Term
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Definition
| The annual audited financial statements of corporate issuers that are filed with the SEC, and which are a public record. Included in the 10K are the corporation's balance sheet; income statement; retained earnings statement; and sources and uses of cash statement. |
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Term
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Definition
| A rule passed by the SEC in 1980 that permits mutual funds to charge the cost of marketing shares to all existing fund shareholders. The maximum permitted 12b-1 fee under FINRA rules is 75 basis points (.75% of net assets); and a fund cannot call itself a no-load fund if the 12b-1 fee exceeds 25 basis points (.25% of net assets). |
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Term
| 20-Day Cooling-Off Period |
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Definition
| The time period following the filing of a registration statement with the SEC, during which the SEC reviews the registration documents for “full and fair disclosure.” During the cooling-off period, the issue may not be advertised, recommended, offered or sold. Once registration is effective, the issue can be offered and sold through the final prospectus. |
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Term
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Definition
| An employer sponsored qualified profit sharing plan which typically has contributions made as a “salary reduction” from the employee’s income, with the employer having the option of making a “matching” contribution. The employee’s contribution is always fully vested, but the employer’s contribution may vest over a period of time. |
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Term
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Definition
| A retirement plan established by a not-for-profit organization that has contributions made as a “salary reduction” from the employee’s income, with the employer having the option of making a “matching” contribution. Commonly called “TDAs” – Tax Deferred Annuities – these plans actually allow investment in both annuities (fixed and variable) and mutual funds. |
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Term
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Definition
| Deferred-compensation plan for government employees that typically supplements the retirement plan that covers all employees. These plans are an added benefit given to managerial employees only, so the plan is discriminatory and is non-qualified. A portion of the employee’s salary is placed in a tax-deferred account as an added retirement benefit. |
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Term
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Definition
| A tax-exempt organization under the Internal Revenue Code. Such an organization can establish a 403(b) retirement plan, also called a tax-deferred annuity or tax-sheltered annuity |
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Term
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Definition
| A “municipal fund security” established by each state that allows investment in designated mutual funds to pay for a child’s higher education expenses. There is no federal tax deduction for amounts contributed (which can be quite high - the dollar limit is set by each state), but there can be a state tax deduction. The earnings in the account build tax deferred and distributions used to pay for qualified higher education expenses are not taxable. Unlike Coverdell ESAs, there are no income phase-outs for 529 plans. |
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Term
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Definition
| An accredited investor is defined under SEC Regulation D (private placement rule) as a wealthy investor with at least $1 million of net worth or annual income over $200,000 ($300,000 for couples). An officer or director of the issuer is also an accredited investor, and financial institutions with assets over $5 million are accredited investors. Private placement offerings can be sold to an unlimited number of accredited investors. |
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Term
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Definition
| The accumulation period begins with the first premium payment for the annuity contract, and it ends with the annuitization of the contract. During the accumulation period, the contract owner makes premium payments, and the premiums are invested in separate accounts to earn income, dividends, and capital gains. During this period the contract may have surrender value and other non-forfeiture values. Payments from the contract can start only when the accumulation period is finished. |
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Term
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Definition
| The accumulation privilege, or right of accumulation, permits an investor to qualify for reduced sales charges for a mutual fund based upon the total dollar value the investor has accumulated up to the time of a purchase. |
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Term
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Definition
| An accumulation program is a plan for the investor to make purchases of shares on a regular basis to reach a goal. |
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Term
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Definition
| The accounting measure that is used to show a customer’s ownership interest in a variable annuity separate account. The value or purchase price for an accumulation unit is equal to the value of the total assets in the separate account, divided by the number of accumulation units outstanding. The insurance company annuitizes the account balance at the end of the accumulation period. |
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Term
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Definition
| The pursuit of investment returns in excess of the specific benchmark return. Active asset managers believe that undervalued stocks exist in the marketplace, and that by investing in them, they can surpass the performance of a benchmark index |
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Term
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Definition
| An active participant is an employee who participates in a qualified plan sponsored by the employer. |
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Term
| Actual Net investment Return (ANIR) |
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Definition
| The ANIR is the actual investment result attained by a separate account for a given year. This actual return is composed of both the current income received and capital gains (both realized and unrealized). The ANIR is compared to the AIR for both variable life insurance and variable annuity contracts to determine whether to make an upward or downward adjustment in benefits. |
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Term
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Definition
| A mathematician hired by a life insurance company to evaluate demographic and statistical information about the general population to estimate life expectancy. An actuarial table projects life expectancy based on set characteristics - age, sex, smoking habits, etc. Actuarial assumptions are used when setting life insurance premiums, annuity premiums, expected pension payouts from defined benefit plans, etc. |
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Term
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Definition
| An offering of stock by an issuer that already has registered shares of stock outstanding in the hands of the public. Thus, the issuer is "adding" to the shares already outstanding. An issuer might use an add on offering to raise additional capital for a major business expansion. Another name for an "add on" offering is a secondary offering. |
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Term
| Administrative Expense Fee |
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Definition
| Not to be confused with an "expense risk charge, this is annual fee charged against net assets in a variable annuity contract to cover the insurer's cost of accounting, recordkeeping, overhead, legal, audit and reporting fees. |
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Term
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Definition
| Under FINRA rules, advertisements are promotional communications to the general public through mass media, including radio, television, internet, newspaper, magazine, or billboard. |
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Term
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Definition
| An affiliated member controls, is controlled by, or is under common control with a non-member company. |
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Term
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Definition
| Under the Investment Company Act of 1940, affiliated persons are officers, directors, employees, owners of 5% of the voting stock, and controlling persons. |
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Term
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Definition
| The ongoing reallocation of funds in a portfolio as a customer ages. In the customer’s younger years, the portfolio is weighted more towards growth. In the customer’s older years, the portfolio is reweighted more towards income and safety. |
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Term
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Definition
| Agency bonds are debts of U.S. government agencies such as Ginnie Mae and federally-sponsored corporations such as Fannie Mae. Federal agency issues are implicitly backed by the U.S. government, while Treasury issues are directly government backed. Both are rated AAA. |
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Term
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Definition
| An agency transaction is one where the broker acts as a middleman, matching the customer order to the best available market. In an agency transaction, the broker earns a commission. Additionally, underwriting commitments where the underwriter takes no financial liability are agency transactions. |
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Term
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Definition
| When referring to broker-dealers, an agent is a salesperson (a registered representative) who recommends and executes trades for customers. |
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Term
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Definition
| An aggressive growth fund is a growth mutual fund that seeks to maximize capital appreciation by taking greater risks and acquiring stocks of relatively smaller, unknown companies. These are the riskiest of the growth funds. |
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Term
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Definition
| An investment strategy that seeks to maximize short-term capital gains by investing in small cap growth stocks and emerging markets. These are often short-term investments that are not held for very long time periods. While these investments can enjoy large capital gains; they also tend to have much larger capital losses, either from business risk or market risk. |
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Term
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Definition
| An aggressive investment is one that seeks a higher return (income and/or capital gain) and thus entails greater risk. Examples of aggressive investments are micro-cap funds, small-cap funds and emerging markets funds. |
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Term
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Definition
| Abbreviation for “Assumed Interested Rate.” |
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Term
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Definition
| An all-or-none commitment is an underwriting in which no securities are issued unless the entire issue sells. The underwriter acts as agent (broker) in this transaction. |
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Term
| Alternative Minimum Tax - AMT |
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Definition
An alternate tax computation that must be used by persons who have reduced their regular taxable income excessively by relying on so-called "tax preferences." Sometimes called the "tax on tax preferences," this is a flat 26%-28% tax rate that is applied to income, adjusted upwards by the preference items that the taxpayer used to reduce his or her regular tax liability excessively.Tax preference items include:
accelerated depreciation amounts in excess of straight line;
excess percentage depletion deductions on oil and gas investments;
excess intangible drilling cost deductions on oil and gas investments; and
interest income from non-essential use, private purpose municipal bonds, such as industrial development bonds. |
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Term
| American Depositary Receipts (ADRs) |
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Definition
| Foreign corporate securities are not traded here in the U.S. because foreign issuers do not want to register their securities with the SEC. Instead, American banks such as J.P. Morgan Chase and Citicorp buy the shares of these foreign companies overseas and then issue receipts against these shares called “ADRs” that they register here in the U.S. The registered ADRs are listed and trade like any other stock. For example, shares of Sony trading on the NYSE are not really Sony shares – they are Sony ADRs. |
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Term
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Definition
| Acronym for "Anti-Money Laundering" Program that each FINRA member firm is required to have. The principal in the firm creates the AML program, and is responsible for its implementation, including training representatives in the procedures to detect and stop money laundering. |
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Term
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Definition
| Abbreviated name for non-essential use, private purpose municipal revenue bonds that are subject to the Alternative Minimum Tax. (See: AMT -Alternative Minimum Tax) |
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Term
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Definition
| Both mutual funds, publicly held corporations and broker-dealers are required to be audited annually. The annual audited financial statements are incorporated into an annual report that must be sent by mutual funds and corporations to their shareholders; and by broker-dealers to their customers. Also note that, in addition, both mutual funds and broker-dealers must prepare and distribute mid-year unaudited financial statements, while publicly-held corporations must prepare and distribute quarterly unaudited financial statements. |
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Term
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Definition
| An annuitant is the person who receives the annuity benefit payments during the payout period. |
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Term
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Definition
| For a variable annuity, the point at which the contract holder cedes the separate account balance to the insurance company in return for an annuity contract that will make payments for life. Once the separate account balance is annuitized, no more premiums can be paid into the contract. |
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Term
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Definition
