Barkley's Comprehensive Financial Glossary

A&L Management - Is the analysis and management of the firm's assets and liabilities or balance sheet items. Related to GAP or Bucket operations.

AA - See Against Actuals.

AARP - Is the American Association of Retired Persons.

ABA - Is the American Bankers Association. The letters also represent the American Bar Association.

Abandon - Refers to the decision not to exercise an option or, sometimes, a clause.

It may also refer to the intentional or unintentional lack of use, maintenance or affirmation process about assets. These assets may include securities, bank accounts, refunds, trademarks and so on. In such cases the property can go to a jurisdiction such as a state or federal government.

ABS - See Asset Backed Securities.

ACATS - Is the Automated Customer Account Transfer Service.

ACB - Refers to Account Cash Balance.

Accelerated Depreciation - Is an accounting technique which provides larger than straight-line depreciation amounts in the early years and smaller than straight-line depreciation amounts in the later years.

Account Executive - Is the party who acts as an agent for his customer. The broker receives a commission as compensation. This person may also participate in spreads or other fees which generate revenue for the firm. This person is also known as an Associated Person (AP), Investment Executive (IE), Registered Representative (RR), Registered Customer Support Person or Securities Salesman. Brokers are required to be licensed according to product lines and states when required.

Accrued Interest - Is the amount of interest which has accumulated since the last coupon interest payment. It is the amount of interest which the holder is entitled but is not due until the payment date. The buyer pays the seller of the bond the accrued interest.

Accumulated Depreciation - Is the amount of depreciation already taken against an asset. Assume that a computer costs $6,000 and has an expected life of 5 years and no residual value. After 3 years the accumulated depreciation would be $3,600 (3 x $1,200 annual depreciation).

Accumulation - Refers to buying often coincident with market bottoms or consolidations. It also refers to purchases by insiders, control people, or major investors.

ACH - Is the Automated Clearing House.

Acid Test Ratio - Is another term to describe the Quick Asset Ratio. It measures an organization's liquidity by adjusting current assets by subtracting inventories and then dividing by the current liabilities.

Actual Hedging - Is the risk management of a position when a hedger has a bona fide long or short actual position and is involved in an offsetting transaction. This offset is usually in the derivatives market.

Actual or Observed - Is the real or reported price, data, or event. It compares to the Theoretical, Implied or Hypothetical price, data, or event. The actual or observed data describe or define the underlying process or condition.

Actuals - Is the real or underlying asset for a derivative product or commodity market.

Adjustable Rate Mortgages - Is a loan which has a coupon or interest rate that is subject to change on predetermined reset dates. These loans use interest rate indices as the benchmark rate. Adjustable Rate Mortgages come in many variations. Typically, the reset dates recur every 1, 3, or 5 years; but there are other periods used as well. These loans may have cap and floor features which constrain each reset change in interest rates. There may also be lifetime cap and floor features. Adjustable Rate Mortgages may be strictly amortizing though some have negative amortization features.

Ad Valorem Tax - Is a tax placed on real property. This is a primary revenue source for many municipalities.

ADP - Is the Alternative Delivery Procedure at the New York Mercantile Exchange. It provides for longs and shorts to make and take delivery under terms which differ from those specified as good delivery for the contract. These transactions can occur at any time during a delivery period.

ADR - See American Depository Receipt.

ADS - Is an American Depository Share.

Advanced Refunding - Is the technique of replacing one bond issue by another. This typically occurs when a municipality can borrow at more favorable terms than the outstanding issue. The new issue's proceeds are used to purchase government obligations which are held in escrow. The income and/or appreciation of these government securities is then used to service the outstanding debt. The escrow may be held until the first call date or maturity of the initial bond issue. If the escrowed funds retire the original issue at the first call date then the issue is pre-refunded. This retirement and replacement process of debt is also known as defeasance.

AE - See Account Executive.

Aftermarket - Refers to trading in the secondary market following a new securities issuance.

Against Actuals - Is a commodity market transaction whereby futures are exchanged or transferred against a cash position.

Against Cash - See Against Actuals.

Agency - Is a security issued by a government organization but not the treasury. These organizations include: the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the Federal National Mortgage Association (FNMA or Fannie Mae), the Government National Mortgage Association (GNMA or Ginnie Mae).

Agent - Is a party who acts on the behalf of another. This occurs when a broker executes a trade for the benefit of the customer. Here, the broker receives a commission. This compares to a dealer transaction.

AGI - Refers to Adjusted Gross Income.

Aging - Is the concept which assumes that newly issued mortgages tend to prepay slower than mortgages which are older or seasoned. This aging refers to the underlying collateral and not the securities created upon that collateral.

AICPA - Is the American Institute of Certified Public Accountants.

ALCO - is the acronym for Asset and Liability Committee. Term used frequently in banking industry.

All or None (AON) - Is also called All or Nothing. The order must be completed in its entirety or not at all. Here, there are no partial fills.

ALM - See Asset and Liability Management.

Alpha - Is a measure of the incremental reward (or loss) that an investor gained in relation to the market. Typically, this is measured as performance of a selected portfolio relative to a market benchmark. An enhanced S&P 500 portfolio might have an alpha of .25 which means that the pickup was .25% or a quarter point better than the standard.

Alternative Investments - Are usually investments other than mutual funds, certificates of deposit, or direct investments in equities and bonds. Some of these alternatives are: art, collectibles, commodities, commodity funds, commodity pools, derivatives, foreign exchange, hedge funds, oil and gas, precious metals, and real estate ventures.

Ambac - Is the holding company that provides financial guarantee insurance for both public and private sector clients. This insurance can improve credit ratings.

American Depository Receipt (ADR) - Is an instrument which is issued in the United States but based on foreign securities. This security facilitates trading and investment because it is quoted in terms of the U.S. Dollar. This compares to the initial situation of the underlying shares quoted and traded in currencies other than the U. S. dollar.

American Style - Is an option which permits exercise prior to the indicated expiration date. This compares to an European Style option which can only be exercised on the expiration date.

AMEX - Is the American Stock Exchange.

Amortization - Is the periodic paydown of principal. This is a common feature of most mortgages. Amortize also refers to the accounting write down or reduction in an intangible asset. This creates a charge against income. Amortization can also refer to the reduction in the cost basis of a bond purchased at a premium to par. Sometimes, amortization is used as a synonym for depreciation or other write down of an asset or liability. In the later capacity it tends to apply to intangible assets. See Interest Impact on Instalment to Amortize or Amortization.

Annual Report - Is the yearly statement of financial condition for a financial organization. It includes balance sheet and income statement items. It may also include a descriptive synopsis of organizational highlights.

Annuitant - Is the party receiving annuity payments.

Annuity - Is an insurance product which comes in two basic forms: fixed and variable. The fixed version can make a lump sum or periodic lifetime payments to the annuitant. The variable version has a separate account attached to the annuity contract. This type of contract is considered a security because it is dependent on equities and its total value is subject to fluctuate due to market risk.

Anticipatory Hedging - Refers to the placement of a hedge prior to placement of the actual position. Sometimes, this occurs when a firm knows that it will receive investment funds later that day or week and prefers to hedge numerous potential risks at the earlier date. Similarly, a commodity producer may prefer to hedge prior to the harvest of a crop, production of an energy product or processing a raw material into a deliverable lot.

AO or A/O - Refers to As Of. This indicates that while a transaction was processed on one date, it was actually conducted on a different date. Often backlogs or delays in reports or inaccuracies in previous reports trigger this report.

AON - Is a type of order. See All or Nothing.

AP - See Associated Person.

API - Is the American Petroleum Institute.

Appraisal - Is an expert evaluation of the current, probable market value for a property. It is not necessarily the market value or transaction price.

Approved Carriers - Refers to armored car services which are approved by the exchange for the transportation of precious metals.

APR - Is the Annual Percentage Rate of Interest.

APY - Is the Annual Percentage Yield of Interest.

Arbitrage - Is a form of trading which attempts to profit by discrepancies in price due to location, funding, volatility, communications, response to information, or other differences. Typically, the price differences are small and only the quickest, most cost efficient or funding efficient parties participate. Compare with Risk Arbitrage.

Arbitration - Is a process to resolve disputes for securities and futures markets. It can involve broker/dealers, clients, and employees of broker/dealers. There are different forums such as the NASD and NYSE.

Arbitration Panel - Is the group of Arbitrators selected to resolve a dispute.

Arbitrator - Is a person who is selected to resolve a dispute in the financial industry. Usually there are three arbitrators on a panel. The composition of the arbitrators is from a pool of candidates viewed either as "Public" or "Industry."

ARCH - Is Autoregressive Conditional Heteroskedasticity. It is a time series approach that models volatility as function of previous returns.

ARMs - See Adjustable Rate Mortgages.

ASCNI - Is Available Separate Consolidated Net Income.

Asian - Is an option which uses the averaged prices of the underlying security, index or commodity, during its life as the determinant of the payoff amount.

Ask - Is the price requested, at the minimum, for an order to be acceptable and executed for the seller.

Assessed Value - Is the taxable basis of a property. It is imposed by the municipality. Often it is at a fraction of the market value. Equally, as important, is the rate of taxation on that assessed value. Assessed values may differ substantially from market values and appraised values.

Asset and Liability Management - Is the process for financial institutions and corporations to adjust their funding and usage of funds. Some approaches are the Bucket, GAP, Hedging, Matched Book, Matched Funding, Financial Swaps, and Structured Products. With the lowering of various insurance, investment and commercial banking barriers, the definition is now more inclusive. Previously, it tended to be reserved for non-investment banking and brokerage operations. Broker/dealer institutions tended to describe their hedging activities as risk management.

Asset Backed Securities - Is a security backed by notes or receivables against assets other than real estate. Some examples are autos, credit cards, and royalties.

Assets - Refer to properties owned or are due to a person or organization. Assets are typically viewed in three categories. These three classifications are: Current, Fixed or Long-term, and Intangible.

Assignment - Is the action for the seller of the option of acquiring the opposite position when an option is exercised. When a put is exercised, the writer receives a long position in securities or a long futures contract. When a call is exercised, the writer receives a short position in the securities or a short futures contract.

Associated Person - Is the registered person who handles orders in the commodities and futures business. Here, registration is at the National Level.

Assumable Mortgage - Is a mortgage loan which can be assumed by a new buyer. Generally, the new owner must pass a credit approval process.

Assumption of Mortgage - Is a provision which allows a new buyer of a property to assume or use an existing mortgage provided such buyer is approved by the lender.

At-the-Money - Is an option which has an exercise or strike price that is the same as the underlying instrument at current market valuations.

ATM - Is an Automated Teller Machine. It also refers to an At-the-Money option.

Authorized Shares - Are the number of shares that a corporation may issue. They represent the maximum shares that can be outstanding. See Issued Shares and Treasury Stock for related terms.

Autocorrelation - Is the statistical dependency of items within a time series. This compares to Serial Correlation.

Automatic Exercise - Occurs after an option expires. Each exchange and its clearing house has rules which govern this exercise. There are minimum in-the-money requirements. A holder of an option must inform the clearing house not to automatically exercise an option. These instructions not to exercise may be due to relatively high transaction costs, increases in position limits, or unacceptable alterations in position profiles. Also, after hours trading indications may suggest dramatically different prices than those used to determine the automatic exercise in-the-money amounts.

Await Instructions - Is the designation for a special pairing or matching of transactions. It also refers to additional handling instructions for a transaction for a specific account. These instructions supercede the standard or default instructions.

Award - Is the decision of an Arbitration Panel.

b2b, B2B, b to b, B to B - Refer to Business-to-Business applications or commerce on the internet.

Baby Bonds - Are bonds which have denominations less than $1,000 per bond.

Back-End Load - Refers to charges which are imposed upon the redemption or liquidation of an investment position. Often these charges are on a sliding scale. Sometimes, these charges are viewed as early withdrawal penalties. They are called back-end because they occur at the end of the investment process.

Backing Away - Occurs when a market maker does not honor its requirement buy or sell the minimum amount of a security. Sometimes, this action can be suspected by the willful failure to answer telephones or to update computers.

Back Office - Is the area or function which relates to the processing, record keeping, and other operational aspects of transactions for financial firms. This compares to Front Office and Middle Office.

Back Spread or Backspread - Is a position where you buy more options relative to the number of sold options. This strategy typically is placed in the expectation of a dramatic move. Compare to Ratio Spread.

Backwardation - Is the market condition whereby the deferred or more forward delivery months are at a progressive discount to the spot or nearby month. This is also known as an inverted market. This is opposite to a contango or carrying charge market.

Bailout - Is an action taken by others to help a company, organization or country with its finances. It is an analogy to "bailing out" a sinking boat. There is considerable debate as to whether the process is a handout or subsidy versus a helping hand.

Balanced Funds - Are mutual funds that invest in both stocks and bonds. The stocks can be both common and preferred. A primary objective is to balance income and growth.

BAN or Bond Anticipation Note - Is a short term security issued by a municipality. The security will be paid or redeemed by funds from a new issue. It is a cash management tool.

Bank Guarantee Letter - Is a document by which an approved bank certifies that an put option writer or grantor has sufficient funds at the bank to cover the write. The funds are equal to the exercised value of the put. This value is equal to the strike price multiplied by the number of shares. It effectively reflects an outright purchase of the underlying security at the strike level.

Bank Market - Is the spot and forward markets for currencies. Here, there are known counterparties to the transactions.

Bankers Acceptances - Are money market instruments which are used to finance import or export transactions. These instruments are essentially checks and represents a bank's promise and ability to pay the face or principal amount on the stipulated maturity date. Maturities are generally less than 3 months. Bankers Acceptances are viewed as money market instruments.

Barrel - Is equal to 42 U.S. gallons. It serves as a volume standard for crude oil other petroleum products.

Barrier - Is the threshold for an option feature to become active or inactive depending on the specifications. It also refers to a variety of option which has a barrier feature.

Barter - Is a process between counterparties who exchange goods or services for other goods and services. Generally, this activity is conducted as a cashless transaction.

Basis - Is the relationship between an actual or cash market with a futures instrument. The relationship is typically the simple difference between the cash market and the futures.

Basis Point - Is the value of an "01" or basis point for credit instruments. Here, it refers to one-hundred of a full percentage point in yield. Sometimes, it refers to a basis point in price. It can also refer to a basis point difference in a basis time series.

Basis Risk - Is the risk in the basis time series. This can be influenced by many variable although the total impact is less than the exposure for a naked position. When a hedge is placed, price risk is transformed into basis risk. Basis risk is substantially less than price or inventory risk in terms of dollars.

Bcf or BCF - Refers to Billion Cubic Feet.

B/D - Is a Broker/Dealer or securities firm. Also, refers to Barrels per Day. This measures the flow of oil out of a field or production at a refinery or other facility.

Bear - Is a person such as an investor, speculator, or strategist who thinks that a stock, index, or market will decline in value. Compare to Bull.

Bear Spread - Is an option strategy which is structured to profit from price declines in the underlying market. These spreads can be done for credits or debits. They can be built with calls or puts. When these strategies are done one-for-one, then the purchase of the higher strike and the sale of the lower strike establishes the bullish characteristic. Here, the common strategies are vertical, diagonal, and weighted spreads.

Bearer Bond - Is a security which does not have the owner's name on the certificate. Interest and principal are paid to the person presenting the attached coupons to the agents for payment. This type of ownership compares to registered or book entry form.

Benchmark - Is the standard to measure, monitor, price or evaluate a security or derivative. The treasury market is the benchmark for the corporate, mortgage backed, international and emerging credit markets. Here, securities are priced in terms of yield pickup relative to a comparable treasury. This comparability is often in terms of maturity though duration or average life become more meaningful for securities which have option characteristics.

BEST® Pricing - Is a sophisticated pricing algorithm and methodology. It sifts and compares live actual prices when available. If live market prices are not available, then it jumps to a dynamic, sequential and hierarchical pricing module which generates fair price estimates for evaluation and trading purposes.

Bet - Is slang for a market position.

Beta - Is a quantitative measure of a security, basket, or funds behavior relative to the market or benchmark. This relationship typically represents the historic price movement of a specific security against the movement in the S&P 500. A beta of 1.35 would indicate that the security move 1.35 times the movement in the S&P or 35% greater variability. The S&P 500 is considered having a beta of 1.00. Betas less than 1.00 are considered less variable than the market, betas greater than 1.00 are considered more variable than the market and negative betas are considered as inversely related to the market.

BEO - Is Book-Entry-Only.

BEY - See Bond Equivalent Yield.

Bid - Is the price that a buyer is willing to pay.

Bid Form - Is a document submitted by an underwriter for a competitive municipal security bid.

Big Board - Refers to the New York Stock Exchange.

Binary Option - Is an option that has two outcomes. Generally, it is structured to pay a predetermined fixed amount when in the money or pay nothing when out of the money.

Binder - Refers to the small but important amount of funds which accompany an offer to purchase real estate. This offer is usually written as an agreement to contract for the property. Each state and locality have varying laws about this action. It can be very binding.

BIS - Is the Bank for International Settlements.

BITS - Is the Banking Industry Technology Secretariat.

Black Box - Is software that is used for proprietary trading or analytical purposes. The key rules and core algorithms are not revealed to the users.

Black Option Model - Is the Black-Scholes option model modified by Fischer Black for the futures markets.

Black-Scholes Option Model - Is the seminal work about options pricing models. It was developed by Fisher Black and Myron Scholes. It initially focused on securities prices. Subsequently, it was refined by Fisher Black for the futures markets. Most options models depart from this seed.

Blended Trade - Is the combination of two or more bonds or tranches executed as a single position. Often this is done to offset the individual, lopsided risks in two very different instruments. By doing such a trade, an investor or portfolio manager is trying to create a more stable investment.

Blind Pool - Is a limited partnership financing vehicle. The exact assets to be invested in are not specified or known.

bln or BLN - Refers to a billion. Some use b or B to refer to a billion as well.

Blotter - Is a trading record which is prepared for each business day. Often this is the primary data entry for a dealer or proprietary trader. Orders are recorded in a chronological sequence. When customer orders are involved, the price, quantity, instrument and customer identification are recorded. Also, time stamping of the order is required. This time stamping typically occurs on the order ticket. Often tickets and blotters are interchangeable.

BLS - Is the Bureau of Labor Statistics.

Blue List - Is the daily report which lists interdealer quotes for municipal bonds.

Boiler Shop or Boiler Room - Refers to an organization which uses high pressure and/or deceptive sales practices to obtain customer orders.

Boiler Shop or Boiler Room Tactics - Refers to high pressure sales pitches or presentations. Often these brokers or firms relentlessly pursue customers until they get an order. It is not pure persistence.

Bond Arbitrage Hedge Funds - Try to capture interest rate differentials or spreads due to mispricing or better financing than general market participants can attain. Sometimes, there can be a yield pickup due to convergence between two instruments, a pricing discrepancy due to inefficient evaluations of senior and junior credit risks, or relative value differences.

Bond Equivalent Yield - Is the procedure which relates discounted rates such as treasury bills and eurodollars to a bond standard. It is typical for discounted paper to be computed on the basis of a 360-day year whereas bonds are usually based on a 365 day year. If this equivalency is not done then the quoted short-term rates for discounted instruments may be understated.

Bond Funds - Are mutual funds that invest in credit instruments. There can be distinctions, such as, treasury, international, sovereign, mortgage backed, investment grade corporate and high yield or junk bonds.

Book - Is a term which has several meanings. It can refer to a broker's client list; it may refer to the size and variety of a trader's or trading desk's positions; it may also refer to the process of recording a trade or transaction.

Compare to Books.

Book Entry - Is the process or the name given to securities whose ownership and transfer occurs on a computer system. For treasuries and agencies this system is maintained by the Federal Reserve.

Book Runner - Refers to the lead or managing underwriter who "runs" or maintains the books for the transaction. Often, this underwriter is given total credit for the size of the deal in some metrics. Here, the total value of the deal would be credited to that underwriter as if they solely did the deal. Of course, other parties would receive their renumeration.

Book Transfer - Is the conveyance or change in ownership without a physical delivery.

Books - Refer to the accounting records or the Official Books and Records of an organization, person, or financial institution.

Compare to Book.

Bootstrapping - Is the technique the initiate a sample or process. It can use a piece of data to generate or infer other data. These other data are not necessarily observations.

Borrow - Is the term which indicates a credit relationship. In securities it can refer to borrowing funds or borrowing securities. When borrowing funds it is for margin for financing purposes. When borrowing securities, it is for short selling or hedging purposes.

Bottom line - Is a term that has several meanings which depend on usage and context.

Box - Has two primary meanings. It can refer to an options strategy or an operations term. For the later, it is the safe, cabinet, or other physical depository for securities which is located in the back office.

When box refers to an to an options strategy it is the placement of both a bull and a bear spread. One spread is comprised of puts and the other is comprised of calls. Both spreads have the same expiration. It is an arbitrage technique which self-liquidates at expiration. Boxes can be executed as either debit or credit strategies.

Breakeven Point - Is the level whereby an investor neither profits or loses. It is often used in options and other derivatives trading. Aside from transaction costs such as commissions, fees or spreads, there is usually a premium involved. For example, the breakeven point for a purchase call would be the strike price plus the premium to establish the effective breakeven strike price or breakeven level. In the case of a purchased put, it would be the strike price of the put adjusted by the paid premium. The market has to move down through the strike price by an amount equal to the premium paid. This effectively means that the breakeven level is lower than the contract's exercise price.

Breakout - Is the departure from a trading range. It can be on the upside or the downside.

Bridge Bank - Is an organization which is created to serve as a vehicle to transport damaged loans or securities from an ailing financial institution. Often these nonperforming securities are package into securities or portfolios, which may be, acquired by turn-around specialists or vulture funds at significantly discounted prices. This activity can help improve the creditworthiness of the impaired financial institution because loans or securities in default are no longer held by that institution. This frees up regulatory capital for other purposes and removes impediments for complying with various regulatory bodies and banking laws. It should be noted that from a banking, brokerage or insurance perspective, illiquid or defaulted loans and securities have substantially higher regulatory capital haircuts relative to most other liquid securities. See Special Purpose Vehicle.

Bridge Loan - Is a type of temporary financing which is extended until permanent financing is secured. At that time, funds from the new permanent financing are used to pay off the bridge loan.

Broker - Is the party who acts as an agent for his customer. The broker receives a commission as compensation. This person is also known as an AE, AP, IE, RR, or registered customer support person. Brokers are required to be licensed according to product lines and states when required.

BTAN or BTANs - Are coupon treasury bills offered by the French Government. The maturities range between 2 to 5 years. The fixed interest is paid annually. These securities are issued on a fungible basis.

BTU or BTUs - Refer to British Thermal Units. It measures the heating quality of different fuels against a common standard. This unit provides for comparative analyses.

Buba - Is the Bundesbank.

Bucket Shop - Refers to an organization which solicits customer orders but does not execute them immediately for the benefit of the customer. Rather it holds these orders, and tries to improve its own trading basis or advantage to the detriment of the client.

Bucketing or to Bucket Trades - Refers to several illegal activities. Most common is the holding of customer orders by a broker who does not report an immediate execution to the client. In this case the broker would try to take advantage of a known buy (or sell) and do an intermediate trade for himself.

Buckets - Refer to categories for securities or derivatives. Some buckets refer to maturity classifications, such as, 3, 6, 12 month buckets. There are many other designations as well. The term can also refer to duration adjusted groups, option adjusted groups, and other predefined categories which represent a dominant, common feature.

Bull - Is a person such as an investor, speculator, or strategist who thinks that a stock, index, or market will appreciate in value. Compare to Bear.

Bull Spread - Is an option strategy which is structured to profit from price increases in the underlying market. These spreads can be done for credits or debits. They can be built with calls or puts. When these strategies are done one-for-one, then the purchase of the lower strike and the sale of the higher strike establish the bullish characteristic. Here, the common strategies are vertical, diagonal, and weighted spreads.

Bullet - Is a type of credit security which repays the entire principal on the maturity date. Prior to the maturity or prepayment of the bond, interest payments are to be made in accordance with the payment schedule.

Treasury and Corporate bonds pay off in lump sum principal amounts whereas many mortgages pay off on an amortization basis.

Bundle - Refers to copper cathodes which are strapped together.

Bundles - Are variations of strip trades whereby a trader or risk manager can place a series of calendar month contracts in one transaction. Packs can be bought or sold. They are quoted in quarter basis points from the previous settlement price. These transactions expedite credit market positions and swap hedges and adjustments. One can also trade bundles on a forward basis comparable to other money and credit market instruments.

Burnout - Is a phenomenon in the mortgage market. It represents the tendency of pools to become less sensitive to interest rate declines with the passage of time. While there may have been a surge in prepayments due to declining interest rates, the remaining mortgages do not prepay as quickly as the previous ones in the pools. It is implied that these remaining mortgages are less vulnerable to further accelerated prepayment risks.

Butterfly Option Spread - Is an options strategy which uses three strike prices for the same instrument and same expiration date. It can consist of the sale of two at-the-money options (puts or calls) and the purchase of one (put or call) at a higher strike price and the purchase of one (put or call) at a lower strike price.

Butterfly Trade - Is the sale of two units of a futures contract and the purchase of two units of a futures contract. Here, the contracts are positioned across three different delivery months. One pattern would be buy 1 March, Sell 2 April, and Buy 1 May. This strategy is also used in the credit markets.

Buy-In - Occurs when a seller or short seller fails to deliver the securities required to satisfy a transaction's terms. The net financial impact of this transaction is charged to the account of the seller.

Buy on Close - Is an order to make a purchase on the close. It can be a market or limit order.

Buy on Opening - Is an order to make a purchase on the opening. It can be a market or limit order.

Buyer's Market - Refers to a situation when a purchaser has greater flexibility and influence in receiving concessions. Often the choices are more plentiful and the prices lower than previously transacted.

Buying Power - Refers to the amount of securities that can be purchased in a margin account.

Buy-side or Buyside - Refers to financial organizations which tend to be natural buyers of securities, such as, mutual funds, insurance companies, and money managers. 

