Floor
The area of an organized exchange where securities are traded. Customer orders are transferred to the floor where they are executed by members of the exchange.
Floor Broker
A member of the stock exchange who executes orders on the floor of the Exchange to buy or sell any listed securities. (See: Commission broker)
Free and Open Market
A market in which supply and demand are freely expressed in terms of price. Contrasts with a controlled market in which supply, demand and price may all be regulated.
Fundamental Research
Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc. (See: Technical research)
Funded Debt
Long-term interest-bearing debt, such as bonds and debentures.
General Mortgage Bond
A bond that is secured by a blanket mortgage on the company’s property but may be outranked by one or more other mortgages.
Good ‘til Canceled (GTC) or Open Order
An order to buy or sell that remains in effect until it is either executed or canceled.
Good Delivery
Certain basic qualifications must be met before a security sold on the Exchange may be delivered. The security must be in proper form to comply with the contract of sale and to transfer title to the purchaser.
Government Bonds
Obligations of the U.S. Government, regarded as the highest grade securities issues.
Growth Stock
Stock of a company with a record of growth in earnings at a relatively rapid rate
Holding Company
A corporation that owns the securities of another, in most cases with voting control.
Hypothecation
The pledging of securities as collateral – for example, to secure the debit balance in a margin account.
Income Bond
Generally income bonds promise to repay principal but to pay interest only when earned. In some cases unpaid interest on an income bond may accumulate as a claim against the corporation when the bond becomes due. An income bond may also be issued in lieu of preferred stock.
Indenture
A written agreement under which bonds and debentures are issued, setting forth maturity date, interest rate and other terms.
Independent Broker
Member on the floor of the NYSE who executes orders for other brokers having more business at that time than they can handle for themselves, or for firms who do not have their exchange member on the floor.
Index
The relative value of a variable in comparison with itself on a different date. Many security price indicators such as the Standard & Poor’s series and the New York Stock Exchange series are constructed as indices.
Initial Public Offering
A company’s first sale of stock to the public.
Institutional Investor
An organization that’s primary purpose is to invest its own assets or those held in trust by it for others. Includes pension funds, investment companies, insurance companies, universities and banks.
Interest
Payments borrowers pay lenders for the use of their money. A corporation pays interest on its bonds to its bondholders. (See: Bond, Dividend)
Investment
Property acquired for the purpose of producing income for its owner.
Investment Banker
Also known as an underwriter. The middleman between the corporation issuing new securities and the public. The usual practice is for one or more investment bankers to buy outright from a corporation a new issue of stocks or bonds. The group forms a syndicate to sell the securities to individuals and institutions. Investment bankers also distribute very large blocks of stocks or bonds – perhaps held by an estate.
Investment Company
A company or trust that uses its capital to invest in other companies. There are two principal types: the closed-end and the open-end, or mutual fund. Shares in closed-end investment companies, some of which are listed on the New York Stock Exchange, are readily transferable in the open market and are bought and sold like other shares. Capitalization of these companies remains the same unless action is taken to change, which is seldom. Open-end funds sell their own shares to investors, stand ready to buy back their old shares, and are not listed. Open-end funds are so called because their capitalization is not fixed; they issue more shares, as people want them.
Investment Counsel
One whose principal business consists of acting as investment advisor and rendering investment supervisory services.
IRA
Individual Retirement Account – A custodial account or trust in which individuals may set aside earned income in a tax-deferred retirement plan. (See: Keogh plan)
Issue
Any of a company’s securities, or the act of distributing such securities.
Keogh Plan
Tax-advantaged personal retirement program that can be established by a self-employed individual. (See: IRA)
Leverage
Use of fixed costs in an attempt to increase the rate of return from an investment. One example of leverage is buying securities on margin. While leverage can operate to increase rates of return, it also increases the amount of risk inherent in an investment.
Liability
An obligation to pay an amount in money, goods, or services to another party.
Limit, Limited Order, or Limited Price Order
An order to buy or sell a stated amount of a security at a specified prince, or at a better price, if obtainable after the order is represented in the trading crowd.
Liquidation
The process of converting securities or other property into cash. The dissolution of a company, with cash remaining after sale of its assets and payment of all indebtedness being distributed to the shareholders.
Liquidity
The ability of the market in a particular security to absorb a reasonable amount of buying or selling at a reasonable price changes. Liquidity is one of the most important characteristics of a good market.
Listed Stock
The stock of a company that is traded on a securities exchange.
