An abbreviation used in stock listings of newspapers to indicate dividends paid this year, dividends omitted or deferred, or no action taken at the last dividend meeting.
Dividend declared by the board of directors of a corporation that is in violation of its corporate charter or the state laws in which it is incorporated.
Said of investments such as a stock, bond or commodity that cannot be readily converted into cash. A security becomes illiquid when a lack of trading activity in the security makes it hard to sell without taking a large loss. Other assets such as real estate can also be considered to be illiquid because there is not a ready market and they may take time to sell.
Imbalance Of Orders
Too many buy orders without matching sell orders or vice versa. An imbalance of orders can occur because of extraordinary corporate events such as a takeover, loss of a lawsuit that was expected to be won, or the death of a key executive. If the imbalance occurs before the market opens, the stock may have a delayed opening. However, if it occurs during the trading day, trading may be suspended until the specialist can make an orderly market.
As defined in the NASD Rules Of Fair Practice, an immediate family member includes parents, brothers, sisters, children, father-in-law, mother-in-law, sister-in-law, brother-in-law, and any other relatives who are financially supported. The Rules of Fair Practice use this definition when dealing with practices such as freeriding and withholding. The rules prohibit the sale of hot issues to members of a broker-dealer's immediate family or to persons trading for institutional accounts and their families.
Immediate-Or-Cancel Order (IOC)
A limit order to buy or sell a security that requires all or part of the order to be executed immediately. Any part of the order that is not executed, is automatically canceled. An IOC order is usually for a significant share quantity.
Immediate Payment Annuity
Annuity contract purchased with a single payment and a pay-out plan that starts immediately. Payments, usually on a monthly basis, are either for a specified time or until the annuitant passes away.
Total capital that is less than the par value of the corporation's capital stock.
Interest that is considered to have been paid although no actual payment was made. A zero coupon bond, for instance, has imputed annual interest that the IRS requires the bondholder to report.
Assets that are not continuously productive, such as a computer used only when the main system is not working.
New York Stock Exchange trading post where inactive stocks are traded in 10-share lots instead of the regular 100 share round lots.
Security that trades infrequently and has such a low volume that it makes the security illiquid.
Person who buys and sells the same security in the same day in hopes of profiting from steep price moves.
Incentive Stock Option
Plan created by the Economic Recovery Tax Act of 1981 (ERTA) whereby qualifying options are free of taxes when granted and when exercised. Profits on exercised shares sold are taxed as ordinary income--until 1987, it was subject to capital gains tax if the shares were held at least one year.
A bond that only pays interest if the corporation has sufficient earnings. These bonds are usually traded flat (without accrued interest) and are an alternative to bankruptcy.
Income Mutual Fund
A mutual fund that invests in income producing securities such as bonds, preferred stocks, high dividend yielding common stock, or covered call stock options.
Income Limited Partnership
A limited partnership, such as real estate, whose objective is to generate high taxable income. These types of partnerships are usually designed for tax sheltered accounts such as IRAs and pension plans.
Real estate bought specifically to generate income. The property may be bought by individuals, corporations or income limited partnership. When selling the property, the owners also hope to sell at a profit.
A class of capital stock that is issued by a split investment company or a dual purpose mutual fund. Owners receive dividends and interest generated from the income shares and from capital shares, another class of capital stock. Owners of capital shares receive capital gain generated from both classes.
A quarterly or annual financial statement that shows a corporation's business results. It specifically shows all revenues, earnings, expenses, costs and taxes.
A stock that pays a relatively high dividend.
Incremental Cash Flow
Net of cash inflows and outflows that arise from a corporate investment project.
An agreement by one party to compensate another party for losses or damages that are incurred if specific actions or events occur.
A written contract, also known as a "Deed of Trust", under which bonds and debentures are issued, setting forth maturity date, interest rate, redemption rights, call privileges and other terms. Under the rules of the Trust Indenture Act of 1939, the contract is executed by the issuer and a trustee who acts on behalf of the bondholders.