Cage - Is the area of the back office where securities, checks, and limited amounts of cash are processed and held.

Calendar Spread - See Horizontal Spread.

Call Option - Is a contract whereby the purchaser, owner or holder is given the right but is not obligated to purchase the underlying security or commodity at a fixed strike price within a limited time frame.

Cancel - Is the instruction to terminate an order either in its entirety or remainder.

CAO - Is the Chief Administrative Officer.

Cap - Is the ceiling, upper limit price, or interest rate which would be paid. It is analogous to a long call position.

Capital Asset Pricing Model - Is a tool that relates an asset's expected return to the market's expected return. It combines the concepts of efficient capital markets with risk premiums. The idea of capital market efficiency assumes immediate - instantaneous - response to perfect or near perfect information. The risk premiums relate an investment to the market's risk-free or riskless rate of return. Typically, this risk-free rate is viewed in terms of principal safety for short term U.S. government obligations. Here, beta relates the volatility of an asset to the market.

Capital Stock - Refers to all the common and preferred shares, if any, for a corporation.

Capital Surplus - Refers to the accounting difference between the amount received by the initial sale of a corporation's stock less the par value of that stock. Since many new issues are sold at prices in excess of the par value, the proceeds component can be significant. Other related terms are Paid-In Capital or Paid-In Surplus.

CAPM - See Capital Asset Pricing Model.

Carry - See Positive Carry and Negative Carry.

Carryin - Is the amount of inventory or supply which is brought into a new crop year or season.

Carrying Broker - Is the clearing member Futures Commission Merchant (FCM) which clears trades for customers and/or other Futures Commission Merchants.

Carrying Charge - Is the amount to carry an inventory or carry a position for a set period such as a month. In the case of securities it is the funding with an allowance for dividends or interest income. For commodities, it includes storage, insurance and cost of funds.

Carrying Charge Market - Is the implied term structure for a commodity market. It lists progressively higher prices for the more distant delivery months. This progression in prices reflects the assumption of cumulatively higher storage and financing costs over time.

Carryover or Carryout - Is the amount of inventory or supply which exists at the end of a season or crop year and is added to the supply for the new crop year.

Cash - Is a term used in several ways. Sometimes refers to immediate funds, the settlement payment on the trade date, instruments which display high degrees of liquidity and act as cash equivalents, or the spot market.

Cash Cow - Is a security, investment or a project which generates or throws off lots of funds due to contacts or contracts. Sometimes, the basis for this asset is an excellent customer, a monopolistic market position, or special advantage afforded by patents, licenses, or other economic properties. This cash flow can be used for many purposes. Typically, this situation constitutes the fundamental franchise of a business.

Cash Equivalent Security - Is a term which has several meanings. It often refers to high grade instruments which are very liquid and have very little time to maturity. Among these are treasury bills, commercial paper, and bankers' acceptances. In a somewhat broader sense it can include money market shares and short-term municipal paper.

Cash on Delivery or C.O.D. (COD) Transaction - Occurs when the buyer of securities pays for them when the actual delivery is made at the buyer's bank. This transaction is also known as a DVP or Delivery versus Payment. Regulation T states other conditions for DVPs.

Cash Sale or Cash Transaction - Is a transaction which calls for cash payment, delivering and settlement on the same day as the trade. This compares to a Regular Way transaction which are traded on one day and settled on a different day in accordance with industry standards or special terms.

Cash Settlement - Is the practice of making a final cash payment or adjustment for an open position. This process differs from early or traditional futures markets that required either a futures contract offset or the delivery of a physical commodity. The cash settlement process recognizes the insurability factor of risk management products. This trend towards cash settlements reduces instability due to squeezes, weather, or other disruptive variables.

Cathode - Refers to copper which is in flat bar form and is exchange tradeable.

CATS - Are Certificates of Accrual on Treasury Securities. In a generic sense, the sliced off interest payments or coupons are called strips or zeroes. At those times the discounted bond principal is referred to as the Corpus.

CBO - Is a Collateralized Bond Obligation. It is similar in structure to a CMO deal.

CBOE - Is the Chicago Board Options Exchange.

CBOT - Is the Chicago Board of Trade.

Century Bonds - Are securities with a maturity equal to 100 years.

CEO - Is the Chief Executive Officer.

CF/D or CFD - Refers to Cubic Feet per Day. It measures the rate of flow at at gas well or pipeline.

CFO - Is the Chief Financial Officer.

Cheap - Is a term used in relative value analysis. The cash flow characteristics, when analyzed against a benchmark or comparison bond, suggest an under-valued security. This implies that the former security has arbitrage potential against the comparative security.

CHECCS - Is the Clearing House Electronic Check Clearing System.

CHIPS - Is the Clearing House Interbank Payments System.

Churning - Is an excessive amount of trading of customer funds by a broker. The intent is to generate commission or brokerage fees and not client performance.

CIF - Refers to Cost, Insurance and Freight.

CINS - Is the CUSIP International Numbering System for securities traded on a global basis and which originated outside the United States or Canada.

CIO - Is the Chief Investment Officer. Sometimes, the term is used to refer to the Chief Information Officer.

Class - Is the total of all options of the same type, put or call, which have the same expiration date.

Clearing - Is the process of financial guarantee between clearing members. This activity intends to eliminate the risk of contractual or transactional default.

Clearing House or Clearinghouse - Is a facility which serves as a buyer to the seller and a seller to the buyer. It effectively guarantees the performance of transactions between its member participants. Trades processed by a clearinghouse are generally assumed, though not guaranteed, to be free from financial failure.

Clearing Member - Is a person that is associated as a responsible party for activities related to the clearance of futures, options, or securities transactions.

CLO - See Collateralized Loan Obligation.

Close Out - Is the action taken by a brokerage firm when a client failed to pay for previously purchased securities. Here, the brokerage firm will sell the aforementioned securities.

Closed End Investment Company or Fund - Is an investment vehicle that issues shares in a fashion similar to other corporations. The number of shares outstanding is relatively fixed unlike open end investment funds which tend to have variable shares outstanding. Closed End shares can trade at a premium or discount to the net asset value.

Closing or to Close for Real Estate - Is the meeting which finalizes a real estate transaction. The deed is transferred from the seller to the buyer. Financial settlement is made at that time.

Closing Transaction - Refers to the sale or purchase of an option contract which offsets a previously established open position.

CMBS - Refers to Commercial Mortgage Backed Securities. These securities are verisimilar to Mortgage Backed Securities in terms of structure, flexibility, and variety of tranches or tiers. The key difference is that CMBS are collateralized by commercial properties and not residential mortgages.

CME - Is the Chicago Mercantile Exchange.

CMO - See Collateralized Mortgage Obligation.

CNS - Is the Continuous Net Settlement system. It is operated by the National Securities Clearing Corporation (NSCC) and is the largest primary clearance operation.

Coefficient of Variation - Is a statistic which is used to determine the degree of relative dispersion. It extends standard deviation analyses. By definition, standard deviations are statistical measures of absolute dispersion. Therefore, it is difficult to compare the variability of two different asset classes or assets within those classses. It is computed by dividing the standard deviation of Asset I by the mean of Asset I. Similarly, the standard deviation of Asset II is divided by the mean of Asset II and so forth. These multiple coefficient of variation can then be compared against one another.

COFI - See the Cost of Funds Index.

Coinsurance - Is a hedging or risk management term. It refers to the amount of loss that the investor is positioned to take. When a firm is 85 percent hedged, then it is said that the firm is coinsuring the remainder or 15 percent. When an individual holds 100 shares of stock priced at $80/share and is also long a put with a $75 strike price, the individual is said to be coinsuring for $500 or the difference between the market price and the exercise price.

Collar - Is the combination of a long Cap position and a short Floor position. It is sometimes called a range forward or a fence. Generally, it is structured so that the net cost of the collar is zero or close to zero. This means that the debit expense for the long cap premium is offset by the credit received for the short floor premium.

This term is also used to define the prepayment speed range for a credit instrument.

Collateral - Is the underlying security, mortgage, or asset for the purposes of securitization or borrowing and lending activities. It is pledged or held in trust.

Collateral Trust Bond - Is a security issued by a corporation and is secured by other securities. This bond compares to Mortgage Backed Securities which are secured by real property or unsecured bonds. Depending on the underlying collateral and the terms of the issue, these bonds can offer somewhat better financing rates to the issuer.

Collateralized Loan Obligation - Is similar in structure to the Collateralized Mortgage Obligation. See Collateralized Mortgage Obligation for analogous terms.

Collateralized Mortgage Obligation - Is a complex bond structure which reallocates interest and principal payment streams. These tranches, which are often designated as A to Z pieces or securities, are engineered from mortgage backed securities used as the underlying collateral. Collateralized Mortgage Obligations come in many shapes and sizes and are often viewed as unique constructions. Some of the more commonly named tranches are: Interest Only, Principal Only, Floater, Inverse Floater, Planned Amortization Class, Support, Scheduled, Sequential, Targeted Amortization Class, and Z or Accrual Bond. Often, many of these securities contain option characteristics. Related structures are Collateralized Bond Obligations and Collateralized Loan Obligations.

Collateralized Obligation - Is the generic term for a structure that carves up the initial cash flow from a similar set of assets into a new and often unique arrangement. By dividing and redistributing the cash flows, both principal and interest, the structure alters the disbursement of the underlying collateral cash flows into several securities. Some of these securities may experience greater stability whereas others may absorb more of the risky characteristics of the underlying assets. Under various circumstances, these structures can improve the credit rating of some of the deal's components. Specific categories of these structures are Collateralized Bond Obligations, Collateralized Loan Obligations, and Collateralized Mortgage Obligations.

Combination - Is an option strategy consisting of multiple parts. These parts can be puts and calls which are arranged as a single position.

Commercial - Refers to a firm in the actual business of growing, mining, processing or otherwise bona fide commercial activity for a commodity market. This compares to Funds or Speculators.

Commercial Paper - Is an unsecured, short-term instrument. It has a maximum maturity of 270 days. It is issued by companies which have high credit ratings. This instrument is a cash management tool to finance short-term financial needs. It should be noted that corporate downgrades or bankruptcies can severely damage the value of these instruments.

Commingling - Is the illegal mixing or pooling of client and broker/dealer or Futures Commission Merchant (FCM) funds, securities, or positions.

Commission Run - Is a report generated by a brokerage firm which lists the commission revenue generated by each broker (AE, IE, or RR). It comes it various forms but the usual data include: customer name, customer account number, instrument traded, quantity traded, price traded, trade date, commission generated (gross, net) and sometimes cumulative. These reports can also show payout rates, payout matrices, draw amounts and other information related to revenue generation.

Commodity or Commodities - Are often viewed as the futures markets on both physical and financial items. Sometimes, commodities is used more narrowly to refer to physical goods such as, gold, silver, wheat, and pork bellies. Then financial futures would refer to stock indices, eurodollars, treasuries, currencies, and other security-type instruments.

Commodity Funds - Are investment vehicles that invest in futures and options on futures. Commodities can include the tradition grains, metals, and livestock as well as stock indices, currencies, and other financials.

Commodity Month Alphabetic Symbols or Codes - Are letters which represent different delivery months for futures and options on futures contracts.

• F - represents the January Delivery Month.
• G - represents the February Delivery Month.
• H - represents the March Delivery Month.
• J - represents the April Delivery Month.
• K - represents the May Delivery Month.
• M - represents the June Delivery Month.
• N - represents the July Delivery Month.
• Q - represents the August Delivery Month.
• U - represents the September Delivery Month.
• V - represents the October Delivery Month.
• X - represents the November Delivery Month.
• Z - represents the December Delivery Month.

Commodity Pools - Are trading vehicles which combine investment funds from several different persons and trades the sum as one account. This entity is focused on futures and options on futures trading.

Commodity Year Color Codes - Are used to distinguish different years available for trading. The following list reflects the 10 year Eurodollar strip.

• White - Year 1
• Red - Year 2
• Green - Year 3
• Blue - Year 4
• Gold - Year 5
• Purple - Year 6
• Orange - Year 7
• Pink - Year 8
• Silver - Year 9
• Copper - Year 10.

Common Stock - Is the shareholder's equity stake in a corporation. Sometimes, there are different classes of stock that may have greater or lesser voting rights than the ordinary common shares. For many years the New York Stock Exchange only permitted one class of common stock for a listed corporation.

Community Property - Refers to assets or a method of ownership. Generally, it means that each spouse owns a 50 percent interest in an account. Upon the death of one spouse, the survivor claims his or her ownership of one-half of the asset. The other half will pass in accordance to will or to law. Each state is different in its laws and interpretations. Some states that recognize this method are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Companion - Is a bond engineered to support or uphold Planned Amortization Class (PAC) and Targeted Amortization Class securities. Also, referred to as a Support Bond.

Comparative Advantage - Refers to the relative advantage between trading parties. It explains why transactions occur even in the absence of absolute advantage. The basis for trade, specialization, and swap transactions.

Compliance - Is the area or the process which has responsibility for firm and employee adherence to the rules and regulations which govern the broker/dealer business. This includes but is not limited to The Powers and Authorities for the firm's position taking and trading limits, guidelines indicated in the employee compliance handbook, registrations, continuing education, sales literature, and employee trading activities. Generally, compliance functions are partitioned between registrations and other rules and guidelines. Non-selling employees are usually in compliance to avoid conflicts-of-interest. However, there are exemptions for very small organizations.

Complex Order - Is an order which has multiple requirements. It can contain contingencies, stops, stop limits, time instructions and other elements.

Compliance Registered Options Principal - Is the designated supervisor within a firm who is responsible for the firm and its employees to abide by the rules and regulations governing options. In particular, this person has oversight on sales literature and advertising. Advertising must also be submitted to outside regulatory bodies. Generally, the Compliance Registered Options Principal may not also be the Senior Registered Options Principal. However, an exception is provided for firms do not exceed a certain threshold in terms of revenue. This person is Securities Series 4 licensed.

Compound Option - Is an option which is related to another option. A sequence on options such as a call on a subsequent call.

Composite Delta - Is the weighted average of the deltas associated with each underlying price scan point. It is used by SPAN® and other systems to simplify portfolio evaluations. SPAN® uses its Composite Delta as the best quick estimate of what the contract's delta will be after the lookahead time has passed. It is included with the risk arrays transmitted in the SPAN® Risk Parameter File.

Comps or Comparables - Refer to pricing or evaluation benchmarking efforts. In real estate the term is used to determine comparable properties for evaluation or assessment purposes.

Conditional Analysis - Is the expectational methodology which is probability-based, event-driven, and operates within a market environment which has dominant and secondary aspects.

Conditional Order - See Contingent Order.

Condominium - Refers to a form of real estate ownership. Here, the owner holds title to a specific unit or dwelling while also holding an interest the property's common areas.

Condor - Is an option spread strategy which is akin to a butterfly. Here, there are four different strike prices (instead of three for the butterfly) for the same instrument and for the same date. Condors can be constructed with either calls or puts. They can be either long or short. A long condor entails the purchase of a low strike call, the sale of 2 different intermediate strike calls, and the purchase of a relatively higher strike call.

Confirm - Is a ratification of an order. Usually it is in written form, however verbal confirms must be subsequently validated by a written record of the transaction. See confirmation.

Confirmation - All executed orders require a written record or report which indicates an executed order or transaction. Depending on regulatory organization, confirms typically must be sent by the next business day of a transaction.

Congestion - Refers to trading activity which occurs between to visible boundaries. Often this area is tight or relatively narrow in terms of amplitude.

Constant Maturity - Is a devise which fixes maturities or time to expiration for a bonds or derivatives. This fixation of time period enables one to compare and analyze assets or instruments in terms of all other things variable except for time.

Constant Maturity Treasuries (CMT) - Are securities tied to an index which represents what the rate of interest would be for a constant maturity treasury issue such as 3, 6, or 12 months. Other time periods can be specified. These type of securities and indices are frequently used for adjustable rate securities.

Contango - Is the normal or carrying charge structure for a commodity market. It lists progressively higher prices for the more distant delivery months. This progression in prices reflects implicitly cumulatively higher storage and financing costs.

Contingent Order - Is an order with at least one contingency attached. Contingencies can be specific times or events.

Convenience Yield - Is the assumed or expected benefit of holding a long position in a physical commodity. Othen this holding is to satisfy existing near-term delivery commitments or to maintain uninterrupted manufacturing processes. It highlights the marginal value of an inventory relative to the anticipated usage.

Convergence - Is the behavior of a cash commodity or the underlying security instrument and the derivative moving towards one another.

Conversion - Is the action of transforming a security into another security. A convertible bond, when exercised, will convert into the stipulated number of common shares.

Conversion Clause - Refers to a mortgage loan provision. It defines and allows an Adjustable Rate Mortgage (ARM) to be converted into a Fixed Rate Mortgage.

Conversion Factor - For the credit futures markets, it is the number that relates different coupons and acceptable deliverable maturities for delivery against the contract standard of an 8 percent coupon and the stipulated acceptable time remaining to maturity specifications.

For the security markets, it is the contractual number that indicates how many shares a convertible security can be exercised into at any point in time.

Conversion Ratio - Is the number of common shares that a convertible bond or other security can be exchanged upon exercise.

Convertible - Is a security which can be exercised into another security. Examples of convertibles are bonds, preferred stocks, warrants, and some swap agreements.

Convertible Bond - Is a credit instrument which is convertible into equity. Usually, this conversion is done at the discretion and exercise of the bond holder and not the corporation. However, there may be forced conversions due to stipulated events such as takeovers or call options in favor of the issuer. Generally, convertible bonds are coupons paying but there are zero coupon convertible bonds as well. These bonds tend to have lower-than-market rates of interest in exchange for a potential equity stake for the bondholder.

Convertible Preferred - Is a preferred stock which is convertible into common stock.

Convertible Securities Hedge Funds - Generally look to purchase the bonds or preferred securities and sell common shares against these long positions. The intent is to hedge interest or dividend paying securities with low or no dividend common shares. In the event of a default the bonds and other securities have priority to the common shares. Also, the bonds or preferred stocks usually generate positive cash flows whereas the short positions are generally not responsible for dividend payments. Therefore the fund should have a positive cash flow and protected by relative seniority position in corporate securities. These funds also use warrants and options as portfolio instruments.

Convexity - Is the second derivative of the price/yield curve for a bond.

Cooperative or Co-op - Refers to a form of real estate ownership. Here, the property is owned by shareholders. Each shareholder owns proprietary rights to a specific unit or dwelling while also owning an interest in the entire property. In many places, loans for such properties are effectively personal loans securitized by the shares of ownership. This is different from the usual real estate mortgage loan which is directly secured by the underlying real property.

Corner - Refers to a market condition whereby an individual or group of individuals have gained control of a commodity or market.

Corporate Bonds - Are obligations issued by corporations. They are frequently categorized as follows:

• Intermediate Corporates,
• Distressed Securities,
• Junk Bonds,
• Long Industrials,
• Tennessee Valley Authority Bonds,
• Utilities.

Corporate Charter - Is a document which lists the objectives, powers, and authorities of a corporation. It indicates what the corporation can and cannot do. Some corporations have relatively narrow charters whereas other basically state that they may engage in any legal business activity. Some charters preclude speculative or outside investment activities. It is necessary to obtain a copy of a corporate charter before opening a securities, futures, or derivatives account. This is to determine whether the corporation is empowered to conduct such activities, with whom, and by whom. Corporate Charters are sometimes referred to as Articles of Incorporation.

Corporate Resolution - Is a document which empowers and lists which individuals and departments can trade, invest, speculate, or hedge on the behalf of the corporation. Resolutions are passed on a case-by-case basis unlike the Corporate Charter. This document is authorized by the Board of Directors.

Corpus - Refers to the final or underlying principal amount which has been stripped, discounted and sold as a zero coupon bond.

Correlation - Is the statistical relationship between two variables. It indicates how they move together and not necessarily casual relationship.

Correspondent - Is a financial institution which performs activities or services for another financial institution. Sometimes, this arrangement occurs because of a lack of physical presence in a particular geographic area. Other times it may be due to an outsourcing or need for specialized services such as clearance and physical transfers of securities.

Cost of Funds Index - Is a benchmark used for resetting the coupon rate on an adjustable rate mortgage. Frequently, this is based on the cost of the 11th District Federal Home Loan Bank funds. This district includes Arizona, California and Nevada.

Coupon - Is the contractual rate of interest on a credit instrument.

Covenants - Are formal conditions or clauses which are written into credit agreements. Often the document which contains these covenants and terms is called the indenture.

Covered Warrant - Is a derivative contract written against the underlying stock position. However, these warrants are not issued by the corporation of the underlying security but they are offered by investment underwriters. There are also put and call warrants written against indices, baskets, and other securities.

Covered Write - Is the sale of an option against a position in the underlying instrument. Often this is the sale of a call against a long position in the stock. It could also be the sale of a put against a short position in the stock. Here, if the put is exercised, a long stock position is assigned to the seller of the option. Then this newly acquired long position is offset by the previously held short position. The covered write can also apply to warrant and other option positions.

CPA - Is a Certified Public Account.

CPV - See Current Principal Value.

CR, Cr, or cr - Refers to a credit or the process of crediting an account.

Crack Spread - Is the purchase of crude oil against the sale of the refined products. In futures trading, it is the simultaneous purchase of crude oil futures versus the sale of heating oil and gasoline futures. The spread differentials reflect the potential refining margins or profitability. The spread computes the cost of the raw commodity input, crude oil, and its refined products, gasoline and heating oil. Compare to Reverse Crack Spread.

Credit Crunch - Occurs when credit availability is so restricted that normal economic or financial activity is adversely impacted. It is a more extreme case of credit rationing which has tightened.

Credit Rating Services - Refers to companies that rate public, private or consumer credit ratings. The primary credit rating companies for sovereign or country and corporate ratings are: Duff and Phelps Credit Rating Company, Moodys, andStandard and Poors.

Credit Rationing - Occurs when the terms a borrowing relationship become more restrictive. For example, higher margin requirements for security transactions indicates tighter credit requirements.

Credit Risk - Is the risk related to counterparty failure. It is a key concern for Over-the-Counter transactions. This compares to listed trades passing through a clearinghouse.

Credit Spread - Is an option position whereby the end result is a credit. For example, the investor who places a vertical bear call spread receives a credit. Similarly, the trader who places a vertical bull put spread receives a premium credit.

Crop - Is the yield or harvest of a planting or other agricultural or animal husbandry activity.

CROP - See Compliance Registered Options Principal.

Crop Year - Is a time span which does not necessarily correspond to a calendar year. A crop year commences with the beginning of the harvest and continues until the start of the next harvest. Each crop has its own specifications.

Cross Hedge - Is the use of a futures or other derivative contract as a risk management tool where the specifications of the underlying and the derivative do not match. However, there should be a reasonable economic rationale for doing this action.

Cross Trade - Is a transaction that is not exposed to the public by outcry or usual trading practices. This type of matching trade is permissible provided it is done in accordance with the rules and regulations of the particular exchange and other regulatory organizations. The letter X can indicate this type of transaction on a ticker tape. It may be also used on a ticket or blotter. See the related Ex-Pit and Exchange for Physicals.

Crossed Market - Occurs when a broker/dealer's bid is greater than the lowest or best offer made by another. This condition can also occur when a broker/dealer's offer is lower than another's bid. Sometimes, this can occur because of slow updates in a broker/dealer's range of marketing making activities. However, when a crossed market occurs because of intention behavior, then this activity is prohibited by the NASD.

Crush Spread - Is the purchase of soybeans against the sale of the processed products. In futures trading, it is the simultaneous purchase of soybean futures versus the sale of soybean oil and soybean meal futures. The spread differentials reflect the potential processing margins or profitability. Here, the spread implies that the cost of the raw commodity input, soybeans, is cheap to its processed products. Compare to Reverse Crush Spread.

CSCE - Is the Coffee, Sugar & Cocoa Exchange.

CSE - Is the Chicago Stock Exchange.

CTO - Is the Chief Technology Officer.

Cum - Is derived from Latin and refers to "with," "attached," or "included." This compares to Ex-.

Cumulative Preferred - Is a security which maintains priority in the receipt of dividends relative to common shares. It also maintains the right to collect or recover any dividends that were not paid due to temporary cash shortages.

Curb - Is another name for the American Stock Exchange. The term originated when the early membership literally did transactions on the street curb.

Currencies and Major Foreign Market Hedge Funds - Invest in securities and derivatives which go across borders. These funds try to capitalize on interest rate differentials between currencies, varying investment climates for different countries, relative volatilities in equity or credit markets, and variations of the other hedge fund themes.

Current Assets - Refer to properties or items which are expected to be paid or sold within a year. The specific list is broad but can be categorized as cash, cash equivalents, securitized liquid investments, accounts receivable, inventories, and securities maturing within a year.

Current Liabilities - Refer to obligations due and payable within a year.

Current Principal Factor - Is the statistic which is multiplied against the initial principal amount to indicate the current outstanding principal amount.

Current Principal Value - Is the adjusted outstanding amount of mortgage indebtedness. It is computed by multiplying the initial principal amount by the Current Principal Factor. This factor reflects any accretions in part due to negative amortization, any ordinary principal payments and accelerated principal payments. The greater the divergence between the ordinary expectation for principal and current principal amount is a reflection of the prepayment events.

Current Ratio - Refers to the amount of an entity's current assets divided by the amount of current liabilities.

CUSIP - Is commonly understood to be the alphanumeric coding system for securities. It can refer to the identification of a specific security. The term is based on the work of the Committee on Uniform Securities Identification Procedures.

Cusp- Is a term which indicates the at-the-money level or current coupon issuance rate for securities. It tends to be used more frequently in the mortgage backed securities business. Also, it is used in options to indicate highly sensitive derivative statistics.

CXL - Refers to Cancel or Cancellation.

Cyclic or Cyclical Analysis - Is the study of recurring, preferably periodic, movements in prices or other time series.

Dated Date - Is the date from which interest accrues on a newly issued municipal security.

Day Order - Is an order to trade securities, derivatives or futures which expires at the end of the trading day for which it was entered.