Load
The portion of the offering price of shares of open-end investment companies in excess of the value of the underlying assets. Covers sales commissions and all other costs of distribution. The load is usually incurred only on purchase, there being, in most cases, no charge when the shares are sold (redeemed). (See: Investment company)
Locked In
Investors are said to be locked in when they have profit on a security they own but do not sell because their profit would immediately become subject to the capital gains tax.
Long
Signifies ownership of securities. “I am long 100 U.S. Steel,” means the speaker owns 100 shares. (See: Short position, Short sale)
Manipulation
An illegal operation. Buying or selling a security for the purpose of creating false or misleading appearance of active trading or for the purpose of raising or depressing the price to induce purchase or sale by others.
Margin
The amount paid by the customer when using a broker’s credit to buy or sell a security. Under Federal Reserve regulations, the initial margin requirement since 1945 has ranged from the current rate of 50% of the purchase price up to 100%. (See Brokers’ loan, Equity)
Margin Call
A demand upon a customer to put up money or securities with the broker. The call is made when a purchase is made; also if a customer’s account declines below a minimum standard set by the exchange or by the firm.
Market Order
An order to buy or sell a stated amount of a security at the most advantageous price obtainable after the order is represented in the trading crowd. (See: Good ‘til canceled order, Limit order, Stop order)
Market Price
The last reported price at which the stock or bond sold, or the current quote. (See: Quote)
Maturity
The date on which a loan or bond comes due and is to be paid off.
Member Corporation
A securities brokerage firm, organized as a corporation, with at least one member of the New York Stock Exchange who is an officer or employee of the corporation.
Member Firm
A securities brokerage firm organized as a partnership and having at least one general partner or employee who is a member of the New York Stock Exchange.
Member Organization
The term includes New York Stock Exchange member firms and member corporations.
Merger
Combination of two or more corporations.
Money Market Fund
A mutual fund whose investments are in high-yield money market instruments such as federal securities, CDs and commercial paper. Its intent is to make such instruments, normally purchased in large denominations by institutions, available indirectly to individuals. (See: Certificate of deposit, Commercial paper)
Mortgage Bond
A bond secured by a mortgage on a property. The value of the property may or may not equal the value of the bonds issued against it. (See: Bond, Debenture)
Municipal Bond
A bond issued by a state or a political subdivision, such as county, city, town, or village. The term also designates bonds issued by state agencies and authorities. In general, interest paid on municipal bonds is exempt from federal income taxes and state and local taxes within the state of issue. However, interest may be subject to the alternative minimum tax (AMT).
Mutual Fund
See:Investment company
NASDAQ
An automated information network that provides brokers and dealers with price quotations on securities traded over-the-counter. NASDAQ is an acronym for National Association of Securities Dealers Automated Quotations.
Negotiable
Refers to a security, the title to which is transferable by delivery.
Net Asset Value
Usually used in connection with investment companies to mean net asset value per share. An investment company computes its assets daily, or even twice daily, by totaling the market value of all securities owned. All liabilities are deducted, and the balance is divided by the number of shares outstanding. The resulting figure is the net asset value per share. (See: Assets, Investment company)
Net Change
The change in the price of a security from the closing price on one day to the closing price the next day on which the stock is traded. The net change is ordinarily the last figure in the newspaper stock price list. The mark +1 1/8 means up $1.125 a share from the last sale on the previous day the stock traded.
New Issue
A stock or bond sold by a corporation for the first time. Proceeds may be used to retire outstanding securities of the company, for new plant or equipment, for additional working capital, or to acquire a public ownership interest in the company for private owners.
New York Futures Exchange (NYFE)
A subsidiary of the New York Stock Exchange devoted to the trading of future products.
New York Stock Exchange (NYSE)
The largest organized securities market in the United States, founded in 1792. The Exchange itself does not buy, sell, own or set the prices of securities traded there. The prices are determined by public supply and demand. The Exchange is a non-profit corporation of 1,366 individual members, governed by a board of directors consisting of 10 public representatives, 10 Exchange members or allied members and a full-time chairman, executive vice chairman, and president.
Noncumulative
A type of preferred stock on which unpaid dividends do not accrue. Omitted dividends are, as a rule, gone forever. (See: Cumulative preferred)
NYSE Composite Index
The composite index covers price movements of all common stocks listed on the New York Stock Exchange. It is based on the close of the market December 31, 1965, as 50 and it weighted according to the number of shares listed for each issue. The index is computed continuously and printed on the ticker tape. Point changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility and finance. (See: Averages)
Odd Lot
An amount of stock less than the established 100-share unit. (See: Round lot)
Off-board
This term may refer to transactions over-the-counter in unlisted securities or to transactions of listed shares that are not executed on a national securities exchange.
