Studied by 5 people
Common stock
the most "junior security" because it ranks last in line at liquidation. An equity or ownership position that usually allows the owner to vote on major corporate issues such as stock splits, mergers, acquisitions, authorizing more shares, etc.
Transfer agent
issues and redeems certificates. Handles name changes, validates mutilated certificates. Distributes dividends, gains, and and shareholder reports to mutual fund investors.
registrar
audits the transfer agent to make sure the number of authorized shares is never exceeded
dividends
money paid from profits to holders of common and preferred stock whenever the Board of Directors is feeling especially generous
Declaration date
the date the Board of Directors declares a dividend
Record date
the date determined by the Board of Directors upon which the investor must be the "holder of record" in order to receive the upcoming dividend. Settlement of a trade must occur by the record date for the buyer to receive the dividend
payable date
the date that the dividend check is paid to investors
regular way settlement
T + 3, trade plus three business days. T + 1 for Treasury securities
T + 3
regular way settlement, trade date plus three business days
Ex-Date
two days before the Record Date of corporate stock. The date upon which the buyer is not entitled to the upcoming dividend. Note that for mutual funds, this date is established by the Board of Directors, usually the day after the Record Date
Pre-emptive right
the right of common stockholders to maintain their proportional ownership if the company offers more shares of stock
subscription right
the securities used in additional offerings of stock to purchase available shares, usually at a slight discount
warrant
long term equity securities giving the owner the right to purchase stock at a set price. OFten attached as a "sweetener" that makes the other security more attractive
currency exchange risk
the risk that the value of the U.S. dollar versus another currency will have a negative impact on businesses and investors.
option
a derivative giving the holder the right to buy or sell something for a stated price up to expiration of the contract. Puts and calls
bullish
an investor who takes a position based on the belief that the market or a particular security will rise. Buyers of stock and call options
bearish
an investor who takes a position based on the belief that the market or a particular security will fall. sellers of stock and buyers of put options
preferred stock
a fixed-income security whose stated dividends must be paid before common stock can receive any dividend payment. Also gets preference ahead of common stock in a liquidation (but behind all bonds and general creditors)
fixed-income security
a security promising a fixed rate of interest or dividends.
straight preferred stock
a preferred stock whose missed dividends do not go into arrears, a.k.a. "non-cumulative preferred."
cumulative preferred stock
preferred stock where missed dividends go into arrears and must be paid before the issuer may pay dividends to other preferred stock and/or common stock
participating preferred stock
preferred stock whose dividend is often raised above the stated rate
convertible preferred stock
a preferred stock or corporate bond allowing the investor to use the par value to "buy" shares of the company's common stock at a set price
par value
the face amount that a debt security will pay at maturity, e.g., $1000. For preferred stock, the amount against which the dividend percentage is calculated, e.g., $100 par value
growth
investment objective that seeks "capital appreciation." Achieved through common stock, primarily.
income
investment objective that seeks current income, found by investing in fixed income, e.g., bonds, money market, preferred stock. An equity income fund buys stocks that pay dividends; less volatile than a growth and income or a pure growth fund.
capital appreciation
the rise in an asset's market price. The objective of a "growth stock investor."
yield
the income a security produces to the holder and capital gains distributions
total return
measuring growth in share price plus dividends and capital gains distributions
IPO
a corporation's first sale of stock to public investors, By definition, a primary market transaction in which the issuer receives the proceeds
Primary market
where securities are issued to raise capital for the issuer
secondary market
a "negotiated market" including NASDAQ and non- NASDAQ securities trading
registration statement
the legal document disclosing material information concerning an offering of a security and its issuer. Submitted to SEC under Securities Act of 1933
Securities Act of 1933
a.k.a., "Paper Act," regulates the new-issue or primary market, requiring non-exempt issuers to register securities and provide full disclosure
cooling off period
a minimum 20-day period that starts after the registration statement is filed. No sales or advertising allowed during this period, which lasts until the effective or release date.
indication of interest
an investor's expression of interest in purchasing a new issue of securities after reading the preliminary prospectus; not a commitment to buy
preliminary prospectus
a.k.., "red herring," a prospectus that lacks the "POP" and the effective date. Used to solicit indications of interest.
