Useful Information and Resources



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Accelerated Cost Recovery System (ACRS): A statutory schedule of depreciation deductions for assets put into service after 1980 and before 1987. Salvage value is disregarded in computing ACRS allowances. Replaced by MACRS (which see).

Accredited investor: An investor in an offering who meets certain criteria under Regulation D, who does not have to be counted for purposes of limitations on the number of purchasers in an offering .At least one of the following criteria must be met to be an accredited investor: (i) a buyer with a net worth of$1,000.000 or more: (ii) a buyer with joint income with spouse of $300,000; (iii) a buyer with an income of $200,000 for each of the last two years and expecting income of that much this year; (iv) institutional investors: (v) tax-exempt organizations: (vi): private business development companies: (vii) directors, officers, or general partners of the issuer; and (viii) entities owned entirely by accredited investors.

Accretion: The process of adjusting the cost of a bond purchased at a discount. Only original-issue discount municipal bonds are accreted.

Accumulation units: An accounting measurement used to measure the annuitant's ownership of the separate account during the deposit period of a variable annuity contract.

Acid test ratio: See Quick Ratio.

ACRS: See Accelerated Cost Recovery System.

Additional bond test: An income test, which ascertains that revenues must meet certain levels to allow the sale of additional bonds against the financed facility. A provision in the trust indenture of an open end revenue bond.

Additional takedown: The profit to a syndicate member selling municipal bonds to broker/dealers who are not members of the syndicate.

Adjustment bonds: See income bonds.

ADR: See American Depository Receipt.

Ad valorem taxes: A tax levied "by value," usually used to describe property taxes.

Advance/decline ratio: The ratio of the number of stocks increasing in price to the number of stocks decreasing in price. Also called the breadth of the market."

Affiliated Persons: Insiders or control persons, such as officers, directors and principal stockholders (10% ownership or more) and their immediate families, also people in a position to influence a corporation's decisions.

Agent: One who acts for another. When a firm acts as agent, it is acting as a broker, bringing together a buyer and a seller. As agent it does not buy or sell for its own account.

Agreement among underwriters: The contract that governs the syndicate members in a negotiated offering.

Agreement of limited partnership: The contract between the general partners and the limited partners that governs the limited partnership.

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Balance of payments: A summary statement comparing the money coming into the United States with the amount of money leaving the United States.

BAN: See Bond Anticipation Note.

Bankers' acceptances: A short-term instrument used to finance import/export activities. Usually sold at a discount.

Basis: The cost or book value of an investment. The gain or loss on an investment is the sale price less the basis. Basis is often called "cost basis."

Basis points: 0.0 1% in yield. Increasing from 5.00% to 5.05%, the yield increases by five basis points.

Bearer: Certificates (usually bonds) that are not registered in the holder's name, but are payable to the bearer when due.

Bear Spreads: An options spread position that is profitable when stock prices decrease. The position is entered by purchasing a high strike price option and selling a low strike price option.

Best-efforts underwriting: Underwriting without a guarantee to the issuer to sell the securities. The underwriters act as brokers.

Beta: A statistical measurement correlating a stock's price change with the movement of the stock market.

Block trade: A trade of a large number of shares.

Blue Chip Stocks: Stocks of strong, well established corporations with a history of paying dividends in good and bad times.

Blue List: A listing of municipal bonds offered for sale in the secondary market.

Blue List Total: The total par value of the bonds offered for sale on the Blue List. This is a measure of the secondary market for municipal bonds.

Blue Skying: The process of registering a new issue with the states.

Blue Sky Laws: State securities laws. The name is derived from a court decision in which a state judge held that a particular offering had "no more substance than the blue sky above."

Board Broker: The employee of the CBOE who maintains the public limit order file, which is similar to a specialist's book, and executes limit orders for customers. Also known as an Order Book Official, or 080.

Bond: A long-term debt instrument.

Bond Anticipation Note: A short-term municipal note issued in advance of a long-term bond financing commonly referred to as a BAN. The BAN is repaid from the proceeds of the bond issue. BAN's are normally general obligations of the issuer.

BondBuyer: A publication which contains news of interest to the municipal bond market; also contains worksheets designed to assist syndicates in preparing their bids for an offering.

Bond index: An index of 20 high quality, general obligation municipal bonds, also known as the 20 Bond Index.

Bond Swap: Selling municipal bonds (usually at a loss) and using the proceeds to buy other municipal bonds, to establish a loss for tax purposes, to diversify a portfolio, to increase cash flow, or increase yield.

Book Entry: A bond registration procedure in which the bondholder does not receive the physical certificates held by a depository. The depository maintains ownership records and forwards interest payments.

BP Option: "BP" is the abbreviation for British Pound.

Breadth of the Market: See Advance/Decline Ratio.

Breakeven Point: The point beyond which a trade begins to be profitable. Up to this point, it is a losing trade.

Breakpoint: A purchase amount that qualifies for a reduced sales charge for mutual funds.

Breakpoint Sale: A prohibited practice of selling mutual fund shares in an amount just under a breakpoint (usually within $1,000 of a breakpoint).

Broker: See Agent.

Broker/Dealer: A brokerage firm.

Broker's Broker: A municipal securities firm that acts as broker for other firms. Broker's brokers do not deal with customers and do not trade their own accounts.

Bull Spread: An options spread position that is profitable when stock prices rise. The position is entered by buying a low strike price option and selling a high strike price option.

Bunching: Combining two or more odd lot orders into one order for a round lot.

Business cycle: A recurring cycle of economic conditions starting with credit expansion, economic activity becomes feverish, then depressed. Recovery occurs when the malinvestments and maladjustments have been corrected.

Buying power: In a margin account, the dollar amount of securities the customer may purchase without making a cash deposit. The buying power in an account is a function of the SMA.

Buy stop: An order to buy a security if it trades at or above a trigger price. Often used to limit a loss or protect a profit in a short stock position.

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Calendar spread: An options spread position with the same strike prices, but different expiration months. Calendar spreads are entered to take advantage of the decay of time premium.

Callable Securities: Securities that may be bought back by the issuer before they are due, usually at a premium over the par value. Many bonds and preferred stocks are callable.

Call option: An option contract that gives the holder the choice to buy the stock and the writer the obligation to sell the stock at a specified price.

Call rate: The rate of interest banks charge broker/dealers on loans collateralized by securities, often called the broker loan rate.

Call spread: An options spread position in which the customer is long a call and short a different call on the same underlying security

Canadian interest cost: See True Interest Cost.

Cap Interval: The point at which these special index options are automatically exercised if the underlying index touches or exceeds the cap price on the close.

Capital Asset Pricing Theory (CAPT): A theory of portfolio analysis stating that diversified investments in a portfolio are less risky than the sum of the risks of the individual stocks.

Capital gain: A gain recognized when a security is purchased at one price and sold at a higher price. It does not include dividend or interest income.

Capitalization: The long-term financing of a corporation, including the shareholder's equity section of the balance sheet plus long-term bonds outstanding. Cash flow: The net profits or losses of a business plus non-cash expenses such as depreciation, amortization, and depletion.

