Glossary Flashcards
Accredited Investor
SEC Regulation D (federal private placement rule) defines an ‘accredited investor’ as a natural person that has a net worth in excess of $1,000,000, alone or with their spouse.
Accelerated Depreciation
IRS approved methods used in the depreciation of fixed assets when the Accelerated Cost Recover System (ARCS) became mandatory.
Accretion
Adjustment of the difference between the price of a bond bought at an original discount and the par value of the bond.
Accrual Basis
Accounting method whereby income and expense items are recognized as they are earned or incurred, even though they may not have been received or actually paid in cash. The alternative is cash basis accounting.
Accrued Interest
Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security.
Accrued Market Discount
Increase in market value of a discount bond that occurs because of its approaching maturity date (when it is redeemable at PAR) and not because of declining market interest rates.
Active Market
Heavy volume of trading in a particular stock. The spread between bid and asked prices is usually narrower in an active market than when trading is quiet.
Additional Bonds Test
Test limiting the amount of new bonds that can be issued.
Adjusted Basis
The price from which to measure capital gains or losses upon sale of an asset like stock or bond.
Ad Valorem
Latin term meaning according to value and referring to a way of assessing duties or taxes on goods or property.
Advance-Decline
Measurement of the number of stocks that have advanced and the number that have declined over a particular period.
Advance Refunding
Sale of new bonds (the refunding issue) in advance, usually by some years, of the first call date of the old bonds (the issue to be refunded).
Affiliated Person
Individual in a position to exert direct influence on the actions of a corporation.
Agency Securities
Securities issued by government-sponsored entities and federally-related institutions. ‘Agency Securities’ are exempt from SEC registration requirements.
Aggressive Growth Mutual Fund
Mutual fund holding stocks of rapidly growing companies. While these companies may be large or small, they all share histories of and prospects for above average profit growth.
Agreement Among Underwriters
Contracts between participating members of an investment banking syndicate.
All Or None (AON)
Buy or sell order marked to signify that no partial transaction is to be executed.
Alpha
‘Alpha’ measures a stock’s (or portfolio’s) return that is in excess of the expected return predicted by an equilibrium model suca as the capital asset pricing model.
Alternative minimum Tax (AMT)
Federal tax aimed at ensuring that wealthy individuals and corporations pay at least some income tax.
American Depository Receipt (ADR)
Receipt for the shares of a foreign-based corporation held in the vault of a U.S. bank and entitling the shareholder to all dividends and capital gains.
Amorization
Accounting procedure that gradually reduces the cost value of a limited life or intangible asset through periodic charges to income.
Annuitant
Individual receiving benefits from an annuity.
Annuitize
To begin a series of payments from the capital that has built up in an annuity.
Annuity
Form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some future time, usually retirement.
Appreciation
Increase in the value of an asset such as a stock, bond, or real estate; also known as ‘growth.’
Arbitrage
Profiting from differences in price when the same security or commodity is traded in two or more markets.
Arbitration
An alternative to suing in court to settle dispute between brokers and their clients and between brokerage firms.
Articles of Incorporation
Document filed with a U.S. state by the founders of a corporation.
Asset Allocation
Apportioning of investment funds among categories of assets such as cash equivalents, stock, fixed-income investments, and tangible assets like estate, precious metals, and collectibles.
Asset Allocation Mutual Fund
Mutual fund that switches between stocks, bonds, and money market securities to maximize shareholders’ returns and minimize risk.
Assumed Interested Rate
Rate of interest that an insurance company uses to project the payout on a variable annuity contract; the higher the assumed interest rate, the higher the monthly payout will be.
At Risk
Also known as “recourse loan.” Investors in an oil drilling limited partnership can claim tax deductions only if they can prove that there is a chance of never realizing a profit and of losing their investment.
Auction Market
System by which securities are bought and sold through brokers on the securities exchanges, as distinguished from the over the counter market, where trades are negotiated.
Authorized shares
Maximum number of shares of any class that a company may legally create under the terms of its ‘articles of incorporation.’
Automated Order Entry System
Many orders that are processed on the floor of the NYSE occur in an automated format, instead of through the traditional open outcry auction process.
Away From The Market
Expression used when the bid price on a limit order is lower or the offer price on a limit order is higher than the current market price for the security.
Back-end Load
Sales charge an investor pays when withdrawing money from an investment.
Backing Away
A broker/dealer’s failure, when acting as a market maker in a given security, to make good on its published bid or ask prices for a minimum quantity (one round lot - 100 shares).
Balanced Mutual Fund
Fund that buys common stock, preferred stock, and bonds in an effort to obtain the highest return consistent with a low-risk strategy.
Balance of Payments
System of recording all of a country’s economic transactions with the rest of the world during a particular time period.
Balance of Trade
Net difference over a period of time between the value of a country’s imports and exports of merchandise.
Balance of Trade
Net difference over a period of time between the value of a country’s import and exports of merchandise.
Balance Sheet
Financial report showing the status of a company’s assets, liabilities, and owner’s equity on a given date (usually the close of a month).
Banker’s Acceptance
Time draft drawn on and accepted by a bank; the customary means of affecting payment for merchandise sold in import/export transactions and a source of financing used extensively in international trade.
Basis Price
Original cost that must be used when an investment is sold; it must also be used in calculating capital gains or losses.
Basis Point
Smallest measure used in quoting yields on bills, notes, and bonds.
Bear Market
Prolonged period of falling prices. A bear market in stocks is usually brought on by the anticipation of declining economic activity; a bear market in bonds is caused by rising interest rates.
Bear Spread
Strategy in the options market designed to take advantage of a fall in the price of a security.
Best Efforts
Underwriting agreement whereby investment bankers, acting as agents, agree to do their best to sell an issue to the public.
Beta
A Beta factor measures the volatility of a stock in relation to the rest of the stock market.
Bid
Price a prospective buyer is ready to pay. Term is used by dealer who make a market (maintain firm bid and offer prices) in a given security by standing ready to buy or sell round lots at publicly quoted prices and by specialists in a stock who performs similar functions on an exchange.
Bid and Asked
In reference to a mutual fund, the ‘bid’ is the highest price that a prospective buyer is prepared to pay at a particular time for a trading unit of a given security; ‘asked’ is the lowest price acceptable to a prospective seller of the same security.
Blind Pool
Limited partnership that does not specify the properties the general partner plans to acquire.
Block
Large quantity of stock or large dollar amounts of bonds held or traded.
Blue Chip
Common stock of a nationally known company that has a long record of profit growth and dividend payment and a reputation for quality management, products, and services.
Blue List
Published by S&P, it mainly contains data on municipal bonds.
Blue-Sky Laws
Laws passed by various states to protect investors against securities fraud.
Bond
Any interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money (usually at specific intervals and to repay the principal amount of the loan at maturity.
Bond Anticipation Notes (BAN)
Short-term debt instruments issued by a state or municipality that will be paid off with the proceeds of an upcoming bond issue.
Bond Buyer
A daily publication containing key news, sales data, statistics and indexes used in the municipal bond market
Bond Counsel
Independent attorney or law firm that prepares the legal opinion for a municipal bond issue.
Bond Discount
Amount by which the market price of a bond is lower than its face value. Outstanding bonds with fixed coupons are discounted when interest rates rise.
Bond Rating
Method of evaluating the possibility of default by a bond issuer. S&P’s, Moody’s investors Service and Fitch’s Investors Service analyze the financial strength of bond’s issuer whether it is a corporation or a government body.
Bond Swap
Simultaneous sale of one bond issue and purchase of another bond issue; the purchase of a substitute bond effectively preserves the investment.
Book-Entry Securities
Securities that are issued without a certificate. Purchases and sales of some municipal bonds are recorded on customer’s accounts without a certificate changing hands.
Borrowing Power of Securities
Amount of money that customers can invest in securities on margin as listed every month on their brokerage account statements.
Breakout
Rise in a security’s price above a resistance level (commonly its previous high price) or drop in a security’s price below a support level (commonly the former lower price).
Breakpoint Sale
In mutual funds, the dollar investment required to make the investor eligible for a lower sales charge.
Broker
Person who acts as an intermediary between a buyer and a seller usually charging a commission.
Broker Loan Rate
Interest rate at which brokers borrow from banks to cover the securities positions of their clients.
Bull Market
Prolonged rise in the prices of stocks or bonds. Bull markets usually last a few months, or even years, and are characterized by high trading volume.
