distribution one
chooses. Cumulative voting is required under the corporate laws of some states and is
permitted in most others.

Current assets – Those assets of a company that are reasonably expected to be realized in
cash, sold or consumed during one year. These include cash, U.S. Government bonds,
receivables and money due usually within one year, as well as inventories.
Current liabilities – Money owed and payable by a company, usually within one year.

Current return – (See: Yield)
Day order – An order to buy or sell that, if not executed, expires at the end of trading day on
which it was entered.

Dealer – An individual or firm in the securities business who buys and sells stocks and bonds
as a principal rather than as an agent. The dealer's profit or loss is the difference between the
price paid and the price received for the same security. The dealer's confirmation must
disclose to the customer that the principal has been acted upon. The same individual or firm
may function, at different times, either as a broker or dealer. (See: FINRA, Specialist).

Debenture – A promissory note backed by the general credit of a company and usually not
secured by a mortgage or lien on any specific property. (See: Bond)
Debit balance – In a customer's margin account, that portion of the purchase price of stock,
bonds or commodities that is covered by credit extended by the broker to the margin
customer. (See: Margin).

Delayed opening – The postponement of trading of an issue on a stock exchange beyond the
normal opening of a day's trading because of market conditions that have been judged by
exchange officials to warrant such a delay. Reasons for the delay might be an influx of either
buy or sell orders, an imbalance of buyers and sellers, or pending corporate news that
requires time for dissemination.

Depletion accounting – Natural resources, such as metals, oil, gas and timber, that
conceivably can be reduced to zero over the years, present a special problem in capital
management. Depletion is an accounting practice consisting of charges against earnings
based upon the amount of the asset taken out of the total reserves in the period for which
accounting is made. A bookkeeping entry, it does not represent any cash outlay nor are any
funds earmarked for the purpose.

Depository Trust Company (DTC) – A central securities certificate depository through
which members effect security deliveries between each other via computerized bookkeeping
entries thereby reducing the physical movement of stock certificates.
Depreciation – Normally, charges against earnings to write off the cost, less salvage value,
of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any
cash outlay nor are any funds earmarked for the purpose.

Director – Person elected by shareholders to serve on the board of directors. The directors
appoint the president, vice presidents, and all other operating officers. Directors decide,
among other matters, if and when dividends shall be paid. (See: Proxy)
Discount – The amount by which a preferred stock or bond may sell below its par value.
Also used as a verb to mean "takes into account" as the price of the stock has discounted the
expected dividend cut. (See: Premium).

Discretionary account – An account in which the customer gives the broker or someone else
discretion to buy and sell securities or commodities, including selection, timing, amount, and
price to be paid or received.
Diversification – Spreading investments among different types of securities and various
companies in different fields.

Dividend – The payment designated by the board of directors to be distributed pro rata
among the shares outstanding. On preferred shares, it is generally a fixed amount. On
common shares, the dividend varies with the fortunes of the company and the amount of cash
on hand, and may be omitted if business is poor or the directors determine to withhold
earnings to invest in plant and equipment. Sometimes a company will pay a dividend out of
past earnings even if it is not currently operating at a profit.

Dollar-cost-averaging – A system of buying securities at regular intervals with a fixed dollar
amount. Under this system investors buy by the dollars' worth rather than by the number of
shares. If each investment is of the same number of dollars, payments buy more shares when
the price is low and fewer when it rises. Thus temporary downswings in price benefit
investors if they continue periodic purchases in both good and bad times, and the price at
which the shares are sold is more than their average cost. Dollar-cost-averaging does not
assure a profit and does not protect against loss in declining markets. 

Since dollar-cost averaging involves continuous investment in securities regardless of fluctuating price levels of such securities, investors should consider their financial ability to continue purchases through periods of low price levels.(See: Formula investing)
Down tick – (See: Up tick).

Dow theory – A theory of market analysis based upon the performance of the Dow Jones
Industrial Average and transportation stock price averages. The theory says that the market is
in a basic upward trend if one of these averages advances above a previous important high,
accompanied or followed by a similar advance in the other. When both averages dip below
previous important lows, this is regarded as confirmation of a downward trend. The Dow
Jones is one type of market index. (See: NYSE Composite Index).

Earnings report – A statement, also called an income statement, issued by a company
showing its earnings or losses over a given period. The earnings report lists the income
earned, expenses and the net result. (See: Balance sheet)
Equipment trust certificate – A type of security, generally issued by a railroad, to pay for
new equipment. Title to the equipment, such as a locomotive, is held by a trustee until the
notes are paid off. An equipment trust certificate is usually secured by a first claim on the

Equity – The ownership interest of common and preferred stockholders in a company. Also
refers to excess of value of securities over the debit balance in a margin account.

