Bloomberg Financial Glossary
Bloomberg Financial Glossary
letter  Campbell R. Harvey
Fifth letter of a Nasdaq stock descriptor specifying that issue is exempt from Nasdaq listing requirements for a temporary period.
See: Cumulative Auction Market Preferred Stocks
See: Capital asset pricing model
See: Convertible adjustable preferred stock
See: Certificates of Automobile Receivables
See: Certificates of Amortized Revolving Debt
See: Certificate of Accrual on Treasury Securities (CATS)
See: Collateralized Bond Obligation.
See: Chicago Board Options Exchange
See: Certificate of deposit
See: Canadian Dealing Network
See: Commodities Exchange Center
See: Canadian Exchange Group
Cash flow after taxes.
See: Cash flow after taxes
See: Controlled foreign corporation
See: Commodity Futures Trading Commission
See: Clearing House Automated Payments System
See: Clearing House Electronic Subregister System
See: Clearing House Interbank Payments System
See: Commercial Mortgage Backed Securities
See: Chicago Mercantile Exchange
See: Capital market line
See: Collateralized mortgage obligation
See: Cumulative Translation Adjustment
See: Committee on Uniform Securities Identification Procedures
Cabinet crowd
NYSE members who trade bonds with a low daily traded volume. See: Automated Bond System.
Cabinet security
A stock or bond listed on a major exchange with low daily traded volume.
Exchange rate between British pound sterling and the U.S. dollar.
CAC 40 index
A broad-based index of common stocks composed of 40 of the 100 largest companies listed on the forward segment of the official list of the Paris Bourse.
A section of a brokerage firm used for receiving and disbursing funds.
List of new issues scheduled to come to market shortly.
Calendar effect
Describes the tendency of stocks to perform differently at different times, including preformance anomalies like the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.
Calendar spread
Applies to derivative products. A strategy in which there is a simultaneous purchase and sale of options of the same class at different strike prices, but with the same expiration date.
An option that gives the holder the right to buy the underlying futures contract.
Call date
A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price.
Call feature
Part of the indenture agreement between the bond issuer and buyer describing the schedule and price of redemptions prior to maturity.
Call loan
A loan repayable on demand. Sometimes used as a synonym for broker loan or broker overnight loan.
Call loan rate
See: Call money rate
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rateplus a service charge.
Call option
An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.
Call an option
To exercise a call option.
Call premium
Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.
Call price
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a specified call date.
Call protection
A feature of some callable bonds that establishes an initial period when the bonds may not be called.
Call provision
An embedded option granting a bond issuer the right to buy back all or part of an issue prior to maturity.
Call risk
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
Call swaption
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating-rate payer.
Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates.
Called away
Convertible: Redeemed before maturity.
Option: Call or put option exercised against the stockholder.
Sale: Delivery required on a short sale.
Cumulative Auction Market Preferred Stocks (CAMPS)
Stands for Cumulative Auction Market Preferred Stocks, Oppenheimer & Company's Dutch Auction preferred stock product.
Canadian agencies
Agency banks established by Canadian Banks in the U.S.
Canadian Dealing Network (CDN)
The organized OTC market of Canada. Formerly known as the Canadian Over-the-Counter Automated Trading System (COATS), the CDN became a subsidiary of the Toronto Stock Exchange in 1991.
Canadian Exchange Group (CEG)
The CEG is an association among the Toronto Stock Exchange, the Montreal Exchange, the Vancouver Stock Exchange, the Alberta Stock Exchange, and the Winnipeg Stock Exchange for the purpose of providing Canadian market data to customers outside Canada.
"Can get $xxx"
Refers to over-the-counter trading. "I have a buyer who will pay $xxx for the stock". Uusually a standard markdown (1/8) from $xxx is applied to this price in bidding the seller for its stock. Antithesis of cost me.
To void an order to buy or sell from (1) the floor, or (2) the trader/salesperson's scope. In Autex, the indication still remains on record as having once been placed unless it is expunged.
"Cannot compete"
In the context of general equities, cannot accommodate customers at that price level (i.e., compete with other market makers), often because there is no natural opposite side of the trade.
"Cannot complete"
In the context of general equities, inability to finish an order on a principal or agency basis, given prevailing price instructions and/or market conditions.
An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM).
Credit grantors' measurement of a person's ability to repay loans.
Money invested in a firm.
Capital account
Net result of public and private international investment and lending activities.
Capital allocation decision
Allocation of invested funds between risk-free assets and the risky portfolio.
Capital asset
A long-term asset, such as land or a building, not purchased or sold in the normal course of business.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium multiplied by the assets systematic risk. Theory was invented by William Sharpe (1964) and John Lintner (1965).
Capital budget
A firm's planned capital expenditures.
Capital budgeting
The process of choosing the firm's long-term capital assets.
Capital Builder Account (CBA)
A Merrill Lynch brokerage account that allows investors to access the loan value of his or her eligible securities to buy or sell securities. Excess cash in a CBA can be invested in a money market fund or an insured money market deposit account without losing access to the money.
Capital expenditures
Amount used during a particular period to acquire or improve long-term assets such as property, plant, or equipment.
Capital flight
The transfer of capital abroad in response to fears of political risk.
Capital formation
Expansion of capital or capital goods through savings, which leads to economic growth.
Capital gain
When a stock is sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.
Capital gains distribution
A distribution to the shareholders of a mutual fund out of profits from selling stocks or bonds, that is subject to capital gains taxes for the shareholders.
Capital gains tax
The tax levied on profits from the sale of capital assets. A long-term capital gain, which is achieved once an asset is held for at least 12 months, is taxed at a maximum rate of 20% (taxpayers in 28% tax bracket) and 10% (taxpayers in 15% tax bracket). Assets held for less than 12 months are taxed at regular income tax levels, and, since January 1, 2000, assets held for at least five years are taxed at 18% and 8%.
Capital gains yield
The price change portion of a stock's return.
Capital goods
Goods used by firms to produce other goods, e.g., office buildings, machinery, equipment.
Used to describe industries that require large investments in capital assets to produce their goods, such as the automobile industry. These firms require large profit margins and/or low costs of borrowing to survive.
Capital International Indexes
Market indexes maintained by Morgan Stanleythat track major stock markets worldwide.
Capital investment
See: Capital expenditure.
Capital lease
A lease obligation that has to be capitalized on the balance sheet.
Capital loss
The difference between the net cost of a security and the net sales price, if the security is sold at a loss.
Capital market
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
The degree to which the precent asset price accurately reflects current information in the market place. See: Efficient market hypothesis.
Capital market imperfections view
The view that issuing debt is generally valuable, but that the firm's optimal choice of capital structure involves various other views of capital structure (net corporate/personal tax, agency cost, bankruptcy cost, and pecking order), that result from considerations of asymmetric information, asymmetric taxes, and transaction costs.
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model.
Capital rationing
Placing limits on the amount of new investment undertaken by a firm, either by using a higher cost of capital, or by setting a maximum on the entire capital budget or parts of it.
Capital requirements
Financing required for the operation of a business, composed of long-term and working capital plus fixed assets.
Capital shares
One of two types of shares in a dual-purpose investment company, which entitle the holder to the appreciation or depreciation in the value of a portfolio, as well as the gains from trading in the portfolio. Antithesis of income shares.
Capital stock
Stock authorized by a firm's charter and having par value, stated value, or no par value. The number and the value of issued shares are usually shown, together with the number of shares authorized, in the capital accounts section of the balance sheet. See: Common stock.
Capital structure
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially the ratio of debt to equity and the mixture of short and long maturities.
Capital surplus
Amounts of directly contributed equity capital in excess of the par value.
Capital turnover
Calculated by dividing annual sales by average stockholder equity (net worth). The ratio indicates how much a company could grow its current capital investment level. Low capital turnover generally corresponds to high profit margins.
The debt and/or equity mix that funds a firm's assets.
Capitalization method
A method of constructing a replicating portfolio in which the manager purchases a number of the most highly capitalized names in the stock index in proportion to their capitalization.
Capitalization rate
The rate of interest used to calculate the present value of a number of future payments.