Bull Spread
Options strategy executed with puts or calls that will be profitable if the unerlying stock rises in value. Three varieties of a bull spread: 1) Vertical Spread, Horizontal (Calendar) Spread, & Diagonal Spread.
Business Cycle
There are four phases of the ‘business cycle,’ what is unknown is how long each phase will last. Four Phases: Expansion, Peak, Contraction, and Trough.
Buying Power
Buy order marked to be held until the market price rises to the stop price.
Buy Stop Order
Buy order marked to be held until the market price rises to the stop price.
Calendar Spread
Options strategy that entails buying two options on the same security with different maturities. Also called a “horizontal spread.”
Callable
Redeemable by the issuer before the scheduled maturity date.
Call Option
In exchange for a premium, the right to buy 100 shares of a particular stock or stock index at a pre-determined price before a preset deadline.
Call Premium
Amount that the buyer of a call options has to pay to the seller for the right to purchase a stock or stock index at a specified price and by a specified date.
Call Price
Price at which a bond or preferred stock with a ‘call provision’ or ‘call feature’ can be redeemed by the issuer.
Call Protectioin
Length of time during which a security cannot be called by the issuer.
Cap
Short for “capitalization” or the total current value of a company’s outstanding shares in dollars.
Capital Asset
Almost everything owned and used for personal or investment purposes is a capital asset.
Capital Asset Pricing Model
The CAPM is used to determine the required rate of return of an asset, given the asset’s non-diversifiable risk, if it is going to be added to an already diversified portfolio.
Capital Gains Distribution
Mutual fund’s distribution to shareholders of the profits derived from the sale of stocks or bonds.
Capital Gains Tax
Tax on profits from the sale of capital assets. The tax law has traditionally specified a minimum ‘holding period’ after which a capital gain was taxed at a more favorable rate (15% max) than ordinary income.
Capital Growth
On a risk specturm, investments that are on the riskier side will offer an investor greater potential for ‘capital growth.’
Capital Structure
Corporation’s financial framework, including long-term debt, preferred stock and net worth.
Cash Account
Brokerage firm account whose transactions are settled on a cash basis.
Cash Dividend
Cash Payment to a corporation’s shareholders; it is distributed form current earnings or accumulated profits and is taxable as income.
Cash Flow
Net income plus depreciation and other non-cash charges. Investors focus on cash flow from operations because of their concern with a firm’s ability to pay dividends.
Cash Settlement
Settlement in cash on the trade date rather than on the settlement date of a securities transaction.
Catastrophe Call
The premature redemption of a municipal revenue bond because a catastrophe destroyed the source of the revenue backing the bond.
Chartist
Technical analyst who charts patters of stocks and bonds in order to make buy and sell recommendations to clients.
Chinese Wall
Imaginary barrier between the investment banking, corporate finance, and research departments of a brokerage house and the sales and trading departments.
Churning
Excessive trading in size and/or frequency within a client’s account.
Class
Options of the same type (put or call) and of the same underlying security.
Closed-end Fund
A ‘closed end fund’ is a type of investment company that issues a fixed number of shares
Closing Purchase
Option seller’s purchase of another option having the same features as an earlier one.
Closing Sale
Sale of an option having the same features (of the same series) as an option previously purchased
Code of Procedure
Financial Industry Regulatory Authority (FINRA’s) guide for its District Business Conduct Committees in hearing and adjudicating complaints filed between or against FINRA members under its Rules of Conduct (fair practice)
Coincident Indicators
Economic indicators that coincide with the current pace of economic activity.
Collateralized Mortgage Obligation (CMO)
Mortgage-backed bond that separates mortgage pools into different maturity classes called tranches.
Collateral Trust Bond
Corporate debt security backed by other securities usually held by a bank or other trustee.
Commercial Paper
Short-term obligations with maturities up to 270 days issued by banks, corporations, and other borrowers.
Common Stock
Units of ownership of a corporation. Owners are typically entitled to vote on the selection of Directors and other important matters as well as receive dividends on their holdings, if declared.
Companion Bonds
One class of a Collateralized Mortgage Obligation (CMO). Companion bonds are the first to be paid off when the underlying mortgages are prepaid as interest rates fall.