Ex-dividend – A synonym for "without dividend." The buyer of a stock selling ex-dividend
does not receive the recently declared dividend. When stocks go ex-dividend, the stock tables
include the symbol "x" following the name. (See: Cash sale, Net change, Transfer).

Ex-rights – Without the rights. Corporations raising additional money may do so by offering
their stockholders the right to subscribe to new or additional stock, usually at a discount from
the prevailing market price. The buyer of a stock selling ex-rights is not entitled to the rights.
(See: Ex-dividend, Rights).

Extra – The short form of "extra dividend." A dividend in the form of stock or cash in
addition to the regular or usual dividend the company has been paying.

Face value – The value of a bond that appears on the face of the bond, unless the value is
otherwise specified by the issuing company. Face value is ordinarily the amount the issuing
company promises to pay at maturity. Face value is not an indication of market value.
Sometimes referred to as par value. (See: Par) .

FI-RA – The Financial Industry Regulatory Authority (f/k/a National Association of
Securities Dealers), is the largest non-governmental regulator for all securities firms doing
business in the United States. FINRA was created in July 2007 through the consolidation of
NASD and the member regulation, enforcement and arbitration functions of the New York
Stock Exchange.

Fiscal year – A corporation's accounting year. Due to the nature of their particular business,
some companies do not use the calendar year for their bookkeeping. A typical example is the
department store that finds December 31 too early a date to close its books after the
Christmas rush. For that reason many stores wind up their accounting year January 31. Their
fiscal year, therefore, runs from February 1 of one year through January 31 of the next. The
fiscal year of other companies may run from July 1 through the following June 30. Most
companies, though, operate on a calendar year basis.

Fixed charges – A company's fixed expenses, such as bond interest, which it has agreed to
pay whether or not earned, and which are deducted from income before earnings on equity
capital are computed.

Flat income bond – This term means that the price at which a bond is traded includes
consideration for all unpaid accruals of interest. Bonds that are in default of interest or
principal are traded flat. Income bonds that pay interest only to the extent earned are usually
traded flat. All other bonds are usually dealt in "and interest," which means that the buyer
pays to the seller the market price plus interest accrued since the last payment date.

Floor – The huge trading area - about the size of a football field - where stocks, bonds and
options are bought and sold on the New York Stock Exchange.

Floor broker – A member of the stock exchange who executes orders on the floor of the
Exchange to buy or sell any listed securities. (See: Commission broker)
Formula investing – An investment technique. One formula calls for the shifting of funds
from common shares to preferred shares or bonds as a selected market indicator rises above a certain predetermined point - and the return of funds to common share investments as the
market average declines. (See: Dollar-cost-averaging).

Free and open market – A market in which supply and demand are freely expressed in
terms of price. Contrasts with a controlled market in which supply, demand and price may all
be regulated.

Fundamental research – Analysis of industries and companies based on such factors as
sales, assets, earnings, products or services, markets and management. As applied to the
economy, fundamental research includes consideration of gross national product, interest
rates, unemployment, inventories, savings, etc. (See: Technical research).

Funded debt – Usually interest-bearing bonds or debentures of a company. Could include
long-term bank loans. Does not include short-term loans, preferred or common stock.
General mortgage bond – A bond that is secured by a blanket mortgage on the company's
property but may be outranked by one or more other mortgages.

Gilt-edged – High-grade bond issued by a company that has demonstrated its ability to earn a
comfortable profit over a period of years and pay its bondholders their interest without

Give-up – A term with many different meanings. For one, a member of the exchange on the
floor may act for a second member by executing an order for him or her with a third member.
The first member tells the third member that he or she is acting on behalf of the second
member and "gives up" the second member's name rather than his or her own.

Gold fix – The setting of the price of gold by dealers (especially in a twice-daily London
meeting at the central bank); the fix is the fundamental worldwide price for setting prices of
gold bullion and gold-related contracts and products.

Good delivery
– Certain basic qualifications must be met before a security sold on the
Exchange may be delivered. The security must be in proper form to comply with the contract
of sale and to transfer title to the purchaser.

Good 'til canceled (GTC) or open order - An order to buy or sell that remains in effect until
it is either executed or canceled.
Government bonds – Obligations of the U.S. Government, regarded as the highest grade
securities issues.

Growth stock – Stock of a company with a record of growth in earnings at a relatively rapid

Holding company
– A corporation that owns the securities of another, in most cases with
voting control.

Hypothecation – The pledging of securities as collateral - for example, to secure the debit
balance in a margin account.

Income bond – Generally income bonds promise to repay principal but to pay interest only
when earned. In some cases unpaid interest on an income bond may accumulate as a claim
against the corporation when the bond becomes due. An income bond may also be issued in
lieu of preferred stock.

– A written agreement under which bonds and debentures are issued, setting forth
maturity date, interest rate and other terms.