Capitalization ratios
Also called financial leverage ratios, these ratios compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.
Capitalization table
A table showing the capitalization of a firm, which typically includes the amount of capital obtained from each source - long-term debt and common equity - and the respective capitalization ratios.
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year.
Capitalized interest
Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time.
Captive finance company
A company, usually a subsidiary that is wholly owned, whose main function is financing consumer purchases from the parent company.
An exotic option. It represents a call option on a put option. That is, you
A loose quantity term sometimes used to describe the amount of a commodity underlying one commodity contract; e.g., "a car of bellies." Derived from the fact that quantities of the product specified in a contract once corresponded closely to the capacity of a railroad car.
Carrot equity
British slang for an equity investment with the added benefit of an opportunity to purchase more equity if the company reaches certain financial goals.
Related: Net financing cost.
Carrying charge
The fee a broker charges for carrying securities on credit, such as on a margin account.
Carrying costs
Costs that increase with increases in the level of investment in current assets.
Carrying value
Book value.
A group of businesses or nations that act together as a single producer to obtain market control and to influence prices in their favor by limiting production of a product. The United States has laws prohibiting cartels.
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and banker's acceptances. Cash equivalents on balance sheets include securities that mature within 90 days (e.g., notes).
Cash asset ratio
Cash and marketable securities divided by current liabilities. See: Liquidity ratios.
Cash basis
Refers to the accounting method that recognizes revenues and expenses when cash is actually received or paid out.
Cash and equivalents
The value of assets that can be converted into cash immediately, as reported by a company. Usually includes bank accounts and marketable securities, such as government bonds and Banker's Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.
Cash budget
A forecasted summary of a firm's expected cash inflows and cash outflows as well as its expected cash and loan balances.
Cash & carry
Applies to derivative products. Combination of a long position in a stock/index/commodity and short position in the underlying futures, which entails a cost of carry on the long position.
Cash commodity
The actual physical commodity, as distinguished from a futures contract.
Cash conversion cycle
The length of time between a firm's purchase of inventory and the receipt of cash from accounts receivable.
Cash cow
A company that pays out most of its earnings per share to stockholders as dividends. Or, a company or division of a company that generates a steady and significant amount of free cash flow.
Cash cycle
In general, the time between cash disbursement and cash collection. In net working capital management, it can be thought of as the operating cycle less the accounts payable payment period.
Cash deficiency agreement
An agreement to invest cash in a project to the extent required to cover any cash deficiency the project may experience.
Cash delivery
The provision of some futures contracts that requires not delivery of underlying assets but settlement according to the cash value of the asset.
Cash discount
An incentive offered to purchasers of a firm's product for payment within a specified time period, such as ten days.
Cash dividend
A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.
Cash earnings
A firm's cash revenues less cash expenses, which excludes the costs of depreciation.
Cash-equivalent items
Examples include Treasury bills and Banker's Acceptances.
Cash flow
In investments, cash flow represents earnings before depreciation, amortization, and non-cash charges. Sometimes called cash earnings. Cash flow from operations (called funds from operations by real estate and other investment trusts) is important because it indicates the ability to pay dividends.
Cash flow after interest and taxes
Net income plus depreciation.
Cash flow break-even point
The point below which the firm will need either to obtain additional financing or to liquidate some of its assets to meet its fixed costs.
Cash flow per common share
Cash flow from operations minus preferred stock dividends, divided by the number of common shares outstanding.
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments, preferred stock dividends, and rental payments) are covered by earnings before interest, taxes, rental payments, and depreciation.
Cash flow matching
Also called dedicating a portfolio, this is an alternative to multiperiod immunization that calls for the manager to match the maturity of each element in the liability stream, working backward from the last liability to assure all required cash flows.
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses that are deducted in calculating net income.
Cash flow time line
Line depicting the operating activities and cash flows for a firm over a particular period.
Cash management
Refers to the efficient management of cash in a business in order to put the cash to work more quickly and to keep the cash in applications that produce income, such as the use of lock boxes for payments.
Cash management bill
Very short-maturity bills that the Treasury occasionally sells because its cash balances are down and it needs money for a few days.
Cash markets
Also called spot markets, these are markets that involve the immediate delivery of a security or instrument. Related: Derivative markets.
Cash offer
Often used in risk arbitrage. Proposal, either hostile or friendly, to acquire a target company through the payment of cash for the stock of the target. Compare to exchange offer.
Cash-on-cash return
A method used to find the return on investments when there is no active secondary market. The yield is determined by dividing the annual cash income by the total investment. See: Current yield or yield to maturity.
Cash on delivery (COD)
In the context of securities, this refers to the practice of institutional investors paying the full purchase price for securities in cash.
Cash plus convertible
Convertible bond that requires cash payment upon conversion.
Cash price
Applies to derivative products. See: Spot price.
Cash ratio
The proportion of a firm's assets held as cash.
Cash sale/settlement
Transaction in which a contract is settled on the same day as the trade date, or the next day if the trade occurs after 2:30 p.m. EST and the parties agree to this procedure. Often occurs because a party is strapped for cash and cannot wait until the regular five-business day settlement. See: Settlement date.
Cash settlement contracts
Futures contracts such as stock index futures that settle for cash and do not involve delivery of the underlying.
Cash-surrender value
The amount an insurance company will pay if the policyholder tende4s or cashes in a whole life insurance policy.
Cash transaction
A transaction in which exchange is immediate in the form of cash, unlike a forward contract (which calls for future delivery of an asset at an agreed-upon price).
An accounting book that is composed of cash receipts plus disbursements. This balance is posted to the cash account in the ledger.
Cashier's check
A check drawn directly on a customer's account, making the bank the primary obligor, and assuring firms that the amount will be paid.
Occurs when a firm runs out of cash and cannot readily sell marketable securities.
Insurance protecting a firm or homeowner against loss of property, damage, and other liabilities.
Casualty loss
A financial loss caused by damage, destruction, or loss of property as a result of an unexpected or unusual event.
Catastrophe call
Early redemption of a municipal revenue bond because a catastrophe has destroyed the project that provided the revenue source backing the bond.
Cats and dogs
Speculative stocks with short histories of sales, earnings, and dividend payments.
Caveat emptor, caveat subscriptor
Latin expressions for "buyer beware" and "seller beware," which warn of overly risky, inadequately protected markets.
A centralized clearing system for Eurobonds.
The highest price, interest rate, or other numerical factor allowable in a financial transaction.
Central bank
A country's main bank whose responsibilities include the issue of currency, the administration of monetary policy, open market operations, and engaging in transactions designed to facilitate healthy business interactions. See: Federal Reserve System.
Certainty equivalent
An amount that would be accepted today (risk free) in lieu of a chance to receive a possibly higher, but uncertain, amount.
A formal document used to record a fact and used as proof of the fact, such as stock certificates, that evidence ownership of stock in a corporation.
Certificate of Accrual on Treasury Securities (CATS)
Refers to a zero-coupon U.S. Treasury issue that is sold at a deep discount from the face value and pays no coupon interest during its lifetime, but returns the full face value at maturity.
Certificate of deposit (CD)
Also called a time deposit this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A CD has a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years.
Certificates of Amortized Revolving Debt (CARD)
Pass-through securities backed by credit card receivables.
Certificates of Automobile Receivables (CAR)
Pass-through securities backed by automobile loan receivables.
Certificateless municipals
Municipal bonds with one certificate which is valid for the entire issue, and having no individual certificates, easing transactions. See: Book-entry securities.
Certified check
A bank guaranteed check for which funds are immediately withdrawn, and for which the bank is legally liable.
Certified Financial Planner (CFP)
A person who has passed examinations accredited by the Certified Financial Planner Board of Standards, showing that the person is able to manage a client's banking, estate, insurance, investment, and tax affairs.
Certified financial statements
Financial statements that include an accountant's opinion.
Certified Public Accountant (CPA)
An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state.
Chair of the board
Highest-ranking member of a Board of Directors, who presides over its meetings and who is often the most powerful officer of a corporation.
Changes in financial position
Sources of funds provided from operations that alter a company's cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.