Day Trader - Is a market participant who has a same-day transaction horizon. Often the positions are held for minutes or hours but they are offset by the end-of-the-market-day.

Day Trading - Is the investment, speculation or risk management approach which is limited to intraday activity with little or no overnight carrying of positions.

DB, Db, db, or DR - Refers to a debit or the process of debiting an account.

DEA - Is the Designated Examination Authority.

Dealer - Is an organization which transacts trades on the behalf of its proprietary account. This activity is opposed to a broker which transacts trades for the account of its customer.

The dealer is usually compensated by the spread.

DEaR, DEAR, or Dear - Refers to the Daily Earnings at Risk. It is a proxy for maximum expected losses on a daily basis. It is usually viewed with a 95 percent probability or confidence level. This assumes an underlying normal distribution and independence of returns. At the 95 percent level, it is equivalent to 1.65 standard deviations.

Debit Spread - Is an option position whereby the end result is a debit. For example, the investor who places a vertical bull call spread pays a net premium or is debited. Similarly, a risk manager who places a vertical bear put spread is charged a net premium or is debited.

Debt - Refers to a relationship which obligates a borrower to pay interest and principal. The terms are often in writing and define the relationship. Indentures and and mortgage notes are common types of these written instruments of indebtedness.

Debt Limit - Is the maximum amount of debt which a municipality may issue or incur.

Debt Service - Refers to the yearly obligation of interest and principal payable on a bond issue. Sometimes, the term is used collectively to refer to all debts outstanding.

Debt to Equity Ratio - Refers to the capitalization relationship of securities. Here, it is the amount of bonds and preferred stocks relative to the corporate equity position.

Deck - Refers to the orders held by a floor broker. Often, separate orders are written on individual cards or tickets and the collective amount is a deck.

Default - Occurs when a debtor fails to make interest or principal payments.

Defeasance - See Advanced Refunding.

Deferred Taxes - Are a temporary source of free cash flow. This liability is a non-cash expense until it is paid.

Defined Benefit Plan - Refers to a retirement plan that has a quantified amount to be disbursed or paid out each year. Depending on the plan, there may be maximum and minimum benefit dollar amounts. Often, these benefits depend on years of service, age that benefits start, and possible other income constraints. Some popular plans are pensions or Social Security. Here, benefits are defined in advance but there may not be inflation or cost of living adjustments. Also, better than average investment performance does not increase the level of plan benefits. Compare to Defined Contribution Plan.

Defined Contribution Plan - Refers to a retirement plan that has a quantified amount to be invested each year. Depending on the plan, there may be maximum and minimum contributory dollar amounts. Also, there may be years-of-employment and income constraints. Some popular plans are the 401K and IRA plans. Here, there are no guarantees as to eventual value of plan amount or plan benefits. Poor, moderate, or better than average investment performance directly impacts the value of the account and potential benefits. Compare to Defined Benefit Plan.

Deflate - Is the economic and financial process whereby the monetary and fiscal authorities act to stabilize or reverse an upward trend in general price levels. Monetarists would view this activity as decreasing the money supply.

Deflation - Deflation Is the economic and financial phenomenon which represents declining prices particularly for goods and services. It can occur in countries with strengthening currencies. Here, the cost of imports would tend to decline. It can also occur in countries which are experiencing depressed economic conditions. At such times of declining output, sales of assets generate considerable downside pressure on prices. Deflation can be viewed in monetary terms when the money supply is constracting to such an extent that one unit of currency purchases increased amounts of goods and services.

Delist - Is the removal of securities which were previously approved for trading on a recognized exchange.

Delivery Charges - Is used several ways. It refers to the amount of expense entailed in making or taking a delivery on the futures or cash markets. Also, it is used to reflect the fact that there may be additional risks associated with holding the nearest month in commodity futures contracts. These risks can be potential squeezes, lack of good delivery storage, transportation problems, and other impediments to a smooth and orderly market. To cover for these contingencies, a Delivery-Month Charge will be assessed for the calculation of margins or performance bonds.

Delivery Notice - Is the document which expresses the intent of the seller to make good delivery to a long or buyer of a futures contract.

Delivery Price - Is the invoiced price for a futures contract.

Delta - Is the measurement of the price sensitivity of an option relative to the underlying instrument. Typically, the delta range is expressed between -1.0 to +1.0.

Delta Equivalency - Is used in determining the effective market behavior for combined derivative positions.

Delta Hedge - Is a risk management operation which uses derivative instruments against actual underlying securities or instruments. The composite option characteristic of the combined trade indicates the market exposure experienced by the trading or investing entity at that moment in time. When the market price or interest rate exposure is essentially minimized to zero, then the hedge is considered Delta Neutral.

Delta Neutral - Occurs when the market risk exposure, in terms of price or interest rate level, for an underlying position is completely offset with derivatives. This is a point in time concept because options are decaying assets that may have to be rebalanced in order to maintain delta neutrality.

Denomination - Is the stated Par Value of a credit instrument. A common amount is $1,000 however, other amounts may be specified.

Depreciation - Is the charge against revenues which represents a prorated capitalization of the cost of an asset.

Derivative - Is a financial product which is based upon another product. Futures are based on commodities, financial indices or securities. Options are based on futures, securities or cash markets. Forwards are extensions of the cash market across time. CMOs are derived from MBS and so on. Generally, derivatives are risk management tools, however they are also used for investment or speculative purposes.

For more information about DERIVATIVES, click here.

Designated Order Turnaround - Is the New York Stock Exchange's computerized order entry system. It is also known as DOT.

Devaluation - Refers to the action taken by a country via its central bank or monetary board which reduces the value of its currency vis a vis other currencies. Often, the result is more abrupt than would occur within a floating rate framework.

Diagonal Spread - Is the purchase and sale of puts or calls for the same instrument but for different strike prices and different delivery dates. These strategies can be done for debits or credits. Also, they are bullish or bearish depending on the relationship of the purchased to sold strike price. When the lower strike is purchased and the higher strike is sold then the strategy has a bullish configuration. When the lower strike is sold and the higher strike is purchased then the strategy has a bearish configuration.

Discount - Is the negative differential against the spot price. It can refer to an interest rate, price difference, amount under par, or other similar relationship.

Discount Rate - Is the interest rate used for adjusting for the time value of money for Net Present Value, Option Pricing or other Market Models. It can also refer to the rate that the Federal Reserve charges its members.

Discretionary - Is an order which given a client gives to the broker. The discretion is in terms of price or time and not in terms of buy or sell, instrument or quantity.

Discretionary Account - Is an account whereby another party holds limited or full Power of Attorney over the trading or investment account of another.

Discriminant Analysis - Is a mathematical approach which tries to differentiate between classes, categories or clusters or groups. It is mostly used for Credit Scoring or predicting bankruptcies. It partitions a sample into Yes or No groups, Positive and Negative, or Bullish and Bearish.

Dispersion - Is a statistical indication of variability, volatility, or risk. Some common measures of dispersion are:

• Coefficient of Variation
• Range
• Standard Deviation
• Variance

Distressed Securities - Refer to issues in bankruptcy or other severely impaired securities which have very low credit ratings.

Distribution - Refers to selling often coincident with market tops or consolidations. It also refers to the liquidation, partial or entire, by insiders, control people, or major investors. The term also refers to a disbursement out of a retirement plan or mutual fund.

Distributions - Refers to the various underlying or assumed probabilistic processes. A few distributions are: the Binomial, the Normal, and the Uniform.

Divided Account - Refers to a new issue underwriting whereby each member is responsible to distribute his allocated portion of the deal. After the member sells his portion, his liability ceases with regard to the syndicate. This compares to an Undivided Account.

Dividend or Dividends - Refer to distributions made by a corporation to its shareholders. The shareholders can be common or preferred.

Dividend Date - Is sometimes used to refer to the Date of Record for entitlement to the dividend or the actual Payment Date.

Dividend Payout Ratio - Is computed by dividing the dividends paid on common shares by the net income which would be available for common stockholders.

Dividend Reinvestment - Occurs when a dividend paying organization such as a corporation or mutual fund automatically reinvest the payable dividend into additional shares of that organization. There can be tax implications for this activity.

Dividend Yield - Is a term that can have several different meanings. It can refer to an annualized (cash) dividend rate of return. This is computed by dividing the cash dividend by the price per share at the time of purchase. If the stock were trading at 100 and the dividends equaled $2.80, then the yield would be 2.80 percent.

DK - See Don't Know.

DNR - See Do Not Reduce.

Dog or Dogs - Are underperforming assets or those securities which are out-of-favor. Frequently, the term refers to stocks or other financial positions.

Dollar Cost Averaging - Is the practice of purchasing securities at periodic intervals with fixed dollar amounts regardless of market conditions. The investor does not intend to purchase an equal number of shares at each interval.

Dollar Price - Is the price of a bond expressed as a percentage of face, par, or principal. For example, a dollar price of 98 for a $1,000 denominated bond would be $980 for that bond.

Don't Know - Is a term used brokers, dealers, and traders when there are transaction comparisons. When a transaction does not match up on a party's books or records then a DK notice is sent to the other party.

Do Not Reduce - Is an instruction on an order that notifies the broker or specialist that the client does not want the price to be adjusted for cash dividends.

DOT - See the Designated Order Turnaround.

Double Taxation - Refers to corporate income which is subject to both corporate taxes and individual taxes. Frequently, it is viewed as the case whereby the company's income is taxed and the distribution of that income in the form of a dividend paid to the shareholder as taxed again.

Down-and-In - Is an option feature by which a derivative contract becomes active when an indicator, such as price, drops through a trigger point or threshold. Related topics are Down-and-Out, Up-and-In, and Up-and-Out.

Down-and-Out - Is an option feature by which a derivative contract dies or ceases to exist when an indicator, such as price, drops through a trigger point or threshold. Related topics are Down-and-In, Up-and-In, and Up-and-Out.

Down-Tick - Refers to a trading transaction which is executed at a lower price than the preceding one. It is also known as a Minus-Tick.

Downgrade - Is the lowering, reduction, or negative change in an company's or country's credit rating. Often it can refer to one or more issues.

DPMs - Are Designated Primary Market Makers.

DRIP or DRIPS - Refer to Dividend Reinvestment Programs whereby an investor acquires additional shares of the corporation by having the dividends automatically reinvested.

DSO - Refers to Days Sales Outstanding or Day's Sales Outstanding. It measures the relationship of Accounts Receivables relative to Sales. Different users apply time factors to adjust for quarterly or annual views.

DTB - Is the Deutsche Terminborse.

DTC - Is the Depository Trust Company.

Dual Trading - Occurs when a member of an exchange trades for both his own personal account and executes customer orders as well. Sometimes, it is viewed that the potential for a conflict of interest may be present.

Due on Sale - Is a clause which requires the immediate and full payment of the existing mortgage in the event of a transfer of ownership, sale, death, or some refinancings. This clause is usually specific as to what events will trigger the repayment of the mortgage.

Duration - Is computed by using zero coupon equivalencies to discount all the cash flows of a credit instrument. This statistic is a surrogate for the expected life of the security. In general, the term refers to a quantification of a bond as to its yield and price sensitivity.

• Duration of a zero coupon is its maturity.
• Duration of a coupon security is less than its maturity.
• Duration extends with maturity.
• Duration is inversely related to coupon rate.
• Duration is inversely related to the market rate.

Dynamic Analysis - Is the approach to study market conditions over time. This compares to Static Analysis. 

e - Is the base of natural logarithms or 2.71828.

EAFE or MSCI EAFE - Refers to Morgan Stanley's Europe, Australasia, Far East index. It reflects a widely followed list of stocks from 20 countries.

Early Exercise - Is the exercise of an option by its owner prior to the expiration date.

Earnest Money - Is a deposit made towards the purchase of real property. In some locales it is viewed synonymously with the Binder. Other places consider it as an additional deposit towards the purchase. Here, the amount can be quite large. Often it would accompany a signed sales contract prior to the closing or settlement.

Eastern Account - Refers to an undivided underwriting account. This compares to the Western Account.

EBIT - Refers to Earnings before Interest and Taxes.

EBITDA - Refers to earnings before interest, taxes, depreciation and amortization.

ECDs or ECDS - Are Equity Linked Certificates of Deposit.

ECNs or ECNS - Are Electronic Communications Networks. These platforms, islands or mechanisms serve trading, investing, and risk management purposes.

ECU - Is the European Currency Unit.

ED - Refers to the Eurodollar Futures and Options on Futures contracts.

Effective Date - Is the day that a new issue begins trading in the secondary market. This marks the transition from the initial issuance or Primary Market to the Aftermarket or Secondary Market.

Effective Duration - Measures the percentage change in price for a 1 percentage point or 100 basis point change in interest rates.

Effective Strike Price - Is the adjusted level of the option contract exercise price. A key adjustment is for time value either paid or received.

EFP - See Exchange for Physicals.

EFT - Refers to Electronic Funds Transfer.

EGARCH - Is Exponential Generalized Autoregressive Conditional Heteroskedasticity (GARCH).

Elasticity - Refers to the economic concept of the ability or comparative ease to adjust supply or demand within a changing economy.

Electronic Trading - Is the process whereby customers or their representatives can directly enter orders and receive reports and statements via the internet. It can also include trading with terminals over dedicated telephone lines.

Embedded Option - Is an option whose characteristics are implied but not explicitly specified. One notable example is the option granted a mortgagor (home owner) by the lender. The mortgagor has the right to prepay the mortgage at any time but is not required to do so in any specified manner.

EMCC - Is the Emerging Market Clearing Corporation.

Emerging Markets - Is a term which broadly categorizes countries in the midst of developing their financial markets and economic infrastructures. This development is viewed in terms of freer, more liquid markets, which facilitate trade. Privitization of former state owned or administered businesses is a key factor in this process.

Emerging Markets Funds - Are investment vehicles, either open-end or closed-end, which invest in countries whose economies are becoming more capitalistic. Often this emergence is from socialistic, communistic or other tightly controlled economic systems. There are also Hedge Funds which participate in emerging markets.

Emerging Markets Hedge Funds - Narrow their investment horizon to issues in markets which are not as mature or liquid as the previous group. However, these less developed markets are believed to offer greater risk adjusted rates of return. A general perspective is akin to "getting in on the ground floor."

EMF or MSCI EMF - Refers to Morgan Stanley's Emerging Markets Free index. it reflects stocks in 26 emerging market countries.

EMU - Is the European Monetary Union.

Equipment Trust Certificate - Is a security which is collateralized by specific equipment, often capital in nature. The title is held in trust until the obligation is satisfied. However, the borrower is permitted to use the item provided there are no defaults precluding usage.

Equitize a Margin Call - Is an event whereby a previously unsatisfied margin call is eliminated by an effective transfer of ownership. In 1998, Long Term Capital Management transfered a portion of ownership to its creditors. In some respects, it was a debt for equity swap.

Equity Hedge Funds - Try to long position themselves in stronger or outperform issues while selling short weaker or poorer prospect securities. Variations of this are: trading large cap issues versus small caps; using derivatives for enhanced returns; specializing in program trading; or using leverage to magnify returns.

Equity Run - Is a statement generated every day which lists a customer's positions, equity, margin requirements, and prior day's activity. Point balances, cash balances, and value of marginable securities are other aspects which can be included.

ERISA - Is the Employee Retirement Income Security Act. It was enacted into law in 1974.

ERM - Refers to Enterprise Risk Management. See Risk Management and Analysis Software.

Error - Is a mistake in terms of quantity, type of order, side of market (purchase or sale), security, or other condition of a trade.

Error Account - Is the destination for the temporary placement of a trade which was involved in an error transaction. Firms will either take immediate market action to correct the error, or sometimes will keep the position there as they work it out. See Work Out.

Escrow - Is a fund held by a third-party custodian.

ESOP - Is the Employee Stock Ownership Plan. It is similar to a profit sharing plan but, here, only the stock of the employer is purchased with the contributions.

EURO or EURO Currency Unit - Refers to the new medium of exchange or unified currency which went into effect on January 1, 1999 for financial transactions in member European countries. It will replace those national currencies and coinages on January 1, 2002.

European Style - Is a variety of option which can only be exercised on the last or expiration day.

Event - Is the occurrence of some critical action, catalyst or new information.

Ex - Is derived from Latin and refers to "without" or "not included." This compares to Cum.

Ex-Dividend - Refers to a transaction which the new purchaser of a stock is not entitled to the recently declared dividend. This occurs because the new purchaser did not own the security on the record date.

Ex-Pit - Refers to a transaction outside the pit or ring. This is permissible for bona fide hedging purposes or to allow for a smooth transfer of accounts between brokerage firms. This type of transaction is under less scrutiny than ordinary transactions because there is no public offering of the positions.

Ex-Rights - Refers to a transaction which the new purchaser of a stock is not entitled to participate in the recently declared rights offering. The mechanics are similar to ex-dividend conditions. Here, the exclusion point in time is known as the ex-rights date.

Exchange for Physicals - Is an ex-pit transaction whereby physical commodities or actual financial instruments are exchanged for futures contracts. This flexible technique is permitted for bona fide hedging transactions. This procedure allows for grades, quantities, locations, and delivery dates which are different than those stipulated for good delivery under the standard contract rules.

Exempt Securities - Are issues which are not bound by the filing provisions of the Securities Act of 1933. Exempt securities include treasury and municipal notes and bonds, bank securities, and nonprofit organization securities.

Exercise - Is the action taken by the holder of an option or convertible security to convert his derivative position into the underlying security, commodity or futures. In the case of the option the exercise of a call would give the owner of the call the underlying instrument or cash settlement adjustment. In the case of a convertible bond, the owner of the bond terminates that contractual relationship in exchange for shares in the corporation. The owner of the option is the only one that exercises. However, there are mandatory exercises for expiring options that are in-the-money by more than the stipulated threshold amount. Also, there may be built-in event options that take priority over the owner of the securities right to exercise. Nevertheless, this nesting of options still defers to rules that establish which party holds, which options.

Exercise Price - Is the predetermined level at which an optionнs underlying instrument is priced upon its exercise. The exercise price is also called the strike price.

Expectations - Is the composite of market sentiment or the forward looking aspect of what traders anticipate to happen within their trading horizons.

Expected Basis - Is the forward looking aspect of a basis relationship. It compares to historic, current or implied basis statistics.

Expected Excess Return - Is equal to the nonmarket or alpha return plus the beta-adjusted market or systematic return. Since beta relates an asset's return to the market, then the alpha distinguishes it from the market. Algebraically, this is presented by the expression for a straight line or excess return equals a (alpha) + b (beta)X (market return).

Expected Value - Is viewed as an anticipated, theoretical or fair value for an instrument.

Expected Volatility - Is the forward looking aspect of volatility or variability. It compares to historic and current or implied volatility.

Expiration - Is the date stipulated for the cessation of the life of an option. It is also the formal acknowledgment of the optionнs termination.

Expiry - Is the expiration date of a derivative.

Explicit Option - Is an option whose strike and expiration are clearly stated. There is a direct payment for this specific option contract. In the case of an implied option, the price adjustment is reflected in the instrument such as a mortgage.

Extending - Is a term to indicate an increase in the duration of mortgage backed and related securities. Generally, it is a consequence of slower-than-expected prepayments.

Extra Dividend - Is a payment declared or paid by a corporation in addition to its ordinary dividend policy. It can reflect a distribution of profits which are considered extraordinary.

Extrinsic Value - Is the time value component of an option premium. 

F - Is the Commodity Futures Symbol which represents the January Delivery Month.

Fair Value - Is viewed as the indifference point from a modeling perspective as to whether to buy or sell an instrument or market. If the market price were higher than fair value it would suggest selling the security. If the security was trading at less than fair value it would suggest buying it. When coupled with related derivative instruments, the approach becomes an arbitrage one.

Fair Value Difference - Is the disparity between an instrumentнs trading price and its computed value.

FANS - Is the Funds Availability Notification System.

FASB - Is the Financial Accounting Standards Board.

Fast Market - Is a trading condition when prices change quickly and volume is dramatic. At these times, the price reports are behind and a trading range of prices is substituted for price dissemination. Often special rules apply at such times.

Fat Tails - Describes the appearance of a probability curve which has a higher-than-normally-expected occurrence of observations in the remote areas, or tails, away from the mean.

FBO - Refers to For Benefit Of. Term is often used in wire transfer instructions. Here, it indicates the party for whom the money is to be ultimately credited.

FCM - Is a type of brokerage firm. See Futures Commission Merchant.

FCOP - Is a Foreign Currency Options Principal.

FDIC - Is the Federal Deposit Insurance Corporation.

FED - Is the Federal Reserve Bank.

FFIEC - Is the Federal Financial Institutions Examination Council.

FHLMC - Is the Federal Home Loan Mortgage Corporation or Freddie Mac.

FICO - Refers to Fair, Isaac credit scoring. This can be the corporation, the credit scoring algorithms, processes or scores.

FIFO - See First-In First-Out.

Fill or Kill - Is an order that must be immediately executed in its entirety or it is canceled. There are no partial fills with this type of order.

Finance Charge - Is the total cost borne by a borrower to obtain credit. It includes: interest, points, and fees.

Financial Accounting Standards Board - Is the industry organization which provides guidelines for the recording, reporting and presentation of financial market transactions. Included in this work are the requirements for listing off-balance sheet items and hedging transactions for currencies, physicals, and financials.

Financial Formulas or Formulae - Are mathematical expressions to enable repeatable results or computations. Many financial formulas are related to one another. Some of the standard computations are:

• Interest Calculations

Fineness - Is a measure of the purity of a precious metal such as gold. Three 9s or .999 shows the relative purity of gold. Here, there would be an .001 part of impurity for the specimen.

FIPS - Is the Fixed Income Pricing System which is operated and maintained by Nasdaq. It focuses on high yield securities. Bonds must be rated no higher than BB+ by Standard & Poor's, here.

FIR - Is the Futures Initial Requirement. It refers to the amount of the original margin or performance bond.

Fire Sale - Refers to the rapid disposition of positions. This often occurs at less than fair value versus transactions conducted under more favorable or orderly conditions.

FIRREA - Is the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

First-In First-Out - Is the accounting technique whereby the first items in inventory are paired against the first items sold out of inventory. Speculative futures transactions are treated this way. Securities transactions can be treated this way in the absence of further instructions. See Versus Purchase.

First Notice Day - Is the day when notices or intents to make a delivery are permitted.

Fixed Assets - Refer to items such as buildings, furniture, memberships, and long-term leases. Typically, these properties are not intended for sale or disposal within a year.

Flat - Is a condition where a bond is traded without accrued interest.

Flat Market - Is a term structure whereby the various delivery months are basically trading at the same price level or yield.

Flatness - Is the relatively flat appearance for a probability distribution. See Platykurtic and compare Leptokurtic.

Flip or To Flip - Refers to a trade executed within a relatively short timeframe.

Flipper - Is a trader who takes quick advantage of a profit. It often refers to individuals - not financial institutions - who quickly sell their Initial Public Offering (IPO) positions.

Floater - Is an instrument whose cash flow varies according to stipulated factors. These instruments can also be leveraged by a multiplier which alters the associated interest payment stream.

Floating Rate - Refers to the condition whereby exchange rates are relatively free to change. It can also refer to an interest rate which changes relatively quickly or frequently.

Flotation - Is the initial offering of stock to the public.

Floor - Is the lower limit price or interest rate.

Floor Broker - Is a member of an exchange who executes orders for others. This compares to a Floor Trader.

Floor Trader - Is a member of an exchange who trades for his or her own personal account. This compares to a Floor Broker.

FLUX - Is the Flow Uncertainty Index. It refers to a financial model developed for the National Association of Insurance Commissioners to quantify the relative risk or variability of CMOs over a range of interest rate scenarios.

FNMA - Is the Federal National Mortgage Association or Fannie Mae.

FOB - Refers to Free on Board.

FOK - See Fill or Kill.

FOMC - Is the Federal Open Market Committee.

Foreign Exchange - Refers to currencies other than the United States dollar. It also refers to transactions, activities, and operations for trading, hedging, and investing in multiple currencies.

Forward - Is a market similar to futures in terms of deferred deliveries. However, notable differences include the lack of contract standardization, the lack of a central clearinghouse, the potential for substantial counterparty risk, but it allows contractual term customization and deliveries at times, points and grades other than those listed for futures contracts. It is also used to refer to the bank currency market.

FRA - Is a Forward Rate Agreement.

FRCMO - Is a Floating Rate Collateralized Mortgage Obligation.

Free Riding - Has several meanings. It can refer to a customer account which engaged in purchases and sales without paying for the securities. There are several exceptions for some markets which may permit day-trading waivers or no reconciliation until final settlement or reciprocal closeout of position. It can refer to an underwriter withholding a portion of a hot issue for the benefit of its own account.

Free Trade - Refers to the unrestricted or unimpeded process of conducting business or transactions.

FRM - Is a Fixed Rate Mortgage.

FRN - Is a Floating Rate Note.

Front-End Load - Refers to charges which are imposed upon the purchase or acquisition of an investment position. Many times these charges are on a sliding scale. Sometimes, these charges are viewed as impediments for early withdrawals. They are called front-end because they occur at the beginning of the investment process.

Front Office - Is the area or function which relates to trading, investing, or sales activities for a financial firm. Orders start here, flow through the middle office, if any, and get processed by the back office. See Back Office and Middle Office for related terms.

Frozen Account - Occurs when a client fails to pay for securities within the allotted time. Subsequent transactions can only occur if the account has sufficient funds or securities on deposit to complete the transactions. The frozen status or freeze can be removed only after the account complies with existing rules and regulations for an established time frame.

Fundamental Analysis - Is the research approach which considers economic and monetary factors. For securities it evaluates the company as well as the industry and economy. For commodities, it looks at supply and demand in terms of actual usage, production and inventories among other things.

Futures Commission Merchant - Is a firm which is registered to do customer business in the futures and options-on-futures business. This customer business relates to the taking of orders for contract execution.

