Accelerated
Cost Recovery System (ACRS):
A statutory schedule of depreciation deductions for assets put into
service after 1980 and before 1987. Salvage value is disregarded in
computing ACRS allowances. Replaced by Modified Cost Recovery System
(MACRS).
Acceptance, Waiver, and Consent Procedure:
A disciplinary procedure used when the Department of Enforcement of the
NASD believes a violation has occurred and the member or associate does
not dispute the violation With this procedure, the Department of
Enforcement prepares and asks the respondent to sign a letter that
accepts the charges, waives rights to have a hearing and appeal the
decision, and consents to imposition of sanctions.
Account Guarantee Acknowledgment:
A written acknowledgment to the firm that it may use the money and
securities in the guaranteeing account without restriction to carry the
guaranteed account and pay any deficit in the guaranteed account. The
margin to be maintained is then calculated by combining the two
accounts.
Accredited investor:
An investor in an offering who meets certain criteria under Regulation
D, who does not have to be counted for purposes of limitations on the
number of purchasers in an offering. At least one of the
following criteria must be met to be an accredited investor:
(i) a buyer with a net worth individually or with a spouse of
$1,000,000 or more; (ii) institutional investors including banks,
insurance companies, registered broker/dealers, and large pensions
plans; (iii) tax-exempt organizations with total assets in excess of
$5,000,000; (iv); private business development companies; (vii)
directors, officers, or general partners of the issuer; and (viii)
entities owned entirely by accredited investors.
Accretion: The process of adjusting the cost of a
bond purchased at a discount. Only original-issue discount municipal
bonds are accreted.
Accumulation period:
For a variable annuity, the time from when the first payment into the
annuity is made to when the first annuity payment is made.
Accumulation units: An
accounting measurement used to measure an annuitant's ownership of the
separate account during the deposit period of a variable annuity
contract.
Acid test ratio: See
Quick Ratio.
ACRS: See
Accelerated Cost Recovery System.
Actively traded securities:
Securities that have a current worldwide average daily trading volume
over 60 consecutive calendar days (ADTV) of at least $1 million and an
issuer with common equity securities having a public float value of at
least $150 million. This condition is used for an exemption from
Regulation M, which restricts the trading of an existing security by
participants in a public offering of that security.
Additional bond test:
An income test, which ascertains that revenues must meet certain levels
to allow the sale of additional bonds against the financed facility. A
provision in the trust indenture of an open end revenue bond.
Additional takedown: The profit to a syndicate member
selling municipal bonds to broker/dealers who are not members of the
syndicate.
Adjustment bonds: See
income bonds.
ADR: See
American Depository Receipt.
Ad valorem taxes: A tax levied "by value," usually used
to describe property taxes.
Advance/decline ratio:
The ratio of the number of stocks increasing in price to the number of
stocks decreasing in price. Also called the "breadth of the market."
Advertising:
Under NASD rules, means promotional items that have uncontrolled
distribution. In other words, the firm has no way to know who will see
the item. The material is published or designed for use in newspapers,
magazines or other periodicals, radio, television, telephone or tape
recording, video tape display, signs or billboards, motion pictures,
telephone listings (other than white-page listings), or other public
media. Does not include communications that are neither advertising nor
sales literature.
Adviser's client account:
An account with a brokerage firm in which an investment adviser pools
the funds of all his customers, keeping a record of each customer's
percentage of the account. The brokerage firm does not know the
identity of the individual customers. The investment adviser pays for
securities and meets margin calls. The customers make their checks out
to the investment adviser. Also called an omnibus account.
Affiliated Persons:
Persons (individuals, corporations, trusts, etc.) in a position to
influence a corporation's decisions. Includes officers, directors, and
principal stockholders (those with 10% ownership or more) of the
corporation, and their immediate families. Also called insiders or
control persons.
Affirmative defense: A defense in a legal proceeding
that attacks the legal grounds for an accusation rather than the truth
of the facts.
Affirmative determination: The
inquiry a registered representative makes to ensure that a customer who
has custody of the securities certificates in a trade can deliver the
certificates in good delivery form within three days of the trade date.
The registered representative must talk with the customer and make a
notation on the order ticket about his conversation with the customer.
Agency sales ticket: A memorandum of each brokerage
order received or given, whether executed or not.
Agency transactions:
Transactions
in
which a
broker acts only as an agent for the customer, putting together a buyer
and a seller, and makes a commission on the sale.
Agent: One
who acts for another. When a firm acts as agent, it is acting as a
broker, bringing together a buyer and a seller. As agent it does not
buy or sell for its own account.
Aggregate indebtedness:
A firm's unsecured liabilities, including any customer-related
liabilities. Aggregate indebtedness does not include subordinated
agreements or loans fully collateralized either by fixed assets such as
real estate or by the firm's securities.
Agreement among
underwriters: The contract that governs
the syndicate members in a negotiated offering.
Agreement of limited
partnership: The contract between
the general partners and the limited partners that governs the limited
partnership.
Aggregate exercise price:
In an options position, the total amount of money involved in the
resulting stock trade if the position is exercised. If a customer is
long 1 XYZ July 50 Put, the aggregate exercise price is $5,000.
Alpha:
A statistical measurement used to determine the percentage of the
change in a stock's price due to factors internal to the company,
rather than to the stock market's fluctuations.
All-or-none:
A limit order for multiple round lots that bars partial execution of
the order. The customer waits until the entire order can be filled in a
single trade. Often abbreviated "AON."
All-or none underwriting: A type of best-efforts
underwriting that withdraws the offering if it cannot be sold
completely.