Independent broker – Member on the floor of the NYSE who executes orders for other
brokers having more business at that time than they can handle themselves, or for firms who
do not have their exchange member on the floor.

Index – A statistical yardstick expressed in terms of percentages of a base year or years. For
instance, the NYSE Composite Index of all NYSE common stocks is based on 1965 as 50.
An index is not an average. (See Averages, NYSE Composite Index)
Initial public offering – (See: Primary distribution).

Institutional investor – An organization whose primary purpose is to invest its own assets or
those held in trust by it for others. Includes pension funds, investment companies, insurance
companies, universities and banks.

– Payments borrowers pay lenders for the use of their money. A corporation pays
interest on its bonds to its bondholders. (See: Bond, Dividend).

Intermarket Trading System (ITS)
– An electronic communications network now linking
the trading floor of seven registered exchanges and FINRA to foster competition among them
in stocks listed on either the NYSE or AMEX and one or more regional exchanges. Through
ITS, any broker or market maker on the floor of any participating market can reach out to
other participants for an execution whenever the nationwide quote shows a better price is

Interrogation device – A computer terminal that provides market information - last sale
price, quotes, volume, etc. - on a screen or paper tape.

– The use of money for the purpose of making more money, to gain income,
increase capital, or both.

Investment banker – Also known as an underwriter. The middleman between the
corporation issuing new securities and the public. The usual practice is for one or more
investment bankers to buy outright from a corporation a new issue of stocks or bonds. The
group forms a syndicate to sell the securities to individuals and institutions. Investment
bankers also distribute very large blocks of stocks or bonds - perhaps held by an estate. (See:
Primary distribution, Syndicate).

Investment company – A company or trust that uses its capital to invest in other companies.
There are two principal types: the closed-end and the open-end, or mutual fund. Shares in
closed-end investment companies, some of which are listed on the New York Stock
Exchange, are readily transferable in the open market and are bought and sold like other
shares. Capitalization of these companies remains the same unless action is taken to change,
which is seldom. Open-end funds sell their own shares to investors, stand ready to buy back
their old shares, and are not listed. Open-end funds are so called because their capitalization
is not fixed; they issue more shares as people want them.

Investment counsel – One whose principal business consists of acting as investment advisor
and rendering investment supervisory services.

IRA – Individual retirement account. A pension plan with tax advantages. IRAs permit
investment through intermediaries like mutual funds, insurance companies and banks, or
directly in stocks and bonds through stockbrokers. (See: Keogh Plan).

Issue – Any of a company's securities, or the act of distributing such securities.
Keogh plan – Tax-advantaged personal retirement program that can be established by a self employed individual. (See: IRA).

Legal list – A list of investments selected by various states in which certain institutions and
fiduciaries, such as insurance companies and banks, may invest. Legal lists are often
restricted to high-quality securities meeting certain specifications. (See: Prudent Man Rule).

Leverage – The effect on a company when the company has bonds, preferred stock, or both
outstanding. Example: If the earnings of a company with 1,000,000 common shares increases
from $1,000,000 to $1,500,000, earnings per share would go up from $1 to $1.50, or an
increase of 50%. But if earnings of a company that had to pay $500,000 in bond interest
increased that much, earnings per common share would jump from $.50 to $1 a share, or

– All the claims against a corporation. Liabilities include accounts, wages and
salaries payable; dividends declared payable; accrued taxes payable; and fixed or long-term
liabilities, such as mortgage bonds, debentures and bank loans. (See: Assets, Balance sheet)
Limit, limited order, or limited price order – An order to buy or sell a stated amount of a
security at a specified price, or at a better price, if obtainable after the order is represented in
the trading crowd.

Liquidation – The process of converting securities or other property into cash. The
dissolution of a company, with cash remaining after sale of its assets and payment of all
indebtedness being distributed to the shareholders.

Liquidity – The ability of the market in a particular security to absorb a reasonable amount
of buying or selling at reasonable price changes. Liquidity is one of the most important
characteristics of a good market.

Listed stock
– The stock of a company that is traded on a securities exchange.
Load – The portion of the offering price of shares of open-end investment companies in
excess of the value of the underlying assets. Covers sales commissions and all other costs of
distribution. The load is usually incurred only on purchase, there being, in most cases, no
charge when the shares are sold (redeemed). (See: Investment company)

Locked in – Investors are said to be locked in when they have profit on a security they own
but do not sell because their profit would immediately become subject to the capital gains tax.

Long – Signifies ownership of securities. "I am long 100 U.S. steel" means the speaker owns
100 shares. (See: Short position, Short sale).

Manipulation – An illegal operation. Buying or selling a security for the purpose of creating
false or misleading appearance of active trading or for the purpose of raising or depressing
the price to induce purchase or sale by others.

