Definitions P-Z Flashcards
1
Q
Define: par
A
The dollar amount the issuer assigns to a security. For an equity security, par is usually a small dollar amount that bears no relationship to the security’s market price. For a debt security, par is the amount repaid to the investor when the bond matures, usually $1,000. Syn. face value; principal; stated value. See capital surplus; maturity date.
2
Q
Define: parity price of common
A
The dollar amount at which a common stock is equal in value to its corresponding convertible security. It is calculated by dividing the convertible security’s market value by its conversion ratio.
3
Q
Define: parity price of convertible
A
The dollar amount at which a convertible security is equal in value to its corresponding common stock. It is calculated by multiplying the market price of the common stock by its conversion ratio.
4
Q
Define: participation
A
The provision of the Employee Retirement Income Security Act of 197 4 requiring that all employees in a qualified retirement plan be covered within a reasonable time of their dates of hire.
5
Q
Define: partnership
A
A form of business organization in which two or more individuals manage the business and are equally and personally liable for its debts.
6
Q
Define: partnership account
A
An account that empowers the individual members of a partnership to act on the behalf of the partnership as a whole.
7
Q
Define: partnership management fee
A
The amount payable to the general partners of a limited partnership, or to other persons, for managing the day-to-day partnership operations. Syn. program management fee; property management fee.
8
Q
Define: par value
A
The dollar amount assigned to a security by the issuer. For an equity security, par value is usually a small dollar amount that bears no relationship to the security’s market price. For a debt security, par value is the amount repaid to the investor when the bond matures, usually $1,000. Syn. face value; principal; stated value. See capital surplus; discount bond; premium bond.
9
Q
Define: passive income
A
Earnings derived from a rental property, limited partnership, or other enterprise in which the individual is not actively involved. Passive income therefore does not include earnings from wages or active business participation, nor does it include income from dividends, interest, and capital gains. See passive loss; unearned income.
10
Q
Define: passive loss
A
A loss incurred through a rental property, limited partnership, or other enterprise in which the individual is not activity involved. Passive losses can be used to offset passive income only, not wage or portfolio income. See passive income.
11
Q
Define: passive management style
A
In a perfectly efficient market, investors should use a passive investment strategy (i.e., buying a broad market index of stocks and holding it) because active investment strategies will underperform due to transactions costs and management fees. However, to the extent that market prices are inefficient, active investment strategies can generate positive risk-adjusted returns. See active management style.
12
Q
Define: pass-through certificate
A
A security representing an interest in a pool of conventional, Veterans Administration, Farmers Home Administration, or other agency mortgages. The pool receives the principal and interest payments, which it passes through to each certificate holder. Payments may or may not be guaranteed. See Federal National Mortgage Association; Government National Mortgage Association.
13
Q
Define: pattern
A
A repetitive series of price movements on a chart used by a technical analyst to predict future movements of the market.
14
Q
Define: payment date
A
The day on which a declared dividend is paid to all stockholders owning shares on the record date.
15
Q
Define: PE
A
See price-earnings ratio.
16
Q
Define: peak
A
The end of a period of increasing business activity throughout the economy, one of the four stages of the business cycle. Syn. prosperity. See business cycle.
17
Q
Define: pecuniary
A
Of or relating to money, such as operating for pecuniary profit.
18
Q
Define: pegging
A
An illegal form of market manipulation that attempts to keep the price of a subject security from falling. It is used by those with a long position. See capping.
19
Q
Define: pension plan
A
A contract between an individual and an employer, a labor union, a government entity, or another institution that provides for the distribution of pension benefits at retirement.
20
Q
Define: Pension Reform Act
A
See Employee Retirement Income Security Act of 1974.
21
Q
Define: PE ratio
A
See price-earnings ratio.
22
Q
Define: performance-based fee
A
An investment advisory fee based on a share of capital gains on, or capital appreciation of, client assets. A fee that is based upon a percentage of assets that the IA manages is not a performance-based fee. this fee may only be charged to certain high net worth clients.
23
Q
Define: person
A
As defined in securities law, an individual, corporation, partnership, association, fund, joint stock company, unincorporated organization, trust, government, or political subdivision of a government.
24
Q
Define: personal income (Pl)
A
An individual’s total earnings derived from wages, passive business enterprises, and investments. See disposable income.
25
Define: Pink Sheets
See OTC Link.
26
Define: point
A measure of a bond's price; $10 or 1 % of the par value of $1,000. See basis point.
27
Define: political risk
The risk that an investment's returns could suffer as a result of political changes or instability in a country such as from a change in government, orderly or not, nationalization of industries, or military control.
28
Define: portfolio income
Earnings from interest, dividends, and all nonbusiness investments. See earned income; passive income; unearned income.
29
Define: portfolio manager
The entity responsible for investing a mutual fund's assets, implementing its investment strategy, and managing day-to-day portfolio trading. Syn. fund manager.
30
Define: position
The amount of a security either owned (a long position) or owed (a short position) by an individual or a dealer. Dealers take long positions in specific securities to maintain inventories and thereby facilitate trading.
31
Define: preferred stock
An equity security that represents ownership in a corporation. It is issued with a stated dividend, which must be paid before dividends are paid to common stockholders. It generally carries no voting rights. See callable preferred stock; cumulative preferred stock.
32
Define: preferred stock fund
A mutual fund whose investment objective is to provide stable income with minimal capital risk. It invests in income-producing instruments such as preferred stock. See bond fund.
33
Define: preliminary prospectus
An abbreviated prospectus that is distributed while the SEC is reviewing an issuer's registration statement. It contains all of the essential facts about the forthcoming offering except the underwriting spread, final public offering price, and date on which the shares will be delivered. Syn. red herring.