Cash settlement: A trade that is settled on the same day as the trade date.

Catastrophe call: A provision in the trust indenture of a bond issue that allows the issuer to call the bonds if the facility is destroyed by a natural disaster. It is usually called at par

CBOE: See Chicago Board Options Exchange.

CD: See Certificate of deposit.

Certificate of Deposit: A document certifying an unsecured time deposit with a bank, usually known as a CD. To be negotiable. it must be for $100,000 or more.

Certificate of limited partnership: A document summarizing the provisions of a limited partnership. It must be filed with the secretary of state in the state in which the partnership is formed. Filing the certificate creates the limited partnership.

Chicago Board Options Exchange: The largest options exchange

Class of Options: Options of the same type (put or call) on the same underlying security.

Closed-end investment company: An investment company with a fixed number of shares that trade in the secondary market CMV: Current Market Value

COD: See Delivery versus Payment.

Coincident indicator: An economic indicator that reflects changes in the economy. The index of industrial production and retail sales are both coincident indicators

Collateral trust bonds: Bonds secured by securities of another corporation

Collateralized Mortgage Obligations (CMOs): Bonds secured with GNMA. FNMA, and FHLMC mortgage-backed securities. Also known as REMICs

Combination: An options position in which an investor is long both a put and a call option on the same stock or short both a put and a call option on the same stock. The options usually have different strike prices

Commercial paper: Short-term business notes, drafts, and acceptances maturing in 270 days or less

Commission: The fee charged by a broker/dealer for acting for others in executing buying or selling orders

Common stock: The most basic type of equity security, representing ownership of the corporation

Competitive bid underwriting: An offering in which syndicates enter bids for the opportunity to underwrite the issue.

Competitive trader: A person who owns a seat on an exchange and uses it to trade for his own account

Compliance registered options principal: A registered options principal who has been designated by the broken dealer to maintain compliance with industry rules and federal law, usually referred to as a CROP. He must approve all items of advertising, sales literature, and educational material

Concession: In a municipal underwriting, the compensation given up to broker/dealers who are not members of the syndicate

Confirmation: A written report giving details of the trade to the customer or the other broker/dealer involved in the trade. Confirmations must be sent the next business day after the trade.

Contractual plans: A contract committing an investor to invest money over a period of time. The sales charges are deducted over the life of the contract, being higher in the early part of the contract.

Control persons: See Affiliated Persons. Control persons are also called "Insiders."

Control stock: Stock owned by control persons.

Conversion price: The price of a bond or stock at which it can be converted to common stock.

Conversion ratio: The ratio of conversion of a bond or stock to common stock

Convertible Security: Preferred stock or corporate bonds with a provision allowing conversion into common stock at a pre-determined conversion rate or price

Cooling-off period: The time between the filing of the offering with the SEC and the effective date when it is released by the SEC.

Cost basis: See Basis.

Coterminous: Overlapping debt, such as the bonds of a city and a school district where both debts are being paid by the same tax base (taxpayer).

Covered options: A short options position in which the writer has the means of meeting the obligation. For example, a person who is short a call option and long the stock. Credit agreement: An agreement between broker and customer on the conditions of a margin account

Credit balance: Money on deposit in a customer's account.

Credit spreads: An options spread position in which the premium on the short position is greater than the premium on the long position.

CROP: See Compliance Registered Options Principal.

Crossover: The point at which the partnership goes from showing losses for tax purposes to showing income

Cumulative preferred stock: A preferred stock whose dividends continue to accumulate even though they are not earned or declared.

Current assets: Assets that are converted to cash within one year.

Current liabilities: Obligations that must be paid within one year

Current ratio: Current assets divided by current liabilities.

Current yield: The ratio of the current income from an investment to the purchase price or the current price or the investment.

CUSIP number: A number assigned to each issue of securities by the Committee on Uniform Securities Identification Procedures to facilitate tracking lost, stolen or counterfeit securities.

Customer agreement: A basic agreement between customer and broker, incorporating the margin agreement, the credit agreement and the loan consent.

Cyclical stocks: Common stocks of companies whose prices vary directly with the business cycle.

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Dated date: In a bond issue, the date on which interest begins to accrue

Day orders: Orders that are canceled if they are not filled on the day they are entered.

Dealer: One who buys or sells stock for his own account, charging a markup when he sells to a customer and a markdown when he buys from the customer.

Debentures: Bonds not secured by any specific property, based on the full faith and credit of the issuer

Debit balance: Money owed to a broker/dealer by a customer.

Debit Spread: An options spread position in which the premium paid on the long position is greater than the premium received on the short position.

Defeasance: Annulment of trust indenture conditions, granting new bonds a claim on revenues, and the old bonds a claim on the escrow account containing the proceeds (the money) from the pre-refunding issue

Defensive issue: Common stock of companies that are relatively unaffected by the business cycle, such as food companies, utilities and tobacco companies

Delivery versus payment: A type of settlement, commonly used by bank trust departments, in which the security is paid for when the broker/dealer has the security deliverable in the purchaser's name. Also referred to as DVP or COD

Demand note: A short-term municipal note that permits the issuer to change the interest rate on a weekly or monthly basis, and the holder to sell the note back to the issuer at the same intervals.

Depreciation: A non-cash expense for wear and tear of property used as part of a trade or business or held for the production of income.

Depression: A stage of the business cycle characterized by high unemployment and low levels of business activity. Designated order: In a municipal bond underwriting, an order by the buyer syndicate member who receives the compensation for the order.

Designated reporting member: A broker/dealer who engages in many third market trades, and is designated as such.

Developmental drilling: Drilling oil or gas wells in an area of known production

Diagonal Spread: An options spread position in which both the strike prices and the expiration months differ

Dilution: Reduction of the percentage ownership of the existing shareholders through the sale of more stock by the corporation

Direct participation program: An investment program that allows the flow-through of all tax consequences to the investor, often referred to as DPPs. The most common form of DPP is a limited partnership

Discretionary account: A customer account in which the firm or its registered representative has the authority to enter orders without the prior approval of the customer

Discount rate: The rate of interest the Federal Reserve Board charges member banks for reserves borrowed from the Fed. Disintermediation: The non-use of financial institutions as intermediaries between savers and the users of funds

Disproportionate sharing arrangement: A sharing arrangement in an oil and gas program granting the general partner a greater share of income than would be merited by his capital contribution. For example, the general partner contributes 10% of the total capital but receives 25% of the income.

Dividend: A payment of corporate earnings to shareholders. Dividends are normally paid in cash, but may also be in stock and property.

Dollar bond: A term municipal bond, quoted in the same manner as corporate bonds.

Double-barreled bonds: A municipal bond based on the revenues to be generated by some facility or project, but also backed by the full faith, credit and taxing power of a government

Double-exempt bonds: Bonds issued by a territory of the United States that are exempt from both federal and state income taxes in all fifty stares. Some states may tax bonds of other states

DOT System: The Designated Order Turnaround System, which is the automated execution system on the NYSE. It is now called the Super Dot 250 System

Dow Jones Composite Average: An average of 65 stocks, including the 30 stocks in the Dow Jones Industrial Average, plus 20 transportation stocks and 15 utility stocks.