Competitive Bid
Sealed bid containing price and terms submitted by a prospective underwriter to an issuer.
Concession
Selling group’s per share or per bond compensation in a corporate underwriting.
Consolidated Tape
Combined tapes of the New York Stock Exchange and the American Stock Exchange.
Constant Dollar Plan
Method of accumulating assets by investing a fixed amount of dollars in securities at set intervals.
Constant Dollars
Dollars of a base year used as a gauge in adjusting the dollars of other years in order ascertain actual purchasing power. “Indexing”
Consumer Price Index (CPI)
Measure prices of a fixed basket of goods bought by a typical consumer.
Contingent Deferred Sales Load
Sales charge levied by a mutual fund if a customer redeems fund shares within a specified number of years.
Contra Broker
Broker on the opposite side of the trade: the buy side of a sell order or the sell side of a buy order.
Contractual Plan
Plan by which fixed dollar amounts of mutual fund shares are accumulated through periodic investments for 10 years.
Control Stock
Shares owned by holders who have a controlling interest.
Conversion Parity
Common Stock price at which a convertible security is exchangeable for common shares of equal value.
Conversion Price
The dollar value at which convertible bonds, debtures, or preferred stock can be converted into common stock as stated on the certificate.
Conversion Ratio
Relationship that determines how many shares of common stock will be received in exchanged for each convertible bond or preferred share when conversion takes place.
Convertible
Corporate securities (usually preferred shares or bonds) that are exchangeable for set number of common shares at a stated price.
Cooling-off Period
Interval between the filing of a registration statement with the SEC and the offer of the securities to the public; usually 20 days in length.
Corporate Bond
Debt instrument issued by a private corporation (as distinct from one issued by a government agency or a municipality). Corporates typically have four distinguishing features: Taxable, Par 1,000, Term Maturity, Traded on Major Exchanges.
Cost Basis
Original price of an asset used in determining capital gains.
Covered Option
Option contract backed by the shares underlying the option.
Covered Writer
Seller of covered options. In other words, an owner of stock who sells options against it in order to collect premiums (income).
Credit Ratings
Are opinions about relative credit risk.
Credit Risk
Financial risk that an obligation will not be paid and a loss will result.
Credit Spread
Difference in the value of two options; when the value of the option that was sold exceeds the value of the option that was purchased; more money is coming in than going out.
Cum Dividend
With dividend included; said of a stock whose buyer is eligible to receive a declared dividend.
Cum Rights
With rights attached; said of a stock that entitles the purchaser to buy a specified amount of stock that is yet to be issued.
Cumulative Preferred
Cumulative preferred stock is a type of preferred stock whose dividends when omitted, either because of insufficient earnings or for any other reason, accumulate until paid out.
Cumulative Voting
Voting method that improves minority shareholders’ chances of naming representatives on the Board of Directors.
Current Assets
Cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold, exchanged, or expensed in the normal course of business and usually within a year.
Current Income
Investments that provide income including debt instruments, such as bonds, and preferred stock.
Current Liability
Debt or other obligation coming due within one year.
Current Ratio
Current assets divided by current liablities.
Current Yield
Annual interest on a bond divided by market price.
Custodial Account
Account that is created for a minor usually at a bank, brokerage firm, or mutual fund.
Cyclical Stock
Stock that tends to rise quickly when the economy turns up and that tends to fall quickly when the economy turns down.
Dated Date
Date from which accrued interest is calculated on new bonds. The buyer pays the issuer an amount equal to the interest accrued from the dated date to the issue’s settlement date.
Date of Record
Date on which a shareholder must officially own shares in order to be entitled to a dividend.
Day Order
Order to buy or sell securities that expires on the day it is placed unless it is executed or cancelled.
Dealer
Individual or firm acting as a principal in a securities transaction. Principals trade for their own account and risk.
Debenture
Debt obligation backed only by the general credit of the issuer and documented by an agreement called ‘indenture.’
Debit Spread
Difference in the value of two options: When the value of the option that was purchased exceeds the value of the option that was sold; or more money is going out than is coming in.
Debt Retirement
Repayment of debt. The most common method of retiring corporate debt is to set aside money each year in a ‘sinking fund.’
Declaration Date
Date on which a company announces the amount and date of its next dividend payment.