34
Define: premium
(1) The amount of cash chat an option buyer pays to an option seller. (2) The difference between the higher price paid for a security and the security's face amount at issue. See discount.
35
Define: premium bond
A bond chat sells at a higher price than its face value. See discount bond; par value.
36
Define: premium mode
Insurance companies give policyowners the choice to pay premiums annually, semiannually, quarterly or monthly.
37
Define: present value
The sum of money needed to invest now at a given rate of compound interest to reach a specified amount at a specified future date.
38
Define: price-earnings ratio (PE)
A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation's earnings. It is calculated by dividing the current market price of a stock by the earnings per share. Syn. earnings multiplier.
39
Define: primary offering
An offering in which the proceeds of the underwriting go to the issuing corporation, agency, or municipality. The issuer seeks to increase its capitalization either by selling shares of stock, representing ownership, or by selling bonds, representing loans to the issuer. Syn. primary distribution.
40
Define: prime rate
The interest rate chat commercial banks charge their prime or most creditworthy customers, generally large corporations.
41
Define: principal
(1) Every business transaction has two principals-the buyer and the seller. When a broker-dealer trades for its own account, it is acting in the capacity of a principal. (2) See dealer. (3) See par.
42
Define: principal office and place of business
The firm's executive office from which the firm's officers, partners, or managers direct, control, and coordinate the activities of the firm.
43
Define: principal transaction
A transaction in which a broker-dealer either buys securities from customers and takes chem into its own inventory or sells securities to customers from its inventory. See agency transaction; agent; broker; dealer; principal.
44
Define: private placement
An offering of new issue securities chat complies with Regulation D of the Securities Act of 1933. According to Regulation D, a security generally is not required to be registered with the SEC if it is offered to no more than 35 nonaccredited investors or to an unlimited number of accredited investors. See Regulation D.
45
Define: profitability
The ability to generate a level of income and gain in excess of expenses.
46
Define: profitability ratio
One of several measures of a corporation's relative profit or income in relation to its sales. See margin of profit ratio; return on equity.
47
Define: profit-sharing plan
An employee benefit plan established and maintained by an employer whereby the employees receive a share of the business's profits. The money may be paid directly to the employees or deferred until retirement. A combination of both approaches is also possible.
48
Define: progressive tax
A tax chat takes a larger percentage of the income of high-income earners than chat of low-income earners. An example is the graduated income tax. See regressive tax.
49
Define: proscribed
A term commonly used in legal situations to describe a prohibited action.
50
Define: prospectus
Any notice, circular, advertisement, letter, or communication, in written form or by radio or television, which offers any security for sale.
51
Define: proxy
A limited power of attorney from a stockholder authorizing another person to vote on stockholder issues according to the first stockholder's instructions. To vote on corporate matters, a stockholder must either attend the annual meeting or vote by proxy.
52
Define: prudent expert rule
A modern application of the prudent man rule to those with a fiduciary responsibility over qualified plans coming under the jurisdiction of ERJSA.
53
Define: prudent investor rule
Legally known as the Uniform Prudent Investors Act (UPIA). A modern adaptation of the prudent man rule, which, as a result of the development of modern portfolio theory, applies the standard of prudence to the entire portfolio rather than to individual investments. It requires the fiduciary to measure risk with respect to return.
54
Define: publicly traded fund
See closed-end investment company.
55
Define: public offering
The sale of an issue of common stock, either by a corporation going public or by an offering of additional shares. See initial public offering.
56
Define: public offering price (POP)
(1) The price of new shares that is established in the issuing corporation's prospectus. (2) The price to investors for mutual fund shares, equal to the net asset value plus the sales charge. See ask; bid; mutual fund; net asset value.
57
Define: purchasing power risk
The potential chat, because of inflation, a certain amount of money will not purchase as much in the future as it does today. Syn. inflation risk.
58
Define: put
(1) An option contract giving the owner the right to sell a certain amount of an underlying security at a specified price within a specified time. (2) The act of exercising a put option. See call.
59
Define: QLAC
A qualified longevity annuity contract. If certain limits prescribed by the IRS are met, RMDs do not have to include the value of these contracts until age 85.
60
Define: QTIP trust
A trust that is funded with qualified terminable interest property, meaning that the spouse's interest in the property terminates upon his death; also known as a Q trust, C trust, or current income trust.
61
Define: Qualified Domestic Relations Orders (QDROs)
Premature distributions that are taken pursuant to a qualified domestic relations order, or QDRO, are exempt from the 10% penalty. A QDRO is a court-issued order that gives someone the right to an individual's qualified plan assets, typically an ex- (or soon-to-be-ex-) spouse, and the QDRO is usually issued in the course of divorce proceedings or to satisfy child support obligations. A QDRO applies only to assets in a qualified employer plan; it would not be applicable to an IRA or a SEP.
62
Define: qualified person
Under both state and federal law, a client for whom an investment adviser may charge performance-based fees. Currently, the requirements are a minimum net worth of $2.1 million or at least $1 million in AUM with that adviser.
63
Define: qualified retirement plan
A corporate retirement plan that meets the standards set by the Employee Retirement Income Security Act of 1974. Contributions to a qualified plan are tax deductible. Syn. approved plan. See also individual retirement account; Keogh plan; nonqualified retirement plan.
64
Define: qualified tuition program
The technical name for Section 529 Plans. Syn. QTP.