Dow Jones Industrial Average: An average of 30 stocks that are purportedly representative of the market. This is the average most widely followed by the public.

Due bill: A written admission of a debt. Due bills are given when a stock split or stock dividend is pending and the shares are sold prior to the ex-date but too late to transfer them to the buyer's name.

Due-bill check: A post-dated check dated to the payment date of a cash dividend. Due bill checks are used when a cash dividend is pending and the shares are sold prior to the ex-dividend date but too late to transfer them to the buyer's name

Due-diligence meeting: A meeting held by the issuer and the underwriters shortly before the effective date of the offering. The purpose is to make certain that all disclosures are adequate.

DVP: See Delivery versus Payment.

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Earnings per share: The net income of a corporation after taxes and payment of preferred stock dividends, divided by the number of common shares outstanding.

Eastern underwriting agreement: A firm commitment underwriting in which syndicate members are liable for their share of any unsold securities, regardless of how much of their allotment they sold. Eastern underwriting agreements have joint and several liability.

Easy money: A phenomenon occurring when new money is injected into the economy by the Federal Reserve System. The new money stimulates demand for existing goods, thus making it simple to make more money.

Effective date: In a new issue, the date on which the SEC releases the offering

Equipment trust certificates: A corporate bond offering secured by the equipment of a railroad, airline, or trucking firm, known as rolling stock.

Equity: The value of an asset (or part of an asset) which is not indebted.

Eurodollar bonds: Bonds issued outside the United States, but denominated in U.S. dollars.

Ex-dividend date: The date on which a stock starts trading without a pending dividend, usually two business days prior to the record date. It is set by either the exchange or the Uniform Practice Committee of the NASD.

Exercise: To exchange the option for its underlying asset at the strike price

Exercise limit: A maximum number of options of the same class that the OCC allows to be exercised by an investor within a five-consecutive-day period

Exercise price: The price at which the trade is executed when the option is exercised. It is also called the "strike price."

Exercised by exception: Automatic exercise of an option that is in-the-money by 3/4 of a point or more on the expiration date, unless the holder gives specific instructions to the contrary. Expansion: The initial stage of the business cycle in which credit is expanded.

Expense ratio: In a mutual fund, the ratio between the operating expenses for the year and the total average net asset value. It usually amounts to less than 1%.

Expire: The end of trading for an option.

Exploratory drilling: The drilling of oil or gas wells in an area without known production. Exploratory wells are also called "wildcat" wells.

Extension: When a customer fails to pay for a purchase of securities by the seventh business day after trade date, the broker/dealer may choose to request an extension, allowing an additional five business days to make payment.

Extraordinary call: A call on a bond issue that is used in unusual circumstances, such as a catastrophe call

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Feasibility study: A feasibility study for a municipal revenue bond, to determine its technical and economic feasibility.

Federal funds: Very short-term loans (usually overnight) between banks, without any collateral.

Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"): Purchases conventional mortgages from federally chartered savings and loans

Federal National Mortgage Association: An independent association that purchases mortgages from banks and other lenders, known as FNMA, or "Fannie Mae"

Federal Reserve Board: Commonly referred to as the Fed or "the Board," it manages the Federal Reserve System.

FIFO: First-In, First-out, a method of accounting determining which shares are being sold.

Fill-or-Kill: A limit order for multiple round lots that must be executed in its entirety at the stated price, or be canceled.

Firm commitment underwriting: A promise from the underwriters of an issue to purchase the security for their own account if they cannot be sold to customers.

Firm Quote: A quote committing the firm to buy or sell at least 100 shares of stock or 5 bonds at the stated price. All quotes are assumed to be firm unless otherwise specified.

Five percent policy: NASD policy to limit commissions, markups, and markdowns to five percent. This is a guideline rather than a rule because a number of other factors must also be considered.

Fixed annuity: An annuity policy with fixed monthly payments to the owner.

Fixed-unit investment trust: A trust that buys a fixed portfolio of securities (usually municipal bonds) and sells that portfolio to investors in units.

Floor brokers: Employees of a broker/dealer who execute the firm's orders on the floor of the exchange.

Flower bonds: U.S. government securities that were issued at a discount from par value but are acceptable at par in payment of estate taxes.

FNMA: See Federal National Mortgage Association.

FOK: See Fill-or-Kill.

FOMC: The Federal Open Market Committee, which has actual charge of the open market operations of the Federal Reserve Banks.

Forward pricing: In mutual funds, the practice of filling orders based on the next computed net-asset value of the fund.

Fourth market: Trades in which institutions deal directly with each other, without using broker/dealers.

FRB: See Federal Reserve Board.

Freeriding: Using the proceeds of a sale to pay for a prior purchase.

Freeriding and withholding: Failure of a member firm to make a bona fide public distribution of a hot issue. Such an issue may not be purchased by any broker/dealer or his employees or families, except under certain conditions.

Frozen account: An account that is not readily usable. The customer must have the money already on deposit to enter a buy order, or the security already on deposit to enter a sell order.

Fully-diluted earnings per share: The earnings per share if all convertible securities were converted into common stock.

Functional allocation: A sharing arrangement in an oil and gas program in which the limited partners contribute all the intangible costs and the general partners contribute all the tangible costs

Fundamental analysis: The study of certain factors affecting prices such as the management of the corporation, the economy, the industry, and so forth. Compare with technical analysis

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General obligation bonds: Municipal bonds that are backed by the full faith, credit and taxing power of the issuer.

General partner: The partner who has the responsibility to manage the business and affairs of a limited partnership, and who has unlimited liability.

Glass-Steagall Act of 1933: The federal law that prohibits banks from acting as dealers or underwriters in any securities other than general obligation municipal bonds.

Good delivery: Acceptable quality for delivery. A security that is in good delivery form must be accepted

Good-faith deposit: In a competitive underwriting, the bidders must make a good faith deposit, to show that they have the capability of handling the offering

Government National Mortgage Association: An association that is backed by the full faith and credit of the U.S. government, creating pools of mortgages that are sold to investors, commonly referred to as GNMA.

Gross-revenue pledge: In a municipal revenue bond, a trust-indenture provision stipulating that the revenues first go to pay the debt servicing costs. The operating costs may be paid from some other source of revenues.

Group net order: In a municipal bond underwriting, an order in which the compensation is shared proportionately among the syndicate members

GTC Order: A type of order that is good until it is canceled.

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Head and shoulders pattern: A technical chart formation that resembles a head and shoulders. It is a reversal pattern, representing the end of an uptrend and the beginning of a downtrend.

Horizontal spread: An options spread position in which the strike prices are the same, but the expiration months are different, also known as time spreads and calendar spreads.

Hot issues: A new issue which, on the first day of trading, trades at a price above the new issue price.

Hypothecation: A broker/dealer's pledge of a customer stock to a bank as collateral for a bank loan. The proceeds of the bank loan are used to finance the debit balance in the customer's margin account

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Immediate-or-cancel: A limit order for multiple round lots that demands immediate execution at the stated price, and accepts partial execution. Any remaining portion of the order is canceled.

