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Trading & Investing Basics
Financial Education Center
Trading and Investing Basics
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Pacific Clearing Corporation (PCC)
The clearing corporation of the Pacific Stock Exchange.
Pacific Stock Exchange (PSE)
This exchange operates in San Francisco and Los Angeles.
Face value; the nominal value of a security.
A value that a corporation assigns to its security for bookkeeping purposes.
Preferred stock whose holders may "participate" with the common shareholders in any dividends paid over and above those normally paid to common and preferred stockholders.
Instrument representing an interest in a pool of mortgages. Pass–throughs pay interest and principal on a monthly basis.
A Syndicate Penalty Bid can be displayed on the Nasdaq System during the period of a registered public offering of a security. Such a bid may be entered by the managing underwriter or a member of the underwriting group acting on its behalf, and is intended to facilitate the offering by stabilizing the price of the security during the distribution period. This activity is permissible under SEC Rule 10b–7.
Extremely low–priced securities that trade over the counter.
PEPS (Personal Equity Plans)
These allow investment in a number of shares and carry various tax benefits, including the receipt of dividends without paying income tax on the income and sales free from capital gains tax on the profit.
The yearly accreted interest that a zero–coupon security is presumed to pay each year you hold it even though payment of interest isn't made until the zero matures.
Philadelphia Stock Exchange (PHLX)
An equities and options exchange located in Philadelphia.
Daily publication providing dealer names and quotes on penny stocks. It is actually printed on pink paper.
SEC rule that states that no short sale may be made when the last trade on the security was a minus tick.
A price movement of one full increment. For example, a stock rises one point when its price goes from 23 to 24.
The different securities owned in an account of client.
The maximum number of option contracts that may be held on the same side of the market for a particular security. The number may vary depending on the security.
A right, sometimes required by the issuer's corporate charter, by which current owners must be given the opportunity to maintain their percentage ownership if additional shares of the same class are issued. Additional shares of the soon–to–be issued security are offered to current owners in proportion to their holders before the issue can be offered to others. Usually one right is issued for each outstanding share. The rights are used to subscribe to the additional shares at a predetermined cash amount.
These are normally fixed–income shares whose holders have the right to receive dividends before ordinary shareholders but after debenture and loan stockholders have received their interest.
Stock that represents ownership in the issuing corporation and that has prior claim on dividends. In the case of bankruptcy, preferred stock has a claim on assets ahead of common stockholders. The expected dividend is part of the issue's description.
(1) If the market price of a new security is higher than the issue price, the difference is the premium. If it is lower, the difference is called the Discount. (2) The cost of purchasing or selling a traded option.
A note or bond selling at a price above par.
The current share price divided by the last published earnings per share, where earnings per share is net profit divided by the number of ordinary shares.
A spread in which the two options have the same expiration date but have different exercise or strike price.
Any of 40 firms recognized by the Treasury Department as eligible to bid on Treasury and agency securities when they are initially issued and to make a market for secondary buyers.
(1) The initial offering of certain debt issues. (2) The main exchanges for equity trading.
A brokerage firm when it acts as a dealer and marks up a purchase price or marks down a sale price when reporting the execution.
Refers to activity by a broker/dealer when buying or selling for its own account and risk.
A company which is not a public company and does not offer its shares to the general public.
An issue that is offered to a single or a few investors as opposed to being publicly offered.
Conversion of a state run company to public limited company status often accompanied by a sale of its shares to the public.
The price used to assess the value of shares for
inheritance tax purposes
. Calculated on the "quarter up" principle. That is, instead of taking the Mid Price in the Official List, the difference between the two prices (bid and offer) given under "quotation" is divided by four, and the result added to the lower of the two prices.
A document that explains the terms of a new security offering — the officers, the outside public accounting firms, the legal opinion, and so on. Must be given to any customer who purchases new corporate and certain muni issues.
A form and a process for voting via the mail, permitting stockholders to vote on key corporate issues without having to attend the actual meeting.
An attempt by a dissident group to take over the management of a corporation. The group sends proxies electing them to the board; the current management sends proxies favoring them. The shareholders cast their votes by selecting one proxy or the other.
Public Limited Company (PLC)
A public company limited by shares and having a share capital, and which may offer shares for purchase by the general public. Only PLC’s may qualify for listing or trading on the USM on the London Stock Exchange.
The listed exchanges through which zero–coupon investments can be purchased and sold.
Public Offering Date
The first day the new issue is offered to the public, on or shortly after the effective date.
The amount paid to purchase a Treasury or agency obligation.
An option that permits the owner to sell a standard amount of an underlying security at a set price for a predetermined period.
Auctions of Treasury notes and bonds occurring in May, August, November, and February.
Quarterly Report (10 Q)
A report, which public companies are required to file quarterly with the SEC, that provides unaudited financial information and other selected material.
The current bid price and the current ask price of a security.
The highest bid and lowest offer on a given security at a particular time.
The high and low prices for the day for a security.
The alphabetical designation attesting to the investment quality of a bond. Treasury and agency securities are AAA–rated, said to be "investment grade."
