D Flashcards
Day Order
A buy or sell order that automatically expires
if it is not executed on the day it is entered.
All orders are day orders unless otherwise
specified.
Dealer Market
A market in which securities are bought
and sold over-the-counter in which dealers
acts as principals when buying and selling
securities for clients. Also referred to as the
unlisted market.
Dealer Member
A stock brokerage fi rm or investment dealer
which is a member of a stock exchange or
the Investment Industry Regulatory
Organization of Canada
Dealer’s Spread
The difference between the bid and ask
prices on a security
Death Benefi t
The amount that a segregated fund policy
pays to the beneficiary or the estate when
the market value of the segregated fund is
lower than the guaranteed amount on the
death of the annuitant.
Debenture
A certificate of indebtedness of a government
or company backed only by the general
credit of the issuer and unsecured by
mortgage or lien on any specific asset. In
other words, no specific assets have been
pledged as collateral.
Debt
Money borrowed from lenders for a variety
of purposes. The borrower typically pays
interest for the use of the money and is
obligated to repay it at a set date.
Debt/Equity Ratio
A ratio that shows whether a company’s
borrowing is excessive. The higher the ratio,
the higher the fi nancial risk
Declining Industry
An industry moving from the maturity
stage. It tends to grow at rates slower than
the overall economy, or the growth rate
actually begins to decline
Deemed Disposition
Under certain circumstances, taxation rules
state that a transfer of property has occurred,
even without a purchase or sale, e.g., there
is a deemed disposition on death or
emigration from Canada
Default
A bond is in default when the borrower has
failed to live up to its obligations under the
trust deed with regard to interest, sinking
fund payments or has failed to redeem the
bonds at maturity
Default Risk
The risk that a debt security issuer will be
unable to pay interest on the prescribed
date or the principal at maturity. Default
risk applies to debt securities not equities
since equity dividend payments are not
contractual.
Defensive Stock
A stock of a company with a record of
stable earnings and continuous dividend
payments and which has demonstrated
relative stability in poor economic
conditions. For example, utility stock
values do not usually change from periods
of expansion to periods of recession since
most individuals use a constant amount of
electricity
Deferred Annuity
This type of contract, usually sold by life
insurance companies, pays a regular stream
of income to the beneficiary or annuitant
at some agreed-upon start date in the future.
The original payment is usually a stream of
payments made over time, ending prior to
the beginning of the annuity payments. See
also Annuity.
Deferred Preferred Shares
A type of preferred share that pays no
dividend until a future maturity date.
Deferred Sales Charge
The fee charged by a mutual fund or
insurance company for redeeming units. It
is otherwise known as a redemption fee or
back-end load. These fees decline over
time and are eventually reduced to zero if
the fund is held long enough.
Deferred Tax Liabilities
The income tax payable in future periods.
These liabilities commonly result from
temporary differences between the book
value of assets and liabilities as reported on
the statement of fi nancial position and the
amount attributed to that asset or liability
for income tax purposes
Defi ned Benefi t Plan
A type of registered pension plan in which
the annual payout is based on a formula.
The plan pays a specific dollar amount at
retirement using a predetermined formula.
Defi ned Contribution Plan
A type of registered pension plan where the
amount contributed is known but the dollar
amount of the pension to be received is
unknown. Also known as a money purchase
plan
Delayed Floater
A type of variable rate preferred share that
entitles the holder to a fixed dividend for a
predetermined period of time after which
the dividend becomes variable. Also known
as a fixed-reset or fixed floater.
Delayed Opening
Postponement in the opening of trading of
a security the result of a heavy influx of buy
and/or sell orders.
Delisting
Removal of a security’s listing on a stock
exchange.
Demand Pull Infl ation
A type of inflation that develops when
continued consumer demand pushes prices
higher.
Depletion
Refers to consumption of natural resources
that are part of a company’s assets. Producing
oil, mining and gas companies deal in
products that cannot be replenished and as
such are known as wasting assets. The
recording of depletion is a bookkeeping
entry similar to depreciation and does not
involve the expenditure of cash.
Depreciation
Systematic charges against earnings to write
off the cost of an asset over its estimated
useful life because of wear and tear through
use, action of the elements, or obsolescence.
It is a bookkeeping entry and does not
involve the expenditure of cash.
