Official Flash cards
An ORDER to BUY A SECURITY that is ENTERED AT THE PRICE ABOVE THE CURRENT OFFERING PRICE and that is TRIGGERED when the MARKET PRICE TOUCHES OR GOES THROUGH THE BUY STOP PRICE.
buy stop order
street name.
book-entry
An AMENDMENT enacted in 1938 to BROADEN SECTION 15 of the Securities Exchange Act of 1934.
The amendment provided for the CREATION OF A SELF-REGULATORY ORGANIZATION for the specific purpose of SUPERVISING THE OVER-THE-COUNTER SECURITIES MARKET.
Maloney Act
Named for its SPONSOR, the late SENATOR FRANCIS MALONEY of Connecticut.
See also National Association of Securities Dealers, Inc.,
precursor to FINRA.
(1) The PRICE OF THE LAST TRANSACTION for a PARTICULAR COMMODITY OR COMMODITY OPTION on a PARTICULAR DAY.
(2) The MIDPRICE of a CLOSING TRADING RANGE.
close
See also CLOSING RANGE.
An EXCHANGE MEMBER who EXECUTES TRANSACTIONS FROM THE FLOOR OF THE EXCHANGE only for HIS OWN ACCOUNT.
floor trader
The PROFIT realized when a CAPITAL ASSET is SOLD FOR A PRICE HIGHER THAN THE PURCHASE PRICE.
capital gain
See also
capital loss;
long-term gain.
Reg T
Regulation T.
A PROVISION in a BOND INDENTURE stating that the ISSUE IS NONCALLABLE for a CERTAIN PERIOD (e.g., 5 or 10 years) AFTER the ORIGINAL ISSUE DATE.
call protection
See call provision.
The SIMULTANEOUS PURCHASE of a STOCK and a PUT ON THAT STOCK specifically identified as a HEDGE.
married put
TAXABLE INCOME that is NOT CONSTRUCTIVELY RECEIVED but TAXED AS IF IT WERE.
phantom income
See also CROSSOVER POINT
A FINRA exam for prospective securities industry professionals. This introductory-level exam assesses a candidate’s knowledge of basic securities industry information.
SIE
The Securities Industry Essentials Exam is a corequisite for the many representative-level FINRA exams.
A MONEY MARKET INSTRUMENT used to FINANCE INTERNATIONAL TRADE.
This is a TIME DRAFT DRAWN ON A BANK by AN IMPORTER OR EXPORTER OF GOODS, and it REPRESENTS THE BANK’S CONDITIONAL PROMISE TO PAY the FACE AMOUNT OF THE NOTE at MATURITY (normally LESS THAN THREE MONTHS).
banker’s acceptance (BA)
The OFFICIAL NAME for the FULL DISCLOSURE DOCUMENT for MUTUAL FUNDS.
statutory prospectus
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.
yield to maturity (YTM)
See also BOND YIELD
A GRAPHIC REPRESENTATION of the ACTUAL OR PROJECTED YIELDS of FIXED-INCOME SECURITIES in relation to their MATURITIES.
yield curve
See :
flat yield curve;
inverted yield curve.
The STANDARD FOR JUDGING whether AN INVESTMENT COMPANY qualifies as DIVERSIFIED under the INVESTMENT COMPANY ACT OF 1940.
75-5-10 test
SEVENTY-FIVE PERCENT of a FUND’S ASSETS must be INVESTED IN SUCH A WAY that
NO MORE THAN 5% OF ITS TOTAL ASSETS are INVESTED IN ANY ONE COMPANY’S VOTING SECURITIES,
and NO SINGLE INVESTMENT may represent ownership of MORE THAN 10% OF ANY ONE COMPANY’S OUTSTANDING VOTING SECURITIES.
There are NO RESTRICTIONS on the REMAINING 25% of the FUND’S ASSETS.
A DEBT SECURITY requiring THE ISSUER TO PURCHASE THE SECURITY at the HOLDER’S DISCRETION or WITHIN A PRESCRIBED TIME.
put bond
Syn. tender bond.
The FIRST NATIONALLY RECOGNIZED SECURITIES EXCHANGE LISTING AND TRADING OPTIONS.