Futures Contracts - Are instruments predicated on a cash commodity or currency, a financial instrument, or an index. These are standardized contracts which are traded on organized exchanges. Also, these contracts are subject to industry and exchange regulations and government regulatory bodies and laws. The standardization is one of the key factors which differentiates these instruments from forward contracts. Other factors are the standardization of margin or performance bond procedures and the high degree of anonymous offset.

Futures Contract Equivalency - Serves two key purposes. First, it converts the hedgeable positions into standardized units. Secondly, it allows these standardized units to be used as building blocks. When used as building blocks, option characteristics can be more clearly established. For example, an initial equivalency for treasury notes and bonds is the conversion factor. It relates various coupons and maturities into economically deliverable, not necessarily perfectly priced, units. 

G - Is the Commodity Futures Symbol which represents the February Delivery Month.

G-7 - Is the Group of Seven Nations. The membership consists of Britain, Canada, France, Germany, Italy, Japan, and the United States of America.

GAAP - Is the acronym for Generally Accepted Accounting Principles.

Gamma - Is the second derivative of an option. It measures the expected change in the delta given a change in the underlying instrument.

GAP - Is the term used to described differences or imbalances in asset and liability categories or buckets.

GARCH - Is Generalized Autoregressive Conditional Heteroskedasticity (ARCH). It is a time series approach which models volatility as a function of both previous returns and previous volatilities.

GARP - Refers to Generally Accepted Risk Principles.

GASB - Is the Governmental Accounting Standards Board.

GDRs - Are Global Depository Receipts.

Gearing - Is a measure of exposure. It relates the number of warrants that can be purchased for the same price of the stock. For example, if the stock is trading at 150 and the warrants are trading at 30, then the gearing is 5.00 or 5-to-1.

General Account - Refers to the assets held by the insurance company to back their obligations for guaranteed or fixed-dollar benefits and contracts. Here, the insurance company is at risk. Compare to Separate Account.

General Obligation Bonds - Are securities issued by municipalities. The source of revenue to pay the interest and principal is taxes. These securities are also known as full faith and credit issues because they depend on the municipality's capacity to tax. These issues are often considered to be more stable than Revenue Bonds.

GNMA - Is the Government National Mortgage Association or Ginnie Mae.

Gnome - Is a 15 year maturity, fixed rate pass-through security issued by the Federal Home Loan Mortgage Corporation.

Gold (MBS) Program - Is the Federal Home Loan Mortgage Corporation (FHLMC) program that extended the interest and principal payment guarantee. It also reduced the interest delay to 14 days.

Gold/Silver Ratio - Refers to the monetary conversion rate between one ounce of gold and the appropriate ounces of silver. You divide the one-ounce price of gold by the current silver price, for the same delivery time, and determine the number of silver ounces required for this equation. This measurement goes back at least to a bimetallic monetary standard.

Good-till-Canceled - Is an order which remains in effect until it is executed or canceled. The cancellation can be predetermined such as can in 2 months (giving a specific time) or left open and not specifying any time. However, many brokerage firms and traders may require ratification of all open orders at the end of the month or other time span of their choosing to minimize errors.

GPM - See Graduated Payment Mortgage.

Grades - Refers to the quality of a potentially deliverable commodity. It can refer to sulfur content for crude, country of origin for coffee or cocoa, or other distinguishing factors which influence the item. Often there is a schedule of premiums and discounts to adjust the invoice or delivery price for grade differences.

Graduated Payment Mortgage - Is a mortgage which frequently has relatively low payments in its early life. These relatively low payments are often insufficient to amortize the principal. Therefore with the passage of time the payment schedule is stepped-up to paydown the early negative amortization, service the interest requirement, and paydown the total principal balance.

Grains - Refers to the commodity futures markets for corn, oats, and wheat. A broader definition would include soybeans.

GRAMS^TM - Refers to Global Risk Analysis and Management Systems Software. It is another name, term or reference for RAMS^R. See Risk Management and Analysis Software.

Grantor - Is the party who initially sells, writes or grants an option.

Grants - Is the process of initially selling or writing an option.

Green - Is a mortgage backed securities term which indicates mortgages which are not seasoned yet. Typically, a mortgage that is less than 30 months old is considered green.

Green Shoe - Refers to an underwriting allotment which is in excess of the the first stipulated share amount. Depending on demand and/or market stabilizing functions, an underwriter can exercise this option for additional shares. Many new deals now have this option included. Usually, the green shoe is limited to an additional 15 percent of new shares. It was named after the company for which it was the focus of the deal.

Gridlock - Is a condition whereby trading activity ceases or becomes extremely constrained. Frequently, the spreads between bids and offers widen dramatically and volume dries up. Therefore, there are very few, if any, trades.

Gross - Is the aggregate, cumulative or total amount is a quantity measure. It can refer to total long position, total short position, the total par position, total market value, the total futures contract equivalency position or other specified categorization.

Growth Funds - Are mutual funds that invest in stocks of companies which are expected to outperform most other firms. This outperformance is predicated on faster growth than comparable firms in the same industry. Also, these industries can be those which are expected to experience growth rates in excess of an average.

GSCC - Is the Government Securities Clearing Corporation.

GSE - Refers to Government Sponsored Enterprise. Two examples are the mortgage agencies - Fannie Mae (FNM) and Freddie Mac (FRE).

GTC - See Good-till-Canceled.

Guts - Is the purchase or the sale of two in-the-money options. For example, a long guts consists of the purchase of a low strike call and the purchase of a high strike put. A short guts position consists of the sale of the high strike put and the sale of the low strike call. 

H - Is the Commodity Futures Symbol which represents the March Delivery Month.

Heavy Crude Oil - Is petroleum with a high specific gravity and a low API gravity. It has a relatively high proportion of heavy hydrocarbon products or fractions. Compare to Light Crude Oil.

Hedge - Is the act of protecting a position. Hedges can be either Long or Short. Hedges are often done with derivative products. A Long Hedge refers to a position whereby a derivative contract is purchased to protect against a short actual position. A Short Hedge is a position whereby a derivative is sold to protect against a long actual position.

Hedge Fund Types - Are numerous. They reflect different investment styles, product lines, and geographic regions. Among the more common varieties are:

• Bond Arbitrage
• Convertible Securities
• Currencies and Major Foreign Markets
• Emerging Markets
• Equities
• Macro or Mixed Products and Strategies
• Mortgage Backed Securities
• Stocks and Bonds.

Hedge Funds - Are alternative investment vehicles. Hedge fund trading styles are quite variable from one fund to another. Some are Macro Funds which place positions on movements in broad economic groups such as currencies, credit, equity and derivatives markets. Others are more focused on narrow Specialties, such as Convertible Securities or Mortgage Backed Securities. These funds operate as limited partnerships. There are limitations on the number of partners, minimum financial standards and commitments, and liabilities.

Hedge Properties - Are features considered necessary for a good risk management position. There are four basic properties, and they are: Economic Validity, Reasonable Correlative Movements, Convergence, and Consistent Basis Behavior.

Hedging - Is the process of protecting a position. It is the placement of a position to offset an exposed cash or physical market position. Also, see Risk Management.

Hedging Paradox - Is when favorable basis movements do not guarantee a favorable global result for the hedge. Also, it can occur when the basis behavior is unfavorable yet the hedge is still beneficial.

Heteroskedasticity or Heteroscedasticity - Is the condition where the residual variance is nonconstant. This tends to happen in cross-sectional analyses. It also occurs in various consumer, income, risk, and size of firm studies. This compares to Homoskedasticity.

Historic Volatility - Is the statistical measurement of the underlying instrumentнs price variability over some defined time frame such as 10, 20 30, or 50 days.

HKFE - Is the Hong Kong Futures Exchange.

Ho-Lee Option Model - Is an Arbitrage Free Model which uses an estimated spot curve to evaluate embedded options in credit or fixed income securities.

HOLA - Is the Home Owner's Loan Act.

HOMERS™ - Is the acronym for a class of securities initially known as Home Owner Marketable Equity Receipt Securities. This innovative financial vehicle allows for the securitization and hedging the equity-side of real estate. Previously, only hedges were doable for the debt-side of the equation.

Homoskedasticity or Homoscedasticity - Is the condition of constant residual variance. This compares to Heteroskedasticity.

Horizontal Spread - Is a spread which is composed of two puts or two calls on the same underlying instrument. It is called horizontal because both options have the same strike or exercise price but two different expiration dates. Generally, the trade is placed with the nearby option sold and the deferred option purchased. This is an attempt to capitalize on the acceleration in time value decay for the nearby relative to the deferred contract month.

Hostile - Often refers to an unsolicitated and unwanted bid by the target company. It rejects this bid and indicates that the company does not want to be acquired by that bidder.

Hot Issues - Are stocks which trade at an immediate premium relative to their initial offering price on the effective date. There are restrictions and prohibitions regarding trading in these issues. These constraints apply to brokerage firm employees and their immediate families. Other parties may also be subject to such constraints.

HR 10 Plan - See Keogh Plan.

Humped - Is a yield curve or term structure of a price curve over time that exhibits a "bump" or "hump" in its midst. It would have a concave appearance.

Hurricane Bonds - Are also Catastrophe Bonds issued to pass on unacceptably high risks to speculators. In exchange, these speculators may receive potentially greater-than-market rates of return. These bonds have characteristics comparable to those for risky Collateralized Obligation tranches.

Hybrid - Is a security which has mixed characteristics. One example is a convertible bond. It can have a coupon and pay interest and therefore partially behave like a credit market instrument. However, its conversion feature also imbues the instrument with equity characteristics.

Hybridization - Is the act or process of creating a new instrument which has two or more credit, equity, currency or commodity characteristics.

Hypothetication Agreements - Are legal documents which define the pledging of collateral. A mortgage defines the collateral for a real estate loan or Note and a securities hypothecation agreement permits margin accounts and futures accounts by stating what is being pledged to cover positions, debit balances, or even deficit balances. Generally, this document allows the owner to enjoy the usage of the property provided that no default occurs. In the event of a default the property can go to the creditor to satisfy the claim. The residual value, if any, would then go to the owner. 

I/B/E/S or IBES or I.B.E.S. - Refers to Institutional Brokers Estimate System.

IB - Is an Introducing Broker. Depending on the financials and election, Introducing Brokers can be effectively self-guaranteeing or Guaranteed by the Clearing Firm with which they are affiliated.

ICONS - Are Index Currency Option Notes.

IE - Is an Investment Executive. See Account Executive. Other related terms are AE, RR, or broker.

IFA - Is an Independent Financial Advisor.

iFM™ or IFM™ - Refers to Internet Fund Manager. This is a software system created by OASIS™ for the development of financial internet sites. It provides methods to create online financial tables, indices, portfolios and more.

IGARCH - Is Integrated Generalized Autoregressive Conditional Heteroskedasticity (GARCH).

IMF - Is the International Monetary Fund.

Immediate or Cancel - Is a variation of the All or None (AON) order. Here, an attempt is made to satisfy as much of the order as possible. What is not immediately filled is canceled. Therefore, partial fills are possible with this type of order.

Implicit Option - See Embedded Option.

Implied Price - Is the price computed by a model which considers a comparable benchmark, volatility, and spread adjustment. It is used in the absence of a current market price.

Implied Repo Rate - Is influenced by the cost of funds, tax rates, deductibility of carry charges, yields, the time to expiration and organizational constraints. It indicates the implied rate of return for specified investments. While many quote services list an assumed or benchmark Implied Repo Rate, there are many because each investor has his or her own schedule of financing costs and investment opportunities.

Implied Volatility - Is the current volatility or the level of volatility required to generate an option premium given a known market price for the underlying, an interest rate, an expiration date and a strike price.

Income Bonds - Refer to securities which promise to repay the principal when due. However, these bonds differ from other bonds in that they promise to pay interest only when it is earned. This type of bond is verisimilar to many kinds of preferred stock. However, an advantage can be the tax deductibility of the interest charge when paid versus a preferred dividend payment. These bonds are sometimes known as Adjustment Bonds. The quality of these bonds generally is not as good as investment grade issues because there is an additional contingency on the payment of interest.

Independence - Is a very important concept in probability and statistics. When the occurrence or nonoccurrence of an event has no impact or statistical influence on another event then the events are said to be independent of one another. When stock market or other asset returns are substituted for events, these observations are assumed to be independent. This assumption simplifies the mathematics of many pricing and portfolio models. However, it may be inaccurate, particularly during periods of high or increasing volatility. While the majority of observations may fall within the defined assumption, the occurrence of big change days has been demonstrated to occur more frequently than normally expected. Moreover, these relatively large price or rate changes tend to cluster within relatively narrow time frames.

Index Funds - Are investment vehicles such as mutual funds which are based on a specified benchmark or index. Among the more popular indices are: S&P 500, S&P 100, EAFE, targeted average maturity dates, and various bond indices such as the Lehman Aggregate Bond Index.

Indication of Interest - Occurs when a client states his or her interest in purchasing a new issue before its effective date. This interest is non-binding.

Inelastic - Refers to the economic concept of the inability to quickly adjust supply or demand despite changes in market conditions.

Initial Margin - Is the amount of funds and/or securities required to establish a position.

Initial Public Offering - Is the initial offering to the public of a companyнs securities. After the initial offering, the securities are said to trade in the secondary market.

Insider Information - Is important knowledge about a company's affairs which has not been made public. It is illegal to trade on such information in a number of countries including the United States. Often this information by nature is only viewed by senior officials or those working closely with executives.

Intangible Assets - Refer to items such as goodwill or intellectual properties. Among the latter are copyrights, patents, and trademarks.

Intellectual Property - Are assets such as: copyrights, trademarks, and patents. Logos or special colors may also be intellectual properties.

Interest - Is either the interest rate or the income from a credit instrument.

Interest Calculations and Related Formulas - Are quite varied yet interrelated. Some of the standard computations are:

• Interest Compounded Annually
• Interest Compounded Continuously
• Interest Discounted Annually (Present Value of Reversion)
• Interest Discounted Continuously
• Interest Impact on Accumulation of 1 Per Period
• Interest Impact on Instalment to Amortize or Amortization
• Interest Impact on Present Value of Ordinary Annuity of 1 Per Period
• Interest Impact on Sinking Fund Factor

Interest Compounded Annually - Is calculated by the following formula:

Amount = (1 + interest rate)t

Interest Compounded Continuously - Is calculated by the following formula:

Amount = eit

Interest Discounted Annually (Present Value of Reversion) - Is calculated by the following formula:

Amount = (1 + interest rate)-t
or,

Amount = ____1_____

 ( 1 + i)t

Interest Discounted Continuously - Is calculated by the following formula:

Amount = e-it

Interest Impact on Accumulation of 1 Per Period - Is calculated by the following formula:

Interest Impact on Instalment to Amortize or Amortization - Is calculated by the following formula:

Amount = ________i________

 [ 1 - (1/1+i)t ]

Interest Impact on Present Value of Ordinary Annuity of 1 Per Period - Is calculated by the following formula:

Amount = 1 - [1/(1+i)t]

 i

Interest Impact on Sinking Fund Factor - Is calculated by the following formula:

Amount = _____i____

 z(1+i)t-1 

Interest Only - Is a security whose value is predicated on a discounted interest rate structure. Typically, this is a CMO type derivative product. Prepayment activity is a dominant evaluation factor.

Interest Rate - Is either the coupon or floating rate attached to a credit instrument or lending operation.

Interest Rate Risk - Is the risk associated with changes in general interest rate levels or yield curves. This compares to Prepayment Risk.

Interest Rate Swap - Is the contract whereby one party typically agrees to exchange a floating rate for a fixed coupon rate. There are many variations to this theme. Some of these other swaps can be cross border, fixed-for-fixed, or floating-for-floating. The common denominator to these transactions is the swapping of cashflows and not principal amounts. There are predetermined periodic adjustments in cash flow payments.

Intermarket Trading System - Is the network which links the trading floors of several registered exchanges. It encourages competition in issues listed on the American or New York Stock Exchanges with the other participating regional exchanges. The competitive edge occurs if there is a better price out in the network than on a particular exchange. If so, then a broker or market maker can execute at that better price.

Intermediate Corporate Bonds - Are investment grade notes and bonds issued by corporations. The maturities range between 1 to 10 years. These securities encompass banks, other financial institutions, and industrial issuers.

Intervention - Is the action taken by a monetary authority, government, or agency to influence prices, currency rates, capital flows, liquidity, or interest rates.

Intrinsic Value - Is the amount that an option is in-the-money.

Inventory - Is the firmнs position with the intent of quick resell or repurchase. Can refer to the open positions taken in the course of market making activities. This is opposed the Investment Account.

Inventory Turnover Ratio - Is computed by dividing annual sales by inventories. It is usually desireable to have a relatively high inventory turnover ratio relative to competitors.

Inverse Floater - Is an instrument which the required interest payment, or coupon, will change inversely to rates prevailing at the time of the reset.

Inverted Market - Is the market condition whereby the deferred or more forward delivery months are at a progressive discount to the spot or nearby month. This condition is marked by premiums for immediate or nearby deliveries. This is also known as a backwardation market. This is opposite to a contango or carrying charge market.

Inverted Yield Curve - Is the market condition whereby the near-term interest rates are higher than long-term interest rates. For example, the two year rate is greater than the ten year rate; or, the spot (overnight) rate is higher than the thirty year rate.

This inversion may be induced or result from changes in monetary policy, foreign exchange movements, immediate liquidity needs within the financial system, constrictions in money/credit and other financial forces.

Investment Account - Is an account at a financial institution which is held for long term investment or capital purposes. This is opposed to the trading or inventory account.

Investment Company - Refers to Open End Mutual Funds and Closed End Mutual Funds. It can also refer to specialized investment firms.

Investment Horizon - Is the actual or expected period that a financial position will be held. Some organizations and individuals use simple purchase-and-hold strategies, particularly for fixed income securities. For those parties, the investment horizon would be the time left to maturity. Other uses of the term are: day, short-term, intermediate- term, and long-term holdings.

Invisible Supply - Refers to uncounted or unverified, but known to exist, inventories of a commodity.

IO - See Interest Only.

IO-ette or IOette - Is a security similar to an Interest Only (IO) tranche but includes a modest amount of principal.

IOC - See Immediate or Cancel.

IPE - Is the International Petroleum Exchange.

IPO - See Initial Public Offering.

IPO Date - Is the date that a security began to trade publicly.

IRA - Is the Individual Retirement Account. It provides a tax-advantaged investment vehicle for individuals to save for retirement. The popularity of the program has lead to variations of this plan. These include the College IRA and the Roth IRA.

IRR - Is used two different ways. For the first, it refers to the Internal Rate of Return. For the second, it refers to Implied Repo Rate.

ISCC - Is the International Securities Clearing Corporation.

ISDA - Is the International Swaps Dealer Association.

ISFDS - Are Indexed Sinking Fund Debentures.

ISID - Is the International Securities Identification Directory.

ISIN - Is the International Securities Identification Number.

Issued Shares - Are the number of shares held by parties other than the corporation. Issued shares are equal to or less than the authorized share amount. See Authorized Shares and Treasury Stock for related terms.

ITS - See Intermarket Trading System.

J - Is the Commodity Futures Symbol which represents the April Delivery Month.

January Effect - Is the tendency for small capitalization stocks to exhibit an upward bias in their price behavior. Some analysts believe that this may be partially attributable to the influence of index funds buying stocks for various retirement plans. Such new contributions would be qualified to commence in January. Also, the marginal impact of such purchases would be greater on smaller capitalization issues as opposed to larger capitalization stocks.

JIT - Refers to Just-in-Time inventory management.

Joint Tenancy - Is a type of an account which has multiple owners.

Joint Tenants by the Entirety - Is a method of joint ownership. It is allowed for married couples only. There are issues relating to assets and liabilities. This form of ownership may offer some protection for the innocent spouse against creditor claims.

Joint Tenants in Common - Is a type of an account whereby the death of an owner sets aside the deceased's beneficial ownership for the estate. Surviving tenants do not necessarily acquire further interests in the account. Generally, the account ownership percentage is assumed to be pro rata. That is, if there are two owners of record each is assumed to own a 50 percent interest in the account. If there are five owners, then each is assumed to own a 20 percent interest in the account. However, the percentages do not have to be equal. In such cases written documentation is necessary to indicate unequal portions because the general assumption is equal shares.

Joint Tenants with Rights of Survivorship - Is a type of account which permits multiple owners. In the event of death, the surviving holders acquire greater ownership interests until there is only one survivor who becomes the 100 percent beneficial owner. Generally, this type of an account is setup for spouses. There can be various interrelated estate planning issues.

JT - See Joint Tenancy, Joint Tenants in Common, and Joint Tenants with Rights of Survivorship.

JTIC also JT TIC - See Joint Tenants in Common.

JTWROS - See Joint Tenants with Rights of Survivorship.

Juice - Has many meanings. It can refer to power, such as, electrical, economic, financial, political or social.

It also refers to orange juice futures or Frozen Concentrate Orange Juice (FCOJ).

Jump Bonds - Are issues which are conditioned on an event or series of events. When the event - such as breaking a prepayment collar - occurs, it triggers a predetermined movement to another payment arrangement. This type of bond occurs in collateralized obligation structures.

Jump (Diffusion Process) - Is the phenomenon by which a market experiences a significant departure from a price level. This departure can be either higher or lower. It is thought that these occurrences support "fat tails" assumptions and methodologies. These fat tails alter the statistical expectations of normal curve procedures. The graphical appearance of this occurrence looks as a gap in the data or it chart.

Junk Bonds - Refer to non-investment grade debt securities. Sometimes, these issues are called high yield securities. These securities have credit ratings below Baa/BBB-.

JV - Refers to a Joint Venture. 

K - Is the Commodity Futures Symbol which represents the May Delivery Month.

Kappa - Is an option term sometimes used as a synonym for vega, lambda or sigma. See Vega.

Karat - Is a measure of the purity of gold. Twenty-four karat (24K) is considered as pure gold. See Fineness.

KCBT - Is the Kansas City Board of Trade.

Keogh Plan - Is a retirement plan that can be established by a self-employed person. Currently, the maximum allowable annual contribution is $30,000. This contribution has benefits comparable to other qualified plans, such as IRAs. Among these are the reduction of income during the earned calendar year and tax-free growth or compounding until the time of withdrawal. It should be noted that other provisions apply.

Knockin - Is an option feature which triggers the activation of an option contract. See Down-and-In and Up-and-In.

Knockout - Is an option feature which triggers the cessation or kills an option contract. See Down-and-Out and Up-and-Out.

Kurtosis - Is the statistic which describes the degree of peakedness or flatness of a probability distribution relative to the benchmark normal distribution. See Leptokurtic (Leptokurtosis) and Platykurtic (Platykurtosis). 

Lambda - Is an option term sometimes used as a synonym for vega, kappa, or sigma. See Vega.

Last-In First-Out - Is the accounting technique whereby the last items in inventory are paired against the first items sold out of inventory.

Last Notice Day - Is the final day to indicate an intent to make a commodity delivery.

Last Trading Day - Is the final day of trading for a specific futures, options, or other derivative contract.

LBO - Is a Leveraged Buy Out. This transaction relies on borrowing funds. Often these borrowings are secured by various assets of the company which is targeted for acquisition.

Leg - Is a part or piece of a transaction or position. For example, in futures trading there is a long leg and a short leg to a spread position. See To Leg.

Legal List - Is the list of acceptable investments which can be made by banks, insurance companies, and other specified financial institutions. Often these lists are compiled by states. These lists often indicate that investment grade securities are only permissible for investment purposes.

Legs - Refers to a security or a market which has the capacity to continue an underlying trend.

Lending - Is the action of a creditor. The lending can be either funds or securities. When it is securities it is usually for short selling purposes. This short selling can be speculative or hedging oriented.

Leptokurtic (Leptokurtosis) - Describes the relatively peaked condition for a distribution. This condition is evaluated against the normal distribution and its attendant bell-shaped curve.

Lessee - Is the person who rents a property from its owner. These properties can be real estate, precious metals or other assets. When the asset is real estate the lessee is the tenant.

Lessor - Is the person who leases out a property to another person (lessee). The lessor either owns the property of holds a master lease which grants ownership-type powers. In the case of real estate, the lessor would be considered as the landlord.

Levels I, II and III - See NASDAQ.

Leverage - Refers to the concept of increasing, multiplying, or magnifying the market impact of an investment. Leverage magnifies both the gains or the losses. In corporate finance, leverage often means the amount of debt to equity. Borrowing can enhance shareholder equity returns because the interest is deductible but the profits remain for the common share investors.

LIBOR - Is the London Interbank Offered Rate.

Licensed Warehouses - Are facilities approved for the storage of a futures exchange traded commodity. Sometimes, the term is used specifically to refer to some commodities such as copper versus a precious metal.

Licenses - See Series 3 for Commodities and Series 7 for General Securities. More licenses are listed in that section.

Lien - Is a claim against a property.

Life of Contract - Is the time period which covers the commencement and cessation of trading for a specific futures contract. This is different from all time history, all-time high, and all-time low.

LIFFE - Is the London International Financial Futures and Options Exchange.

LIFO - See Last In First-Out.

Light Crude Oil - Is petroleum with a low specific gravity and a high API gravity. It has a relatively high proportion of light hydrocarbon products or fractions. Compare to Heavy Crude Oil.

Limit - Is an order which is to be filled at that stated price or better. Or better means a lower than the stated price for a buy or a higher than the stated price for a sale.

Liquidation - Is the act of selling some or all positions to reduce or close out a portfolio.

Liquidation Value - Is the expected or realized value of cash remaining after a complete liquidation occurs.

Liquidity - Is a characteristic of a market where size and speed of executions are sufficient to absorb many orders with little disturbance in price and in a timely manner.

Listed - Refers to securities which are approved for trading on a recognized exchange. Is a security or instrument which is traded on a recognized exchange. This compares to the unlisted or Over-the-Counter market.

LME - Is the London Metal Exchange.

LMT - See Limit.

Local - Is a floor trader who is a member of an exchange. He trades for his own account as opposed to doing transactions for the accounts of customers.

LOI - Is a Letter of Intent.