| An annuity is a contract issued by a life insurance company containing the insurer’s promise to make periodic payments for a person’s life. The insurer makes payments to one or more individuals referred to as annuitants. See also: Variable Annuity, Life Annuity, Period Certain, Fixed Amount Annuity, Fixed Annuity, and Fixed Period Annuity. |
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Term
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Definition
| During the annuity or pay out period, the insurer makes the payments of benefits to the annuitant. The annuity period is also called the liquidation period because the insurance company sells the assets supporting the annuity to make the payments. No more payments into the contract can be made once the contract is annuitized. |
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Term
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Definition
| When an annuity enters the annuity period, the insurer converts accumulation units to annuity units and then pays the annuitant the same number of annuity units in each periodic payment. With a variable annuity, the value of the annuity units will vary with the performance of the underlying mutual funds held in the separate account, so the payments will vary. |
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Term
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Definition
| A FINRA rule that covers the relationship between the fund underwriter (sponsor) and the member firms in the fund’s selling group. The intent of the rule is to stop the fund underwriter from “paying off” those selling group members that sell greater amounts of that fund’s shares. Therefore, the underwriter cannot pay the representatives in the selling group any kind of fees or bonuses for increasing their sales of that fund; and the fund underwriter cannot “direct” its mutual fund portfolio trades to a selling group member that increases its sales of that fund. |
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Term
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Definition
| An increase in the value of an asset held for investment. |
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Term
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Definition
| A form that most broker-dealers require a customer to sign when opening a new account that requires that any dispute be settled by arbitration. This is a binding, non-appealable method of handling disputes. Note that arbitration is not required to settle a dispute if the customer does not sign the agreement. Also note that all intra-industry disputes are settled by arbitration. |
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Term
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Definition
| The ask price is the price at which a market maker will sell at least 100 shares. It is the price that the market maker is “asking” for that security, so a customer will buy from the market maker at the “Ask.” The ask price for mutual fund shares is the public offering price (POP). |
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Term
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Definition
| An asset allocation fund is a mutual fund that invests in a variety of asset classes such as foreign securities, domestic U.S. securities (common stocks, preferred stocks, bonds, and money market instruments), real estate, gold, and other precious metals. The fund manager may have discretion as to the allocation of assets, or the fund may specify in its investment policies and restrictions the percentage of assets the manager may allocate to each type of investment. |
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Term
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Definition
| Under FINRA rules, associated persons of member firms must be registered with FINRA and are subject to FINRA regulation. Associated persons include officers, directors, partners, and employees who are not in clerical or ministerial positions. |
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Term
| Assumed Interest Rate (AIR) |
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Definition
| The assumed interest rate (AIR), sometimes called assumed investment rate, is the insurer’s best estimate of the expected investment results it will achieve for the separate account of a specific variable life insurance policy or a specific variable annuity policy during the annuity phase of the contract. |
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Term
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Definition
| The corporate charter specifies the amount of stock authorized – it is the number of shares that the company can legally issue. A corporation will generally authorize much more stock than it intends to issue initially, so it can more easily make a later offering if it has need for additional capital. |
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Term
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Definition
| With automatic reinvestment, an investor buys additional shares of a fund by reinvesting dividends and capital gain distributions. Such reinvestment is made at NAV – there are no sales charges. Under FINRA rules, the maximum permitted sales charge is reduced if a fund does not offer the reinvestment of dividends at net asset value, i.e., without sales charges. |
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Term
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Definition
| A financial statement that provides a snapshot of assets, liabilities and resulting net worth. The formula for net worth is: all assets minus all liabilities. Restated for the balance sheet, this becomes Assets = Liabilities + Net Worth. A balance sheet can be prepared for a business entity, such as a corporation or partnership or for an individual. |
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Term
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Definition
| A balanced fund is a mutual fund that seeks capital growth as well as income and pursues a conservative investment strategy. These funds hold a mix of equity and debt securities. |
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Term
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Definition
| A balanced portfolio is one that contains both common stock and bonds. The fund may hold these stocks and bonds in any proportion. This portfolio represents a conservative attempt to diversify types of securities. |
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Term
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Definition
| To discourage tax avoidance, this Act requires that cash deposits or withdrawals of $10,000 or more be reported. The report is made to FinCEN (Financial Crimes Enforcement Network) on Form CTR (Currency Transaction Report). The act also requires that detailed records be kept of wire transfers of $3,000 or more. |
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Term
| Banker’s Acceptances (BAs) |
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Definition
| A money market instrument used to finance imports and exports. |
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Term
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Definition
| A measure of yield in movements of 1/100 of 1%. If interest rates move down by .50 percent, this is a decline of 50 basis points. Therefore, 1 basis point equals .01%. Basis points are also used to express mutual fund fees. For example, a 12b-1 fee of 25 basis points is an annual fee of .25%. |
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Term
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Definition
| A prolonged period during which the overall prices of securities are declining substantially. A common definition of bear market is a decline of 20% over a period of more than 2 months. A bear market is accompanied by general market pessimism and often by a recession. |
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Term
| Best Efforts Underwriting |
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Definition
| The investment banker commits itself to acting only as a selling agent. Therefore, the investment banker assumes no financial risk and merely makes its best effort to sell all of the new issue. |
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Term
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Definition
| A measure of the movement of a stock’s price as compared to the overall market. A stock with a beta of +1 moves in the same direction and at the same speed as the overall market. A stock with a beta of +2 moves in the same direction, but twice as fast as the overall market. Growth stocks tend to have higher betas; defensive stocks tend to have lower betas. |
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Term
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Definition
| The bid price is the price at which a market maker will buy at least 100 shares. . It is the price that the market maker is “bidding” for that security, so a customer will sell to the market maker at the “Bid.” The bid price for mutual fund shares is the net asset value (NAV). |
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Term
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Definition
| A blend fund is a mutual fund that invests in both growth stocks and value stocks. |
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Term
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Definition
| Commonly used name for state laws (as opposed to federal securities laws) that govern the securities industry. The name comes from stock promoters in the early 1900s who would sell investors pieces of the “Blue Sky.” State law requires the registration of securities, broker-dealers and agents in each state, unless an exemption is available. |
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Term
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Definition
| A term used to describe securities issued by the largest long-established and consistently profitable American companies. Such companies have a history of steady growth and dividend payments. The term “blue-chip” was adopted from poker, where the blue-chip has the highest value. |
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Term
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Definition
| A long-term debt security or IOU issued by a corporation, municipality, or government. The purchaser of this security in the initial public offering, in effect, loans the issuer money. In return, the issuer agrees to pay interest on the loan, either at a fixed or variable rate; and to repay the principal amount (face value) at maturity. Traditionally most bonds pay interest semi-annually. However, zero-coupon bonds do not make such periodic interest payments |
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Term
| Bond and Preferred Stock Fund |
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Definition
| A bond and preferred stock fund is a mutual fund that allocates investments among only senior securities such as bonds and preferred stock. |
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Term
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Definition
| A bond indenture is the written agreement between the bondholders and the issuing company. The indenture sets forth the terms of the bond, such as the rate of interest, the repayment schedule, and the protections for the bondholders. |
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Term
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Definition
| When an outstanding bond issue is maturing, the issuer can “refund” the debt by selling a new bond issue and using the proceeds to retire the old bond issue. The issuer is simply “rolling over” the maturity on the debt. |
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Term
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Definition
| In a variable annuity, the “bonus” feature is typically an additional premium payment made by the insurer instead of the customer. However, such a feature typically comes with increased expense charges. Full disclosure requires that the representative explain to the purchaser these features and their cost. |
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Term
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Definition
| Refers to the way bonds, mutual funds, and now equity securities, are issued. With book entry ownership, the issuer does not issue physical certificates. The record of ownership names and addresses is kept by the Transfer Agent on its “book.” Not issuing physical certificates saves money and time. |
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Term
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Definition
| An accounting approach to determining what a company is worth. The book value is the amount left over if the business were terminated, the tangible assets sold, and the proceeds used to pay off all liabilities. |
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Term
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Definition
| For a mutual fund, a breakpoint is the dollar amount a purchaser must invest to receive reduced sales charges. A schedule of breakpoints for large quantity purchases is found in the fund prospectus. Minimum required breakpoints are set by FINRA. |
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Term
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Definition
| The prohibited practice of making mutual fund sales just below the breakpoint in order to obtain a higher commission. |
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Term
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Definition
| Under the Securities Exchange Act of 1934, a broker is a person who brings together securities buyers and sellers and receives commissions. A broker is an agent for investors. |
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Term
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Definition
| A firm in the securities business that can either act as an agent (a broker) matching customers to the best available market; or can act as a principal (dealer) selling securities to a customer from inventory or buying securities from customers into its inventory. Every broker-dealer is a FINRA member and must be registered both with the SEC and with each state where it does business. |
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Term
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Definition
| A prolonged period during which overall prices of securities are rising. |
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Term
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Definition
| Every broker-dealer must prepare a detailed business continuity plan to deal with possible business disruptions due to a calamity. A copy must be provided to customers at account opening; and the plan must be made available to customers upon request. |
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Term
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Definition
| The four stages through which the economy (and business) tend to move. The stages, in their normal order, are: expansion, prosperity, recession, and recovery. |
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Term
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Definition
| The risk that adverse business conditions force a business to be unprofitable or to cease operations. |
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Term
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Definition
| Corporate rules adopted by a particular corporation to govern its own workings covering shareholder voting and board of directors meetings. |
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Term
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Definition