NYSE member who executes orders for other floor brokers who currently have more business than they can manage themselves, or for firms whose floor brokers are not on the floor. Previously known as "Two-Dollar Brokers," these brokers used to receive $2 per hundred shares for executing such orders. These fees, paid by the commission brokers, were once fixed but are now negotiable.
1: A statistical yardstick that measures the economy. It is usually expressed as a percentage change from a base year or from the previous month. An example of an economy index is the Consumer Price Index . Using 1967 as its base year, the index consists of key consumer goods and services that measures price movements to changes in inflation rates.
2: Statistical measurement of groups of securities, industries or markets that reflect market prices and the number of shares outstanding for the companies in the index. Indexes may either be broad-based (a wide range of firms in many industries aiming to mirror the overall market) or narrow-based (consisting of securities from a specific industry). Stock indexes are used as a base for trading index options.
A trading technique in which baskets of stocks and stock futures contracts are bought and/or sold according to their conformity and deviation from a stock index. To keep the position fully hedged, the stocks are bought and the futures are usually sold and vice versa. In doing this, the arbitrageur is locking in a profit (or loss).
A mutual fund that buys securities to match that of a broad-based index such as the Standard & Poor's Index. The fund aims to achieve the same return as the general market.
An investor who buys individual securities or index funds to mirror a broad-based index such as the S & P 500. The investor aims to match the index's performance.
Call and put option contracts traded on an underlying index, such as the S & P 100, and not a specific security. Investors who trade index options invest in a particular market or industry group without having to buy all the underlying securities. A narrow-based index allows an investor to trade in a particular industry while a broad-based index will scope many industries.
The dividend or coupon rate stated as a percentage of the security's present market price. The type of security determines how the indicated yield is calculated. The indicated yield for common stock is calculated by dividing its annual dividend by its market price . For preferred stocks, the contractual dividend is divided by the market price. And, for fixed rate bonds, the indicated yield is the same as the current yield.
Estimation of what a security's bid and offer prices will be when trading resumes after a delayed opening or trading halt--also called "indicated market."
Indication of Interest
Underwriting term meaning a non-binding indication of a client's interest in purchasing securities that are in registration (awaiting effectiveness by the Securities and Exchange Commission). The broker is required to provide the client with a preliminary prospectus on the securities. The indication of interest is non-binding because it is illegal to sell a security that is in the registration process.
1: Measures of economic activity utilized by economists to forecast the general direction of the economy.
2: Measurement utilized by technical analysts to make forecasts regarding the direction of the overall market or the movement of a particular stock.
Individual Retirement Account (IRA)
A personal savings plan that offers tax advantages to save and invest for retirement. Contributions are often tax deductible in whole or in part, depending upon individual circumstances, including compensation levels and participation in an employer sponsored qualified retirement plan. Income derived from investments in a traditional deductible or nondeductible IRA are tax deferred until withdrawn. Under certain circumstances, withdrawals from a Roth IRA are tax free. Tax penalties may apply to IRA distributions taken before age 59 1/2. Contributions to an IRA may not exceed $3,000 per year ($3,500 if you are over age 50 in 2002). Individuals with earned income may contribute up to $3,000 to the IRA of a nonemployed spouse.
Stock market lingo that is a catch-all category that includes all firms that have businesses that are not classified as utility, transportation, or financial companies.
Industrial Development Bond (IDB)
A bond issued by a municipality to finance fixed assets that are secured by a lease agreement with a corporation whose payments amortize the debt. IDBs used to be tax-exempt to holders. However, under current tax laws, they are no longer tax-exempt.
A key economic indicator that is a released monthly by the Federal Reserve Board. The indicator relates the total output of all US factories and mines.
Inefficiency In The Market
An investor's failure to ascertain that a security may be having difficulties or has good prospects. Some analysts believe that investors who identify a security first can profit by exploiting that information--with corporate stocks that have substantial growth opportunities reflecting most clearly the market's inefficiency. However, followers of the Efficient Market Theory believe current prices already reflect all knowledge about a security.
