Series 7 Terms Flashcards
Acceptance Ratio
see Placement Ratio
Acceptance, Waiver, and Consent
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.
Account Executive
See Registered Representative
Accredited Investor
Any institution or individual meeting minimum requirements for the purchase of securities qualifying under the Regulation D registration exemption.
Accretion of Bond Discount
An accounting process whereby the initial cost of a bond purchased at a discount is increased annually to reflect the basis of the bond as it approaches maturity.
Accrual Accounting
A method of accounting where income is reported when it is earned (instead of when the payment is received) and expenses are reported when they are incurred (instead of when they are paid).
Accrued Interest
The interest that has accumulated since the last interest payment, up to but not including the settlement date, and that is added to the contract price of a bond transaction. See also Flat.
Accumulation Stage
The period during which contributions are made to an annuity contract. See also Accumulation Unit
Accumulation Unit
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. See also Accumulation Stage, Annuity Unit, Separate Account
Acid-Test Ratio
A measure of a corporations liquidity, calculated by adding cash, cash equivalents, and accounts and notes receivable, but not inventory, and dividing the result by total current liabilities. It is a more stringent test of liquidity than current ratio. See also Current Ratio
ACT
See Automated Confirmation Transaction Service
Adjusted (cost) Basis
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 contributions to an IRA and net capital losses. It is the amount of income that will be subject to tax. See Tax Liability
Administrator
(1) The official or agency administering the securities laws of a state. (2) A person authorized by a court of law to liquidate an intestate decedent’s estate.
ADR
American Depositary Receipt
Advance Refunding
Refinancing an existing municipal bond issue before its maturity or call date by using money from the sale of a new bond issue. See also defeasance; refunding
Advance / Decline Line
A technical analysis tool representing the total of the differences between advances and declines of security prices. The advance/decline line is considered the best indicator of market movement as a whole. See also Breadth-of-market Theory
Advertisement
Any promotional material where the firm has little control over the type of individuals being exposed to the material.
Affiliated Person
Anyone in a position to influence decisions made in a corporation, including officers, directors, principal stockholders, and members of their immediate families. Their shares are often referred to as CONTROL STOCK.
Agency Basis
See Agency Transaction
Agency Issue
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 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. See also Agent; Broker; Principal Transaction
Agent
(1) An individual or firm that effects securities transactions for the accounts of others. (2) A securities salesperson who represents a broker-dealer or issuer when selling or trying to sell securities to the investing public; this individual is considered an agent whether he actually receives or simply solicits orders. See Broker; Broker-Dealer; dealer; prinicipal
Aggregate Exercise Price
The strike price expressed in total dollars. The aggregate exercise price for a standard July 40 Call contract is $4,000 (100 shares at $40 per share).
Aggressive Investment Strategy
A method of portfolio allocation and management aimed at achieving maximum return. Aggressive investors pursue aggressive policies, including margin trading, arbitrage, and option trading. See also balanced investment strategy, Defensive investment strategy
Agreement Among Underwriters (AAU)
The agreement that sets forth the terms under which each member of an underwriting syndicate will participate in a new issue offering and states the duties and responsibilities of the underwriting manager. See syndicate; underwriting manager
AIR
See Assumed Interest Rate
All-or-None Order (AON)
An order that instructs the firm to execute the entire order. Firm does not have to execute immediately.
All-or-None Underwriting (AON)
A form of best efforts underwriting in which the underwriter agrees that, if it is unable to sell all the shares (or a prescribed minimum), the issuer will cancel the offering.
Alpha
The risk-adjustment returns that a portfolio manager generates in excess of the risk-adjusted returns expected by the capital asset pricing model (CAPM)
Alternative Minimum Tax (AMT)
An alternative tax computation that adds certain tax preference items back into adjusted gross income. If the AMT is higher that the regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid. See Tax preference item
Alternative Order
An order to execute either of two transactions (e.g. placing a sell limit [above the market] and a sell stop [below the market] on the same stock). If one order is executed, all other linked orders are canceled. Syn. either/or order, one cancels other order.
AMBAC Assurance Corporation (AMBAC)
A corporation that offers insurance on teh timely payment of interest and principal obligations of municipal securities.
American Depository Receipt (ADR)
Facilitate trading in foreign securities in the U.S. domestic markets. Sometimes these are shown as ADS (American Depository Shares) and are similar to a GDR (Global Depositary Receipt), which is traded outside the United States.
Amortization
(1) The paying off of debt in regular installments over a period of time. (2) The ratable deduction of certain capitalized expenditures over a specified period of time.
Amotization of Bond Premium
An accounting process wherby the inital cost of a bond purchased at a premium is decreased to reflect the basis of the bond as it approaches maturity. See also Accretion of bond discount
Annual Compliance review
An annual meeting that all registered representatives and principals must attend, the purpose being to review compliance issues.