| The interest rate that banks charge brokerage firms for loans collateralized by marketable securities. |
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Term
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Definition
| For a callable bond or preferred stock, the amount the issuer will pay in addition to par at the time of the call. The call premium partially compensates the bond holder for the fact that when the proceeds from the call are reinvested in new securities, they will be reinvested at lower current market rates. |
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Term
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Definition
| A security that the issuer has the right to “call in” or redeem at a specified price and date. Only bonds or preferred stock may be callable securities. These are fixed income securities that the issuer will call only if market interest rates have dropped after issuance, allowing the issuer to refund the outstanding securities at lower current market rates. |
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Term
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Definition
| Stock options allowing the holder to buy (“call away”) 100 shares of a particular stock at a specified price for a certain period of time. |
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Term
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Definition
| Gain or loss on the sale of a capital asset such as stocks, bonds, or mutual fund shares. |
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Term
| Capital Gains Distribution |
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Definition
| The distribution by a mutual fund of gains it earns on the sale of securities in its portfolio. Mutual funds must distribute 98% of this gain in a single annual distribution. This gain is long-term capital gain to investors. |
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Term
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Definition
| Appreciation in the market price of a security. Capital growth represents the appreciation in the price or value of an investment. |
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Term
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Definition
| The market for securities that have a maturity longer than 1 year. This includes long-term bonds, preferred stock and common stock. |
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Term
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Definition
| Any amount paid by the initial purchaser of common stock that is in excess of the par value of the issue. Capital surplus is also called "capital in excess of par value" or "additional paid-in capital." |
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Term
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Definition
| The total value of the corporation’s long-term debt, preferred stock and common equity |
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Term
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Definition
| Abbreviated "CAP," this is a formula used by a defined benefit retirement plan that averages the person's wages over his or her career at that employer. |
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Term
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Definition
| An account opened with a broker for securities trades where the customer pays in full on settlement for purchases (regular way settlement is three business days following the trade date) |
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Term
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Definition
| Any discount, concession, fee, service fee, commission, asset-based sales charge, loan override or cash employee benefit received in connection with the sale and distribution of investment company securities. |
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Term
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Definition
| A securities trade that settles on the trade date. |
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Term
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Definition
| A term associated with insurance policies that have both an insurance feature and a savings feature. Whole life, universal life and variable universal life policies all have a cash value feature; term life and variable life policies do not. |
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Term
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Definition
| A short-term money market instrument issued by a bank at par that repays principal and interest at maturity. |
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Term
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Definition
| The term for a "barrier" placed on the flow of information between an investment banking firm's underwriting department or research department and its trading department. The "wall" is established to prevent insider trading abuses by the firm's trading department using information obtained from the underwriting department about possible restructuring or new issue offerings; or obtained from the research department about new recommendations. |
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Term
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Definition
| The illegal practice of engaging in excessive trading in a customer’s account solely to increase a registered representative’s commission earnings. |
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Term
| Classes of Mutual Fund Shares |
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Definition
| Mutual funds offer one type of security, common stock; but they may offer several classes of that stock, including Class A (front-end sales charge and low or no 12b-1 fee), Class B (no front-end sales charge, contingent deferred sales charge (CDSC) and higher 12b-1 fee) and Class C (no front-end sales charge, no CDSC and highest 12b-1 fee). |
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Term
| Closed-End Investment Company |
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Definition
| A management company that makes a one-time offering of a fixed number of shares, and then closes its books to new investment, hence the name. These shares are then listed on an exchange and trade like any other stock. These shares are not redeemable with the issuing company. |
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Term
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Definition
| FINRA requires the use of the Code of Arbitration to settle disputes between FINRA members, between members and associated persons, and between members and customers, if the customer has agreed to arbitration. Decisions of arbitration panels are binding and non-appealable. |
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Term
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Definition
| A FINRA body of rules similar to a court proceeding for handling major rule violations. The Code of Procedure allows both customers and FINRA itself to file complaints that must be answered by the member; and which, if not resolved, go to a hearing in front of the District Hearing Panel. Unlike the Code of Arbitration, these decisions can be appealed. |
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Term
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Definition
| Bonds backed by a portfolio of marketable securities, typically shares of a wholly owned subsidiary or another company altogether. |
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Term
| Collateralized Mortgage Obligations (CMOs) |
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Definition
| A derivative of mortgage-backed pass-through certificates, $25,000 mortgage-backed pass-through certificates are placed into trust and “chopped up” into $1,000 units that are more easily sold to small investors. The cash flows from the underlying mortgage-backed securities are “sliced and diced” into a variety of $1,000 securities with differing interest rates and maturity dates, to meet the investment needs of all types of investors. |
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Term
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Definition
| A combination annuity offers the benefits of both a fixed and variable annuity in one product. The premiums are invested partly in the insurer’s general account and partly in the separate accounts. The annuitant receives payments that are partly fixed and partly varying. |
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Term
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Definition
| Allows an investor to qualify for reduced sales charges by combining purchases in more than one fund within a family of funds. Most funds apply the combination privilege to rights of accumulation. |
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Term
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Definition
| A money market instrument issued by a corporation with a maximum maturity of 270 days. |
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Term
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Definition
| The mixing of the securities of one client with the securities of another client or with securities owned by the broker-dealer. Commingling is only permitted for customer margin securities held in street name, where the customer has signed a margin agreement allowing this. Fully paid customer securities must be segregated and kept in safekeeping. Securities owned by the brokerage firm can never be commingled with customer securities. |
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Term
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Definition
| The fee charged by a broker for executing an agency trade for a customer. The commission amount on an agency trade must be disclosed on the customer's confirmation. |
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Term
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Definition
| An equity security which represents partial ownership in a corporation. The holder is entitled to share in the profits of the company, to vote, and to share in the liquidation value of the assets. |
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Term
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Definition
| A mutual fund that invests primarily in common stocks rather than preferred stocks or bonds. A common stock fund may have an investment objective of growth or of income or a combination of the two. |
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Term
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Definition
| The annual dividend divided by the current market price of the stock. |
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Term
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Definition
| For mutual funds, the sales charge is broken down into 2 components. The dealer or underwriter's concession is the fee that the underwriter earns when a mutual fund share is sold; while the selling concession is the fee that the selling group member earns when a mutual fund share is sold. |
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Term
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Definition
| FINRA rules that set standards for members in dealings with the public. |
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Term
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Definition
| A written notice to the customer providing the disclosure required by SEC Rule 10b-10 for a trade. The confirmation must contain the details of the transaction including the name of the security, the price, trade date, and any commission or fee charged. A firm must send the confirmation no later than one business day after the trade date. |
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Term
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Definition
| A mutual fund which seeks capital appreciation but which invests in more established, better-known companies where there is a moderate potential for growth in earnings and less potential risk. |
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Term
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Definition
| An electronic ticker that reports trades of all securities listed on the New York Stock Exchange (called the Network A Tape), no matter where the trade took place. Reporting trades to the tape on a real time basis, aside from the NYSE itself, are regional stock exchange Specialists that "dual-list" the stock, and over-the-counter Third Market makers that make a market in that stock. There is also a "Network B" Tape for all trades in American Stock Exchange listed issues; and a "Network C" Tape for reports of all trades in NASDAQ securities. |
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Term
| Consumer Price Index (CPI) |
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Definition
| A measure of inflation based on the price changes of a typical “market basket” of goods and services at the consumer level. |
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Term
| Contingent Deferred Sales Charge (CDSC) |
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Definition
| nstead of an up-front sales charge, the fund imposes a charge at the time of share redemption. The percentage charged decreases the longer the shares are held. A typical CDSC is a 6% redemption fee if shares are redeemed in the first year of ownership, with the percentage declining by 1% per year. After 6 years, there will be no charge upon redemption. |
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Term
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Definition
| For corporate governance rules, an individual that has the power to influence the management or policies of a company. For insider trading rules, a “controlling person” is the employer of the person who traded on inside information, if the information was obtained from that employer. |
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Term
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Definition
| For convertible bonds and preferred stock, the pre-set price established at issuance at which the security holder can convert into common shares. |
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Term
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Definition
| For mutual funds, an investor is permitted to exchange (convert) shares of one fund for shares of another fund within the family without paying sales charges on the exchange. For variable life insurance, the owner is permitted to convert the policy to a whole life policy during the first two years after purchase without penalty. |
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Term
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Definition
| The number of shares of stock that an investor receives for a $1,000 convertible bond or a $100 convertible preferred stock share. It is the par value of the bond ($1,000) divided by the conversion price. For example, an investor holding a bond “convertible at $25” would receive 40 shares ($1,000 par / $25 conversion price) of common stock on conversion. |
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Term
| Convertible Securities Fund |
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Definition
| A fund that invests in convertible bonds and convertible preferred stock of corporate issuers. Such securities pay a fixed rate of interest or a fixed dividend rate that is somewhat lower than a comparable non-convertible issue pays but the conversion feature gives the holder potential capital gains if the price of the common stock rises rapidly. Thus, this fund has 2 objectives - current income and growth. |
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Term
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Definition