Income bond: A bond on which interest is paid "when, as, and if earned." It is normally issued by companies in bankruptcy. Also called "adjustment bond."

Index: A measure of the price activity of a group of stocks.

Indication of interest: A customer statement that he may consider purchasing securities in a new issue. Indications of interest are taken during the cooling-off period, after the customer has received a red herring.

Industrial revenue bonds: A municipal bond the proceeds of which are used to assist in the financing of a corporation in that jurisdiction.

Initial public offering: The initial sale of securities to the public, often called an IPO.

Insiders: See Affiliated persons and Control persons.

Instinet: A computer system designed to assist institutions in trading securities among themselves, or fourthmarket trading.

Intangible drilling and development costs: The expenses associated with establishing an oil or gas well. These expenses have no salvage value. They are immediately tax deductible.

Interest: Money paid as compensation for the use of someone else's money which has been borrowed

Interbank market: The market for foreign currencies in which the largest participants are the money center banks. The interbank market for currencies exists throughout the world.

Interpositioning: A prohibited practice of placing another firm between a broker/dealer and the best available market for a security, denying the customer the best available price. In-the-money: A call option is in-the-money if the market price of the stock is higher than the strike price of the call. A put option is in-the-money if the market price of the stock is lower than the strike price of the put. An in-the-money options contract is more likely to be exercised than one that is either a-the-money or out-of-the-money.

Intrastate offering: A solicitation to sell stock made only to residents of the state in which it originates.

Intrinsic value: The amount an option is in-the-money.

Inverted head and shoulders pattern: A technical charting pattern that resembles an upside-down head-and-shoulders. It is a reversal pattern signaling the end of a downtrend and the beginning of an uptrend

Investment advisor: In investment companies, the person or firm making the trading decisions. In other uses, a person or firm (i. providing investment advice for a fee: (ii) managing money for investors; or (iii) publishing investment news letters for paid subscriptions.

Investment Advisors Act of 1940: The federal law regulating investment advisors. Among other things, the law requires investment advisors to register with the SEC.

Investment Company: A company which, instead of manufacturing a product or providing a service makes investments

Investment Company Act of 1940: The federal law regulating investment companies

In-whole call: The call of an entire issue, as opposed to a partial call.

IOC: See Immediate-or-cancel.

IPO: See Initial Public Offering.

Issue: An offering of securities

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JTWROS: Joint tenancy with rights of survivorship: a type of ownership right. When one owner dies, his interest passes to his cotenants.

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Lagging indicator: An economic indicator that reacts slowly to economy changes. Unemployment figures are a lagging indicator.

Leading indicator: An economic indicator that is in the forefront of changes in economic activity. Stock prices are an example of a leading indicator

Lease rental bond: A municipal revenue bond that is supported by lease payments on a building, usually a building leased to a government agency.

Legal opinion: A written opinion by a bond counsel stating whether or not a bond issue conforms with all the laws of the issuer, and the state and federal governments. It also addresses the tax status of the bonds.

Letter of intent: In mutual funds, a written statement by a customer promising to purchase a stated number of mutual fund shares. The letter assures the investor a reduced sales charge on the entire purchase, provided it is completed within thirteen months.

Leverage: The use of debt in investments. Leverage increases the percentage profit, but also the percentage loss

LIFO: Last-in, First-out: a method of accounting.

Limited partner: A partner with limited liability who may not engage in business, for the partnership.

Limited partnership: A partnership comprised of one or more general partners with unlimited liability, and one or more limited partners with limited liability.

Limit order: An order to buy or sell subject to some limitation as to price.

Loan Consent Form: A customer document that allows the broker/dealer to pledge customer stock to the bank to borrow the money for the margin account. It allows the firm to hypothecate the stock

Long: Owning the security. When a person is long a stock or an option, he owns the stock or holds the option.

Long-term Equity Anticipation Securities (LEAPS): Equity options on the CBOE covering 100 shares of stock with expirations up to 39 months distant

Long Straddle: An options position in which the customer is long a call and a put on the same security. The position is profitable if the price of the underlying security moves outside the two breakeven points. Long straddles are only profitable in volatile markets

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Maintenance call: In a margin account, the broker/dealer demand for additional funds to restore the equity to the minimum maintenance level

Management fee: In an underwriting, the special fee paid to the managing underwriter.

Margin Account: An account in which a customer may pay only part of the purchase price of securities.

Margin Agreement: The customer consent pledging his securities as collateral for a debit balance.

Margin call: In a margin account, the request for more equity. Margin calls can be met by depositing cash or stock, or by using SMA.

Markdown: A reduction in price below that at which the security is offered. Acting as dealer and buying stock for its own account from a customer, the firm charges a markdown. This is the firm's compensation

Market maker: A firm that buys and sells a particular security for its own account

Market order: An order to buy or sell at the best available price

Markup: An amount added to the price of a security. Acting as dealer and selling stock to a customer from his own account, the dealer charges a markup. The markup is the firm's compensation in the trade.

Matched order: A prohibited practice similar to a wash sale but involving two or more firms trading a security back and forth at the same price in an attempt to show more trading volume than is actually occurring.

Maturity class of option: Options of the same type (put or call) on the same underlying security with the same expiration month. All XYZ January call options belong to one maturity class: all XYZ April call options belong to another

MBIA: The Municipal Bond Insurance Association, which insures entire issues of municipal bonds.

Member order: In a municipal underwriting, an order by a syndicate member for its own account or a related portfolio.

MIG ratings: Moody's Investment Services ratings for short-term municipal obligations. MIG stands for Moody's Investment Grade.

Mill: Used in tax rates to determine tax liability.

Minimum maintenance: In a margin account, the minimum equity allowed

Minimum-maximum underwriting: A type of best efforts underwriting. It is similar to an all-or-none underwriting until the minimum amount is raised, in that the offering is canceled if that amount is not raised. It then becomes a normal best efforts underwriting above that amount. An example is a real estate limited partnership with a $2 million minimum and a $50 million maximum.

Money spread: An options spread position in which the expiration months are the same, but the strike prices are different, also known as a vertical spread.

Moral obligation bond: A municipal revenue bond which the state is morally obligated to redeem, should the bonds go into default

Mortgage bond: A bond secured by a lien on real property.

MSRB: Municipal Securities Rule Board

Municipal Underwriting: An offering undertaken by a syndicate of broker/dealers to sell an issue of municipal securities

Munifacts: A wire service that provides news of interest to municipal bond traders.

Mutual fund: An open-end investment company.

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Naked option: A short options position in which the writer does not have visible means of meeting the exercise requirement.

NASDAQ: The computer system designed to facilitate trading of over-the-counter securities. NASDAQ stands for the National Association of Securities Dealers Automated Quotation System.

National Association of Securities Dealers, Inc.: Usually referred to as the NASD, this is the self-regulatory organization which is responsible for supervising the OTC market.

National Market System: The most actively traded stocks on the NASDAQ System. Commonly referred to as the NMS. A trader must report trades in NMS securities within 90 seconds of the trade

NAV: See Net Asset Value.

Negotiated market: A market in which prices are determined by negotiation between broker/dealers. The OTC market is a negotiated market.