Characteristic line
The market model applied to a single security; a regression of security returns on the benchmark return. The slope of the regression line is a security's beta.
Charge off
See: Bad debt
Charitable remainder trust
An irrevocable trust that pays income to a designated person or persons until the grantor's death, when the income is passed on to a designated charity. A charitable lead trust by contrast allows the charity to receive income during the grantor's life, and the remaining income to pass to designated family members upon the grantor's death.
See: Articles of incorporation
Chartered Financial Analyst (CFA)
An experienced financial analyst who has passed examinations in economics, financial accounting, portfolio management, security analysis, and standards of conduct given by the institute of Chartered Financial Analysts.
A technical analyst who charts the patterns of stocks, bonds, and commodities to find trends in patterns of trading used to advise clients. Related: Technical analysts.
Chasing the market
Purchasing a security at a higher price than expected because prices are rapidly climbing, or selling a security at a lower level when prices are quickly falling.
Chastity bonds
Bonds redeemable at par value in the case of a takeover.
See: Whipsawed
Cheapest to deliver issue
The acceptable Treasury security with the highest implied repo rate; the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.
A bill of exchange representing a draft on a bank from deposited funds that pays a certain sum of money to a certain person or party.
Checking the market
Searching for bid and offer prices from market makers to find the best deal.
Chicago Board Options Exchange (CBOE)
A securities exchange created in the early 1970s for the public trading of standardized option contracts. Primary place stock options, foreign currency options, and index options (S&P 100, 500, and 0.T.C. 250 index)
Chicago Board of Trade (CBOT)
The largest futures exchange in the U.S., and was a pioneer in the development of financial futures and options.
Chicago Mercantile Exchange (CME)
A not-for-profit corporation owned by its members. Its primary functions are to provide a location for trading futures and options, to collect and disseminate market information, to maintain a clearing mechanism, and to enforce trading rules. Applies to derivative products. Primary place futures (O.T.C. 250 industrial stock price index, S& P 100 and 500 index) and futures options (S&P 500 stock index) are traded.
Chicago Stock Exchange (CHX)
A major exchange trading only stocks, with 90% of trades taking place on an automated execution system, called MAX.
Chief Executive Officer (CEO)
A title held often by the Chairperson of the Board, or the president. The person principally responsible for the activities of a company.
Chief Financial Officer (CFO)
The officer of a firm is responsible for handling the financial affairs of a company.
Chief Operating Officer (COO)
The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president.
Chinese hedge
Applies mainly to convertible securities. Trading hedge in which one is short the convertible and long the underlying common, in the hope that the convertible's premium will fall. Antithesis of set-up.
Chinese wall
Communication barrier between financiers at a firm (investment bankers) and traders. This barrier is erected to prevent the sharing of inside information that bankers are likely to have.
Choice market
Applies mainly to international equities. Locked market in London terminology.
Excessive trading of a client's account in order to increase the broker's commissions.
Cincinnati Stock Exchange (CSE)
Stock exchange based in Cincinnati that is the only fully automated stock exchange in the U.S. It has no trading floor, but handles all members' transactions using computers.
Underwriters, actual or potential, often seek out and "circle" investor interest in a new issue before final pricing. The customer circled has basically made a commitment to purchase the issue if it is available at an agreed-upon price. If the actual price is other than that stipulated, the customer supposedly has first offer at the actual price.
Circuit breakers
Measures instituted by exchanges to stop trading temporarily when the market has fallen by a certain percentage in a specified period. They are intended to prevent a market free fall by permitting buy and sell orders to rebalance.
Circus swap
A fixed-rate currency swap against floating U.S. dollar LIBOR payments.
Citizen bonds
Certificateless municipals that can be registered on stock exchanges and are listed in newspapers.
City code on takeovers and mergers
See: Dawn raid
Claim dilution
A decrease in the likelihood that one or more of a firm's claimants will be fully repaid, including time value of money considerations.
A party to an explicit or implicit contract.
In the case of derivative products, options of the same type-put or call-with the same underlying security. See: Series. In general, refers to a category of assets such as: domestic equity, fixed income, etc.
Class A/Class B shares
See: Classified stock
Class action
A legal complaint filed by a lawyer or group of lawyers for a group of petitioners with an identical grievance, often with an award proportionate to the number of shareholders involved.
Classified stock
The division of stock into more than one class of common stock, usually called Class A and Class B. The specific features of each class, which are set out in the charter and bylaws, usually give certain advantages to the Class A shares, such as increased voting power.
In the context of general equities, block trade that matches buy or sell orders/interests, sparing the block trader any inventory risk (no net position and hence none available for additional customers). Natural. Antithesis of open.
Clean opinion
An auditor's opinion reflecting an unqualified acceptance of a company's financial statements.
Clean price
Bond price excluding accrued interest.
Clean up
In the context of general equities, purchase/sale of all the remaining supply of stock, or the last piece of a block, in a trade-leaving a net zero position.
"Clean your skirts"
In the context of general equities, "make all your obligated calls"; check with all prior obligations in a security. Often preceded by "subject to."
To settle a trade is settled out by the seller delivering securities and the buyer delivering funds in the proper form. A trade that does not clear is said to fail. Comparison of the details of a transaction between broker/dealers prior to settlement; final exchange of securities for cash on delivery.
Clear a position
To eliminate a long or short position, leaving no ownership or obligation.
Clear title
Title to ownership that is untainted by any claims on the property or disputed interests, and therefore available for sale. This is usually checked through a title search by a title company.
Clearing corporations
Organizations that are affiliated with exchanges and are used to complete securities transactions by taking care of validation, delivery, and settlement.
Clearing House Automated Payments System (CHAPS)
A computerized clearing system for sterling funds that began operations in 1984. It includes 14 member banks, nearly 450 participating banks, and is one of the clearing companies within the structure of the Association for Payment Clearing Services (APACS).
Clearing House Electronic Subregister System (CHESS)
CHESS is the automatic transfer and settlement system for the majority of Australian Stock Exchange (ASX) listed securities.
Clearing house funds
Funds from the Federal Reserve System, requiring three days to clear, that are passed to and from banks.
Clearing House Interbank Payments System (CHIPS)
An international wire transfer system for high-value payments operated by a group of major banks.
An adjunct to a futures exchange through which transactions executed on its floor are settled by a process of matching purchases and sales. A clearing organization is also charged with the proper conduct of delivery procedures and the adequate financing of the entire operation.
Clearing member
A member firm of a clearing house. Each clearing member must also be a member of the exchange. Not all members of the exchange, however, are members of the clearing organization. All trades of a non-clearing member must be registered with, and eventually settled through, a clearing member.
Clientele effect
Describes the tendary of funds or investments to be followed by groups of investors who have a simular preferences that the firm follow a particular financing policy, such as the amount of leverage it uses.
Clone fund
A new fund set up in a fund family to emulate another successful fund.
The close is the period at the end of the trading session. Sometimes used to refer to closing price. Related: Opening.
Close a position
In the context of general equities, eliminate an investment from one's portfolio, by either selling a long position or covering a short position.
Close market
An active market in which there is a narrow spread between bid and offer prices, due to a high volume of trading and many competing market makers.
Closed corporation
A corporation whose shares are owned by just a few people, having no public market.
Closed-end management company
An investment company that has only a set number of shares of the mutual fund that it manages, and does not create new shares if demand increases. Antithesis of an open-end management company.
Closed-end fund
An investment company that sells shareslike any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund.
Closed-end management company
An investment company that has only a set number of shares of the mutual fund that it manages, and does not create new shares if demand increases. Antithesis of an open-end management company.
Closed-end mortgage
Mortgage against which no additional debt may be issued.
Closed fund
A mutual fund that is no longer issuing shares, mainly because it has grown too large.
Closed out
Position that is liquidated when the client does not meet a margin call or cover a short sale.
Closely held
A corporation whose voting stock is owned by only a few shareholders.
Closely held company
A company who has a small group of controling shareholders. In contrast, a widely-held firm has many shareholders. It is difficult or impossible to wage a proxy battle for any closely-held firm.
Closing costs
All the expenses involved in transferring ownership of real estate.
Closing price
Price of the last transaction of a particular stock completed during a day's trading session on an exchange.