Derivative
A type of fi nancial instrument whose value
is based on the performance of an underlying
fi nancial asset, commodity, or other
investment. Derivatives are available on
interest rates, currency, stock indexes. For
example, a call option on IBM is a
derivative because the value of the call
varies in relation to the performance of
IBM stock. See also Options
Direct Bonds
This term is used to describe bonds issued
by governments that are firsthand obligations
of the government itself. See also
Guaranteed Bonds.
Directional Hedge Funds
A type of hedge fund that places a bet on
the anticipated movements in the market
prices of equities, fi xed-income securities,
foreign currencies and commodities
Director
Person elected by voting common
shareholders at the annual meeting to direct
company policies.
Directors’ Circular
Information sent to shareholders by the
directors of a company that are the target
of a takeover bid. A recommendation to
accept or reject the bid, and reasons for this
recommendation, must be included.
Disclosure
One of the principles of securities regulation
in Canada. This principle entails full, true
and plain disclosure of all material facts
necessary to make reasoned investment
decisions
Discount
The amount by which a preferred stock or
bond sells below its par value
Discount Brokers
Brokerage house that buys and sells securities
for clients at a greater commission discount
than full-service fi rms
Discount Rate
In computing the value of a bond, the
discount rate is the interest rate used in
calculating the present value of future cash
fl ows
Discouraged Workers
Individuals that are available and willing to
work but cannot find jobs and have not
made specific efforts to find a job within
the previous month.
Discretionary Account
A securities account where the client has
given specific written authorization to a
partner, director or qualified portfolio
manager to select securities and execute
trades for him. See also Managed Account
and Wrap Account.
Disinfl ation
A decline in the rate at which prices rise –
i.e., a decrease in the rate of inflation. Prices
are still rising, but at a slower rate.
Disposable Income
Personal income minus income taxes and
any other transfers to government.
Diversifi cation
Spreading investment risk by buying
different types of securities in different
companies in different kinds of businesses
and/or locations.
Dividend
An amount distributed out of a company’s
profits to its shareholders in proportion to
the number of shares they hold. Over the
years a preferred dividend will remain at a
fixed annual amount. The amount of
common dividends may fluctuate with the
company’s profits. A company is under no
legal obligation to pay preferred or common
dividends.
Dividend Discount Model
The relationship between a stock’s current
price and the present value of all future
dividend payments. It is used to determine
the price at which a stock should be selling
based on projected future dividend
payments.
Dividend Payout Ratio
A ratio that measures the amount or
percentage of the company’s profit that are
paid out to shareholders in the form of
dividends.
Dividend Reinvestment Plan
The automatic reinvestment of shareholder
dividends in more shares of the company’s
stock.
Dividend Tax Credit
A procedure to encourage Canadians to
invest in preferred and common shares of
taxable, dividend-paying Canadian
corporations. The taxpayer pays tax based
on grossing up (i.e., adding 4 5% to the
amount of dividends actually received) and
obtains a credit against federal and
provincial tax based on the grossed up
amount in the amount of 19%.
Dividend Yield
A value ratio that shows the annual
dividend rate expressed as a percentage of
the current market price of a stock. Dividend
yield represents the investor’s percentage
return on investment at its prevailing
market price.
Dollar Cost Averaging
Investing a fi xed amount of dollars in a
specifi c security at regular set intervals over
a period of time, thereby reducing the
average cost paid per unit
Domestic Bonds
Bonds issued in the currency and country
of the issuer. For example, a Canadian
dollar-denominated bond, issued by a
Canadian company, in the Canadian market
would be considered a domestic bond.
Dow Jones Industrial Average
(DJIA
A price-weighted average that uses 30
actively traded blue chip companies as a
measure of the direction of the New York
Stock Exchange.
Drawdown
A cash management open-market operation
pursued by the Bank of Canada to infl uence
interest rates. A drawdown refers to the
transfer of deposits to the Bank of Canada
from the direct clearers, effectively draining
the supply of available cash balances. See
also Redeposit
Due Diligence Report
When negotiations for a new issue of securities begin between a dealer and corporate issuer, the dealer normally prepares a due diligence report examining the financial structure of the company.
Duration
A measure of bond price volatility. The
approximate percentage change in the price
or value of a bond or bond portfolio for a
1% point change in interest rates. The
higher the duration of a bond the greater its
risk
Dynamic Asset Allocation
An asset allocation strategy that refers to
the systematic rebalancing, either by time
period or weight, of the securities in the
portfolio, so that they match the long-term
benchmark asset mix among the various
asset classes