Net Asset Value: In mutual funds, the assets of the fund less its liabilities, divided by the number of shares outstanding. usually referred to as the NAV. This is the price a mutual fund shareholder receives when selling shares of the fund.

Net interest cost: In a syndicate bid on a competitive bid underwriting, the cost of the offering to the issuer. It is adjusted for premium or discount prices, but does not include any net present value computations. (Compare this with True Interest Cost). The firm offering the issuer the lowest net interest cost wins the bid and underwrites the issue

Net revenue pledge: In a municipal revenue bond, a provision in the trust indenture stating that revenues will first be used to pay the operating and maintenance costs of the facility. The net revenues will then be used to support the debt.

NMS: See National Market System.

Nominal quote: A quote that is not a firm quote. A broker/dealer giving a nominal quote is not obligated to trade at that price

Nominal yield: The stated interest rate on a bond issue, often called the coupon rate.

Non-participating preferred stock: A type of preferred stock that does not pay higher dividends when the corporation has higher earnings.

Non-recourse loan: In a limited partnership, a loan for which the limited partners are not personally liable.

Non-tax-qualified annuity: The normal type of annuity. Contributions are not tax deductible: when payments are received, the annuitant is taxed only on the portion representing earnings. The return of capital is not taxed.

Notice of sale: An advertisement by an issuer preparing a competitive bid offering. The Notice of Sale invites firms to submit a bid on the offering.

NYSE: The New York Stock Exchange.

NYSE Composite Index: An index of all the common stocks listed on the NYSE

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OBO: See Order Book Official.

OCC: The Options Clearing Corporation, which is the actual issuer of options contracts. It acts as a clearing house, or bookkeeper. When an exercise notice is received, it assigns the notice. It is also considered the obligor and guarantor of options contracts, guaranteeing performance

Odd lot: Less than the usual trading unit, usually 100 shares of stock or 5 bonds

Odd lot theory: An investment theory that contends that the odd lotters are always wrong. Odd lotters buying is a sell signal. Odd lotters selling is a buy signal.

OEX: The symbol for Standard & Poor's 100 Index options.

Oil and gas income program: Buying existing oil and gas wells and producing the wells to generate income. The program does not generate intangible drilling and development costs, and does not generate high tax deductions.

Official statement: The disclosure document in a municipal bond offering. Issuers of municipal bonds are not required to publish an official statement, but most do anyway

Open-end investment company: See Mutual Fund.

Open interest: The number of outstanding options contracts.

Options Clearing Corporation: See 0CC.

Open market operations: The Federal Reserve buying or selling of U.S. government securities. The Federal Open Market Committee conducts the policy.

Order book official: An employee of the CBOE who maintains the public limit order file, which is similar to a specialist's book. Also referred to as an OBO or Board Broker, he executes limit orders for options.

Order period: In a municipal underwriting, a short period when all orders are accepted without regard to the priority for orders for the offering.

Ordinary income: For tax purposes, income from wages, salaries, and self-employment, demagogically called "earned income."

OSS System: The automated execution system for CBOE options.

OTC market: See Over-the-Counter Market.

Out-of-the-money: Lacking intrinsic value. A call option is out-of-the-money if the market price of the stock is less than the strike price of the call. A put option is out-of-the-money if the market price of the stock is higher than the strike price of the put.

Overlapping debt: Multifarious debt that rests on a single debtor. In general obligation municipal bonds, bonds issued by a city, county, school district, and water district may all look to the same people for taxes to support the debt.

Overriding royalty interest: In an oil and gas program, a compensation arrangement giving the general partner a percentage of the gross income, on top of the other royalties.

Over-the-counter market: The market for securities that are not listed on an exchange. Various broker/dealers buy and sell these securities for their own accounts.

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Par value: The face value appearing on the certificate. Preferred stocks normally have a par value of $100. bonds, a par value of $1,000.

Parity: An option trading for exactly its intrinsic value is said to be trading at parity.

Parity price: For convertible securities, the price level at which their exchange value equals that of the common stock

Participating preferred stock: Preferred stock that shares in exceptional earnings of the corporation. Participating preferred stocks may be paid an extra quarterly dividend if the company has a very good year.

Passive income: For tax purposes, income from direct investments in a business venture by an investor who does not actively participate in management. such as income from limited partnerships.

Payment date: The date on which a corporation pays a dividend that has been declared.

P/E ratio: See Price/Earnings ratio.

PHA Bonds: See Public Housing Authority Bonds.

Phantom income: In a limited partnership, taxable income that exceeds cash distributions.

Pink sheets: A listing (on pink paper) of OTC securities, their quotes, and the firms that make the market.

Placement Ratio: The ratio of new issue municipal bonds sold during a particular week, divided by the dollar amount of new issue municipal bonds available during that week. It is published by the Bond Buyer.

Plan completion life insurance: Insurance with an optional feature stipulating that if the planholder dies before completing the contract, a life insurance policy will complete the purchase. The insurance proceeds will be paid to the custodian bank of the plan, which completes the purchase.

PN: See Project Notes.

Portfolio income: For tax purposes, an income category that includes capital gains and losses, and interest and dividend income

Position limit: A maximum number of option contracts set by the 0CC that an investor may hold.

Pot: In a corporate underwriting, syndicate members estimate their sales to institutional investors. Those shares are set aside (placed in 'the pot") and handled by the managing underwriter.

Preferred stock: A type of corporate stock with a stated dividend which must be paid before the common stockholders may receive a dividend.

Preliminary prospectus: A preliminary version of the prospectus that is published as soon as the offering is registered with the SEC. It does not include the final price or spread, and may not be used to solicit orders, but may be used to solicit indications of interest. This is often referred to as a "red herring."

Preliminary statement: A preliminary version of the official statement for a municipal bond offering.

Pre-refunding: Selling a new bond issue to refund (refinance) an old issue prior to the call date of the old bonds. The proceeds of the offering are placed in an escrow account until the call date is reached.

Presale order: An order for a new issue municipal bond taken by a syndicate prior to winning the bid. It is used to help the syndicate gauge the reception the offering is likely to receive.

Price to Earnings ratio: The ratio of the price of a common stock to its earnings per share, often referred to as the PIE ratio. It is used to measure how expensive a stock is, relative to its earnings.

Primary distribution: A sale of new stock to the public.

Prime rate: The interest rate banks charge their best customers.

Principal: l) In a loan, the amount of the loan, not including interest 2) in a brokerage firm, a person in an ownership and/or supervisory capacity; and 3) in a trade, a firm acting as dealer.

Private placement: A securities offering under Regulation D. which is not registered with the SEC. The offering is generally made to a limited number of persons who meet certain suitability standards.

Private securities transaction: A prohibited transaction by a registered representative acting outside the scope of his employment with a broker/dealer, for instance, selling a product not on the firm's approved product list without the knowledge and consent of the employer. This is also known as "selling away."

Proceeds sale: Selling one security, and using the proceeds to buy another

Production purchase program: See Oil and gas income programs.

Program trading: Computer-aided trading where orders are automatically generated at trigger points.

Progressive tax: A tax that rises in rate as the taxpayer's income increases; for example, income tax.