| Allows the holder to exchange the bond or preferred share for a specific number of common shares at a pre-set price. Only senior securities can be convertible. |
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Term
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Definition
| The 20-day period after filing a registration for a security and before the registration becomes effective. During this period, the underwriter may not offer the security for sale, but may take indications of interest. |
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Term
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Definition
| A mutual fund which forms a significant segment of an investor’s diversified portfolio and is usually acquired by an investor with a “buy and hold” investment strategy. |
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Term
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Definition
| A brokerage account registered in the name of a corporate owner. To open a corporate account, a corporate resolution must be completed by a corporate officer. Such an account uses the tax identification number of the corporation. |
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Term
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Definition
| A mutual fund that invests only in corporate bonds to provide current income. Such a fund has no growth objective and income is subject to both Federal and State income tax. |
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Term
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Definition
| A form of business organization in which shareholders own the business. The shareholders elect a board of directors to run the corporation, and the board of directors appoints officers to handle the day-to-day operation of the business. The shareholders invest in the shares of stock issued by the corporation, and limited liability protects them from losing more than their investment. |
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Term
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Definition
| Any written or electronic communication distributed or made available to 25 or fewer existing or prospective retail investors within any 30 calendar day period. Correspondence does not require prior principal approval as long as the firm has a correspondence compliance program in place. |
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Term
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Definition
| For tax purposes, the amount of money invested in a mutual fund, including sales charges and subsequent earnings reinvested, less any return of capital. For shares of stock that are purchased in the market, the price paid per share, inclusive of any commission charge. For non-qualified variable annuity contracts, the total premiums paid for the contract. |
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Term
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Definition
| In a life insurance policy, the amount charged for the cost of the actual insurance policy based on actuarial standards. As the insured individual ages, the cost of insurance increases. In a variable life policy, the cost of insurance is typically charged monthly against the separate account value. |
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Term
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Definition
| A stock whose price moves opposite to the general market. There are very few countercyclical stocks – examples are gold and credit collection companies. |
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Term
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Definition
| A bond issued as a physical certificate with coupons (interest payment coupons) attached. The owner of the bond clips each interest payment coupon off the bond at its due date and presents it to the paying agent to receive the interest payment. Coupon bonds were last issued in 1983, and all outstanding issues will mature in 2013. |
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Term
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Definition
| Also called the nominal rate or stated rate of interest, the fixed interest rate placed on the bond at the time of issuance. For example, a $1,000 par 6% bond has a coupon rate of 6%. The issuer promises to pay 6% of $1,000 = $60 of interest annually to the bondholder. |
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Term
| Coverdell Education Savings Account |
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Definition
| A trust or custodial account that permits $2,000 to be contributed annually to pay for elementary, secondary and post-secondary education expenses. The $2,000 per year contribution limit is per child, and contributions phase-out at higher incomes. |
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Term
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Definition
| Abbreviation for Central Registration Depository, this is FINRA's database of information on each registered representative, including each registered representative's disciplinary history. |
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Term
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Definition
| The risk of default for a debt instrument. |
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Term
| Cumulative Preferred Stock |
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Definition
| Any dividends not paid in current and future years accumulate and must be paid in full before the common stockholders can receive a dividend. |
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Term
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Definition
| The issuer allows stockholders to combine their votes and cast them for one or a few directors. The shareholders still get one vote per director per share, but may combine all these votes and cast them for one director. In this way, cumulative voting favors smaller investors. |
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Term
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Definition
| A risk of investing in foreign securities, if the currency in which the foreign security was purchased declines in value in relation to the dollar. Because each unit of foreign currency will now buy “fewer” U.S dollars, the value of the holding expressed in U.S. dollars declines. |
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Term
| Currency Transaction Report (CTR) |
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Definition
| A report filed with FinCEN (Department of Treasury) on any deposits or withdrawals of cash in amounts that exceed $10,000. This includes any "structurings" that are transactions below the $10,000 reporting limit - these must be aggregated over 2-week windows and reported. |
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Term
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Definition
| For stock, the annual dividend divided by the market price per share. For bonds, the annual interest divided by the market price per bond. |
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Term
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Definition
| For a mutual fund, the custodian is a bank that holds the fund’s assets (the fund’s securities in the investment portfolio). As part of this function, the custodian calculates the daily NAV for the fund. The custodian bank may also act as paying agent and transfer agent. |
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Term
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Definition
| Any adult can open a custodian account for any minor under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Custodian accounts must be cash accounts and the custodian must manage the account in the best interests of the minor. The major difference between UGMA and UTMA is that UGMA requires that the account assets transfer to the new adult at legal age (18 in most states); while UTMA allows the donor to set the transfer age (up to age 25 in most states). |
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Term
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Definition
| Another term for a margin agreement, this document is signed by the customer, who is pledging all of the securities in the account as collateral for the margin loan. |
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Term
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Definition
| A stock that tracks the economic cycle. When the economy is expanding, this company will have rapidly increasing earnings; when there is a recession, this company will have rapidly deteriorating earnings or losses. Companies that produce “big ticket” items such as houses, cars, trucks, washing machines, etc., are cyclical. |
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Term
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Definition
| Under the Securities Exchange Act of 1934, a dealer is a firm that buys and sells securities for its own account as a market maker. |
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Term
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Definition
| For variable annuity contracts, a benefit that is only available during the accumulation phase. If the contract holder dies prior to annuitization of the contract, the insurance company promises to pay a beneficiary the higher of premiums paid or net asset value. Once the contract is annuitized, there is no death benefit. For an insurance policy, the death benefit is simply the dollar amount that the insurer promises to pay upon. |
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Term
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Definition
| Unsecured corporate debt backed by only the faith and credit of the issuing corporation. |
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Term
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Definition
| The day on which the company’s board of directors declares a dividend. |
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Term
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Definition
| An expense or loss allowed by the Internal Revenue Code to reduce a taxpayer’s taxable income. A capital loss is an allowable deduction against a taxpayer’s gross income up to $3,000 per year. |
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Term
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Definition
| The same as credit risk, this is the risk that an issuer cannot pay interest and principal as due on an outstanding debt issue. |
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Term
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Definition
| An investment strategy that seeks to minimize loss potential by investing in "safe" securities such as Treasury bonds; or blue chip equities that are protected by put options. These are typically long-term investments. In return for the "safety" of defensive investments, the investor gives up large capital gains potential. |
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Term
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Definition
| A stock that is unaffected by the business cycle. Whether times are good or bad, these companies maintain their earnings ability. Food, beer and tobacco are classic defensive stocks. |
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Term
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Definition
| An annuity whose first pay out check is deferred more than one payment period. Investors purchase deferred annuities either with a single premium or with a series of periodic installment premiums. Deferral of pay out can extend for many years. |
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Term
| Deferred-Compensation Plan |
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Definition
| An employer-established retirement plan that permits employees to defer receipt of a portion of their income until retirement. Deferred-compensation plans may be qualified, but the Series 6 examination treats deferred-compensation plans generally as non-qualified. When a deferred-compensation plan does not give the employee a right to the income until retirement, the employee does not owe tax on the income until receiving it at retirement. |
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Term
| Defined-Benefit Retirement Plan |
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Definition
| A qualified retirement plan that provides each participating employee a retirement benefit defined by a benefit formula. Such a plan requires the use of an actuary. |
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Term
| Defined-Contribution Retirement Plan |
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Definition
| A qualified retirement plan that specifies an annual contribution rate for the employer, typically some percentage (for example, 8%) of each employee’s annual earnings. The plan defines the annual contribution, but the employee’s retirement benefit will depend on investment results, years of service, age at retirement, and other factors. |
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Term
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Definition
| A decline in prices for goods and services, which increases purchasing power. Deflation is not common, and typically only occurs during prolonged recessions. |
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Term
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Definition
| The loss in value of an asset held for investment. |
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Term
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Definition
| A decline in GDP lasting for at least 18 consecutive months. |
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Term
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Definition
| A security whose value is derived from the cash flows or price movements of an underlying instrument. Collateralized mortgage obligations and options are derivative securities. |
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Term
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Definition
| The insurer uses the separate account dollars to buy common stocks and other assets, so it is making “direct” investments. |
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Term
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Definition
| The transfer of retirement funds directly from one plan trustee to another plan trustee. A direct transfer is not a distribution from a retirement plan and not subject to income tax withholding. Employees may make an unlimited number of direct transfers between their retirement plans. |
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Term
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Definition
| A bond that trades in the market after issuance for less than par value. The only reasons why a bond will trade at a discount to par after issuance are that either market interest rates have risen or the credit quality of the issuer has deteriorated. Because the bond is selling for less than par value, current yield and yield to maturity will be more than the stated rate of interest on the bond. |
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Term
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Definition
| The rate of interest the Fed charges to borrowing member banks. This is one of the Fed’s monetary policy tools. |
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Term
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Definition
| A customer account in which the representative or firm has authority to select more than the time and price of executing the trade. This account requires a written power of attorney before any discretionary trades may occur. |
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Term
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Definition
| Total income less Total expenses equals discretionary income. |
