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Financial Glossary

A complete Financial Glossary from one of the most respected names in the industry, Professor Campbell Harvey. 6,000 definitions and 15,000 internal links. Understand financial terms, clarify their meanings, explore the internal links and find out how these terms relate to each other.

C

Fifth letter of a Nasdaq stock descriptor specifying that issue is exempt from Nasdaq listing requirements for a temporary period.

CAGR

See: Compound Annual Growth Rate

CAMPS

See: Cumulative Auction Market Preferred Stocks

CAPM

See: Capital asset pricing model

CAPS

See: Convertible adjustable preferred stock

CARs

See: Certificates of Automobile Receivables

CARDs

See: Certificates of Amortized Revolving Debt

CATS

See: Certificate of Accrual on Treasury Securities (CATS)

CBO

See: Collateralized Bond Obligation.

CBOE

See: Chicago Board Options Exchange

CD

See: Certificate of deposit

CDN

See: Canadian Dealing Network

CEC

See: Commodities Exchange Center

CEG

See: Canadian Exchange Group

CFAT

Cash flow after taxes.

CFAT

See: Cash flow after taxes

CFC

See: Controlled foreign corporation

CFTC

See: Commodity Futures Trading Commission

CHAP

See: Clearing House Automated Payments System

CHESS

See: Clearing House Electronic Subregister System

CHIPS

See: Clearing House Interbank Payments System

CMBS

See: Commercial Mortgage Backed Securities

CME

See: Chicago Mercantile Exchange

CML

See: Capital market line

CMO

See: Collateralized mortgage obligation

CRB

See: Commodity Research Bureau.

CTA

See: Cumulative Translation Adjustment

CUSIP

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.

Cable

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.

Cage

A section of a brokerage firm used for receiving and disbursing funds.

Calendar

List of new issues scheduled to come to market shortly.

Calendar effect

Describes the tendency of stocks to perform differently at different times, including performance 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.

Call

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 redemption's 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 rate plus 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.

Callability

Feature of a security that allows the issuer to redeem the security prior to maturity by calling it in, or forcing the holder to sell it back.

Callable

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.

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 US

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". Usually a standard markdown (1/8) from $xxx is applied to this price in bidding the seller for its stock. Antithesis of cost me.

Cancel

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.

Cap

An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM).

Capacity

Credit grantors' measurement of a person's ability to repay loans.

Capital

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 appreciation

See: Capital growth

Capital appreciation fund

See: Aggressive growth fund

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.

Capital growth

The increase in an asset's market price. Also called capital appreciation.

Capital-intensive

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 Stanley that 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 present 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.

Capitalization

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.

Capitalized

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.

Caput

An exotic option. It represents a call option on a put option. That is, you purchase the option to buy a put option at a particular price on or before the expiriation date.

Car

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.

Carry

Related: Net financing cost.

Basel Accord

Agreement concluded among country representatives in 1988 in Switzerland to develop standardized risk-based capital requirements for banks across countries.

Carryforwards

Tax losses allowed to be applied to offset future income in some specified number of future years.

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.

Cartel

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.

Cash

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 account

A brokerage account that settles transactions on a cash-rather than credit-basis.

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 investments

Short-term debt instruments—such as commercial paper, banker's acceptances, and Treasury bills—that mature in less than one year. Also known as money market instruments or cash reserves.

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 position

The percentage of a mutual fund's assets invested in short-term reserves, such as US Treasury bills or other money market instruments.

Cash price

Applies to derivative products. See: Spot price.

Cash ratio

The proportion of a firm's assets held as cash.

Cash reserves

See: Cash investments

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 tenders 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).

Cashbook

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.

Cashout

Occurs when a firm runs out of cash and cannot readily sell marketable securities.

Casualty-insurance

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.

CEDEL

A centralized clearing system for Eurobonds.

Ceiling

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.

Central Limit Theorem

The Law of Large Numbers states that as a sample of independent, identically distributed random numbers approaches infinity, its probability density function approaches the normal distribution. See: Normal Distribution.

Centralized cash flow management

Provision of consolidated cash management decisions to all MNC units from one location, usually at the parent's headquarters.

Cents per share

The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned.

Checkwriting

Free checkwriting privileges offered with nonretirement accounts for select mutual funds.

Certainty equivalent

An amount that would be accepted today (risk free) in lieu of a chance to receive a possibly higher, but uncertain, amount.

Certainty Equivalent Return

The certain (zero risk) return an investor would trade for a given (larger) return with an associated risk. For example, a particular investor might trade an uncertain expected 4% active return with 6% risk, for a certain active return of 1.5%.

Certificate

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 US 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.

Chaos

A deterministic non-linear dynamic system that can produce random looking results. A chaotic system must have a fractal dimension, and exhibit sensitive dependence on initial conditions. See: Fractal Dimension, Lyapunov Exponent, Strange Attractor.

Chapter 7 Proceedings

Provisions of the Bankruptcy Reform Act under which the debtor firm's assets are liquidated by a court because reorganization would fail to establish a profitable business.

