Abbreviation used in newspaper listings of stocks to indicate liquidating dividends.
Any member of the NYSE that trades in bonds that are not traded frequently--also known as an "inactive bond crowd" or "book crowd." The term arose because limit orders are kept in racks called cabinets that are located next to the bond trading floor.
An infrequently traded bond or stock that is listed on an exchange. There are many inactively traded bonds and just a few of such stocks--primarily those trading in ten share units.
A schedule of securities that will be offered for sale in the near future. An individual calendar is issued for new stock offerings, municipal bonds, corporate bonds and government securities.
An options trading strategy wherein options are bought and sold on the same underlying security, with the options having identical strike prices but different expiration dates--also called a "Horizontal" or "Time" spread. Investors hope to profit from a narrowing or widening of the spread between the options.
1: An option in which the holder has the right to buy a specific number of shares of the underlying security at a specified price within a specified time period.
2: An issuer's right to redeem a bond issue (in full or part) before its maturity date.
Under pre-stipulated conditions, a bond issue that may be redeemed by the issuer before its maturity date. If the issuer does call the issue, in full or part, the bondholder may receive a premium price. Issuers might call a bond when interest rates fall so drastically that it is worth the expense of issuing new bonds at the lower rates. U.S. government securities are not usually callable. However, 30-year Treasury bonds are an exception. They become callable after 25 years.
The term also pertains to preferred shares that may be redeemed by the issuing corporation.
Lingo used to indicate that a particular bond issue was redeemed before its maturity date. This mainly occurs when an issuer exercises a right to retire the bond before its maturity.
Call Features Of A Bond
Part of an agreement, called an indenture, that states the schedule and price at which an issuer may make redemptions before the bond's maturity date. Municipal and corporate bonds usually have call protection periods of 10 years.
A brokerage firm that borrows money that is collateralized, has no maturity date, may be terminated at any time, and has interest rates that change daily. If the loan is not called, it is automatically renewed for another day. Otherwise, it is payable on demand the day after it is contracted.
Call Loan Rate
The rate of interest a bank charges a brokerage firm on collateralized loans for its margin account clients. The call rate is published daily in the Wall Street Journal.
A contract that gives the holder the right to buy a specified number of shares of a particular stock, stock index, or dollar face value of bonds at a predetermined price--called the "strike price"--on or before the option's expiration date. For this right, the holder (buyer) pays the writer (seller) a premium. The holder profits from the contract if the stock's price rises. If the holder decides to exercise the option (as opposed to selling it), the writer must give up ownership of the security.
1: In call options, it is the dollar amount that a buyer has to pay the writer (seller) for the right to buy a particular stock or stock index at a specific price by a specific date.
2: In bonds, preferred securities, and convertible securities, it is the dollar amount over par that the issuer pays to a holder for redeeming the security before its maturity.
The price at which an issuer may redeem a bond prior to its maturity, or a preferred stock that has a call provision--also known as "redemption price." The issuer reimburses holders for their loss of income and ownership by paying a call premium--the call price is usually higher than the security's par value, the difference being the call premium.
Time during which a security, with a call provision, cannot be redeemed by the issuer. Corporate and municipal issuers typically have a call protection period of 10 years. Before buying a bond, an investor should be sure to check that it has a call protection. Otherwise, the bond can be called away at any time as designated in its indenture.
A bondholder's risk that the bond may be redeemed prior to maturity.
A client's instructions to cancel a buy or sell order that was previously placed but not yet executed.
Regarding individuals, any kind of investment. In relation to corporations, besides security investments, it includes fixed assets such as land, buildings, equipment and furniture. Generally, a capital asset can be any item that is not bought or sold in the normal course of business.
The positive difference between an asset's purchase price and the selling price. Current tax regulations require any gains to be taxed at a rate up to 28%.
Capital Gains Distribution
A distribution of profits derived from the assets within a mutual fund. Mutual funds usually distribute these gains on a quarterly basis to their shareholders. These gains are currently taxable at a rate up to 28%.
A negative difference between an asset's purchase price and its selling price. Current tax regulations allow capital losses to be offset dollar-for-dollar against capital gains and $3,000 of ordinary income.