Offer
The price at which a person is ready to sell. Opposed to bid, the price at which one is ready to buy. (See: Bid and Asked)
Open Order
See: Good ‘til canceled order
Open-end Investment Company
See: Investment company
Over-the-counter
A market for securities made up of securities dealers who may or may not be members of a securities exchange. The over-the-counter market is conducted over the telephone and deals mainly with stocks of companies without sufficient shares, stockholders or earnings to warrant listings on an exchange. Over-the-counter dealers may act either as principals or as brokers for customers. The over-the-counter market is the principal market for bonds of all types. (See: NASD, NASDAQ)
Overbought
An opinion as to price levels. May refer to a security that has a sharp rise or to the market as a whole after a period of vigorous buying which, it may be argued, has left prices “too high.”
Oversold
The reverse of overbought. A single security or a market that, it is believed, has declined to an unreasonable level.
Paper Profit (loss)
An unrealized profit or loss on a security still held. Paper profits and losses become realized only when the security is sold. (See: Profit-taking).
Par
In the case of a common share, par means a dollar amount assigned to the share by the company’s charter. Par value may also be used to compute the dollar amount of common shares on the balance sheet. Par value has little relationship to the market value of common stock. Many companies issue no-par stock but give a stated par share value on the balance sheet. In the case of preferred stocks it signifies the dollar value upon which dividends are figured. With bonds, par value is the face amount, usually $1,000.
Participating Preferred
A preferred stock that is entitled to its stated dividend and to additional dividends on a specified basis upon payment of dividends on the common stock.
Passed Dividend
Omission of a regular or scheduled dividend.
Passed Dividend
Omission of a regular or scheduled dividend.
Penny Stocks
Low-priced issues, often highly speculative, selling at less than $1 a share. Frequently used as a term of disparagement, although some penny stocks have developed into investment-caliber issues.
Point
A measure of security price changes. In the case of stocks and stock averages, a point normally means a change of $1; for bonds, a point refers to a $10 movement for a $1,000 bond.
Portfolio
A group of investments. The more diversified the investments in a portfolio, the more likely the investor is to earn the same return as the market.
Preferred Stock
A class of stock with a claim on the company’s earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. Usually entitled to dividends at a specified rate – when declared by the board of directors and before payment of a dividend on the common stock – depending upon the terms of the issue.
Premium
The amount by which a bond or preferred stock may sell above its par value. May refer, also, to redemption price of a bond or preferred stock if it is higher than face value.
Price-to-Earnings Ratio
A popular way to compare stocks selling at various price levels. The P/E ratio is the price of a share of stock divided by earnings per share for a 12-month period. For example, a stock selling for $50 a share and earning $5 a share is said to be selling at a price-to-earnings ratio of 10.
Prime Rate
The lowest interest rate charged by commercial banks to their most credit-worthy customers; other interest rates, such as personal, automobile, commercial and financing loans are often pegged to the prime.
Principal
The person for whom a broker executes an order, or dealers buying or selling for their own accounts. The term “principle” may also refer to a person’s capital or to the face amount of a bond.
Profit Taking
Selling stock that has appreciated in value since purchase, in order to realize the profit. The term is often used to explain a downturn in the market following a period of rising prices.
Prospectus
The official selling circular that must be given to purchasers of new securities registered with the Securities and Exchange Commission. It highlights the much longer Registration Statement file with the Commission.
Proxy
Written authorization given by a shareholder to someone else to represent him or her and vote his or her shares at a shareholders meeting.
Proxy Statement
Information given to stockholders in conjunction with the solicitation of proxies.
Prudent Man Rule
An investment standard. In some states, the law requires that a fiduciary, such as a trustee, may invest the fund’s money only in a list of securities designated by the sate – the so-called legal list. In other states, the trustee may invest in a security if it is one that would be bought by a prudent person of discretion and intelligence, who is seeking a reasonable income and preservation of capital.
Quote
A statement or listed of the price at which a security trades. A quotation is often the last price at which the trade took place, but occasionally it is the current bid and ask price.
Rally
A fairly sharp, short-term general rise in security price after a period of little movement or of declining prices.
Real Estate Investment Trust (REIT)
An organization similar to an investment company in some respects, but concentrating its holdings in real estate investments. The yield is generally liberal since REITs are required to distribute as much as 90% of their income.
