SecuritiesGlossary.com

12b-1 fees: Advertising and promotional costs incurred by a mutual fund and charged against the assets in the fund under a Rule 12b-1 plan filed with the SEC. Funds filing a 12b-1 plan may distribute the shares themselves or distribute them through an underweriter and charge an additional sales load. The maximum 12b-1 fee charge is .75% of net assets.

401(k) Plan: A qualified corporate retirement plan in which the employee can take part of his or her compensation in the form of contributions to the plan.

401(b) Plan: A qualified retirement plan, similar to a 401(k) but restricted for use by teachers and employees of certain nonprofit organizations.

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