Deep In/Out of the Money
Call option whose exercise price is either well below the market price of the underlying stock (deep in the money) or well above the market price or the underlying security (deep out of the money).
Default Risk
Risk that debtholder will not receive interest and principal when due.
Defensive Securities
Low Beta stocks and/or bonds that are more stable than average and provide a safer return on an investor’s money.
Delivery Date
Third business day following a regular way transaction of stocks and/or bonds.
Depletion
Accounting method available to companies that extract oil and gas, coal, or other minerals; usually in the form of an allowance that reduces taxable income.
Depreciation
Amortization of fixed assets (like plants and equipment) so as to allocate the cost over their depreciable life.
Derivative
A contract whose value is based upon the performance of an underlying financial asset, index, or other investment.
Designated Market Maker
Designated market makers’ (DMMs) work on the floor of the NYSE. DMMs are required to maintain a fair and orderly marketplace for a company’s stock.
Developmental Drilling Program
Drilling for oil and gas in an area with proven reserves to a depth know to have been productive in the past.
Diagonal Spread
Strategy based on a long and short position in the same class of option (two puts or two calls in the same stock) at different strike price and different expiration dates.
Dilution
Effect on earnings per share and book value per share if all convertible securities were converted or if all warrants or stock options were exercised.
Direct Participation Program
Program allowing investors to participate directly in the cash flow and tax benefits of the underlying investments.
Discount Bond
Bond selling below its par value
Discount Rate
Interest rate that the Federal Reserve charges member banks for loans, using government securities or eligible paper as collateral.
Discretionary Account
Account allowing a broker or adviser to buy and sell without the client’s prior knowledge or consent; requires a written power of attorney.
Disintermediation
Movement of funds from low-yielding accounts at traditional banking institutions to higher-yielding investments in the general market.
Diversification
The spreading of risk by putting assets in several categories of investments including stocks, bonds, money market instruments, precious metals, several different industries, and/or a mutual fund with a broad range of stocks in one portfolio.
Diversified Investment Company
Mutual fund or unit investment trust that invests in a wide range of securities.
Dividend
Distribution of earnings to shareholders. The amount is decided by the Board of Directors and is usually paid quarterly.
Dividend Payout Ratio
Percentage of earnings paid to shareholders in cash. In general, the higher the payout ratio, the more mature the company.
Dividend Yield
Annual percentage of return earned by an investor on a common or preferred stock. The yield is determined by dividing the amount of the dividends per share by the current market price of the stock per share.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
An Act designed to create a sound economic foundation to grow jobs, and protect consumers. The Act was designed to rein in Wall Street and its big bonuses, to end bailouts and too big to fail.
Dollar Bond
Municipal revenue bond quoted and traded on a dollar price basis instead of on a yield to maturity basis.
Dollar Price
Bond price expressed as a percentage of face value (normally $1,000) rather than as a yield.
Do Not Reduce (DNR)
Instructions on a limit order to buy, instructions on a stop order to sell, or instructions on a stop-limit order to sell and not to reduce the order when the stock goes ex-dividend.
Double-Barreled
Municipal revenue bond whose principal and interest are guaranteed by a larger municipal entity.
Double Taxation
Taxation of earnings at the corporate level and again as stockholder dividends.
Dow Jones Industrial Average (DJIA)
Price-weighted average of 30 actively traded blue chip stocks. The DJIA is calculated by adding the trading prices of the component stocks and using a divisor that is adjusted for stock dividends and stock splits.
Due Bill
A statement of money owed. Commonly used to adjust a securities transaction when dividends, interest, and other distributions are reflected in a price but have not yet been disbursed.
Due Diligence Meeting
Meeting conducted by the underwriter of a new offering at which brokers can ask representatives of the issuer questions about the issuer’s background, financial reliability, and the intended use of the proceeds.
Earnings Per Share
Portion of a company’s profits allocated to each outstanding share of common stock.
Economic Growth Rate
Rate of change in the gross domestic product as expressed in an annual percentage.
Effective Date
Date when an offering registered with the SEC may commence; usually 20 days after filing the registration statement.
Electronic Municipal Market Access (EMMA)
Maintained by the MSRB, EMMA is a comprehensive, centralized online source of free access to documents, data and educational materials on municipal securities.