65
Define: quick asset ratio
A more stringent test of liquidity than the current ratio. It is computed by taking the current assets, less the inventory, and dividing by the current liabilities. Syn. acid test ratio, quick ratio
66
Define: quotation
The price or bid a market maker or broker-dealer offers for a particular security. Syn. quote. See ask; bid; bond quote; stock quote
67
Define: quote machine
A computer that provides representatives and market makers with the information that appears on the Consolidated Tape. The information on the screen is condensed into symbols and numbers.
68
Define: rating
An evaluation of a corporate or municipal bond's relative safety, according to the issuer's ability to repay principal and make interest payments. Bonds are rated by various organizations, such as Standard & Poor's and Moody's. Ratings range from AAA or Aaa (the highest) to C or D, which represents a company in default.
69
Define: rating service
A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. The issuing company or municipality pays a fee for the rating. See bond rating; rating.
70
Define: real estate investment trust (REIT)
A corporation or trust that uses the pooled capital of many investors to invest in direct ownership of either income property or mortgage loans. These investments offer tax benefits in addition to interest and capital gains distributions. However, unlike DPPs, these are not "flow-through" vehicles.
71
Define: realized gain
The amount a taxpayer earns when he sells an asset. See unrealized gain.
72
Define: recession
A general economic decline lasting from six to 18 months (at least two consecutive quarters of declining or negative DGP growth).
73
Define: record date
The date a corporation's board of directors establishes that determines which of its stockholders are entitled to receive dividend distributions or be eligible to vote.
74
Define: redeemable security
A security that the issuer redeems upon the holder's request. Examples include shares in an open-end investment company and Treasury notes.
75
Define: redemption
The return of an investor's principal in a security, such as a bond, preferred stock, or mutual fund shares. By law, redemption of mutual fund shares must occur within seven days of receiving the investor's request for redemption.
76
Define: refunding
Retiring an outstanding bond issue before maturity by using money from the sale of a new debt offering.
77
Define: regional exchange
A stock exchange that serves the financial community in a particular region of the country. These exchanges tend to focus on securities issued within their regions, but also offer trading in NYSE and Nasdaq-listed securities.
78
Define: registration by coordination
A process that allows a security to be sold in a state. It is available to an issuer that @es for the security's registration under the Securities Act of 1933 and files duplicates of the registration documents with the state Administrator. The state registration becomes effective at the same time the federal registration statement becomes effective as long as paperwork is on file with the Administrator for the required period, which ranges from 10 to 20 days depending on the state.
79
Define: registration by qualification
A process that allows a security to be sold in a state. It is available to an issuer who files for the security's registration with the state Administrator, meets minimum net worth, disclosure, and other requirements, and files appropriate registration fees. The state registration becomes effective when the Administrator so orders.
80
Define: registration statement
The legal document that discloses all pertinent information concerning an offering of a security and its issuer. It is submitted to the SEC (and/ or the Administrator) in accordance with the requirements of the Securities Act of 1933 and/or the Uniform Securities Act, and it forms the basis of the final prospectus distributed to investors.
81
Define: regnant
Considered to be the ruling or general position, such as the regnant view on registration requirements.
82
Define: regressive tax
A tax that takes a larger percentage of the income of low-income earners than that of high-income earners. Examples include gasoline tax and cigarette tax. See progressive tax.
83
Define: regulated investment company
An investment company to which Subchapter M of the Internal Revenue Code grants special status that allows the flow-through of tax consequences on a distribution to shareholders. If 90% of its income is passed through to the shareholders, the company is not subject to tax on this income.
84
Define: Regulation D
The provision of the Securities Act of 1933 that exempts from registration offerings sold in private placements. Rule 506(6) limits the sale to a maximum of 35 nonaccredited investors during a 12 -month period with no advertising permitted, while Rule 506(c) permits advertising but requires that all purchasers be accredited investors. See private placement.
85
Define: Regulation T
The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities. Regulation T currently sets the loan value of marginable securities at 50% and the payment deadline at two days beyond regular way settlement. Syn. Reg. T.
86
Define: regulatory risk
The risk that changes in regulations may negatively affect the operations of a company.
87
Define: reinstatement privilege
A benefit offered by some mutual funds, allowing an investor to withdraw money from a fund account and then redeposit the money without paying a second sales charge.
88
Define: remainderman
A remainderman is the person who inherits or is entitled under the law to inherit property upon termination of the estate of the former owner. Usually, this occurs due to the death or termination of the former owner's life estate.
89
Define: remuneration
Money paid for work performed or a service provided.
90
Define: repurchase agreement
Sometimes just referred to as a REPO, this is widely used in the money market where the seller of a security agrees to buy it back (repurchase it) at a higher price (the imputed interest rate).
91
Define: required minimum distribution (RMD)
The amount that traditional and SEP IRA owners and qualified plan participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age70½. Exceptions apply to those covered under a qualified plan who are still employed. RMD amounts must then be distributed by December 31 that year and each subsequent year.
92
Define: reserve requirement
The percentage of depositors 'money that the Federal Reserve Board requires a commercial bank to keep on deposit in the form of cash or in its vault. Syn. reserves.
93
Define: residual claim
The right of a common stockholder to corporate assets in the event that the corporation ceases to exist. A common stockholder may claim assets only after the claims of all creditors and other security holders have been satisfied.
94
Define: resistance level
A technical analysis term describing the top of a stock's historical trading range. See support level. Top of a stock's historical trading range. See support level.
95
Define: restricted security
An unregistered, nonexempt security acquired either directly or indirectly from the issuer, or an affiliate of the issuer, in a transaction that does not involve a public offering. See holding period; Rule 144 .
96
Define: retained earnings
The amount of a corporation's net income that remains after all dividends have been paid to preferred and common stockholders. Syn. earned surplus; reinvested earnings.
