A strategy whereby an investor simply invests in a number of different assets in the hope that the variance of the expected return on the portfolio is lowered. In contrast, mathematical programming can be used to select the best possible investment weights. Related: Markowitz diversification.
A form required by the NASD of foreign dealers to ensure that firms participating in a new distribution of securities make a bona fide public offering.
The first electronic stock market listing over 5000 companies. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap Market that trades emerging growth companies.
Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to comply with the Maloney Act, which provides for the regulation of the OTC market.
An electronic quotation system that provides price quotations to market participants about the more actively traded common stockissues in the OTC market. About 4000 common stockissues are included in the Nasdaq system.
A commercial bank approved by the U.S. Comptroller of the Currency, which is required to be a member of and purchase stocks in the Federal Reserve System.
A nonprofit organization that seeks to help consumers who have taken on too much debt by helping them work out payment plans and supplying credit counseling.
Group that advises the SEC on establishing a national exchange market system, which is a highly automated, continuous national exchange, but that preserves the regional exchanges.
Refers to over-the-counter trading. System of trading OTC
stocks under the sponsorship of the NASD.
Must meet certain criteria for size, profitability and trading activity. More
comprehensive information is available for NMS stocks than for non-NMS stocks
traded OTC (high, low, and last-sale prices,
cumulative volume figures, and bid and ask
quotations throughout the day). This is due to the fact that market
makers must report the actual price and number of shares
in each transaction within 90 seconds verses nonreal-time reporting for non-NMS
stocks (thus, last sale prices and minute-to-minute volume updates are not
possible).
A loan repayment schedule in which the outstandingprincipal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstandingprincipal, to be repaid later.
A negative-NPV infrastructure development project that a local government requires of a company engaged in a positive NPV investment project elsewhere in the country.
A bond characteristic such that the price appreciation will be less than the price depreciation for a large change in yield of a given number of basis points. For example, a fixed-rate mortgage may lose value as rates go down because of prepayments.
A proposal to assist taxpayer with below-subsistence-level incomes. After filing a tax return, such persons would receive a subsidy to bring them up above the poverty level.
A bond covenant that requires the borrower to grant lenders a lien equivalent to any liens that may be granted in the future to any other currently unsecured lenders.
When the yield on a short-term security is higher than the yield on a long-term security, partially because high interest rates are creating a greater demand for short-term borrowing.
Determining the terms of an offering by negotiation between the issuer and the underwriter rather than through competitive bidding by underwriting groups.
A securitiesoffering process in which the purchase price paid to the issuer and the public offering price are determined by negotiation rather than through competitive bidding.
The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed-end fund, the market price may vary significantly from the net asset value.
A linear approximation of a number, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of capital structure.
Also called the cost of carry or, simply, carry, the difference between the cost of financing the purchase of an asset and the asset's cash yield. Positive carry means that the yield earned is greater than the financing cost; negative carry means that the financing cost exceeds the yield earned.
A lease arrangement under which the lessee is responsible for all property taxes, maintenance expenses, insurance, and other costs associated with keeping the asset in good working condition.
Antithesis of gross parity.
Convertibles: Price of a convertible security including accrued interest.
International: Price of international security including commissions, fees, stamp duty, and other transaction costs, translated into U.S. dollar amounts.
The value of the position subtracting the initial cost of setting up the position. For example, if 100 options where purchased for $1 each and the option is currently trading for $9, the value of the net position is $900 - $100 = $800.
Hedge that is expected to yield a dollar-neutral result of the combined position, regardless of price change in any part of the hedge securities. For any convertible trading at a premium, this ratio is less than 100%. The higher the convertible premium, the lower a ratio must be to be neutral. See: Delta.
In the Euromarket, a period over which Eurodollars are sold is said to be neutral if it does not start or end on either a Friday or the day before a holiday.
Securities that are publicly offered for the first time, whether in an IPO or as an additional issue of stocks or bonds by a company that is already public.
Composite index covering price movements of all new world common stocks listed on the New York Stock Exchange. It is based on the close of the market on December 31, 1965, at a level of 50.00, and is weighted according to the number of shares listed for each issue. Print 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.
Refers to over-the-counter trading. A news story concerning the stock being considered has recently been posted on one of the news services, such as the Dow Jones News Service or Reuters. A courtesy standard in trading is to mention that "news is out," in case the other party is unaware of the new development.
Applies mainly to international equities. Price-weighted average of 225 stocks
of the first section of the Tokyo Stock Exchange started on May 16, 1949.
