Glossary Terms Flashcards
Accredited investor
As defined in Rule 501 of Regulation D, any institution or individual meeting minimum net worth requirements for the purchase of securities qualifying under Regulation D registration exemption. An individual accredited investor is generally accepted to be one who, individually or with a spouse, has a net worth, excluding the net equity in the primary residence, of $1 million or more, or has had an annual income of $200,00 or more in each of the two most recent years (or 300,000 jointly with a spouse), and who has a reasonable expectation of reaching the same income level in the current year.
Accumulation stage
The period during which contributions are made to an annuity account.
Accumulation unit
An accounting measure used to determine an annuitant’s proportionate interest in the insurer’s separate account during an annuity’s accumulation (deposit) stage.
Active Management Style
Unlike passive style, analysts believe they can identify industries that are undervalued or over valued in order to weight them appropriately and achieve returns in excess of the market. Some managers engage in sector rotation, which is overweighting or underwieghting industries based on the current phase of the business cycle.
Adjusted basis
The value attributed to an asset or security that reflects any deduction taken on, or capital improvements to, the asset or security. Adjusted basis is used to compute the gain or loss on the sale or other disposition of the asset or security.
Adjusted gross income (AGI)
Gross income from all sources minus certain adjustments to income, such as deductible contribution to an ITA and net capital losses. It is basically the amount of income that will be subject to tax.
Administrator
An official or agency that administers a state’s securities laws.
Adoption
A social media term meaning that a securities firm links to a third-party site and indicates that it endorses the content on the site.
Advertisement
Any notive, circular, letter, or other writted communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, that offers (1) any analysis, report, or publication concerning securities, or that is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell; or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell a security, or which security to buy or sell; or (3) any other investment advisory service with regard to securities
Agency Cross Transaction
For an advisory client, a transaction in which a person acts as an investment adviser in relation to a transition in which that investment adviser, or any person controlling, controlled by, or under common control with that investment adviser, acts as broker for both an advisory client and for another person on the other side of the transaction.
Agency Issue
A debt security issued by an authorized agency of the federal government. Such an issue is backed by the issuing agency itself, not by the full faith and credit of the US government (except GNMA issues).
Agency Transaction
A transaction in which a broker-dealer acts for the accounts of others by buying or selling securities on behalf of customers. ( Syn: agency basis, principal transactions)
Agent
(1) An individual who affects securities transactions for the accounts of others. (2) Under the state law, a securities sales person who represents a broker-dealer or an issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually received or simply solicits orders.
Aggressive Investment Strategy
A method of portfolio allocaton and mangement aimed a achieving maximum return. Aggressive investors place a high percentage of their investible assets in equity securities and a far lower percentage in safer debt securities and cash equivalents, and they pursue aggressive policies including margin trading, arbitrage, and option trading.
Algorithmic trading
Computerized trading using propietary algorithms. There are two types of algorithmic trading. Execution trading is when an order (often a large order) is executed via an algorithmic trade. The program is designed to get the best possible price. It may split the wider into smaller pieces and execute at different times. The second type is not executing a set order but looking for small trading opportunities in the market. It is estimated that more that 50% of stock trading volume in the United States is currently being driven by algorithmic trading. AKA high frequency trading.
All or non order (AON)
An order that instructs the floor broker to execute the entire order in one transaction; if the order cannot be executed in its entirety, it is allowed to expire.
Alpha
The risk-adjusted returns that a portflio manager generates in excess of the risk adjusted returns expected by CAPM.
Alternative Minimum Tax
An alternative tax computation that adds certain tax preference items back into adjusted gross income. If the AMT is higher than the regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid.
American depositary reciept (ADR)
A negotiable certificate representing a given number of shares in a foreign corporation. It is issued by a domestic bank. ADRs are bought and sold in the American securities markets, and are traded in English and US dollars.
Anti-dilutive covenant
A protective clause found in most convertable issues (preferred stock or debentures) that adjusted the conversion rate for stock splits and/or stock dividends. This ensures that the holder of the convertible will not suffer a dilution in value.
Appreciation
The increase in an assets value
Arbitrage
A legal strategy that generates a gaurenteed profit from a transaction. A common form of arbitrage is the simultaneous purchase and sale of the same security in different markets at different prices to lock in profit. This is not considered market manipulation.
Ask
An indication by a trader or dealer f a willingness to sell a security or commodity; the price at which an investor can buy from a broker dealer.
Assessable Stock
A stock that is issued below its par or stated value. The issuer and/or creditors have the right to asses the shareholder for the deficiency. All stock issued today is nonassessable.
Asset Class Allocation
Dividing an investment portfolio among differnt asset categories, such as stock, bond. cash, and tangible assets such as real estate and precious metals and other commodities.
Auction Market
A market in which buyers enter competative bids and sellers enter competitive offers simultaneously. The NYSE is an auction market.