Project note: A short-term municipal note used to finance low income housing projects.

Prospectus: The disclosure document for an offering registered with the SEC. The final prospectus is issued on the effective date, when the offering is released by the SEC.

Proxy: A written authorization by a stockholder giving his voting rights to someone else. Shareholders who cannot attend the annual meeting usually give their proxies to someone else, often to management.

Public Housing Authority Bonds: Municipal bonds that provide long-term financing (mortgages) for low income housing projects, commonly referred to as PHA bonds, and guaranteed by the U.S. government. Sometimes they are called New Housing Authority Bonds, or NHAs.

Purchaser's representative: In a Rule 506 offering under Regulation D. pertaining to a private placement, investors are encouraged to appoint someone to act as their representative. He is to analyze the offering to ensure that it is a suitable investment.

Put bond: A bond with a put option that allows the owner to sell the bond back to the issuer at certain intervals, usually at par.

Put option: An option that gives the holder the right to sell the underlying security, and the writer the obligation to buy the security at a specified price.

Put spread: An options spread position in which the investor is long a put and short a put on the same security.

Pre-emptive right: A corporate shareholder's right to maintain his share of ownership when new shares are sold through a rights offering.

Preferred stock: A stock that has priority in liquidation and in dividends over the common stock.

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Quick assets: Assets that can readily be converted to cash, including marketable securities, accounts receivable, and checking accounts

Quick ratio: The ratio between the quick assets and the current liabilities. This is a measure of the liquidity of the company

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RAN: See Revenue Anticipation Note.

Random walk theory: An investment theory holding that all that can be known about a stock is incorporated into its price. It is, therefore, impossible to outperform market averages in the long run. It suggests that stock prices move in a random walk that cannot be foreseen.

Real Estate Investment Trust: A closed-end investment company that invests in real estate, either directly or through real estate loans, commonly referred to as REITs.

Real Estate Mortgage Investment Conduit: Mortgages pooled to sell to investors, commonly called REMIC.

Reallowance: In a corporate underwriting, the compensation of a firm that is not a member of the syndicate or the selling group for selling shares to the public.

Recession: A mild form of depression, identified by two consecutive calendar quarters of economic decline.

Record date: The date determining shareholders of record (those who own the stock) who are entitled to receive a dividend.

Recovery: The phase of the business cycle when economic activity begins to recover from a recession or depression.

Recourse loan: In a limited partnership, a loan for which the limited partners are personally liable. Redemption fee: A fee charged some mutual funds upon sale of shares back to the fund, generally not exceeding 1% of the sale proceeds.

Red Herring: See Preliminary Prospectus.

Refunding: Selling a new bond issue and using the proceeds to call an outstanding issue (which has a higher coupon rate).

Registered Options Principal: A person who is in charge of supervising options trading, commonly referred to as an ROP. Most branch managers perform this function.

Registered Options Trader: A person on the floor of an options exchange who buys and sells options for his own account, also known as a Market Maker or ROT. He performs the dealer functions of the specialist on the floor of the NYSE.

Registrar: The company official who maintains the list of corporate shareholders, and ascertains the correct number of outstanding shares.

Regressive tax: A tax the rate of which increases as the taxpayer's income decreases.

Regular way settlement: For corporate and municipal securities, three business days. For U.S. government securities, the next business day. The word "settlement" applies only to broker/dealers, not customers.

Regulated investment companies: Investment companies that qualify for special tax treatment, avoiding the double income taxation on dividends.

Regulation A Offerings: Offerings of $5,000,000 or less that do not have to be fully registered with the SEC.

Regulation D: The federal regulation pertaining to private placements of offerings to a limited number of people meeting certain suitability standards. Private placements need not register with the SEC.

Regulation T: The federal regulation governing extension of credit by broker/dealers to customers for trading securities. Regulation T mandates payment conditions and governs margin accounts.

Regulation U: The federal regulation of bank loans collateralized by securities, including broker/dealer hypothecation of stock.

REIT: See Real Estate Investment Trust.

REMIC: See Real Estate Mortgage Investment Conduit.

Repurchase agreement: A contract committing a U.S. government securities dealer to sell U.S. government securities to a purchaser (often to a municipality or institutional investor), with a provision that he repurchase the securities at a set price at a specified time, usually the next day. This is a money market instrument.

Reoffering scale: In a municipal bond underwriting, the initial yields at which the bonds are offered to the public.

Reserve requirements: A specified percentage of customers' deposits which a bank must keep on deposit with the Federal Reserve System. The reserve requirements vary according to whether the deposits are time deposits or demand deposits.

Resistance: A charting pattern where a stock price tops out or levels off. Breaking the resistance level is a buy signal for a technical analyst.

Restricted account: A margin account below 50% equity.

Retention: 1) When securities are sold in a restricted margin account, at least 50% of the sale proceeds must remain in the account and be applied to reduce the debit balance. 2) In an underwriting, the number of shares sold on a retail basis by a syndicate member. This is the syndicate member's allotment, less any shares held in "the pot" for sale to institutional investors, and any shares given up to the selling group.

Revenue anticipation note: A short-term municipal note sold when the issuer is expecting to receive a large sum of money, usually from the federal government, commonly referred to as a RAN. When the funds are received, the RAN is repaid.

Revenue bond: A municipal bond that is to be paid from the revenues of a specific project, such as a stadium. If the revenues are insufficient to support the debt, the bond goes into default. The issuer is not required to use other revenues to redeem the bond.

Reversionary working interest: In oil and gas programs, a sharing arrangement whereby the general partner does not share in revenues until the limited partners have recouped their initial investment.

Rights: Certificates allowing shareholders to purchase enough new shares to maintain their percentage of ownership in the corporation.

Rights offering: A rights offering occurs when a corporation makes new shares (called "rights") available to its existing shareholders, thus allowing them to maintain their existing proportion of ownership in the corporation.

Rights of accumulation: In mutual funds, the right to reduce sales charges when a shareholder's total purchases exceed a breakpoint. There is no time limit for rights of accumulation.

Riskless transaction: A transaction by a broker/dealer who, upon a customer's request, buys a security for its own account first, then sells it to the customer as a dealer, and charges a markup. Riskless transactions are also known as simultaneous transactions.

ROP: See Registered Options Principal.

Round lot: The normal trading unit of a security: 100 shares of stock or 5 bonds in the OTC market (I bond on the NYSE).

Royalty: In oil and gas programs, a percentage of revenues paid to the owner of the mineral rights in return for allowing the partnership to drill on the property.

Rules of Fair Practice: NASD rules governing firms dealing with customers.

Rule 144: The federal law regarding resale of securities. Insiders must always sell under Rule 144. Non-affiliated persons are subject to Rule 144 if they sell shares that have not been registered with the SEC.

Rule 147 Offerings: See Intrastate Offerings.

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SEC: See Securities and Exchange Commission.

Secondary distribution: In underwritings, the sale of previously issued shares, such as treasury stock or shares held by insiders. Large block trades may also be called secondary distributions.

Securities Act of 1933: The federal law regulating new issues, requiring their registration with the SEC.

