The level at which many commodity, futures, and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.
Used in the context of bonds to refer to the date on which a bond is issued and when interest accrues to the bondholder. Used in the context of stocks to refer to the date trading begins on a new stockissued to the public.
A term of British origin used to describe the purchase of all available shares of a target company at the market'sopen by a raider. A dawn raid is a surprise technique that allows the raider to gain a substantial share of the target company before the target company knows what is happening
In the context of general equities, request from a customer to either buy
or sell stock, that, if not canceled or executed
the day it is placed, expires automatically. All orders are day orders unless
otherwise specified. Traders often make
calls before the opening to check for renewals.
An entity that stands ready and willing to buy a security for its own account (at its bidprice) or sell from its own account (at its ask price). Individual or firm acting as a principal in a securities transaction. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker. See: Agency.
A stock strategy that buys stock on the belief that a key executive will die, the company will be dissolved, and shares will command a higher price at their private market value.
A type of stock that makes fixed payments at scheduled intervals of time. Debenture stock differs from a debenture in that it has the status of equity, not debt, in liquidation.
Applies to derivative products. Difference in the value of two options, when the value of the option bought exceeds the value of the one sold. One buys a "debit spread." Antithesis of a credit spread.
Obligations incurred by the Treasury subject to the statutory limit set by
Congress. Until World War 1, a specific amount of debt was authorized for each separate
security issue. Beginning with the Second Liberty
Loan Act of 1917, the nature of the limitation was modified until, in 1941, it developed
into an overall limit on the outstanding Federal debt. As of March 1999, the debt limit
was $5,950,000 million; the limit may change from year to year.
The debt subject to limitation includes most of the Treasury's public debt except securities issued to the Federal Financing
Bank, upon which there is a limitation of $15 billion, and certain categories of older debt (totaling approximately $595 million as of
February 1991).
A set of transactions in which a firm buys a country's dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity. Also called a debt-equity swap.
Performance over time, rated on a scale of 1-10. 1 indicates that a mutual fund'sreturn is in the top 10% of funds being compared; while 3 means the return is in the top 30%.
Amount paid into an IRA, an employer-sponsored
retirement plan, or other type of retirement plan for a particular tax year that is a
deduction from income for tax purposes.
A call option with an exercise price substantially below the underlying stock's market price (deep in the money) or substantially above the market price (deep out of the money). Also put option with an exercise price substantially above the underlying stock's market price (deep in the money) or substantially below the underlying stock's market price (deep out of the money). Often substantially below is defined as more than one strike price below (for calls)/above (for puts) the current value of the underlying security.
The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies).
The setting aside by a borrower of cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet. In securities trading, where a clearing house becomes counterparty to each side of a trade, after the trade has been agreed. This is necessary to facilitate netting, and reduce counterparty risk exposure. The term has become popular recently, because of
the the growth of central counterparty clearing services in European cash equities markets.
Tax-advantaged life insurance products. Deferred
annuitiesoffer deferral of taxes with
the option of withdrawing one's funds in the form of life annuity.
A monthly fixed-dollar payment beginning at retirement age. It is nominal because the payment is fixed in a dollar amount at any particular time, up to and including retirement.
A pension plan obliging the sponsor to make specified dollar payments to qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan
A pension plan whose sponsor
is responsible only for making specified contributions into the plan on behalf
of qualifying participants. Related: Defined
benefit plan
A statistical factor used to convert current dollar purchasing power into inflation-adjusted purchasing power. Enabling the comparison of prices while accounting for inflation in two different time periods.
Postponement of the start of trading in a stock until correction of a gross imbalance in buy and sell orders. Such an imbalance is likely to follow on the heels of a significant event such as a takeover offer. See: Suspended trading.
The price fixed by the clearinghouse at which deliveries on futures are invoiced; also the price at which the futures contract is settled when deliveries are made.
A transaction in which the buyer's payment for securities is due at the time of delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be made by bank wire, check, or direct credit to an account.
Device enabling an issuer to circumvent an arbitrary corporate limit on the number of preferred sharesissuable. Applies mainly to convertible securities.
DTC is the world's largest central securities depository. It accepts
deposits of over 2 million equity and debt securities issues (valued at $23
trillion)
from over 65 countries for custody, executes book-entry deliveries (valued
at over $116 trillion in 2000)
records book-entry pledges of those securities, and processes related
income distributions.
DTC is a member of the Federal Reserve System and is owned by The
Depository Trust and Clearing
Corporation (DTCC), which is in turn owned primarily by most of the
major banks, broker-dealers, and exchanges on Wall Street.