Long - Is a purchased position or a party who is bullish on the market.

Long Hedge - Refers to the status of the open futures contract equivalent position. Here, it is understood that the hedger is long futures against a short actual position.

Long Industrials - Are investment grade U.S. corporate bonds. Maturities exceed 10 years.

Long the Basis - Refers to the status of the open cash or spot market position. Here, the hedger would be long the cash market and short the futures or forward market. Compare to Short the Basis.

Long Coupon - Refers to the initial coupon for a municipal security which reflects more than 6 months of accrued interest. The time of accrual is measure from the start of the Dated Date and continues until the end of the initial accrual period. Compare to Short Coupon.

Lookahead Time - Is the forward-looking time interval. Usually, it refers to one day but it can be more or less. For the calculation of SPAN® statistics it is usually set at one day, or from the present to the next day.

Lookback - Is an option which permits the holder to effectively buy the low in the case of a call or sell the high in the case of a put. The time frame is defined as the term to expiration for the option.

Lot - Is one contract, car, or unit of trading in the commodities markets.

LTV - Is the Loan-to-Value statistic. It is the percentage that a creditor is prepared to lend against an asset such as real estate. For example, an LTV of 70 (percent) would mean that $70,000 could be borrowed against $100,000 of acceptable collateral. 

m or M - Has multiple meanings and usages. It may refer to one thousand or even to a million. Caution is required. The root is from the Latin and it is mille. The plural is millia which refers to thousands.

It has other uses, see below.

M - Is the Commodity Futures Symbol which represents the June Delivery Month.

Macaulay Duration - Is the present value of all cash flows, both principal and interest, weighted by time. It is a measurement expressed in years which is generally less than the stated maturity. An exception occurs for zero coupon bonds.

Macro Hedge - Is an enterprise-wide, trading desk, or portfolio risk management offset aimed at the net risk of the aggregated position. Generally, these hedges are more efficient than micro hedges for complex portfolios. Compare to Micro Hedge.

Macro Hedge Funds - Are those which are more benchmark or index oriented. They tend to be top-down in approach rather than bottom-up. These Macro Hedge Funds employ strategies using actual securities, commodities, currencies, futures, and derivatives. They also use various degrees of leverage to try to outperform the market or benchmark indices.

Maintenance Requirement - Is the level of margin necessary to support open positions given adverse price movements. If the maintenance level is violated, a variation call is issued which would be equal to the amount to restore an account to the initial margin level.

Maloney Act of 1938 - Was an amendment to the Securities and Exchange Act of 1934. It focused on self-regulatory activities of the over the counter market for securities. It provided the basis of the formation of the National Association of Securities Dealers (NASD).

Mapping - Refers to the presentation of financial positions. It is used in risk and portfolio management. It can be graphical or tabular.

Margin - Is the amount required to open a position. This amount is different for each futures market depending on each contract. Also, the dollar amount varies for each security and option account because of the variations in holdings among all accounts.

Margin Call - Is the phrase used to represent a call for additional funds. This demand for more funds in either cash and/or securities is to restore an account to its initial margin requirement level. Generally, this occurs when the price action is adverse to the account holders positions. It can also reflect an increase in margin requirements.

Margin Requirement - Is the amount of funds necessary for a position or a portfolio's entire holdings.

Mark Down or Markdown - Refers to the amount of spread or transaction fee subtracted from a security for purchase by a dealer from a client. There are various guidelines provided by regulatory and industry groups. Excessive mark downs are prohibited.

Mark-to-Market - Is the valuation process which provides an indication of reasonable prices for positions on a daily basis or some other proscribed time frame.

Mark Up or Markup - Refers to the amount of spread or transaction fee added to a security for sale by a dealer to a client. There are various guidelines provided by regulatory and industry groups. Excessive mark ups are prohibited.

Market - Is an order to buy or sell an instrument at the prevailing price (bids and offers). In the case of a buy order it means taking the offers whereas for a sell order it means hitting the bids.

Market Cap or Market Capitalization - Is a value placed on a company. It is computed by multiplying the number of outstanding shares by the current share price.

Market Efficiency Hypotheses - Refer to theories which try to explain financial market behavior. Some hypotheses state that the markets are rigorously efficient and operate by an immediate discounting of perfect information. Other theories state that the markets are relatively inefficient, particularly when socially-oriented goals are also to be considered. Other hypotheses state that information is good or even very good but not perfect. Also, not all market participants believe or simultaneously act on new data or information. The latter theorists believe that the markets try to attain pure efficiency. However, they also recognize that competition breeds asymmetrical change and this influences the discounting and adaption processes.

Market if Touched - Is an order that becomes market action when a price is hit. Buy Market if Touched orders are activated when the market price declines to the stated level. Then the broker is authorized to buy to satisfy the quantity. This is different than a limit order where all the quantity must be executed at the stated price or better.

Market Maker - Is a party who is prepared to buy and sell securities from all parties at the market makerнs bid and offer.

Market on Close - Is an order to buy or sell on the close of a market. Typically, there is a brief period prior to the day's cessation of trading which is defined as the close. This period varies from market-to-market and exchange-to-exchange.

Market on Opening - Is an order to buy or sell on the opening of a market. Typically, there is a brief period at the commencement of the day's trading which is defined as the opening. This period varies from market-to-market and exchange-to-exchange.

Market Value - Is the value of an open position. It is determined by multiplying the known or implied prevailing price by the quantity.

Married Put - Is the purchase of a put and its underlying stock at the same time. Effectively, it behaves like a synthetic long call but can have different of special tax implications.

Matched Funding - Is an asset and liability management technique which offsets fund sources to fund uses.

MATIF - Marche a Terme International de France.

MBS - See Mortgage Backed Securities.

MBSCC - Is the Mortgage Back Securities Clearing Corporation.

Mcf , mcf or MCF- Refers to 1,000 cubic feet.

Mean - Is often considered as the simple arithmetic average of the sum of the observed values divided by the number of observations. The simple unweighted mean of the listed four observations: 8,12, 10 and 14 is 11. This statistic is computed by (8+12+10+14=44) 44 divided by 4.

Mean Reversion - Is the postulate that short term rates or volatilities will move toward longer term averages.

MECs - Are Modified Endowment Contracts.

Mega or Megas - Is a Fannie Mae program. It allows investors to combine new or old FHLMC securities into these larger instruments. Megas have principal amounts equal to or greater than $5 million. The subpools used for Mega construction can be either fixed or adjustable rate securities.

Melt Down or Meltdown - Is a sudden decline or collapse in financial values. Tends to be used for broader indicators such as market indices or asset classes.

Melt Up or Meltup - Is a sudden advance or increase in financial values. Tends to be used for broader indicators such as market indices or asset classes.

Merchandising - Is the delivery aspect of the futures market. It is secondary to the risk management role of the futures and options market. Merchandising occurs when a hedger delivers commodities or financials. Sometimes, this technique is used for the hedger to maintain anonymity.

MGE - Is the Minneapolis Grain Exchange.

Micro Hedge - Is a specific transaction aimed at the risk of a clearly identifiable trade or position. Generally, these hedges are less efficient than macro hedges for complex portfolios. Compare to Macro Hedge.

MidAM - Is the MidAmerica Commodity Exchange.

Middle Office - Is the area or function which relates to risk management. This area measures, monitors and occasionally proactively manages the firm's exposure. This proactive dimension is gradually being implemented in the industry. See Back Office and Front Office for related terms.

Midget - Is a 15 year maturity, fixed rate security issued by the Government National Mortgage Association (GNMA).

MIT - See Market if Touched.

mln or MLN - Refers to a million. Sometimes it is described as MM. At times, some use M to refer to a million. However, this can be confusing as M is often used to refer to a thousand.

MLS - Refers to the Multiple Listing Service.

MODD - See Modified Duration.

Modified Duration - Is considered a more accurate representation of a bond's weighted cash flow stream. This statistic adjusts the Macaulay Duration by taking into account the yield in the market and the frequency of coupon payments in a year. Modified Duration is less than the standard duration. It is computed as:

Modified Duration = ________Duration________________

 ( 1 + yield in market/coupons in year)

Money Market Funds - Are mutual funds which invest in short-term instruments such as treasury bills, commercial paper, and asset backed securities (ABS). Broadly defined, these investments have maturities, and for some, durations less than a year. Often, these funds try to keep the average maturity or quantitative duration within 2-3 months. Also, these funds try to maintain a net asset value (NAV) of $1 per share. However, this price level is not guaranteed and there have been cases where it was broken. In the latter case, it is known as "breaking a buck."

Mortgage - Is a pledge of real property in order to obtain a loan: It is not the note itself. The loan instrument is a note or bond. However, these two terms are frequently used synonymously.

Mortgage Backed Securities - Is a broad term which encompasses both generic and pool specific securities predicated on real property. The term also refers to private label or agency securities, pass-throughs, or derivatives such as Collateralized Mortgage Obligations. It can refer to the Over-the-Counter options on mortgage backed securities as well. These mortgage backed securities are viewed as either plain vanilla or exotic.

• Accrual or Accretion Bond,
• ARMs,
• Companion or Support,
• Constant Maturity Treasury (CMT),
• Floaters,
• Gnomes,
• Gold,
• Inverse Floaters or Reverse Floaters,
• IO or Interest Only,
• IO-ette or IOette,
• Jump Bonds,
• Jump Z,
• Mega,
• PAC PO,
• Pass Throughs,
• Planned Amortization Class,
• PO or Principal Only,
• Reverse TAC,
• Scheduled Bonds,
• Stripped Mortgage Backed Securities,
• Super Floater,
• Super PAC,
• Super PO,
• Support,
• Targeted Amortization Class,
• VADM
• Z Bond, and
• Z PAC.

Mortgage Backed Securities Hedge Funds - Generally focus on being long the actual mortgage backed securities and short some proxy such as TBAs (To Be Announced), futures, Treasuries or derivatives. These funds typically purchase highly rated agency paper, CMOs, or REMICs and finance the positions in the "repo market." This financing can often result in gross asset, principal or market values of $10 billion for an initial cash/equity position of $1 billion dollars. In some respects it is comparable to buying a house with borrowed money. It is the borrowing which magnifies the performance. If the market quickly jumps 10 percent higher, then the buyer doubled his investment. Here, it would be 10 percent of $10 billion or a $1 billion profit against an initial capitalization of $1 billion. However, if the market declines by 10 percent, then the original investor is out.

Mortgage Tax - Is a tax which is assessed against a new mortgage. It is usually paid by the borrower.

Mortgagee - Is the lending party in a mortgage transaction.

Mortgagor - Is the borrowing party in a mortgage transaction.

MSRB - Is the Municipal Securities Rulemaking Board.

MTN - Is a Medium Term Note.

Multiple Listing Service - Is a network or system which provides detailed listing information to its members.

Multiplier - Is a factor which can increase the leverage of an instrument such as a floater or inverse floater. While sometimes the multiplier is less than 1.0, it is usually greater than 1.0. Multipliers are often seen in structured financings such as CMOs and Over-the-Counter derivatives.

Mutual Fund - Is an investment company which the number of shares outstanding varies according to demand. If investors seek to own more shares, the fund will sell new ones. If existing shareholders seek to reduce their holdings then the fund will purchase them at the Net Asset Value. In recent years, there have been new provisions which can slow down the redemption process. It had been the case that fund shares were to be redeemed immediately on demand. This type of investment company is also known as an Open End Fund because the number of shares outstanding can vary widely from day-to-day. Compare to Closed End Fund.

MV - Is the Market Value.

N - Is the Commodity Futures Symbol which represents the July Delivery Month.

NAII - Is the National Association of Independent Insurers.

Naked Option - Is an open option position which is not covered or hedged. Frequently, it is used in the context of a sold option position.

Narrowing - Is the movement towards convergence between the cash and futures market or the cash and forwards market. Here, the price or interest rate differentials are becoming smaller over time between the comparative delivery dates.

NASD - Is the for National Association of Securities Dealers.

NASDAQ - Is the acronym for the National Association of Securities Dealers Automated Quotations or Quote system. This network links brokers and dealers in an unified price quotation system. It has three levels. Level I displays the highest bid and lowest offer. Level II displays market maker's quotes. Level III permits the entry and revision of quotes by market makers.

Natural Hedge - Is the occurrence when a firm's or investor's holdings are such that some components directly offset others.

NAV - See Net Asset Value.

NDF or NDFs - Refers to Non Deliverable Forward (Contracts). Non-Deliverable Forwards do not stipulate a delivery. Rather, they require a cash settlement depending on the outcome. This outcome may be predicated on the initial transaction price and then related to the terminal date or offsetting date price. Non deliverable forward contracts are similar to cash settled futures markets.

NDFS - Is the Next-Day Funds Settlement system.

Negative Amortization - Is the increment to principal over time. This feature reflects the inadequacy of the periodic payment to service both principal and interest. It usually is the result of the addition of interest to the outstanding loan balance.

Negative Carry - Is the condition whereby a portfolio after financing considerations generates a negative income stream or loss.

Negative Leverage - Is a concept which states that there is an opportunity cost loss associated with the purchase of an option on a future. This is due to the fact that futures can be initially margined with certain approved securities whereby the client continues to collect interest.

Negotiated Issues - Are new security issues where the issuer selects an underwriter or underwriting group. This compares to a competitive offering where different underwriters compete for the intended business.

Nest Egg - Refers to savings. Often this savings is for retirement.

Net - Is the difference between long and short positions or the bottom line impact of a transaction.

Net Asset Value - Refers to the value of a share or unit of investment. It is computed by adjusting the market value of all investments by the liabilities. Then this net dollar amount is divided by the number of shares or units outstanding. Unless there are additional charges to be imposed upon redemption, the Net Asset Value becomes the bid and transaction market price. Most open end funds only calculate transactional net asset values once a day based on the closing and settlement prices.

Net Coupon - Is the coupon or interest payment made to the investor of a mortgage backed security. It is lower than the gross coupon of the collateral by an amount equal to the servicing, guarantee, and other applicable fees.

Net Interest Margin - Is the difference between the interest revenue and the interest expense. Sometimes, it is referred to as the spread.

Net Position - Is the difference between longs and comparable shorts. It can also refer to the dollar difference for the combined market values of all long and short positions. Often it refers to the net trading exposure on a market directional basis. However, some firms use different definitions depending on whether the analysis is originating from accounting or trading.

Net Present Value - Is one of the building block processes for finance. It provides a methodology for evaluating and pricing securities and projects. In a simple case it is the discount mechanism for a zero coupon security. Here, there is one payment predicated either on interest or principal. By knowing the time left to maturity, assuming no option features, and knowing the discount rate, one can price or evaluate the zero coupon. Pricing bonds is an extension of this process. Now, instead of evaluating, one payment, there is an entire interest and principal payment stream. For equities, the process evaluates expected cash or dividend flows and the residual value of the enterprise. Complexity arises when there are multiple discount rates (bids and offers), yield curve shapes, and credit differences. Even the selection of discrete, compounding or accretion modeling can make a substantial impact on the value of a simple zero coupon bond.

Netting - Is a process used by institutions and clearinghouses to determine the marginal risks and demands for funds.

Neutral Spread - Is an option strategy which is non-directional in terms of price or interest rate movement. It seeks to profit by collecting time value. One such strategy is the Calendar or Horizontal Spread.

Neutral Spreads - Is a term used to describe various positions. It can refer to a position that attempts to capitalize on flat or stable market price conditions, to be relatively immune to market swings, or to benefit from volatility. In these cases, the spread tries to minimize the impact of adverse price, duration, or volatility movements.

NIM - See Net Interest Margin.

NMS - Refers to the National Market System.

No Load - Is a transaction, particularly for a mutual fund whereby no assessment is charged for either the purchase or redemption of the funds shares. Transactions are executed at the single Net Asset Value (NAV). There are no separate and distinct bid and offer prices.

Nominal - Is used in the sense of an indication. For example, a security may have a nominal price, nominal bid, or nominal offer. This not reflects a broker or dealer's willingness to execute at that price, for that security, and at that time. It shows a level or point from which subsequent price discovery may evolve.

Non - Discretionary - Is an order which given a client gives to the broker. All the terms are specified.

Non-Discretionary Account - Is an account which the client makes all the trading decisions. However, the client may give very limited discretion to the broker or account executive. This limited discretion is in terms of price or time. However, an order as to whether to buy or sell, quantity and exact instrument is required to be given.

Nonstationary - Refers to a time series or time series process which has no natural mean. This condition is an accurate representation of many financial time series such as stocks or volatilities. This compares to Stationary.

Normal Distribution - Is one of the most popular and well documented probability distributions. It is frequently depicted as the bell-shaped curve. This process underlies much of financial theory and practice.

Normal Market - Is the typical activity for an instrument or exchange. It is also a pricing term structure which exhibits appropriate financing and storage costs over time. In its general form it shows prices to be progressively higher as delivery dates are further away from the current or spot market.

Not Held - Is an instruction which qualifies an order. It states that the client will not hold the broker liable in the event of failing to execute or complete a transaction. Also, the order can give a degree of latitude, pricing or time, to the broker in order to more favorably execute a transaction.

Note - Is the instrument which represents the actual indebtedness. However, the term mortgage is often used as a synonym for the note.

Notice of Sale - Refers to the advertisement placed by a municipality. This notice includes the municipality's intention to sell new securities and invites underwriters to bid for the new issues. Compare to Negotiated Issues.

Notional - Is the stipulated principal amount for a swap transaction. There is no transfer of ownership in the principal for a swap; but there is an exchange in the cash flows for the designated coupons.

NPV - See Net Present Value.

NRCE - Is the Northeast Regional Check Exchange.

NSCC - Is the National Securities Clearing Corporation.

NYCE - Is the New York Cotton Exchange.

NYACH - Is the New York Automated Clearing House.

NYCHA - Is the New York Clearing House Association.

NYMEX - Is the New York Mercantile Exchange.

NYSE - Is the New York Stock Exchange. 

OAS - See Option Adjusted Spread Model.

OASIS™ - Is the place where Finance and Technology converge and is Online Applications Systems and Investment Services.. Overlay Asset Strategies and Investment Services and software for online and traditional investment activities.

OAT or OATs (Obligations Assimilables de Tresor) - Are key debt instruments issued by the French Government. They are issued in both fixed and floating rate securities and have maturities ranging from 4 to 30 years. The three basic maturities for the fixed rate bonds are 10, 15, and 30 years. The two basic maturities for the floating rate securities are 4 and 12 years. The 4 year floating security or TRB (Taux Revisable des Bons de Tresor) are indexed on the three month treasury bill. The 12 year TME (Taux Moyen des Emprunts d'Etat) floater is based on an average rate of OATs.

OATS - Refers to Order Audit Trail System which increases the ability to monitor the flow and execution of orders in Nasdaq securities.

OBO - See Order Book Official.

OBV - See On-Balance-Volume.

OCC - See Options Clearing Corporation.

OCO - See One Cancels the Other.

Offer - Is the price asked by a seller.

Offering Circular - Is comparable to a prospectus.

Off-the-Run - Are previously issued treasury securities which are not generally used for benchmark or pricing purposes. They tend to be somewhat less active and liquid than the most recent issuances, particularly in respect for time remaining to maturity.

OID - See Original Issue Discount.

Omnibus Account - Is an account carried on the books by one futures commission merchant (FCM) for another FCM. Here, the transactions of multiple accounts are combined and viewed as one for bookkeeping purposes. This operation does not require the disclosure or identification of the underlying account owners.

On-Balance-Volume - Is an analytical technique which creates a time series to determine whether a stock or futures contract is subject to Accumulation or Distribution. The basic rule is straightforward. If the instrument was up on the day, then the entire volume is assigned a plus sign and is positively interpreted. If the instrument was down on the day, then the entire volume is assigned a minus sign and is negatively interpreted. These pluses and minuses are summed on a cumulative sequential basis. The analysis assumes that if the instrument is trading at the same price over time and the On-Balance-Volume (OBV) series is increasing, then the instrument is being accumulated and is poised for an upside move. Conversely, if the instrument is trading at the same price over time, and the OBV series is decreasing, then the instrument is being distributed and is poised for a downside move. There are many variations of this theme. Some use each transaction while others use only large or block trades.

On-Line Trading - Is the investment activity which takes place over the internet without the physical inclusion of a broker. Orders are entered via terminals and reports are returned to the investor in a similar fashion. Confirmations remain a part of the investment or trading process.

On-the-Runs - Are recently issued treasury securities. These are often used as the benchmarks for indices, baskets and pricing purposes.

One Cancels the Other - Is an order whereby one set of instructions replaces a previous set of instructions. In the process, the previous set of instructions is to be canceled.

One-Tail Test - Is a statistical test which focuses on only one side of a probability distribution. Often this side is the one related to extraordinary losses and not extraordinary gains.

Open End Investment Company - Is a mutual fund that offers and redeems its shares on a daily basis. These funds can be no-load funds which do not charge fees for the initial investment or redemption. These funds can be load funds which do charge fees for investment or redemption according to a published schedule. Compare to Closed End Fund.

Open Interest - Is the amount of open contracts for the futures and options markets. This amount can fluctuate throughout the day and day-by-day. It represents the quantity of contracts which are subject to offset by either liquidation of long positions, covering of short positions or making and taking delivery. Sometimes referred to as commitment or open commitment.

Open Order - Is an order that is or remains live or in effect until it is filled or canceled.

Open Outcry - Is the announcement of bids and offers on the floor of an exchange. This compares to Electronic or Computerized Trading and negotiated transactions.

Opening Transaction - Is the initial purchase or sale of an option contract position. This transaction creates an open position.

Option - Is a derivative contract. There are two primary types of options. See Put and Call. An option is considered as a Wasting Asset because it has a stipulated life to expiration and may expire worthless. Hence, the premium would be wasted.

Option Adjusted Duration - Refers to the measurement of duration which is targeted for the stated first option (put or call) feature. This reduces the duration statistic from its ordinary measurement. For embedded option securities such as mortgages or other prepayable loans, an estimate is calculated for the expected time of the first option exercise.

Option Adjusted Spread Model - Is an approach whereby securities are evaluated by considering the implied option characteristics. Two key variables are interest rate and prepayment rate behavior. These models incorporate the average spread of the Mortgage Backed Security or CMO tranche to the treasury yield curve. The usual reason for differences in evaluations is due to assumptions and modeling efforts for prepayments.

Option Models - Are evaluation tools to determine the price, the premium, or the volatility for a put, call, or complex position or strategy. Sometimes, the list for option models includes: convertible securities, mortgage and asset backed securities, and warrants. Option models may be categorized as credit, currency, equity, index, futures, and physical or cash oriented.

Option Trading Strategies - Can be market directional, volatility directional, market neutral, volatility neutral, time value capture, time value payment, and numerous variants of the aforementioned.

The basic building blocks are puts and calls. These puts and calls can be American Style or European Style. They can be ordinary - plain vanilla - or exotic. Among the latter are: Asian, Binary, Lookback, Knockin and Knockout. There are many other structures as well.

Some specific strategies are: Backspreads, Bear, Box, Bull, Butterflies, Condors, Conversion, Credit, Debit, Diagonal, Fence, Guts, Horizontal, Purchased Call, Purchased Put, Ratio, Reverse Conversion, Sold Call, Sold Put, Straddles, Strangles, Synthetic Long Call, Synthetic Long Futures or Underlying, Synthetic Long Put, Synthetic Long Straddle, Synthetic Short Call, Synthetic Short Futures or Underlying, Synthetic Short Put, Synthetic Short Straddle, Vertical, and Volatility.

There are also compound and nested options or strategies. Among these are: call-on-a-call, a call-on-a-put, a put-on-a-put, and a put-on-a-call.

Option Type - is the Put or Call designation.

Options Clearing Corporation - Is the entity through which various securities exchanges clear options transactions. This clearing activity consists of serving as the buyer to all sellers and the seller to all buyers in terms of guaranteeing contractual performance.

Order - Is a set of instructions with the intent of executing a transaction. The following is a list of order types. See: All or None (AON) or All or Nothing, Buy on Close, Buy on Opening, Contingent, Discretionary, Non-Discretionary, Do Not Reduce (DNR) , Exchange for Physicals (EFP) , Fill or Kill (FOK) , Good Till Canceled (GTC) , Immediate or Cancel (IOC) , Limit (LMT) , Market, Market if Touched (MIT), Market on Close (MOC) , Market on Opening, Not Held, One Cancels the Other (OCO), Open Order, Sell on Close, Sell on Opening, Stop (STP), Stop Limit (STP LMT), and various combinations as with spreads, options, and other instruments.

Order Book Official - Is the book of public orders held for execution by the Chicago Board Options Exchange (CBOE).

Order Support System - Is the Chicago Board Options Exchange's (CBOE) automated order system.

Orderly - Refers to trading or markets which behave in a smooth, rational manner.

Ordinary Dividend - Is a payment declared or paid by a corporation. It reflects the recently established or declared amount. It is not expected to be a one-time or special declaration.

Original Issue Discount - Is a bond which is sold at a discount to par. It can also be a zero coupon bond. This designation refers to either corporate or treasury bonds. The accretion on these bonds can be subject to taxation even though there is no periodic cash flow.

Original Margin - See Initial Margin.

Origination Fee - Is the cost for initiating a mortgage. Some use the term more broadly. Here, it would refer to the process of considering a mortgage application.

OSS - See Order Support System.

OTC - See Over-the-Counter.

OTS - Is the Office of Thrift Supervision.

Out - Is the designation that an order has been canceled by the customer prior to its completion or partial execution.

Outcry - Is the process whereby floor brokers publicly announce to their peers the price and quantities sought for purchase or sale.

Outliers - Are probabilistically remote events. Often viewed as statistically independent as well. Various techniques can test if actual data differ in a statistically significant manner from the benchmark or normal distribution. Also, independence assumptions can be tested to see if they are accurate representations of the underlying processes.

Over the Counter (OTC) - Is the marketplace where securities are not listed on an exchange. Many derivatives, fixed income securities, and very small capitalization stocks belong in this group. Another notable difference between Over the Counter instruments and listed securities is that OTC instruments tend to be customized whereas listed instruments are standardized.

