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Terms and Definitions

Accretion (of a discount)
In portfolio accounting, a straight-line accumulation of capital gains on a discount bond in anticipation of receipt of par at maturity.

Accrued interest
Applies mainly to convertible securities. Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus "accrued interest," calculated by multiplying the coupon rate by the fraction of the coupon period that has elapsed since the last payment. (If a bondholder receives $40 in coupon payments per bond semiannually and sells the bond one-quarter of the way into the coupon period, the buyer pays the seller $10 as the latter's proportion of interest earned.)

The acquiring of control of one corporation by another. In "unfriendly" takeover attempts, the potential buying company may offer a price well above current market values, new securities and other inducements to stockholders. The management of the subject company might ask for a better price or try to join up with a third company.

American Depositary Receipt (ADR)
A security issued by a U.S. bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares in U.S. markets.

American Stock Exchange (AMEX)
Stock exchange with the third highest volume of trading in the US. Located at 86 Trinity Place in downtown Manhattan. The bulk of trading on AMEX consists of index options (computer technology index, institutional index, major market index) and shares of small to medium-sized companies are predominant. Recently merged with Nasdaq

Accounting for expenses or charges as applicable rather than as paid. Includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses and deferred charges.

Annual report
The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, expenses and earnings - how the company stood at the close of the business year, how it fared profit-wise during the year, as well as other information of interest to shareowners.

Annual percentage rate (APR)
The periodic rate times the number of periods in a year. For example, a 5% quarterly return has an APR of 20%.

Annual percentage yield (APY)
The effective, or true annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the effect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12 -1).

Annual rate of return
There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest.

A technique employed to take advantage of differences in price. If, for example, ABC stock can be bought in New York for $10 a share and sold in London at $10.50, an arbitrageur may simultaneously purchase ABC stock here and sell the same amount in London, making a profit of $.50 a share, less expenses. Arbitrage may also involve the purchase of rights to subscribe to a security, or the purchase of a convertible security - and the sale at or about the same time of the security obtainable through exercise of the rights or of the security obtainable through conversion.

This is the quoted ask, or the lowest price an investor will accept to sell a stock. Practically speaking, this is the quoted offer at which an investor can buy shares of stock; also called the offer price.

Asked price
In context of general equities, price at which a security or commodity is offered for sale on an exchange or in the OTC Market.

Asked to bid/offer
Used in context of general equities. Usually a seller (buyer) looking to aggressively sell (buy) stock, usually asking for a capital commitment from an investment bank.

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Balance sheet
A condensed financial statement showing the nature and amount of a company's assets, liabilities and capital on a given date. In dollar amounts, the balance sheet shows what the company owned, what it owed and the ownership interest in the company of its stockholders.

Basis point
One gradation on a 100-point scale representing 1%; used especially in expressing variations in the yields of bonds. Fixed income yields vary often and slightly within one percent and the basis point scale easily expresses these changes in hundredths of 1%. For example, the difference between 12.83% and 12.88% is 5 basis points.

Someone who believes the market will decline.

Bear market
A declining market.

The price a potential buyer is willing to pay for a security. Sometimes also used in the context of takeovers where one corporation is bidding for (trying to buy) another corporation. In trading, we have the bid-ask spread which is the difference between what buyers are willing to pay and what sellers are asking for in terms of price.

Bid-asked spread
The difference between the bid and the asked prices.

Bid price
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically speaking, this is the available price at which an investor can sell shares of stock.

Blue-chip company
Used in the context of general equities. Large and creditworthy company. Company renowned for the quality and wide acceptance of its products or services,and for its ability to make money and pay dividends. Gilt-edged security.

Blue chip stocks
Common stock of well-known companies with a history of growth and dividend payments.

Blue-sky laws
State laws covering the issue and trading of securities.

Bonds are debt and are issued for a period of more than one year. The US government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.

An individual who is paid a commission for executing customer orders. Either a floor broker who executes orders on the floor of the exchange, or an upstairs broker who handles retail customers and their orders. Also, person who acts as an intermediary between a buyer and seller, usually charging a commission. A "broker" who specializes in stocks, bonds, commodities, or options acts as an agent and must be registered with the exchange where the securities are traded. Antithesis of dealer.

Any person, other than a bank, engaged in the business of buying or selling securities on its own behalf or for others.

To purchase an asset; taking a long position.

Buy in
To cover, offset, or close out a short position..

Buy limit order
A conditional trading order that indicates a security may be purchased only at the designated price or lower..

Buy order
An order to a broker to purchase a specific quantity of a security.

Buy stop order
A buy order not to be executed until the market price rises to the stop price. Once the security has broken through that price, the order is then treated as a market order. Also known as a suspended market order.

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An option that gives the holder the right to buy the underlying futures contract.

Call date
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.

Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.

Call an option
To exercise a call option.

Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.

Capital gain or capital loss
When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

Capital gains distribution
A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.

Capital gains tax
The tax levied on profits from the sale of capital assets. A long-term capital gain, which is achieved once an asset is held for at least 12 months, is taxed at a maximum rate of 20% (taxpayers in 28% tax bracket) and 10% (taxpayers in 15% tax bracket). Assets held for less than 12 months are taxed at regular income tax levels, and, since January 1, 2000, assets held for at least five years are taxed at 18% and 8%.

Capital gains yield
The price change portion of a stock's return.

Cash dividend
A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.

Chicago Board Options Exchange (CBOE)
A securities exchange created in the early 1970s for the public trading of standardized option contracts. Primary place stock options, foreign currency options, and index options (S&P 100, 500, and OTC 250 index)

Chicago Board of Trade (CBOT)
The second largest futures exchange in the US, and was a pioneer in the development of financial futures and options.

Closed-end fund
An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicy traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value..