The SELF-REGULATORY ORGANIZATION with JURISDICTION over ALL WRITING AND TRADING OF STANDARDIZED OPTIONS AND RELATED CONTRACTS LISTED on THAT EXCHANGE.
Chicago Board Options Exchange (CBOE)
red herring
See PRELIMINARY PROSPECTUS.
An EQUITY MUTUAL FUND that attempts to COMBINE THE OBJECTIVES of GROWTH and CURRENT YIELD by DIVIDING ITS PORTFOLIO between companies that show LONG-TERM GROWTH POTENTIAL and companies that PAY HIGH DIVIDENDS.
combination fund
An account in which the principal (beneficial owner) has given the registered representative authority to enter transactions at the representative’s discretion.
discretionary account
The registered representative may, if so directed by the customer, use the discretion about price (buy or sell), time, and choice of securities (bought or sold).
Shortened term for the Securities and Exchange Commission, which was created by Congress to regulate the securities markets and protect investors.
Commission
Composed of five commissioners appointed by the President of the United States and approved by the Senate.
The SEC enforces, among others, the Securities Act of 1933, Securities Exchange Act of 1934, Trust Indenture Act of 1939, Investment Company Act of 1940, and Investment Advisers Act of 1940.
If in context the subject is commodity futures, the word refers to the CFTC.
An NYSE American Exchange member who stands ready to provide AUTOMATICALLY UPDATED TWO-SIDED MARKET QUOTATIONS with size in all the appointed option series.
specialist
The specialist’s role is to maintain a fair, orderly, and competitive market.
Formerly used on the NYSE.
Syn. eSpecialist; specialist unit.
See Designated Market Maker.
COMMUNICATIONS WITH THE PUBLIC that PROMOTE SECURITIES AS INVESTMENTS but DO NOT REFER to PARTICULAR SECURITIES.
generic advertising
tax-free bond fund.
See tax-exempt bond fund
NFA Rule 2-30
See “Know Your Customer”.`
An ABBREVIATED PROSPECTUS that is distributed while the SEC is reviewing an issuer’s registration statement.
It contains all of the essential facts, but it DOES NOT CONTAIN PRICING OR THE EFFECTIVE DATE.
preliminary prospectus
Regulations designed to ensure that FINRA member firms and their representatives follow fair and ethical trade practices when dealing with the public.
FINRA Conduct Rules
The rules complement and serve as extensions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940.
LOI
See letter of intent.
A component of a customer’s margin account agreement, outlining the conditions of the credit arrangement between the brokerage firm and customer.
credit agreement
An investment company that issues a fixed number of shares in an actively managed portfolio of securities.
closed-end management company
The shares may be of several classes, and they are traded in the secondary marketplace, either on an exchange or over the counter.
The market price of the shares is determined by supply and demand.
Syn. publicly traded fund.
As defined in securities law, an individual, corporation, partnership, association, fund, joint stock company, unincorporated organization, trust, government, or political subdivision of a government.
person
A person who has passed an examination evidencing the knowledge and qualifications necessary to sell certain specified investment products (e.g., Series 6).
limited representative
A document that a customer must sign when opening a margin account with a broker-dealer. It allows the firm to liquidate all or a portion of the account if the customer fails to meet a margin call.
customer agreement (margin agreement)
eligible security
See margin security.
The standardized application form for termination of an associated person.
Form U5
An optional contract between a brokerage firm and a margin customer that permits the firm to LEND margin securities to other brokers.
loan consent agreement
The contract is part of the margin agreement.
Syn. consent to lend agreement.
A term describing one side of a POSITION with TWO OR MORE SIDES
leg
For example, a short straddle with a leg in the stock.
AWC
See acceptance, waiver, and consent.
A point on the income-tax rate schedule.
tax bracket
Syn. marginal tax bracket.
AIR
See assumed interest rate.
COMPENSATION ISSUED by an enterprise to an employee in the form of COMPANY STOCK.
Units
RESTRICTED STOCK UNITS are subject to a VESTING SCHEDULE.
EQ
See equity.
A non-NMS stock.