The persistent and appreciable rise in the prices of goods and services. Moderate inflation is normally associated with periods of expansion and high employment--increasing dollars chasing a dwindling supply of goods. Hyperinflation, when prices rise 100% or more a year, causes people to lose confidence in the currency. During inflationary times, people often divert their investments into real estate and gold because they usually retain their value.
Rate of price changes usually calculated on a monthly or annual basis. The Consumer Price Index and the Producer Price Index are two principle US indicators of inflation rates. They track changes in prices paid by consumers and producers.
A bar of metal. Gold reserves of the Federal Reserve are stored in ingot form. Investors who purchase a precious metal may take delivery of an ingot.
Initial Margin Requirement
Initial dollar amount or marginable securities that a brokerage client is required to deposit with a broker before placing margin transactions--one in which the broker extends credit to the client in a margin account. The initial margin requirement, according to the Federal Reserve Board's Regulation T, is presently 50% of the purchase price (or $2000--whichever is higher) when buying marginable securities or 50% of the proceeds of a short sale.
Initial Public Offering (IPO)
The first public issuance of stock from a company that has not been publicly traded before.
A security whose price fluctuates because of takeover rumors or activities.
Material corporate information that has not yet been made public in a widely used medium. Use of this information would influence the purchase or sale of a company's security. An example of inside information is a company who has a large quarterly loss and this fact has not yet been made public. If this information was used to trade the security, under SEC rules, it may be deemed as illegal.
Bid and asked quotes at which one dealer will buy from or sell to another--also called "wholesale" or "interdealer market." In contrast, retail market quotes are the prices that customers pay to dealers to buy or sell a security.
The highest bid to buy and the lowest offer to sell a security at a given time. If one asks for a "quote" on a stock, you will receive something like "15 1/4 to 15 1/2." This means that $15.25 is the highest price any buyer willing to pay and that $15.50 is the lowest price any seller will accept.
Anyone who is either an officer, director or key employee of a corporation, a person owning 10% of the company's stock (and their families), or anyone with inside (non-public) information.
The inability of an individual or entity to pay its debts when they are due.
A transaction that has a set contract price and is usually paid in monthly installments over a specified period.
Abbreviation for the Institutional Networks Corporation.
Broker who trades securities for institutional clients such as banks, mutual funds, pension funds and insurance companies.
Institutional Broker's Estimate System (IBES)
A service provided by Lynch, Jones and Ryan. The brokerage firm gathers analysts' future earnings estimates on publicly traded companies and determines which companies' estimates have changed substantially.
A mutual fund, bank, pension fund, insurance company, university or other institution. Institutional investors usually invest large volumes in the securities markets.
A legal document that states a contractual relationship or that specific rights are granted such as notes, agreements or contracts.
Obligations of government agencies that are backed by the full faith and credit of the government. However, these obligations are not direct obligations of the government. Examples of such instrumentalities are the Student Loan Marketing Association, Federal Intermediate Credit and Federal Land Banks.
Plan in which individuals and organization who are concerned about potential risks will pay premiums to an insurance company, who in return, will reimburse them if there is loss. To generate a profit, the insurer will invest the premiums it receives. Examples of the different types of insurance available are automobile, home, health and worker's compensation. Whereas in most cases the insured is paid for their loss, with life insurance a beneficiary is paid when the insured person passes away.
Account at a brokerage firm, bank, savings and loan association or credit union that is insured either by a federal or private insurance organization. If the institution becomes insolvent, it protects depositors against losses. Brokerage accounts are insured by the Securities Investor Protection Corporation (SIPC). SIPC does not protect the investor from market declines. The Federal Deposit Insurance Corporation (FDIC) administers the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)--insurance for bank and for savings and loan accounts.
Municipal bonds covered by an insurance policy. The policy guarantees that should the issuer default in making payments, the insurance company will pay all interest and principal due. Insured bonds usually are rated very high as the risk to the investor is minimal.