Alternative minimum tax:
A tax on certain "preference items," most of which are tax deductions
allowed under the normal income tax calculation. Taxpayers pay either
the regular tax or the alternative minimum tax, whichever is greater.
Alternative orders:
An order with two parts. When one part is filled, the other part is
automatically canceled. For example, a customer may enter an order to
buy at 32 or 38 stop. He is trying to buy the stock for $32 or less,
but if the price increases to or above $38, it becomes a market order.
Alternative trading system:
An electronic system that brings together buyers and sellers of
securities and completes trades by matching orders according to a
predefined logic. Electronic Communications Networks (ECNs) are
alternative trading systems that have sufficient volume in
non-government securities and commercial paper that they must be
registered with the SEC. Unregistered ATSs include the Arizona Stock
Exchange, BRASS, and Optimark. The Arizona Stock Exchange is an
electronic call market where buy and sell orders are combined into one
large daily trade that takes place at a single price. BRASS is a system
management network to rout orders, and Optimark is an electronic
trading system that can be purchased by an exchange or broker, but is
not an exchange or broker in itself.
American Depository Receipt: A receipt for shares of a
foreign corporation on deposit with a foreign branch of an American
bank.
American Stock Exchange (AMEX): The second largest traditional
stock exchange, based in New York City.
American-style options:
Options
that
may be exercised at any time before expiration. (See European-style
options.)
AMTI:
The Alternative Minimum Taxable Income; the amount on which the
alternative minimum tax liability is calculated.
Amortization:
A reduction in a debt or fund by periodic payments covering interest
and part of the principal. In municipal bonds, amortization refers to
adjusting the cost of a bond for any premium paid.
Annual report:
The yearly report of a corporation's financial condition. It includes a
balance sheet, income statement, and other descriptive information of
interest to investors.
Annuity: Money
is paid (usually to an insurance company) to someone who invests the
money for a set period of time and then pays money to the annuitant
(the one receiving the annuity) when he/she reaches a certain age.
Fixed annuities guarantee a fixed payment amount, while variable
annuities pay a varying amount depending on the fixed amount of initial
investment.
Annuity units:
An accounting measurement used to determine the annuitant's ownership
in the separate account during the annuity period when payments are
being made to the investor on a variable annuity contract.
Anti-dilution clause:
A clause in the trust indenture of a bond offering which provides that
the conversion price (or conversion ratio) of a convertible
bond
be adjusted in the case of stock splits or stock dividends paid to
common stockholders.
AON: See
all-or-none
Arbitrage:
Taking advantage of minor aberrations in the market to try to profit as
the market returns to normal. Arbitrage might take advantage of
imbalances in prices between two markets for the same security (such as
a domestic and a foreign market) or between two types of securities
whose value depends on the same underlying security (such a stock and a
bond convertible into the stock).
Arbitration: A
method of settling disputes. The parties present their arguments to a
panel of one or more arbitrators who will render a decision. There are
no appeals from arbitration.
Asked price: The
lowest price a seller of a security is willing to take for a unit of a
security at a particular time. (Note that the OTC market uses the term
"asked," while the exchanges use the term "offered" or "offering.")
Asset: Anything of value owned by a company or
individual. Assets include cash, investments, and physical property.
Asset allocation: A
fundamental concept in portfolio management in which an investment
adviser determines the investment profile for a client, including their
risk tolerance and time horizon, then uses this information to split
the client's funds between appropriate classes of investments. As
relative movements in the market for the various asset classes change
the mix of assets in the portfolio over time, the adviser must
rebalance the portfolio.
Asset class:
A group of investments with similar risk and return characteristics,
such as cash equivalents, government bonds, municipal bonds, corporate
bonds, common stock (or industry groupings within the broad category of
common stocks), real estate, precious metals, and collectibles.
Assignment: For options, the notice from the OCC
telling the broker/dealer that an option written by one of its clients
has been exercised.
Assistant Representative-Order Processing: A
Series 11 representative who only accepts unsolicited customer orders
for execution. Cannot solicit customers, give investment advise, make
recommendations to customers, or effect transactions for the
NASD-member's account. Must not be registered in any other capacity for
the firm. Compensation cannot be based on the number or size of
transactions they handle.
Associated persons: Employees of a brokerage firm who
are required to be licensed.
ATS: see
Alternative Trading System
At-the-close order: An
order to be executed at or near the close of trading. Round-lot orders
entered at-the-close are executed in the last thirty seconds of
trading.
At-the-money: An option contract with a strike price
that equals the market price of the underlying stock.
At-the-opening order:
An order to be filled on the first trade of the day in that stock. If
the order cannot be filled on the first trade of the day, it is
canceled.
At-risk rule:
A provision in the tax code stating that a limited partner may only
include debt as part of his or her basis in the partnership if he or
she is personally liable for the debt (i.e., if it is a recourse loan).
Auction market:
A market in which the price of a security is determined by supply and
demand, through a continuous auction. Exchanges are auction markets.
Auditor's report:
The public accountant's statement as to the scope of the review of the
books and records of the corporation and the accountant's opinion as to
the accuracy of the financial statements (i.e., unqualified or to some
degree qualified approval).
Automated Confirmation Transaction (ACT): A
computer system that matches trade information, determines locked-in
trades, and submits them to clearing through the National Securities
Clearing Corporation (NSCC). The primary way that OTC transactions in
equity securities are reported. Participation is mandatory for all
brokers that are members of a registered clearing agency and for all
brokers who have a clearing arrangement with such brokers.