OTC equity security
A SECURITY representing the RIGHT TO BUY OR SELL common stock at a specified price within a specified time.
equity option
See also nonequity option; option.
underwriting syndicate
See syndicate.
An individual who solicits customers, orders, or funds on behalf of a futures commission merchant (FCM) and is controlled by that member or an introducing broker (IB).
associated person of a member (AP)
A prolonged period of general economic decline.
Specifically, the GDP declines for at least six quarters in a row and is accompanied by high unemployment.
depression
TIC
See
tenants in common;
true interest cost.
FOMC
See Federal Open Market Committee.
Legally known as the Uniform Prudent Investors Act of 1994 (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.
prudent investor rule
An off-the-trading-floor (upstairs) market maker who is incented by the NYSE to add liquidity.
supplemental liquidity provider (SLP)
The SLP trades only for its proprietary account and may compete with the on-floor Designated Market Maker in a stock listed on the NYSE.
The SLP must maintain a bid or an offer in an assigned stock at least 10% of the trading day.
Mainly wages, salaries, commissions, and interest income (as from bonds) taxed at the individual’s marginal rate tax bracket.
ordinary income
A debt instrument issued by a bank that pays a fixed interest rate over a specific time period.
certificate of deposit (CD)
CDs are insured up to $250,000 by the FDIC. See negotiable certificate of deposit.
A retirement plan available to any individual with earned income.
traditional IRA
A type of 529 plan that allows contributors to purchase tuition credits or certificates at today’s prices. Contributors bear no investment or inflation risk because the accounts are generally guaranteed to grow at a rate equal to college tuition increases.
prepaid tuition plans
Method of purchasing an annuity in which the annuitant deposits one lump sum of money into the account and elects to have the money remain in the account and accrue tax deferred until the annuitant elects to begin the payout phase at a later time (deferred).
single payment deferred annuity
(1) An individual or firm that charges a fee or commission for executing buy and sell orders submitted by a customer. (2) The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services. See also agent; broker-dealer; dealer.
broker
The point at which gains equal losses.
breakeven point
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.
regulated investment company
A customer account established to provide retirement funds.
retirement account
An organization of 73 customer-owned lending institutions that provide credit services to farmers and mortgages on farm property.
Included in the system are the Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives.
See also Federal Intermediate Credit Bank.
Farm Credit System (FCS)
A form of plea bargaining under the Code of Procedure.
FINRA’s Enforcement Department brings disciplinary actions against a respondent and, if the respondent agrees, the proposed settlement is accepted, all rights to a hearing are waived, and the respondent consents to the penalty submitted.
acceptance, waiver , and consent
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 also earned income; passive income; portfolio income.
unearned income
The price of one country’s currency in terms of another currency.
foreign exchange rate
Syn. exchange rate.
The careful investigation by the underwriting participants necessary to ensure that all material information pertinent to an issue has been disclosed to prospective investors.
due diligence
DMM
See designated market maker.
The account that holds funds paid by variable contracts issued by insurance companies. The funds are kept separate from the insurer’s general account.
separate account
An accounting MEASURE used to determine an annuitant’s proportionate interest in the insurer’s separate account during a variable annuity’s accumulation (deposit) stage.
accumulation unit
See also accumulation stage, annuity unit, separate account.
Dividing an investment portfolio among different asset categories such as stocks, bonds, cash, and tangible assets, such as real estate, precious metals, and other commodities.
asset class allocation
Syn. asset allocation.
An organization associated with an exchange to promptly and efficiently handle the confirmation, settlement, and delivery of securities transactions.
clearing corporation
Clearing corporations are also referred to as clearing firms or clearinghouses.
See clearinghouse.
A person who has passed an examination evidencing the knowledge necessary to supervise the business of a broker-dealer in a limited area of expertise such as investment company shares (e.g., Series 26).
limited principal
The term used to describe a bond that prints the name of the owner on the certificate but that has unregistered coupons payable to the bearer.
registered as to principal only
Syn. partially registered. See coupon bond; fully registered bond.
Template legislation written by the NCCUSL to serve as the basis for a STATE’S securities legislation if the state wished to adopt it.
It regulates securities, persons (broker-dealers and their agents and investment advisers and their representatives), and transactions in the securities markets within the STATE.