97
Define: retiring bonds
Ending an issuer's debt obligation by calling the outstanding bonds, by purchasing bonds in the open market, or by repaying bondholders the principal amount at maturity.
98
Define: return on common equity
A measure of a corporation's profitability, calculated by dividing after-tax income by common shareholders' equity.
99
Define: return on equity
A measure of a corporation's profitability, specifically its return on assets, calculated by dividing after-tax income by tangible assets.
100
Define: return on investment (ROI)
The profit or loss resulting from a security transaction, often expressed as an annual percentage rate.
101
Define: revenue bond
A municipal debt issue whose interest and principal are payable only from the specific earnings of an income-producing public project.
102
Define: reverse churning
The prohibited practice of parking assets that will only be traded infrequently in a fee-based advisory account.
103
Define: reverse split
A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares remains the same. See stock split.
104
Define: revocable trust
A trust that can be altered or canceled by the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.
105
Define: right
A security representing a stockholder's entitlement to the first opportunity to purchase new shares issued by the corporation at a predetermined price (normally less than the current market price) in proportion to the number of shares already owned. Rights are issued for a short time only, after which they expire. Syn. subscription right; subscription right certificate.
106
Define: right of accumulation
A benefit offered by a mutual fund that allows the investor to qualify for reduced sales loads on additional purchases according to the fund account's total dollar value.
107
Define: risk premium
The amount in excess of the risk-free rate demanded by investors to compensate for the additional risks inherent in the specific security being described.
108
Define: risk tolerance
Risk tolerance is an investor's ability and willingness to lose some or all of the original investment in exchange for greater potential returns. An aggressive investor, or one with a high risk tolerance, is more likely to risk losing money in order to get better results. A conservative investor, or one with a low-risk tolerance, tends to favor investments that will preserve the original investment.
109
Define: risk-adjusted return
Return from a security adjusted for the market risk associated with it. Usually measured by the Sharpe ratio.
110
Define: risk-free rate
Generally refers to the interest rate of 13 week (91-day) U.S. Treasury bills.
111
Define: Roth 401(k)
As with a Roth IRA, contributions are not tax deductible, but qualified withdrawals are free from income tax. There are no earnings limits in order to participate, but it is required that distributions begin no later than age 70½.
112
Define: Roth IRA
Funded with after-tax contributions, but, if qualified, withdrawals are tax-free. There are earnings limits but no required distributions at age 70½.
113
Define: Rule 144
SEC rule requiring that persons who hold control or restricted securities may sell them only in limited quantities, and that all sales of restricted stock by control persons must be reported to the SEC by filing a Form 144, Notice of Proposed Sale of Securities. See control security; restricted security.
114
Define: Rule 147
SEC rule that provides exemption from the registration statement and prospectus requirements of the 1933 Act for securities offered and sold exclusively intrastate.
115
Define: safe harbor
A provision in a regulatory scheme that provides protection against legal action if stated procedures are followed. In this exam, it may apply in three different cases: (1) Section 28(e) of the Securities Exchange Act of 1934 describes those research and brokerage activities that may be received by an investment adviser in exchange for directed brokerage transactions; (2) Section 404c of ERISA describes what a fiduciary of a qualified plan must do to minimize personal responsibility; and (3) top-heavy 401 (k) concerns are minimized if the employer covers all employees with immediate vesting. See soft dollar compensation; top heavy.
116
Define: sales load
The amount added to a mutual fund share's net asset value to arrive at the offering price. See mutual fund; net asset value; no-load fund.
117
Define: Savings Incentive Match Plan for Employees
A form of employer sponsored IRA for businesses that have 100 or fewer employees who earned $5,000 or more during the preceding calendar year. In addition, the employer cannot currently have another retirement plan.
118
Define: S corporation
A small business corporation chat meets certain requirements and is taxed as a partnership while retaining limited liability. Syn. Subchapter S corporation.
119
Define: Schedule K-1
The form supplied by a partnership, LLC, or S corporation to owners indicating their proportionate share of income/loss co be reported on their Form 1040 tax returns.
120
Define: secondary distribution
A distribution, with a prospectus, chat involves securities owned by major stockholders (typically founders or principal owners of a corporation). The sale proceeds go to the sellers of the stock, not to the issuer.
121
Define: secondary market
The market in which securities are bought and sold subsequent to their being sold to the public for the first time. See new issue market.
122
Define: secondary offering
A sale of securities in which one or more major stockholders in a company sell all or a large portion of their holdings; the underwriting proceeds are paid to the stockholders rather than co the corporation. Typically, such an offering occurs when the founder of a business (and perhaps some of the original financial backers) determine chat there is more to be gained by going public than by staying private. The offering does not increase the number of shares of stock outstanding. See secondary distribution.
123
Define: Section 457 Plan
A deferred compensation plan set up under Section 457 of the tax code that may be used by employees of a state, political subdivision of a state, and any agency or instrumentality of a state. this plan may also be offered to employees of certain tax-exempt organizations (hospitals, charitable organizations, unions, and so forth), but not churches. Even independent contractors may be covered under these plans.
124
Define: Section 28(e)
A code section of the Securities Exchange Act of 1934 hat deals with soft dollar compensation. See soft dollar compensation; state harbor.
125
Define: sector fund
A mutual fund whose investment objective is to capitalize on the return potential provided by investing primarily in a particular industry or sector of the economy. Syn. industry fund; specialized fund.
126
Define: sector rotation
An active portfolio management technique that attempts to take advantage of the fact that different sectors of the economy rise and fall in the business cycle at different times. Rotating from one to the other at the right times can lead to investment success. Syn. Sector rotating. See active management style.
127
Define: secured bond
A debt security backed by identifiable assets set aside as collateral. In the event that the issuer defaults on payment, the bondholders may lay claim to the collateral. See debenture.
128
Define: Securities Act of 1933
Federal legislation requiring the full and fair disclosure of all material information about the issuance of new securities. Syn. Act of 1933; Full Disclosure Act; New Issues Act; Prospectus Act; Trust in Securities Act; Truth in Securities Act.
129
Define: Securities Amendments Act of 1975
Federal legislation chat established the Municipal Securities Rulemaking Board.
130
Define: Securities and Exchange Commission (SEC)
Commission created by Congress to regulate the securities markets and protect investors. It is composed of five commissioners appointed by the President of the United States with the advice and consent of the Senate. The SEC enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.
131
Define: Securities Exchange Act of 1934
Federal legislation that established the Securities and Exchange Commission. The act aims to protect investors by regulating the exchanges, the OTC market, the extension of credit by the Federal Reserve Board, broker-dealers, insider transactions, trading activities, client accounts, and net capital. Syn. Act of 1934; Exchange Act.
132
Define: Securities Information Processor (SIP)
A system chat consolidates quote and trade data for U.S. stocks.
133
Define: Securities Investor Protection Corporation (SIPC)
A nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms chat are forced into bankruptcy. Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most FINRA members. SIPC provides brokerage firm customers up to $500,000 coverage for cash and securities held by the firms (although cash coverage is limited to$250,000).
134
Define: security
Other than an insurance policy or a fixed annuity, any piece of securitized paper chat can be traded for value. Under the Uniform Securities Act, this includes any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-crust certificate; preorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
135
Define: security market index
A security market index is used to represent the performance of an asset class, security market, or segment of a market. They are usually created as portfolios of individual securities, which are referred to as the constituent securities of the index. An index has a numerical value that is calculated from the market prices (actual when available, or estimated) of its constituent securities at a point in time. An index return is the percentage change in the index's value over a period of time. Popular examples are the S&P 500 and the Russell 2000.
136
Define: self-regulatory organization (SRO)
One of eight organizations accountable to the SEC for the enforcement of federal securities laws and the supervision of securities practices within an assigned field of jurisdiction. For example, the National Association of Securities Dealers regulates the over-the-counter market; the Municipal Securities Rulemaking Board supervises state and municipal securities; and certain stock exchanges, such as the New York Stock Exchange and the Chicago Board Options Exchange, act as self-regulatory bodies to promote ethical conduct and standard trading practices.
137
Define: sell
To convey ownership of a security or another asset for money or value. This includes giving or delivering a security with or as a bonus for a purchase of securities, a gift of assessable stock, and selling or offering a warrant or right to purchase or subscribe to another security. Not included in the definition is a bona fide pledge or loan or a stock dividend if nothing of value is given by the stockholders for the dividend. Syn. sale.
138
Define: selling away
An associated person engaging in private securities transactions without the employing broker-dealer's knowledge and consent. This violates the NASAA Policy on prohibited practices.
139
Define: selling dividends
Inducing customers co buy mutual fund shares by implying that an upcoming distribution will benefit them. This practice is illegal.
140
Define: sell stop order
An order to sell a security that is entered at a price below the current market price and that is triggered when the market price touches or goes through the sell stop price.
141
Define: senior security
A security that grants its holder a prior claim to the issuer's assets over the claims of another security's holders. For example, a bond is a senior security over common stock.
142
Define: separate account
The account that holds funds paid by variable annuity contract holders. The funds are kept separate from the insurer's general account and are invested in a portfolio of securities that match the contract holders' objectives. See accumulation unit; annuity.
143
Define: settlor
An individual or organization that gifts assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries. Syn. granter, trustor.
144
Define: Sharpe ratio
The Sharpe ratio measures the risk adjusted return of an investment. It is calculated by dividing the excess return of an asset over the 91-day Treasury bill rate by its standard deviation. It measures the reward per unit of risk so the higher the ratio, the better.
145
Define: short
The term used to describe the selling of a security, contract, or commodity that the seller does not own. For example, an investor who borrows shares of stock from a broker-dealer and sells them on the open market is said to have a short position in the stock. See long.
146
Define: short sale
The sale of a security that the seller does not own, or any sale consummated by the delivery of a security borrowed by or for the account of the seller.
147
Define: short-term capital gain
The profit realized on the sale of an asset that has been owned for 12 months or less. See capital gain; capital loss; short-term capital loss.
148
Define: short-term capital loss
The loss incurred on the sale of a capital asset that has been owned for 12 months or less. See capital gain; capital loss; short-term capital gain.
149
Define: side-by-side management
The practice of managing accounts that are charged performance-based fees while at the same time managing accounts that are not charged performance-based fees.
150
Define: SIMPLE Plan
See Savings Incentive Match Plan for Employees.
151
Define: simple trust
A trust that accumulates income and distributes it to its beneficiaries on an annual basis.
152
Define: small-cap
Stocks with a market capitalization of $300 million to $2 billion.
153
Define: socially responsible investing (SRI)
Also known as sustainable, socially conscious, "green" or ethical investing-is an impact investment strategy which seeks co consider both financial return and social good. In general, socially responsible investors encourage corporate practices chat promote environmental stewardship, consumer protection, human rights, and diversity.
154
Define: soft dollar compensation
Noncash compensation received by an investment adviser from a broker-dealer, generally in exchange for directed brokerage transactions. Muse always be disclosed and should come under the safe harbor provisions of Section 28(e). See safe harbor.
155
Define: solicitor
A person either contracted or employed by an investment adviser for the purpose of bringing in advisory business. If an employee, registration as an IAR is required. If contracted, the person muse not be statutorily disqualified from registration and is subject to the terms of a written agreement between the IA and the solicitor.