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Term
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Definition
| Total income less Total expenses and Taxes (both income tax and withholding tax). |
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Term
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Definition
| A payment in the form of either a dividend or a capital gain. Companies may pay dividends in cash or stock. Mutual funds typically make distributions of both cash dividends and capital gains. A distribution from a retirement plan is a payment of benefits in any form. |
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Term
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Definition
| A panel formed in each of FINRA’s 11 districts to hear customer complaints about major rule violations and to take sanctions against member firms and associated persons for rule violations. |
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Term
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Definition
| An attempt to reduce the non-systematic risk of a portfolio by including a variety of assets and/or maturities. A fully diversified portfolio diversifies away the non-systematic risk, leaving the portfolio only with systematic risk or market risk. |
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Term
| Diversified Investment Company |
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Definition
| As defined under the Investment Company Act of 1940, a mutual fund that has 75% of its assets invested in securities or cash, with a maximum of 5% of assets invested in the securities of any one corporation, and a maximum holding of 10% of the outstanding voting stock of any one corporation. Also known as the “75/5/10 Rule.” Note that a fund that does not meet the "75/5/10" Rule is called a non-diversified fund. |
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Term
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Definition
| Preferred stock must receive its annual dividend before the issuing company may pay any dividends to common stockholders. For cumulative preferred stock, this includes any accumulated unpaid dividends. |
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Term
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Definition
| For a mutual fund, the annual amount of dividends paid per share divided by the current NAV per share. |
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Term
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Definition
| Earnings the corporation or fund distributes to shareholders. Undistributed earnings are called “retained earnings.” |
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Term
| Dollar Times Service Plan |
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Definition
| Abbreviated "DTS," this is a defined benefit retirement plan which defines the pension benefit based on years of service. For example, the benefit might be defined as "$100 per monthly payment for each year of service." In this defined benefit plan, a person who works for 30 years and then retires would receive a monthly pension payment of 30 x $100 = $3,000. |
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Term
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Definition
| DCA is an investment technique requiring an investor to invest fixed sums at regular intervals. The investor’s fixed sums will buy more shares when the stock price is low and will buy fewer shares when the price is high. Over time, in a fluctuating market, the investor will acquire the securities at a lower average cost than per share than the mathematical average price per share in the same time period. |
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Term
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Definition
| One who receives a gift is a donee. One who gives a gift is a donor. |
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Term
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Definition
| An investment company that issues 2 classes of shares from the same portfolio - growth shares and income shares. Once the investor selects the class of shares to invest in, he or she owns essentially either a growth fund; or an income fund. These are virtually obsolete. |
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Term
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Definition
| A meeting held at the end of the 20-day cooling-off period for a new issue that is in registration with the SEC. At the meeting, the issuer, underwriters, auditors, and attorneys that prepared the registration statement review the registration statement and prospectus to discover and disclose all facts relevant to the security issue. The goal is to uncover any omissions or misstatements in the prospectus. |
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Term
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Definition
| A measure of bond price volatility, a bond with a high “duration” is more volatile in response to market interest changes; while a bond with a low “duration” is less volatile. The bonds with the highest duration numbers (most volatile price movements) are bonds with long maturities and/or low coupons. The bonds with the lowest duration numbers (least volatile price movements) are bonds with short maturities and/or high coupons. |
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Term
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Definition
| That portion of a company's profit that is allocated to each outstanding common share after bond interest, taxes, and preferred dividends have been paid. A company's Board of Directors decides what portion of the EPS is distributed as a dividend to common shareholders. |
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Term
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Definition
| A time period when the Federal Reserve is loosening credit to lower interest rates in the economy. This is done to stimulate economic activity when the economy has entered a period of recession. |
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Term
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Definition
| Abbreviation for an Electronic Communications Network, these are electronic order books of customer buy and sell orders that are matched for execution by such firms as INSTINET, BATS (Better Alternative Trading System) and Archipelago in the Fourth Market. |
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Term
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Definition
| Arises from a company’s susceptibility to changes in the general economic environment. A company that is very susceptible is called cyclical; a less susceptible company is called defensive or countercyclical. |
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Term
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Definition
| A fund that invests in companies based in foreign countries with rapidly growing economies. An example is a "BRIC" Fund - which invests in companies in Brazil, Russia, India and China. |
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Term
| Equipment Trust Certificates |
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Definition
| Bonds backed with specific equipment as collateral for the loan, typically airplanes, railroad cars, and fleets of trucks |
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Term
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Definition
| A mutual fund that invests in common stocks of blue chip companies and high quality preferred stocks. The primary objective is to receive dividend income; a secondary objective can be growth of the common share price. |
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Term
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Definition
| Contracts allowing a holder to buy or sell specified stock at a specified price until some future date. |
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Term
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Definition
| Securities that represent an ownership interest in a corporation – either preferred stock or common stock. In a corporate liquidation, equity securities are repaid after everyone else. |
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Term
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Definition
| The Employee Retirement Income Security Act of 1974 or ERISA is the major federal law governing corporate retirement plans. ERISA establishes the standards for “qualified” retirement plans. Some ERISA standards also apply to “nonqualified” plans. ERISA created the Pension Benefit Guaranty Corporation to insure defined-benefit pension plans. |
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Term
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Definition
| The date on and after which the buyer of a security is no longer entitled to receive a declared dividend. The price of the share is reduced by the amount of the dividend on the ex-date. For corporate stocks, the ex-dividend date is two business days before the record date. For mutual funds, the ex-dividend date is the day after the record date, which is the date the distribution is paid. |
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Term
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Definition
| An auction market with a physical trading floor that lists specific securities for trading. Examples are the New York Stock Exchange and the Chicago Board Options Exchange. |
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Term
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Definition
| Permits an investor to liquidate an investment in one mutual fund and reinvest the money in another mutual fund within a family of funds without payment of sales charges. Such exchanges are considered a sale and purchase for tax purposes. Also note that the exchange privilege is given to variable annuity separate account holders, both during the annuity phase and accumulation phase of the contract. Unlike mutual fund exchanges, an exchange between separate accounts is not taxable. |
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Term
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Definition
| The risk that the currency in which one holds a foreign investment will decline in value against the currency into which it is to be converted; it is also called currency risk or currency exchange risk. |
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Term
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Definition
| An ETF is an index fund that trades on an exchange throughout the day. Unlike index mutual funds, which are redeemable, these are negotiable securities. Unlike mutual fund shares, ETF shares can be purchased on margin and can be sold short. |
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Term
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Definition
| The Securities Act of 1933 exempts certain types of securities from SEC registration and prospectus delivery requirements. These issues include government, municipal and agency securities; money market instruments such as commercial paper and bankers' acceptances; issuers that are regulated under other laws including banks, insurance companies and common carriers; and charitable issues. Note that investment company securities are non-exempt. |
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Term
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Definition
| The price at which a holder may exercise an option, right, or warrant. |
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Term
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Definition
| An increase in real GDP lasting for at least two consecutive quarters. |
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Term
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Definition
| With a fixed or variable annuity, the insurer provides a guarantee that benefit payments will not be reduced because the insurer’s expenses of operation increase. Thus, the contract holder does not bear "expense risk." For this guarantee, the insurer assesses an annual "expense risk charge" against the contract. |
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Term
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Definition
| For a mutual fund, this is annual operating expenses divided by the fund’s total average net assets. It measures the operating efficiency of the fund. |
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Term
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Definition
| A type of investment company issue that is now obsolete, this is a debt instrument that obligates the issuing company to pay a fixed face amount at a specified date or to make periodic payments on specified dates. The customer would buy the certificate by depositing either a lump-sum that grows over time to the “face amount,” or by making periodic payments that would grow over time into the “face amount.” |
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Term
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Definition
| A group of different funds with different investment objectives, all sponsored by the same fund company. For example, all Dreyfus funds comprise the Dreyfus fund "family". |
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Term
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Definition
| Fannie Mae is an agency that buys mortgages from originating lenders, pools them, and then sells $25,000 mortgage backed pass-through certificates that represent undivided interests in the pool. Since these securities pass through the monthly mortgage payments, holders receive monthly payments that are a combined payment of interest and principal. Fannie Mae certificates are not directly government backed (“officially,” anyway) – rather, they are backed by the implied promise of the U.S. Government. Even though Fannie Mae was placed into government conservatorship in late 2008, its securities are still not directly government backed. |
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Term
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Definition
| The Federal Deposit Insurance Corporation, which insures customer bank accounts against bank failure. |
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Term
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Definition
| Cash reserves held by Federal Reserve System member banks. Excess reserves held by one bank can be lent out to another bank in the “Fed Funds” market – part of the money market. The Fed funds rate is the interest rate the member banks charge one another for overnight loans of these reserves. |
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Term
| Federal Open Market Committee (FOMC) |
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Definition
| The FOMC meets every 6 weeks and looks at economic activity across the United States. If economic conditions are too weak, the FOMC will loosen monetary policy; if economic conditions are too strong, the FOMC will tighten monetary policy. Seven governors of the Fed and five regional Federal Reserve Bank presidents comprise the FOMC. |
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Term
| Federal Reserve System (the Fed) |
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Definition
| Composed of the 12 regional Federal Reserve banks and the Fed Board of Governors in Washington, D.C, the “Fed” uses monetary policy to accomplish its primary goals of stable prices, economic growth, and full employment. |
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Term
| Federal Telephone Consumer Protection Act |
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Definition