Annual Return on Investment (ROI)
For example, the annual return on a bond investment, which equals the annual interest and either plus the prorated discount or minus the prorated premium
Annuitant
A person who receives an annuity contracts distribution
Annuitize
To change an annuity contract from teh accumulation (pay-in) stage to the distribution (pay-out) stage
Annuity
A contract between an insurance company and an individual. Upon annuitization, it guarantees lifetime income to the individual on whose life the contract is based in return for either a lump sum or a periodic payment to the insurance company
Annuity Unit
An accounting measure used to determine the amount of each payment during an annuity’s distribution state. See also Accumulation Unit; Annuity; Distribution stage
Anti-Money Laundering
A program required to be instituted by all FINRA member firms under NASD Rule 3011. All personnel are to be trained to identify the different stages of money laundering and how to combat it.
AON
See all or none order; all or none underwriting
AP
See Associated person of a member
Appreciation
The increase in value of an asset
Approved Plan
See Qualified Retirement Plan
Arbitrage
(1) The simultaneous purchase and sale of the same or related securities to take advantage of market inefficiency (a discrepancy in prices between markets). see also International arbitrage, market arbitrage, security arbitrage, special arbitrage account. (2) The difference between the interest paid on tax-exempt bonds and the interest earned by investing the proceeds in higher-yielding taxable securities. Federal law restricts arbitrage earnings in connection with tax-exempt bonds. See Arbitrage Rebate
Arbitrageur
One who engages in arbitrage
Arbitration
The arrangement whereby FINRA’s Board of Arbitration of a designated arbitration association hears and settles disputes between members, allied members, member organizations, and their employees. Nonmembers in dispute with members or employees may submit voluntarily to arbitration. Once both parties agree to the process, there is no appeal. See also Simplified Arbitration
Ascending Triangle
On a technical analyst’s trading chart, a pattern indicating that the market has started to move back up; considered to be a bullish indicator. See also Descending Triangle
Ask
An indication by a trader of dealer of a willingness to sell a security or a commodity; the price at which an investor can buy a security. Syn. offer; POP
Assessed Value
The value of a property, as appraised by a taxing authority, for the purpose of levying taxes. Assessed value may equal market value or a stipulated percentage of market value.
Assessment
An additional amount of capital that a participant in a direct participation program may be called upon to furnish beyond the subscription amount. Assessments may be mandatory or optional and must be called within 12 months.
Asset
A balance sheet item expressing what a corporation owns.
Asset Allocation Fund
A mutual fund that splits its investment assets among stocks, bonds, and other vehicles, with a view to provide a consistent return for the investor.
Asset-backed Security (ABS)
One whose value and income payments are backed by the expected cash flow from a specific pool of underlying assets. Pooling the assets into financial instruments allows them to be sold to investors more easily than selling them individually. This process is called securitization.
Assignee of Record
A person who has acquired a beneficial interest in a limited partnership and whose interest has been recorded on the books of the partnership and is the subject of a written instrument of assignment.
Assignment
(1) A document accompanying, or part of a stock certificate signed by the person named on the certificate for the purpose of transferring the certificate’s title to another person’s name. (2) The act of identifying and notifying an account holder that an option held short in that account has been exercised by the option owner. See also stock power. (3) Transferring an investment advisory contract to another firm. This may not be done without written consent of the customer. A change in the majority interest in an investment advisory firm organized as a partnership is also considered assignment.
Associated Person of a Member (AP)
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).
Assumed Interest Rate (AIR)
(1) The net rate of investment return that must be credited to a variable life insurance policy to ensure that at all times, the variable death benefit equals the amount of the death benefit. The AIR forms the basis for projecting payments, but it is not guaranteed. (2) The rate that a variable annuity separate account must earn to keep annuity payments level. If the account earns more than the AIR, the next payment will increase; if it earns less, the next payment will decrease.
At the Money
The term used to describe an option when the underlying stock is trading precisely at the exercise price of the option. See also in the money; out of the money
At-the-Opening Order
An order that specifies it is to be executed at the opting of the market of trading in that security or else be canceled. The order will be executed at the opening price. See also market-on-close order.
Auction Market
A market in which buyers enter competitive bids and sellers enter competitive offers simultaneously. The NYSE is an auction market. Syn. double auction market
Auction Rate Securities (ARS)
Issued by municipalities, nonprofit hospitals, utilities, housing finance agencies, and universities, auction rate securities are long-term variable rate bonds tied to short-term interest rates.
Audited Financial Statement
A financial statement of a program, a corporation, or an issuer that has been examined and verified by an independent certified public accountant.
Authorized Stock
The number of shares of stock that a corporation may legally issue. This number is stipulated in the corporation’s state-approved charter and may be changed by a vote of the corporation’s stockholders
Authorizing Resolution
The document enabling a municipal government to issue securities.