Closing purchase
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options.
Closing quote
The last bid and offer prices of a particular stock at the close of a day's trading session on an exchange.
Closing range
Also known as the range. The high and low prices, or bids and offers, recorded during the period designated as the official close. Related: Settlement price.
Closing sale
A transaction in which the seller's intention is to reduce or eliminate a long position in a stock, or a given series of options.
Closing tick
The net of the number of stocks whose closing prices are higher than their previous trades (uptick) against the number of stocks whose closing prices were lower than their previous trades (downtick). A positive closing tick indicates "buying at the close", or a bullish market; a negative closing tick indicates "selling at the close," or a bearish market. See: TRIN.
Closing transaction
Applies to derivative products. Buy or sell transaction that eliminates an existing position (selling a long option or buying back a short option). Antithesis of opening transaction.
Closing TRIN
Cloud on title
Any claim or encumbrance, usually discovered in a title search, that may impair the title to a property, and make its validity questionable. See: bad title.
Cluster analysis
A statistical technique that identifies clusters of stocks whose returns are highly correlated within each cluster and relatively uncorrelated across clusters. Cluster analysis has identified groupings such as growth, cyclical, stable, and energy stocks.
A very risky type of Real Estate Investment Trust investing in the residual cash flows of Collateralized Mortgage Obligation (CMOs). CMO cash_flows are derived from the difference between the rates paid by the mortgage loan holders and the lower, shorter-term rates paid to CMO investors.
Coattail investing
A risky trading practice of making trades similar to those of other successful investors, usually institutional investors.
COD transaction
See: Delivery versus payment
Code of procedure
The guide of the National Association of Securities Dealers used to adjudicate complaints filed against NASD members.
Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return. Also known as R-square.
Coffee, Sugar & Cocoa Exchange (CS&CE)
The New York-based commodity exchange trading futures and options. The CS&CE shares the trading floor at the Commodities Exchange Center.
Coincident indicators
Economic indicators that give an indication of the status of the economy.
Coinsurance effect
Refers to the fact that the merger of two firms lessens the probability of default on either firm's debt.
Calling potential new customers in the hope of selling stocks, bonds or other financial products and receiving commissions.
An upper and lower limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM).
Asset than can be repossessed if a borrower defaults.
Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security. Compare mortgage bond.
Collateralized Bond Obligation (CBO)
Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. CBOs backed by highly risky junk bonds receive higher interest rates than other CBOs.
Collateralized mortgage obligation (CMO)
A security backed by a pool of pass-through rates , structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: mortgage pass-through security.
The presentation of a negotiable instrument for payment, or the conversion of any accounts receivable into cash.
Collection float
The period between the time is deposited a check in an account and the time funds are made available.
Collection fractions
The percentage of a given month's sales collected during the month of sale and each month following the month of sale.
Collection period
See: Collection ratio
Collection policy
Procedures a firm follows in attempting to collect accounts receivables.
Collection ratio
The ratio of a company's accounts receivable to its average daily sales, which gives the average number of days it takes the company to convert receivables into cash.
Collective wisdom
The combination of all the individual opinions about a stock's or security's value.
COLT (Continuous on-line trading system)
Computerized OTC traders assistance system that provides for trade entry and position monitoring, among other functions.
A bank that ranks just below a lead manager in a syndicated Eurocredit or international bond issue. Comanagers may assist the lead manager bank in the pricing and issue of the instrument.
Applies to derivative products. Arrangement of options involving two long or two short positions with different expiration dates or strike (exercise) prices. See: Straddle.
Combination annuity
See: Hybrid annuity
Combination bond +
A bond backed by the government unit issuing it as well as by revenue from the project that is to be financed by the bond.
Combination order
See: Alternative order
Combination matching
Also called horizon-matching, a variation of multiperiod immunization and cash flow-matching in which a portfolio is created that is always duration-matched and also cash-matched in the first few years.
Combination strategy
A strategy in which a put and call with the same strike price and expiration are either both bought or both sold. Related: Straddle
Combined financial statement
A financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must reconcile investment and capital accounts.
Come in
In the context of general equities, a fall in price.
Come out of the trade
In the context of general equities, trader's position in a security that results from executing a trade (or the expectations thereof). Antithesis of going into the trade.
In the context of general equities, the opening. Antithesis of the close.
A division of the New York Mercantile Exchange (NYMEX). Formerly known as the Commodity Exchange, COMEX is the leading U.S. market for metals futures and options trading.
Comfort letter
A letter from an independent auditor in securities underwriting agreements to assure that information in the registration statement and prospectus is correctly prepared to the best of the auditor's knowledge.
Commercial draft
Demand for payment.
Commercial hedgers
Companies that take futures positions in commodities so that they can guarantee prices at which they will buy raw materials or sell their products.
Commercial loan
A short-term loan, typically 90 days, used by a company to finance seasonal working capital needs.
Commercial Mortgage Backed Securities
Similar to MBS but backed by loans secured with commercial rather than residential property. Commercial property includes multi-family, retail, office, etc., They are not standardized so there are a lot of details associated with structure, credit enhancement, diversification, etc., that need to be understood when valuing these instruments.
Commercial paper
Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.
Commercial property
Real estate that produces some sort of income-producing property.
Commercial risk
The risk that a foreign debtor will be unable to pay its debts because of business events, such as bankruptcy.
In the context of securities, this involves mixing customer-owned securities with brokerage firm-owned securities. This process is referred to as rehypothecation, which is the use of customers' collateral to secure their loans. This is legal with customer consent, although some securities and collateral must be kept separately.
The fee paid to a broker to execute a trade, based on number of shares, bonds, options, and/or their dollar value. In 1975, deregulation led to the establishment of discount brokers, who charge lower commissions than full service brokers. Full service brokers offer advice and usually have a staff of analysts who follow specific industries. Discount brokers simply execute a client's order and usually do not offer an opinion on a stock. Also known as a round-turn.
Commission broker
A broker on the floor of an exchange who acts as agent for a particular brokerage house and buys and sells stocks for the brokerage house on a commission basis.
Commission house
A firm that buys and sells futures contracts for customer accounts. Related: futures commission merchant, omnibus account.
Describes a trader's obligation to accept or make delivery on a futures contract. Related: Open interest.
Commitment fee
A fee paid to a commercial bank in return for its legal commitment to lend funds that have not yet been advanced. Often used in risk arbitrage. Payment to institutional investors in the U.K. (pension funds and life insurance companies) by the lead underwriter of a takeover that takes place when the underwriter provides the target company's shareholders with a cash alternative for a target company's shares in exchange for the bidding companies' shares. The payment is typically 0.5% for the first 30 days, 1.25% for each week thereafter, and a final 0.75% acceptance payment when the takeover is completed.
Committee on Uniform Securities Identification Procedures (CUSIP)
Committee that assigns identifying numbers and codes for all securities. These "CUSIP" numbers and symbols are used when recording all buy or sell orders.
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity Exchange, Inc. (COMEX); the New York Mercantile Exchange (NYMEX); New York Cotton Exchange, Coffee, Sugar ;& Cocoa Exchange (CS;&CE), and New York Futures Exchange (NYFE).
A commodity is food, metal, or another fixed physical substance that investors buy or sell, usually via futures contracts.
Commodity-backed bond
A bond with interest payments tied to the price of an underlying commodity.
Commodity futures contract
An agreement to buy a specific amount of a commodity at a specified price on a particular date in the future, allowing a producer to guarantee the price of a product or raw material used in production.
Commodity Futures Trading Commission (CFTC)
An agency created by the U.S. Congress in 1974 to regulate exchange trading in futures.
Commodity indexs
Indexs measuring the price and performance of physical commodities, often by the price of futures contracts for the commodities that are listed on commodity exchanges.
Commodity paper
A loan or advance secured by commodities.
Common-base-year analysis
The representing of accounting information over multiple years as percentages of amounts in an initial year.
Common code
A nine-digit identification code issued jointly by CEDEL and Euroclear. As of January 1991 common codes replaced the earlier separate CEDEL and Euroclear codes.
Common market
An agreement between two or more countries that permits the free movement of capital and labor as well as goods and services.