| Federal legislation enacted in 1991 that sets requirements for commercial "cold calls" over the telephone. The Act limits the times that calls can be made; requires identification of the caller; and requires that "Do Not Call" lists be maintained if the customer does not wish to be called. Later on, the Act was amended with the creation of a National Do Not Call Registry. |
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Term
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Definition
| A person having a duty to act primarily for another’s benefit. People place such a high degree of trust and confidence in fiduciaries to act for them, so that fiduciaries must act only in the best interests of the beneficiaries and must conform to a high standard of conduct. Trustees, guardians, and executors are all fiduciaries. |
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Term
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Definition
| A company, trust or person who holds or invests funds for someone else, acting in the best interest of the account owner. Trust, guardian, and custodian accounts are all fiduciary accounts. |
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Term
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Definition
| The abbreviation for “First In, First Out,” the tax accounting method used for withdrawals from a variable life insurance policy. In a variable life insurance contract, the first money into the contract is the premium payment, and the last money into the contract is the earnings on investments held in the separate account. For a withdrawal from a variable life insurance policy, the first money out of the contract is the premium (the first money in) which is a tax-free return of investment. |
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Term
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Definition
| Abbreviated "FAP, this is a defined benefit retirement plan formula which typically averages the final 3 years' salary of the retiree and uses this as the base to determine the pension payment. |
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Term
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Definition
| Acronym for the Financial Crimes Enforcement Network, which is part of the Department of Treasury. Broker-Dealers are required to file reports with FinCEN covering suspicious activities and large cash transactions by customers. |
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Term
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Definition
| The commonly used name for the Financial Industry Regulatory Authority, the SRO (self-regulatory organization) whose members are all registered broker-dealers in the United States. FINRA writes and enforces rules for broker-dealers covering customer securities transactions. |
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Term
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Definition
| A type of underwriting commitment that obligates the underwriter to buy the entire new issue at a set price from the issuer. All of the risk falls upon the underwriter as dealer because the underwriter acts as a principal in this transaction. |
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Term
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Definition
| The trading of listed securities on exchange floors is the First Market. |
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Term
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Definition
| Set by Congress and the President, fiscal policy is the setting of the level of federal expenditures, taxation, and debt management. |
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Term
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Definition
| A contract that promises to pay the annuitant a fixed number of dollars each month or year (or other time period) for the duration of the payout period. In such a contract, the insurance company bears the investment risk. |
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Term
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Definition
| A mutual fund that invests in corporate bonds and preferred stocks for a consistent level of income. Such a fund has no growth objective and the income from the fund is taxable. |
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Term
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Definition
| Securities that make fixed payments to investors - bonds and preferred stock. Fixed income securities are "interest rate sensitive" - as market interest rates increase, their market prices decrease and vice-versa. |
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Term
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Definition
| A type of Unit Investment Trust under the Investment Company Act of 1940, in which a portfolio, usually containing one type of security (bonds), is set up and does not change - so the portfolio composition is fixed (hence the name). Units of the portfolio are sold to the public. Interest from the bonds held in the portfolio is distributed to the unit holders periodically. As the securities mature, or are called, the portfolio self-liquidates. |
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Term
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Definition
| An option contract that gives the investor the right to buy or sell a specified amount of currency. Investors can use these options to hedge foreign currency risk exposure and to speculate on foreign currency price movements. |
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Term
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Definition
| An open-end management company that is either an international fund, a global fund, or a single country fund. An international fund invests exclusively in securities of foreign countries. A global fund can invest in the securities of both the U.S. and foreign countries. A single country fund invests in the securities of only one country. For example, the Japan Fund invests only in securities issued by Japanese companies and governments. |
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Term
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Definition
| The IRS form that a mutual fund uses to report dividend and capital gains income to shareholders. |
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Term
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Definition
| The basis for pricing mutual fund share purchase and redemption orders, any such orders are filled based on the calculated Net Asset Value (NAV) as of the next closing of the NYSE. |
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Term
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Definition
| Trading of listed and unlisted securities directly between institutional investors on ECNs (Electronic Communications Networks) such as Instinet. |
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Term
|
Definition
| The Federal Home Loan Mortgage Corporation, commonly called Freddie Max, is a federal agency that buys conventional single-family residential mortgages from lenders, pools them, and sells pass-through certificates to investors that represent an undivided interest in the pool. Payments from Freddie Macs consist of both interest and principal (the same as the underlying mortgage payments), the interest portion of which is fully taxable; hence FHLMC bonds are referred to as participation certificates. Freddie Mac is a "privatized" federal agency that is now a for-profit company whose common stock is listed on the NYSE. |
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Term
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Definition
For variable life policies only, the purchaser is given a fixed period of time after purchase during which the purchaser can “back-out” of the deal at no charge. Thus, the purchaser has a “free look” period before being locked into the purchase of the policy. During the free look period, the policyholder can return the policy and receive a full refund of premiums paid up to the latest of:
10 days after receiving the contract; or 45 days after signing the application; or
10 days after the issuer mails a notice of the withdrawal right. |
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Term
| Free Riding and Withholding |
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Definition
| Under FINRA rules, withholding the sale of an equity IPO (Initial Public Offering) that is "in demand" from the investing public, and instead selling it to industry "insiders" such as registered representatives. These individuals then sell the issue in the public market at an increased price, so they withheld the issue from sale to the public and took a "free ride" on the price. Free riding and withholding is a prohibited practice. |
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Term
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Definition
| A prohibited practice whereby an employee of a brokerage firm, prior to executing a large customer order that is likely to move the market price of that security, places the same order for his or her personal account - thus "front running" the customer. |
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Term
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Definition
| A sales charge imposed at the time of the initial purchase of mutual fund shares, the “load” is included in the purchase price. |
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Term
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Definition
| Defined under Regulation T of the Federal Reserve, an account in which the customer has failed to make payment for, or delivery of, securities within the Regulation T time limit. The account is frozen for 90 days, meaning that the customer must deposit cash in advance of making a purchase or securities in advance of making a sale during the 90-day time window. |
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Term
| Full Trading Authorization |
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Definition
| A trading authorization given by a customer to another named person, allowing that person to enter trades in the customer’s account and to draw checks on the customer’s account. |
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Term
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Definition
| A mutual fund which invests in a selected group of other mutual funds. |
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Term
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Definition
| An archaic term used to describe very long term corporate bond issues (typically with at least 5 years to maturity) that are a "long term funding." |
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Term
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Definition
| The investment fund or investment assets supporting all of a life insurance company’s contractual fixed annuity and term, whole and universal life insurance obligations. The insurance company creditors may make claims on this account. Assets backing variable annuity, variable life, and variable life policies are held in separate investment accounts against which the insurance company’s creditors have no claim. |
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Term
| General Obligation Bonds (GOs) |
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Definition
| Municipal bonds backed by the taxing authority of the issuing state or municipality. These bonds are backed by broad-based tax collections. |
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Term
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Definition
| A type of mutual fund advertisement that does not solicit or mention any specific security or mutual fund. A generic advertisement makes the public more aware of an underwriter or broker-dealer that distributes fund shares. |
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Term
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Definition
| A mutual fund that invests in mortgage-backed securities guaranteed by GNMA. |
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Term
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Definition
| Government National Mortgage Association (GNMA or Ginnie Mae), an agency that buys mortgages from originating lenders, pools them and sells then to investors as $25,000 mortgage backed pass-through certificates. Since these securities pass through the monthly mortgage payments, holders receive monthly payments that are a combined payment of interest and principal. Ginnie Maes are directly government backed. |
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Term
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Definition
| Refers to the requirement that securities be delivered dealer-to-dealer in a form that allows for the immediate transfer of ownership. |
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Term
| Government Securities Fund |
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Definition
| A mutual fund that invests in the debt instruments which the U.S. government issues or agency securities that are guaranteed by the U.S. government. |
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Term
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Definition
| Abbreviated GDP, this is the total market value of goods and services produced in the United States in a year, excluding the value of production by U.S. owned overseas operations. |
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Term
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Definition
| The dividend and interest income of a mutual fund before deducting operating expenses. |
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Term
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Definition
| A conservative equity stock fund that acquires stock in blue-chip companies paying dependable dividends. The fund seeks to obtain both reasonable dividend income and reasonable growth prospects. |
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Term
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Definition
| A mutual fund that invests primarily in stocks of companies with potential for high capital appreciation but which give little or no emphasis to dividend payment. |
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Term
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Definition
| Common stock of a company that is expected to experience rapid growth in earnings. Typically, this company retains earnings for further expansion, so dividends are generally low or nonexistent. Investors anticipate greater risk and greater capital appreciation from their growth stock investments. |
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Term
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Definition
| A fiduciary account in which the court appoints a legal guardian to protect and manage the assets of a minor (such as a child that has been orphaned) or an incompetent adult. |
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Term
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Definition
| Private investment pools for wealthy, financially sophisticated investors, these are not mutual funds. They are structured as private placement limited partnerships where a general partner manages the hedge fund and the investors are all limited partners that meet the definition of an accredited investor. A limited partner’s potential loss is limited to his or her investment in the partnership. |
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Term
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Definition
| A mutual fund that seeks to provide high current income by investing in high-yielding debt securities such as low rated or “junk” corporate bonds. These funds have greater risk than other income funds. |
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Term
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Definition
| The term for the buyer of an option contract, also synonymous with being "long" the option contract. |