Securities Exchange Act of 1934: The federal law regulating the markets for existing securities, and governing public companies, broker/dealers, and exchanges. It allowed for the creation of self-regulatory organizations, such as the NASD.

Securities and Exchange Commission: The federal agency that regulates the securities market and administers federal securities laws, commonly known as the SEC.

Securities Information Center: The agency that takes reports on lost, stolen, or counterfeit securities. Commonly known as the SIC.

Seller's option: The seller specifies the date on which the trade will settle. The date must be no less than two business days, but no more than 180 business days after trade date.

Selling away: See Private Securities Transactions.

Selling dividends: Inducing a customer to buy mutual fund shares just prior to an ex-dividend date, so that he receives the dividend. Because the price of the shares is likely to drop by the amount of the dividend, the customer is effectively getting his own money back, and is taxed on the dividend, besides.

Selling group: A select group of broker/dealers who assist the syndicate in selling the new issue in a corporate underwriting.

Selling group concession: In a corporate underwriting, the compensation paid to the selling group members.

Sell stop: An order to sell a stock if the price falls to or below a specified price. It is often called a "stop loss" order

Semi-fixed unit investment trust: A contractual plan investment company that creates its own portfolio, consisting solely of shares in an underlying mutual fund. The plan sells shares of its portfolio to investors on a contractual basis.

Separate account: In a variable annuity, the investment account into which the annuitant's funds are deposited. The account is segregated from the insurance company's other investments, and registered as an investment company under the Investment Company Act of 1940

Serial Bond: An issue with bonds of different maturities.

Series bond: A bond offering that took place at different times.

Series of options: Options of the same type (put or call) on the same security, with the same exercise month and strike price.

Settlement: In a trade, the exchange of money and the security. Regular way settlement for corporate and municipal securities takes place three business days after trade date.

Short: In options, the position of the writer of an option. In securities, the position of a seller of stock he does not own, but hopes to buy later

Short against the box: A position of an investor who is long and short the same security, usually for tax purposes, to lock in a sales price, but defer the gain into the year the short position is covered.

Short interest theory: An investment theory according to which a large volume of short sales constitutes a buy signal.

Short sale: The sale of a borrowed security. If the seller can buy back the security at a lower price, he can reap a profit.

Short straddle: An options position in which the investor sells both a call and a put on the same security. The position is profitable if the stock price remains between the two breakeven points.

Shortswing profit rule: A federal law that forces insiders who sell securities of their company and take a short-term profit to pay that profit to the company.

Simultaneous transactions: See Riskless Transaction.

Sinking fund: A fund established to accumulate resources for the retirement of bonds

Sinking fund call: A repurchase of bonds by the issuer in which the money used to fund the bonds comes from a fund established for that specific purpose

SIPC: See Securities Industry Protection Corporation.

SMA: Special Memorandum Account. In a margin account, SMA is a line of credit that is granted when the account generates equity in excess of 50%.

Special assessment bond: A municipal bond that is backed by special assessments levied on the property of residents who benefit from the facility being financed, such as an improved sewer system.

Special bid: A bid for a large number of shares. Announcement is made on the consolidated tape that a firm is bidding to purchase a number of shares.

Specialist: An exchange member who makes the market in a particular security. He must maintain a "fair and orderly" market.

Specialist's bid: A specialist's bid for a block of stock owned by a customer. The purchase is a negotiated transaction.

Specialist's offer: A specialist's sale of a block of stock to a customer in a negotiated transaction.

Special offer: An offer for a block of stock that is reported on the consolidated tape.

Special situation: Unusual circumstances that may cause a company to buy or sell its securities, rather than the fundamental prospects of the corporation. An example is a company that has received a tender offer by someone trying to buy all outstanding shares. The decision to buy or sell stock is made more on the basis of the likely success or failure of the tender offer than on the long-term prospects of the company.

Special tax bond: A municipal bond that is supported only by the revenues from a specific tax. It is considered a revenue bond; for example, a state pledging its gasoline taxes to finance construction of roads.

Speculate: To invest money in securities in an attempt to earn capital gains.

Spread: An options position in which the investor is long an option and short another option of the same type. For example, he is long I ABC July SO Call and short I ABC July55 Call.

Stabilizing bid: In a corporate underwriting, a bid by the managing underwriter to buy outstanding shares of the issuer's stock. This is done to support the stock price so the new issue can be distributed. For example. if a company offers a new issue at $30 per share, and the price of the old shares falls below $30, the managing underwriter may enter a stabilizing bid at $30 or slightly less to support the price.

Standby underwriting: A corporate underwriting related to a rights offering. The syndicate agrees to underwrite any shares not sold through the rights offering. Standby underwritings apply only to offerings of common stock

Standard & Poor's 100 Index: An index of 100 stocks published by Standard & Poor's Corporation; the index on which OEX options are based.

Standard & Poor's 500 Index: An index of 500 stocks published by Standard & Poor's and considered representative of the overall stock market

Stock dividend: A dividend in the form of stock. Shareholders are given additional shares of stock, rather than being paid cash. Stock dividends are stated as a percentage. For example, if a 10% stock dividend is paid, the owner of 100 shares receives an additional 10 shares

Stockholders' equity: The dollar value of all holdings of preferred stock including any Paid-In Surplus plus retained earnings.

Stock split: Issuing new shares for the now outstanding. For example, a 2 for 1 stock split doubles the number of shares outstanding. The price is likely to fall to one-half the previous price.

Stop limit order: Art order activated when the stock price trades at or through a trigger price. The order then becomes a limit order. Stop loss order: Another name for a stop order

Stop order: An order that is activated if the stock price trades at or through a trigger price. The order then becomes a market order. See also Buy Stops and Sell Stops. Stopping stock: An execution guaranteed by a specialist to a floor broker for customer orders. The specialist guarantees the order will be filled at a specified price or better.

Straddle: An options position in which the investor either buys a call and a put on the same security (a long straddle), or sells a call and a put on the same security (a short straddle)

Street name: Stock held in the name of the broker/dealer carrying the account.

Stock power: Instead of endorsing the back of a stock certificate, a customer may sign a separate form, called a stock power, which then is attached to the certificate to make it negotiable.

Strike price: The price at which the stock trade will take place if an option is exercised. Also known as the exercise price

Student Loan Marketing Agency ("Sallie Mae"): Agency issuing non-guaranteed securities based on student loans.

Subchapter M: A tax code provision favoring investment companies, avoiding double taxation of income. Investment companies qualifying for this treatment are called "Regulated Investment Companies."

Subject quotes: A quote subject to confirmation by someone else. It is not a firm quote, but a nominal quote

Subscription agreement: In a limited partnership, the document a limited partner signs when he joins the partnership. It typically asks many questions regarding the investor's suitability for the program.

Summary complaint procedure: An NASD procedure investigating possible violation of the rules. If the violation is not severe, and the facts are not in dispute, NASD may offer Summary Complaint Procedure. If accepted, the maximum penalty is censure and a fine up to $2,500.

Support: A charting pattern indicating buying pressure. If the stock price declines below the support level, a technical analyst views the decline as a sell signal.