effective date
date established by SEC as to when the underwriters may sell new securities to investors, a.k.a. "release date."
public offering price
a.k.a., "POP,' the price an investor pays for a mutual fund or an initial public offering. For a mutual fund= NAV + the sales charge.
exempt security
a security not required to be registered under the Securities Act of 1933. Still subject to anti-fraud rules; not subject to registration requirements, e.g., municipal bonds and bank stock
exempt tansaction
a transactional exemption from registration requirements based on the manner in which the security is offered and sold, e.g., private placements under Reg D.
private placement
an exempt transaction under Reg D (Rule 506) of the Securities Act of 1933, allowing issuers to sell securities without registration to accredited investors, who agree to hold them fully paid 1 year before then selling them through Rule 144
purchaser representative
someone independent of the issuer in a private placement who can represent the needs of a non-accredited investor
best efforts
a type of understanding leaving the syndicate at no risk for unsold shares, and allowing them to keep the proceeds on the shares that were sold/subscribed to
firm commitments
an underwriting in which the underwriters agree to purchase all securities from an issuer, even the ones they failed to sell to investors. Involves acting in a "principal" capacity, unlike in "best efforts," "all or none," and "mini-max" offerings
spread
generally, the difference between a dealer's purchase price and selling price, both for new offering (underwriting spread) and secondary market quotes. For underwritings the spread is the difference between the proceeds to the issuer and the POP
standby offering
a firm commitment by an underwriter to purchase any shares that are not subscribed to in a rights offering
auction market
the NYSE, for example, where buyers and sellers simultaneously enter competitive prices, Sometimes called a "double auction" market because buying and selling occur at the same time, as opposed to Sotheby's, where only buyers are competing
first market
the exchange market, e.g., NYSE
specialist
an individual who oversees trading in a particular stock (GE, IBM, etc.,) in order to maintain a "fair and orderly market." The specialist buys and sells for his own account.
second market
Also known as the "negotiated market", or "OTC" market is not a physical marketplace, but its definitely a market; where market makers put out a bid and ask price, and stand ready to take either side of the trade for at least one round lot. For stocks a round lot is 100 shares.
bid
what a dealer is willing to pay to a customer who wants to sell
ask
the higher price in a quote representing what the customer would have to pay/what the dealer is asking the customer to pay. Customers buy at this price because dealers sell to customers at this price. Also called "offer/offered."
NASDAQ
National Association of Securities Dealers Automated Quotations system
Non-NASDAQ OTC
securities trading on the "over-the-counter" market that do not meet NASDAQ requirements. For example, pink sheets
third market
exchange-listed stock traded OTC primarily by institutional investors
fourth market
Where big institutional investors (pension funds, insurance companies, mutual funds, etc.) trade directly through electronic communications networks (ECNs)
bonds
debt securities which represent loans from investors to a corporation
partial surrender
life insurance policyholder cashes in part of the cash value. Excess over premiums is taxable
maturity date
the date that a bond pays out the principal and interest payments cease. Also called "redemption"
nominal yield
the interest rate, also known as the "coupon rate" which is named on the bond certificate
leverage
using borrowed money to increase returns. Debt securities and margin accounts are associated with this term.
current yield
the annual interest paid by a bond to an investor divided by what the investor would have to pay for the bond
discount bond
a bond trading below the par value
premium bond
a bond purchased fro more than the par value, usually due to a drop in interest rates
interest rate risk
the risk that interest rates will rise, pushing the market value of fixed-income security down. Long-term bonds are most susceptible
reinvestment risk
the risk that a fixed-income investor will not be able to reinvest interest payments or the par value at attractive interest rates. Happens when rates are falling
call risk
the risk that interest rates will drop, forcing investors to sell their bonds back early to the investor
investment grade
a bond rated at least BBB by S&P or Baa by Moody's. The bond does not have severe default risk, so it is said to be appropriate for investors, as opposed to the speculators who buy non-investment grade bonds.