All shares representing ownership in a corporation as authorized by its charter. A corporation's balance sheet normally includes the number and value of the issued shares in the figures for authorized shares.
A brokerage account in which the client pays in full for any purchases. In contrast, in a margin account the broker extends the client credit. Many brokerage clients have both cash and margin accounts. Custodial accounts may not have a margin account.
A cash payment that is made to shareholders of corporate stock. The dividends are distributed from current earnings or accumulated profits. Current tax regulations require cash dividends to be taxed as income.
A very liquid and safe investment or instrument that makes it, in effect, as good as cash.
On the day that a trade is executed, the securities are required to be delivered.
The actual paper evidencing ownership of a security. The certificate states the issuer's name, amount of shares, shareholder's rights, the issue's par value (or declaration of no par value) and any responsibilities of the issuer. Certificates may be issued in registered or bearer form.
A municipal bond in which one certificate represents the entire issue. The bondholder does not receive a certificate of ownership. The benefit of certificateless municipals is that investors do not have to transfer certificates when they sell the bonds.
Certificate Of Deposit (CD)
A money market instrument issued by banks that has a set interest rate and maturity date. CDs may be issued for as low as $100. CDs that are in denominations of $100,000 or more are called "jumbo CDs." Maturities can range from a few weeks to several years.
Chartist Technical analyst who believes recurrent trading patterns can assist them in forecasting future price movements. The analyst will plot the patterns of stocks, bonds and commodities to formulate buy and sell recommendations for clients.
Chicago Board Options Exchange (CBOE)
Exchange in which options are traded.
Chicago Board Of Trade (CBT)
Exchange in which futures--such as corn, gold, silver and wheat--and futures options are traded.
Chicago Mercantile Exchange
Exchange in which foreign currency futures and futures options are traded. Amongst others, some examples are the British pound, Canadian dollar, French franc, and the Japanese yen. In addition, futures and futures options are traded on such vehicles as indexes, live cattle, pork bellies and lumber.
Cincinnati Stock Exchange (CSE)
The first completely automated stock exchange that transacts members' orders without having an actual trading floor. Orders are placed and executed via computers.
Procedures established to forestall the market from spiraling down. Circuit breakers will "kick-in" when the market has dropped by a specific amount within a certain period. At that time, the major stock and commodities exchanges will temporarily stop trading in stocks and stock index futures to give floor traders time to rebalance buy and sell orders. Circuit breakers were introduced in 1987 after Black Monday. The levels were revised when the market had another steep drop in October 1989.
Equity that is divided into more than one type of common stock, usually designated as Class A and Class B. The differences between the classes are designated in a corporation's charter and bylaws. Class A usually has an advantage in terms of voting power, although additional dividend and liquidation privileges may also be granted. Class B stock was formed primarily as a means of preserving control as Class B stock usually carries limited voting powers.
Class Of Option
Option contracts of the same type and underlying security. If the option class also has the same exercise price and expiration date, it is called an "option series."
Close A Position
The elimination of an investment from a portfolio. If the security is a long position, the investment is sold. If the security is a short position, the investment is bought.
At the end of a trading session, the final trade in a security.
Closed End Fund
An investment company that issues a fixed number of shares and is usually listed on a stock exchange. An investor who wishes to buy shares must purchase them from investors who wishes to sell their shares. They do not deal with the investment company directly.
Closed End Management Company
Term used interchangeably with "closed-end fund." It is an investment company that issues a fixed number of shares and is listed on a major stock exchange. An investor who wishes to buy shares must purchase them from an investor who wishes to sell their shares. They do not deal with the investment company directly.
An open-end mutual fund that has grown so large that it no longer will issue new shares. However, some funds will allow investors, who are already shareholders, to purchase additional shares.
The liquidation of a client's position because the client has not met a margin call that was generated because of a margin purchase or a short sale.
At the end of a trading session, the price of the final trade in a security.
An option writer's (seller) purchase of an option that has the same features (series) of the option previously sold to affect a liquidation of the writer's position. When an option writer sells an option, it is said that the trade is a "sell to open." When closing the position, the writer places an order to "buy to close."