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Term
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Definition
| A new public common stock issue that is so popular that investors immediately bid up its price (above the initial offering price) in the trading market. |
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Term
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Definition
| Also called a Keogh plan, a retirement plan for self-employed individuals, based upon their self-employed income. Contributions to a Keogh are fully deductible from the employer's gross income. Employer contributions are limited to 25% of pre-deduction income annually, capped at a maximum of $49,000 in 2010. Note that this amount is adjusted for inflation annually, |
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Term
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Definition
| The pledge of securities from a customer to a broker-dealer as collateral for a margin loan. |
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Term
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Definition
| A tax accounting method that permits an investor that is selling part of a securities holding to “identify” those shares being sold. Thus, the investor can select the highest cost shares as the ones being sold, reducing reported capital gain or increasing reported capital loss. |
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Term
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Definition
| One always purchases an immediate annuity with a single premium. An immediate annuity is an annuity whose first pay-out check is deferred only one payment period. For example, under a monthly benefit annuity, the annuitant must wait one month after paying the single premium before receiving the first monthly benefit payment. |
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Term
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Definition
| Issued by a company in bankruptcy or a company that is being restructured, these bonds only pay interest if the company has enough income. Although the name says income, the company can skip payments if it does not have enough earnings. Therefore income bonds are not suitable for an investor looking for a consistent income stream. |
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Term
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Definition
| A mutual fund with an objective of high, consistent income. Income funds invest primarily in bonds and preferred stock that pay a fixed income stream. |
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Term
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Definition
| A profit-and-loss statement showing all of the income and expenses of a business for a period of time. |
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Term
| Independently Prepared Reprints |
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Definition
| Reprints of articles are not prepared by the firm presenting them. In some instances, these firms are not responsible for meeting the usual standards for communications with the public under FINRA rules. The firm preparing the original report, however, must meet these standards. Note that if the reprint is distributed to more than 25 investors, it is a retail communication. If it is distributed 25 or fewer investors, it is correspondence. |
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Term
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Definition
| A mutual fund which buys the same stocks and in the same proportions as these stocks represent in a well-known index, such as the Standard and Poor’s 500 Index. The objective is to match the index performance after accounting for fund expenses. Thus, the fund manager has the leeway to slightly overweight or underweight stock holdings in the fund to improve performance enough to cover fund operating expenses |
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Term
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Definition
| During the 20-day cooling-off period for a new issue of non-exempt securities that is in registration with the SEC under the Securities Act of 1933, orders to buy the issue cannot be solicited and the issue cannot be advertised. However, underwriters are permitted to accept non-binding indications of interest from customers. |
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Term
| Indirect Method (Investing Separate Account Dollars) |
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Definition
| The insurer places the money into a separate account trust, and the trustee buys shares of a designated mutual fund. |
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Term
|
Definition
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Term
| Individual Retirement Account (IRA) |
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Definition
| A retirement plan for any individual with earned income. The maximum contribution in 2013 is $5,500 for an individual under age 50. Those individuals who are 50 or older can add another $1,000 as a “catch-up” contribution. If the individual is not covered by another qualified retirement plan, the contribution is deductible, regardless of income level. If the individual is covered by another qualified retirement plan and earns too much, the contribution can be made, but is not deductible. Note that with the advent of the Roth IRA (which was introduced about 20 years later), this original IRA is often called a "Traditional IRA." |
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Term
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Definition
| A type of municipal revenue bond used to finance a project that will be leased to an outside company. The corporate lease payments are the source of revenue backing the bond. These are “private purpose” municipal bonds, and unlike “public purpose” municipal bond issues, the interest income is subject to federal tax. |
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Term
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Definition
| A general rise in prices for goods and services causing a loss in purchasing power. |
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Term
| Initial Margin Requirement |
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Definition
| et by the Federal Reserve Board under Regulation T, the percentage of a stock's market price that must be deposited when initially buying or selling short stock on margin. Currently the Regulation T margin requirement is 50% for both long and short stock positions. |
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Term
| Initial Public Offering (IPO) |
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Definition
| A company’s first offering of registered securities to the public, also known as a primary offering. |
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Term
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Definition
| Defined under the Securities Exchange Act of 1934 as an officer, director, or 10% shareholder of a company. Insiders must report their trades in the company’s stock to the SEC and cannot trade that stock based on material, nonpublic information. |
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Term
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Definition
| The illegal practice of buying or selling securities on the basis of material, nonpublic information. |
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Term
| Insider Trading and Securities Fraud Enforcement Act |
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Definition
| This Act strengthened the insider trading laws. It extended the liability for insider trading not only to the person that traded on the information, but to the person that gave the information (the "tipper"). In addition, the Act defined a "controlling person" as a "tipper" which means that brokerage firms can be held liable for insider trading by their employees. In response, broker-dealers put in Chinese Walls to stop the potential flow of inside information and put in training programs for their employees on the insider trading rules. The Act increased insider trading fines and included at 10% informer bounty (10% of fines collected) paid to anyone who reports insider trading, if there is a conviction. |
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Term
| Institutional Communication |
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Definition
| Any written or electronic communication distributed or made available only to institutional investors. Institutional investors include banks, savings and loans, registered investment companies, registered investment advisers, government entities, FINRA members, or any person with assets of $50 million or more. Institutional Communication does not require advance principal approval as long as the firm has policies and procedures in place for a "post-use" review and approval. |
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Term
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Definition
| The unregulated global market in which large foreign currency transactions occur between foreign and domestic banks. Trading in the interbank market determines the relative value of these currencies. |
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Term
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Definition
| The payment made by the issuer of a debt instrument to holder of the instrument. Debt instruments are bonds, notes and money-market instruments. Typically, notes and bonds pay interest semi-annually. Money market instruments are issued at a discount from face and mature at par, with the difference being the interest. |
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Term
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Definition
| Options based upon government debt interest rate movement. These can be used to hedge interest rate exposure or to speculate on market interest rate movements. |
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Term
|
Definition
| The risk for fixed income securities (bonds and preferred stocks) that market interest rates will rise, forcing the prices of these securities down. |
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Term
|
Definition
| A term associated with management companies, these are individuals or firms that receive compensation from the fund company. Interested persons include the officers and employees of the fund, the investment adviser to the fund, the fund underwriter, and the fund legal counsel. Interested persons can comprise no more than 60% of the Board of Directors of a fund. |
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Term
|
Definition
| A mutual fund that invests primarily in the securities of companies located in foreign countries. |
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Term
|
Definition
| 1) For a mutual fund, the investment manager that has signed an advisory contract with the fund. The adviser must manage the fund within its stated objective; 2) Under the Investment Advisers Act of 1940, any person who gives advice about investing in securities for a fee. The Act was later amended to only require federal registration of advisers to mutual funds and advisers with $25 million or more under management. |
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Term
| Investment Advisers Act of 1940 |
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Definition
| The federal law, administered by the SEC, that requires investment advisers to mutual funds and advisers who manage $25,000,000 or more of assets to register with the SEC and file reports with the SEC. The other smaller advisers are only required to register with the State, not with the SEC. |
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Term
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Definition
| Also called the underwriter; a securities firm that assists corporations and governments with raising capital by issuing securities. |
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Term
|
Definition
| There are 3 types of investment companies defined under the Investment Company Act of 1940. The Act defines a face amount certificate company; a unit investment trust; and a management company. The most common investment company type is an open-end management company – a mutual fund. |
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Term
| Investment Company Act of 1940 |
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Definition
| Federal regulation administered by the SEC that defines the structure for investment companies (face amount certificate company; unit investment trust; or management company) and which sets the regulations under which the companies must operate. |
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Term
|
Definition
| A bond rated in the top 4 grades (AAA, AA, A, and BBB) by Standard and Poor’s, or rated Aaa to Baa by Moody’s. These ratings indicate bonds of the highest quality and lowest risk. |
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Term
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Definition
| Income comprised of dividends from stock investments and interest from bond investments. |
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Term
|
Definition
| A term associated with variable insurance products where the premium is invested in an insurance company separate account, instead of being invested in the insurance company's general account. The purchaser of a variable product assumes the "investment risk" - the risk that that poor performance of the securities held in the separate account will reduce the insurance or annuity payout. |
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Term
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Definition
| The actual number of common shares that has been issued by a company out of its authorized amount. |
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Term
|
Definition
| Under the Securities Act of 1933, an issuer is any person who issues, or proposes to issue, a security. For corporate securities, the issuer is the company that offers a security for sale to the public in order to raise capital for its business. In the case of mutual fund shares, the fund is the issuer. |
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Term
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Definition
| An account owned by more than one individual, where all parties to the account sign a joint account agreement. Such accounts can be opened as Joint Tenants With Rights Of Survivorship (each party 100% owns the account); or Tenancy In Common (each party has a specified percentage ownership of the account). |
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Term
| Joint and Last Survivor Annuity |
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Definition
| The insurer will pay benefits as long as either of two annuitants is alive. This annuity is usually attractive to a married couple because payments will continue to the surviving spouse after the death of the first spouse. |
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Term
| Joint Tenancy with Rights of Survivorship |
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Definition
| Securities held in joint tenancy with rights of survivorship (JTWROS) are owned by two (or more) individuals as equal 100% owners. When one dies, the survivor 100% owns the account, avoiding probate. This is the typical ownership option for a husband and wife. |
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Term
|
Definition
| A low quality bond rated BB (by Standard and Poor’s) or Ba (by Moody’s) or lower. These bonds are below investment grade and are considered to be speculative. Therefore, their yield is higher. They are also called “High-Yield” bonds. |