Uniform Securities Act (USA)
FHLMC
See Federal Home Loan Mortgage Corporation.
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.
revocable trust
The magnitude and frequency of changes in the price of a security or commodity within a given time period.
volatility
LONG OPTION HEDGE in which the investor neither gains nor loses.
The BREAKEVEN POINT is reached when the market price of the stock equals its purchase price PLUS the premium paid for the put.
breakeven long hedge
conversion rate
See conversion ratio.
ODD
See options disclosure document.
The measures taken by a broker-dealer firm to verify the identity of each customer.
Measures include obtaining unexpired photo identification, such as a valid driver’s license or passport, and determining whether the customer’s name appears on the U.S. Treasury’s lists of known or suspected terrorists.
customer identification program (CIP)
The total market value of common stock into which a corporate debt instrument is convertible.
conversion value
A contract between an individual and an employer, labor union, government entity, or other institution that provides for the distribution of pension benefits at retirement.
pension plan
The potential for an investor to incur a loss as a result of buying or selling a particular security at an unfavorable time.
timing 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, nationalization of industries, military control, or tax codes.
political risk
See Treasury bill.
T-bill
A mutual fund commission or sales charge that is INCLUDED in the purchase price.
front-end load
See also back-end load; Class A share
A term commonly used in legal situations to describe a prohibited action.
proscribed
ADS
See American Depositary Receipt.
A legal power given to a third party to trade an account and add or withdraw funds.
full trading authorization
An account where a customer selects a member firm (the prime broker) to provide custody and other services, while other firms (the executing brokers) handle all trades placed by the customer.
prime brokerage account
Former name of the NYSE American Stock Exchange. This exchange should not be confused with the NYSE Amex Options Exchange.
American Stock Exchange
GNMA
See Government National Mortgage Association.
CUSIP
Committee on Uniform Securities Identification Procedures. A CUSIP number is a unique alphanumeric code assigned to that specific security by the CUSIP Global Services. The CUSIP number is used to expedite and reduce the risks associated with timely clearance and settlement.
The annual rate of return on a security, calculated by dividing the interest or dividends paid by the security’s current market price. See also bond yield.
current yield
An order resulting from a broker-dealer recommendation. The resulting trade must be suitable for the investor.
solicited order
A nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms that are forced into bankruptcy. Its membership includes all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most FINRA members.
Securities Investor Protection Corporation (SIPC)
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 also stock split.
reverse split
A determination made by a registered representative as to whether a particular security matches a customer’s objectives and financial capability. The representative must have enough information about each customer to make a reasonable judgment.
suitability
A method to electronically transfer funds from one person or institution to another.
wire transfer
A 401(k) plan for self-employed persons who have no other business plan in place, and whose only full-time employees are the proprietor and spouse.
self-employed 401(k) plan (solo 401(k))
A type of bond issued with a provision allowing the issuer to redeem the bond before maturity at a predetermined price. See also call price.
callable bond
FOK
See fill-or-kill order.
equity index annuity
See index annuity.
Empowers individual members to act on behalf of the partnership as a whole.
partnership account
An institutional investor permitted under SEC rules to trade privately placed securities with other QIBs without registering the securities with the SEC. A qualified institutional investor must have at least $100 million under management.
qualified institutional investor or buyer (QIB)
The fraudulent practice of simultaneously entering identical or nearly identical buy and sell orders for a security to create the appearance of active trading in that security.
matched order
The term used to describe an option that has no intrinsic value (e.g., a call option when the stock is selling below the exercise price, or a put option when the stock is selling above the exercise price). Seealso at-the-money; in-the-money; intrinsic value.
out-of-the-money
limited trading authorization
See limited power of attorney.
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).
stock exchange
NMS
See National Market System.
This includes current stock price, the strike price, the time of expiration, the volatility of the stock price, the risk-free interest rate, and dividends expected during the life of the option.
factors affecting option pricing
stockholders’ equity
See net worth.
The potential for an investor to experience losses owing to day-to-day fluctuations in the prices at which securities can be bought or sold. See systematic risk.
market risk
daily journal
Day book or diary. See blotter.
underwriting discount
See underwriting spread.