Closing tick
The net of the number of stocks whose closing prices are higher than their previous trades (uptick) against the number of stocks whose closing prices were lower than their previous trades (downtick). A positive closing tick indicates "buying at the close", or a bullish market; a negative closing tick indicates "selling at the close," or a bearish market.

A very risky type of Real Estate Investment Trust investing in the residual cash flows of Collateralized Mortgage Obligation (CMOs). CMO cash flows are derived from the difference between the rates paid by the mortgage loan holders and the lower, shorter-term rates paid to CMO investors.

Collateralized Bond Obligation (CBO)
Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. CBOs backed by highly risky junk bonds receive higher interest rates than other CBOs.

Collateralized mortgage obligation (CMO)
A security backed by a pool of pass-through rates, structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: mortgage pass-through security.

Common stock
Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation.

Cost basis
The original price of an asset, used to determine capital gains.

A written option is considered to be covered if the writer also has an opposing market position on a share-for-share basis in the underlying security. That is, a short call is covered if the underlying stock is owned, and a short put is covered (for margin purposes) if the underlying stock is also short in the account. In addition, a short call is covered if the account is also long another call on the same security, with a striking price equal to or less than the striking price of the short call. A short put is covered if there is also a long put in the account with a striking price equal to or greater than the striking price of the short put.

Covered call
A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.

Covered call writing strategy
A strategy that involves writing a call option on securities that the investor owns.

Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: Naked strategies

Covered option
Option position that is offset by an equal and opposite position in the underlying security. Antithesis of naked option.

Covered position
Use of an option in a trading strategy in the underlying asset is already owned.

Covered put
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.

Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid in full before any dividend payment is made.

Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments.

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Date of record
Date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights.

Day around order
A day order that supersedes (cancels and replaces) the previous order by altering its size or price limit.

Day order
In the context of general equities, request from a customer to either buy or sell stock, that, if not canceled or executed the day it is placed, expires automatically. All orders are day orders unless otherwise specified. Traders often make calls before the opening to check for renewals.

Day trade
Also known as a "daylight trade." The purchase and sale or the short sale and cover of the same security in a margin account on the same day.

An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). Individual or firm acting as a principal in a securities transcation. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker..

Any debt obligation backed strictly by the borrower's integrity, e.g. an unsecured bond. A debenture is documented in an indenture.

Debenture bond
An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond and collateral trust bonds.

Debt securities
IOUs created through loan-type transactions-commercial paper, bank CDs, bills, bonds, and other instruments.

Deep-discount bond
A bond issued with a very low coupon or no coupon that sell at a price far below par value. A bond that has no coupon is called a zero-coupon bond.

Defensive securities
Low-risk stocks or bonds that will provide a predictable and safe return on an investor's money.

Units of interest in the diamonds trust, a unit investment trust that serves as an index to the Dow Jones Industrial Average in that its holdings consist of the 30 component stocks of the Dow.

Discount Interest
Interest at a beginning of the loan. For example if you take out a one-year loan of $100 at a discount interest rate of 10%, you would receive $90 at the outset.

Direct rollover
Movement of tax-deferred retirement plan money from one qualified plan or custodian to another. No immediate tax liabilities or penalties are incurred, but there is an IRS reporting requirement.

Discount bond
Debt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond.

Discount broker
A brokerage house featuring relatively low commission rates in comparison to a full-service broker.

Discount yield
The yield or annual interest rate on a security sold to an investor at a discount. A bond that is sold at $4875 that matures to $5000 has a discount of $125. To calculate the discount yield: (discount divided by the face value of the security) multiplied by the (number of days in the year divided by the number of days to maturity).

A portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.

Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.

Dollar-weighted rate of return
Also called the internal rate of return; the interest rate that makes the present value of the cash flows from all the subperiods in an evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.

Don't know (DK, DKed)
"Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.

Dow Jones Industrial Average
The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including, stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest US companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies, and commodities.

Move down in a particular stock. On U.S. stock exchanges, you cannot sell a stock short on a downtick.

Dual listing
Listing of a security on more than one exchange, thus increasing the competition for bid and offer prices, the liquidity of the securities, and the length time the stock can be traded daily (if listed on both the east and west coasts.)

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Earnings per share (EPS)
A company's profit divided by its number of outstanding shares. If a company earning $2 million in one year had 2 million shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term. The one-year (historical or trailing) EPS growth rate is calculated as the percentage change in earnings per share. The prospective EPS growth rate is calculated as the percentage change in this year's earnings and the consensus forecast earnings for next year.

Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of compounding.

Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.

Equity REIT
A Real Estate Investment Trust that assumes ownership status in the property it invests in enabling investors of the REIT to earn dividends on rental income from the property and appreciation in property resale.

Federal funds rate
The interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction of US interest rates. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate.

Fixed-income securities
Investments that have specific interest rates, such as bonds.

Floating Rate
Interest rate that is reset periodically, usually every couple of months or sometimes daily.

The huge trading area - about the size of a football field - where stocks, bonds and options are bought and sold on the New York Stock Exchange.

Floor broker
A member of the stock exchange who executes orders on the floor of the Exchange to buy or sell any listed securities.

Full-service broker
A broker who provides clients an all-inclusive selection of services such as advice on security selection and financial planning.

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Mortgage-backed securities (M.B.S.) on which registered holders receive separate principal and interest payments on each of their certificates, usually directly from the servicer of the M.B.S. pool. GNMA-I mortgage-backed securities are single-issuer pools.

Mortgage-backed securities (M.B.S.) on which registered holders receive an aggregate principal and interest payment from a central paying agent on all their certificates. Principal and interest payments are disbursed on the 20th day of the month. GNMA-II M.B.S. are backed by multiple-issuer pools or custom pools (one issuer but different interest rates that may vary within one percentage point). Multiple-issuer pools are known as "jumbos." Jumbo pools are generally longer and offer certain mortgages that are more geographically diverse than single-issuer pools. Jumbo pool mortgage interest rates may vary within one percentage point.