RATS (Registered Certificates of Accrual on Treasury Securities)
Another trade name for derivative zeros backed by U.S. Treasury obligations.
Real–Time Trade Reporting
A requirement imposed on Market Makers (and in some instances, non–Market Makers) to report each trade immediately after completion of the transaction. Stocks traded on The Nasdaq Stock Market are subject to real–time trade reporting within 90 seconds of execution.
A certificate issued when a company is in financial trouble. Its purpose is to provide the company with funds to complete processing cycles so that more money can be obtained through its liquidation.
The day that an individual must be the owner of record to be entitled to an upcoming dividend.
The preliminary prospectus. The name comes from the advisory that is printed on the face of the prospectus in red ink.
The retiring of a debt instrument by paying cash.
The date on which a security (usually a fixed interest stock), is due to be repaid by the issuer at its full face value. The year is included in the title of the security; the actual redemption date is that on which the last interest is due to be paid.
A notice that a corporation or a municipality is calling or redeeming a certain issue of bonds.
The retiring of a debt instrument by issuing a new debt instrument.
Reg T Excess
In a margin account, the amount by which the loan value exceeds the debit balance.
A bond on which the owner's name appears on the certificate.
The recording of a security's ownership on the issuer's central ledger. Anyone delivering the security must prove that he or she is, in fact, the person to whom the securities is registered.
Registered to Principal Only
A feature of a bond whose ownership is recorded on a central ledger and whose interest payments are made only when coupons are detached and cashed in. Payments are not automatically sent to the owner.
A member of an exchange who is responsible for adding "liquidity" to the marketplace by purchasing or selling assigned securities from his or her inventory. Also known as competitive market makers or option principal members.
A commercial bank or trust company that controls the issuance of securities.
Document filed with the Securities and Exchange Commission (SEC) explaining an impending issue and pertinent data about the issuer. Based on the information provided, the SEC either permits or prevents the issue from being offered.
Settlement on the 3rd business day following the trade date.
Regular Way Contract
The first contract sheet received from NSCC that contains compared, uncompared, and advisory data.
Regular Way Delivery
A type of settlement calling for delivery on the third business day after trade dates for stocks, corporate bonds, municipals. For government bonds and options, delivery is the first business day after trade.
A regulation governing the issuance of new securities.
Regulation T (Reg T)
A federal regulation that governs the lending of money by brokerage firms to its customers.
Ability to reinvest interest and principal paid by income securities.
Rate of interest earned by reinvesting interest payments rather than consuming them as current income.
The prospect that securities will not be able to pay higher rates of interest when general interest rates rise or retain previous levels of interest when general interest rates fall.
Temporary evidence of ownership, of which there are four main types. When a company offers shares to the public, it sends an Allotment Letter to the successful applicants; if it makes a rights issue, it sends a Provisional Allotment Letter to its shareholders, or in the case of a capitalization issue, a Renounceable Certificate. All of these are in effect bearer securities and are valuable. Each includes full instructions on what the holder should do if he wishes to have the newly–issued shares registered in his name or if he wishes to renounce them in favor of somebody else.
Repurchase Agreement (Repo)
An agreement used to finance certain government and money market inventory positions. The brokerage firm sells securities to the financing organization with the agreement that the firm will repurchase them in the short–term future.
As defined by Regulation T, a margin account in which the debit balance exceeds the loan value.
Unregistered securities acquired in a transaction that does not involve a public offering.
Net profits kept to accumulate in a business after dividends are paid.
The amount that must be retained in a restricted margin account if anything is to be withdrawn.
Return of Capital
A distribution of cash resulting from depreciation tax savings, the sale of a capital asset or of securities in a portfolio, or any other transaction unrelated to retained earnings.
Return on Equity
(net income divided by shareholders’ equity) a measure of the net income that a firm is able to earn as a percent of stockholders’ investment.
Return on Total Assets
(net income divided by total net assets) a measure of the net income that a firm’s management is able to earn with the firm's total assets.
Revenue Anticipation Note (RAN)
A short–term debt instrument that is issued by municipalities and that is to be paid off by future (anticipated) revenue.
A municipal bond whose issuer’s ability to pay interest and principal is based on revenue earned from a specific project.
A certificate showing that the stockholder has the privilege of purchasing new securities in proportion to the number of shares he owns before the general public.
An invitation to existing shareholders to purchase additional shares in the company.
An offering that gives each shareholder a chance to exercise his preemptive rights.
The simultaneous purchase and sale of different securities in anticipation of a merger or tender offer.
RNS (Regulatory News Service)
A service operated by the Exchange, in its role as competent authority for listing, which ensures that price–sensitive information from listed and USM companies is collected and then disseminated to all RNS subscribers at the same time.
An individual retirement fund. Contributions are not tax deductible, but withdrawals are tax exempt if an individual has been in the plan at least five years and is at least 59–1/2. Income limits and additional rules apply.
A standard trading unit. In common stocks, 100 shares make up a round lot. A round lot of bonds in the over–the–counter market is 5 bonds.
Rule that governs the sale of control and restricted securities.
Rules of Fair Practice
Part of the NASD rules that govern the dealings of firms with the public.
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