Japanese equivalent of the US Dow.
A stock listed on a national securities exchange after April 26, 1979, that is exempt from the Securities and Exchange Commission rule that prohibits exchange members from participating in off-board trading.
Used in the context of general equities. "No buy or sell interest should be entered into the Autex (advertising) system." Inquirers do not want exposure of an inquiry to affect the price at which they hope to ultimately transact the trade, hence disturbing the customer's picture.
An open-end investment company whose shares are sold without a sales charge. There can be other distribution charges, however, such as Article 12B-1 fees. A true no-load fund has neither a sales charge nor a distribution fee.
The tendency of persistent time series (0.50<H<1.00) to have abrupt, and discontinuous changes. The normal distribution assumes continuous changes in a system. However, a time series which exhibits Hurst statistics may abruptly change levels, skipping values either up or down. Mandelbrot coined the term "Noah effect" after the biblical story of the deluge. See: Joseph Effect, Hurst Exponent, Persistence, Anti-persistence.
Notes over bonds spread. This is the difference in yield between Treasury notes (maturing in 2 to 10 years) and Treasury bonds (maturing in 15 or more years), which is traded using Treasury note and bond futures.
Price and volume fluctuations that can confuse interpretation of market direction. Used in the context of general equities. Stock market activity caused by program trades, dividend rolls, and other phenomena not reflective of general sentiment. Antithesis of real.
Used in the context of general equities. Bid and offer prices given by a market maker for the purpose of valuation, not as an invitation to trade; must be specifically identified as such by prefixing the quotes FYI (for your information) or FVO (for valuation only).
Wealthy, sophisticated investors who do not meet SEC net worth requirements. These investors require less protection because of large financial resources, but only 35 nonaccredited investor can be included per investment.
A provision in a number of employment contracts that prohibits an employee from working for a competing firm for a specified number of years after the employee leaves the firm.
In a Treasury auction, bidding for a specific amount of securities at the price, whatever it may turn out to be, equal to the average price of the accepted competitive bids.
Offer by an investor to purchase Treasury securities at a price equivalent to the weighted average discount rate or yield of accepted competitive bids in a Treasury auction. Noncompetitive tenders are always accepted in full.
Applies mainly to convertible securities. Type of preferred stock on which unpaid or omitted dividends do not accrue. Omitted dividends are, as a rule, gone forever.
Agreement regarding a position in a specified currency, a specified exchange rate, and a specified future settlement date, that does not result in delivery of currencies. Rather one party in the agreement makes a payment to the other party on the basis of the exchange rate at the future date.
Used for listed equity securities. Brokerage firm that is not a member of an organized exchange (NYSE). Such firms executetrades either through member firms, or on regional exchanges where they are members, or in the third market.
Life insurance policy whose policyholders do not receive dividends, because they are not participants in the interest, dividends, and capital gains earned by the insurer on premiums paid.
Information about a company that is not known by the general public, which will have a definite impact on the stock price when released. See: Insider trading.
An annuity that does not fall under an IRS-approved pension plan. Contributions are made with after-tax dollars, but earnings can accumulate tax-deferred until withdrawal.
The well known bell shaped curve. According to the Central Limit Theorem, the probability density function of a large number of independent, identically distributed random numbers will approach the normal distribution. In the fractal family of distributions, the normal distribution only exists when alpha equals 2, or the Hurst exponent equals 0.50. Thus, the normal distribution is a special case which in time series analysis is quite rare. See: Alpha, Central Limit Theorem, Fractal Distribution.
A customized benchmark that includes all the securities from which a manager normally chooses, weighted as the manager would weight them in a portfolio.
Making a change in the income account equivalent to the tax savings realized through the use of different depreciation methods for shareholder and income tax purposes, thus washing out the benefits of the tax savings reported as final net income to shareholders.
An organization established for charitable, humanitarian, or educational purposes that is exempt from some taxes and in which no one in profits or losses.
Applies mainly to international equities. Market or limit order in which the customer does not desire to transact automatically at the inside market (market held) but instead has given the trader or floor broker (listed stock) time and price discretion in transacting on a best-efforts basis. This will not hold the broker responsible for missing the price within the limits (limit not held) or obtaining a worse price (market not held). The order is marked "not held, disregard tape/DRT, take time" or bears any such qualifying notation, excluding "or better." See: Held order.
An agreement by which a syndicate of banks indicates a willingness to accept short-term notes from borrowers and resell these notes in the Eurocurrency markets.
A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements.