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Pass the 7 > Glossary > Flashcards

Glossary Flashcards

1
Q

A-Shares

A

Mutual fund shares sold with a front-end sales load/charge. Lower annual expenses than B- and C-shares.

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2
Q

Account at maintenance

A

The point at which a customer’s equity in a margin account is just high enough to avoid a margin call.

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3
Q

Account Executive (AE)

A

Another name for a registered representative or agent.

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4
Q

Account Statement

A

Document sent to a broker-dealer customer showing the recent value of all cash and securities, plus all recent activity in an investment account.

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5
Q

Accounts Payable

A

What the company owes its vendors, a current liability.

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6
Q

Accounts Receivable

A

What customers owe a corporation, a current asset.

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7
Q

Accredited Investors

A

Large institutional investors, and individuals meeting certain income or net worth requirements allowing them to participate in, for example, a private placement under
Reg D of the Securities Act of 1933, or hedge funds.

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8
Q

Accretion

A

Increasing the cost basis of a discount bond for tax purposes

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9
Q

Accrued Interest

A

The interest that the buyer of a debt security owes the seller. Bond interest is payable only twice a year, and the buyer will receive the next full interest payment. Therefore, the buyer owes the seller for every day of interest since the last payment up to the day before the transaction settles.

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10
Q

Accrued Taxes

A

Taxes that are owed by a corporation, a current liability.

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11
Q

Accrued Wages

A

Wages that are owed by a corporation, a current liability.

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12
Q

Accumulation Stage/Period

A

The period during which contributions are made to an annuity, during which the investor holds “accumulation units.”

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13
Q

Accumulation Units

A

What the purchaser of an annuity buys during the pay-in or accumulation phase, an accounting measure representing a proportional share of the separate account during the accumulation/deposit stage.

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14
Q

Ad Valorem

A

Property tax. Literally “as to value.”

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15
Q

Additional Takedown

A

Piece of the spread that goes to the various members of the syndicate when the bonds they’ve been allotted are sold.

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16
Q

Adjustable Rate Preferred Stock

A

Preferred stock whose dividend is tied to another rate, often the rate paid on T-bills.

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17
Q

Adjusted Gross Income (AGI)

A

Earned income plus passive income, portfolio income, and capital gains. The amount upon which we pay income tax.

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18
Q

Adjustment Bond

A

Another name for an “income bond,” on which the issuer may skip interest payments without going into default.

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19
Q

Administrator

A

(1) The securities regulator of a particular state; (2) A person or entity authorized by the courts to liquidate an estate.

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20
Q

ADR/ADS

A

American Depository Receipt/Share. A foreign stock on a domestic market. Toyota and Nokia are two examples of foreign companies whose ADRs trade on American stock markets denominated in dollars. Carry all the risks of owning stocks, plus “currency exchange risk.”

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21
Q

Advance Refunding/Pre-refunding

A

Issuing new bonds and depositing part of the proceeds in escrow ahead of the first legal call date on the existing bond issue.

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22
Q

Advance/Decline Line

A

The number of stocks whose market prices increased versus the number of stocks whose market prices decreased during a trading session.

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23
Q

Advertising

A

Communications by a member firm directed at a general, uncontrolled audience, e.g., billboard, radio/TV/newspaper ads, website.

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24
Q

Affiliated Investor

A

A person who is an officer or director of the issuer, or a 10%+ owner of its common stock.

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25
Q

Affiliated Person

A

Anyone in a position to influence decisions at a public corporation, including board members (directors), officers (CEO, CFO), and large shareholders (Warren Buffett at Coca-Cola or Wells Fargo).

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26
Q

Agency Issue (Agency Bond)

A

A debt security issued by an agency authorized by the federal government but not directly backed by the federal government.

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27
Q

Agency Transaction

A

A securities transaction in which the broker-dealer acts as an agent for the buyer or seller, completing the transaction between the customer and another party.