Margin – The amount paid by the customer when using a broker's credit to buy or sell a
security. Under Federal Reserve regulations, the initial margin requirement since 1945 has
ranged from the current rate of 50% of the purchase price up to 100%. (See: Brokers' loan,

Margin call – A demand upon a customer to put up money or securities with the broker. The
call is made when a purchase is made; also if a customer's account declines below a
minimum standard set by the exchange or by the firm.

Market order – An order to buy or sell a stated amount of a security at the most
advantageous price obtainable after the order is represented in the trading crowd. (See: Good
'til canceled order, Limit order, Stop order)
Market price – The last reported price at which the stock or bond sold, or the current quote.
(See: Quote).

Maturity – The date on which a loan or bond comes due and is to be paid off.
Member corporation – A securities brokerage firm, organized as a corporation, with at least
one member of the New York Stock Exchange who is an officer or employee of the

Member firm – A securities brokerage firm organized as a partnership and having at least
one general partner or employee who is a member of the New York Stock Exchange.
Member organization – The term includes New York Stock Exchange member firms and
member corporations.

Merger – Combination of two or more corporations.

Money market fund – A mutual fund whose investments are in high-yield money market
instruments such as federal securities, CDs and commercial paper. Its intent is to make such
instruments, normally purchased in large denominations by institutions, available indirectly
to individuals. (See: Certificate of deposit, Commercial paper).

Mortgage bond – A bond secured by a mortgage on a property. The value of the property
may or may not equal the value of the bonds issued against it. (See: Bond, Debenture)
Municipal bond – A bond issued by a state or a political subdivision, such as county, city,
town or village. The term also designates bonds issued by state agencies and authorities. In
general, interest paid on municipal bonds is exempt from federal income taxes and state and
local taxes within the state of issue. However, interest may be subject to the alternative
minimum tax (AMT).

Mutual fund – (See: Investment company).

NASD – please refer to the details listed above for FINRA.

Nasdaq – An automated information network that provides brokers and dealers with price
quotations on securities traded over-the-counter. Nasdaq is an acronym for National
Association of Securities Dealers Automated Quotations.

Negotiable – Refers to a security, the title to which is transferable by delivery.

Net asset value – Usually used in connection with investment companies to mean net asset
value per share. An investment company computes its assets daily, or even twice daily, by
totaling the market value of all securities owned. All liabilities are deducted, and the balance
is divided by the number of shares outstanding. The resulting figure is the net asset value per
share. (See: Assets, Investment company).

Net change – The change in the price of a security from the closing price on one day to the
closing price the next day on which the stock is traded. The net change is ordinarily the last
figure in the newspaper stock price list. The mark +1 1/8 means up $1.125 a share from the
last sale on the previous day the stock traded.

New issue – A stock or bond sold by a corporation for the first time. Proceeds may be used to
retire outstanding securities of the company, for new plant or equipment, for additional
working capital, or to acquire a public ownership interest in the company for private owners.

New York Futures Exchange (NYSE) – A subsidiary of the New York Stock Exchange
devoted to the trading of futures products.

New York Stock Exchange (NYSE) – The largest organized securities market in the United
States, founded in 1792. The Exchange itself does not buy, sell, own or set the prices of
securities traded there. The prices are determined by public supply and demand. The
Exchange is a non-profit corporation of 1,366 individual members, governed by a board of
directors consisting of 10 public representatives, 10 Exchange members or allied members
and a full-time chairman, executive vice chairman and president.

Noncumulative – A type of preferred stock on which unpaid dividends do not accrue.
Omitted dividends are, as a rule, gone forever. (See: Cumulative preferred).

NYSE Composite Index – The composite index covering price movements of all common
stocks listed on the New York Stock Exchange. It is based on the close of the market
December 31, 1965, as 50 and is weighted according to the number of shares listed for each
issue. The index is computed continuously and printed on the ticker tape. Point changes in the
index are converted to dollars and cents so as to provide a meaningful measure of changes in
the average price of listed stocks. The composite index is supplemented by separate indexes
for four industry groups: industrial, transportation, utility and finance. (See: Averages).

Odd Lot – An amount of stock less than the established 100-share unit. (See: Round lot).

Off-board – This term may refer to transactions over-the-counter in unlisted securities or to
transactions of listed shares that are not executed on a national securities exchange.
Offer – The price at which a person is ready to sell. Opposed to bid, the price at which one is
ready to buy. (See: Bid and Asked)

Open-end investment company – (See: Investment company)

Open order – (See: Good 'til canceled order)
Overbought – An opinion as to price levels. May refer to a security that has had a sharp rise
or to the market as a whole after a period of vigorous buying which, it may be argued, has left
prices "too high."