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Term
|
Definition
| Retirement plans designed for the needs of self-employed individuals and owner-employees (partnerships). Based on self-employed income, an individual can make a large deductible contribution (up to $51,000 for defined contribution plans in 2013) based solely on self-employed income. The “catch” is that if this individual has any full-time employees, they must be included in the plan at the employer’s expense. |
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Term
|
Definition
| A nickname for taxes imposed on custodian accounts where the investment income is taxed at the parent’s tax bracket. If the child is age 18 or under, and the account has substantial income, then the income is taxed at the parent’s (usually higher) bracket instead of the child’s (usually lower) tax bracket. |
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Term
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Definition
| The broadest measure of the money supply, "L" includes money in all forms. |
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Term
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Definition
| Any company whose outstanding market capitalization is over $5 billion. |
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Term
|
Definition
| The risk of tax law changes adversely affecting the value of securities. An example would be the federal government making the interest income from municipal securities taxable, which would negatively impact municipal bond prices or a general increase in the long-term capital gains tax rate, which would negatively impact the attractiveness of all long-term securities investments. |
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Term
|
Definition
| For mutual fund investors that are making quantity purchases, the investor’s signed statement of intent to purchase a large enough quantity of mutual fund shares within a 13-month period to qualify the purchases for discounts according to the fund’s schedule of breakpoints. The LOI is not binding on the investor, but failure to complete the purchases required under the LOI will mean loss of the discount. |
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Term
|
Definition
| When securities are “privately placed,” the SEC requires that a restriction legend be placed on the certificates. It states that since these shares are not registered, they cannot be sold in the public markets. The investor signs a letter that he or she is buying the securities for investment only and does not intend to resell them in the public markets, hence the term “letter stock.” |
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Term
|
Definition
| 1) The purchase (or sale) of a large amount of a security using a large percentage of borrowed money - e.g., buying stock on margin. The use of leverage can enhance gains (or losses) as stock prices move. 2) The purchase of an option contract for a small premium amount, giving the holder control over a much larger dollar value of stock. 3) For corporations, the issuance of debt as part of their capital structure. So-called financial leverage (debt in the company's capital base) magnifies increases in the company's earnings per share when sales are increasing; and also magnifies decreases in the company's earnings per share when sales are decreasing. |
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Term
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Definition
| A claim on an owner’s assets that must be paid at a future date. For an individual, these include household bills, car payments, credit card payments, mortgage payments, taxes due, etc. |
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Term
|
Definition
| A contract that promises to make periodic payments for as long as the annuitant lives. There is no minimum guaranteed payment period if the annuitant dies earlier than expected. |
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Term
| Life Annuity with Period Certain |
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Definition
| The insurer promises to pay the annuity for a specified period even if the annuitant dies before the end of that period. If the life annuity has a period certain of 10 years, and the annuitant dies after only 4 years, the insurer will continue to make payments for an additional 6 years to a beneficiary. |
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Term
|
Definition
| Another name for a life annuity, the payments are made by the insurance company contingent upon the annuitant being alive; payments stop on death. In contrast, non-life contingent payments are made if the purchaser of a life annuity-period certain dies before the minimum payment period is completed. |
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Term
|
Definition
| A mutual fund that automatically rebalances as the customer ages, shifting asset allocations to less risky asset classes as the customer gets older. |
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Term
|
Definition
| The abbreviation for “Last In, First Out,” the tax accounting method used for withdrawals from a variable annuity. In a variable annuity, the first money into the contract is the premium payment, and the last money into the contract is the earnings on investments held in the separate account. For a withdrawal from a variable annuity, the first money out of the contract is the investment earnings which are fully taxable. Only after all taxable investment earnings have been withdrawn the original premium payments are returned without tax. |
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Term
|
Definition
An IRS rule that allows the sale of an asset, and the subsequent purchase of a “substantially similar” asset, without having a “tax event” – that is, there is no capital gain or loss computation required for tax purposes. Like-Kind exchanges are not available for securities, but they are available for exchanges of equipment, real estate and insurance products. A customer might wish to replace an insurance policy with another policy or an annuity because there are products with better features being offered, or the customer’s needs are changing. Section 1035 of the tax code covers tax-free exchanges of insurance products. It allows:
An insurance policy to be exchanged for another insurance policy;
An annuity to be exchanged for another annuity; and
An insurance policy to be exchanged for an annuity. Note that an annuity cannot be exchanged tax-free for an insurance policy. |
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Term
|
Definition
| A benefit of the corporate form of ownership, a stockholder’s potential loss is limited to his or her investment. The partnership form of ownership can be different. While limited partners in a partnership also have limited liability, any general partners have potentially unlimited liability. |
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Term
|
Definition
| Commonly known as a direct participation program ("DPP") or tax shelter, this is a partnership that permits the gains and losses of the business to flow through from the program to the investors (known as limited partners) untaxed. The partners include the items of income and loss on their individual tax returns, and hence directly participate in the results of the enterprise. Privately placed hedge fund offerings are typically limited partnerships |
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Term
| Limited Trading Authorization |
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Definition
| A trading authorization given by a customer to another named person, allowing that person to enter trades in the customer’s account. Unlike a full trading authorization, that individual is not permitted to draw checks on the customer’s account. |
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Term
|
Definition
| When a company (typically one in bankruptcy) sells all its assets and uses the cash to pay off the company’s creditors. |
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Term
|
Definition
In a corporate liquidation, the priority of claims in a liquidation. Regarding the security holders, the order of payment will be:
Secured bondholders
Unsecured bondholders
Preferred stockholders
Common stockholders |
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Term
|
Definition
| The risk that completing a securities transaction will result in larger than normal transaction costs. Liquidity risk increases for securities that are thinly traded, meaning that they are difficult to trade |
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Term
|
Definition
| Stocks, bonds, or options that meet an exchange’s listing standards, so they are “listed” on that exchange and trade in that location. |
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Term
|
Definition
| A mutual fund that charges an up-front sales charge for share purchases or a contingent deferred sales charge on share redemptions. |
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Term
|
Definition
| A form that a customer can be asked to sign when opening an account at a brokerage firm that permits the broker-dealer to "lend out" that customer's securities to another firm or another customer that wishes to sell them. The customer is not required to sign a loan consent agreement. |
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Term
|
Definition
| Buying or owning an investment, option, currency, or futures contract. |
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|
Term
| Long-Term Capital Gain (Loss) |
|
Definition
| A gain or loss upon disposition of an asset that has been held for over 1 year. Long-term capital gains are taxed at lower rates than short-term capital gains. |
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Term
|
Definition
| When a security is sold at a loss, those losses are netted against capital gains for that year. If there is a net capital loss, it is deductible up to a maximum of $3,000 in a year. Any unused losses carry over to the next year, when they are netted against capital gains for that year, and if the result is a net capital loss, another $3,000 can be deducted for that year, with the balance carried over to the following year, and so on. |
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Term
|
Definition
| Money supply measure published by the Federal Reserve. M1 is the supply of money in the form of cash and checkable accounts. This is the narrowest measure of the money supply. M2 includes M1 plus savings accounts, overnight repurchase agreements, and money market mutual funds. M3 is M2 plus large time deposits over $100,000. |
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Term
|
Definition
| The most common type of investment company, these are either mutual funds (open-end management companies) or exchange traded funds (closed-end management companies). Both have an investment adviser hired to manage the portfolio within its stated investment objective and impose management fees. |
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Term
|
Definition
| For mutual funds and closed-end funds, the fee that the investment adviser charges to manage the fund’s portfolio. This is typically the largest expense of operating a fund. |
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Term
|
Definition
| An account in which securities can be purchased by depositing a percentage of the purchase price (50% initial margin), with the balance lent by the broker-dealer. To be marginable, a security must be exchange listed. New issues are not marginable and mutual fund shares become marginable only after being held fully-paid for 30 days. |
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Term
|
Definition
| The portion of a securities purchase that must be deposited in cash, with the balance lent by the broker to the customer. Federal Reserve Regulation T sets initial margin for listed stocks at 50%, therefore the customer puts up ½ of the purchase amount and the other ½ is lent by the broker-dealer to the customer. |
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Term
|
Definition
| The amount or percentage that is subtracted from the bid price when a customer sells an OTC stock to a market maker in a principal transaction. There is no requirement to disclose the mark-down amount in principal transactions in non-NASDAQ securities. |
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Term
|
Definition
| The amount or percentage that is added to the inside ask price when a customer buys an OTC security from a FINRA/NASD member firm acting as a principal or market maker in the transaction. Except for NASDAQ stocks, the mark-up on an OTC principal transaction is not usually disclosed to the customer on a confirmation; rather it is included in a net price to the customer. |
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Term
|
Definition
| Sometimes referred to as “Market Cap,” the aggregate market value of the company’s outstanding common stock. It is the current price per share times the number of shares outstanding. |
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Term
|
Definition
| Synonymous with an OTC dealer, a FINRA/NASD member firm that disseminates bid and ask prices at which it stands ready to buy stock into, and sell stock from, its inventory at its own risk in the over-the-counter market. On the stock exchanges, the Specialist performs the function of market maker, as well as handling the book of public orders. |
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Term
|
Definition
| 1) For securities, the risk of a general decline in market prices that can be caused by a variety of events; 2) In portfolio management, it is the risk inherent in a portfolio that cannot be diversified away. |
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Term
|
Definition
| The risk that there is no ready market when a customer wishes to sell an investment, meaning that the security cannot easily be sold or cannot be sold at all. As an example, penny stocks are subject to this risk. |
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Term
|
Definition
| The date on which the issuer must pay par (the face amount of the bond) to the bondholder. This is also called the redemption date. |
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|
Term
|
Definition
| The commonly-used name for a broker-dealer that is registered with FINRA, so it is a FINRA member firm |
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Term
|
Definition
| Any company whose outstanding market capitalization is between $300 million. |
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|
Term
|
Definition
| Any company whose outstanding market capitalization is between $1 billion and $5 billion. |
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Term
|
Definition
| A type of best efforts underwriting commitment in which the investment banker makes an all or none commitment on a minimum amount of the new issue and a best efforts commitment to continue selling more of the issue until a maximum specified amount is sold. |
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Term
| Minimum Maintenance Margin |
|
Definition
| Set by FINRA, the minimum equity that a customer must maintain in a margin account. Below this percent or amount, the customer gets a maintenance call to restore the equity in the account to the minimum maintenance margin. Minimum maintenance margins are currently 25% for long stock positions and 30% for short stock positions (with some exceptions.) |
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Term
|
Definition
| Actions taken by the Federal Reserve to loosen or tighten the money supply. These actions include engaging in open market operations, changing the discount rate, changing the reserve requirement, and changing margin requirements. |
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