Common shares
In general, a public corooration has two types of shares, common and preferred. The common shares usually entitle the shareholders to vote at shareholders meetings. The common shares have a discretionary dividend.
Common-size analysis
The representing of balance sheet items as percentages of assets and of income statement items as percentages of sales.
Common-size statement
A statement in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and changing relationship among financial statement items. For example, all items in each year's income statement could be presented as a percentage of net sales.
Common stock
Securities that represent equity ownership in a company. Common shares let an investor vote on such matters as the election of directors. They also give the holder a share in a company's profits via dividend payments or the capital appreciation of the security. Units of ownership of a public corporation with junior status to the claims of secured/unsecured creditors, bondholders and preferred shareholders in the event of liquidation.
Common stock equivalent
A convertible security that is traded like an equity issue because the optioned common stock is trading at a high price.
Common stock fund
A mutual fund investing only in common stock.
Common stock market
The market for trading equities, not including preferred stock.
Common stock/other equity
Value of outstanding common shares at par, plus accumulated retained earnings. Also called shareholders' equity.
Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity (book value per share) of a firm.
Companion bonds
A class of a Collateralized Mortgage Obligation (CMO) whose principal is paid off first when the underlying mortgages are prepaid due to falling interest rates. When interest rates rise, there will be lower prepayments of the principal; companion bonds therefore absorb most of the prepayment risk of a CMO.
A proprietorship, partnership, corporation, or other form of enterprise that engages in business.
Company doctor
An executive, usually appointed from outside, brought in to turn a company around and make it profitable.
Company-specific risk
Related: Unsystematic risk
Comparative credit analysis
Comparing a firm to others that have a desired target debt rating in order to deduce an appropriate financial ratio target.
Comparative statements
Financial statements for different periods, that allo the comparson of figures to illustrate trends in a company's performance.
Short for "comparison ticket," a memorandum between two brokers that confirms the details of a transaction to be carried out.
Comparison universe
A group of money managers of similar investment style used to assess relative performance of a portfolio manager.
Compensating balance
An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided.
Sufficient ability or fitness for one's needs. The necessary abilities to be qualified to achieve a certain goal or complete a project.
Intra- or intermarket rivalry between or among businesses trying to obtain a larger piece of the same market share.
Competition ahead
Often used in risk arbitrage. Situation whereby another O.T.C. market maker has transacted with investment bank at the stated market level before the bid/offer has been made.
Competitive bidding
A securities offering process in which securities firms submit competing bids to the issuer for the securities the issuer wishes to sell.
Competitive offering
An offering of securities through competitive bidding.
In the context of general equities, to fill an order.
Complete capital market
A market in which there is a distinctive marketable security for each and every possible outcome.
Complete portfolio
The entire portfolio, including risky and risk-free assets.
Completion bonding
Insurance that a construction contract will be completed successfully.
Completion risk
The risk that a project will not be brought into operation successfully.
Completion undertaking
An undertaking either (1) to complete a project so that it meets certain specified performance criteria on or before a certain specified date, or (2) to repay project debt if the completion test cannot be met.
Compliance department
A department in all organized stock exchanges to ensure that all companies, traders, and brokerage firms comply with Securities and Exchange Commission and exchange rules and regulations.
Composite tape
See: Tape
Voluntary arrangement to restructure a firm's debt, under which payment is reduced.
Compound annual return
See: Internal rate of return
Compound growth rate
The rate of growth of a figure, compounded over some period of time.
Compound interest
Interest paid on previously earned interest as well as on the principal.
Compound option
Option on an option.
The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period.
Compounding frequency
The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.
Compounding period
The length of the time period that elapses before interest compounds (a quarter in the case of quarterly compounding).
Comprehensive due diligence investigation
The investigation of a firm's business in conjunction with a securities offering to determine whether the firm's business and financial situation and its prospects are adequately disclosed in the prospectus for the offering.
Comptroller of the Currency
A government official, appointed by the president, who keeps control over all national banks, and receives reports from the banks at least quarterly, to be published in newspapers.
Computerized market timing system
A computer system that compiles large amounts of trading data in search of patterns and trends to make buy and sell recommendations.
Property that a curve is below a straight line connecting two end points. If the curve falls above the straight line, it is called convesity.
Concentration account
A single centralized account into which funds collected at regional locations (lockboxes) are transferred.
Concentration services
Movement of cash from different lockbox locations into a single concentration account from which disbursements and investments are made.
The per-share or per-bond compensation of a selling group for participating in a corporate underwriting.
Concession agreement
An understanding between a company and the host government that specifies the rules under which the company can operate locally.
Conditional call
Applies mainly to convertible securities. Circumstances under which a company can effect an earlier call, usually stated as percentage of a stock's trading price during a particular period, such as 140% of the exercise price during a 40-day trading span.
Conditional call options
A protective guarantee that, in the event a hign yield bond is called, the issuing corporation will replace the bond with a noncallable bond of the same life and terms as the bond that is being called.
Conditional sales contracts
Similar to equipment trust certificates, except that the lender is either the equipment manufacturer or a bank or finance company to which the manufacturer has sold the conditional sales contract.
Applies to derivative products. Option strategy consisting of both puts and calls at different strike prices to capitalize on a narrow range of volatility. The payoff diagram takes the shape of a bird.
Conduit theory
A theory that because investment companies are merely conduits for capital gains, dividends, and interest, which are in fact passed through to shareholders, the investment company should not be taxed at the corporate level.
Confidence indicator
A measure of investors' faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.
Confidence letter
Statement by an investment bank that it is highly confident that the financing for its client/acquirer's takeover can and will be obtained. Often used in risk arbitrage.
Confidence level
In risk analysis, the degree of assurance that a specified failure rate is not exceeded.
"Confirm me out"
Used for listed equity securities. "Go to the floor and check with the specialist or floor broker that my previously active order has been cancelled and was not executed". One does not have to honor any trade reported after given a "firm out".
The written statement that follows any "trade" in the securities markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.
Conflict between bondholders and stockholders
Bondholders and stockholders may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants in bond documents work to resolve these conflicts.
Conforming loans
Mortgage loans that meet the qualifications of Freddie Mac or Fannie Mae, which are bought from lenders and issued as pass-through securities.
A firm engaged in two or more unrelated businesses.
Conglomerate merger
A merger involving two or more firms that are in unrelated businesses.
Consensus forecast
The mean of all financial analysts' forecasts for a company.
A government bond with no maturity . Popular in Great Britain. The formula for valuing these bonds is simple. The consol payment divided by yield to maturity is the price of the bond.
Consolidated financial statement
A financial statement that shows all the assets, liabilities, and operating accounts of a parent company and its subsidiaries.
Consolidated mortgage bond
A bond that covers several units of property, sometimes refinancing mortgages on the properties.
Consolidated tape
Used for listed equity securities. Combined ticker tapes of the NYSE and the curb. Network A covers the NYSE-listed securities and is used to identify the originating market. Network B does the same for AMEX-listed securities and also reports on securities listed on regional stock exchanges. See: tape.
Consolidated tax return
A tax return combining the reports of affiliated companies, that are at least 80% owned by a parent company.
The combining of two or more firms to form an entirely new entity.
Consolidation loan
A loan that is used to combine and finance payments on other loans.
A group of companies that cooperate and share resources in order to achieve a common objective.
Consortium banks
A merchant banking subsidiary set up by several banks that may or may not be of the same nationality. Consortium banks are common in the Euromarket and are active in loan syndication.
Constant-dollar plan
Method of purchasing securities by investing a fixed amount of money at set intervals. The investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the overall cost.
Constant dollars
Dollars of a base year used as a general measure of purchasing power.
Constant-growth model
Also called the Gordon-Shapiro model, an application of the dividend discount model that assumes (1) a fixed growth rate for future dividends, and (2) a single discount rate.
Constant ratio plan
Maintaining a predetermined ratio between stock and fixed income investments through regular adjustments of distribution of funds into different investments. See: formula investing.
Constant yield method
Allocation of annual interest on a zero-coupon security for income tax use.
Construction loan
A short-term loan to finance building costs.