GNMA Midget
A GNMA pass-through certificate backed by fixed-rate mortgages with a 15-year maturity. GNMA Midget is a dealer term and is not used by GNMA in the formal description of its programs.

Good-this-Month order (GTM)
An order to buy or sell securities that continues to be a valid order until the end of the current month.

Good through/until date order
Used in the context of general equities. Market or limited price order that remains viable for a stated period of time unless cancelled, executed, or changed, after which such order or the portion thereof not executed is to be treated as cancelled.

Good 'til cancelled order (GTC)
An order to buy or sell stock that is good until you execute or cancel it. Brokerages usually set a limit of 30-60 days, at which the G.T.C. order expires if not restated. (Different from a day order.)

Government National Mortgage Association (Ginnie Mae)
A wholly owned U.S. government corporation within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VA-guaranteed, or Farmers Home Administration (FmHA)-guaranteed mortgages.

Growth stock
Common stock of a company that has an opportunity to invest money and earn more than the opportunity cost of capital.

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A transcation that reduces the risk of an investment.

Hedged portfolio
A portfolio consisting of a long position in the stock and a long position in the put option on the stock, so as to be riskless and produce a return that equals the risk-free interest rate.

A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss.

Credit quality of AAA or AA.

High yield
In the context of hedge funds, a style of management that focuses on low rated fixed income securities.

A statistical yardstick expressed in terms of percentages of a base year or years. For instance, the NYSE Composite Index of all NYSE common stocks is based on 1965 as 50. An index is not an average.

Individual Retirement Account (IRA)
A retirement account that may be established by an employed person. IRA contributions are tax deductible according to certain guidelines, and the gains in the account are tax-deferred.

Individual Retirement Account (IRA) rollover
A provision of the law governing IRA's that enables a retiree or anyone receiving a lump-sum payment from a pension, profit-sharing, or salary reduction plan to transfer the amount into an IRA.

In-the-money option
An option that has value.

Investment banker
Also known as an underwriter. The middleman between the corporation issuing new securities and the public. The usual practice is for one or more investment bankers to buy outright from a corporation a new issue of stocks or bonds. The group forms a syndicate to sell the securities to individuals and institutions. Investment bankers also distribute very large blocks of stocks or bonds - perhaps held by an estate

Investment strategy
A strategy, or plan of attack, an investor uses when deciding how to allocate capital among several options including stocks, bonds, cash equivalents, commodities, and real estate. The strategy should take into account the investor's tolerance for risk as well as future needs for capital.

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Junk bond
A bond with a speculative credit rating of BB (S&P) or BA (Moody's) or lower. Junk or high-yield bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moody's Investor Services, provide the rating systems for companies' credit.

Know your customer
An ethical foundation of securities brokers that an adviser who recommends the purchase or sale of any security to a customer, must believe that the recommendation is suitable for the customer, given the customer's financial situation.

Limit on close order
An order to buy or sell stock at the closing price only if the price is at a predetermined level or better.

Limit order
An order to buy a stock at or below a specified price, or to sell a stock at or above a specified price. For instance, you could tell a broker "buy me 100 shares of XYZ Corp at $8 or less" or "sell 100 shares of XYZ at $10 or better" The customer specifies a price, and the order can be executed only if the market reaches or betters that price. A conditional trading order designed to avoid the danger of adverse unexpected price changes.

Listed security
Stock or bond that has been accepted for trading by one of the organized and registered securities exchanges in the United States. Generally, the advantages of being listed are that exchanges provide: (1) an orderly marketplace; (2) liquidity; (3) fair price determination; (4) accurate and continuous reporting on sales and quotations; (5) information on listed companies; and (6) strict regulation for the protection of securityholders.

Listed stocks
Stocks that are traded on an exchange.

Long position
Owning or holding options (i.e., the number of contracts bought exceeds the number of contracts sold). For equities, a long position occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the stock.

Long-term gain
A profit on the sale of a capital assets held longer than 12 months, and eligible for long-term capital gains tax treatment.

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Allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: Security deposit (initial). In the context of hedging and futures contracts, the cash collateral deposited with a trader or exchanged as insurance against default.

Margin account (stocks)
A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock; if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Margin call
A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance.

Margin stock
Any stock listed on a national securities exchange, any over-the-counter security approved by the SEC for trading in the national market system, or appearing on the Board's list of over-the-counter margin stock and most mutual funds.

Margin trading
Buying securities, in part, with borrowed money.

Market Center
SEC Rule 605 to include any exchange market maker, OTC market maker, alternative trading system, national securities exchange, or national securities association. However, market center does not include any of the option exchanges.

Market order
Used in the context of general equities. Order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order is represented in the trading crowd. You cannot specify special restrictions such as all or none (AON) or good 'til canceled order (GTC) on market orders.

Market price
The last reported price at which a security was traded on an exchange.

Market prices
The amount of money that a willing buyer pays to acquire something from a willing seller, when a buyer and seller are independent and when such an exchange is motivated by only commercial consideration.

Market value
(1) The price at which a security is trading and could presumably be purchased or sold. (2) What investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

Adjustment of the book value or collateral value of a security to reflect current market value.

Medallion Stamp Program
A program approved by the Securities Transfer Association that enables participating financial_institutions to guarantee signatures. The Medallion programs ensure that the individual signing the certificate or stock, power is in fact the registered owner as it appears on the stock certificate or stock power. Any U.S. financial institution that belongs to a Medallion Stamp Program can provide Medallion guarantees. Such institutions include banks, savings and loans, credit unions and U.S. brokerages.