Assets of a corporation that are not physical. They are considered to enhance the company's position in the marketplace. Such assets include goodwill, trademarks, patents, copyrights, franchises, leases, licenses, and permits.
A spread that includes a long position and a short position in related commodities--for instance, a long position in silver futures and a short position in gold futures. The investor aims to profit from the changing price relationship between the commodities.
Technique used in trading options or futures. Contracts expiring in one month are bought and the same contracts expiring in a different month are sold--for example, buying a May cotton contract and simultaneously selling an August cotton contract. The investor aims to profit when the price between the two contracts narrows or widens.
Dollar cost that a borrower pays a lender for the use of the lender's money.
Interest Rate Options
Option contracts that are based upon underlying debt instruments.
Interest Sensitive Stock
A corporation's stock whose earnings change when interest rates change. Upon news of rate increases or decreases, the stock will go up or down in price. Examples of interest-sensitive stocks include bank and utility companies.
A dividend that is declared and paid before annual earnings are determined. Most companies plan quarterly dividends they know they can afford.
A report that presents a corporation's income statement for the period and, sometimes the balance sheet. A corporation usually issues three interim reports (quarterly) and one annual report.
An individual who is on the board of directors for more than one corporation.
Intermarket Trading System (ITS)
An electronic communications network that links the posts of specialists who are market makers for the same securities at the floors of seven registered exchanges to foster competition among them. Quotes are displayed and are firm (good) for at least one round lot (100 shares). Through ITS, a broker at one exchange may direct an order to another exchange where the quote is better.
Individual or entity that is sanctioned to make investment decisions for others--also called "financial intermediary." An intermediary is used because they are investment specialists that usually can obtain higher returns than the average investor. Moreover, because they deal in large dollar volumes, they can easily diversify the assets. Examples of some intermediaries are brokerage firms, mutual funds, banks, and insurance companies.
Time between short and long term with the length dependent on the context. A bond analyst, for instance, usually considers an intermediate term to be between 3 to 10 years. A stock analyst would consider it to mean 6 to 12 months.
Money deposited with financial intermediaries--such as brokerage firms, banks, insurance companies--which invest in stock, bonds, money market securities, government obligations and/or mortgages to obtain a targeted return. In contrast, disintermediation is the withdrawal of money from an intermediary.
An organization's procedures that are designed to increase its efficiency, ensure its policies are implemented, and its assets are safeguarded.
Growth of an organization's assets through cash generated internally from either internal financing, appreciation or accretion.
Funds generated through a corporation's normal business operations.
International Mutual Funds
A mutual fund that invests in nondomestic securities markets throughout the world. If investments are chosen carefully, this type of fund may be profitable when some markets are rising and others are declining. However, fund managers must watch foreign currencies as well as world markets--profitable investments in a rising market can lose money if the foreign currency rises against the dollar.
Inter Vivos Trust
A trust established between two or more individuals that are alive--also called "living trust." The opposite is a testamentary trust, which is effective when the individual who established the trust dies.
In The Money
Expression used for any option series with intrinsic value--the option's strike (exercise) price and market price of the underlying security are such that the holder can exercise the option at a profit. For example, if a call option with a strike price of 30 and the underlying stock's market price is currently 33, the call is in the money. A put option is considered in the money when the underlying stock is selling below the strike price. Premiums and other transaction costs are not considered in determining whether the option is in the money or out of the money.
In The Tank
Lingo meaning that market prices are plummeting.
Within the day. The term is often used when stating high and low prices of a security. When stating, for example, that a stock hit a new intraday low, it means that during the day the stock reached an all-time low price but rose back to a higher price by the end of the day.
A new securities' issue that will only be sold to investors in one state and who are residents of that state. An intra-state offering is exempt from filing provisions of the Securities Exchange Act of 1933 under Rule 147.
The amount whereby an underlying security's current market price is above the call option's strike (exercise) price or below the put option's strike price. If the strike price of a call option, for example, is $40 and the stock is $43, the option's intrinsic value is $3. An option that has intrinsic value is "in the money." If the option is at or out of the money, it does not have an intrinsic value.