Constructive receipt
The date a taxpayer receives dividends or other income, for use in the determination of taxes.
Consumer credit
Credit a firm grants to consumers for the purchase of goods or services. Also called retail credit.
Consumer Credit Protection Act of 1968
Federal legislation establishing rules for the disclosure of the terms of a loan to protect borrowers. See: Truth in lending.
Consumer debenture
An investment note issued directly to the public by a financial institution.
Consumer durables
Consumer products that are expected to last three years or more, such as an automobile or a home appliance.
Consumer finance company
See: Finance company
Consumer goods
Goods not used in production but, bought for personal or household use such as food, clothing, and entertainment.
Consumer interest
Interest paid on consumer loans; e.g., interest on credit cards and retail purchases.
Consumer Price Index
The CPI, as it is called, measures the prices of consumer goods and services and is a measure of the pace of U.S. inflation. The U.S. Department of Labor publishes the CPI every month.
Consumption tax
See: Value-added tax
Excess correlation of equity or bond returns. For example, under usual conditions we might observe a certain level of correlation of market returns. A period of contagion would be associated with much higher-than-expected correlation. Some examples are the conjectured contagion in East Asian markets beginning in July 1997 when the Thai currency devalued and the impact across many emerging markets of the Russian default. Contagion is difficult to identify because you need some sort of measure of the expected correlation. It is complicated because correlations are known to change through time, for example, see Erb, Harvey and Viskanta's article in the 1994 Financial Analysts Journal. In periods of negative returns, correlations (and volatility) are known to increase, so what might appear to be excessive may not be contagion.
A market condition in which futures prices are higher in the distant delivery months.
Contingency order
In the context of general equities, order to buy one security, if the trader can sell another, usually given that certain price limits or conditions reach a certain level. Swap, switch order.
Contingent claim
A claim that can be made only if one or more specified outcomes occur.
Contingent deferred sales charge (CDSC)
The formal name for the load of a back-end load fund.
Contingent immunization
An arrangement in which the money manager pursues an active bond portfolio strategy until an adverse investment experience drives the then-available potential return down to the safety net level. When that point is reached, the money manager is obligated to pursue an immunization strategy to lock in the safety-net level return.
Contingent pension liability
Under ERISA, a firm is liable to its pension plan participants for up to 39% of the net worth of the firm.
Continuous compounding
The process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned constantly, and at each instant, the interest that accrues immediately begins earning interest on itself.
Continuous net settlement (CNS)
Method of securities clearing and settlement using a clearing house, which matches transactions to securities available, resulting in one net receive or deliver position at the end of the day.
Continuous random variable
A random value that can take any fractional value within specified ranges, as contrasted with a discrete variable.
Contra broker
The broker on the buy side of a sell order or the sell side of a buy order.
A term of reference describing a unit of trading for a financial or commodity future. Also, the actual bilateral agreement between the buyer and seller of a transaction as defined by an exchange.
Contract month
The month in which futures contracts may be satisfied by making or accepting a delivery.
Contractual plan
A plan in which fixed dollar amounts of mutual fund shares are purchased through periodic investments, usually featuring some sort of additional incentive for the fixed period payments.
Contramarket stock
In the context of general equities, stock that tends to go against the trend of the market as a whole, such as a commodities-related stock or one in an industry out of favor with investors in a bull market.
An investment style that leads one to buy assets that have performed poorly and sell assets that have performed well. There are two possible reasons this strategy might work. The first is a mean-reversion argument; that is, if the asset has deviated from its usual level, it should eventually return to that usual level. The second reason has to do with overreaction. Investors might have overreacted to bad news sending the asset price lower than it should be.
Contributed capital
See: Paid-in capital
Contribution margin
The difference between variable revenue and variable cost.
50% of the outstanding votes plus one vote.
Control person
See: Affiliated person
Control stock
The shares owned by the controlling shareholders of a corporation.
Controlled commodities
Commodities regulated by the Commodities Exchange Act of 1936 in order to prevent fraud and manipulation in commodities futures markets.
Controlled disbursement
A service that provides for a single presentation of checks each day (typically in the early part of the day).
Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned by U.S. stockholders, each of whom owns at least 10% of the voting power.
The corporate manager responsible for the firm's accounting activities.
Convenience yield
The extra advantage that firms derive from holding the commodity rather than a future position.
Convention statement
An annual statement filed by a life insurance company in each state where it does business in compliance with that state's regulations. The statement and supporting documents show, among other things, the assets, liabilities, and surplus of the reporting company.
Conventional mortgage
A loan based on the credit of the borrower and on the collateral for the mortgage.
Conventional option
An option contract arranged off the trading floor and not traded regularly.
Conventional pass-throughs
Also called private-label pass-throughs, any mortgage pass-through security not guaranteed by government agencies. Compare agency pass-throughs.
Conventional project
A project with a negative initial cash flow (cash outflow), which is expected to be followed by one or more future positive cash flows (cash inflows).
The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of time value. But as the contract nears expiration, and time value decreases, the futures price and the cash price converge.
In the context of securities, refers to the exchange of a convertible security such as a bond into stock.

In the context of mutual funds, refers to the free exchange of mutual fund shares from one fund to another in a single family.

Conversion factors
Rules set by the Chicago Board of Trade for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury Bond futures contract.
Conversion feature
Specification of the right to transform a particular investment to another form of investment, such as switching between mutual funds or converting preferred stock or bonds to common stock.
Conversion parity
See: Market conversion price
Conversion parity price
Related: Market conversion price
Conversion parity/value
Applies mainly to convertible securities. Common stock price at which a convertible bond can become exchangeable for common shares of equal value; value of a convertible bond based solely on the market value of the underlying equity. Par value + conversion ratio. See bond value, investment value, parity.
Conversion premium
The extent by which the conversion price of a convertible security exceeds the prevailing common stock price at the time the convertible security is issued.
Conversion price
Applies mainly to convertible securities. Dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock, as specified when the convertible is issued.
Conversion ratio
Applies mainly to convertible securities. Relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred stock when a conversion takes place. It is determined at the time of issue and is expressed either as a ratio or as a conversion price from which the ratio can be figured by dividing the par value of the convertible by the conversion price.
Conversion value
The value of a convertible security if it is converted immediately. Also called parity value.
The ability to exchange a currency without government restrictions or controls.
Convertible adjustable preferred stock (Caps)
The interest rate on caps is adjustable and is pegged to Treasury security rates. They can be exchanged at par value for common stock or cash after the next period's dividend rates are revealed.
Convertible arbitrage
A practice, usually of buying a convertible bond and shorting a percentage of the equivalent underlying common shares, to create a positive cash flow position (with expected returns above the riskless rate) in a static environment and benifit from capital appreciation should the convertible's premium. This form of investing is far from riskless and requires constant monitoring. See: Chinese hedge and set-up.
Convertible bond
General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.
Convertible eurobond
A eurobond that can be converted into another asset, often through exercise of attached warrants.
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.
Convertible 100
Goldman Sachs index of the 100 convertibles of greatest institutional importance. Weighted by issue size, it measures the performance of its components against that of their underlying common stock and against other broad market indexs as well.
Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder. See also: participating convertible preferred stock.
Convertible price
The contractually specified price per share at which a convertible security can be converted into shares of common stock.
Convertible security
A security that can be converted into common stock at the option of the securityholder; includes convertible bonds and convertible preferred stock.
Curved, as in the shape of the outsid of a circle. Usually referring to the price/required yield relationship for option-free bonds.
Property that a curve is above a straight line connecting two end points. If the curve falls below the straight line, it is called concave.
Cook the books
To deliberately falsify the financial statements of a company. This is an illegal practice.
Cooling-off period
The period of time between the filing of a preliminary prospectus with the Securities and Exchange Commission and the actual public offering of the securities.
An organization owned by its members. Examples are agriculture cooperatives that assist farmers in selling their products more efficiently and apartment buildings owned by the residents who have full control of the property.
Copenhagen Stock Exchange
The only securities exchange in Denmark. It features electronic trading of stocks, bonds, futures, and options.