The Depository Trust and Clearing Corporation (DTCC), through its
subsidiaries, provides post-trade clearance, settlement, custody and
information services for equities, corporate and municipal debt,
money
market instruments, American depositary receipts, exchange-traded
funds, unit investment trusts, mutual funds, insurance products and
other securities The National Securities Clearing Corporation (NSCC)
subsidiary, which acts as a central counterparty (CCP), provides
trade guarantee, netting and risk management services for equity and debt
ransactions from all U.S. stock exchanges and markets, valued at
$105 trillion in 2000. The Depository Trust Company(DTC) subsidiary has
custody of and provides asset servicing for 2 million securities
issues of issuers from the U.S. and 65 other countries, valued at
$23 trillion. DTC serves as a major clearinghouse for institutional
post-trade settlement, and in 2000, processed book-entry deliveries
valued at more than $116 trillion. DTCC's two subsidiary businesses
have Standard and Poors' highest rating: AAA.
In terms of economics: The measure of cost of capital consumption during production, e.g., machine and equipment wear.
In terms of finance: The process of amortization of fixed assets (equipment) to spread the cost over the depreciable life of the assets.
A financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset.
A chart pattern which in which each successive peak in a security's price is lower than the preceding peak over a period of time. Antithesis of ascending tops.
A variable describing assets, used as an element of a risk index. For example, a volatility risk index, distinguishing high volatility assets from low volatility assets, could
consist of several descriptors based on short term volatility, long term volatility,
systematic and residual volatility, etc.
Computerized order entry system that allows orders to buy or sell large baskets of stock to be transmitted immediately to the specialist on the exchange, where execution will occur quickly, depending on the basket size. Also used for odd-lot transactions to occur at the prices and quantities available. See: AOS.
A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond).
Fully ordained in advance. A deterministic chaos system is one that gives random looking results,
even though the results are generated from a system of equations.
To remove the general drift, tendency, or bent of a set of statistical data as related to time. Often accomplished by regressing a variable or a time index and perhaps time-squared and capturing the residuals.
Deutsche Börse AG (DBAG) is the operating company for the German cash and derivatives markets. It has four subsidiaries: Deutsche Börse Clearing AG, Deutsche Börse Systems AG, Frankfurter Wertpapierbörse (FWB), and the derivatives market, EUREX Deutschland (formerly the Deutsche Terminbörse ).
A term used to describe the practice of cold calling, but which has negative implications as it is frequently applied to salespeople selling speculative or fraudulent investments.
A mutual fund'sreturn minus the change in the Standard & Poor's 500 index for the same time period. A notation of -5.00 means the fund return is 5 percentage points less than the gain in the S&P, while 0.00 means that the fund and the S&P have the same return.
The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and 10-Ks and 10-Qs.
A service that electronically transfers all or part of any recurring
payment—including dividends, paychecks, pensions, and Social Security
payments—directly to a shareholder's account.
Interest at a beginning of the loan. For example if you take out a one-year
loan of $100 at a discount interest rate of 10%, you would receive $90 at
the outset.
An investment program enabling investors to directly participate in the cash_flow and tax benefits of the partnership invested in by the investor, typically a form of passive investment.
Movement of tax-deferred retirement plan money from one qualified plan
or custodian to another. No immediate tax liabilities or penalties are incurred, but there is
an IRS reporting
requirement.
Used in the context of general equities. Stock status whereby a trader may not maintain positions in the security, due to an investment bank employee serving as a director on the corporation's board of directors done to avoid conflicts of interest; signified by a flashing "D" on Quotron. Contrast to restricted.
An insurance policy that insures a worker in the event of an occupational mishap resulting in disability. Insurance benefits compensate the injured worker for lost pay.
Convertible: Difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest. Antithesis of premium.
General: Information that has already been taken into account and is built into a stock or market.
Straight equity: Price lower than that of the last sale or inside market.
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
The yield or annual interest rate on a security sold to an investor at a discount. A bond that is sold at $4875 that matures to $5000 has a discount of $125. To calculate the discount yield: (discount divided by the face value of the security) multiplied by the (number of days in the year divided by the number of days to maturity).
An investment decision rule in which cash flows are discounted at an interest rate and one determines how long it takes for the sum of the discounted cash flows to equal the initial investment.
Unannounced information that is widely accepted or anticipated, and hence is already taken into account in the pricing of the security/market (e.g., poor earnings).
A type of buy order that gives the broker the freedom and power to make the execution at any time and price that is seen fit and reasonable, given the investor's goals.
In the context of mutual funds, refers to a mutual fund or unit trust whose management decides on the best way to use the assets without restriction to a specific type of security.
In the context of trusts, refers to a personal trust in which a trustee has the power of decision as to how much income or principal each beneficiary receives.
An indicator of interest raterisk. In general, the higher the concentration of
longer-maturityissues, the more a portfolio'sshare price will fluctuate in response to changes in
interest rates.
The few days between the board of directors' declaration of a stock dividend (declaration date) and the date of record, or the date an individual must own shares to be entitled to a dividend.
A small amount of a specific stock that forms part of a larger block of stock that is sold small amount by small amount so as not to disrupt the stock's market price.
An arrangement under which sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.