Medium term
Two-six years.

Medium-term bond
A bond maturing in two to ten years.

Medium-term note
A corporate debt instrument that is continuously offered to investors over a period of time by an agent of the issuer. Investors can select from maturity bands of: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

(1) Acquisition in which all assets and liabilities are absorbed by the buyer. (2) More generally, any combination of two companies. The firm's activity in this respect is sometimes called M&A (Merger and Acquisition)

Merger Arbitrage
In the context of hedge funds, a style of management that involves the simultaneous purchase of stock in a company being acquired and the sale of stock in its acquirer.

Mid cap
A stock with a capitalization usually between $1 billion and $5 billion.

Mid-cap SPDRs
This is the same as a SPDR except the indexit tracks is Standard&Poor's Mid-cap 400. This SPDR also trades on the AMEX, under the symbol MDY

Moody's investment grade
A rating of one through four assigned by Moody's Investors Service to bonds.

Moody's Investors Service
A leading global credit rating, research and risk analysis firm.

Morningstar rating system
A system used in rating mutual funds and annuity by Morningstar Incorporated of Chicago.

Mortgage-Backed Securities Clearing Corporation (MBSCC)
"Founded" in 1979, MBSCC is the sole provider of automated post-trade comparison, netting, risk management and pool notification services to the mortgage-backed securities market. The organization is a registered clearing agency with the Securities and Exchange Commission and majority-owned by its members -- MBS dealers, inter-dealer brokers and other non-broker/dealers. MBSCC provides its specialized services to major market participants active in various Government National Mortgage Association (GNMA), Fannie Mae(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) MBS programs.

Mortgage-backed securities (MSBs)
Securities backed by a pool of mortgage loans.

Mortgage pass-through security
Also called a passthrough, a security created when one or more mortgage holders form a collection (pool) of mortgages and sells shares or participation certificates in the pool. The cash flow from the collateral pool is "passed through" to the security holder as monthly payments of principal, interest, and prepayments. This is the predominant type of MBS traded in the secondary market.

Mortgage REIT
An REIT that invests in loans secured by real estate which derive income from mortgage interest and fees.

Multiple Arbitrage
In the context of hedge funds, a style of management where by the fund employs more than one arbitrage strategy. Portfolio manager opportunistically allocates capital among the various strategies in order to create the best risk/reward profile for the overall fund. Common strategies include merger arbitrage, convertible arbitrage, fixed income arbitrage, long/short equities pairs trading, and volatility arbitrage. In the context of equity and private equity investment, this refers to an investment in a firm where by standard multiples (earnings/price, book/price) indicate the price is far cheaper than industry averages.

Mutual fund
Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are investment companies regulated by the Investment Company Act of 1940.

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Naked option strategies
An unhedged strategy making exclusive use of one of the following: Short call strategy (selling or writing call options), and short put strategy (selling or writing put options). By themselves, these positions are called naked strategies because they do not involve an offsetting or risk-reducing position in another option or the underlying security. Related: Covered option strategies.

National Association of Securities Dealers (NASD)
Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to comply with the Maloney Act, which provides for the regulation of the OTC market.

National Association of Securities Dealers Automatic Quotation System (Nasdaq)
An electronic quotation system that provides price quotations to market participants about the more actively traded common stock issues in the OTC market. About 4000 common stock issues are included in the Nasdaq system.

National Market System (NMS)
Refers to over-the-counter trading. System of trading OTC stocks under the sponsorship of the NASD. Must meet certain criteria for size, profitability and trading activity. More comprehensive information is available for NMS stocks than for non-NMS stocks traded OTC (high, low, and last-sale prices, cumulative volume figures, and bid and ask quotations throughout the day). This is due to the fact that market makers must report the actual price and number of shares in each transaction within 90 seconds verses nonreal-time reporting for non-NMS stocks (thus, last sales prices and minute-to-minute volume updates are not possible).

National Securities Clearing Corporation (NSCC)
A clearing corporation that facilitates the settlement of accounts among brokerage firms, exchanges, and other clearing corporations.

Negative yield curve
When the yield on a short-term security is higher than the yield on a long-term security, partially because high interest rates are creating a greater demand for short-term borrowing.

Neutral hedge
Hedge that is expected to yield a dollar-neutral result of the combined position, regardless of price change in any part of the hedge securities. For any convertible trading at a premium, this ratio is less than 100%. The higher the convertible premium, the lower a ratio must be to be neutral.

New York Stock Exchange (NYSE)
Also known as the Big Board or the Exchange.

NYSE composite index
Composite index covering price movements of all new world common stocks listed on the New York Stock Exchange. It is based on the close of the market on December 31, 1965, at a level of 50.00, and is weighted according to the number of shares listed for each issue. Print changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility, and finance.

Nominee Name
A name that is used by the corporation as a generic registered owner on a stock or bond certificate. The use of nominee names makes the processing of security transfers easier.

Noncompetitive tender
Offer by an investor to purchase Treasury securities at a price equivalent to the weighted average discount rate or yield of accepted competitive bids in a Treasury auction. Noncompetitive tenders are always accepted in full.

Applies mainly to convertible securities. Type of preferred stock on which unpaid or Omitted dividends do not accrue. Omitted dividends are, as a rule, gone forever.

Noncumulative preferred stock
Preferred stock whose holders must forgo dividend payments when the company misses a dividend payment.

Non-directed order
SEC Rule 606 to include any order where the customer has not specifically instructed the broker dealer to route the order to a particular venue for execution.

Nonvoting stock
A security that does not entitle the holder to vote on the corporation's resolutions or elections.

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Odd lot
A trading order for less than 100 shares of stock.