Overnight Repos - Are Repurchase Agreements which are negotiated or renegotiated (rolled over) for 1 day periods. They are a form of borrowing/lending.

Overwrites - Is the option activity whereby a party grants or sells more than one option relative to the underlying instrument. In the event of sudden adverse price movement, in terms of the option position, the delta equivalency can be in excess of 1 to 1. 

P&I - Are principal and income payments or principal and interest.

P/L - See Profit and Loss Statement.

P&S - See Purchase and Sale.

PAC - See Planned Amortization Class security.

PAC POs - Are Principal Only issues which are predicated on a predetermined PAC prepayment schedule, range, or collar.

Packs - Are variations of strip trades whereby a trader or risk manager can place a series of calendar month contracts in one transaction. Packs can be bought or sold. There are four contracts in a pack. Eurodollar packs are quoted in minimum half-tick increments.

Painting the Tape - Refers to activities which give the impression of increased volume and/or price changes. Sometimes this action is motivated by a party or parties to have a specific price occur at the end of the trading session in order to influence that instrument's valuation for mark-to-market purposes.

Paper Loss - Is an unrealized loss. When trading commodities, futures, and options on futures, the mark-to-market process effectively equates these losses to realized losses. This is not necessarily the case for securities transactions.

Paper Profit - Is an unrealized gain. When trading commodities, futures, and options on futures, the mark-to-market process effectively equates these gains to realized gains. This is not necessarily the case for securities transactions.

Par (bond) - Is the principal amount of the loan. While bonds were typically issued in $1,000 denominations, the prices were quoted in percents of that denominations. For example, a bond priced at 105 meant $1,050.

Parity - Is the point where a convertible security equals the converted value of the underlying instrument.

Partial Hedge - Is a risk management concept whereby, some but not all, of the risk of a combined position is managed away. This can occur by choice or market action. For the latter it is considered due to exogenous factors.

Participation - Occurs when an investor receives a portion of the profits, appreciation, or increased cash flow. This term tends to occur in the fixed income or real estate markets.

Par Value (stocks) - Is the accounting term for the capitalization of the equity. It is usually arbitrary.

Partial Fill - Is the result where only a portion of an order was filled. For example, less than the indicated amount was bought or sold at a stipulated price limit.

Pass Through - Is the term used to represent a generic class of securitized mortgage notes. Typically, these mortgage backed securities are issued by agencies of the United States, such as FNMA or FHLMC. The underlying collateral is serviced by banks or mortgage companies. The revenue generated by the servicing is considered fee income. The principal and interest payments go to the investors. Two attractive features of these instruments is that the securitization process lowers the regulatory capital requirements for the originating then holding investor. Secondly, the securitization tends to improve the liquidity of the asset.

Path - Is the route that market prices followed or are expected to follow.

Path Dependent - Is a strategy and/or derivative which is predicated on a particular occurrence or direction in price movement.

Path Independent - Is a strategy and/or derivative which is not predicated on a particular occurrence or direction in price movement.

PAX - Is the Private ACH Exchange.

Payer - Is a mortgage back securities term which refers to a tranche currently paying both interest and principal.

Payment in Kind - Refers to securities that make payments in more securities of the same kind. For example, the hypothetical QWERT Corporation issues bonds due in 20xx with a 10 percent coupon. Then on the interest date, it issues additional securities as payment with terms similar to the initial offering. Generally, it is a technique to reduce temporarily cash outflows.

PBL - Refers to Point Balance.

PE - See Price to Earnings Ratio.

Peakedness - Is the relatively pointed appearance for a probability distribution. See Leptokurtic and compare Platykurtic.

Penalty Bid - Refers to a syndicate's effort to support or stabilize the price of the newly issued security. This activity is executed at or below the initial offering price.

Performance Bond - See SPAN® and Margin Requirement.

Period Certain - Refers to an annuity which guarantees a minimum number of periodic payments.

Permanent Financing - Consists of stock or long-term bonds. While most bonds have maturities they are still considered a type of permanent financing.

Perpetuity - Is a stream of payments or a type of annuity that starts payments on a fixed date and such payments continue forever, or perpetually. Often preferred stock which pays a dividend is considered as a form of perpetuity. However, one must assume that the firm does not go bankrupt or is otherwise impeded for making timely payments.

Personal Finance - Refers to income, savings, investments, insurances, speculations, loans, mortgages, budgets, spending, and other financial affairs on an individual basis.

PHLX - Is the Philadelphia Stock Exchange.

PIBOR - Is the Paris Interbank Offered Rate.

Pickup - Is the enhancement in yield or income relative to a comparable treasury instrument.

Pin - Is the at-the-money strike price, particularly at an option's expiration.

Pin Risk - Is the uncertainty that an option position may be exercised into the underlying instrument. It is risky because it often refers to markets flirting with the prevailing at-the-money level. At such times, the gamma on a position is very erratic and difficult to hedge. Also, there are doubts about the exercise or assignment process. A trader can experience significant changes in net positions due to option exercises.

Pink Sheets - Is the daily report which lists interdealer quotes for over-the-counter stocks.

Pipeline - Is a type of risk often associated with mortgages. It occurs from the time an application is accepted to the sale of the asset. Some analysts partition this process into two parts: production and inventory. Production starts at the time of the application and continues until the closing of the mortgage. Inventory risk starts at the closing and continues until the product is hedged or sold. Different hedging techniques are suggested for the two partitions.

Pit - Is the area on the floor of an exchange where trading occurs. It is also known as the ring.

PITI - Refers to principal, interest, taxes, and insurance.

Planned Amortization Class - Is a security which is structured to have a reasonable life expectancy provided the prepayment speeds stay within the defined ranges. The scheduled interest and principal payments tend to be more stable for these tranches relative to the other parts of the deal.

Platykurtic (Platykurtosis) - Describes the relatively flat condition for a distribution. This condition is evaluated against the normal distribution and its attendant bell-shaped curve.

PO - Is the principal only derivative of a credit structure. Typically, it is found in CMO deals.

POA - See Power of Attorney.

Point - Is one percent of the principal amount.

Pool - Is a term used in several ways. From a futures trading perspective, it refers to the amount or size of unfilled orders. This inability to fill orders can occur at a limit up or limit down market condition.

For mortgages or other loans, it refers to the individual collateral underlying the security.

For securitized mortgages, it can refer information such as the issuer's name, year of origination, geographic distribution, WAC, WAM and the maturity date.

Pooling - Is the combining of different loans into standardized or predefined units for trading purposes. This activity increases the homogenization of the underlying collateral. A key benefit of pooling is a diverse, generic security.

Portfolio - Is the holding of a collection of investments. For some individuals and institutions it is the entire holdings consisting of both assets and liabilities.

Portfolio Analysis - Is the methodology which quantified systematic and nonsystematic risk for investment holdings. Harry Markowitz is considered the primary influence in this field.

Portfolio Insurance - Is a form of hedging equity products, although others include credit instruments as well. Sometimes, this process is called dynamic hedging because it requires quick adjustments in the hedge. Initially, futures were used at various stop points to serve as synthetic put options. However, rapid and abrupt price moves can cause serious imbalances in the hedging mix.

Portfolio Theory - Evaluates the reduction of nonsystematic or diversifiable risks through the selection of securities or other instruments into a composite holding or efficient portfolio. This efficiency means that a portfolio would offer lower risks or more stable returns for a targeted return level. Instruments that have independent returns lower nonsystematic risks. Also, instruments that are inversely related on a return basis reduce the diversifiable risks. The basic theory assumes that returns are independent, investor expectations are homogeneous, and that the normalized probability distributions are stable.

Positive Carry - Is the condition whereby a portfolio after financing considerations still generates a positive income.

Power Cap - Is a derivative that pays off from the long's perspective in an exponential manner. If the current market price of the benchmark is greater than the strike, then the long receives payment. The payment is determined by raising to the predetermined power the difference between the current price and the strike price. For the case of a 2 power cap, or raised to the second power, the difference between the current market and the strike is squared. For a cubed power cap, the payoff would be the difference between the current price less the strike raised to the third power. The powers can be whatever is agreed upon. It should be noted that the risk profiles show abrupt and accelerating movements.

Power Grid™ - Is a matrix which enables an analyst, investor, portfolio or risk manager a quick and incisive look at the option characteristics of a group of countries or corporations. In the case of countries, such as the G-7, the equity, credit and currency markets are comparable in terms of standardized statistics such as volatility. This tool helps to identify imbalances and potential arbitrage situations.

Is a method of simultaneously evaluating the financial markets for G-7 or other basketed economies.

Power of Attorney - Is the granting of decision making authorization by one party to another. Here, it would be the client to the money manager or account executive. The Power of Attorney may be limited or full. When it is limited, the limitation is to trading or investing decisions only. When it is full it expands to cash and other decisions as well. The usual arrangement for trading, investing or speculating is a Limited Power of Attorney Arrangement.

Powers and Authorities Document - Is a formal document that outlines position taking limits for an enterprise. It does so for the total firm, the operating lines (OLs), the trading desks, the traders, and the instruments. This document lists:

• aging limits
• cash limits
• concentration limits
• contract limits
• conversion limits
• counterparty limits
• country limits
• cpv adjusted values
• cross border limits
• currency limits
• day trading limits
• delta adjusted limits
• dollar loss limits (daily, streak, cumulative over period)
• duration limits
• funding limits
• gross limits
• hierarchal organization for empowerment, enforcement and exceptions
• instruments may or may not be traded
• inventory limits
• investment limits
• long position limits
• margin limits
• market value limits
• maximum individual trade limits
• net position limits
• notional value limits
• overnight exposure limits
• premium and discount limits
• principal or share limits
• regulatory capital limits for the firm, desk, trader, and instrument
• short position limits
• size of market limits (the firm relative to the marketplace)
• supervisory limits
• time value decay limits
• VAR (VaR) limits
• volatility limits
• who is authorized to trade, when, where, and with whom.

PPN - Is the Private Placement Number.

Precious Metals - Refer to Gold, Palladium, Platinum and Silver from a futures or bullion trading perspective.

Precious Metals Lease - Is a vehicle or technique used to finance precious metals inventories. It is related to the term structure of precious metals prices.

Preferred Stock - Is an equity security which has a priority relative to ordinary common shares for dividends and return of par amount in the event of a corporate dissolution. Often, preferred shares are nonvoting equity interests. However, a default in the payment of that issue's preferred dividend or other covenant breach may temporarily give the preferred holders voting powers. Preferred shares can have convertible, cumulative, participating, voting, or other special features.

Premium - Is used several ways. It can refer to the value of an option, the amount that a credit instrument is trading over par, or the price differential due to quality or location characteristics for commodities.

Premium for Bonds - Is the amount of price above par for Mortgage Backed Securities, Corporate Bonds, and Treasury Bonds. For convertibles, it is the amount that the convertible security is trading over the converted out value of the underlying instrument.

Prepayment - Is an additional principal amount in excess of the required amount paid by the mortgagor to reduce the open mortgage balance.

Prepayment Penalty - Refers to a cost which may be charged against a borrower in the event of a prepayment.

Prepayment Risk - Is the potential loss related to an early retirement of debt. The risk tends to be more common in declining interest rate environments.

Prequalification - Is an informal assessment of the creditworthiness of a potential borrower. Often it is a quick view of income versus existing obligations and expected obligations. For real estate transactions, it estimates the prospect's potential borrowing and buying capacity.

Pre-refunded - See Advanced Refunding.

Pre-Sale Order - Refers to an order placed with a syndicate prior to the winning of the municipal issue by that syndicate. Often this order receives execution priority.

Price Discovery - Is the process which reflects the interaction of buyers and sellers, supply and demand, and creates a record of transactions. The financial markets are classic examples of this behavior. Securities and commodities quickly reflect the relative desirability of ownership.

Price-to-Book Ratio - Is computed by dividing the current share price by the book value per share. Book value per share is determined by dividing assets less the liabilities (the book value) by the number of shares outstanding.

Price to Earnings Ratio - Is the relationship between the current price of an equity and its earnings stream.

Primary Dealer - Is an institution that is entitled and obligated to purchase and sell government securities with the Federal Reserve directly. They serve as the conduits for Federal Reserve open market activities. There are approximately 30-40 such dealers.

Private Pass Throughs - Are mortgage backed issues securitized by non-agency financial institutions. This compares to FNMA, Freddie Mac and GNMA securities.

Probability Distribution - Is the mechanism which generates occurrences, observations, events, returns, and variability of returns or risk. A famous distribution is the Normal Distribution with its often cited "bell-shaped curve." It should be noted that many other distributions have bell-shaped curve appearances but do not necessarily behave in a normal manner. There are several statistical tests to compare and differentiate between seemingly similar curves but significantly different processes.

Production - Is the amount of revenue generated by a broker or account executive. It can also refer to the public offering price of a newly issued municipal security.

Program Trading - Is the activity which uses computers and algorithms to initiate and close transactions. One popular form is index arbitrage and another is the use of programs to buy or sell entire baskets or portfolios via different access systems.

Profit and Loss Statement - Is the report which shows a client's, trader's, desk's, operating line's or firm's profitability. It can refer to one trade or some designated accounting period. In the gross form, these reports only indicate trading impacts. Depending on the reporting purposes, the reports can take into account other income and expenses.

Prospectus - Is the formal or official document which presents financial condition, key employees and management, and the purpose of the organization. It accompanies an Initial Public Offering or Mutual Funds transactions.

Proxy - Is the written authorization by the shareholder of record to another party to vote the shares as the shareholder designates or to vote the shares as the proxy holder deems fit.

PSA - Is the Public Securities Association. It is an association of banks, brokers, and dealers who underwrite or sell bonds. These bonds include: U.S. treasuries, agencies, municipals, and mortgage backed securities. In particular, this organization sets standards and practices for the mortgage backed market. Among these standards are the PSA Prepayment Models and assumptions.

PSA Prepayment - Is the model or the speed for a mortgage backed security. A 100 percent PSA speed assumes a prepayment rate of .2 percent starting with the first after origination and continuing until the thirtieth month. Thereafter the model assumes a prepayment rate of 6 percent.

Pull to Par - Is the phenomenon that as time passes, the price of a credit instrument in good standing moves towards its par value. The nearer to maturity the greater the influence because the security will only pay out the stated principal amount.

Pump and dump - Refers to actions by brokers or market makers to attract new buyers. Here, the brokers create the illusion of high trading volume by inflating or pumping up the market for the security. This engineers a brief period of inflated prices. These activities may prompt investors to purchase the targeted securities only to have the broker dump many shares on the market place at the momentarily higher prices. This triggers a rapid decline in values and impacts the recent investors.

Punt - Is the Irish Currency or Irish Pound.

Punt also refers to getting out of or closing a market position.

Purchase and Sale - Is a report which lists a sale and a purchase of the same security, option, futures, derivatives, or currency. It shows dates, quantities, prices, and instrument identification. Other information may also be included.

Purchased Call - Is a bullish strategy. It confers the right but not the obligation to exercise the contract into a long position in underlying instrument. The risk is limited to the premium paid, and the reward is theoretically considered to be unlimited.

Purchased Put - Is a bearish strategy. It confers the right but not the obligation to exercise the contract into a short position in the underlying instrument. The risk is limited to the premium paid, and the reward is theoretically considered to be limited to the difference between the strike less a zero market price.

Put Option - Is a derivative contract which grants to the purchaser the right but not the obligation to exercise. In the case of stocks, the put holder or owner would transfer 100 shares of stock upon exercise to the seller of the put at the stipulated strike price. In the case of futures, the holder or owner of the put would effectively receive a short position in the market which would be priced at the strike. The seller of the put would receive the corresponding long futures position.

PV - Is the Principal Value or the Par Value.

px or PX - Refers to prices.

Pyramiding or to Pyramid - Occurs when a position grows significantly and is funded by current profits, particulary open profits. 

Q - Is the Commodity Futures Symbol which represents the August Delivery Month.

QPP - Is a Qualified Pension Plan.

Qualified Plan - Is a retirement account or plan that meets tax law requirements which permit the deferment of tax and the tax-free accumulation or appreciation of assets held within the plan.

Quant - Is a person who is mathematical by training or inclination and applies various numerical approaches in analyzing or trading securities or markets.

Quantitative Analysis - Is the practice of using numerical techniques in researching securities, markets, strategies and structures.

Quanto - Is an option feature which removes foreign currency risk from a derivative transaction from the investor's viewpoint. It is built into the structure. Quantos are also known as Guaranteed Exchange Rate Contracts. The purpose is hedge or lock in a known currency exchange rate.

Quick Assets - Refer to current assets which are readily convertible into cash. These quick assets are often defined as current assets minus inventory values.

Quick Asset Ratio - Refers to the ratio of cash, cash equivalents and accounts receivable relative to the total current liabilities. It is also known as the Acid Test Ratio. This measure of liquidity is more rigorous than the Current Ratio. 

RAD - Is the Receiver-Authorized Delivery service.

RAMS® - Is an enterprise-wide risk analysis and management software system which measures, monitors and manages positions in a real-time environment.

RAN - See Revenue Anticipation Note.

Random - Is a condition in finance or economics whereby changes occur on a probabilistic basis. The underlying probability function may be known or unknown.

Random Walk - Is the financial theory that asserts that changes in price or rate time series are unpredictable. However, the theory recognizes that there is a statistical interdependency between the data. This non-random stickiness is sometimes referred to as autocorrelation or serial correlation.

Range - Is the difference between the high and the low for a time series for a stated period. For example, it can refer to the daily, weekly, monthly, yearly or lifetime range in prices, interest rates or other economic indicator.

RAROC - Refers to the Risk Adjusted Return on Capital.

Ratio Spread - Is position where you sell more options relative to the number of options purchased. Compare to Backspread.

Ratio Writes - Refers to writing options against the underlying instrument in a greater- or less-than one-to-one relationship. Typically, it refers to writing multiple options against a position. Sometimes, this activity is explained as being delta neutral and at other times it is a more aggressive posture.

Real Estate Investment Trust - Is a special structure which holds real properties. These properties can be apartments, shopping malls, office buildings or other acceptable real assets. The trust must distribute 95 percent of its income to the shareholders in order to qualify for special tax treatment.

Real Estate Mortgage Investment Conduit - Is a vehicle to minimize double taxation of income from a pooling of mortgages.

Redemption Fee - Is a charge assessed against an invetor for redeeming shares or interests in a fund. Often this charge is used for early or premature withdrawals. This feature is more common for funds investing in illiquid securities or emerging market funds and annuity products.

Reflate - Is the economic and financial process whereby the monetary and fiscal authorities act to stabilize or reverse a downward trend in general price levels. Monetarists would view this activity as increasing the money supply.

Registered General Securities Person - See Account Executive. This person is Securities Series 7 licensed.

Registered Options Principal - Is a person deemed qualified to provide suggestions or recommendations regarding options to the public. Also, Branch Managers are required to be Registered Options Principals. This person is Securities Series 4 licensed.

Registered Securities Principal - Is a supervisor of Series 7 or specialty licensed brokers other than options. These principals supervise and review employees in the Front Office, Middle Office, and Back Office. For options supervision, see Compliance Registered Options Principal, Registered Options Principal, and Senior Registered Options Principal. A Registered Securities Principal is Series 24 licensed.

Registrar - Is typically a bank or trust company hired by a corporation to maintain a record of ownership for the company's securities. It other key responsibility is to account for the shares outstanding and avoid the issuance of new shares in excess of the authorized limit.

Regulation A - Governs the issuance of new securities. It provides a partial exemption from filing provisions of the Securities Act of 1933. The maximum allowable amount to qualify under Regulation A is $1,500,000.

Regulation D - Governs private placements. Private Placements occur when issuers directly sell securities to investors subject to strict qualifying requirements and provisions.

Regulation T - Governs the extension of credit by brokers and dealers to their clients for security transactions.

Regulation U - Governs the extension of credit by banks to its customers for purchasing listed securities.

Regulatory Capital - Is the amount of capital available for trading or position taking purposes by financial institutions. The total capital base is adjusted for memberships, various fixed assets, type and/or maturity of securities as well as other factors.

Reinvestment Risk - Is the situation whereby prepaid principal amounts will be reinvested in lower yielding securities.

REIT - See Real Estate Investment Trust.

Rejection - Is the refusal to accept securities. These securities did not conform to good delivery standards.

Relative Value - Is the comparative analysis between two or more assets. It is also a form of spread trading.

REMIC - See Real Estate Mortgage Investment Conduit.

Reoffering - Is the yield offered to the public for a new municipal security issue.

Replication - Is the approach that assumes derivative instruments can replicate the underlying security, basket of securities, currency, commodity or index. For example, see Synthetic Long and Synthetic Short. It is mostly true but important exceptions occur. For example, there can be differences in final returns due to tax considerations, possible extra transaction costs, and derivative securities do not include the shareholder vote. At times, such as proxy fights or other important issues, the replicated long position would have to be exercised into the actual security in order to be a timely shareholder of record. Expressed differently, increases in synthetic long positions do not increase the total number of votes or the total monetary amount of actual cash dividends.

Reporting Level or Reporting Position Level - Is the thresshold at which an account must formally document the size of open positions. There are different limits for each contract and exchange.

Repos - Are Repurchase Agreements.

Reset - Is the process which defines the benchmark, spread, timing, new coupon and other characteristics of a variable security.

Reset Date - Is the designated time for the reset event to occur. This timing feature can be monthly, quarterly, yearly or whatever is designed for the structure.

Reset Options or Reprice Options - Are options which have the terms such as price reset to different levels. Often this technique has been used to grant new and more favorable terms to the holder. For example, in a declining market for a company's stock, some executives or employees may have their options effectively repriced to lower strikes. Critics claim that this defeats the purpose of performance based options.

Resistance - Is a price level where stocks, bonds, currencies, and commodities are expected to receive sell orders. At its simplest application it is the ask or offer side of a quote. On a more complex level it refers to the upper boundary of some described trading range.

RESPA - Is the Real Estate Settlement Procedures Act.

RESPA Statement - Is the itemized listing of closing costs for buyers and sellers. It is required by the Real Estate Settlement Procedures Act.

Resting Order - Is an order waiting to be executed. Often it refers to a limit or other conditional order.

Revenue Anticipation Note - Is a security issued by a municipality against expected revenues. It has a maximum maturity of one year and is used as a cash management tool.

Revenue Bonds - Are debt securities which have a defined source of anticipated funds to pay both the principal and the interest. These funds come from an activity, project, or revenue source which is not related to a municipality's capacity to enact taxes. These bonds are sometimes viewed as more risky than General Obligation (GOs) Bonds.

Reversals - Are changes in direction for a time series for markets, such as, commodity, stock, currency or interest rates. Often these events are abrupt as prices suddenly change direction or trend.

Reverse - See Reverse Conversion.

Reverse Conversion - Is a strategy which consists of a long synthetic position and a short underlying position. In the futures markets, a trader would be synthetically long and actually short the underlying futures. It is essentially used for arbitrage purposes.

Reverse Crack - Is the sale of crude oil against the purchase of the refined products. In futures trading, it is the simultaneous sale of crude oil futures versus the purchase of heating oil and gasoline futures. The spread differentials reflect the potential refining margins, profitability, or loss. Here, the spread implies that the cost of the raw commodity input, crude oil, is relatively rich or expensive to its refined products. In fact, it suggests that it is economic to buy the products and sell the input. If this spread relationship persists, then refiners may reduce or cease production because it would be at a loss. Compare to Crack Spread.

Reverse Crush - Is the sale of soybeans against the purchase of the processed products. In futures trading, it is the simultaneous sale of soybean futures versus the purchase of soybean oil and soybean meal futures. The spread differentials reflect the potential processing margins, profitability, or loss. Here, the spread implies that the cost of the raw commodity input, soybeans, is relatively rich or expensive to its processed products. In fact, it suggests that it is economic to buy the products and sell the input. If this spread relationship persists, then crushers or processors may reduce or cease production because it would be at a loss. Compare to Crush Spread.

Reverse Floater - See Inverse Floater.

Reverse Repos - Are Reverse Repurchase Agreements. Depending on the context, they may be called Matched Sales.

Reverse Split - Occurs when a corporation reduces the number of shares outstanding by reorganizing its capitalization structure. Here, fewer shares may be an effort to have a higher unit share price. One motivation for this is that some exchanges have listing/delisting criteria of which share price is a factor. The proportional ownership of the shareholders does not change but the shares held do change.

Reverse TAC - Is a Targeted Amortization Class (TAC) tranche which has a long average life. This tends to provide some degree of protection against extension risk. However, rapid prepayments, which are greater than those stated in the TAC speed schedule, can quickly reduce the expected average life of the Reverse TAC.

Rho - Is the interest rate sensitivity of an option relative to a change in the interest rate option pricing variable. It measures an optionнs change in value for a given change in the interest rate.

Rich - Is a term used in relative value analysis. The cash flow characteristics, when analyzed against a benchmark or comparison bond, suggest an over-valued security. This implies that the former security has arbitrage potential against the comparative security.

Right or Rights - Is the security which allows current shareholders to maintain their percentage of ownership in the corporation. Often the terms are such that one or more rights are required to purchase one share of common at a particular price. This price is at a discount to the current market. The time to expiration for a right or rights offering tends to be brief. It is related to a warrant, however the warrant tends to have a longer time to expiration.

Ring - Is the area on the floor of an exchange where trading occurs. It is also known as the pit.

Risk - Is the variability inherent in investment, speculative or trading activities. The greater the variability, the higher the risk. Risk can be attributed to many factors. As such, the specification of a risk can described with the use of an associated qualifying term. These terms include but are not limited to credit, counterparty, liquidity, market, fraud, currency, roll, agency, coupon, event, corporate and country.

Risk Arbitrage - Is a form of trading whereby the risk arbitrageur attempts to profit from issues involved in merger/acquisitions. The underlying rationale is that the current price after the announcement is still below the bid price. Also, the company may find itself subject to other bids for its stock in excess of the initial announced bid. These price differentials are the arbitrage part. The risk is that other bids do not materialize or the initial announcement fails due to other considerations.

