SIE Terms

Issuer

A corporation, government, or other entity that raises money by selling securities.

Primary market

The market where new securities are sold by the issuer to investors.

Secondary market

The market where investors trade outstanding securities with one another.

Broker

A person or firm that acts as an agent and charges a commission.

Dealer

A firm that buys and sells securities for its own account.

Broker-dealer

A firm that can act as either an agent or a principal.

Investment banker

A firm that helps issuers raise capital and underwrite securities.

Underwriting

The process of bringing new securities to market.

Firm commitment offering

An underwriting in which the underwriter buys the entire issue and resells it.

Best efforts offering

An underwriting in which the underwriter agrees only to use its best efforts to sell the issue.

Initial public offering (IPO)

A company’s first sale of stock to the public.

Additional offering

A later sale of securities by an issuer that is already public.

Private placement

A nonpublic offering sold to a limited group of investors, often under Regulation D.

Accredited investor

An investor who meets financial or institutional standards to buy certain private placements.

Prospectus

The disclosure document used in a registered securities offering.

Tombstone advertisement

A basic ad announcing a new issue without sales language.

Shelf registration

SEC registration that allows securities to be sold later over time.

Market maker

A dealer that stands ready to buy and sell a security regularly.

Bid

The highest price a buyer is willing to pay.

Ask

The lowest price a seller is willing to accept.

Spread

The difference between the bid and ask price.

Liquidity

How easily an investment can be bought or sold without greatly affecting price.

Volatility

The degree to which a security’s price fluctuates.

Capital gain

Profit from selling a security above its purchase price.

Capital loss

Loss from selling a security below its purchase price.

GDP

Gross domestic product; the total value of goods and services produced in an economy.

Inflation

A general rise in prices over time.

Deflation

A general decline in prices over time.

Consumer Price Index (CPI)

A common measure of inflation.

Monetary policy

Actions by the Federal Reserve to influence interest rates and the money supply.

Fiscal policy

Government spending and taxation decisions used to influence the economy.

Federal Reserve Board

The central banking authority of the United States.

FOMC

The Federal Open Market Committee that directs open market operations.

Open market operations

Fed purchases or sales of securities to affect reserves and rates.

Discount rate

The rate the Fed charges member banks for direct loans.

Reserve requirement

The percentage of deposits banks must keep in reserve.

Expansion

The growth phase of the business cycle.

Peak

The high point of the business cycle before contraction.

Contraction

The declining phase of the business cycle.

Trough

The low point of the business cycle before recovery.

Balance of payments

A record of a country’s financial transactions with the rest of the world.

Balance of trade

The difference between a country’s exports and imports of goods and services.

Common stock

Equity ownership in a corporation, usually with voting rights.

Preferred stock

A class of stock with dividend preference over common stock.

Cumulative preferred stock

Preferred stock that accumulates unpaid dividends.

Convertible preferred stock

Preferred stock that can be exchanged for common stock.

Callable preferred stock

Preferred stock that may be redeemed by the issuer.

Rights

Short-term privileges allowing existing shareholders to buy new shares.

Warrants

Long-term securities giving the holder the right to buy stock at a set price.

ADR

An American Depositary Receipt representing shares of a foreign company.

Corporate bond

Debt issued by a corporation.

Debenture

An unsecured corporate bond backed only by the issuer’s credit.

Secured bond

A bond backed by specific collateral.

Treasury bill

A short-term U.S. government security maturing in one year or less.

Treasury note

A U.S. government security maturing in 2 to 10 years.

Treasury bond

A long-term U.S. government security maturing in more than 10 years.

TIPS

Treasury Inflation-Protected Securities with principal adjusted for inflation.

STRIPS

Zero-coupon Treasury securities created from separated principal and interest payments.

Agency security

A security issued by a federal agency or government-sponsored entity.

Municipal bond

Debt issued by a state or local government.

General obligation bond

A municipal bond backed by taxing power.

Revenue bond

A municipal bond backed by project or facility revenues.

Money market instrument

A short-term debt security with a maturity of one year or less.

Commercial paper

Unsecured short-term promissory notes issued by corporations.

Banker’s acceptance

A bank-guaranteed time draft often used in foreign trade.

Certificate of deposit (CD)

A bank deposit with a fixed term and stated interest rate.

Call risk

The risk that a bond will be redeemed early by the issuer.

Credit risk

The risk that an issuer will fail to pay interest or principal.

Interest-rate risk

The risk that bond prices will fall when interest rates rise.

Purchasing-power risk

The risk that inflation will reduce the real value of returns.

Reinvestment risk

The risk that future cash flows will be reinvested at lower rates.

Liquidity risk

The risk that an investment cannot be sold quickly at a fair price.

Market risk

The risk of loss due to broad market movements.

Nominal yield

A bond’s stated coupon rate based on par value.

Current yield

Annual interest divided by the bond’s current market price.

Yield to maturity (YTM)

The total expected annualized return if a bond is held to maturity.

Mutual fund

An open-end investment company that continuously offers redeemable shares.

Closed-end fund

An investment company with a fixed number of shares trading in the market.

ETF

An exchange-traded fund that trades like a stock and typically tracks an index.

UIT

A unit investment trust with a fixed portfolio and limited active management.

REIT

A real estate investment trust that invests in income-producing real estate.

DPP

A direct participation program that passes income, gains, losses, and tax benefits to investors.

Hedge fund

A pooled investment vehicle typically available only to accredited or institutional investors.

Option

A contract giving the right, not the obligation, to buy or sell an asset.

Call option

An option giving the right to buy the underlying asset.

Put option

An option giving the right to sell the underlying asset.

Variable annuity

An annuity with separate account investment performance and market risk.

Fixed annuity

An annuity promising a fixed return.

529 plan

A tax-advantaged education savings plan.

Coverdell ESA

A tax-advantaged education savings account.

Cash account

A customer account in which securities must be paid for in full.

Margin account

A customer account allowing purchases with broker-dealer credit.

Regulation T

Federal Reserve rules governing extension of credit in securities accounts.

Long position

Ownership of a security.

Short sale

The sale of borrowed securities in anticipation of a price decline.

Settlement

The completion of a securities trade through delivery and payment.

Ex-dividend date

The first day a buyer is not entitled to the next dividend.

Record date

The date the company determines which shareholders receive a dividend.

Payment date

The date a declared dividend is paid.

Market order

An order to buy or sell at the best available price.