Oversold – The reverse of overbought. A single security or a market which, it is believed,
has declined to an unreasonable level.

Over-the-counter – A market for securities made up of securities dealers who may or may
not be members of a securities exchange. The over-the-counter market is conducted over the
telephone and deals mainly with stocks of companies without sufficient shares, stockholders
or earnings to warrant listing on an exchange. Over-the-counter dealers may act either as
principals or as brokers for customers. The over-the-counter market is the principal market
for bonds of all types. (See: FINRA, Nasdaq).

Paper profit (loss) – An unrealized profit or loss on a security still held. Paper profits and
losses become realized only when the security is sold. (See: Profit-taking).

Par – In the case of a common share, par means a dollar amount assigned to the share by the
company's charter. Par value may also be used to compute the dollar amount of common
shares on the balance sheet. Par value has little relationship to the market value of common
stock. Many companies issue no-par stock but give a stated per share value on the balance
sheet. In the case of preferred stocks it signifies the dollar value upon which dividends are
figured. With bonds, par value is the face amount, usually $1,000.

Participating preferred – A preferred stock that is entitled to its stated dividend and to
additional dividends on a specified basis upon payment of dividends on the common stock.
Passed dividend – Omission of a regular or scheduled dividend.

Penny stocks – Low-priced issues, often highly speculative, selling at less than $1 a share.
Frequently used as a term of disparagement, although some penny stocks have developed into
investment-caliber issues.

Point – In the case of shares of stock, a point means $1. If ABC shares rise 3 points, each
share has risen $3. In the case of bonds a point means $10, since a bond is quoted as a
percentage of $1,000. A bond that rises 3 points gains 3% in $1,000, or $30 in value. An
advance from 87 to 90 would mean an advance in dollar value from $870 to $900. In the case
of market averages, the word point means merely that and no more. If, for example, the
NYSE Composite Index rises from 90.25 to 91.25, it has risen a point. A point in this index,
however, is not equivalent to $1. (See: Index)

Portfolio – Holdings of securities by an individual or institution. A portfolio may contain
bonds, preferred stocks, common stocks and other securities.

Preferred stock – A class of stock with a claim on the company's earnings before payment
may be made on the common stock and usually entitled to priority over common stock if the
company liquidates. Usually entitled to dividends at a specified rate - when declared by the
board of directors and before payment of a dividend on the common stock - depending upon
the terms of the issue. (See: Cumulative preferred, Participating preferred).

Premium – The amount by which a bond or preferred stock may sell above its par value.
May refer, also, to redemption price of a bond or preferred stock if it is higher than face

Price-to-earnings ratio – A popular way to compare stocks selling at various price levels.
The P/E ratio is the price of a share of stock divided by earnings per share for a 12-month
period. For example, a stock selling for $50 a share and earning $5 a share is said to be
selling at a price-to-earnings ratio of 10.
Primary distribution – Also called primary or initial public offering. The original sale of a
company's securities. (See: Investment banker).

Prime rate – The lowest interest rate charged by commercial banks to their most creditworthy
customers; other interest rates, such as personal, automobile, commercial and
financing loans are often pegged to the prime.

Principal – The person for whom a broker executes an order, or dealers buying or selling for
their own accounts. The term "principal" may also refer to a person's capital or to the face
amount of a bond.

Profit-taking – Selling stock that has appreciated in value since purchase, in order to realize
the profit. The term is often used to explain a downturn in the market following a period of
rising prices. (See: Paper profit).

Prospectus – The official selling circular that must be given to purchasers of new securities
registered with the Securities and Exchange Commission. It highlights the much longer
Registration Statement file with the Commission.

Proxy – Written authorization given by a shareholder to someone else to represent him or her
and vote his or her shares at a shareholders meeting.
Proxy statement – Information given to stockholders in conjunction with the solicitation of

Prudent Man Rule – An investment standard. In some states, the law requires that a
fiduciary, such as a trustee, may invest the fund's money only in a list of securities designated
by the state - the so-called legal list. In other states, the trustee may invest in a security if it is
one that would be bought by a prudent person of discretion and intelligence, who is seeking a
reasonable income and preservation of capital.(See: Legal list).

Quote – The highest bid to buy and the lowest offer to sell a security in a given market at a
given time. If you ask your financial adviser for a "quote" on a stock, he or she may come
back with something like "45 1/4 to 45 1/2." This means that $45.25 is the highest price any
buyer wanted to pay at the time the quote was given on the floor of the exchange and that
$45.50 was the lowest price that any seller would take at the same time. (See: Bid and asked)
Rally – A brisk rise following a decline in the general price level of the market, or in an
individual stock.

Real Estate Investment Trust (REIT) – An organization similar to an investment company
in some respects but concentrating its holdings in real estate investments. The yield is
generally liberal since REIT s are required to distribute as much as 90% of their income. (See:
Investment company).