Risk Arrays - Refer to how a specific derivative instrument will change in value, from the present to a specific point in time for a given set of market conditions. For SPAN® purposes, this time period is typically one day. Here, risk array values are calculated basis a single long position. Note that SPAN® views LONG as the purchase of a call or a put and not as market direction strategy. This contrasts to LONG usually referring to the side of the market and not the ownership of an instrument.

Risk Management - Is the practice of adjusting exposures for the firm's positions or portfolios. It tries to stabilize variability of returns while trimming large - dominant - net exposures as well. It can also be used to secure more favorable financing for inventories or pricing of securities or commodities.

Risk Management Document - Is a formal listing of trading and hedging processes, procedures and other activities related to position taking. See Powers and Authorities for a illustrative example of the scope of this important document.

Risk Transformation - Is the result of an effective hedge. Here, price, interest, or currency level risk is transformed into the more manageable and less volatile, basis risk. This volatility is measured in terms of comparative dollar value swings.

Risk Types - Include the following:

• agency
• bankruptcy
• basis
• capital restrictions
• commodity
• compliance
• concentration
• conversion
• convexity
• corporate
• counterparty
• country
• coupon
• credit
• credit rating
• currency
• default
• dilution
• disaster
• duration
• environmental
• event
• exercise
• force majeure
• funding
• hazards
• legal
• liquidity
• market
• nonsystematic
• obsolescence
• operational
• option
• pin
• political
• prepayment
• price level
• reinvestment
• residual
• roll
• rule change
• software, modelling, and financial assumptions
• spread
• systematic
• technological
• time value decay - theta
• timing
• volatility
• weather
• yield curve: shape, shift, tilt and twist.

RMD or RMDs - Refer to Required Minimum Distributions from retirement accounts/plans. The rules governing these distributions are complex and subject to changes, new interpretations or even definitions. This subject matter becomes more complicated in the event of a death.

Given those few caveats, RMDs are those distributions which must be made each period by the owner of the retirement account. Depending on the type of account factors such as life expectancy, over-funding, new contributions, actual age and its relationship to a statutory limit impact the calculation of Required Minimum Distributions.

ROA - Is the Return on Assets. It is calculated by dividing income by the total assets.

ROE - Is the Return on Equity. It is calculated by dividing income by the equity.

Rogue Trader - Is a person who operates outside the limits of his authority. There may or may not be criminal intent. Often these rogues try to hide losses but in the process incur even greater ones. Often these traders take on larger positions which are not authorized in order to recoup open losses.

ROI - Is the Return on Investment. It is calculated by dividing income by the total investment.

Roll Down - Is the movement out of a higher coupon or option strike price into a lower coupon or option strike price. It can also describe the movement down a yield curve from a relatively longer maturity security into a relatively shorter maturity security.

Rollover - Is the transfer of a position into a different delivery month.

Roll Up - Is the movement out of a lower coupon or option strike price into a higher coupon or option strike price. It can also describe the movement up a yield curve from a relatively shorter maturity security into a relatively longer maturity security.

RONA - Is Return on Net Assets.

ROP - See Registered Options Principal.

Rotation - Refers to the movement or flow of investments. Usually, it describes the flow into one sector of stocks and the reduction of positions in another stock sector.

Roth IRA - Is a retirement account created by the Taxpayer Relief Act of 1997. It is established with after-tax dollars but enjoys the benefits of nontaxable growth and nontaxable withdrawals. These nontaxable withdrawals are subject to certain criteria. Unlike the ordinary IRA account, the Roth IRA does not require minimum distributions at a specified age. Also, there may be favorable tax treatment for estate purposes.

Roundturn - Is a term used in the futures industry to reflect the commissions for a completed purchase and sale of a futures contract. Half of a roundturn represents the commission for either the purchase or the sale of a contract. Generally, it is important to specify that options will be charged a half of a roundturn because they may expire worthless or be exercises. Depending on the arrangement with the FCM, a customer may be charged for the roundturn immediately even though only a purchase or sale was transacted.

Royalties - Refers to income or payments derived from intellectual property or certain depletable assets such as oil and gas. Sometimes, there may be preferential income tax treatment.

RR - Registered Representative. See Account Executive Also known as an AE or IE.

RSAs - Are Risk Sensitive Assets.

RSLs - Are Risk Sensitive Liabilities. 

Sacred Cow - Is an asset, position, or project which is considered protected by management. Often this investment is presented as "off-limits" or non-negotiable.

Salvage Value - Is the amount remaining after a depreciated useful life. It refers to the residual or recoverable value of a depreciated asset. It should be noted that the gross salvage value may be adjusted by a removal or disposal cost. This adjustment would lower the gross salvage value.

SBA - Is the Small Business Administration.

SBIC - Is a Small Business Investment Company.

Scenarios - Are hypothetical outcomes or path dependent behavior for trading, hedging or analytical purposes.

Scheduled Bonds - Are instruments which are engineered to receive principal payments using stipulated payment schedules. Generally, the term is used for bonds other than Planned Amortization Class (PAC) and Targeted Amortization Class (TAC) issues.

SD or S/D - Is the Settlement Date.

Seasonal - Refers to a recurring process. Often data are deseasonalized to smooth out spikes and provide a better basis for analytical purposes. Examples of this would be sales of heating oil, gasoline, retail employment statistics, and other ecnomic and financial time series.

Seasoned - Is a mortgage industry term that describes the aging process underlying collateral. It refers to mortgages, which are at least 30 months old and are expected to have relatively stable prepayment rates.

Seat - Refers to membership on an exchange. A seat can be purchased or leased.

Secondary Market - Is the aftermarket or the status for trades after an initial public offering (IPO). See Initial Public Offering.

Secured - Is a credit instrument which has priority of claim against a specific asset or portfolio of assets. This compares to Unsecured Debt.

Securities Act of 1933 - Is the Federal Law which covers new issues of securities. It requires full-disclosure of material information related to the offering. Some securities such as U.S. Treasuries are exempt from the provisions.

Securities Exchange Act of 1934 - Is the Federal Law which covers brokers and dealers (B/Ds) and secondary market activities. This compares to the Securities Act of 1933 which focuses on new issues.

Securities Registration - Is the compliance procedure whereby an individual is registered according to function, supervisory level, and type of customer contact. Also, firms must be registered with the appropriate regulatory bodies. See Account Executive and Series 7.

Securities Registration also refers to the process whereby the corporation or its representative applies to the appropriate Federal or State Agency to have the securities registered. This registration is not a sign of approval by the Agency but rather a notification by the corporation to the agency of its intent to sell securities.

Securitization - Is the process of homogenizing and packaging financial instruments into a new fungible one. Acquisition, classification, collateralization, composition, pooling and distribution are functions within this process. One common advantage of securitization is the enhancement of liquidity relative to the underlying collateral or financial instrument. Another benefit is the movement towards standardization of unit specifications.

Seed - Is the initial value or piece of data which is used to initiate an algorithm or process. In commodities, it refers to the part of the crop or crop inventory which is set aside for subsequent planting purposes.

Sell on Close - Is an order to sell at the close. It can be at the market or at a limit.

Sell on Opening - Is an order to sell at the opening. It can be at the market or at a limit.

Seller's Market - Refers to a situation when a holder of assets has greater flexibility and influence in receiving improved bids or proposals. Often the number of potential buyers is greater and the prices higher than those previously transacted.

Seller's Option - Is the contractual latitude or choice of the seller in a transaction to pick the date, grade, coupon, or maturity of a deliverable commodity or actual security. The degree of latitude varies according to the different exchanges and markets. See Wildcard.

Sellside or Sell-side - Refers to the brokerage industry which originates, presents, or sells securities to investors such as money managers and mutual funds.

Senior - Is a class of securities which have high or the highest claim against a borrower. Often they are secured or collateralized.

Senior Registered Options Principal - Is the designated supervisor within a firm who is responsible for the firm and its employees to abide by the rules, regulations, and review process governing options. In particular, this person has oversight on trading and transactions. Generally, the Senior Registered Options Principal can not be the Compliance Registered Options Principal as well. However, an exception is provided for firms do not exceed a certain threshold in terms of revenue. This person is Securities Series 4 licensed.

Separate Account - Refers to an insurance company's account which supports some it its products, in particular, variable annuities and life products. One key difference from the General Account is that the investment risks are carried by the policyholder.

Sequential - Is a class of bonds often described as short or long-term. It is critical to analyze the relationship of these bonds relative to the underlying collateral coupon. One version of these bonds is vulnerable to extension risk whereas another version is vulnerable to call risk.

Sequential Analysis - Is a small sample, nonparametric method. It does not presuppose sample sizes or probability distributions. It is an effective technique to use when analyzing or monitoring hedge or trading programs. The approach uses Type I and Type II Error frameworks.

Serial Bonds - Is an issuance of bonds which have different maturity dates for the principal. Often these bonds are issued on a year-by-year basis but there can be maturity gaps as well.

Serial Correlation - Is the statististical dependency of items between two or more times series. However, this term is sometimes used as a synonym for Autocorrelation. Compare these terms for distinctions.

Series - Can refer to a sequential or chronological arrangement of bonds. This arrangement is sometimes referred to as Tranches or Serial Bonds. The term also refers to the financial industry test and associated license.

Series for Options - Refers to all options of the same class which have the same strike or exercise price.

Series 3 - Is the Commodity Futures Examination (License). See Associated Person.

Series 4 - Is the Registered Options Principal Examination (License).See Registered Options Principal, Compliance Registered Options Principal, and Senior Registered Options Principal.

Series 5 - Is the Interest Rate Options Examination (License).

Series 7 - Is the Full Registration for the General Securities Examination (License). See Account Executive.

Series 8 - Can be the SU or General Securities Sales Supervisor Examination (License).

Series 8 - Can be the TS or Trading Supervisor Examination (License).

Series 15 - Is the Foreign Currency Options Examination (License).

Series 16 - Is the Supervisory Analyst Examination (License).

Series 24 - Is the General Securities Principal Examination (License). See Registered Securities Principal.

Series 26 - Is the Investment Company and Variable Contracts Principal Examination (License).

Series 27 - Is the Financial and Operations Principal Examination (License).

Series 28 - Is the Introducing Broker/Dealer Financial and Operations Principal Examination (License).

Series 52 - Is the Municipal Securities Representative Examination (License).

Series 53 - Is the Municipal Securities Principal Examination (License).

Series 62 - Is the Corporate Securities Representative Examination (License).

Series 63 - Is the Uniform Securities Agent State Law Examination (License).

Settlement Date - Is the date of the financial satisfaction of a transaction. This satisfaction can include payment and delivery of securities. In recent years, there has been progress towards closing the gap between trade date and settlement date. Many back office systems are primarily focused on settlements whereas front office systems are primarily focused on trades or transactions. Here, too the gaps are narrowing with the implementation of middle office software.

Settlement for Real Estate - Is often synonymous with the Closing. It refers to the concluding financial transactions required to satisfy the deal.

SFE - Is the Sydney Futures Exchange.

Share Equivalency - Is a term used in convertible trading and hedging which indicates the number of common shares that the convertible instruments could be exercised into.

Share Repurchase - Occurs when a company buys its own shares on the open market. Sometimes, it is done to bolster value, at other times it is executed to acquire shares for option or other incentive plans. When the rationale is the former, it is often considered preferable to use available to "reinvest" in the business than make other less apparently attractive investments or dividend distributions.

Short - Is the position opposite that of a long. Some who is short the market.

Short Coupon - Refers to the initial coupon for a municipal security which reflects less than 6 months of accrued interest. The time of accrual is measure from the start of the Dated Date and continues until the end of the initial accrual period. Compare to Long Coupon.

Short Hedge - Refers to the status of the open futures contract equivalent position. Here, it is understood that the hedger is short futures against a long actual position.

Short Option Minimum Charge - Is the amount charged for short positions in extremely deep-out-of-the-money options. This amount is the greater of the actual risk weighted statistic or the stated exchange or clearing house minimum.

Short Position - Refers to several concepts. It can refer to market directional positions. For example, the sale of a call or the purchase of a put are bearish in nature. These trades have a negative market bias.

Short Selling - Is the act by which a speculator or risk manager sells an instrument at a high price with the intent of purchasing it lower. This is particularly the case for the speculator. The risk manager would generally be selling short against a specific or global exposure. There are technical differences in selling short on the futures and securities markets. Also, the purchase of puts or other derivative strategies can serve as a substitute for being short. There are different rules which apply to short sellers on securities markets. The key differences are between market makers and market participants.

Short the Basis - Refers to the status of the open cash or spot market position. Here, the hedger would be short the cash market and long the futures or forward market. Compare to Long the Basis.

Shortening - Is the reduction of the held duration for assets or liabilities. It can be intentional or the result of prepayments, events, or exercised options.

SIAC - Is the Securities Industry Automation Corporation. It was established by the New York and American Stock Exchanges to provide automated services for data processing and clearing.

Side of the Market - Refers to the underlying market-driven or market directional position. For example, a long stock position is considered as a long side-of-the-market position. Similarly, a purchased call on the same security is viewed as long the same-side-of-the-market. A sold or short put position in the same security is considered as long the same-side-of-the-market. However, a purchased put is viewed as short or short side of the market. This term enables firms, exchanges, and clearinghouses to quantify positions as to market-side or market direction. This is very useful when evaluating complex positions.

Sigma - Is an option term sometimes used as a synonym for vega, lambda or kappa. See Vega.

SIMEX - Is the Singapore International Monetary Exchange.

Simulations - Are the results or the processes of generating data and outcomes for different paths and scenarios. It provides a statistical framework for what-if conditions. The art of the simulation is trying to construct an elegant, representative model. This model should properly weigh, in a probabilistic sense, the expected behavior of the time series.

SIPC - Is the Securities Investor Protection Corporation. It was created to protect the clients of a securities firm in the event that the firm went into bankruptcy.

Skewness - Occurs when a distribution is not symmetrical about its mean. A distribution is symmetrical when its median, mean, and mode are equal. A positively skewed distribution occurs when the mean exceeds the median. A negatively skewed distribution occurs when the mean is less than the median. These conditions are also known as skewed to the right and skewed to the left, respectively.

Slippage - Refers to the commissions, fees and other costs of executing a transaction. The other dominant cost is the spread between the bid and offer and price adjustments for size. Sometimes, there are additional expenses in trading odd lots or very large blocks.

SLMA - Is the Student Loan Marketing Association or Sallie Mae.

SLUGS - Are State and Local Government Series securities used for escrow for advanced refunding. The image of these securities became marred when they were a focus point for yield burning cases.

SMA - Is the Special Memorandum Account. It refers to the amount of withdrawable cash from a margin account. It is the difference between the Account Equity and the Margin Requirement at Current Market Values.

SMBS - See Stripped Mortgage Backed Securities.

SOES - Is the Small Order Execution System.

Soft - Refers to weak price or basis behavior. It is a market which weakens on selling. Buyers are not aggressive.

Sold Call - Is a bearish strategy. It requires the grantor of the option to fulfill the contract by accepting a short position in the underlying instrument upon exercise. The risk is unlimited and the reward is limited to the premium received.

Sold Put - Is a bullish strategy. It requires the grantor of the option to fulfill the contract by accepting a long position in the underlying instrument upon exercise. The risk is considered unlimited, though bounded by a zero price, and the reward is limited to the premium received.

Sovereign - Refers to a debt security issued by a government other than the United States. It is often believed that the issuing government via its treasury will fully back the payment of interest and principal in a timely manner. Sometimes, that backing is insufficient and a default occurs.

Soybean Complex - Refers to the commodity futures market for soybeans, soybean oil (soyoil), and soybean meal.

SPAN® - Is the Standard Portfolio Analysis of Risk (SPAN®) system. It was initially developed and implemented by the Chicago Mercantile Exchange. Other exchanges and clearinghouses have since adopted this methodology. It evaluates the performance bond, or margining requirements, for positions on a portfolio basis. It matches and evaluates similar instruments. These instruments can be futures, options, and derivatives. SPAN® tries to indicate the largest potential one-day loss that a portfolio might experience. These losses can be attributable to adverse price and volatility behavior. Since the inception of SPAN®, methodologies such as Value at Risk (VAR), have also focused on standard deviation (confidence level) statistics. SPAN® uses 16 different scenarios or market conditions in the calculation of the risk arrays.

Specialist - Is a person on the floor of an exchange who is supposed to buy when others are selling, and sell when others are buying so as to maintain and orderly market. In doing so, specialists run risks and they are compensated by the spreads.

Special Purpose Vehicle - Is an organization constructed with a limited purpose or life. Frequently, these Special Purpose Vehicles serve as conduits or pass through organizations or corporations. They are created for various mortgage backed, real estate, or loan transactions.

Spiders (SPDRs) - Are securities which are based on the S&P 500. They are a product traded on the American Stock Exchange.

Spillover Effects - Occurs when conditions or behaviors in some markets or sectors pour over into other markets or securities.

Spinoff - Is a company or division which is separated from the parent. Here, the parent's shareholders receive pro rata ownership shares in the newly free standing organization..

Spread - Is the simultaneous purchase and sale of two related instruments. This strategy tries to transform outright price risk into a basis or relationship risk position. It is also viewed as the difference between the bid and the offer or the profit margin.

SROP - See Senior Registered Options Principal.

SROs - Are Self Regulatory Organizations. Examples of this are the financial exchanges, industry associations, and the NASD.

Stack - Is a position which is focused on a particular delivery or expiration date. For example, a futures position which is comprised of 12 contracts all of which are established for December delivery. This compares to a Strip.

Stagflation - Is the economic and financial phenomenon which represents a relatively high rate of unemployment coupled with a relatively moderate to high rate of inflation.

Standard Deviation - Is a measure of volatility, risk, or statistical dispersion.

• computing the mean of the series
• then taking the deviation by subtracting the mean from each observation,
• squaring the differences or deviations for each observation,
• dividing the sum of the squared deviations by the number of observations
• and then calculating the positive square root of the sum of squared deviations.

Standard Normal Distribution or Standardized Normal Distribution - Occurs when the underlying normal distribution is converted by changing its scale. The importance of this is that different normal distributions can now be compared to one another. Otherwise, separate tables of values would have to be generated for each pairing of mean and standard deviation values. This standardized variate term is often expressed as Z is N(0,1), or Z is a normal distribution with a mean value of zero and variance equal to one.

Static Analysis - Is the approach to study market conditions at a moment in time. It also called the Snapshot View of the market, corporate financial condition or other economic time series. It reflects one moment such as, the end-of-the-day, end-of-the-month, end-of-the-year, the opening or any other chronologically defined point. This compares to Dynamic Analysis.

Stationary - Refers to a time series or time series process which has a natural mean or tendency towards one. Over time and given larger samples, some economic time series tend to converge towards a natural level with stable volatilities. This compares to Nonstationary.

Statistical Analysis - Is a mathematical approach which quantifies market action. In its general form, it is reliant on large sample statistics and linear analysis. It assumes independence. Its popular terms are: the mean, variance, standard deviation, alpha and beta.

Stochastic - Is a condition in finance or economics whereby changes occur on a more abrupt basis than those expected to be "normally" encountered. In some ways stochastic has infinite variance and/or non-converging means implications.

Stocks and Bonds Hedge Funds - Are combinations which are analogous to "Balanced Mutual Funds" but, depending on the underlying charter, can use higher degrees of leverage or derivatives.

Stop - Is an order than becomes market executable when a stated level is hit or crossed. Sell stops become market activated when the market declines to the stated stop price or lower. Then the order requires the instrument to be sold at prevailing market prices. Buy stops become market activated when the market advances to the stated stop price or higher. Then this order requires the instrument to be purchased at the prevailing market prices. A variation of the Limit Order is the Stop Limit Order.

Stop Limit - Is a combination of a Stop and Limit order. In the case of a Sell Stop Limit, a Stop Price is given and the same or lower Limit Price is given. The market must decline down to this price or range to become executable. In the case of a Buy Stop Limit, a Stop Price is given and the same or higher Limit Price is given. The market must advance up to this price or range to become executable. Therefore, this type of order can only be executed at one price or a range of prices. Typically, this range is rather narrow.

STP - See Stop order.

STP LMT - See Stop Limit order.

Straddle - Is an option strategy where the near- or at-the-money put and call are combined to form a position. The straddle can be long (purchased) or short (sold).

Straight-Line Depreciation - Is an accounting procedure whereby each year's depreciation is equal to the other years. If an asset has an expected useful life of 5 years then 20 percent of its adjusted cost is charged against revenues each year. If the asset has an expected useful life of 10 years, then 10 percent of its adjusted cost is charged against revenues each year.

Strangle - Is related to the straddle. It is an option strategy where the put and call are out-of-the-money. The strangle can be long (purchased) or short (sold).

Street or The Street - Refers to Wall Street or the Securities and Derivatives Industry.

Strengthening - Is a hedging or risk management term used to describe the relative gain of value between the underlying market and the hedge vehicle. It suggests that the cash or spot commodity or market is becoming more valuable relative to the futures or forward as defined by the basis.

Stretching - Is the increase of the held duration for assets or liabilities. It can be intentional or the result of slowdowns in prepayments, events, or exercised options.

Strike Price - Is the stipulated price of an option at which level the underlying security, futures, or commodity will be priced or valued upon exercise.

Strip - Is a term in the commodity markets which refers to the placement of contracts in different delivery months. For example, the simultaneous placement of 12 contracts in the January through December calendar months would be a strip. This compares to a Stack.

Stripped Mortgage Backed Securities - Are securities which are constructed from MBS pass-throughs. Essentially, these securities strip the cash flow stream into a separate interest only (IO) and principal only (PO) securities.

Strips - Are Stripped Treasury Obligations. The principal and interest payments are separated from the underlying security. The stripped principal is sometimes called the Corpus. There are many variations on this theme with names striving to set apart different firms offerings in this asset group. The stripped offerings are essentially Zero Coupon Bonds.

Structured Products - Are custom-made, over-the-counter instruments. Among these are: Collateralized Loan Obligations, Collateralized Mortgage Obligations, Swaps, Unlisted and Exotic Options, and other Collateralized Obligations. These products are included in the broad definition of derivatives.

Structuring - Is a term which is used several ways. It can refer to arranging a deal.

Subordinated - Is a class of securities which have lower priority or claim against a borrower. Typically, these are unsecured obligations. They are also called Junior notes and bonds. This compares to Senior and Secured.

Substitute Cash or Dividend Payment - Occurs when there has been a short sale. The lender of the security is entitled to a substitute dividend or cash payment. The party who buys the actual security is entitled to the actual dividend as well as voting rights, if any.

Super Floater - Is a floating rate instrument which has its coupon set as a multiple of a benchmark. It exhibits greater movement than an ordinary floater.

Super PAC - Is Planned Amortization Class security that has broader prepayment protection due to its wider collar or prepayment band.

Super PO - Is a security that acts like a support instrument to Planned Amortization Class (PAC) and Targeted Amortization Class (TAC) bonds. Yields on these double-duty securities can fluctuate greatly depending on the actual prepayment history. Very high prepayments against the underlying PACs and TACs can quickly boost Super PO yields.

Support - Is a bond engineered to counterbalance or uphold Planned Amortization Class, Targeted Amortization Class or other superior bonds in a deal. Also, referred to as a Companion Bond.

Support Bonds - Are a class of securities that absorb many of the risks of the Planned Amortization Class structure.

Support for Prices - Is a price level where stocks, bonds, currencies, and commodities are expected to receive buy orders. At its simplest application it is the bid side of a quote. On a more complex level it refers to the lower boundary of some described trading range.

SVT or SVTs (Specialistes en Valeurs du Tresor) - Is the system of primary dealers in French treasuries. There are approximately a dozen firms in this system.

Swap - Is a customized financial transaction between two or more counterparties. However, banks or brokerage firms often act as intermediaries or assume some of the risk of the total transaction as well. A swap is engineered between counterparties who agree to make periodic payments or adjusts to one another. Swaps cover interest rate, equity, commodity and currency products. They can be simple floating for fixed exchanges or complex hybrid products with multiple option features. Swaps are not exclusively OTC transactions because listed instruments are often include in the risk management of the position. Often managers evaluate the relative merits of conducting a swap (OTC) or a hedge predicated on listed instruments. The interaction between these two markets promotes greater financial efficiencies.

Swaption - Is an option on a swap. This option can be a put, call or myriad combination of option features.

SWARCH - Is Switching Regime Autoregressive Conditional Heteroskedasticity (ARCH).

Sweetener - Is an added incentive to purchase a security. One example of this would be the coupling of warrants with a convertible bond issue. Here, the warrants would be viewed as the sweetener.

Switch - Is the trading process whereby an open contract position is closed and another contract month is opened. This activity is sometimes called a spread or a rollover.

Synthetic Futures - Is a position constructed with options which have the same strike price and same expiration. It can be either long or short. A long synthetic futures position consists of a purchased a call and a sold a put. A short synthetic futures position consists of a sold call and a purchased put. It is a part of the conversion and reverse conversion strategies.

Synthetic Long Call - Is a long position in the underlying instrument or futures combined with a long or purchased put.

Synthetic Long Put - Is a short position in the underlying instrument or futures combined with a long or purchased call.

Synthetic Long Straddle - Is constructed by the purchase of a futures contract or underlying instrument coupled with the purchase of two at-the-money puts. Since the purchase of the underlying with the purchase of one at-the-money put is a synthetic long call, then the purchase of the second put completes this synthetic option strategy.

Synthetic Short Call - Is a short position in the underlying instrument or futures combined with a short put position.

Synthetic Short Put - Is a long position in the underlying combined with a short call. Is sometimes referred to as a covered call write position.

Synthetic Short Straddle - Is constructed by the purchase of a futures contract or underlying instrument coupled with the sale of two at-the-money calls. Since the purchase of the underlying with the sale of one at-the-money call is a synthetic short put, then the sale of the second call completes this synthetic option strategy.

T+1 or T plus 1 - Is the term to represent the required settlement date. It is trade date plus one day, here.