Automated Confirmation Transaction Service (ACT)
Compares ORC trade information provided by market participants and submits locked-in trades for clearance and settlement. Also disseminates last sale information to the public. The FINTA/Nasdaq TRF operates on the ACT technology platform.
Automatic Exercise
A procedure initiated by Options Clearing Corporation (OCC) to automatically exercise in-the-money options upon their expiration
Average
A price at a midpoint among a number of prices. Technical analysts frequently use averages as market indicators. See also index
Average Basis
An accounting method used when an investor has made multiple purchases at different prices of the same security; the method averages the purchase prices to calculate an investor’s cost basis in shares being liquidated. The difference between the average cost basis and the selling price determines the investor’s tax liability.
BAs
See bankers acceptance
BABs
See Build America Bonds
Back Away
The failure of an over-the-counter market maker to honor a firm bid and asked price; this violates Conduct Rules. Syn. Backing Away
Back-End Load
A fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It is typically found with Class B shares (and for one year with Class C shares). It declines annually, decreasing to zero over an extended holding period- up to 8 years - as described in the prospectus. Syn. contingent-deferred sales load.
Balance of Payments (BOP)
An international accounting record of all transactions made by one particular country with others during a certain time period; it compares the amount of foreign currency the country has taken in with the amount of its own currency it has paid out. See also Balance of Trade
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. See balance of payments
Balance Sheet
A financial statement showing the assets, liabilities, and shareholder’s equity at a particular moment.
Balance Sheet Equation
A formula stating that a corporation’s assets equal the sum of its liabilities plus shareholders equity
Balanced Fund
A mutual fund whose stated investment policy is to have, at all times, some portion of its investment assets in bonds and preferred stock, as well as in-common stock, in an attempt to provide both growth and income. See also mutual fund
Balanced Investment Strategy
A method of portfolio allocation and management aimed at balancing risk and return
Balloon Maturity
A balloon maturity refers to a large number of an issuer’s bonds that become due at the same time. Compare term bonds
BAN
See bond anticipation note
Bank Guarantee Letter
The document supplied by a commercial bacnk in which the bank certifies that a put writer has sufficient funds on deposit at the bank to equal the aggregate exercise price of the put; this releases the option writer from the option margin requirement
Banker’s Acceptances (BAs)
A money market instrument used to finance international trade. Bankers’ acceptances are 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)
Bar Chart
A tool used by technical analysts to track the price movements of a commodity over several consecutive time periods. See also moving average chart; point-and-figure chart
Basis Point
A measure of a bond’s yield, equal to 1/100 of 1% of a yield. A bond whose yield increases from 5.0% to 5.5% is said to increase by 50 basis points. A basis point is equal to 10 cents.
BD
See Broker Dealer
Bear
An investor who acts on the belief that a security or the market is falling or is expected to fall. See bull
Bear Market
A market in which prices of a certain group of securities are falling or are expected to fall. See Bull Market
Bearer Bond
See Coupon Bond
Best Efforts Underwriting
A securities underwriting in which the underwriter acts as an agent for the issuer and puts forth its best efforts to sell as many shares as possible of those available. The underwriter has no liability for unsold shares, unlike in a firm commitment underwriting. See also Underwriting, see firm commitment
Beta Coefficient
See Beta
Bid
(1) An indication of an investor, a trader, or a dealer of a willingness to buy a security or commodity; the price at which an investor can sell to a broker-dealer. (2) The price at which an investor can redeem shares of a mutual fund. See also Offer; public offering price; quotation
Bid Form
A document, generally included with the notice of sale, to be completed by underwriters interested in submitting a bid on a new issue of municipal securities to be sold competitively. A bidding underwriter will state on the bid form its proposed interest rate(s) for the issue and the price it would be willing to pay for the new issue (subject to any conditions stated by the issuer in the notice of sale), and may be asked to propose a structure for the new issue.
Blind Pool
(1) A company that sells stock without specifying how invested money will be spent. (2) A direct participation program that does not state in advance all of the specific properties in which the general partners proceeds of the offering are kept in reserve for the purchase of non-specified properties. Syn. Non-specified property program
Block Trade
A large trading order, defined as an order that consists of 10,000 or more shares of a given stock or at a total market value of $200,000 or more. Syn. Block Sale
Blue-chip Stock
The equity issues of financially stable, well-established companies that have demonstrated their ability to pay dividends in both good and bad times.
Blue-sky
To register a securities offering in a particular state.
Blue-sky Laws
The nickname for state regulations governing the securities industry
Board of Directors
Individuals elected by stockholders to establish corporate management policies. A board of directors decides, among other issues, if and when dividends will be paid to stockholders.