Office of Thrift Supervision (OTS)
An agency of the U.S. Treasury department responsible for the U.S. savings and loan industry.

Options Clearing Corporation (OCC)
Applies to derivative products. Financial institution that is the actual issuer and guarantor of all listed option contracts.

Options contract
A contract that, in exchange for the option price, gives the option buyer the right, but not the obligation, to buy (or sell) a financial asset at the exercise price from (or to) the option seller within a specified time period, or on a specified date (expiration date).

Instruction to a broker/dealer to buy, sell, deliver, or receive securities or commodities that commits the issuer of the "order" to the terms specified. See: indication, inquiry, bid wanted, offer wanted.

Original issue discount debt (OID debt)
Debt that is initially offered at a price below par.

Original Issue Discount securities (OIDS)
Bonds on which the coupon rate is set considerably below the yield to maturity at the time of issuance so that the bonds are issued at a discount from a par value.

OTC Bulletin Board
An electronic quotation listing of the bid and asked prices of OTC stocks that do not meet the requirements to be listed on the NASDAQ stock-listing system.

OTC margin stock
Shares traded over-the-counter that can be used as margin securities under Regulation T.

Out-of-the-money option
A call option is "out of the money" if the strike price is greater than the market price of the underlying security. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable. A put option is out of the money if the strike price is lower than the market price of the underlying security.

Over-the-counter (OTC)
A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for US stocks.

Over-the-Counter Option
An option traded off-exchange, as opposed to a listed stock option. The OTC option has a direct link between buyer and seller, has no secondary market, and has no standardization of striking prices and expiration dates.

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Pacific Stock Exchange
Used for listed equity securities. Regional exchange located in Los Angeles and San Francisco; only U.S. exchange open between 4:00 and 4:30.

A buyback to offset and effectively liquidate a prior sale of securities.

Paper gain (loss)
Unrealized capital gain (loss) on securities held in a portfolio based on a comparison of current market price to original cost.

Pass-through securities
A pool of fixed income securities backed by a package of assets (i.e., mortgages) where the holder receives the principal and interest payments.

Passive portfolio strategy
A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some market index. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related:

Perfect hedge
A situation in which the profit and loss from the underlying asset and the hedge position are equal.

Period-certain annuity
An annuity that provides guaranteed payments to an annuitant for a specified period of time.

Philadelphia Board of Trade (PBOT)
A subsidiary of the Philadelphia Stock Exchange that trades currency futures.

Philadelphia Stock Exchange (PHLX)
A securities exchange trading American and European foreign currency options on spot exchange rates.

Portfolio asset allocation
The distribution, by type of asset, of a portfolio's holdings.

Portfolio beta
Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.

Portfolio diversification
Investing in different asset classes and in securities of many issuers in an attempt to reduce overall investment risk and to avoid damaging a portfolio's performance by the poor performance of a single security, industry, (or country).

Portfolio expected return
A weighted average of individual assets' expected returns.

Preferred stock
A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation. Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend, stated in a dollar amount or as a percentage of par value. This stock does not usually carry voting rights. Preferred stock has characteristics of both common stock and debt.

Principal-only (PO)
A mortgage-backed security (MBS) whose holder receives only principal cash flows on the underlying mortgage pool. All the principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped MBS on the basis of the current face value of the underlying collateral pool.

Authorization, whether written or electronic, that shareholders' votes may be cast by others. Shareholders can and often do give management their proxies, delegating the right and responsibility to vote their shares as specified.

Proxy statement
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy.

Proxy vote
Vote cast by one person or entity on behalf of another.

Prudent-man rule
A common law standard against which those investing the money of others fiduciaries are judged.

Put bond
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years. If the price is above par, the put is a "premium put."

Put-call parity
Applies to derivative products. Option pricing principle that says, given a stock's price, a put and call of the same class must have a static price relationship because arbitrage opportunities or activities will always reestablish such a relationship.

Put-call parity relationship
The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the underlying stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C = S + P - PV(k).

Put-call ratio
The ratio of the volume of put options traded to the volume of call options traded, which is used as an indicator of investor sentiment (bullish or bearish).

Put option
This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period. An investor, for example, might wish to have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

Put an option
To exercise a put option.

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Quid pro quo
An arrangement allowing a firm to use research from another firm at no cost in exchange for executing all of its trades with the firm that provides the research.

Quoted price
The price at which the last trade of a particular security or commodity took place.

Rate of return
Calculated as the (value now minus value at time of purchase) divided by value at time of purchase. For equities, we often include dividends with the value now.

Rate of return ratios
Ratios that measure the profitability of a firm in relation to various measures of investment in the firm.

Real Estate Investment Trust (REIT)
REITs invest in real estate or loans secured by real estate and issue shares in such investments. A REIT is similar to a closed-end mutual fund.

Real gain or loss
A gain or loss adjusted for increasing prices by an inflation index such as the CPI.

Realized compound yield
Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and held thus until the bond matures.

Realized profit (or loss)
A capital gain or loss on securities held in a portfolio that has become actual by the sale or other type of surrender of one or many securities.

Realized return
The return that is actually earned over a given time period.

Realized yield
The holding-period return actually generated from an investment in a bond.

Regulation A
An exemption from the Securities Act of 1933 that exempts small public offerings, valued at less than $1.5MM from most registration requirements with the SEC.

Regulation D
There are two Regulation Ds. First, it refers to the exemption from the Securities Act of 1933 for Private Placements. These placements are exempt from registration and prospectus delivery requirements. Second, it refers to a Federal Reserve Board regulation that currently requires member banks to hold reserves against their net borrowings from foreign offices of other banks over a 28-day averaging period. Regulation D has been merged with Regulation M.