Employee Retirement Income Security Act (ERISA)
1974 law governing the operation of qualified private pension and benefit plans
Equipment Trust Certificate
Bond, usually issued by a transportation company such as a railroad or airline, used to pay for new equipment.
Equity
Ownership interest possessed by shareholders in a corporation. Stock is equity; bonds are debt.
Equity Indexed Annuity (EIA)
Equity-indexed annuities are financial instruments in which the issuer (usually an insurance company) guarantees a stated interest rate and some protection from loss of principal, and provides an opportunity to earn additional interest based on the performance of a securities market index.
Equivalent Taxable Yield
Comparison of the taxable yield on a corporate or government bond and the tax-free yield on a municipal bond.
Estate Tax
Tax imposed by a state or the federal government on assets left to heirs in a will. Under the Economic Recovery Tax Act of 1981, there is no estate tax on transfers of property between spouses.
Eurodollar
U.S. currency held in bank outside of the United States (mainly in Europe) and commonly used for settling international transactions.
European-Style Exercise
System of exercising options contracts in which the option buyer can exercise the contract only on the last business day prior to expiration (normally Friday).
Excess Margin
Equity in a brokerage firm’s customer account, expressed in dollars, above the Regulation T minimum for a margin account.
Exchange Privilege
Right of a shareholder to switch from one mutual fund to another mutual fund within the same fund family often at no additional charge.
Exchange Traded Fund (ETF)
An exchange traded fund (ETF) is most similar to a closed end mutual fund. ETFs trade in the secondary market.
Exchange Traded Note (ETN)
An exchange traded note (ETN) is an unsecured debt security package that offers exposure to a certain area. The ETN trades in the secondary market or may be held by the investor until maturity.
Ex-Dividend Date
According to FINRA rules, shares of common stock go ex-dividend, in a regular way transaction, two business days prior to the record date.
Exempt Securities
Stocks and bond exempt from certain Securities and Exchange Commission and Federal Reserve Board rules.
Exercise Limit
Limit on the number of options contracts of any one class that can be exercised in a span of five business days.
Exercise Notice
Notification by a broker that a client wants to exercise a right to buy the underlying stock in an options contract.
Exercise Price
Price at which the stock underlying a call or put option can be purchased (call) or sold (put) over the specified period.
Expense Ratio
Amount, expressed as a percentage of total assetss, that shareholders pay annually for mutual fund operating expenses and management fees.
Exploratory Drilling Program
Search for an undiscovered reservoir of oil or gas; a very risky undertaking.
Ex-Rights
Without the right to buy a company’s stock until a particular date at a discount from the prevailing market price which was distributed.
Extraordinary Call
Early redemption of a muni revenue bond by the issuer due to the elimination of the source of revenue to pay the stipulated interest.
Face-Amount Certificate
Debt security issued by face-amount certificate companies, one of three categories of mutual funds defined by the Investment Company Act of 1940.
Face Value
Value of a bond or other security as given on the certificate. Corporate bonds are usually issued with $1,000 face value; Municipal Bonds are usually issued with $5,000 face value; Federal Government bonds are usually issued with $10,000 face value.
Fannie Mae (Federal National Mortgage Association)
Publicly owned, government-sponsored corporation established to purchase both governement-backed and conventional mortgages from lenders.
Federal Agency Security
Debt instrument issued by an agency of the federal government such as the Federal National Mortgage Association.
Federal Funds
Funds, including those in excess of bank reserve requirements, deposited by commercial bank at Federal Reserve Banks.
Federal Funds Rate
Interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements.
Federal Gift Tax
Federal tax imposed on the transfer of securities, property, or other assets. The donor must pay the tax based on the fair market value of the transferred assets.
Federal Home Loan Mortgage Corporation (FHLMC)
Publicly chartered agency that buys qualifying residential mortgages from lenders, packages them into new securitie backed by those pooled mortgages, provides certain guarantees, and then resells the securities on the open market.
Federal National Mortgage Association (FNMA)
Publicly owned, government-sponsored corporation chartered to purchase mortgages from lenders and resell them to investors.
Federal Open-Market Committee (FOMC)
The Committee decides whether to increase or decrease interest rates through open-market operations of buying or selling government securities.
