Glossary of Financial and Investment Terms - M thru Z

Certified Financial Planners | Investment Advisors | Retirement Planning Specialists

This investment and financial terms glossary is designed to help you understand some of the more common terms you may encounter during your investment, financial, and retirement planning. Your Financial Advisor can explain these terms in further detail and discuss with you those that apply to your investment portfolio.

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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

NASD: The National Association of Securities Dealers, an association of brokers and dealers in the over-the-counter securities business.
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 futures 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 covering 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 is 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-End Investment Company

See: Investment Company

Open Order

See: Good 'Til Canceled Order

Overbought: An opinion as to price levels. May refer to a security that has had 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 which, it is believed, has declined to an unreasonable level.
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 listing 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

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 per 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.
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: In the case of shares of stock, a point means $1. If ABC shares rise 3 points, each share has risen $3. In the case of bonds a point means $10, since a bond is quoted as a percentage of $1,000. A bond that rises 3 points gains 3% in $1,000, or $30 in value. An advance from 87 to 90 would mean an advance in dollar value from $870 to $900. In the case of market averages, the word point means merely that and no more. If, for example, the NYSE Composite Index rises from 90.25 to 91.25, it has risen a point. A point in this index, however, is not equivalent to $1.

See: Index

Portfolio: Holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, common stocks and other securities.
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.

See: Cumulative Preferred, Participating Preferred

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.
Primary Distribution: Also called primary or initial public offering. The original sale of a company's securities.

See: Investment Banker

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 "principal" 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.

See: Paper Profit Loss

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 state - 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.

See: Legal List

Quote: The highest bid to buy and the lowest offer to sell a security in a given market at a given time. If you ask your Financial Advisor for a "quote" on a stock, he or she may come back with something like "45 1/4 to 45 1/2." This means that $45.25 is the highest price any buyer wanted to pay at the time the quote was given on the floor of the exchange and that $45.50 was the lowest price that any seller would take at the same time.

See: Bid and Asked

Rally: A brisk rise following a decline in the general price level of the market, or in an individual stock.
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.

See: Investment Company

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.

See: Ex-Dividend, Transfer

Redemption Price: The price at which a bond may be redeemed before maturity, at the option of the issuing company. Redemption value also applies to the price the company must pay to call in certain types of preferred stock.

See: Callable

Red Herring: A registration statement filed with but not yet approved by the Securities and Exchange Commission SEC.

See: Prospectus

Refinancing: Same as refunding. New securities are sold by a company and the money is used to retire existing securities. The object may be to save interest costs, extend the maturity of the loan, or both.
Registered Bond: A bond that is registered on the books of the issuing company in the name of the owner. It can be transferred only when endorsed by the registered owner.

See: Bearer Bond, Coupon Bond

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: The man or woman who serves the investor customers of a broker/dealer. In a New York Stock Exchange-member organization, a registered representative must meet the requirements of the exchange as to background and knowledge of the securities business. Also known as a Financial Advisor or customer's broker.
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.

See: Transfer

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.

See: Transfer

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.

See: Margin

Regulation U: The federal regulation governing the amount of credit that may be advanced by banks to customers for the purchase of listed stocks.

See: Margin

Rights: When a company wants to raise more funds by issuing additional securities, it may give its stockholders 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.

See: Warrants

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

Scale Order: An order to buy or sell a security, that specifies the total amount to be bought or sold at specified price variations.
Scripophily: A term coined in the mid-1970s to describe the hobby of collecting antique bonds, stocks and other financial instruments. Values are affected by beauty of the certificate and the issuer's role in world finance and economic development.
Seat: A traditional figure of speech for a membership on an 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.

See: Investment Banker, Primary Distribution

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: Provides funds for use, if necessary, to protect customers' cash and securities that may be on deposit with a SIPC member firm in the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a government agency. It is a non-profit membership corporation created, however, by an act of Congress.
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.
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.
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 know as selling short against the box.
Sinking Fund: Money regularly set aside by a company to redeem its bonds, debentures or preferred stock from time to time as specified in the indenture or charter.
Specialist: A member of the New York Stock Exchange who has two primary functions: first, to maintain an orderly market in the securities registered to the specialist. In order to maintain an orderly market, the exchange expects specialists to buy or sell for their own account, to a reasonable degree, when there is a temporary disparity between supply and demand. Second, the specialist acts as a broker's broker. When commission brokers on the exchange floor receive a limit order, say, to buy at $50 a stock then selling at $60 - they cannot wait at the post where the stock is traded to see if the price reaches the specified level. They leave the order with a specialist, who will try to execute it in the market if and when the stock declines to the specified price. At all times the specialists must put their customers' interests above their own.