It is a company's cost of goods sold (from the income statement) divided by the year-end inventory (from the balance sheet). The number is used by fundamental analysts when examining a company's financial statement.
Serial bond issue in which earlier maturities have higher yields than later maturities.
The use of money through various vehicles, or an individual's time and effort, to make more income or increase capital, or both. The term "investment" infers that the safety of principal is important. On the other hand, speculation connotes that risking principal is acceptable.
Individual or organization who provides investment advice for a fee. In most cases, investment advisors with more than 15 clients must register with the SEC and abide by the Investment Advisors Act of 1940. Brokers, banks and general circulation periodicals are exempted from registration with SEC. Most states require an investment advisor to pass an examination.
Investment Advisors Act
Act passed by Congress in 1940 that requires investment advisers to register with the SEC. The intent of the Act is to protect investors from fraud or misrepresentation by investment advisors.
A firm, acting as an underwriter or an agent, who serves as intermediary between an issuer of new securities and the investing public. The usual practice is for one or more investment bankers to form a syndicate to buy a corporation's new issue and then sell the issue to individuals and institutions--commonly called a "firm commitment underwriting." In a provisional arrangement--called "best effort"--the investment banker acts as an agent rather than principal and markets a new issue without underwriting it. Under another provisional arrangement--called "standby commitment"--the investment banker agrees to buy for resale any securities not taken by existing holders of rights. If a client relationship exists, the investment banker's role starts with pre-underwriting counseling and continues after the distribution of securities is completed by offering ongoing advice and guidance. Some underwriting responsibilities include preparing the SEC registration statement, pricing the securities, forming and managing the syndicate, and pegging (stabilizing) the price of the issue during the offering and distribution period. Besides new securities offerings, investment bankers manage the distribution of secondary offerings, maintain markets for already distributed securities and act as finders for private placements. Most investment bankers also maintain broker-dealer operations that serve wholesale and retail clients in brokerage and advisory capacities.
Certificate that evidences investment in a savings and loan association and states the dollar amount invested. The certificates do not involve shareholder responsibility nor do they have voting rights.
Individuals who pool their funds to make joint investments. Each member of the club contributes a certain dollar amount periodically, with the additional money usually invested in growth stocks using a dollar cost averaging approach. Dividends and capital gains are reinvested in most cases. Security purchases are determined by a vote of the members. The clubs permit investors with small dollar amounts to participate in larger investments and thus pay lower commissions. It also assists the club member in becoming more knowledgeable about investing. There are approximately 28,000 investment clubs in US today with about 7000 belonging to the National Association of Investment Clubs (NAIC), a nonprofit organization that provides guidance and literature to its membership. For information about establishing an investment club, the NAIC can be contacted by calling (313) 543-0612 or by writing 1515 E. Eleven Mile Rd. Royal Oak, Michigan 48067.
A company or trust, such as unit investment trusts and management companies, engaged in the business of investing the pooled funds of small investors in securities appropriate for stated investment objectives. For a fee, it provides investors with more diversification, liquidity, and professional management service than would normally be available to them as individuals.
There are two types of management companies--closed-end and open-end mutual funds. Closed-end investment companies are traded in the open market and are bought and sold like any other stock. The capitalization of a closed-end fund usually remains constant and has a fixed number of outstanding shares. Open-end mutual funds sell their shares directly to investors, are ready to buy back their old shares at their current net asset value, and are not listed. The capitalization is open-end funds are not fixed--they issue more shares as investors want them. Open-end management companies may either be "load" or "no-load" mutual funds. Load funds are sold by broker-dealers who receive a percentage that is added into the net asset value. The percentage is determined by the amount of the client's investment into the fund. Load funds often can be redeemed free of any charges from the fund. No-load funds are usually bought from the mutual fund and do not charge a loading fee. However, small redemption fees are not uncommon.