156
Define: solvency
The ability of a corporation both to meet its long-term fixed expenses and co have adequate money for long-term expansion and growth.
157
Define: specialist
Stock exchange member who stands ready to quote and trade certain securities either for his own account or for customer accounts. The specialist's role is co maintain a fair and orderly market in the stocks for which he is responsible. Syn. designated market maker, DMM.
158
Define: special situation fund
A mutual fund whose objective is to capitalize on the profit potential of corporations in nonrecurring circumstances, such as chose undergoing reorganizations or being considered as takeover candidates.
159
Define: speculation
Trading a security with a higher than average risk in return for a higher than average profit potential. The trade is effected solely for the purpose of profiting from it and not as a means of hedging or protecting ocher positions.
160
Define: spousal IRA
A separate individual retirement account established for a spouse with little or no earned income. Contributions co the account made by the working spouse grow tax deferred until withdrawal.
161
Define: spread
In a quotation, the difference between a security's bid and ask prices.
162
Define: Standard & Poor's Composite Index of 500 Stocks (S&P 500)
A value-weighted index chat offers broad coverage of the securities market. It is composed of 400 industrial stocks, 40 financial stocks, 40 public utility stocks, and 20 transportation stocks. The index is owned and compiled by Standard & Poor's Corporation. See index; Standard & Poor's Corporation; Standard & Poor's 100 Stock Index.
163
Define: Standard & Poor's Corporation (S&P)
A company that rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes. The company also publishes a variety of financial and investment reports. See bond rating; Moody's Investors Service; rating; Standard & Poor's 100 Stock Index; Standard & Poor's Composite Index of 500 Stocks.
164
Define: standard deviation
A measurement of a security's or a portfolio's total risk. The greater the standard deviation, the more the security's returns deviate from its average return, hence indicating greater volatility. See total risk.
165
Define: standardized contract
A futures contract in which all the contract terms are sec by the exchange except for price.
166
Define: standardized options
Options contracts trading on a national securities exchange, or an automated quotation system of a registered securities association, which relate co options classes the terms of which are limited to specific expiration dates and exercise prices.
167
Define: static content
Social media content that rarely changes and can only be changed by the author of the content. Examples would be an investment adviser's website.
168
Define: stock certificate
Printed evidence of ownership in a corporation.
169
Define: stock dividend
A dividend paid in additional shares of the issuer's stock rather than in cash. Unlike cash dividends, stock dividends are not taxable when received. They lower the cost basis of the current shareholdings and are only subject to capital gains tax when sold.
170
Define: stock exchange
Any organization, association, or group of persons that maintains or provides a marketplace in which securities can be bought and sold. Examples include the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE).
171
Define: stock split
An increase in the number of a corporation's outstanding shares, which decreases its stock's par value. The market value of the total number of shares remains the same. The proportional reductions in orders held on the books for a split stock are calculated by dividing the stock's market price by the fraction chat represents the split.
172
Define: stop limit order
A customer order that becomes a limit order when the market price of the security reaches or passes a specific price. See limit order; stop order.
173
Define: stop order
(1) A directive from the SEC or the Administrator chat suspends the sale of new issue securities to the public when fraud is suspected or filing materials are deficient. (2) A customer order that becomes a market order when the market price of the security reaches or passes a specific price. See limit order; market order; stop limit order.
174
Define: street name
Term used in the industry to refer to customer securities held in the name of the broker-dealer as nominee.
175
Define: subordinated debenture
A debt obligation, backed by the general credit of the issuing corporation, that has claims to interest and principal subordinated to ordinary debentures and all other liabilities. See debenture.
176
Define: successor firm
A new entity which takes over (succeeds) an existing one and continues the business, generally under a new name.
177
Define: suitability
A determination made by an agent as to whether a particular security matches a customer's objectives and financial capability. The agent must have enough information about the customer to make this judgment.
178
Define: supply
The total amount of a good or service available for purchase by consumers. See demand.
179
Define: supply-side theory
An economic theory holding that bolstering an economy's ability to supply more goods is the most effective way to stimulate economic growth. Supply-side theorists advocate income tax reduction insofar as this increases private investment in corporations, facilities, and equipment.
180
Define: support level
A technical analysis term describing the bottom of a stock's historical trading range. See resistance level.
181
Define: systematic risk
The potential for a security to decrease in value owing to its inherent tendency to move together with all securities of the same type. Neither diversification nor any other investment strategy can eliminate this risk. Systematic risks are sometimes referred to as external risk factors because they take place outside of the company being analyzed. See market risk, unsystematic risk .
182
Define: taxable gain
The portion of a sale or distribution of mutual fund shares subject to taxation.
183
Define: tax credit
An amount that can be subtracted from a tax liability, often in connection with real estate development, energy conservation, and research and development programs. Every dollar of tax credit reduces the amount of tax due, dollar for dollar. See deduction.
184
Define: tax-equivalent yield
The rate of return a taxable bond must earn before taxes in order to equal the tax-exempt earnings on a municipal bond. This number varies with the investor's tax bracket.
185
Define: tax-exempt bond fund
A mutual fund whose investment objective is to provide maximum tax-free income. It invests primarily in municipal bonds and short-term debt. Syn. tax-free bond fund.
186
Define: tax liability
The amount of tax payable on earnings, usually calculated by subtracting standard and itemized deductions and personal exemptions from adjusted gross income, then multiplying by the tax rate. See adjusted gross income.
187
Define: tax preference item
An element of income that receives favorable tax treatment. The item must be added to taxable income when computing alternative minimum tax. Tax preference items include accelerated depreciation on property, research and development costs, intangible drilling costs, tax-exempt interest on municipal private purpose bonds, and certain incentive stock options. See alternative minimum tax.
188
Define: tax-sheltered annuity (TSA)
An annuity contract that entitles the holder to exclude all contributions from gross income in the year they are made. Taxes payable on the earnings are deferred until the holder withdraws funds at retirement. TSAs are available primarily through a 403(b) plan to employees of public schools, church organizations, and other tax-exempt organizations. Syn. tax-deferred annuity.
189
Define: technical analysis
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value. See chartist; fundamental analysis.
190
Define: Telephone Consumer Protection Act of 1991 (TCPA)
Federal legislation restricting the use of telephone lines for solicitation purposes. A company soliciting sales via telephone, facsimile, or email must disclose its name and address to the called party and must not call any person who has requested not to be called.
191
Define: tenants in common (TIC)
A form of joint ownership of an account whereby a deceased tenant's fractional interest in the account is retained by his estate. See joint tenants with right of survivorship.
192
Define: tenants by the entirety
A form of joint ownership only available to married couples. Unlike other forms, it requires consent of both parties in order to effect transactions.
193
Define: tergiversation
The practice of continually changing one's mind, attitude, or opinion.
194
Define: testamentary trust
A trust created as a result of instructions from a deceased's last will and testament.
195
Define: testator
The legal term for a person who makes a will.
196
Define: testimonial
An endorsement of an investment or service by a celebrity or public opinion influencer. The use of testimonials by investment advisers is prohibited.
197
Define: theta
One of the four Greeks used by options analysts. An option's theta is a measurement of the option's time decay. The theta measures the rate at which options lose their value, specifically the time value, as the expiration dace draws nearer. Genera1ly expressed as a negative number, the theta of an option reflects the amount by which the option's value will decrease every day.
198
Define: time horizon
Time horizon is the expected number of months, years, or decades over which the investments will be made to achieve a particular financial goal. An investor with a longer time horizon may feel more comfortable taking on a riskier, or more volatile, investment because that investor can wait out slow economic cycles and the inevitable ups and downs of our markets. By contrast, an investor saving up for a teenager's college education would likely cake on less risk because of the shorter time horizon.
199
Define: time value
Tue amount an investor pays for an option above its intrinsic value; it reflects the amount of time left until expiration. The amount is calculated by subtracting the intrinsic value from the premium paid. See intrinsic value.
200
Define: tombstone advertisement
A printed advertisement that is used to generate interest in a securities offering. the text is limited to basic information about the offering, such as the name of the issuer, type of security, names of the underwriters, and where a prospectus is available. A tombstone ad is not considered to be an offering of the subject security.
201
Define: top heavy
The term used to describe a 401 (k) plan that offers a disproportionate benefit to key employees. Top-heavy testing must be done on an annual basis unless the plan qualifies as a safe harbor 401 (k). See safe harbor.
202
Define: total capitalization
The sum of a corporation's long-term debt, stock accounts, and capital in excess of par.
203
Define: total risk
(As measured by standard deviation) can be broken down into its component parts: unsystematic risk and systematic risk. That is, total risk = systematic risk + unsystematic risk.
204
Define: toxic debt
Debt whose quality has dropped and is now indicating a high likelihood of default. This can be toxic for the investor's portfolio.
205
Define: trading authorization
See full trading authorization; limited trading authorization.
206
Define: tranche
A class of bonds. Collateralized mortgage obligations are structured with several tranches of bonds that have various maturities. It comes from the French word for slice.
207
Define: transfer agent
A person or corporation responsible for recording the names and holdings of registered security owners, seeing that certificates are signed by the appropriate corporate officers, affixing the corporate seal, and delivering securities co the new owners.
208
Define: treasury bill
A marketable U.S. government debt security with a maturity of less than one year. Treasury bills are issued through a competitive bidding process at a discount from par; they have no fixed interest rate. Syn. T-bill.
209
Define: Treasury bond
A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Syn. T-bond.
210
Define: Treasury note
A marketable, fixed-interest U.S. government debt security with a maturity of between 2 and 10 years. Syn. T-note.
211
Define: trend line
A tool used by technical analysts to trace a security's movement by connecting the reaction lows in an upward trend or the rally highs in a downward trend.
212
Define: trough
The end of a period of declining business activity throughout the economy, one of the four stages of the business cycle. See business cycle.
213
Define: trustee
A person legally appointed to act on a beneficiary's behalf.
214
Define: trustor
An individual or organization chat gifts assets to a beneficiary by transferring fiduciary duty to a third-party trustee that will maintain the assets for the benefit of the beneficiaries. Syn. settlor, grantor.
215
Define: 12b-1 asset-based fees
Investment Company Ace of 1940 provision that a1lows a mutual fund to collect a fee for the promotion or sale of or another activity connected with the distribution of its shares. This fee will not exceed 0.75%.
216
Define: underlying securities
The securities that are bought or sold when an option, right, or warrant is exercised.
217
Define: underwriter
An investment banker that works with an issuer to help bring a security to the market and sell it to the public.
218
Define: underwriting
The procedure by which investment bankers channel investment capital from investors to corporations and municipalities that are issuing securities.
219
Define: unearned income
Income derived from investments and other sources not related to employment services. Examples of unearned income include interest from a savings account, bond interest, and dividends from stock. See earned income; passive income; portfolio income.
220
Define: Uniform Gift to Minors Act (UGMA)
Legislation that permits a gift of money or securities to be given to a minor and held in a custodial account that an adult manages for the minor's benefit. Income and capital gains transferred to a minor's name are usually taxed at the minor's rate. However, if the child is under a specified age and has unearned income above a certain level, those earnings are taxed at trust rates. See Uniform Transfers to Minors Act.