Record Date
The date on which you must be registered as a shareholder of a company in order to receive a declared dividend or, among other things, to vote on company affairs.
Red Herring
A registration statement filed with but not yet approved by the Securities and Exchange Commission (SEC).
Redemption Price
The price at which an open-end investment company will buy back its shares from its owners. In most cases, the redemption price is the net asset value per share.
Refinancing
To extend to maturity of the loan.
Registered Competitive Market Maker
Members of the New York Stock Exchange who trade on the floor for their own or their firm’s account and who have an obligation, when called upon by an exchange official, to narrow a quote or improve the depth of an existing quote by their own bid or offer.
Registered Representative
An employee or a partner in a brokerage firm who is registered to handle customer accounts.
Registrar
Usually a trust company or bank charged with the responsibility of keeping record of the owners of a corporation’s securities and preventing the issuance of more than the authorized amount.
Registration
Before an initial public offering may be made of new securities by a company, the securities must be registered under the Securities Act of 1933. A registration statement is filed with the SEC by the issuer. It must disclose pertinent information relating to the company’s operations, securities, management and purpose of the public offering. Before a security may be admitted to dealings on a national securities exchange, it must be registered under the Securities Exchange Act of 1934. The application for registration must be filed with the exchange and the SEC by the company issuing the securities.
Regular Way Delivery
Unless otherwise specified, securities sold on the New York Stock Exchange are to be delivered to the buying broker by the selling broker and payment made to the selling broker by the buying broker on the third business day after the transaction. Regular way delivery for bonds is the following business day.
Regulation T
The federal regulation governing the amount of credit that may be advanced by brokers and dealers to customers for the purchase of securities
Regulation U
The federal regulation governing the amount of credit that may be advanced by banks to customers for the purchase of listed stocks.
Rights
When a company wants to raise more funds by issuing additional securities, it may give its shareholders the opportunity, ahead of others, to buy the new securities in proportion to the number of shares each owns. The piece of paper evidencing this privilege is called a right. Because the additional stock is usually offered to stockholders below the current market price, rights ordinarily have a market value of their own and are actively traded. In most cases they must be exercised within a relatively short period. Failure to exercise or sell rights may result in monetary loss to the holder.
Round Lot
A unit of trading or a multiple thereof. On the NYSE, the unit of trading is generally 100 shares in stocks and $1,000 or $5,000 par value in the case of bonds. In some inactive stocks, the unit of trading is 10 shares. (See: Odd lot)
Seat
A traditional figure of speech for a membership on the exchange.
SEC
The Securities and Exchange Commission, established by Congress to help protect investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, the Investment Advisers Act and the Public Utility Holding Company Act.
Secondary Distribution
Also known as secondary offering. The redistribution of a block of stock some time after it has been sold by the issuing company. The sale is handled off the NYSE by a securities firm or group of firms and the shares are usually offered at a fixed price related to the current market price of the stock. Usually the block is a large one, such as might be involved in the settlement of an estate. The security may be listed or unlisted.
Securities Industry Automation Corporation (SIAC)
An independent organization established by the New York and American Stock Exchanges as a jointly owned subsidiary to provide automation, data processing, clearing and communications services.
Securities Investor Protection Corporation (SIPC)
A government sponsored organization created in 1970 to insure investor accounts at brokerage firms in the event of the brokerage firm’s insolvency and liquidation. The maximum insurance of $500,000, including $100,000 in cash assets per account, covers customer losses due to brokerage in solvencies, not customer losses caused by security price fluctuations. SIPC coverage is similar in concept to Federal Deposit Insurance Corporation coverage of customer accounts at commercial banks.
Sell Side
The portion of the securities business in which orders are transacted. The sell side includes retail brokers, institutional brokers and traders, and research departments. If an institutional portfolio manager changes jobs and becomes a registered representative, he or she has moved from the buy side to the sell side.
Seller’s Option
A special transaction on the NYSE that gives the seller the right to deliver the stock or bond at any time within a specified period, ranging from not less than two business days to not more than 60 days.
Serial Bond
An issue that matures in part at periodic stated intervals.
Settlement
Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivers securities sold and receives from the broker the proceeds of a sale. (See: Regular way delivery, Cash sale)
Short Covering
Buying stock to return stock previously borrowed to make delivery on a short sale.