Regulation FD (fair disclosure)
U.S. S.E.C. regulation whose purpose is to ensure that select groups of investors are not privy to firm-specific information before other investors. Executives are not allowed to reveal nonpublic information during their communications with analysts and select shareholders. If information is inadvertently released, they must take steps to broaden the dissemination of the information within 24 hours of discovering the disclosure.

Regulation G
Federal Reserve Board regulation of lenders other than commercial banks, brokers, or dealers that provide credit for the purchase of or carrying of securities. This regulation was discontinued by a 1998 amendment.

Regulation M
Federal Reserve Board regulation that currently requires member banks to hold reserves against theirnet borrowings from their foreign branches over a 28-day averaging period. Reg M has also required member banks to hold reserves against Eurodollars lent by their foreign branches to domestic corporations for domestic purposes.

Regulation Q
Federal Reserve Board regulation imposing caps on the rates that banks may pay on savings and time deposits. Currently time deposits with a denomination of $100,000 or more are exempt from Reg Q.

Regulation T
Federal Reserve Board regulation that deals with grantingcredit to customers by securities brokers, dealers, and exchange member as far as initial margin requirements and securities that are covered under the rules.

Regulation T Calls
Federal Reserve Board Regulation T margin calls are issued when a customer makes a transaction in a margin account and does not meet the minimum initial requirement of 50% cash or loan available. This margin call is referred to as a Fed Call. The customer must increase the equity in the account by depositing additional funds and/or marginable securities. If the necessary amount of cash or securities is not deposited into the account within the specified time period, securities may be sold to meet the call, and the account may become restricted.

Regulation U
Federal Reserve Board limit on how much credit a bank can allow a customer for the purchase and carrying of margin securities.

Rules specifying the appropriate behavior of agencies, organizations or individuals in the securities industry.

Required minimum distribution (RMD)
The minimum amount that the IRS requires must be withdrawn each year from all tax-advantaged retirement plans starting in the calendar year following the year in which the plan holder reaches age 70-1/2. Roth IRAs are exempt from this rule.

Restricted Securities
The term used under Rule 144 for securities issued privately by the company, without the benefit of a registration statement. Restricted securities are subject to a holding period before they can be sold under Rule 144.

Restricted stock
Stock that must be traded in compliance with special SEC regulations concerning its purchase and resale. These restrictions generally result from affiliate ownership, M&A activity, and underwriting activity.

Risk-adjusted return
Often we subtract from the rate of return on an asset a rate of return from another asset that has similar risk. This gives an abnormal rate of return that shows how the asset performed over and above a benchmark asset with the same risk. We can also use the beta against the benchmark to calculate an alpha, which is also risk-adjusted performance.

Risk arbitrage
Traditionally, the simultaneous purchase of stock in a company being acquired and the sale of stock of the acquirer. Modern risk arbitrage focuses on capturing the spreads between the market value of an announced takeover target and the eventual price at which the acquirer will buy the target's shares.

Roth IRA
Individual Retirement Account that allows contributors to make annual contributions and to withdraw the principal and earnings tax-free under certain conditions. Maximum annual contributions are $3,000 per year (phasing up to $4,000 per year in 2005 and $5,000 per year in 2008.

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An agreement between a buyer and a seller on the price to be paid for a security, followed by delivery.

Standard & Poor's Corporation.

S&P 500 Composite Index
Index of 500 widely held common stocks that measures the general performance of the market.

Securities & Exchange Commission (SEC)
A federal agency that regulates the US financial markets. The SEC also oversees the securities industry and promotes full disclosure in order to protect the investing public against malpractice in the securities markets.

Securities and Exchange Commission Rules
Rules enacted by the SEC to assist in the regulation of US financial markets.

Securities Exchange Act of 1934
Legislation that created the SEC, outlawing dishonest practices in the trading of securities.

Securities Investor Protection Corporation (SIPC)
A nonprofit corporation that insures customers' securities and cash held by member brokerage firms against the failure of those firms.

Self-directed IRA
An IRA that the account holder can after appointing a custodian manager to carry out investment instructions.

Self-regulatory organization (SRO)
Organizations that enforce fair, ethical, and efficient practices in the securities and commodity futures industries, including all national securities and commodities exchanges and the NASD.

Sell limit order
Conditional trading order that indicates that a security may be sold at the designated price or higher..

Sell order
An order that may take many different forms by an investor to a broker to sell a particular stock, bond, option, future, mutual fund, or other holding.

Sell out
Liquidation of a margin account after a customer has failed to bring an account to a required level by producing additional equity after a margin call.
The selling of securities by a broker when a customer fails to pay for them.
The complete sale of all securities in a new issue.

Sell plus order
Market or limit order to sell a stated amount of stock provided that the price to be obtained is not lower than the last sale if the last sale was a plus, or zero plus tick, and is not lower than the last sale plus the minimum fractional change in the stock if the last sale was a minimum or zero minimum tick. (In a limit order, sale cannot be lower than the limit, regardless of tick.)

Selling short
Selling a stock not actually owned. If an investor thinks the price of a stock is going down, the investor could borrow the stock from a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug. 1, you purchase 1000 shares of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.

Selling short against the box
Selling short stock that is actually owned by the seller but held in the box, meaning it is held in safekeeping. The seller borrows securities needed to cover as the stock in the box may be inaccessible, or the seller may not wish to disclose ownership.

Senior debt
Debt whose terms in the event of bankruptcy, require it to be repaid before subordinated debt receives any payment.

Senior mortgage bond
A bond that, in the event of bankruptcy, will be redeemed before any other bonds are repaid.

Senior refunding
Replacement by the issuer of securities with 5-to 12-year maturities with securities of 15-year or longer maturities, in order to delay, reduce, or consolidate payment.

Senior security
A security that, in the event of bankruptcy, will be redeemed before any other securities.

When payment is made for a trade.