Audited Financial Statement
A financial statement of a program, a corp., or an issuer that has been examined and verified by an independent certified public accountant.
Average basis
An accounting method used when an investor has made multiple purchased at different prices of the same security; the mothd averages the purchase prices to calculate an investor’s cost basis in shares being liquidated. The difference in the average cost basis and the selling price determines the investor’s tax liability.
Back-end load
A commission or sales fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It declines annually, decreasing to zero over an extended holding period - up to 8 years - as described in the prospectus.
Balanced fund
A mutual fund whose stated investment policy is to have at all times some portion of its investment assets in bons and preferred stock, as well as in common stock, in an attempt to provide both growth and income.
Balanced Investment Strategy
A method of portfolio allocation and mangement aimed at balancing rist and return. A balanced portfolio may combine stocks, bonds, packaged products such as investment companies, DPPs, or REITs, and cash equivalents.
Balance of Payments
An international accounting record of all transactions made by one particular country with others during a certain period; it compares the amount of foreign currency the country has taken in with the amount of its own currency it has paid out.
Balance of Trade
The largest component of a country’s balance of payments; it concerns the export and import of merchandise (not services). Debit items include imports’ foreign aid, domestic spending abroad, and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy, and foreign investments in the domestic economy.
Balance Sheet
A report of a corp’s financial condition at a specific time.
Balance sheet equation
Assets = liabilties + shareholders equity
Bank holding company
A holding company whose primary assets is a commercial bank
Basis
Another term for yield to maturity (ie this bond is selling at a 5.78 basis)
Basis Point
A measure of a bond’s yield, equal to 1/100 of 1% of yield. A bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points.
Bear
An investor who acts on the belief that a security or the market is falling or will fall.
Bear Market
A market in which prices of a certain group of securities are falling or are expected to call.
Benchmark Portfolio
A model portfolio of a large numbe of assets, such as the S&p 500, against which the performance of a funded or portfolio is measured.
Beta
A means of measuring the co-movement of the return of a security or portfolio of securities to the return of the overall market. A beta of 1 indicates that the security’s return will be expected to move in tandem with the market. a beta greater that 1 indicates that the security’s returns will be expected to exceed those of the market. A beta less than 1 means returns will be expected to be lower than those of the market.
Bid
An indication by an investor, a traderm or a dealer of a willingness to buy a security; the price at which an investor can sell to a broker-dealer.
Black-Scholes
One of the most popular options pricing models. Often shows up on the exam as an incorrect answer.
Black Trade
A large trading order, definded as an order that consists of 10,000 or more shares of a given stock or at total market value of $2100,00 or more (syn block sale)
Blue Sky Laws
The nickname for state regulations governing the securities industry. The term was coined in 1911 by a Kansas Supreme Court Justice who wanted regulation to protect against “speculative schemes that have no more basis than so many feet of blue sky”
Board of Directors
Individual elected by stockholders to establish corp management policies. A board of directors decided, among other issues, it an when dividend will be paid to stockholders.
Bona fide
From the Latin “good faith”, something that is bone fide is genuine, authentic, and real.
Bond
A issueing company’s legal obligation to repay the principal or a loan to bond investors at a specified future date. Bonds are usually issued with par or fave values of $1000, representing the amount of money borrowed. The issuerpromises to pay a percentage of the par value as interest on the borrowed funds. The interest payment is stated on the face of the bond at issue.
Bond Fund
A mutual fund whose incestment objective is to provide stable income-producing instruments, which may include corporate, government, or municipal bonds.
Bond Quote
One of a number of quotations listed in the financial press and most daily news papers that provide representative bid prices from the previous day’s bond market. Quotes for corporate and government bonds are percentages of the bonds’ face values (usually $1000). Corporate bonds are quoted in increments of 1/8. Government bonds are quoted in 1/32. Municipal bonds maybe quoted on a dollar basis or on a yield-to-maturity baisi.
Bond Rating
An evaluaton of the possibility of a bone issuers default, based on an analysis of the issuer’s financial condition and profit potential. Standard and Poor’s, Moody’s Investor servce, and Fitch Investors Service, among others provide bond rating service.
Bond Ratio
One of several tools used by bond analysts to assess the degree of safety offered by a corporation’s bonds. It measures the percentage of the corporation’s capitalization that is provided by long-term debt financing, = total face value of the bond / total capitalization.
Bond Yield
The annual rate of return on a bond investment. Types of yield include nominal yield, current yield, yield to maturity, and yield to call. Their relationships carry according to whether the bond in quston is as discount, premium, or par.
Book-entry security
A security sold iwthout delivery of a certificate. Evidence of ownership is maintained on records kept by a central agency; id the Treasury keeps records of Treasury Bill purchases. Transfer of ownershipis recorded by entering the change on the books or electronic files.