Record date – The date on which you must be registered as a shareholder of a company in
order to receive a declared dividend or, among other things, to vote on company affairs. (See:
Ex-dividend, Transfer).

Redemption price – The price at which a bond may be redeemed before maturity, at the
option of the issuing company. Redemption value also applies to the price the company must
pay to call in certain types of preferred stock. (See: Callable)

Red herring – A registration statement filed with but not yet approved by the Securities and
Exchange Commission (SEC). (See: Prospectus).

Refinancing – Same as refunding. New securities are sold by a company and the money is
used to retire existing securities. The object may be to save interest costs, extend the maturity
of the loan, or both.

Registered bond – A bond that is registered on the books of the issuing company in the
name of the owner. It can be transferred only when endorsed by the registered owner. (See:
Bearer bond, Coupon bond).

Registered competitive market maker – Members of the New York Stock Exchange who
trade on the floor for their own or their firm's account and who have an obligation, when
called upon by an exchange official, to narrow a quote or improve the depth of an existing
quote by their own bid or offer.

Registered representative – The man or woman who serves the investor customers of a
broker/dealer. In a New York Stock Exchange-member organization, a registered
representative must meet the requirements of the exchange as to background and knowledge
of the securities business. Also known as a financial advisor or customer's broker.

Registrar – Usually a trust company or bank charged with the responsibility of keeping
record of the owners of a corporation's securities and preventing the issuance of more than
the authorized amount. (See: Transfer).

Registration – Before an initial public offering may be made of new securities by a
company, the securities must be registered under the Securities Act of 1933. A registration
statement is filed with the SEC by the issuer. It must disclose pertinent information relating to
the company's operations, securities, management and purpose of the public offering. Before
a security may be admitted to dealings on a national securities exchange, it must be registered
under the Securities Exchange Act of 1934. The application for registration must be filed
with the exchange and the SEC by the company issuing the securities.

Regular way delivery – Unless otherwise specified, securities sold on the New York Stock
Exchange are to be delivered to the buying broker by the selling broker and payment made to
the selling broker by the buying broker on the third business day after the transaction.
Regular way delivery for bonds is the following business day. (See: Transfer)
Regulation T – The federal regulation governing the amount of credit that may be advanced
by brokers and dealers to customers for the purchase of securities. (See: Margin).

Regulation U – The federal regulation governing the amount of credit that may be advanced
by banks to customers for the purchase of listed stocks. (See: Margin).

Rights – When a company wants to raise more funds by issuing additional securities, it may
give its stockholders the opportunity, ahead of others, to buy the new securities in proportion
to the number of shares each owns. The piece of paper evidencing this privilege is called a
right. Because the additional stock is usually offered to stockholders below the current market
price, rights ordinarily have a market value of their own and are actively traded. In most cases
they must be exercised within a relatively short period. Failure to exercise or sell rights may
result in monetary loss to the holder. (See: Warrants).

Round lot – A unit of trading or a multiple thereof. On the NYSE, the unit of trading is
generally 100 shares in stocks and $1,000 or $5,000 par value in the case of bonds. In some
inactive stocks, the unit of trading is 10 shares. (See: Odd lot)
Scale order – An order to buy (or sell) a security, that specifies the total amount to be bought
(or sold) at specified price variations.

Scripophily – A term coined in the mid-1970s to describe the hobby of collecting antique
bonds, stocks and other financial instruments. Values are affected by beauty of the certificate
and the issuer's role in world finance and economic development.

Seat – A traditional figure of speech for a membership on an exchange.

SEC – The Securities and Exchange Commission, established by Congress to help protect
investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of
1934, the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment
Company Act, the Investment Advisers Act and the Public Utility Holding Company Act.

Secondary distribution – Also known as secondary offering. The redistribution of a block of
stock some time after it has been sold by the issuing company. The sale is handled off the
NYSE by a securities firm or group of firms and the shares are usually offered at a fixed price
related to the current market price of the stock. Usually the block is a large one, such as might
be involved in the settlement of an estate. The security may be listed or unlisted. (See:
Investment banker, Primary distribution).

Securities Industry Automation Corporation (SIAC) – An independent organization
established by the New York and American Stock Exchanges as a jointly owned subsidiary to
provide automation, data processing, clearing and communications services.

Securities Investor Protection Corporation (SIPC)
– Provides funds for use, if necessary,
to protect customers' cash and securities that may be on deposit with a SIPC member firm in
the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a
government agency. It is a non-profit membership corporation created, however, by an act of

Seller's option – A special transaction on the NYSE that gives the seller the right to deliver
the stock or bond at any time within a specified period, ranging from not less than two
business days to not more than 60 days.