Settlement date
The date on which payment is made to settle a trade. For stocks traded on US exchanges, settlement is currently three business days after the trade. For mutual funds, settlement usually occurs in the US the day following the trade. In some regional markets, foreign shares may require months to settle.

Short coupon
A bond payment covering less than six-months' interest, because the original issue date is less than six months from the first scheduled interest payment. A bond with a short time to maturity, usually two years or less.

Short interest
Total number of shares of a security that investors have sold short and that have not been repurchased to close out the short position. Usually, investors sell short to profit from price declines. As a result, the short interest is often an indicator of the amount of pessimism in the market about a particular security, although there are other reasons to short that are not related to pessimism. For example, hedging strategies for mergers and acquisition as well as derivative positions may involve short sales.

Short-term gain (or loss)
A profit or loss realized from the sale of securities held for less than a year that is taxed at normal income tax rates if the net total is positive.

Signature guarantee
The authentication of a signature in the form of a stamp, seal, or written confirmation by a bank or member of a domestic stock exchange (or other acceptable guarantor). A notary public cannot provide a signature guarantee. A signature guarantee is a common requirement when transferring or redeeming shares or changing the ownership of an account.

Simple IRA
A salary deduction plan for retirement benefits provided by some small companies with no more than 100 employees.

Simple rate of return
The return from investments figured by dividing income plus capital gains by the amount of capital invested. The effect of compounding is not taken into account.

Simplified Employee Pension (SEP) plan
A pension plan in which both the employee and the employer contribute to an individual retirement account. Also available to the self-employed.

A stock with a small capitalization, meaning a total equity value of less than $500 million.

Small-capitalization (small-cap) fund
A mutual fund that invests primarily in stocks of companies whose market value is less than $1 billion. Small-cap stocks historically have been more volatile than large-cap stocks, and often perform differently from the overall market.

Small-capitalization (small cap) stocks
The stocks of companies whose market value is less than $1 billion. Small-cap companies tend to grow faster than large-cap companies and typically use any profits for expansion rather to pay dividends. They also are more volatile than large-cap companies, and have a higher failure rate.

On an exchange, the member firm that is designated as the market maker (or dealer for a listed common stock). Member of a stock exchange who maintains a "fair and orderly market" in one or more securities. Only one specialist can be designated for a given stock, but dealers may be specialists for several stocks. In contrast, there can be multiple market makers in the OTC market. Major functions include executing limit orders on behalf of other exchange members for a portion of the floor broker's commission, and buying or selling for the specialist's own account to counteract temporary imbalances in supply and demand and thus prevent wide swings in stock prices.

Split order
A large securities transaction that is divided into smaller orders that are spread out over some period of time to avoid large fluctuations in the market price.

Stock dividend
Payment of a corporate dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.

Stop-limit order
A stop order that designates a price limit. Unlike the stop order, which becomes a market order once the stop is reached, the stop-limit order becomes a limit order.

Stop-loss order
An order to unwind a position when the price moves against you. For example, you had purchased a stock, the stop-loss order would be to sell the stock when the price falls to a specified level. If you were short the asset, the stop-loss would trigger a purchase.

Stop order (or stop)
An order to buy or sell at the market when a definite price is reached, either above (on a buy) or below (on a sell) the price that prevailed when the order was given.

Street name
Registration under which securities maybe held by a broker on behalf of a client but be registered in the name of the Wall Street firm.

Strike price
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.

A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt.

Subordinated bonds
Securities that fall after others in priority of claims on the entity in the case of financial distress.

Subordinated debenture bond
An unsecured bond that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage bond, collateral trust bonds.

Subordinated debt
Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debtholders receive payment only after senior debt claims are paid in full.

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The settlement date for securities transactions such as a stock sale. It refers to the obligation in the brokerage business to settle securities trades by the third day following the trade date. The settlement occurs when the seller receives the sales price (the broker's commission) and the buyer receives the shares.

Take a position
To buy or sell short; that is to own or to owe some amount on an asset or derivative security.

General term referring to transfer of control of a firm from one group of shareholders to another group of shareholders. Change in the controlling interest of a corporation, either through a friendly acquisition or an unfriendly, hostile, bid. A hostile takeover (with the aim of replacing current existing management) is usually attempted through a public tender offer.

Tax basis
In the context of finance, the original cost of an asset less depreciation that is used to determine gains or losses for tax purposes.
In the context of investments, the price of a stock or bond plus the broker's commission.

Tax-deferred retirement plans
Employer-sponsored and other plans that allow contributions and earnings to be made and accumulate tax-free until they are paid out as benefits.

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
Legislation to increase tax revenue by eliminating various taxation loopholes and instituting tougher enforcement procedures in collecting taxes.

Tax-exempt security
An obligation whose interest is tax-exempt, often called a municipal bond, offered by a country, state, town, or any political district

Annual report required by the SEC each year. Provides a comprehensive overview of a company's state of business. Must be filed within 90 days after fiscal year-end. A 10-Q report is filed quarterly.

Quarterly report required by the SEC each quarter. Provides a comprehensive overview of a company's state of business.

1040 form
The standard individual tax return form of the IRS.

A statement sent to the IRS and taxpayers by the payers of dividends and interest and by issuers of taxable original issue discount securities.

1099 B
The tax statement used for reporting proceeds resulting from the sale, redemption or liquidation of shares.

1099 DIV
The tax statement used for reporting dividends paid to registered shareholders.

Tender offer
General offer made publicly and directly to a firm's shareholders to buy their stock at a price well above the current value market price

The Curb
Another name for the American Stock Exchange (AMEX).

Third market
Exchange-listed securities trading in the OTC market

Thrift institution
An organization formed as a depository for primarily consumer savings. Savings and loan associations and savings banks are thrift institutions.