Core capital
The capital required of a thrift institution, which must be at least 2% of assets to meet the rules of the Federal Home Loan Bank.
Core competence
Primary area of expertise. Narrowly defined fields or tasks at which a company or business excels. Primary areas of specialty.
Cornering the market
Purchasing a security or commodity in such volume as to achieve control over its price. An illegal practice.
Corporate acquisition
The acquisition of one firm by another firm.
Corporate bonds
Debt obligations issued by corporations.
Corporate charter
A legal document creating a corporation.
Corporate equivalent yield
A comparison of the after-tax yield of government bonds selling at a discount and corporate bonds selling at par.
Corporate finance
One of the three areas of the discipline of finance. It deals with the operation of the firm (both the investment decision and the financing decision) from the firm's point of view.
Corporate financial management
The application of financial principles within a corporation to create and maintain value through decision-making and proper resource management.
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both long-and short-term financial plans.
Corporate financing committee
A committee of the NASD that reviews underwriters' SEC-required documents to ensure that proposed markups are fair and in the public interest.
Corporate income fund (CIF)
A unit investment trust featuring a fixed portfolio of high-grade securities and other investments, usually with monthly distribution of income.
Corporate processing float
The time that elapses between receipt of payment from a customer and the deposit of the customer's check in the firm's bank account; the time required to process customer payments.
Corporate repurchase
Active buying by a corporation of its own stock in the marketplace. Reasons for repurchase include putting idle cash to use, raising EPS, creating support for a stock price, increasing internal control (shark repellant), or stock for ESOP or pension plans. Repurchase is subject to rules, such as that buying must be on a zero minus or a minus tick, after the opening and before 3:30 p.m.
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes debt a cheaper financing method.
Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to maturity that the quoted premium or discount bond would generate.
A legal entity that is separate and distinct from its owners. A corporation is allowed to own assets, incur liabilities, and sell securities, among other things.
See: Principal
Reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index. If prices have been rising on the market as a whole, and then fall dramatically, this is know as a correction within an upward trend. Antithesis of a technical rally. See: Dip, break.
Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related. See: Correlation coefficient.
Correlation coefficient
A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the standard deviations of two variables.
A financial organization that performs services (acts as an intermediary) in a market for another organization that does not have access to that market.
Cost accounting
A branch of accounting that provides information to help the management of a firm evaluate production costs and efficiency.
Cost basis
The original price of an asset, used to determine capital gains.
Cost-benefit ratio
The net present value of an investment divided by the investment's initial cost. Also called the profitability index.
Cost of capital
The required return for a capital budgeting project.
Cost of carry
Out-of-pocket costs incurred while an investor has an investment position. Examples include interest on long positions in margin account, dividend lost on short margin positions, and incidental expenses. Related: Net financing cost.
Cost-of-carry market
Applies to derivative products. Futures contracts trade in a "cost-of-carry market" where the underlying commodity can be stored, insured, and converted into the future easily and inexpensively. Arbitrageurs, because of the ease of switching from the spot commodity to futures, will keep these markets in line with prevailing interest rates.
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of charge but agree to pay all operating and financing charges of the project.
Cost of equity
The required rate of return for an investment of 100% equity.
Cost of funds
Interest rate associated with borrowing money.
Cost of goods sold
The total cost of buying raw materials, and paying for all the factors that go into producing finished goods.
Cost of lease financing
A lease's internal rate of return.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital raised from limited partners.
"Cost me"
Refers to over-the-counter trading. "The price I must pay to obtain the securities you wish to buy is [$]". Usually, a standard markup (1/8) is then applied for resale to this buyer. Antithesis of can get.
Cost-plus contract
A contract in which the selling price is based on the total cost of production plus a fixed percentage or fixed amount.
Cost-push inflation
Inflation caused by rising prices, usually from increased raw material or labor costs that push up the costs of production. Related: Demand-pull inflation.
Cost records
The records maintained by an investor of the prices at which securities transactions are made, so that capital gains can be computed.
Council of Economic Advisers
A group of economists appointed by the President of the United States to provide economic counsel and help prepare the president's budget presentation to Congress.
Countercyclical stocks
Stocks whose price tends to rise when the economy is in recession or the market is bearish, and vice versa.
Counter trade
The exchange of goods for other goods rather than for cash; barter.
Counterpart items
In the balance of payments, counterpart items are analogous to unrequited transfers in the current account. They arise through the double-entry system in balance of payments accounting and refer to adjustments in reserves owing to monetization or demonetization of gold, allocation or cancellation of SDRs, and revaluation of the various components of total reserves.
The parties to an interest rate swap.
Party on the other side of a trade or transaction.
Counterparty risk
The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.
Country beta
Covariance of a national economy's rate of return and the rate of return of the world economy divided by the variance of the world economy.
Country economic risk
Developments in a national economy that can affect the outcome of an international financial transaction.
Country financial risk
Centers around the ability of a national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt.
Country risk
General level of political, financial, and economic uncertainty in a country affect which the value of loans or investments in that country.
Country selection
A type of active international management that measures the contribution to performance attributable to investing in the better-performing stock markets of the world.
The periodic interest payment made to the bondholders during the life of the bond.
Coupon bond
A bond featuring coupons that must be presented to the issuer in order to receive interest payments.
Coupon-equivalent rate
See: Eequivalent bond yield
Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.
Coupon pass
Canvassing by the desk of primary dealers to determine the inventory and maturities of their Treasury securities. The desk then decides whether to buy or sell certain issues (coupons) in order to add or withdraw reserves.
Coupon payments
A bond's interest payments.
Coupon rate
In bonds, notes, or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.
A statistical measure of the degree to which random variables move together. A positive covariance implies that one variable is above (below) its mean value when the other variable is above (below) its mean value.
Provisions in a bond indenture or preferred stock agreement that require the bond or preferred stock issuer to take certain specified actions (affirmative covenants) or to refrain from taking certain specified actions (negative covenants).
The purchase of a contract to offset a previously established short position.
See: Fixed-charge coverage
Coverage initiated
Usually refers to the fact that analysts begin following a particular security. This usually happens when there is enough trading in to warrant attention by the investment community.
Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed-charge coverage ratio.
Covered call
A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor owns. See: Covered or hedge option strategies.
Covered interest arbitrage
Occurs when a portfolio manager invests dollars in an instrument denominated in a foreign currency and hedges the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the underlying stock, designed so that one position will help offset any unfavorable price movement in the other, including covered call writing and protective put buying. Related: Naked strategies
Covered option
Option position that is offset by an equal and opposite position in the underlying security. Antithesis of naked option.
Covered put
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.
Covered writer
An investor who writes options only on stock that he or she owns, so that option positions may be collected.
A measure of inflation. See: Consumer Price Index.
The ability of the bankruptcy court to confirm a plan of reorganization over the objections of some classes of creditors.
Cram-down deal
A merger in which stockholders are forced to accept undesirable terms, such as junk bonds instead of cash or equity, due to the absence of any better alternatives.
Dramatic loss in market value. The last great crash was in 1929. Some refer to October 1987 as a crash but the market return was positive.
Crawling peg
An automatic system for revising the exchange rate. It involves establishing a par value around which the rate can vary up to a given percent. The par value is revised regularly according to a formula determined by the authorities.
Credible signal
A signal that provides accurate information; a signal that can distinguish among senders.
Money loaned.
Credit analysis
Evaluating information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations. Related: Default risk.
Credit balance
The surplus in a cash account with a broker after purchases have been paid for, plus the extra cash from the sale of securities.
Credit bureau
An agency that researches the credit history of consumers so that creditors can make decisions about granting of loans.
Credit enhancement
Purchase of the financial guarantee of a large insurance company to raise funds.
Credit insurance
Insurance against abnormal losses due to unpaid accounts receivable.
Credit period
The length of time for which a firm's customer is granted credit.
Credit rating
An evaluation of an individual's or company's ability to repay obligations or its likelihood of not defaulting See: Creditworthiness.
Credit risk
The risk that an issuer of debt securities or a borrower may default on its obligations, or that the payment may not be made on a negotiable instrument. Related: Default risk.
Credit scoring
A statistical technique that combines several financial characteristics to form a single score to represent a customer's creditworthiness.