Sell side – The portion of the securities business in which orders are transacted. The sell side
includes retail brokers, institutional brokers and traders, and research departments. If an
institutional portfolio manager changes jobs and becomes a registered representative, he or
she has moved from the buy side to the sell side.

Serial bond – An issue that matures in part at periodic stated intervals.

Settlement – Conclusion of a securities transaction when a customer pays a broker/dealer for
securities purchased or delivers securities sold and receives from the broker the proceeds of a
sale. (See: Regular way delivery, Cash sale).

Short covering – Buying stock to return stock previously borrowed to make delivery on a
short sale.

Short sale – A transaction by a person who believes a security will decline and sells it,
though the person does not own any. For instance: You instruct your broker to sell short 100
shares of XYZ. Your broker borrows the stock so delivery can be made to the buyer. The
money value of the shares borrowed is deposited by your broker with the lender. Sooner or
later you must cover your short sale by buying the same amount of stock you borrowed for
return to the lender. If you are able to buy XYZ at a lower price than you sold it for, your
profit is the difference between the two prices - not counting commissions and taxes. But if
you have to pay more for the stock than the price you received, that is the amount of your
loss. Stock exchange and federal regulations govern and limit the conditions under which a
short sale may be made on a national securities exchange. Sometimes people will sell short a
stock they already own in order to protect a paper profit. This is know as selling short against
the box.

Sinking fund – Money regularly set aside by a company to redeem its bonds, debentures or
preferred stock from time to time as specified in the indenture or charter.

– A member of the New York Stock Exchange who has two primary functions:
first, to maintain an orderly market in the securities registered to the specialist. In order to
maintain an orderly market, the exchange expects specialists to buy or sell for their own
account, to a reasonable degree, when there is a temporary disparity between supply and
demand. Second, the specialist acts as a broker's broker. When commission brokers on the
exchange floor receive a limit order, say, to buy at $50 a stock then selling at $60 - they
cannot wait at the post where the stock is traded to see if the price reaches the specified level.
They leave the order with a specialist, who will try to execute it in the market if and when the
stock declines to the specified price. At all times the specialists must put their customers'
interests above their own. (See: Limit order).

Speculation – The employment of funds by a speculator. Safety of principal is a secondary
factor. (See: Investment).

Speculator – One who is willing to assume a relatively large risk in the hope of gain.
Spin off – The separation of a subsidiary or division of a corporation from its parent
company by issuing shares in a new corporate entity. Shareowners in the parent company
receive shares in the new company in proportion to their original holding and the total value
remains approximately the same.

Split – The division of the outstanding shares of a corporation into a larger number of shares.
A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares
outstanding. Each holder of 100 shares before the 3-for-1 split would have 300 shares,
although the proportionate equity in the company would remain the same; 100 parts of 1
million are the equivalent of 300 parts of 3 million. Ordinarily, splits must be voted by
directors and approved by shareholders. (See: Stock dividend).

Stock – (See: Capital stock, Common stock, Preferred stock).

Stock exchange – An organized marketplace for securities featured by the centralization of
supply and demand for the transaction of orders by member brokers for institutional and
individual investors. (See: New York Stock Exchange).

Stock dividend – A dividend paid in securities rather than in cash. The dividend may be
additional shares of the issuing company, or in shares of another company (usually a
subsidiary) held by the company.

Stockholder of record – A stockholder whose name is registered on the books of the issuing
corporation. (See: Registrar).

Stock index futures – Futures contracts based on market indexes, e.g. NYSE Composite
Index Futures Contracts.

Stock ticker symbols – Every corporation whose transactions are reported on the NYSE or
AMEX ticker or on Nasdaq has been given a unique identification symbol of up to four
letters. These symbols abbreviate the complete corporate name and facilitate trading and
ticker reporting. Some of the most famous symbols are: T (American Telephone &
Telegraph), XON (Exxon), GM (General Motors), IBM (International Business Machines), S
(Sears Roebuck) and XRX (Xerox).

Stop limit order – A stop order that becomes a limit order after the specified stop price has
been reached. (See: Limit Order, Stop Order).

Stop order – An order to buy at a price above or sell at a price below the current market.
Stop buy orders are generally used to limit loss or protect unrealized profits on a short sale.
Stop sell orders are generally used to protect unrealized profits or limit loss on a holding. A
stop order becomes a market order when the stock sells at or beyond the specified price and,
thus, may not necessarily be executed at that price.

Street name – Securities held in the name of a broker instead of a customer's name are said
to be carried in "street name." This occurs when the securities have been bought on margin or
when the customer wishes the security to be held by the broker.

Swapping – Selling one security and buying a similar one almost at the same time to take a
loss, usually for tax purposes.

Syndicate – A group of investment bankers who together underwrite and distribute a new
issue of securities or a large block of an outstanding issue.