high yield
an investment whose income stream is very high relative to its low market price. These types of bonds are either issued by a shaky company or municipal government forced to offer high nominal yields, or if they begin to trade at lower and lower prices on the secondary market as the credit quality or perceived credit strength of the issuer deteriorates
S&P
one of the top three credit rating agencies for corporate and municipal bonds as well as stock. The other two are Moody's, and Fitch
Moody's
one of the top three credit rating agencies for corporate and municipal bonds as well as stock. The other two are S&P, and Fitch
sinking fund
an escrow account earning safe little rates of interest, established by corporations and municipalities to help with bond rating, and to make sure the principal can actually be returned at maturity
secured bonds
corporate bonds that are backed up by specific assets, collateral
debenture
a bond backed simply by the full faith and credit of an issuer
subordinated debenture
debentures that have a claim on corporate assets that is below that of regular debentures when it comes to liquidating a company and paying out money to the bondholders. Since these bonds are riskier, they pay a higher coupon than debentures or secured bonds
claim on assets rank
Secured creditors
debentures/general creditors
subordinated debentures
preferred stock
common stock
convertible bonds
bonds that can be converted into a certain number of shares of the issuer's common stock. Par divided by conversion price = number of common shares
bond points
bonds are quoted in terms of either their price or their yield. If we're talking about a bond's price, we're talking about bond points. A bond point is worth $10, a bond selling for 98 bond points is worth $980
basis points
bonds are quoted in terms of either their price or their yield. If we're talking about a bond's price, we're talking about a bond's yield. If we're talking about a bond's yield, we're talking about basis points (yield to maturity to be exact)
T- bills
direct obligation of U.S. Government. Sold at discount, mature at face amount. Maximum maturity is 1 year.
T-notes
direct obligation of U.S. Government. Pay semiannual interest. Quoted as % of par value plus 32nds. Between 1 and 10 year maturities
T-bonds
direct obligation of U.S. Government. Pay semiannual interest. Quoted as % of par value plus 32nds. 10-30 year maturities
Treasury STRIPS
Separate Trading of Registered Interest and Principal of Securities. A zero-coupon bond issued by the U.S. Treasury in which all interest income is received at maturity in the form of a higher (accreted) principal value. Avoids "reinvestment risk"
series EE bonds
a non marketable, interest-bearing U.S. Government savings bond issued at a discount from the par value. Interest is exempt from state and local taxation.
Series HH bonds
a non marketable, interest-bearing U.S. Government savings bond issued at par and purchased only by trading in Series EE bonds at maturity. Interest is exempt from state and local taxation.
I-bond
a savings bond issued by the U.S. Treasury that protects investors from inflation or purchasing power risk
municipal bonds
a bond issued by a state, county, city, school district, etc., in order to build roads, schools, hospitals, etc., or simply to keep the government running long enough to hold another election
after-tax yield
the amount of interest income remaining after the investor pays taxes on it
tax-equivalent yield
the rate of return that a taxable bond must offer to equal the tax-exempt yield on a municipal bond. Tax equivalent yield= tax free municipal bond yield/ 1- tax rate
general obligation bonds
a municipal bond that is backed by the issuer's full faith and credit or full taxing authority
revenue bonds
a municipal bond whose interest and principal payments are backed by the revenues generated from the project being built by the proceeds of the bonds. Toll roads for example, are usually built with revenue bonds backed by the tolls collected.
user fees
also known as "user charges"
IDR
"Industrial Revenue Bond". A revenue bond that builds a facility that the issuing municipality then leases to a corporation. The lease payments from the corporation back the interest and principal payments on the bonds
bearer bonds
an unregistered bond that pays principal to the bearer at maturity. Bonds have not been issued this way for over two decades, but they still exist on the secondary market.
registered as to principal only
a bond with only the principal registered. Interest coupons must be presented for payment.
fully registered
also known as "book/journal entry"
book/journal entry
a security maintained as a computer record rather than a physical certificate. All U.S. Treasuries and many mutual funds are issued in this manner. Also known as "fully registered."
money market
the short-term (1 year or less) debt security market. Examples include commercial paper, banker's acceptance, T-bills.
TANs
Tax Anticipation Notes, short term loans issued by municipalities and backed up by tax revenues