Total dollar return
The dollar return on a nondollar investment, which includes the sum of any dividend/interest income, capital gains or losses, and currency gains or losses on the investment.

Total return
In performance measurement, the actual rate of return realized over some evaluation period. In fixed income analysis, the potential return that considers all three sources of return (coupon interest, interest on coupon interest, and any capital gain/loss) over some investment horizon.

An oral (or electronic) transaction involving one party buying a security from another party. Once a trade is consummated, it is considered "done" or final. Settlement occurs 1-5 business days later.

Trade date
The date that the counterparties in an interest rate swap commit to the swap. Also, the day on which a security or a commodity future trade actually takes place. Trades generally settle (are paid for) 1-5 business days after a trade date. With stocks, settlement is generally 3 business days after the trade. The settlement date usually follows the trade date by five business days, but varies depending on the transaction and method of delivery used.

Traditional IRA
A tax-deferred individual retirement account that allows annual contributions of up to $2000 for each income earner. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants within certain income ranges.

One of several related securities offered at the same time. Tranches from the same offering usually have different risk, reward, and/or maturity characteristics.

US Department of the Treasury, which issues all Treasury bonds, notes, and bills as well as overseeing agencies. Also, the department within a corporation that oversees its financial operations including the issuance of new shares.

Treasury bills
Debt obligations of the US Treasury that have maturities of one year or less. Maturities for T-bills are usually 91 days, 182 days, or 52 weeks.

Treasury bonds
Debt obligations of the US Treasury that have maturities of 10 years or more.

Treasury certificates
From 1963 to 1975, the Treasury issued something called a "Treasury Certificates". It was a nonmarketable, public issue with a short maturity, usually three months and never more than a one year. They were issued once or twice every month with odd interest rates (such as 5.471% and 6.053%) and sold at par.

Treasury direct
A system allowing an individual investor to make a noncompetitive bid on US Treasury securities and thus avoid broker-dealer fees.

Treasury Investors Growth Receipt (TIGER)
US government-backed bonds without coupons, meaning that the bondholders do not receive the periodic interest payments. The principal of the bond and the individual coupons are sold separately.

Treasury notes
Debt obligations of the US Treasury that have maturities of more than 2 years but less than 10 years.

Treasury securities
Securities issued by the US Department of the Treasury.

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Uncovered call
A short call option position in which the writer does not own shares of underlying stock represented by the option contracts. Uncovered calls are much riskier for the writer than a covered call, where the writer of the uncovered call owns the underlying stock. If the buyer of a call exercises the option to call, the writer would be forced to buy the asset at the current market price.

Uncovered call writing
A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.

Uncovered put
A short put option position in which the writer does not have a corresponding short stock position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put. The writer has pledged to buy the asset at a certain price if the buyer of the option chooses to exercise it. Uncovered put options limit the writer's risk to the value of the stock (adjusted for premium received.)

Uncovered Put writing
A short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account.

Uniform Gifts to Minors Act (UGMA)
Legislation that provides a tax-effective manner of transferring property to minors without the complications of trusts or guardianship restrictions.

Unit investment trust
Money invested in a portfolio whose composition is fixed for the life of the fund. Shares in a unit trust are called redeemable trust certificates, and they are sold at a premium to net asset value.

Unlisted security
A security traded in the over-the-counter market that is not listed on an orgainzed exchange.

Unlisted trading
Trading in unlisted securities that occurs on an organized exchange to accommodate members. This practice is not permitted at the NYSE.

Unrealized capital gain/loss
An increase/decrease in the value of a security that is not "real" because the security has not been sold. Once a security is sold by the portfolio manager, the capital gains/losses are "realized" by the fund, and any payment to the shareholder is taxable during the tax year in which the security is sold.

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Value-at-risk model (VaR)
Procedure for estimating the probability of portfolio losses exceeding some specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities.

Value stocks
Stocks with low price/book ratios or price/earnings ratios. Historically, value stocks have enjoyed higher average returns than growth stocks (stocks with high price/book or P/E ratios) in a variety of countries.

A measure of risk based on the standard deviation of the asset return. Volatility is a variable that appears in option pricing formulas, where it denotes the volatility of the underlying asset return from now to the expiration of the option. There are volatility indexes. Such as a scale of 1-9; a higher rating means higher risk.

Voting rights
The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors.

Voting stock
The shares in a corporation that entitle the shareholder to vote.

Certificate of Foreign Status form required by the IRS to tell the payer, transfer agent, broker or other middleman that an employee is a nonresident alien or foreign entity that is not subject to U.S. tax reporting or backup withholding rules.

A form used to certify a shareholder's social security or tax identification number as true and correct, in order to avoid federal tax withholding.

Wall Street
Generic term for the securities industry firms that buy, sell, and underwrite securities.

When issued (W.I.)
Refers to a transaction made conditionally, because a security, although authorized, has not yet been issued. Treasury securities, new issues of stocks and bonds, stocks that have split, and in-merger situations after the time the proxy has become effective but before completion are all traded on a when-issued basis.

The seller of an option, usually an individual, bank, or company that issues the option and consequently has the obligation to sell the asset (if a call) or to buy the asset (if a put) on which the option is written if the option buyer exercises the option.

Writing puts to acquire stock
Selling a put option at an exercise price that would represent a good investment by an option writer who believes a stock's value will fall, so that the writer cannot lose. If the stock price unexpectedly goes up, the option will not be exercised and the writer is at least ahead the amount of the premium received. If the stock loses value, as expected, the option will be exercised, and the writer has the stock at what he had earlier decided was originally a good buy, and he has the premium income in addition.

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The percentage return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.

Yield advantage
The advantage gained by purchasing convertible securities instead of common stock, which equals the difference between the rates of return of the convertible security and the common shares.

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