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28
Q

Agent

A

An individual representing a broker-dealer or issuer in effecting/completing transactions in securities for compensation. What you will be after passing your exams and obtaining your securities license.

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29
Q

Agreement Among Underwriters

A

A document used by an underwriting syndicate bringing an issue of securities to the primary market. This document sets forth the terms under which each member of the syndicate will participate and details the duties and responsibilities of the syndicate manager.

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30
Q

AIR

A

Assumed Interest Rate. Determined by an actuary, representing his best estimate of the monthly annualized rate of return from the separate account. Used to determine value of annuity units for annuities and death benefit for variable life contracts.

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31
Q

All or None

A

A type of underwriting in which the syndicate will cancel the offering if a sufficient dollar amount is not raised as opposed to being responsible for the unsold shares (as in a “firm commitment”). Also a type of order on the secondary market in which the investor wants the order to be canceled if the broker cannot acquire the full number of shares on one attempt.

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32
Q

American Stock Exchange (AMEX)

A

A private, not-for-profit corporation that handles roughly 20% of all securities trades in the U.S. One of the big secondary markets, along with NYSE, and the various NASDAQ markets.

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33
Q

American Style

A

An option that can be exercised at any time up to expiration.

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34
Q

Amortize

A

Reducing the cost basis on an intangible item, i.e. a bond premium.

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35
Q

AMT (Alternative Minimum Tax)

A

Tax computation that adds certain “tax preference items” back into adjusted gross income. Some municipal bond interest is treated as a “tax preference item” that can raise the investor’s tax liability through the AMT.

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36
Q

Annual Compliance Review

A

A broker-dealer’s annual compliance meeting that is mandatory for principals and registered representatives.

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37
Q

Annual Report

A

A formal statement issued by a corporation to the SEC and shareholders discussing the company’s results of operations, challenges/risks facing the company, any lawsuits against the company, etc. Required by the Securities Exchange Act of 1934.

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38
Q

Annuitant

A

The person who receives an annuity contract’s distribution.

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39
Q

Annuitize

A

The process of changing the annuity contract from the “pay-in” or accumulation phase to the “pay-out” or distribution phase. Defined benefit pension plans, such as the ones that have done so much good for GM and Ford, generally offer their pensioners either a lump sum
payment or the chance to annuitize. Hint to all pensioners—take the LUMP SUM!

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40
Q

Annuity Units

A

What the annuitant holds during the pay-out phase. Value tied to AIR.

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41
Q

Annuity

A

A contract between an individual and an insurance company that generally guarantees income for the rest of the individual’s life in return for a lump-sum or periodic payment to the insurance company.

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42
Q

Anticipation Notes

A

Short-term debt obligations of a municipality typically held primarily by tax- exempt money market mutual funds.

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43
Q

Appreciation

A

The increase in an asset’s value that is not subject to tax until realized.

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44
Q

Arbitrage

A

A word that has no business being mentioned on the Series 7. Arbitrage involves taking advantage of the disparity of two things. If you think GE will buy a small company, you can make a bet that GE will temporarily drop and the small company’s stock will skyrocket. Then, when you make your fantastic and fortuitous gain, you can explain to the SEC how you happened to make that bet.

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45
Q

Arbitration

A

Settling a dispute without going to an actual court of law.

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46
Q

Arbitration Award

A

The decision rendered through FINRA Arbitration.

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47
Q

Ask, Asked

A

The higher price in a quote representing what the customer would have to pay/what the dealer is asking the customer to pay. Customers buy at the ASK because dealers sell to customers at the ASK price. Ask/asked is also called “offer/offered.”

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48
Q

Assessed Value

A

The value of property used to calculate property tax. For example, a home with a market value of $300,000 might have an assessed value of $150,000 against which the rate of tax is applied.

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49
Q

Asset Allocation

A

Maintaining a percentage mix of equity, debt, and money market investments, based either on the investor’s age (strategic) or market expectations (tactical).

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50
Q

Assets

A

Something that a corporation or individual owns, e.g., cash, investments, accounts receivable, inventory, etc.

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51
Q

Associated Person

A

A registered representative or principal of a FINRA member firm.

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52
Q

Assumed Interest Rate

A

Assumed Interest Rate. Determined by an actuary, representing his best estimate of the monthly annualized rate of return from the separate account. Used to determine value of annuity units for annuities and death benefit for variable life contracts.

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53
Q

Auction Market

A

The NYSE, for example, where buyers and sellers simultaneously enter competitive prices. Sometimes called a “double auction” market because buying and selling occur at the same time.

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54
Q

Auction Rate Securities

A

Debt securities with a variable rate of interest or preferred stock with a variable dividend rate that is re-set at regular auctions.

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55
Q

Authorized Stock

A

Number of shares a company is allowed to issue by its corporate charter. Can be changed by a majority vote of the outstanding shares.

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56
Q

Automated Client Account Transfer (ACAT)

A

A system that provides instructions among broker- dealers for transfer and delivery of customer assets.

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57
Q

Automatic Reinvestment

A

A feature offered by mutual funds allowing investors to automatically reinvest dividend and capital gains distributions into more shares of the fund, without paying a sales charge.

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58
Q

Average Cost Basis

A

A method of figuring cost basis on securities for purposes of reporting capital gains and/or losses. The investor averages the cost for all purchases made in the stock, as opposed to identifying particular shares to the IRS when selling.

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59
Q

B-Shares

A

Mutual fund shares charging a load only when the investor redeems/sells the shares. Associated with “contingent deferred sales charges.” B-shares have higher operating expenses than A-shares by way of a higher 12b-1 fee. Although the back-end load or “contingent deferred sales charges” decline over time, the higher 12b-l fee usually makes B-shares appropriate only for investors who lack the ability to reach the first or second breakpoint offered on A-shares.

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60
Q

Backdating

A

Pre-dating a letter of intent (LOI) for a mutual fund in order to include a prior purchase in the total amount stated in the letter of intent. LOIs may be backdated up to 90 calendar days.

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61
Q

Back-end Load

A

A commission/sales fee charged when mutual fund or variable contracts are redeemed. The back-end load declines gradually, as described in the prospectus. Associated with “B-shares” and, occasionally, “C-shares.”

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62
Q

Backing Away

A

A violation in which a market maker fails to honor a published firm quote to buy or sell a security at a stated price.

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63
Q

Backup Withholding

A

A required withholding from an investment account that results when the customer refuses/fails to provide a tax identification number.

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64
Q

Balance Sheet

A

A financial statement of a corporation or individual showing financial condition (assets vs. liabilities) at a particular moment in time.

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65
Q

Balance Sheet Equation

A

Assets - Liabilities = Shareholders’ Equity, or Assets = Liabilities + Shareholders’ Equity.

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66
Q

Balanced Fund

A

A fund that maintains a mix of stocks and bonds at all times. Asset allocation funds are a type of balanced fund (or so darned close that they should be).

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67
Q

Bank Qualified Municipal Bond

A

Municipal bonds that allow banks to deduct 80% of the interest costs incurred to buy them.

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68
Q

Bankers’ Acceptance (BA)

A

Money-market security that facilitates importing/exporting. Issued at a discount from face-value. A secured loan.

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69
Q

Bar

A

The most severe sanction that FINRA can impose on an individual, effectively ending his/ her career.

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70
Q

Basis Points

A

A way of measuring bond yields or other percentages in the financial industry. Each basis point is 1% of 1%. Example: 2% = .0200 = 200 basis points. 20 basis points = .2% or 2/10ths of 1%.

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71
Q

Basis Quote

A

The price at which a debt security can be bought or sold, based on the yield. A bond purchased at a “5.50 basis” is trading at a price that makes the yield 5.5%.

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72
Q

Bear Market

A

A market for stock or bonds in which prices are falling and/or expected to fall.

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73
Q

Bear Spread

A

A call or put spread in which the investor benefits if the underlying instrument’s value drops. For example, an investor who buys the ABC Aug 50 call and sells the ABC Aug 45 call establishes a bear spread. The spread would also happen to be a “credit spread” in this case.

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74
Q

Bearer Bond

A

An unregistered bond that pays principal to the bearer at maturity. Bonds have not been issued in this way for over two decades, but they still exist on the secondary market.

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75
Q

Bearish, Bear

A

An investor who takes a position based on the belief that the market or a particular security will fall. Short sellers and buyers of puts are “bearish.” They profit when stocks go down. Seriously.

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76
Q

Beneficiary

A

The one who benefits. An insurance policy pays a benefit to the named beneficiary. IRAs and other retirement plans, including annuities, allow the owner to name a beneficiary who will receive the account value when the owner dies. A 529 plan names a beneficiary, who will use the money for educational expenses someday.

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77
Q

Best Efforts

A

A type of underwriting leaving the syndicate at no risk for unsold shares, and allowing them to keep the proceeds on the shares that were sold/subscribed to. Underwriters act as “agents,” not principals, in a best efforts underwriting.

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78
Q

Beta Coefficient

A

Another way of referring to “beta.”

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79
Q

Beta

A

A way of measuring the volatility of a security or portfolio compared to the volatility of the overall market. A beta of more than 1 is associated with an investment or portfolio that is more volatile than the overall market. A beta of less than 1 is associated with an investment or portfolio that is less volatile than the overall market.

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80
Q

Bid Form

A

Document used by the syndicate to submit a competitive bid to the issuer.

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81
Q

Bid

A

What a dealer is willing to pay to a customer who wants to sell. Customers sell at the bid, buy at the ask.

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82
Q

Blend Fund

A

A fund that can’t decide if it wants to be a growth fund or a value fund.

83
Q

Blind Pool Offering

A

A direct participation program in which the sponsor does not identify the assets of the partnership.

84
Q

Blue Chip

A

Stock in a well-established company with proven ability to pay dividends in good economic times and bad. Lower risk/reward ratio than other common stock.

85
Q

Blue Sky

A

State securities law, tested on the Series 63 exam.

86
Q

Board of Directors

A

The group elected by shareholders to run a mutual fund or a public company and establish corporate management policies.

87
Q

Bond Anticipation Note (BAN)

A

A short-term municipal debt security backed by the proceeds of an upcoming bond issue. Often found in tax-exempt money market funds.

88
Q

Bond Buyer

A

Daily publication covering the municipal securities industry.

89
Q

Bond Counsel

A

Tax law firm that guides a municipal issuer through the legal process of issuing bonds.

90
Q

Bond Fund

A

A mutual fund with an objective of providing income while minimizing capital risk through a portfolio of—get this—bonds.

91
Q

Bond Point

A

1% of a bond’s par value. 1 bond point = $10.

92
Q

Bond Rating

A

An evaluation of a bond issue’s chance of default published by companies such as Moody’s, S&P, and Fitch.

93
Q

Bond Resolution

A

A document that legally authorizes the process of issuing municipal bonds for a specific purpose.

94
Q

Bond Swap or Tax Swap

A

Taking a loss on a bond and replacing it with a substantially different bond to avoid tax problems.

95
Q

Bond

A

A debt security issued by a corporation or governmental entity that promises to repay prin cipal and pay interest either regularly or at maturity.

96
Q

Bonus Annuities

A

Annuities with special riders/features attached.

97
Q

Book Entry

A

A security maintained as a computer record rather than a physical certificate. All U.S. Treasuries and many mutual funds are issued in this manner.

98
Q

Branch Office

A

Any location identified by any means to the public or customers as a location at which the member conducts an investment banking or securities business. The small Charles Schwab or E-Trade office at the nearby mall or office complex is a “branch office.”

99
Q

Breakeven

A

The price at which the underlying security is above or below the strike price of the option by the amount of the premium paid or received. For example, an ABC Aug 50 call @2 has a “breakeven” of $52 for both the buyer and the seller.

100
Q

Breakpoint

A

A discounted sales charge or “volume discount” on mutual fund purchases offered on A-shares at various levels of investment.

101
Q

Breakpoint Selling

A

Preventing an investor from achieving a breakpoint. A violation.

102
Q

Broad-Based Index

A

An index such as the S&P 500 or the Value Line Composite Index that repre sents companies from many industries.

103
Q

Broker

A

An individual or firm that charges a commission to execute securities buy and sell orders submitted by another individual or firm.

104
Q

Broker Call Loan Rate

A

Interest rate that broker-dealers pay when borrowing on behalf of margin customers.

105
Q

Broker’s Broker

A

A firm that holds no inventory and executes securities transactions exclusively with other broker-dealers and not with public investors.

106
Q

Broker-Dealer

A

A person or firm in the business of completing transactions in securities for the accounts of others (broker) or its own account (dealer).

107
Q

Bull Market

A

A market for stocks or bonds in which prices are rising and/or expected to rise.

108
Q

Bull Spread

A

A call or put spread in which the investor will benefit if the underlying instrument rises in value. If the investor is “long the lower strike price,” he has established a “bull spread.” For example, if he buys the ABC Aug 50 call and sells the ABC Aug 55 call, he establishes a “bull spread.” The spread would also happen to be a “debit spread” in this case.

109
Q

Bulletin Board

A

OTC stocks too volatile and low-priced for NASDAQ.

110
Q

Bullish, Bull

A

An investor who takes a position based on the belief that the market or a particular security will rise. Buyers of stock and call options are bullish.

111
Q

Business Cycle

A

A progression of expansions, peaks, contractions, troughs, and recoveries for the overall (macro) economy.

112
Q

Business Risk

A

The (non-systematic) risk that the company whose stock or bond you own will not be successful as a business. Competition, poor management, obsolete products/services are all examples of business risk.

113
Q

Buy Limit

A

An order to buy a security at a price below the current market price, executable at a specified price or lower/better.

114
Q

Buy Stop

A

An order to buy a security at a price above the current market price triggered only if the market price hits or passes through the stop price.

115
Q

C-Shares

A

Often called “level load” because of the high 12b-l fee. Usually involve no front-end load, sometimes have a contingent deferred sales charge for 1 or 1.5 years. Appropriate for shorter-term investing only.

116
Q

Call (n.)

A

A contract that gives the holder the right to buy something at a stated exercise price.

117
Q

Call (v.)

A

To buy.

118
Q

Call Premium

A

The price paid and received on a call option. Or, the amount above the par value paid by the issuer to call/retire a bond.

119
Q

Call Protection

A

The period during which a security may not be called or bought by the issuer, usually lasting five years or more.

120
Q

Call Provision

A

Agreement between the issuer and the bondholders or preferred stockholders that gives the issuer the ability to repurchase the bonds or preferred stock on a specified date or dates before maturity.

121
Q

Call Risk

A

The risk that a callable bond or preferred stock will be forcibly called when interest rates fall.

122
Q

Call Spread

A

Buying and selling a call on the same underlying instrument where the strike price, the expiration, or both are different.

123
Q

Callable

A

A security that may be purchased/called by the issuer as of a certain date, e.g., callable preferred, callable bonds. Generally pays a higher rate of return than non-callable securities, as it gives the issuer flexibility in financing.

124
Q

Capital

A

A fancy word for “money.” When a corporation raises cash by offering stocks/bonds to investors on the primary market, we dignify the cash by calling it “capital.”

125
Q

Capital Appreciation

A

The rise in an asset’s market price. The objective of a “growth stock investor.”

