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Investing & Financial Dictionary
Your WYNTK (What You Need To Know) Source
with the increasing number of investment products
and services in the marketplace today can be confusing.
This glossary is designed to help you understand
some of the more common investment and financial
terms you may encounter.
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 business entity may offer a price well
above current market values, new securities and
other inducements to stockholders. The management
of the subject corporation might ask for a better price
or try to join up with a third business. (See: Merger,
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
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 business 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)
Assets – Everything a corporation owns or that is
due to it: cash, investments, money due it, materials
and inventories, which are called current assets;
buildings and machinery, which are known as fixed
assets; and patents and goodwill, called intangible
assets. (See: Liabilities)
Auction market – The system of trading securities
through brokers or agents on an exchange such as
the NYSE. 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 NYSE. 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 co.'s assets,
liabilities and capital on a given date. In dollar
amounts, the balance sheet shows what the business
owned, what it owed and the ownership interest in
the company of its stockholders. (See: Assets, Earnings
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.
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 more.
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
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 business 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 business' 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 business 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: Margin)
Bull – One who believes the market will rise. (See:
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
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 information.
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 co. 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 corporation 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,
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 forgery.
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 loan.
Commercial paper – Debt instruments issued by companies
to meet short-term financing needs.
Commission – The broker's basic fee for purchasing
or selling securities or property as an agent.
Commission broker – An agent who executes the public's
orders for the purchase or sale of securities or
Common stock – Securities that represent an ownership
interest in a corporation. If the business 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 corporation 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
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 out-of-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 co. and usually not secured by a
mortgage or lien on any specific property. (See:
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
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
Diversification – Spreading investments among different
types of securities and various companies in different
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 business 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 business
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
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 corporation 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 equipment.
Equity – The ownership interest of common and preferred
stockholders in a business. 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,
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
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.
FINRA – 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 NYSE.
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
Floor – The huge trading area - about the size of
a football field - where stocks, bonds and options
are bought and sold on the NYSE.
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
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:
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 interruption.
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 rate.
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
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.
Indenture – 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
Interest – 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 available.
Interrogation device – A computer terminal that
provides market information - last sale price, quotes,
volume, etc. - on a screen or paper tape.
Investment – The use of money for the purpose of
making more money, to gain income, increase capital,
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,
Investment company – A business 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 NYSE, 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 100%.
Liabilities – 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, Equity)
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:
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 NYSE who is an officer
or employee of the corporation.
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 NYSE.
Member organization – The term includes NYSE 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
Mutual fund – (See: Investment company)
NASD – please refer to the details listed above
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
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
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 (NYFE) – A subsidiary
of the NYSE devoted to the trading
of futures products.
NYSE (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
NYSE. 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
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
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.
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
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
Penny stocks – Low-priced issues, often highly speculative,
selling at less than $5 a share. Frequently used
as a term of disparagement, although some penny
stocks have developed into investment-caliber issues.
Generally, any business of a value of less than $500M
that is trading at a price per share of less than
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,
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 value.
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 credit-worthy 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 proxies.
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)
Quadruple Witching – The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock options contracts expire on the third Friday of each month and once every quarter - on the third Friday of March, June, September and December - all four asset classes expire on the same day. Because futures and options investors must close out of their positions on those days, they often witness increased trading volume.
The term "witching" comes from the fact that in the past, the expiration of futures and options contracts occurred not only on the same day, but at the same time. This often resulted in a period of greater-than-normal market volatility, which became known as the "witching hour." Due to this increased volatility and frenzied market activity, many investors approach the markets differently on witching days.
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 advisor 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
Real Estate Investment Trust (REIT) – An organization
similar to an investment co. in some respects
but concentrating its holdings in real estate investments.
The yield is generally liberal since REITs are required
to distribute as much as 90% of their income. (See:
Record date – The date on which you must be registered
as a shareholder of a business in order to receive
a declared dividend or, among other things, to vote
on co. 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 business 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 co. 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 co. in the name of the
owner. It can be transferred only when endorsed
by the registered owner. (See: Bearer bond, Coupon
Registered competitive market maker – Members of
the NYSE 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 NYSE-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 co. 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.
Registration – Before an initial public offering
may be made of new securities by a co., 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 co. issuing the securities.
Regular way delivery – Unless otherwise specified,
securities sold on the NYSE 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.
Regulation U – The federal regulation governing
the amount of credit that may be advanced by banks
to customers for the purchase of listed stocks.
Rights – When a business 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:
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 C.
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
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
Serial bond – An issue that matures in part at periodic
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
Specialist – A member of the NYSE
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:
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 business 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
Stock – (See: Capital stock, Common stock, Preferred
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:
Stock dividend – A dividend paid in securities rather
than in cash. The dividend may be additional shares
of the issuing business, 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.
Stock index futures – Futures contracts based on
market indexes, e.g. NYSE Composite Index Futures
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
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
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
NYSE 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 shareowner, 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: Registrar)
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 NYSE.
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
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
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