Syndicate: In an underwriting, a group of firms acting together to market a stock or bond issue. They are required to buy unsold shares for their own accounts, if they fail to sell them to their customers. Syndicate letter: In a competitive bid underwriting, the contract governing the syndicate. Systematic risk: Another term for stock market risk

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Takedown: In a municipal underwriting, the profit of a syndicate member selling bonds to a customer.

TAN: See Tax Anticipation Note.

Tax Anticipation Note: A short-term municipal note offered before receiving tax revenues, commonly referred to as a TAN. It may be issued three to six months before property tax bills are sent out. They are general obligation issues, and are repaid from property taxes.

Tax-sheltered annuities: Plans available only to employees of non-profit organizations. such as schools, churches and charities, also known as 403(b) plans. When the employee makes the contribution to the annuity, it is tax-deductible. When the contract is annuitized, the entire payment is taxable as ordinary income.

Tax swap: See Bond Swap.

Technical analysis: Analysis of investments based on technical factors, primarily on charting. This is the practice of determining investment strategies based on chart patterns.

Tenants in common: A joint account in which, if one party to the account dies, his or her share goes to the estate, not to the surviving tenant(s)-in-common

Tender offer: An offer to buy all or a large block of the securities of a particular company. The offer must be made to all shareholders.

Term bond: A corporate or municipal bond issue with all the bonds maturing at the same time. Municipal term bonds are called dollar bonds, and are quoted in the same manner as corporate bonds.

Third market: Over-the-counter market trades in securities listed on an exchange Tight money: A reduced rate of money creation by the Federal Reserve System.

Time spread: An options spread position in which the strike prices are the same, but the expiration months are different

Time value: In an option contract, the premium minus the intrinsic value (the in-the-money amount).

Tombstone advertisement: In a new issue, an advertisement showing the security being sold, the price, and the names of the broker/dealers from whom a prospectus can be obtained

Total contract price: In a bond trade, the price of a bonds plus the accrued interest.

Trading flat: Bonds trading without accrued interest, such as income bonds, bonds in default, and zero coupon bonds.

Transfer agent: The person or firm that cancels the shares in the name of the seller and reissues shares in the name of the buyer.

Treasury bill: A U.S. government security maturing in less than one year. It is issued at a discount, and matures at par.

Treasury bond: A U.S. government security maturing in more than ten years. It is issued with a coupon rate, and is quoted in 32nds.

Treasury note: A U.S. government security maturing in one to ten years. It is issued with a coupon rate, and is quoted in 32nds.

Treasury receipt: A type of zero coupon bond representing only the principal payment on a Treasury Bond with twenty years to maturity. Since there are no interest payments, they trade at a steep discount.

Treasury stock: Stock that has been repurchased by the issuing corporation. It has no voting rights, does not receive dividends, and is not used in calculating earnings per share. Treasury strip: When a Treasury Receipt is created by stripping the coupons from a twenty-year Treasury Bond, the forty interest coupons for the bond are sold separately as Treasury Strips.

Triple-exempt bond: A bond exempt from federal, state, and local taxation.

True interest cost: In a competitive bid municipal bond offering, a method of calculating the interest cost that takes into account the time value of money. The calculation is done in constant dollars, considering not only what payments are made, but also when they are made. The other method of determining the bid is the Net Interest Cost, which does not involve any net present value computation. True Interest Cost is also referred to as Canadian Interest Cost.

Trust Indenture Act of 1939: The federal law requiring all bond issuers to create a trust indenture, which is the contract between the issuer and the bondholders. The trust indenture appoints a company (usually a bank) to act as trustee on behalf of the bondholders.

Two dollar broker: An independent floor broker on the floor of an exchange who assists other members in executing their orders.

Type of option: There are two: puts and calls

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UGMA: See Uniform Gift to Minors Act.

Uncovered options: A short options position in which the writer has no obvious means of fulfilling the exercise requirement. For example, a person who is short a call option and does not own the stock. They are also called naked options.

Underwriter: A syndicate member in a firm commitment underwriting. The term is usually only given to those who have a financial commitment to buy the stock for their own account.

Underwriters' concession: In a corporate underwriting, the profit of a syndicate member selling securities to a customer. Underwriting: The process in which broker/dealers form a syndicate to sell new issues of securities.

Undesignated order: In a municipal underwriting, an order in which the entire syndicate shares proportionately in the compensation. They are also called Group Orders or Group Net Orders.

Uniform Gift to Minors Act: The law governing gifts of money or securities to a minor, commonly referred to as UGMA. The donor must appoint a custodian (frequently the donor) to manage the account.

Unit Investment Trust: An investment company that creates a portfolio of securities, often municipal bonds, and then sells the portfolio to investors.

Uptick: A trade executed at a higher price than the previous trade.

Uptick rule: A federal law requiring that short sales be executed on an uptick or a zero plus tick.

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Variable annuity: A type of annuity that assigns the investment risk to the annuitant. If the investments perform well, the monthly payment increases, and vice versa. Variable annuities must be registered as an investment company with the SEC.

Vertical spread: An options spread position in which the expiration months are the same, but the strike prices differ. They are also called Money Spreads.

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Warrant: A security that gives the holder the right to buy the common stock of the issuer at a specified price for a period of time, usually years. Warrants resemble rights, except warrants are long-term.

Wash sale: 1) Buying and selling the same security, usually through different brokerage firms, in an attempt to manipulate the price and inflate the trading volume without actually taking a position in the market. 2) In tax law. selling a security at a loss, and repurchasing the same or similar security within thirty days before or after the sale; a loss is not tax deductible

Western underwriting agreement: In a firm commitment underwriting, an agreement that makes syndicate members liable severally, but not jointly. If one syndicate member cannot sell its entire allotment, only it must buy the unsold securities. Usually used in corporate underwritings

When, as, and if issued: Settlement does not take place until the certificates are printed. "New issues trade when, as, and if issued."

White's ratings: A bond rating measuring the marketability of a bond, rather than its credit risk.

With recall: In the municipal bond market, a dealer quote with an option to buy the bond at a guaranteed price for some period of time (often one hour); the dealer retains the right to recall the bonds and cancel the option

Without recall: In the municipal bond market, a dealer quote with an option to buy the bond at a guaranteed price for some period of time (often one hour). The dealer cannot recall the bond and cancel the option.

Workable indication: In the municipal bond market, a nominal quote of an approximate price. It is usually a one-sided quote; that is, either a bid price or an asked price.

Working capital: A corporation's current assets less its current liabilities.

Workout quote: In the over-the-counter market, a nominal quote. The actual price is subject to negotiation

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Yellow sheets: A listing of corporate bonds traded in the OTC market, showing the market makers and their quotes.

Yield curve: A chart showing yields of bonds with various maturities. Short-term debt normally has a lower yield than long-term debt.

Yield to call: The yield of a bond to its call date. The calculation is similar to a yield to maturity calculation, except the bond is assumed to mature on the call date at the call price.

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Zero coupon bond: A bond without interest payments. Because they pay no interest, they trade at a steep discount from par.

Zero plus tick: A trade that was preceded by a trade at the same price, but the prior change in price was an uptick.

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