Every investment company states its specific investment objectives in its registration statement and prospectus. An investment company usually falls within one of the following categories:
- Diversified common stock funds;
- Balanced funds that mix bonds and preferred and common stocks;
- Bond and preferred stock funds that feature fixed income;
- Specialized funds by industry, groups of industries, geography or size of company;
- Income funds--income generated from high-yield securities;
- Performance funds (growth stocks);
- Dual-purpose funds--a closed-end investment company that offers a choice between dividend shares or capital gain shares and;
- Money market funds (money market instruments).
Investment Company Act Of 1940
Federal law that regulates investment companies. The Act regulates how mutual funds and other investment vehicles of investment companies operate.
Person whose principal business consists of acting as investment adviser and providing investment supervisory services.
A bond that is rated within the top four categories by Moody's or Standard & Poor's.
Income, such as dividends, interest and capital gains amongst other sources, that is generated from securities and other investments. Under current tax regulations, an investor's interest charges from a margin account can be used to offset investment income.
A letter that is an agreement between a seller and a buyer who is purchasing private placement securities (unregistered securities under Regulation D). The investor affirms that the purchase is a long-term investment and not for resale. The securities are also called "letter stock."
Strategy used to allocate funds among such vehicles as stocks, bonds, cash equivalents and commodities. An investor's strategy should be based on their view of the direction of economic factors such as economic growth, interest rates and inflation. At the same time, the investor may also take into account their age, tolerance for risk, funds available for investment and future needs.
Investment Strategy Committee
Committee in a brokerage firm's research department that sets the investment strategy that the firm recommends to its clients. The committee typically consists of the firm's research director, chief economist, and top analysts. The group recommends industry groups and individual securities that appear especially attractive. They will also advise how much money should be invested into stocks, bonds, or cash equivalents.
Investment Value Of A Convertible Security
The estimated price at which a convertible security would be valued if it did not have a stock conversion feature. A convertibles' investment value is determined by investment advisory services. Theoretically, it should not fall lower than the related stock's price. It is set by estimating the price at which a non-convertible bond or preferred stock of the same issuing company would sell.
Investor Relations Department
A department within a listed corporation that is responsible for investor relations. Some of the department's functions may include:
- Assuring that a company's activities and objectives are understood and are regarded favorably by the investment community.
- Ensuring full and timely disclosure of material information, and assisting the legal staff with compliance of SEC rules and industry regulations.
- Responding to requests from shareholders, institutional investors, brokers and the media for information and written material such as its quarterly and annual reports.
Investors Service Bureau
A service of the New York Stock Exchange that answers written inquiries regarding securities investments.
An individual's reinvestment of assets received as a lump-sum distribution from a qualified tax-deferred retirement plan such as a corporate pension plan. The assets must have been received because of either the individual's retirement or employment termination. If the assets are deposited in an IRA within 60 days from the time they are withdrawn, the individual will not have any tax consequences and the assets will continue to accumulate on a tax-deferred basis.
A bond that does not have a call feature or a redemption privilege. A call feature allows an issuer to redeem the bond before its maturity and a redemption privilege allows a bondholder to redeem the bond before its maturity.
A process by which new securities of an entity, such as a corporation or a municipality, are sold and distributed. The securities are distributed through an underwriter or by a private placement.
Issued And Outstanding
Corporate shares that have been authorized within the corporate charter and have already been issued. The share may represent all or only part of the number of shares authorized. Authorized shares not yet issued are called "unissued stock." Issued shares repurchased by the corporation are called "treasury stock." Treasury stock is held in the corporate treasury pending reissue or retirement. Although these shares are issued, when making calculations such as earnings per share and dividends, they are not considered to be outstanding. Authorized, issued and outstanding, and treasury shares are usually noted in a corporation's annual reports.
Amount of common shares that a corporation has issued (sold).
Entities, such as corporations, municipalities, governments and investment trusts, that may issue and distribute securities. Stock issuers are required to report corporate developments to its shareholders and, if declared, pay dividends. Bond issuers must make timely payments of interest and principal to its bondholders.