An approach that assumes dividends grow at a constant rate in perpetuity. The value of the stock equals next year's dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends.
Automatic reinvestment of shareholderdividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to marketprice. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The DRP is usually administered by the company without charges to the holder.
An investment strategy that entails the purchase and selling of a stock right before its ex-dividend date in order to collect the dividends paid out by the stock and capture a tradeprofit.
Used for listed equity securities. Method of buying and selling stocks around their ex-dividend dates so as to collect the dividend (which is 80% tax-exempt) offset by a fully-taxable capital loss. Predicated on the 80% current exemption that some corporations receive on dividend income.
Indicated yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased a year ago. Reflects effect of sales charges (at current rates), but not redemption charges.
Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.
A corporate tax deduction on income
allowed by company A that is in ownership of shares
of company B and receives dividends on
the shares of company B.
Formerly the German financial futures and options market. Merged with the Swiss Options and Financial Futures Exchange (SOFFEX) in 1998 to form EUREX, the European derivatives exchange.
Used in construction of stock indices. Suppose you have 10 stocks in an index, each worth $10 and the index is at 100. Now suppose you want to replace one of the stocks with another stock (reshuffling happens). Suppose that the new stock to be included is worth $20. So the total value of the
index is 110 after the swapping. But we really shouldn't have an increase in value because nothing has happened - other than switching two constituents. So, what people do is to change the divisor. In this case, the divisor goes from 1 to 1.10. Notice that the value of the index, 110/1.1 is now exactly 100 - which is where we began from.
Collection of independent opinions without group discussion by the analysts
providing the opinions; used for various sorts of evaluations (such as country risk assessment).
T 10 stocks of the 30 on the Dow Jones Industrial Average with the most depressed prices and consequently the highest yields. The investor buying these stocks speculates that they will bounce back over a one-year period.
Municipal revenue bonds for which
quotes are given in dollar prices. Not to be confused with "US Dollar"
bonds, a common term of reference in the Eurobond
market.
The impact of importing from foreign countries more than exporting to them. The money required to finance the import purchases removes dollars from the importing nation.
The return realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period.
Similar to the reverse repurchase agreement-a simultaneous agreement to sell a security held in a portfolio with purchase of a similar security at a future date at an agreed-upon price.
"Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.
Systems by which listed securities are bought and sold through brokers on the securities exchanges, as distinguished from the OTC market, where trades are negotiated. Unlike the conventional auction with one auctioneer and many buyers, double auction markets consist of many sellers and many buyers.
A cross-border lease in which the different rules of the lessor's and lessee's countries let both parties be treated as the owner of the leased equipment for tax purposes.
A stock buying strategy that doubles the risk
when the price moves in the opposite direction from the direction the investor
hoped for. For example, an investor with
confidence in ABC buys 1000 shares at $100
and another 1000 shares when the price declines
to $90.
The best known US index of stocks. A price-weighted average of 30 actively
traded blue-chip stocks, primarily industrials including, stocks that trade
on the New York Stock Exchange.
The Dow, as it is called, is a barometer of how shares
of the largest US companies are performing. There are hundreds of investment
indexes around the world for stocks, bonds,
currencies, and commodities.
Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.
A company's reduction in the number of employees, number of bureaucratic levels, and overall size in an attempt to increase efficiency and profitability.
Federal Reserve System's course of action to tighten the money supply by (1) raising a bank's minimum reserve requirements, (2) selling bonds in the openmarket, (3) raising the rate at which banks borrow from the Fed.
An unconventional order in writing-signed by a person, usually the exporter, and addressed to the importer-ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future date (time draft) the amount specified on the face of the draft.
The continual investment of capital in a small and growing company as the company needs it, rather than investing a lump sum at the company's inception.
A type of venture capitalist. In the usual model, the venture capitalist (VC)
is involved in management and monitoring of the startup. A drive-by VC invests
in a portfolio of startups and is often quick to exit.
In a dollar roll transaction, the difference between the sale price of a mortgage-backed pass-through, and its repurchase price on a future date at a predetermined price.
Listing of a security on more than one exchange, thus increasing the competition for bid and offerprices, the liquidity of the securities, and the length time the stock can be traded daily (if listed on both the east and west coasts.) See: Listed security.
An international equity placement that
splits the offering is split into two branches
- domestic and foreign - and each grantee is handled by a separate lead manager.
A mortgage contract clause stipulating that the borrower to pay off the full remaining principal on a mortgage if the mortgaged property is sold before the mortgage is paid off.
Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. Auction system in which the price of an item (stock) is gradually lowered until it meets a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, a range of prices is set by the company within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to proration if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). The price paid is that at which the amount stated to be purchased can be sold. Compare to double auction system.
An asset allocation strategy in which the asset mix is quantitatively shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.
A system of equations where the output of one equation is part of the input
for another. A simple version of a dynamical system is linear simultaneous
equations. Non-linear simultaneous equations are nonlinear dynamical systems.