Credit spread
Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a "credit spread." Antithesis of a debit spread Related: Quality spread.
Credit union
A not-for-profit institution that is operated as a cooperative and offers financial services such as low-interest loans, to its members.
Credit watch
A warning by a bond rating firm indicating that a company's credit rating may change after the current review is concluded.
Crediting rate
The interest rate offered on an investment type insurance policy.
Lender of money.
Creditor's committee
A group representing firms that have claims on a company facing bankruptcy or extreme financial difficulty.
Eligibility of an individual or firm to borrow money.
Creeping tender offer
The process by which a group attempting to circumvent certain provisions of the Williams Act gradually acquires shares of a target company in the open market.
CREST is CrestCo's real-time settlement system for U.K. and Irish shares and other corporate securities. CrestCo has provided settlement systems for government bonds and money market instruments in the U.K. since 1990.
Securities transaction in which the same broker acts as agent for both sides of the trade; a legal practice only if the broker first offers the securities publicly at a price higher than the bid.
Cross-border risk
Describes the volatility of returns on international investments caused by events associated with a particular country as opposed to events associated solely with a particular economic or financial agent.
A provision under which default on one debt obligation triggers default on another debt obligation.
Cross hedging
Applies to derivative products. Hedging with a futures contract that is different from the underlying being hedged. Use of a hedging instrument different from the security being hedged. Hedging instruments are usually selected to have the highest price correlation to the underlying.
The holding by one corporation of shares in another firm. One needs to allow for cross-holdings when aggregating capitalizations of firms. Ignoring cross-holdings leads to double-counting.
Cross rates
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates that are both expressed in terms of a third currency. Foreign exchange rate between two currencies other than the U.S. dollar, the currency in which most exchanges are usually quoted.
Cross-sectional approach
A statistical methodology applied to a set of firms at a particular time.
Cross-share holdings
Often used in risk arbitrage. Corporations' or governments' equity share ownership in another corporation's shares.
Crossed market
In the context of general equities, happens when the inside market consists of a highest bid price that is higher than the lowest offer price. See: Overlap the market.
Crossed trade
The prohibited practice of offsetting buy and sell orders without recording the trade on the exchange, thus not allowing other traders to take advantage of a more favorable price.
Crossover rate
The return at which two alternative projects have the same net present value.
Crowd trading
Used for listed equity securities. Group of exchange members with a defined area of function tending to congregate around a trading post pending execution of orders. Includes specialists, floor traders, odd-lot dealers, and other brokers as well as smaller groups with specialized functions. See: Priority.
Crowding out
Heavy federal borrowing that drives interest rates up and prevents businesses and consumers from borrowing when they would like to.
Crown jewel
A particularly profitable or otherwise particularly valuable corporate unit or asset of a firm. Often used in risk arbitrage. The most desirable entities within a diversified corporation as measured by asset value, earning power, and business prospects; in takeover attempts, these entities typically are the main objective of the acquirer and may be sold by a takeover target to make the rest of the company less attractive. See: Scorched earth policy.
Cum dividend
With dividend; said of a stock whose buyer is eligible to receive a declared dividend. Stocks are usually "cum dividend" for trades made on or before the fifth trading day preceding the record date, when the register of eligible holders is closed for that dividend period. Antithesis of ex-dividend.
Cum rights
With rights.
Cumulative abnormal return (CAR)
Sum of the differences between the expected return on a stock (systematic risk multiplied by the realized market return) and the actual return often used to evaluate the impact of news ona stock price.
Cumulative dividend feature
A requirement that any missed preferred or preference stock dividends be paid in full before any common dividend payment is made.
Cumulative preferred stock
Preferred stock whose dividends accrue, should the issuer not make timely dividend payments. Related: Non-cumulative preferred stock.
Cumulative probability distribution
A function that shows the probability that the random variable will attain a value less than or equal to each value that the random variable can take on.
Cumulative Translation Adjustment (CTA) account
An entry in a translated balance sheet in which gains and/or losses from translation have been accumulated over a period of years. The C.T.A. account is required under the FASB No. 52 rule.
Cumulative voting
A system of voting for directors of a corporation in which shareholder's total number of votes is equal to the number of shares held times the number of candidates.
The Curb
Used for listed equity securities. American Stock Exchange (AMEX).
Currency arbitrage
Taking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market.
Currency basket
The value of a portfolio of specific amounts of individual currencies, used as the basis for setting the market value of another currency. It is also referred to as a currency cocktail.
Currency in circulation
Paper money, coins, and demand deposits that constitute all the money circulating in the economy.
Currency future
A financial future contract for the delivery of a specified foreign currency.
Currency hedge
Applies mainly to international equities. Hedging technique to guard against foreign exchange fluctuations (i.e., short Euro l00 mm when holding a long position of Euro l00 mm in stocks).
Currency option
An option to buy or sell a foreign currency.
Currency overvaluation
Applies mainly to international equities: (1) consideration that a currency is overvalued if private demand for the currency at the going exchange rate is less than total private supply (i.e., central banks are buying up the difference, supporting the value of the currency through foreign exchange intervention); (2) currency value exceeding purchasing power parity.
Currency risk
Related: Exchange rate risk
Currency selection
Asset allocation in which the investor chooses among investments denominated in different currencies.
Currency swap
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency.
Current account
Net flow of goods, services, and unilateral transactions (gifts) between countries.
Current assets
Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted to cash in less than 1 year.
Current coupon
A bond selling at or close to par, that is, a bond with a coupon close to the yields currently offered on new bonds of a similar maturity and credit risk.
Current-coupon issues
Related: Benchmark issues
Current income
Money that is routinely received from investments in the form of dividends, interest, and other income sources.
Current issue
In Treasury securities, the most recently auctioned issue. Trading is more active in current issues than in off-the-run issues.
Current liabilities
Amount owed for salaries, interest, accounts payable and other debts due within 1 year.
Current market value
The value of a client's portfolio at today's market price, as listed in a brokerage statement.
Current maturity
Current time to maturity on an outstanding debt instrument.
Current/noncurrent method
The translation of all of a foreign subsidiary's current assets and liabilities into home currency at the current exchange rate while noncurrent assets and liabilities are translated at the historical exchange rate; that is, the rate in effect at the time the asset was acquired or the liability incurred.
Current production rate
The highest interest rate permissible on current Government National Mortgage Association, mortgage-backed securities.
Current rate method
The translation of all foreign currency balance sheet and income statement items at the current exchange rate.
Current ratio
Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with the transaction. The arrangement involves a customized hedge contract embedded in the underlying transaction.
Current yield
For bonds or notes, the coupon rate divided by the market price of the bond.
The minimum period between the time a bond is issued and the time it is called.
Cushion bonds
High-coupon bonds that sell at only at a moderate premium because they are callable at a price below that at which a comparable noncallable bond would sell. Cushion bonds offer considerable downside protection in a falling market.
Cushion theory
The theory that a stock with many short positions taken in it will rise, because these positions must be covered by the stock.
CUSIP number
Unique number given to a security to distinguish it from other stocks and registered bonds. See: Committee on Uniform Securities Identification Procedures.
Custodial fees
Fees charged by an institution that holds securities in safekeeping for an investor.
Custodian bank
Applies mainly to international equities. Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client. See: Depository Trust Company (DTC)
Customary payout ratios
A range of payout ratios that is typical according to an analysis of comparable firms.
"Customer picking prices"
Customer is firm on price and has set the price at which to transact.
Customer's loan consent
Agreement signed by a margin customer that allows a broker to borrow margined securities up to the level of the customer's debit balance to help cover other customers' short positions.
Customers' net debit balance
The total amount of credit given by NYSE member firms to finance customers purchasing securities.
Customized benchmarks
A benchmark that is designed to meet a client's requirements and long-term objectives.
Customs union
An agreement by two or more countries to erect a common external tariff and to abolish restrictions on trade among members.
Cutoff point
The lowest rate of return acceptable on investments.
Cyclical stock
Stock that tends to rise quickly when the economy turns up and fall quickly when the economy turns down. Examples are housing, automobiles, and paper.

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