See: Limit Order

Speculation: The employment of funds by a speculator. Safety of principal is a secondary factor.

See: Investment

Speculator

One who is willing to assume a relatively large risk in the hope of gain.

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: Capital Stock, Common Stock, Preferred Stock

Stock Exchange: An organized marketplace 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

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.
Stockholder of Record: A stockholder whose name is registered on the books of the issuing corporation.

See: Registrar

Stock Index Futures: Futures contracts based on market indexes, e.g. NYSE Composite Index Futures Contracts.
Stock Ticker Symbols: Every corporation whose transactions are reported on the NYSE or AMEX ticker or on Nasdaq has been given a unique identification symbol of up to four letters. These symbols abbreviate the complete corporate name and facilitate trading and ticker reporting. Some of the most famous symbols are: T American Telephone & Telegraph, XON Exxon, GM General Motors, IBM International Business Machines, S Sears Roebuck and XRX Xerox.
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.
Syndicate: A group of investment bankers who together underwrite and distribute a new issue of securities or a large block of an outstanding issue.

Technical Research: Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, trends and patterns, which are revealed by charting these factors, and attempts to assess the possible effect of current market action on future supply and demand for securities and individual issues.

See: Fundamental Research

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.
Third Market: Trading of stock exchange-listed securities in the over-the-counter market by non-exchange member brokers.
Ticker: A telegraphic system that continuously provides the last sale prices and volume of securities transactions on exchanges. Information is either printed or displayed on a moving tape after each trade.
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

Trading Floor

See: Floor

Trading Post: The structure on the floor of the New York Stock Exchange at which stocks or options are bought and sold.
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 mailed 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.
Turnover Rate: The volume of shares traded in a year as a percentage of total shares listed on an exchange, outstanding for an individual issue or held in an institutional portfolio.

Underwriter

See: Investment Banker

Unlisted Stock: A security not listed on a stock exchange.

See: Over-the-Counter

Up Tick: A term used to designate a transaction made at a price higher than the preceding transaction. Also called a "plus" tick. A "zero-plus" tick is a term used for a transaction at the same price as the preceding trade but higher than the preceding different price. Conversely, a down tick, or "minus" tick, is a term used to designate a transaction made at a price lower than the preceding trade. A plus sign, or a minus sign, is displayed throughout the day next to the last price of each stock at the trading post on the floor of the New York Stock Exchange.

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.
Volume: The number of shares or contracts traded in a security or an entire market during a given period. Volume is usually considered on a daily basis and a daily average is computed for longer periods.
Voting Right: Common stockholders' right to vote their stock in affairs of a company. Preferred stock usually has the right to vote when preferred dividends are in default for a specified period. The right to vote may be delegated by the stockholder to another person.

See: Cumulative Voting, Proxy

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

When Issued: A short form of "when, as and if issued." The term indicates a conditional transaction in a security authorized for issuance but not as yet actually issued. All "when issued" transactions are on an "if" basis, to be settled if and when the actual security is issued and the exchange or National Association of Securities Dealers rules the transactions are to be settled.
Working Control: Theoretically, ownership of 51% of a company's voting stock is necessary to exercise control. In practice - and this is particularly true in the case of a large corporation - effective control sometimes can be exerted through ownership, individually or by a group acting in concert, of less than 50%.

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.

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CFP^®, Certified Financial Planner™ and are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements.

CMT^SM and Chartered Market Technician^SM designations are awarded and permitted to use by full members of the MTA. The CMT Program is administered by the Accreditation Committee of the Market Technicians Association (MTA).

The National Association of Active Investment Managers is a professional organization of registered investment advisors who believe in active management of client assets to reduce the risk of down markets and to structure client portfolios to produce high risk adjusted returns.

This page last modified: 2008-04-01T08:49:34-0800

Glossary of Financial and Investment Terms - M thru Z

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