126
Q

Capital Gain

A

The amount by which the proceeds on the sale of a stock or bond exceed your cost basis. If you sell a stock for $22 and have a cost basis of $10, the capital gain or profit is $12.

127
Q

Capital Gains Distribution

A

Distribution from fund to investor based on net capital gains realized by the fund portfolio. Holding period determined by the fund and assumed to be long-term.

128
Q

Capital Loss

A

Loss incurred when selling an asset for less than the purchase price. Capital losses offset an investor’s capital gains and can offset ordinary income to a certain amount.

129
Q

Capital Structure

A

The make-up of a corporation’s financing through equity (stock) and debt (bonds) securities.

130
Q

Capped Index Options

A

Options that are automatically exercised when the underlying instrument moves by a certain amount known as the “cap interval.”

131
Q

Capping

A

A form of market manipulation. A violation.

132
Q

Cash Account

A

An investment account in which the investor must pay for all purchases no later than 2 business days following regular way settlement. Not a margin account.

133
Q

Cash Dividend

A

Money paid to shareholders from a corporation’s current earnings or accumulated profits.

134
Q

Cash Equivalent

A

A security that can readily be converted to cash, e.g., T-bills, CDs, and money market funds.

135
Q

Cash Flow

A

Net income plus depreciation/amortization.

136
Q

Cash Settlement

A

Same-day settlement of a trade requiring prior broker-dealer approval. Not the “regular way” of doing things.

137
Q

Cash Value

A

The value of an insurance policy that may be “tapped” by the policyholder through a loan or a surrender.

138
Q

Catastrophe Call

A

A provision in a municipal bond issue providing for an automatic call of the bonds due to a disaster, e.g., hurricane, flood, etc.

139
Q

CEO

A

Chief executive officer. Individual ultimately responsible for a corporation’s results.

140
Q

Certificate of Limited Partnership

A

A document filed by the general partner of a direct partici pation program with a state disclosing who the partnership is and what it does.

141
Q

CFO

A

Chief financial officer. Individual in charge of a corporation’s financial activities.

142
Q

Check-Writing Privileges

A

A privilege offered by mutual funds, especially money market funds, by which investors can automatically redeem shares by writing checks.

143
Q

Chinese Wall

A

The separation that is supposed to exist between the investment banking department and the traders and registered representatives in order to prevent insider trading violations.

144
Q

Churning

A

Excessive trading in terms of frequency and size of transactions designed to generate commissions without regard for the customer.

145
Q

Clearing Rate

A

The interest rate established by auction in connection with auction rate securities.

146
Q

CLN

A

Construction loan note, a type of municipal note backed by the proceeds from a construction loan for a new building project.

147
Q

Closed-End Fund

A

An investment company that offers a fixed number of shares that are not redeemable. Shares are traded on the secondary market at a price that could be higher or lower than NAV (or even the same as NAV).

148
Q

CMO

A

Collateralized Mortgage Obligation: A complicated debt security that few people actually understand. Based on a pool of mortgages or a pool of mortgage-backed securities. Pays interest monthly but returns principal to one tranche at a time.

149
Q

Code of Arbitration

A

FINRA method of resolving disputes (usually money) in the securities business. All decisions are final and binding on all parties.

150
Q

Code of Procedure

A

FINRA system for enforcing member conduct rules.

151
Q

Collateral Trust Certificate

A

A bond secured by a pledge of securities as collateral.

152
Q

Collection Ratio

A

The amount of taxes collected by a municipality divided by the amount of taxes assessed.

153
Q

Combination Privilege

A

Allows investors to combine purchases of many funds within the mutual fund family to reach a breakpoint/reduced sales charge.

154
Q

Combination

A

A multiple options position that is neither a straddle nor a spread. For example, if an investor buys an ABC Aug 45 call and sells an ABC Aug 50 put, he has established a combination.

155
Q

Combined Offering

A

An offering of securities in which both the issuer and other large shareholders will be selling to the public.

156
Q

Commercial Paper

A

A short-term unsecured loan to a corporation. Issued at a discount from the face value. See “money market securities.”

157
Q

Commission House Broker

A

A broker who works for a particular member of the exchange filling orders for the firm and receiving a commission per-order.

158
Q

Commissions

A

A service charge an agent earns for arranging a security purchase or sale.

159
Q

Common Stock

A

The most “junior security,” because it ranks last in line at liquidation. An equity or ownership position that usually allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions, authorizing more shares, etc.

160
Q

Competitive Floor Traders

A

Members of the NYSE who buy and sell exchange-listed securities for their own account.

161
Q

Competitive, Sealed Bids

A

Process used for most general obligation bonds in which the under writing business is awarded to the syndicate who turns in the lowest cost of borrowing to the issuer.

162
Q

Compliance Department

A

The principals and supervisors of a broker-dealer responsible for making sure the firm adheres to SEC, exchange, and SRO rules.

163
Q

Concession

A

The amount that the seller of a new issue of municipal bonds receives, whether a syndicate member or a selling group member.

164
Q

Conduct Rules

A

An SRO’s rules for member conduct that, if violated, may lead to sanctions and fines.

165
Q

Conduit Theory (Tax Treatment)

A

A favorable tax treatment achieved if a company (REIT, mutual fund) distributes 90%+ of net income to the shareholders.

166
Q

Confirmation

A

Document stating the trade date, settlement date, and money due/owed for a securities purchase or sale. Delivered on or before the settlement date.

167
Q

Consolidated Quotation System (CQS)

A

System used for trading in the third market.

168
Q

Consolidation

A

A stock trading in a narrow price range.

169
Q

Constant Dollar Plan

A

A defensive investment strategy in which an investor tries to maintain a constant dollar amount in the account, meaning that securities are sold if the account value rises and purchased if it goes down.

170
Q

Constructive Receipt

A

The date that the IRS considers an investor to have put his grubby little hands on a dividend, interest payment, retirement plan distribution, etc. For example, IRA funds are not taxable until “constructive receipt,” which usually starts somewhere between age 59 1/2 and 70 ½.

171
Q

Consumer Price Index (CPI)

A

A measure of inflation/deflation for basic consumer goods and services. A rising CPI represents the greatest risk to most fixed-income investors.

172
Q

Consumer

A

For purposes of Regulation S-P, a consumer is someone considering a financial rela tionship with a firm.

173
Q

Contingent Deferred Sales Charge

A

Associated with B-shares, the sales charge is deducted from the investor’s check when she redeems/sells her shares. The charge is deferred until she sells and is contingent upon when she sells—the sales charges decline over time, eventually disappearing after 7 years, at which point the B-shares become A-shares, in order to keep everything nice and simple.

174
Q

Continuing Commissions

A

The practice of paying retired registered representatives and principals commissions on business written while still employed with the firm, e.g., 12b-1 fees on mutual funds and annuities.

175
Q

Contraction

A

Phase of the business cycle associated with general economic decline, recession or depression.

176
Q

Contribution

A

The money you put into a retirement plan subject to the limits imposed by the plan.

177
Q

Conversion Ratio

A

The number of shares of common stock that the holder of a convertible bond or preferred stock would receive upon conversion. A bond “convertible at $50” has a conversion ratio of 20 (20 shares of stock per $1,000 par value).

178
Q

Conversion/Exchange Privilege

A

A feature offered by many mutual funds whereby the investor may sell shares of one fund in the family and use the proceeds to buy another fund in the family at the NAV (avoiding the sales load). All gains/losses are recognized on the date of sale/conversion for tax purposes.

179
Q

Convertible

A

A preferred stock or corporate bond allowing the investor to use the par value to “buy” shares of the company’s common stock at a set price.

180
Q

Cooling-off Period

A

A minimum 20-day period that starts after the registration statement is filed with the SEC. No sales or advertising allowed during this period, which lasts until the effective or release date.