Federal Reserve Board (FRB)
Governing board of the Federal Reserve System. The Board establishes Federal Reserve System policies.
Fill Or Kill (FOK)
Order to buy or sell a particular security which, if not executed immediately, is canceled.
Financial Industry Regulatory Authority (FINRA)
FINRA is the largest independent regulator for all securities firms and registered securities representatives doing business in the U.S.
Firm Commitment
Arrangement whereby investment bankers make outright purchases from the issuer of securities to be offered to the public; also called ‘firm commitment underwriting.’
Firm Quote
Term referring to any round lot bid or offer price of a security as stated by a market maker and not identified as a nominal (or subject) quote.
First Call Date
First date specified in the indenture of a corporate or municipal bond contract on which all or part of the bond may be redeemed at a set price.
Five Hundred Dollar Rule
Regulation T provision of the Federal Reserve that exempts deficiencies in margin requirements amount to $500 or less from margin calls.
Five Percent Rule
One of FINRA’s Rules of Conduct. It proposes an ethical guideline for commissions in brokerage transactions including proceeds sales and risk-less transactions.
Fixed Annuity
Investment contract sold by and insurance company that guarantees fixed payments to an annuitant either for life or for a specified period.
Flat
In bond trading, without accrued interest. This means that accrued interest will be received by the buyer if and when paid but that no accrued interest is payable to the seller.
Floor Broker
Member of an exchange who is an employee of a member firm and executes orders for clients as an agent on the floor of the exchange.
Floor Trader
Member of a stock exchange who trades on the floor of that exchange for his or her own account.
Flow of Funds
Statement found in the bond covenants of municipal revenue issues showing the priorities by which municipal revenues will be applied.
Foreign Currency Options
Options contracts based on foreign currencies such as the Japanese yen, the Deutsche mark, the British pound, or the French franc.
Forex
The Foreign Exchange Market (Forex) is an OTC marketplace that is open 24 hours a day (except on weekends). The main traders in this marketplace are large banks, central banks, multinational corporations and hedge funds.
Forward Pricing
Securities and Exchange Commission requirement that open-end investment companies, whose share prices are always determined by the net asset value of the outstanding shares.
Fourth Market
Direct trading of large blocks of securities between institutional investors to save brokerage commissions.
Fractional Share
Unit of stock less than one full share. If a shareholder is in a dividend reinvestment program and the dividends being reinvested are not adequate to buy a full share at the stock’s current price, the shareholder will be credited with a fractional share until enough dividends accumulate to purchase a full share.
Front Load
Sales charge applied to an investment at the time of initial purchase. For example, there may be a front load on a mutual fund sold by a broker.
Frozen Account
Brokerage account under disciplinary action by the Federal Reserve Board for violation of Regulation T.
Full Faith and Credit
The full taxing and borrowing power plus revenue other than taxes is pledged in payment of interest and repayment of principal of a bond issued by a government entity.
Fully Diluted Earnings per Share (Common)
Figure showing earnings per common share after assumming the exercise of warrants stock options and the conversion of convertible bonds and preferred stock.
Fundamental Analysis
Analysis of the balance sheet and income statements of companies in order to forecast their future stock price movements.
Fund Family
Mutual fund company offering funds with many investment objectives. A fund family may offer several types of stocks, bonds, and money market funds and allow free switching among other funds (although gains are taxable)
General Obligation Bond
Municipal bond backed by the full faith and credit (and taxing power) of a municipality. A ‘GO bond’ is repaid with general revenue as compared to the revenue from specific facility built with the borrowed funds (tunnel or a toll road).
General Partner
Managing partner of a limited partnership; responsible for the operations of the partnership and, ultimately, any debts taken in by the partnership.
Ginnie Mae Pass-Through
Security backed by a pool of mortgages and guaranteed by the Government National Mortgage Association (Ginnie Mae), an association which passes through to investors the interest and principal payments of homeowners.
Good Delivery
A certificate that has the necessary endorsements and meets all other requirements (signature guarantee, proper denomination, and other qualifications) so that title can be transferred by delivery to the buying broker who is then obligated to accept it.
Good Till Cancelled (GTC) Order
Brokerage customer’s order to buy or sell a security, usually at a particular price, that remains in effect until executed or canceled.