Technical research
– Analysis of the market and stocks based on supply and demand. The
technician studies price movements, volume, trends and patterns, which are revealed by
charting these factors, and attempts to assess the possible effect of current market action on
future supply and demand for securities and individual issues. (See: Fundamental research).

Tender offer – A public offer to buy shares from existing stockholders of one public
corporation by another public corporation under specified terms good for a certain time
period. Stockholders are asked to "tender" (surrender) their holdings for stated value, usually
at a premium above current market price, subject to the tendering of a minimum and
maximum number of shares.

Third market – Trading of stock exchange-listed securities in the over-the-counter market
by non-exchange member brokers.

Ticker – A telegraphic system that continuously provides the last sale prices and volume of
securities transactions on exchanges. Information is either printed or displayed on a moving
tape after each trade.

Trader – Individuals who buy and sell for their own accounts for short-term profit. Also, an
employee of a broker/dealer or financial institution who specializes in handling purchases and
sales of securities for the firm and/or its clients. (See: Speculator)
Trading floor – (See: Floor).

Trading post – The structure on the floor of the New York Stock Exchange at which stocks
or options are bought and sold.

Transfer – This term may refer to two different operations. For one, the delivery of a stock
certificate from the seller's broker to the buyer's broker and legal change of ownership,
normally accomplished within a few days. For another, to record the change of ownership on
the books of the corporation by the transfer agent. When the purchaser's name is recorded,
dividends, notices of meetings, proxies, financial reports and all pertinent literature sent by
the issuer to its securities holders are mailed directly to the new owner. (See: Registrar, Street

Transfer agent – A transfer agent keeps a record of the name of each registered share owner,
his or her address, the number of shares owned, and sees that certificates presented for
transfer are properly canceled and new certificates issued in the name of the new owner. (See:

Treasury stock – Stock issued by a company but later reacquired. It may be held in the
company's treasury indefinitely, reissued to the public or retired. Treasury stock receives no
dividends and has no vote while held by the company.

Turnover rate – The volume of shares traded in a year as a percentage of total shares listed
on an exchange, outstanding for an individual issue or held in an institutional portfolio.
Underwriter – (See: Investment banker)
Unlisted stock – A security not listed on a stock exchange. (See: Over-the-counter).

Up tick – A term used to designate a transaction made at a price higher than the preceding
transaction. Also called a "plus" tick. A "zero-plus" tick is a term used for a transaction at the
same price as the preceding trade but higher than the preceding different price. Conversely, a
down tick, or "minus" tick, is a term used to designate a transaction made at a price lower
than the preceding trade. A plus sign, or a minus sign, is displayed throughout the day next to
the last price of each stock at the trading post on the floor of the New York Stock Exchange.

Variable annuity – A life insurance policy where the annuity premium (a set amount of
dollars) is immediately turned into units of a portfolio of stocks. Upon retirement, the
policyholder is paid according to accumulated units, the dollar value of which varies
according to the performance of the stock portfolio. Its objective is to preserve, through stock
investment, the purchasing value of the annuity which otherwise is subject to erosion through

Volume – The number of shares or contracts traded in a security or an entire market during a
given period. Volume is usually considered on a daily basis and a daily average is computed
for longer periods.

Voting right – Common stockholders' right to vote their stock in affairs of a company.
Preferred stock usually has the right to vote when preferred dividends are in default for a
specified period. The right to vote may be delegated by the stockholder to another person.
(See: Cumulative voting, Proxy).

Warrants – Certificates giving the holder the right to purchase securities at a stipulated price
within a specified time limit or perpetually. Sometimes a warrant is offered with securities as
an inducement to buy. (See: Rights).

When issued – A short form of "when, as and if issued." The term indicates a conditional
transaction in a security authorized for issuance but not as yet actually issued. All "when
issued" transactions are on an "if" basis, to be settled if and when the actual security is issued
and the exchange or National Association of Securities Dealers rules the transactions are to
be settled.

Working control – Theoretically, ownership of 51% of a company's voting stock is
necessary to exercise control. In practice - and this is particularly true in the case of a large
corporation - effective control sometimes can be exerted through ownership, individually or
by a group acting in concert, of less than 50%.

Yield – Also known as return. The dividends or interest paid by a company expressed as a
percentage of the current price. A stock with a current market value of $40 a share paying
dividends at the rate of $3.20 is said to return 8% ($3.20÷$40.00). The current yield on a
bond is figured the same way.

Yield to maturity – The yield of a bond to maturity takes into account the price discount
from or premium over the face amount. It is greater than the current yield when the bond is
selling at a discount and less than the current yield when the bond is selling at a premium.
Zero coupon bond – A bond that pays no interest but is priced, at issue, at a discount from
its redemption price.

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