T+N or T plus N - Is a broader description of the stipulated settlement process. Depending on the security and the marketplace, there are different rules and regulations governing settlements. Here, the T refers to the trade date and the N is the number of days from the trade date to the settlement date.

TAC - Is a Targeted Amortization Class security.

TAN - See Tax Anticipation Note.

Target Funds - Are mutual funds which invest in specified categories, such as, average maturities or durations.

Targeted Amortization Class - Is a credit market derivative. It was initially structured as a CMO tranche for MBS deals. It tends to be subordinate to Planned Amortization Class bonds but superior in terms of stability to other Scheduled bonds and Sequentials.

TASE - Is the Tel Aviv Stock Exchange.

Tax Anticipation Note - Is a security issued by a municipality against expected tax collections. It has a maximum maturity of one year. It is used for cash management purposes.

Tax Deferred - Refers to a situation or an investment whereby the tax liability is delayed until a later date. Retirement plans such as 401K and IRAs are examples of this feature.

Tax Efficient Portfolios - Are investment holdings which have both trading profits and tax minimization impact as goals. These portfolios recognize that the subsequent payment of taxes reduces the investor's after tax returns. When holdings are held by pension plans or tax deferred accounts, there is no immediate tax liability on realized gains. However, an investor holding mutual funds which have high rates of security turnover and significant realized gains are subject to immediate tax year liabilities.

Tax Exempt - Refers to income or property which is not subject to tax. Interest on Municipal bond is not subject to federal income tax. Similarly, interest on a treasury bond is not subject to state or local income taxes.

TBA - See To Be Announced.

TD or T/D - Is the Trade Date.

TDA - Is a Tax Deferred Annuity.

It was established under Section 403(b) of the Internal Revenue Code. It is available only to employees of public schools and certain other tax-exempt organizations such as qualifying hospitals.

Technical Analysis - Is the study of market behavior which tries to discern patterns which enhance position taking. Among some of the tools and indicators used are: charts, volume, open interest, put to call ratios, moving averages, and oscillators. This compares to Fundamental Analysis and Conditional Analysis.

Technical Dictionary or Technology Glossary - Refers to a reference which lists, describes and defines technology, computer, networking, and other scientific terms and acronyms. See the popular Technology Glossary or Dictionary.

TED - Is the Treasury Bill to Eurodollar spread. It is often used as a pessimism-to-optimism indicator.

Temporary Financing - Consists of commercial paper, lines of credit, inventory financing and bridge loans. These obligations have to be satisfied within a relatively short timeframe.

Term Bond - Is a newly issued municipal bond with one stated maturity. This compares to Serial Bonds.

Term Repos - Are Repurchase Agreements which are negotiated or renegotiated (rolled over) for more than 1 day periods. These periods can be for multiple days, weeks, or sometimes, months. They are a form of borrowing/lending.

Term Structure of Interest Rates and Volatility - Refers to the variability of short-term rates relative to longer-term rates. It has been documented that short-term rates exhibit greater variability or volatility than long-term rates. However, longer-term instruments experience greater price sensitivity than short-term instruments for a given change in the underlying rate.

Terminal Value - Refers to the financial remainder, residual amount, or end-of-process (life) valuation. Some examples are the remaining value of an expired option or hedge position. It may also refer to a non-discounted or discounted financial value for an investment.

Theory of Cross Hedging - Refers to a modification of the hedging process. It depends on hedging principles, practices and strategies but with a relaxation of strict standards of cash position specifications versus hedge instrument specifications. Often there can be a slight difference in grade, location, maturity, actual portfolio composition or product relative to the optimal hedge instrument. For example, treasury bond or note futures might be used in conjunction with To Be Announced securities (TBAs) to hedge mortgage backed securities portfolios. Mortgage backed securities are not deliverable against treasury bond futures, but there are features which improve the overall hedging efficiency by using blended hedges.

Theory of Hedging - Refers to economically reasonable techniques that generate compensatory offsets relative to inventory, portfolio or other course of business positions and transactions. It is predicated on the understanding that the resultant basis series between the actual position and the hedge position is more financially stable and has a lower monetary amplitude than the unhedged series. Often this definition refers to verisimilar items in terms of the position to be hedged and the hedge vehicle.

Theta - Is the sensitivity of an option premium or price relative to changes in time. This characteristic tends be viewed on an instantaneous basis in financial literature and on a daily change basis in practice.

Theta Risk - Refers to the time value exposure for an option. Academic literature tends to view it on an instantaneous basis whereas practioners tend to view it on a daily basis. For the later it can calculate the time value difference between 6.7.00 and 6.8.00 all other things being held constant. Then the amounts would be expressed in dollars or other designated currency.

Thin Tails - Describes the appearance of a probability curve which has a lower-than-normally-expected occurrence of observations in the remote areas, or tails, away from the mean.

Third Market - Is when a listed security is traded over-the-counter by non-exchange member brokers.

Tick - Is the minimum allowable price change increment for a futures, options or security transaction. It may be equal to 1, 5 or more basis points in terms of price. It may refer to an 1/8, 1/16, 1/32, 1/64 or other fraction of minimally acceptable change. The term is dependent on the rules of each market and exchange.

Ticket - Is the physical record of an order. Tickets are time stamped and show quantity, price or market pending price, type of order, and customer. If additional information is required to minimize errors such as type of order, market location, commission or spread, broker taking the order and so forth then that should be entered at the time of order acceptance. In some firms tickets are generated from the Trading Blotter.

Ticks - Refer to various price changes or price change sequences. Whereas a simple tick defines the minimally acceptable price change for an instrument from one transaction to another, ticks come in different orders.

• Up-Tick,
• Down-Tick,
• Zero-Plus-Tick,
• Zero-Minus-Tick.

Time - Is the element which quantifies investment horizons, time remaining to maturity, time remaining to expiration, or time of holding period. It measures the distance between chronological points.

Time Is Of the Essence - Is a clause which asserts that there will not be any change in the settlement or timing of a transaction.

Time Spread - See Horizontal Spread.

Time Value - Has two general meanings. The first is the value or amount of a sum of money adjusted by an interest rate for a given time period. The second common usage is in the context of options. Here, it defines the amount of premium attributed to the remaining term of the option after factoring out any in-the-money component.

Is multiplicative factor which is dependent on the time remaining to expiration and the attendant volatility. However, time value is not proportional but tends to more nearly approximate a square root function.

TIN - Refers to the Tax Identification Number or to the Tax Payer Identification Number.

Title - Is a document indicates ownership of a specific property such as a motor vehicle, boat, or real estate.

Title Insurance - Is insurance coverage which protects against defects in title. Most lenders require its purchase. Unlike over insurances, it is purchased by a one-time premium payment.

Title Search - Is the examination of a property's filed document history. This would include verification of title/ownership, tax records, judgments, liens and other items which could encumber the title.

To Be Announced - Is the generic forward market for mortgage backed securities. A coupon, par quantity, agency, maturity and coupon characteristics are indicated but the exact details, such as specific pools, are to be formalized at a later time. This subsequent specification is to be done within the rules governing deliveries.

To Leg - Is the non-simultaneous execution of a spread, rollover, or modification of a complex position. It entails the separate execution of component parts of the entire position.

Too Late to Cancel - Is a report that the cancellation effort occurred after the order was executed.

Tombstone Ad or Advertisement - Is a pulished announcement of a new issue by the underwriters after the fact.

Total Return or Total Rate of Return - Refers to the change in asset value plus income. For a stock it would refer to the change in the adjusted stock price plus and dividends and other distributions, if any. For a bond it would reflect the change in bond price plus any interest received or accrued.

Toxic Waste - Is a security which has been severely value impaired due to events or triggers of implicit option features.

Toxic Waste Swap - Is a transaction whereby two traders agree to exchange toxic waste or deeply underwater securities with one another with a swap transaction. Here, the traders can hide the losses associated with the initial losing position. Nevertheless, both parties continue to hold positions in securities which are inherently overvalued for trading or investment purposes. Upon discovery these positions will be subject to severe mark downs in price.

TPA or TPAs - Refer to Third Party Administrators.

Trade Date - Is the date of the transaction.

Trade House - Is a company which deals in the actual or physical commodities. These firms may also do an important amount of futures or options related business.

Trade Restrictions - Are taxes, tariffs, capital constraints, multiple currency rates dependent on type of transaction, quotas, and other impediments or requirements to execute an exchange of goods, services or financial transactions.

Tranche - Is the piece, portion or slice of a deal or structured financing. The so called "A to Z" securities of a CMO offering of a partitioned MBS portfolio. It can also refer to segments which are offered domestically and internationally. Tranches have distinctive features which for economic or legal purposes must be financially engineered or structured in order to conform to prevailing requirements.

Transfer Agent - Is the party that maintains a record of each registered shareholder. This record includes the name and address of the shareholder, the number of shares held by each, and is responsible for issuing and canceling security certificates. The last procedure occurs when there is a change in ownership.

Transparency - Refers to the presentation or announcement of positions. In portfolio and risk management it focuses on positions and the associated risk profiles.

Treasury Stock - Is the amount of stock held by a corporation after its issuance. When it is held by the corporation, it is nonvoting and no dividends are paid. These shares may be reissued subsequently for various purposes. At that time, they regain their voting rights and dividend status. These shares may also be permanently retired. See Authorized Shares and Issued Shares for related terms.

Trigger - Is a point, threshold, or event which precipitates an action, exercise, or change in behavior. The occurrence is often viewed as the catalyst of an important condition.

Triple Witching - Is the concurrence of the expiration of stock index futures, options on stock index futures, and security options on stock indices.

Tropical Products - Refer broadly to the commodity futures markets for Coffee, Cocoa, Sugar and FCOJ (Frozen Concentrated Orange Juice).

Troy Ounce - Is equal to 1.09 ounces avoirdupois. Troy ounces are used for precious metals.

Truncated Distribution - Is a distribution which has the graphical appearance of being cut or severed. The distribution can be normal, lognormal or some other process. Often, truncated distributions are shown for option related strategies. This is due to the fact that a put purchased against a portfolio would limit the downside returns or effectively cutoff losses past the strike, or effective strike, level.

TRS or TRSs - Refer to Total Return Swaps. Generally, the market maker or bank will pay an asset's total rate of return in exchange for a cash payment. The stipulated asset or index is the benchmark or reference point. The counterparty to the investor or risk manager often receives LIBOR plus a risk financing margin.

TSE - Is the Toronto Stock Exchange.

TVAs - Are debt securities issued by the Tennessee Valley Authority.

Two-Tail Test - Is a statistical test which evaluates both extreme sides, or tails, of a probability distribution. It considers both high rates of return and high rates of loss.

U - Is the Commodity Futures Symbol which represents the September Delivery Month.

U4 - Is the Uniform Application for Securities Industry Registration or Transfer.

U5 - Is the Uniform Termination Notice for Securities Industry Registration.

UBIT - Is the Unrelated Business Income Tax. It effects the tax status of previously recognized tax-exempt entities.

UGMA - Is the Uniform Gift to Minors Act. Each state has its own requirements but many conform. A gift of securities to a minor is an irrevocable act. The securities are registered in the name of one adult who is the custodian for the child.

Unable - Is an indication report that the order, as given or when given, was unable to be executed. This can happen on a limit order where the market continues to trade at the limit price but there were other orders ahead of it on a time basis.

Uncertainty - Usually refers to risk or volatility.

Underlying - Is the actual or physical security, commodity, futures, index or basket underlying a derivative product. It is the benchmark for pricing and evaluation purposes.

Underlying Market Price - Is the price of the designated or benchmark security or index. For example, if a security had a call strike price of 110 and was trading at 107, then the underying market price would be 107 and that call would be $3 out-of-the-money.

Underwater - Is an investment which is losing money or an unprofitable project.

Undivided Account - Refers to a new issue underwriting whereby each member is responsible to distribute her allocated portion of the deal. After the member sells her portion, her liability remains with regard to the syndicate if there is remaining inventory. This compares to a Divided Account.

Unit - Is a bundled securities position. One example is the combination of stock warrants with a convertible bond. These two combined positions, particularly, in the context of a new offering are considered as a unit.

Unit Investment Trust - Is an investment vehicle which is funded at the beginning and once investments are acquired acts like a liquidating investment. For example, corporate bonds, sovereign bonds, or mortgage backed securities would be acquired. The interest, principal repayments and accelerated payments would be passed on to the investors. These funds would not be retained by the fund for further investment. It is more nearly analogous to a closed-end fund and different from an open-ended fund.

Unsecured - Is a credit instrument which a lower priority of claim against a borrower. This compares to Secured Debt.

Unwind - Is the activity which reverses a position. If an investor was long an option spread then he would sell the position to close it. If the investor had a butterfly position in bonds, then she would have to offset each leg or wing to remove the trade. Unwind can refer to Long Liquidation or Shortcovering activities.

Up Tick - Is a positive change in price after a sequence of flat or down changes. It can also be another positive change in price in a long series of plus changes. It is important for some program trading operations as well as short selling activities in the securities markets.

Up-and-In - Is an option feature by which a derivative contract becomes active when an indicator, such as price, goes through an upside trigger point or threshold. Related topics are Down-and-Out, Down-and-In, and Up-and-Out.

Up-and-Out - Is an option feature by which a derivative contract dies or ceases to be active when an indicator, such as price, goes through an upside trigger point or threshold. Related topics are Down-and-Out, Down-and-In, and Up-and-In.

Upgrade - Is the raising, increase, or positive change in an company's or country's credit rating. Often it can refer to one or more issues.

Upstairs Trader - Is an institutional trader or money manager who is not on the floor of an exchange.

USDA - Is the United States Department of Agriculture.

Utilities - Are investment grade U.S. corporate notes and bonds. Sometimes, these securities are further classified as to nuclear, non-nuclear, and gas issues. 

V - Is the Commodity Futures Symbol which represents the October Delivery Month.

VADM - Is the Very Accurately Defined Maturity security. It is an accretion based or directed bond. The degree of call risk for a VADM is dependent on the bond structure to which they are linked.

Value at Risk - Is the methodology which measures the sensitivity of a portfolio or firm's position with parametric statistical techniques. It uses historical information to estimate the impact of various standard deviation events upon the value of the holdings and the associated impact on earnings.

Value Funds - Are mutual or hedge funds which invest in apparently undervalued companies. These companies on a quantitative basis may exhibit lower-than-average ratios, such as price/earnings, price/sales, or book value. Nevertheless, these stocks are viewed by participants as being bargain priced or value attractive.

VAR - See Value at Risk.

Variance - Is a measure of volatility, risk, or statistical dispersion. It is the square of the standard deviation.

• computing the mean of the series
• then taking the deviation or subtracting the mean from each observation,
• square the differences or deviations for each observation,
• and divide the sum of the squared deviations by the number of observations.

Variance, Finite - Refers to a statistic which is limiting or converges. This means that various samples of statistically acceptable sizes and samples across time exhibit relatively stable variances or standard deviations. This is an important assumption for many statistical analyses, particularly VAR (Value at Risk) methodologies. However, it may not apply during turbulent times. It must be used with caution.

Variance, Infinite - Refers to a statistic which is not limiting or does not converge. Increases in sample sizes do not improve the quality of the statistic. The number exhibits non-converging fluctutations over time. Additional tests are necessary to evaluate the behavior of variance and standard deviation. Infinite variance is not as stable as finite variance.

Vega - Is the measure of change in an option given a change in the volatility. Theoretically, it measures the instantaneous change in premium to the instantaneous change in volatility. In practice, it tends to be viewed as the change in premium given a 1 percent in volatility.

Vega Risk - Refers to the monetary exposure for a change in volatility for an option. It might refer to a change from 6 to 7 or 6 to 5 percent depending on whether a party is short or long the option. Some participants breakdown the vega risks into finer gradients or decimals.

Verbal - Is the oral report or order given between the parties in a transaction. Verbal fills or order executions must be followed by written documentation of the transaction. This documentation is the confirmation.

Versus Purchase - Is the specific identification of securities to be paired as completed transactions for tax purposes. If securities are not identified as specifically purchased and sold, then the transaction defaults to First-In First-Out (FIFO).

Volatility - Is the annualized standard deviation of the natural logarithms of asset returns.

Volatility Trades - Are options strategies which seek to profit by increases in volatility, decreases in volatility, or stable volatility. These trades can include: Butterflies, Condors, Straddles, and Strangles.

Volume - Is the quantity of trading activity. Generally, it is viewed from the sell-side. This aspect is connected to the transaction reporting obligation being on the part of the seller. Some observers consider NASDAQ activity as being double counted, whereas other do not. Here, market activity occurs with market makers. Often they will purchase a position for immediate resale to another buyer. Therefore, the 100 shares of stock will be viewed as a total volume of 200 shares. The first 100 is when the stock went into the market maker's inventory, and the second 100 is when it went into the (second) client's portfolio.

VSP - See Versus Purchase.

Vulture Funds - Are investment vehicles which focus on acquiring properties which may be available due to financial distress. The properties themselves may not be damaged but the principal owners may be in immediate need of cash. Usually, the term describes investment activities in real estate or closely held companies which may not enjoy the liquidity benefits of an exchange listing. 

WAC - See Weighted Average Coupon.

WAL - See Weighted Average Life.

WAM - See Weighted Average Maturity.

Warehouse Receipt - Is another form of documentation indicating ownership of a commodity at an approved warehouse or storage facility.

Warrant - Is used differently by the securities and commodities industries. In the securities industry, it refers to a derivative instrument which has an expiration date and strike price and other exercise conditions. In the commodities industry, it refers to a receipt indicating ownership of a specific lot of a commodity.

Wash Sale - Is the sale of a security or instrument and the subsequent purchase with no economic interest. It can be motivated by tax or reporting purposes. It is generally deemed to be a sham transaction. It can also be construed as creating fictitious trading activity.

Wash Transaction - See Wash Sale.

Wasting Asset - Is a derivative instrument that may expire worthless after a stated time or event. Options, Rights, and Warrants are three wasting assets.

WCE - Is the Winnipeg Commodity Exchange.

Weakening - Is a hedging or risk management term used to describe the relative loss of value between the underlying market and the hedge vehicle. It suggests that the cash or spot commodity or market is becoming less valuable relative to the futures or forward as defined by the basis.

Weighted Average Coupon - Is the measurement of the gross coupons underlying a Mortgage Backed Security and weighted by outstanding balance of each mortgage.

Weighted Average Life - Is the measurement of a Mortgage Backed Securities time horizon other than maturity. It considers the impact of all principal payments both scheduled and prepaid.

Weighted Average Maturity - Weighted Average Maturity is the mean measurement of the maturity of the underlying collateral weighted by each outstanding balance.

Weighted Spread - Is a strategy placed with more or multiple options bought or sold relative to the other leg. See Ratio Spread and Back Spread.

Weighting - Is the amount of a securityнs value relative to a portfolio. The amount committed to a particular asset class, industry or sector.

Western Account - Refers to an divided underwriting account. This compares to the Eastern Account.

Whole Loan - Is a mortgage, either commercial or residential, that has not been securitized.

Widening - Is a term often used in hedging or risk management activities. It refers to an increased spread or price differential between the underlying cash market and the futures market. It can also refer to the differences between two futures contract delivery months or two forward delivery dates.

Wiener Process - Is a type of Markov Stochastic process. It refers to changes in value over small time periods. Sometimes, this process is also called Brownian motion.

Wildcard - Is the unilateral choice of one party to a transaction. For bond futures, the wildcard or seller's option refers to the selection of coupon and allowable maturity to be made against delivery.

Wireability - Refers to securities issued in book-entry form and paid for by wire transfer.

Work Out - Is the process to cover a short or liquidate a long position. This activity can be the result of an error transaction, unsold inventory, or closing out a large position.

Wrap or Wrap Accounts - Refer to accounts domiciled at brokerage firms for which the client or beneficial owner of the account pays a fee. This fee is often in lieu of paying commissions at least for a certain level of activity. The amount of the fee structure typcically ranges between 1-2 percent of the assets.

Sometimes, the brokerage firm offers debit/credit cards collateralized by the underlying securities in the account. There may also be check/draft writing privileges.

If transactions are relatively few this may be an expensive way to maintaim an account because the client is charged whether there is activity or not.

Writes - Is the term which represents the granting or initial selling of an option whether it is a put or a call. 

X - Is the Commodity Futures Symbol which represents the November Delivery Month.

X or Cross Trade - Is a transaction that is not exposed to the public by outcry or usual trading practices. This type of trade is permissible provided it is done in accordance with the rules and regulations of the particular exchange and other regulatory organizations. The letter X can indicate this type of transaction on a ticker tape. It may be also used on a ticket or blotter. See the related Ex-Pit and Exchange for Physicals. 

Y2K - Refers to the Year 2000. It is often associated with a computer software problem frequently referred to as the Y2K bug. This is the inability of software to recognize dates greater than December 31, 1999.

Yellow Sheets - Is the daily quotation reports which indicates interdealer quotes for corporate bonds. Most corporate bonds are traded in the over-the-counter (OTC) market.

Yield - Is the rate of return on an asset. It is frequently expressed as a percent of the current market price.

Yield Burning - Is the activity whereby yields on treasury securities were (artificially) lowered to purchasing municipal organizations by raising the prices of those treasury or equivalent securities. This increase in prices caused these transactions to be conducted at levels which were higher than the prevailing market.

Yield Curve - Refers to the graghical or tabular representation of interest rates across different maturities. The presentation often starts with the shortest term rates and extends towards longer maturities. It reflects the market's views about implied inflation/deflation, liquidity, economic and financial activity and other market forces.

Yield to Call, Option or Event Date - Is akin to Yield to Maturity but adjusts for a short life expectancy. It is the rate of return which is measured by the current expected income stream relative to the prevailing market price assuming that the asset is held until the exercise of the first option or termination event. If the instrument is trading at a discount, then the yield to call, option or event date, will be greater than the coupon rate. If the instrument is trading at a premium, then the yield to call, option or event date, will be less than the coupon rate.

Yield to Maturity - Is the rate of return which is measured by the current expected income stream relative to the prevailing market price assuming that the asset is held until maturity. If the instrument is trading at a discount, then the yield to maturity will be greater than the coupon rate. If the instrument is trading at a premium, then the yield to maturity will be less than the coupon rate.

YTC - See Yield to Call, Option or Event Date.

YTM - See Yield to Maturity. 

Z - Is the Commodity Futures Symbol which represents the December Delivery Month.

Z or Accrual Bond - Is a security which has accretion characteristics. Its balance grows much in the sense of a zero coupon bond, however it is subject to prepayments or other events.

Z PACs - Are bonds in the Z tranche that accrue or accrete interest similar to the plain Z bond. However, the Z PAC repays principal as well. This principal repayment is defined and conditioned by a prepayment schedule or collar.

Zero Cost Collar - Is a transaction which has little or zero cash outlay or cost for the initiating person. Often, a security is held and some protection is sought via a hedging transaction. One example, would be the purchase of an out-of-the-money put (debit) and the sale of an out-of-the-money call (credit). Here, the premiums for the debit and credit are nearly the same. Therefore, there would be little or no cost for the person seeking the hedge. However, this position places a cap on the potential reward for holding the underlying asset. Essentially, the protection does not kick-in until the price of the underlying instrument goes below the exercise price for the put.

Zero Coupon Bond - Is a security which the interest and/or principal has been discounted to be offered at less than the stipulated principal or coupon amount due at maturity or early option payment. These securities effectively behave like treasury bills or other paper offered at an original discount. Zero coupon bonds can have conversion factors and other features implicitly embedded or explicitly stated.

Zero Curve - Is a yield curve comprised of the yields of zero coupon bonds arranged over time. Frequently, this arrangement is graphically portrayed starting with the shortest maturities and progressing to the longest maturities. This curve would provide the basis for pricing other securities using iterative or interpolation techniques.

Zero-Minus-Tick - Refers to a trading transaction made at the same price as the preceding one but the preceding one was lower than its predecessor.

Zero-Plus-Tick - Refers to a trading transaction made at the same price as the preceding one but the preceding one was higher than its predecessor. 

5/52 - Refers to 5 days per week and 52 weeks per year for customer service, support, or availability.

7/52 - Refers to 7 days per week and 52 weeks per year for customer service, support, or availability.

24/7 - Refers to 24 hours per day and 7 days per week for customer service, support, or availability. Sometimes, it is written as 7/24.

1035 Exchange - Is a transaction that permits the exchange of a life insurance contract for another insurance contract or annuity. It can be with the same or different company. It is important to research the specifics because some of the product exchanges only work one way. For example, an annuity can not be exchanged for a life policy.

1099-B - Is a form that reports redemptions and exchanges to the Internal Revenue Service (IRS) from accounts other than money market and retirement. It also reports gross proceeds from sales of stocks, bonds, commodities, futures, and forward contracts.

1099-DIV - Is a form that reports taxable dividends and capital gains from mutual funds to the Internal Revenue Service (IRS).

1099-G - Is a form that reports state income tax refunds and unemployment compensation to the Internal Revenue Service (IRS).

1099-INT - Is a form that reports interest payments made to the taxpayer to the Internal Revenue Service (IRS).

1099-MISC - Is a form that reports rents, royalties, personal service or profession income, and other miscellaneous income to the Internal Revenue Service (IRS).

1099-OID - Is a form that reports Original Issue Discounts, which are a form of interest payment, to the Internal Revenue Service (IRS).

1099-R - Is a form that reports retirement plan distributions to the Internal Revenue Service (IRS). It covers annuities, IRAs, pensions, profit-sharing, and simplified employee pensions (SEPs).

1099-S - Is a form that reports real estate sales to the Internal Revenue Service (IRS).

12b-1 Fees - Are charges assessed against an individual's mutual fund holdings for marketing and distribution expenses.

401K Plan - Is a retirement plan that the employee can set aside a portion of his or her income. The actual dollar amount is subject to annual change. Benefits of the plan are that it affords portability, reduces the employee's annual gross income for tax purposes, and the employee's contributions are immediately vested. Balances are allowed to grow on a tax-free basis and there are provisions for employer contributions as well.