Short Sale
A transaction by a person who believes a security will decline and sells it, though the person does not own any. For instance: You instruct your broker to sell short 100 shares of XYZ. Your broker borrows the stock so delivery can be made to the buyer. The money value of the shares borrowed is deposited by your broker with the lender. Sooner or later you must cover your short sale by buying the same amount of stock you borrowed for return to the lender. If you are able to buy XYZ at a lower price than you sold it for, your profit is the difference between the two prices – not counting commissions and taxes. But if you have to pay more for the stock than the price you received, that is the amount of your loss. Stock exchange and federal regulations govern and limit the conditions under which a short sale may be made on a national securities exchange. Sometimes people will sell short a stock they already own in order to protect a paper profit. This is known as selling short against the box.
Spin Off
The separation of a subsidiary or division of a corporation from its parent company by issuing shares in a new corporate entity. Shareowners in the parent company receive shares in the new company in proportion to their original holding and the total value remains approximately the same.
Split
The division of the outstanding shares of a corporation into a larger number of shares. A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding. Each holder of 100 shares before the 3-for-1 split would have 300 shares, although the proportionate equity in the company would remain the same; 100 parts of 1 million are the equivalent of 300 parts of 3 million. Ordinarily, splits must be voted by directors and approved by shareholders. (See: Stock dividend)
Stock
See: Common stock, Preferred stock
Stock Dividend
A dividend paid in securities rather than in cash. The dividend may be additional shares of the issuing company, or in shares of another company (usually a subsidiary) held by the company.
Stock Exchange
An organized market place for securities featured by the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors. (See: New York Stock Exchange)
Stop Limit Order
A stop order that becomes a limit order after the specified stop price has been reached. (See: Limit Order, Stop Order)
Stop Order
An order to buy at a price above or sell at a price below the current market. Stop buy orders are generally used to limit loss or protect unrealized profits on a short sale. Stop sell orders are generally used to protect unrealized profits or limit loss on a holding. A stop order becomes a market order when the stock sells at or beyond the specified price and, thus, may not necessarily be executed at that price.
Street Name
Securities held in the name of a broker instead of a customer’s name are said to be carried in “street name.” This occurs when the securities have been bought on margin or when the customer wishes the security to be held by the broker.
Swapping
Selling one security and buying a similar one almost at the same time to take a loss, usually for tax purposes.
Tender Offer
A public offer to buy shares from existing stockholders of one public corporation by another public corporation under specified terms good for a certain time period. Stockholders are asked to “tender” (surrender) their holdings for stated value, usually at a premium above current market price, subject to the tendering of a minimum and maximum number of shares.
Trader
Individuals who buy and sell for their own accounts for short-term profit. Also, an employee of a broker/dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients. (See: Speculator)
Transfer
This term may refer to two different operations. For one, the delivery of a stock certificate from the seller’s broker to the buyer’s broker and legal change of ownership, normally accomplished within a few days. For another, to record the change of ownership on the books of the corporation by the transfer agent. When the purchaser’s name is recorded, dividends, notices of meetings, proxies, financial reports and all pertinent literature sent by the issuer to its securities holders are emailed directly to the new owner. (See: Registrar, Street name)
Transfer Agent
A transfer agent keeps a record of the name of each registered shareowner, his or her address, the number of shares owned, and sees that certificates presented for transfer are properly canceled and new certificates issued in the name of the new owner. (See: Registrar).
Treasury Stock
Stock issued by a company but later reacquired. It may be held in the company’s treasury indefinitely, reissued to the public or retired. Treasury stock receives no dividends and has no vote while held by the company.
Underwriter
See: Investment banker
Variable Annuity
A life insurance policy where the annuity premium (a set amount of dollars) is immediately turned into units of a portfolio of stocks. Upon retirement, the policyholder is paid according to accumulated units, the dollar value of which varies according to the performance of the stock portfolio. Its objective is to preserve, through stock investment, the purchasing value of the annuity which otherwise is subject to erosion through inflation.
Warrants
Certificates giving the holder the right to purchase securities at a stipulated price within a specified time limit or perpetually. Sometimes a warrant is offered with securities as an inducement to buy. (See: Rights)
Yield
Also known as return. The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $40 a share paying dividends at the rate of $3.20 is said to return 8% ($3.20/$40.00). The current yield on a bond is figured the same way.
Yield to Maturity
The yield of a bond to maturity takes into account the price discount from or premium over the face amount. It is greater than the current yield when the bond is selling at a discount and less than the current yield when the bond is selling at a premium.
Zero Coupon Bond
A bond that pays no interest but is priced, at issue, at a discount from its redemption price.