An insurance contract used to fund retirement. Cash values vary with the performance of a portfolio of investments. An insurance and securities license is required to present variable contracts.
variable annuity
Composite Average
See Dow Jones Composite Average.
A debt security issued by an authorized agency of the federal government. Such issues are backed by the issuing agencies themselves, not by the full faith and credit of the U.S. government (except GNMA and Federal Import Export Bank issues). See government security.
agency issue
A person who is supported financially by a person associated with the securities industry, including a parent, mother- or father-in-law, husband or wife, child, and any other individual to whom the person provides material support.
immediate family
Investment Company/Variable Contract Products Limited Principal
See Series 26.
The price being offered or bid by a market maker or broker-dealer for a particular security. Syn. quote. See also ask; bid; bond quote; stock quote.
quotation
The increase in value of an asset.
appreciation
(1) A violation of securities industry rules by selling securities and simultaneously agreeing to repurchase the securities in the future in an unbooked transaction. (2) The prohibited practice of maintaining the registration of an associated person who has left the securities business.
parking
An options transaction in which the buyer sells an option in the same series; the two transactions effectively cancel each other out, and the position is liquidated. See also closing purchase; opening sale.
closing sale
A limited partnership that aims to locate and recover undiscovered reserves of oil, gas, or minerals. Syn. wildcatting. See also developmental drilling program; income program.
exploratory drilling program
collateral trust certificate
See collateral trust bond.
The lowest price a security or commodity reaches during a specified time period. See also high.
low
The nickname for state regulations governing the securities industry.
blue-sky laws
A form of investment company that, as a regular policy, hedges its market commitments. It does this by holding securities it believes are likely to increase in value, and at the same time, is short other securities it believes are likely to decrease in value. The sole objective is capital appreciation. This type of fund is highly aggressive and generally available to sophisticated investors.
hedge fund
A security representing a loan by an investor to an issuer such as a corporation, municipality, the federal government, or a federal agency.
debt security
The acronym for the Financial Industry Regulatory Authority and the result of the cooperative effort of NASD and the NYSE to harmonize regulation in the securities industry.
FINRA
That portion of authorized stock not distributed (sold) to investors by a newly chartered corporation.
unissued stock
Not being required to do something that others are required to do.
exempt
The source of an investment company’s dividend payments.
net investment income (NII)
Any goal a client hopes to achieve through investing. Examples include current income, capital growth, and preservation of capital.
investment objective
A qualified retirement plan that specifies the amount of money that the employer will contribute annually to the plan.
defined contribution plan
Companies that are listed on the Nasdaq Global Market that meet financial and liquidity requirements and agree to specific corporate governance standards.
Nasdaq Global Market Companies
face value
See par value.
Any unearned income in excess of a designated amount ($2,100 in 2019) received by a minor under age 19 (or 24 if full-time student) that is taxed to that minor, but at trust rates
kiddie tax
Generally, an instrument evidencing debt of, or equity in, a common enterprise in which an investment is made with the expectation of financial return.
security
A broker acting as an agent for another broker or dealer in trading municipal securities providing liquidity and anonymity. The broker’s broker does not take positions in a security or transact orders for the public. See also broker’s broker.
municipal broker’s broker
A marketable U.S. government debt security with a maturity of 52 weeks or less. Syn. T bill.
Treasury bill
The interest rate that commercial banks charge their prime or most creditworthy customers—generally large corporations.
prime rate
(1) A supervisory employee at a broker-dealer. (2) A party in a transaction who is trading for the party’s own account.
principal
The portion of the industry continuing education program that requires each firm to annually survey its needs and provide training relevant to those needs to all registered persons who have contact with the public. Those who supervise the aforementioned are covered as well. Any medium may be used to deliver the training, so long as it can be reasonably demonstrated to have been delivered.
firm element
UIT
See unit investment trust.
An account held in a corporation’s name specifying which officers are authorized to trade in the account. A corporation must provide a copy of its charter and bylaws authorizing a margin account.
corporate account
The annuitization selection made by a holder of an annuity.
settlement option (variable or fixed annuity)
The loss incurred when a capital asset is sold for a price lower than the purchase price. See capital gain; long-term loss.
capital loss