The last bid and offer prices recorded by a market maker or specialist at the trading day's close.
A sale of an option that has the same features (series) as an option previously purchased to affect a liquidation of the option position. When an investor wishes to buy an option, the order is placed as a "buy to open." Conversely, when closing the position, the investor places an order to "sell to close."
An option that is purchased or sold to eliminate an existing long or short position.
Telephone calls made to unknown individuals by account executives. The account executive prospects these individuals for potential brokerage clients.
Assets, such as securities, that are pledged to a lender by a borrower. The assets secure the loan until the borrower repays it. In the event the borrower defaults, the lender has the legal right to sell the assets to pay off the loan.
An option position that is effected by either a purchase of two long positions or two short positions. The investor purchases a call and a put (or sells a call and a put) with different expiration dates and/or different strike prices.
Debt instruments that are issued by established corporations to meet short term financing needs. Such instruments are unsecured and have maturities ranging from 2 to 270 days. Commercial paper is rated by Standard & Poor's and Moody's.
A fee paid to a broker for executing security trades. The commission is usually based on the dollar amount of the trade or the number of shares traded.
Committee On Uniform Securities Identification Procedures (CUSIP)
Committee that assigns codes to securities for the purposes of identification--commonly just referred to as a "Cusip Number."
Bulk products, such as metals, grains, and foods, that are traded on a commodities exchange.
Securities that represent an ownership interest in a public corporation. Owners are entitled to vote on the selection of directors and other important matters as well as to receive dividends when they are declared. If a corporation is liquidated, the claims of secured and unsecured creditors, bondholders and owners of preferred stock have priority over the claims of common stockholders.
Common Stock Equivalent
Bond or preferred stock that is convertible into common stock. A warrant (or a right) to purchase common stock at a specified price, usually at a discount from market price, is also common stock equivalents. If common stock equivalents are converted, the equity of existing shareholders may become diluted. Thus, their conversion or exercise is factored in when calculating fully diluted earnings per share.
Common Stock Fund
A mutual fund that invests almost entirely in common stocks, although their objectives may vary greatly.
A special ownership for married couples under laws of community property. Not all states have community property laws. Each has equal rights to any appreciation or income derived from those assets.
Price and terms submitted in a sealed bid to an issuer by an underwriter. The issuer will award the contract to the underwriting syndicate who bids the best price or most advantageous terms. The competitive bid process is mostly used by municipalities, utilities, and railroads.
Written notification, from a broker to a client, that summarizes the details of a securities transaction. Some details include the security's name, number of shares, price and whether the broker acted as principal or agent.
Consumer Price Index (CPI)
A measure of price changes in consumer goods--also known as the "cost of living index." The index is calculated monthly by the US Bureau of Labor Statistics. Some CPI components are food, housing costs and transportation.
The placement of two orders in which one of the orders cannot be executed unless other one is executed. A customer, for example, places a buy order at the market and a sell limit order in which the buy cannot be executed unless the sell limit is executed. Contingent orders are discouraged by brokers because the order that cannot be executed immediately also usually cannot be placed until the other order is executed.
Investors who do the opposite of what most other investors are doing. In other words, if most investors are buying, the contrarian will sell and vice versa. The contrarian believes that when the market is going up, most people are already or nearly fully invested and have no additional funds to make more purchases. Thus, if the market has not already reached its peak, it will do so in the near future. Conversely, when other investors believe the market will or is declining, they have already sold their investments. Thus, there are little or no sellers left and the market can only go up.
Any officer, director, or 10% stockholder (and their immediate family) of a corporation.
An association between a broker-dealer and an issuer such that the broker-dealer has influence in the issuance of bonds by the issuer.
Stock owned by a control person.
A bond that may be exchanged for the common stock of the same company. If the bondholder wishes to convert the bond, it must be done according to the terms of the indenture.
A debenture that may be exchanged into common shares at the owner's option as long as it is in accordance with the issue's terms.
Convertible Preferred Stock
A preferred stock that may be exchanged into common shares at the owner's option as long as it is in accordance with the issue's terms.