221
Define: Uniform Securities Act (USA)
Model legislation for securities industry regulation at the state level. Each state may adopt the legislation in its entirety or it may adapt it (within limits) to suit its needs.
222
Define: Uniform Transfers to Minors Act (UTMA)
Legislation adopted in most states that permits a gift of money or securities to be given to a minor and held in a custodial account that an adult manages for the minor's benefit until the minor reaches a certain age (not necessarily the age of majority). Income and capital gains transferred to a minor's name are usually taxed at the minor's rate. However, just as with UGMA, if the child is under a specified age and has unearned income above a certain level, those earnings are taxed at trust rates. See Uniform Gift to Minors Act.
223
Define: unit
A share in the ownership of a direct participation program that entitles the investor to an interest in the program's net income, net loss, and distributions.
224
Define: unit investment trust (UIT)
An investment company that sells redeemable shares in a professionally selected portfolio of securities. It is organized under a trust indenture, not a corporate charter.
225
Define: unit of beneficial interest
A redeemable share in a unit investment trust, representing ownership of an undivided interest in the underlying portfolio. Syn. share of beneficial interest. See unit investment trust.
226
Define: unrealized gain
The amount by which a security appreciates in value before it is sold. Until it is sold, the investor does not actually possess the sale proceeds. See realized gain.
227
Define: unsystematic risk
The potential for an unforeseen event to affect the value of a specific investment. Examples of such events include strikes, natural disasters, poor management decisions, introductions of new product lines, and attempted takeovers. This risk is diversifiable. Unsystematic risks are sometimes referred to as internal risk factors because they deal with risk arising from the events taking place within the company Syn. nonsystematic risk. See systematic risk
228
Define: U.S. government and agency bond fund
A mutual fund whose investment objective is to provide current income while preserving safety of capital through investing in securities backed by the U.S. Treasury or issued by a government agency.
229
Define: value style investing
A management style that looks for stocks currently selling at distressed prices that have solid underlying fundamentals. These stocks typically sell at the lower end of their 52-week price range and have low P/E ratios and higher than average dividend payout ratios. See growth style investing.
230
Define: vega
One of the four Greeks used by options analysts. An option's vega is a measure of the impact of changes in the underlying volatility on the option price. Specifically, the vega of an option expresses the change in the price of the option for every 1 % change in underlying volatility.
231
Define: vesting
(1) An ERISA guideline stipulating that employees must be entitled to their entire retirement benefits within a certain period of time even if no longer employed. (2) The amount of time that an employee must work before retirement or before benefit plan contributions made by the employer become the employee's property without penalty. The IRS and the Employee Retirement Income Security Act of 1974 set minimum requirements for vesting in a qualified plan.
232
Define: volatility
The magnitude and frequency of changes in the price of a security or commodity within a given period.
233
Define: volume of trading theory
A technical analysis theory holding that the ratio of the number of shares traded to total outstanding shares indicates whether a market is strong or weak.
234
Define: voting trust certificate
A certificate issued by a voting trustee to the beneficial holders of shares held by the voting trust. It is readily transferable and is considered a security.
235
Define: warrant
A security that gives the holder the right to purchase securities from the warrant issuer at a stipulated subscription price. Warrants are usually long-term instruments, with expiration dates years in the future.
236
Define: wash sale
Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS disallows the claimed loss.
237
Define: wash trade
A wash trade occurs when a customer enters a purchase order and a sale order for the same security at the same time. It is done to create a false appearance of activity in a security. This is a prohibited practice.
238
Define: Wells notice
A Wells notice indicates that the regulator intends to bring an enforcement action against an individual or a business. If the notice is against a publicly traded company, it usually has the effect of depressing the current market price.
239
Define: Wilshire 5000
The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. As of the dace of printing, it includes some 3,700 issues.
240
Define: withdrawal plan
A benefit offered by a mutual fund whereby a customer receives the proceeds of periodic systematic liquidation of shares in the account. The amounts received may be based on a fixed dollar amount, a fixed number of shares, a fixed percentage, or a fixed period.
241
Define: working capital
A measure of a corporation's liquidity-that is, its ability to transfer assets into cash to meet current short-term obligations. It is calculated by subtracting total current liabilities from total current assets.
242
Define: wrap fee program
Any advisory program under which a specified fee or fees not based directly upon transactions in a client's account is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions. The exclusion from the definition of investment adviser available under both state and federal law to broker-dealers is not in effect for those offering wrap fee programs.
243
Define: yield
The rate of return on an investment, usually expressed as an annual percentage rate. See current yield; dividend yield; nominal yield.
244
Define: yield curve
A graphic representation of the actual or projected yields of fixed-income securities in relation to their maturities. In most cases, the securities of a single issuer are plotted over varying maturities. See Bat yield curve; inverted yield curve.
245
Define: yield spread
The difference in yield between two debt securities, usually with similar quality and different maturities or similar maturities and different quality. Syn. credit spread.
246
Define: yield to call (VTC)
The rate of return on a bond that accounts for the difference between the bond's acquisition cost and its proceeds, including interest income, calculated to the earliest date that the bond may be called by the issuing corporation. See bond yield.
247
Define: yield to maturity (VTM)
The rate of return on a
bond that accounts for the difference between the bond's acquisition cost and its maturity proceeds, including interest income. See bond yield.
248
Define: zero-coupon bond
A debt security usually issued at a deep discount from face value. The bond pays no interest; rather, it may be surrendered at maturity for its full face value. The duration of a zero-coupon bond is equal to its maturity