181
Q

Corporation

A

The most common form of business organization, in which the business’s total value is divided among shares of stock, each representing an ownership interest or share of profits.

182
Q

Correspondence

A

Under FINRA rules = a letter/fax/email to existing clients, or a letter, fax, or email sent to fewer than 25 prospects in a 30-day period.

183
Q

Cost Basis

A

The amount that has gone into an investment and has been taxed already. For stock, includes the price paid plus commissions. For a variable annuity, equals the after-tax contributions into the account. Investors pay tax only on amounts above their cost basis, and only when they sell or take “constructive receipt.”

184
Q

Coterminous

A

Municipal issuers who overlap, e.g., a village and a school district.

185
Q

Coupon Rate

A

a.k.a. “nominal yield.” The interest rate stated on a bond representing the percentage of the par value received by the investor each year. For example, a bond with a 5% “coupon rate” or “nominal yield” pays $50 per bond to the holder per year. Period.

186
Q

Covered Call

A

A position in which an investor generates premium income by selling the right to buy stock the investor already owns, and at a set price.

187
Q

CPI

A

Consumer Price Index, a measure of inflation/deflation for basic consumer goods and services. A rising CPI represents the greatest risk to most fixed-income investors.

188
Q

Credit Agreement

A

Document that must be signed by a margin customer in which all finance charges are explained in connection to the margin account.

189
Q

Credit Risk

A

a.k.a. “default” or “financial” risk. The risk that the issuer’s credit rating will be downgraded, or that the issuer will default on a debt security.

190
Q

Credit Spread

A

Selling a more valuable call/put and simultaneously buying a less valuable call/put on the same underlying instrument. For example, an investor who sells an ABC Aug 50 put for $400 and buys an ABC Aug 45 put for $100 establishes a “credit put spread” for a net credit of $300.

191
Q

Crossover Point

A

The point at which a limited partnership has exhausted the tax shelter and is now beginning to show a profit.

192
Q

Cum Rights

A

Term used when a stock trades with rights, meaning that buyers of the stock will receive rights to subscribe to the upcoming additional offer of stock.

193
Q

Cumulative Preferred Stock

A

Preferred stock where missed dividends go into arrears and must be paid before the issuer may pay dividends to other preferred stock and/or common stock.

194
Q

Cumulative Voting

A

Method of voting whereby the shareholder may take the total votes and split them up any way he chooses. Said to benefit minority over majority shareholders. Total votes are found by multiplying the number of shares owned by the number of seats up for election to the Board of Directors.

195
Q

Currency Exchange Risk

A

The risk that the value of the U.S. dollar versus another currency will have a negative impact on businesses and investors.

196
Q

Currency Transaction Report (CTR)

A

A reported submitted to the U.S. Treasury by a broker- dealer when a customer deposits more than $10,000 cash.

197
Q

Current Liability

A

A debt to be paid by a corporation in the short-term, usually one year or sooner.

198
Q

Current Ratio

A

A short-term measure of a corporation’s liquidity found by dividing current assets by current liabilities; the higher the number, the more liquid the corporation.

199
Q

Current Yield

A

Annual interest divided by market price of the bond. For example, an 8% bond purchased at $800 has a CY of 10%. $80/$800 = 10%.

200
Q

CUSIP Number

A

An identification number/code for a security.

201
Q

Custodial Account

A

An investment account in which a custodian enters trades on behalf of the beneficial owner, who is usually a minor child.

202
Q

Custodian

A

Maintains custody of a mutual fund’s securities and cash. Performs payable/receivable functions for portfolio purchases and sales. In an UGMA, the custodian is the adult named on the account who is responsible for the investment decisions and tax reporting.

203
Q

Customer

A

A person who opens an investment account with a broker-dealer.

204
Q

Cyclical Industry

A

A term of fundamental analysis for an industry that is sensitive to the business cycle. Includes: steel, automobiles, mining and construction equipment.

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