Corporate securities (usually preferred stock or bonds) that are exchangeable into a fixed number of shares of common stock at a stipulated price. Convertibles may also be exchanged into other forms of the security, but it is unusual. Convertible securities are usually bought by investors who want higher income than what can be received from common stock combined with a greater potential for appreciation than what can be received from regular bonds. A corporation will issue convertibles to enhance the marketability of their securities.
Cornering The Market
The practice of purchasing a security or commodity in volume such that the purchaser has complete supply and demand control of a security.
Debt instrument issued by a corporation. In contrast to most municipal and government bonds, which are not traded on major exchanges and are tax-free, corporate bonds are traded on major exchanges and the interest paid to the investor is taxable.
A legal entity chartered by a state or the federal government and is separate and distinct from the persons who own it. A corporation is considered an artificial person--it may own property, incur debts, sue or be sued. Some distinguishing features of corporations are:
- Ownership is held by stockholders who have limited liability--that is, they can only lose what they invest.
- Transfer of ownership is accomplished through the sale of stock shares.
- Perpetual existence (unless ended through bankruptcy, a merger, tender or takeover).
Reverse movement, usually downward, in an individual security's price. If the overall market has been rising and then has a sharp fall, this is said to be a "correction within an upward trend." Technical analysts note that, in a bull market, corrections should be expected--no market, or security, moves straight up or down.
Paper that evidences an issuer's promise to pay interest when due. A coupon is usually attached to the debt security. When the due date arrives, the coupon is detached and submitted for payment.
A bond in a form that has interest coupons attached. The coupons are clipped as they come due (usually semiannually) and are submitted by the bondholder for payment of interest.
Interest rate on a debt security that the issuer promises to pay the holder until maturity. The rate is expressed as an annual percentage of face value. For example, a bond with a 9% coupon will pay $9 per $100 of the face amount per year. The annual payment is usually divided into semiannual installments.
Covered Call Option
Said of a short call option position in which the investor owns the underlying security or a security convertible into the underlying security. For example, an investor owns 500 shares of XYZ and writes (sells) 5 XYZ call options. The 500 shares cover the call options sold--that is, if the writer is assigned (the option is exercised), the 500 shares will meet the obligation of the option contract. The writer does not have to go into the market to obtain the shares to deliver to the option exerciser.
Covered Put Option
Said of a short put option position in which the investor has a short position in the underlying security or a security convertible into the underlying security. For example, an investor is short 500 shares of XYZ (from selling short) and writes (sells) 5 XYZ put options. The short position covers the put options sold--that is, if the writer is assigned (the option is exercised), the short position will meet the obligation of the option contract. When the put writer is assigned, the XYZ is bought from the long put holder and the stock covers (closes) the investor's original short position in the underlying security. Put writers are also considered to be covered if they obtain a bank guarantee letter.
Buying securities to close a short position in which an investor previously sold short.
A precipitous drop in stock prices. Crashes usually occur after periods of inflated stock prices followed by a loss in investor confidence.
1: In a client's cash account at a brokerage firm, the amount that the firm owes to the client. This equals money deposited and remaining after any purchases are paid, plus uninvested proceeds from securities sold and not sent to the client.
2: In a client's margin account at a brokerage firm a credit balance may mean either:
- Proceeds from short sales that are held in escrow for the securities borrowed for these sales, plus the required margin for the trade.
- Any free credit balances, or net balances, which can be withdrawn at any time. A free credit balance occurs when all previously margined securities have been paid for in full. Special miscellaneous account (SMA) balances are not free credit balances. If money is withdrawn, a new or increased debit balance will be incurred. SMA is generated from the borrowing power of margin securities within the client's account.
Assessment of an individual's or corporation's credit history and ability to pay its obligations. There are several firms that investigate, analyze, and maintain records on the credit status of individuals and businesses--for example, Equifax for individuals, and Dun & Bradstreet for commercial firms. Standard & Poor's and Moody's assign ratings to bonds. In rating the bonds, credit worthiness is an important factor.
The risk that the issuer of a security, such as a bond, may default on interest and/or principal payments or become bankrupt. If either event occurs, the investor stands to lose part or all of the investment.
An option spread position whereby the premium of the option sold exceeds the premium of the option purchased--thus, creating a credit to the investor.
A condition in which a broker submits a bid that is greater than the lowest offer of another broker, or vice versa.
The literal translation is "with dividend"--that is, a stock whose buyer is eligible to receive a declared dividend. Stocks are cum-dividend when a buy trade is made on or before the third day preceding the record date. After the third day, trades are executed ex-dividend (without dividend).
The literal translation is "with rights"--that is, during a rights offering, the period in which the purchaser of stock will receive the rights. The rights entitle the purchaser to buy a fixed amount of shares of stock that has not yet been issued. The prospectus that accompanies a rights distribution states when the rights become ex-rights (without rights). On the ex-right date, a purchaser will not receive the rights.
Cumulative Preferred Stock
A preferred stock that has a provision stipulating if one or more dividends are omitted (arrearage) because of insufficient earnings or any other reason, the dividends will accumulate until they are paid to shareholders. Cumulative preferred stocks have seniority over common stocks--that is, a common stock dividend cannot be paid until all cumulative preferred dividends are current.
A method of voting for corporate directors. In contrast to statutory voting, cumulative voting allows shareholders to multiply the number of shares owned by the number of directorships being voted. The votes may be cast in any manner that the holder chooses--all for one director or any combination thereof. If a corporation, for example, has 6 openings to the Board of Directors, in statutory voting, a stockholder who owns 100 shares may cast 100 votes for each opening, thus having 600 votes. In cumulative voting, the stockholder may vote in the same manner as statutory voting or cast 600 votes for only one nominee, 300 for two, 200 for three, or any other combination.
Cumulative voting allows small shareholders to have a better chance of naming representatives on the board of directors. Cumulative voting is required under the corporate laws of some states, and is at the discretion of the corporation in most others.
Corporate assets that are expected to be converted to cash within twelve months. These assets include cash, accounts receivable, marketable securities and inventories.
Current Coupon Bond
A municipal, corporate or government bond that has a coupon within half a percentage point of current market rates. Because these bonds have an interest rate that is competitive with current market instruments, they are less volatile than comparably rated bonds with lower coupons.
Debts or other obligations that are due within twelve months.
Current Market Value (CMV)
The worth of all positions in a client's brokerage account. To determine the portfolio's current market value, stocks and bonds are valued at their closing prices. For over-the-counter securities, the bid is used.
A test of a corporation's liquidity--that is, a corporation's ability to pay its current obligations from current assets. The ratio is calculated by dividing current assets by current liabilities.
A theory which asserts that if many investors have short positions in a stock, the stock's price must inevitably rise because the short positions must eventually be covered by purchases of the stock. If the number of short positions in a stock is twice as high as the stock daily trading volume, most technical analysts will be bullish on the stock--that is, any price rise will force short sellers to cover their short positions, making the stock's price rise even more.
An account opened on the behalf of a minor by an adult who acts as custodian. The custodian is usually one of the child's parents--both parents cannot be custodian. This type of account is opened because minors cannot enter into contracts. Thus, they cannot make securities transactions for themselves. Any assets placed into a custodial account are irrevocable. Once the minor is of majority (usually 18, but some states are 21), they may do what they please with the assets.
A financial institution, such as a brokerage firm, or a bank that holds stock certificates and other assets on the behalf of a mutual fund, corporation or individual. An individual may also act as a custodian in the case of an account for an minor.
Bank assigned by a mutual fund to act as its custodian. The bank performs clerical functions and holds the fund's cash and securities.
Customer's Loan Consent
Agreement signed by a margin customer allowing a broker to borrow their margined securities to complete delivery of certain failures and to cover other customers' short positions.
Customer's Net Debit Balance
The total amount of credit extended by New York Stock Exchange member firms to finance customers' security purchases.
Abbreviation used in newspaper listings of stocks and bonds to denote a convertible security.
Stock that is strongly affected by changes in economic activity. The stock's price will rise when the economy turns up, and will fall when the economy turns down. Examples are automobiles and paper stocks. Non-cyclical stocks, such as stocks within the food and hospital industries, are not directly affected by economic changes.