Chapter 11 Proceedings

Provisions of the Bankruptcy Reform Act under which the debtor firm is reorganized by a court because the estimated value of the reorganized firm exceeds the expected proceeds from its liquidation.

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.

Characteristic portfolio

A portfolio which efficiently represents a particular asset characteristic. For a given characteristic, it is the minimum risk portfolio, with portfolio characteristic equal to 1. For example, the characteristic portfolio of asset betas is the benchmark. It is the minimum risk beta = 1 portfolio.

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.

Charter

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.

Chartists

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.

Chatter

See: Whipsawed

Chattel Mortgage

A loan agreement that grants to the lender a lien on property other than real estate. Chattel is personal or movable property.

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.

Check

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 OTC 250 index)

Chicago Board of Trade (CBOT)

The second largest futures exchange in the US, and was a pioneer in the development of financial futures and options.

Chicago Mercantile Exchange (CME)

Chicago Mercantile Exchange (CME) is the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. Founded in 1898 as a not-for-profit corporation, in November 2000 CME became the first U.S. financial exchange to demutualize and become a shareholder-owned corporation. Its futures and options on futures trade on CME's trading floors, on its GLOBEX electronic trading platform and through privately negotiated transactions. CME has four major product areas based on interest rates (including Eurodollar futures, the world's most actively traded futures contract), stock indexes (such as the (S&P 500 and Nasdaq-100 futures), foreign exchange and commodities.

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.

Churning

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 US It has no trading floor, but handles all members' transactions using computers.

Circle

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 US 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.

Claimant

A party to an explicit or implicit contract.

Class

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.

Clean

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."

Clear

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.

Clearinghouse

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 similar 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.

Close

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 shares like 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 controlling 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

See: 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.

CMO REIT

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.

Coefficient of Variation

A measure of investment risk that defines risk as the standard deviation per unit of expected return.

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.

Cofinancing agreements

Joint participation of the World Bank and other agencies or lenders in providing funds to developing countries.

Coherent Market Hypothesis

A hypothesis that the probability density function of the market may be determined by a combination of group sentiment and fundamental bias. Depending on combinations of these two factors, the market can be in one of four states: random walk, unstable transition, chaos, or coherence.

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.

Cold-calling

Calling potential new customers in the hope of selling stocks, bonds or other financial products and receiving commissions.

Collar

An upper and lower limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM).

Collateral

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.

Collection

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.

Comanager

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.

Combination

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.

Comeout

In the context of general equities, the opening. Antithesis of the close.

COMEX

A division of the New York Mercantile Exchange (NYMEX). Formerly known as the Commodity Exchange, COMEX is the leading US 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 invoice

Bill for merchandise sold.

Commercial letters of credit

Trade-related agreement that a certain amount of bank funds is available to an entity.

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.

Commingling

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.

Commission

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.

Commission-only compensation

Payment to a financial adviser's of only commissions on investments purchased when the client implements the recommended financial plan.

Commitment

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).

Commodity

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 Bundle

One unit of the collection of the complete set of goods produced and sold in the world market.

Commodity Channel Index

An index used in technical analysis. High values mean a potential future correction (downward movement in underlying asset) and low values potentially forecast a rally. Details in Donald Lambert's October 1980 article in Commodities Magazine.

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 US Congress in 1974 to regulate exchange trading in futures.

Commodity indices

Indices 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.

Commodity Research Bureau

Produces a popular price index of 17 commodities which is often used to track inflationary trends in the economy.

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 factor

An element of return that influences many assets. According to multiple factor risk models, the common factors determine correlations between asset returns. Common factors include size (often measured by market capitalization), valuation measures such as price to book value ratio and dividend yield, industries and risk indices.

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 corporation 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.

Company

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 advantage

Theory suggesting that specialization by countries can increase worldwide production.

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 allow the comparison of figures to illustrate trends in a company's performance.

Comparison

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.

Compensation

Arrangement under which the delivery of goods to a party is paid for by buying back a certain amount of the product from the recipient of the goods.

Compensatory Financing Facility (CFF)

Entity that attempts to reduce the impact of export instability on country economies.

Competence

Sufficient ability or fitness for one's needs. The necessary abilities to be qualified to achieve a certain goal or complete a project.

Competition

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 OTC 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.

Complete

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.

Complexity Theory

The theory that processes with a large number of seemingly independent agents can spontaneously organize themselves into a coherent system.

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

Composition

Voluntary arrangement to restructure a firm's debt, under which payment is reduced.

Compound Annual Growth Rate

Best defined by example. If you invest $100 today and make 5% in the first year and reinvest ($105) and make 8% in the second year, the compound annual growth rate is 6.489%. The calculation is $100x1.05x1.08=$113.4 which is what you end up with at the end of year two. The average return is [square root(113.4/100) -1]= 0.06489 or 6.489%. Note 1. If we had three compounding periods we would take the cubic root (power of 1/3). Note 2. If we had invested at exactly 6.489 in both periods, we get $100x1.06489x1.06489=$113.4. Note 3. The example is directed to a return - but CAGR could be applied to earnings growth, GDP growth, etc.

Compound Annual Return

See: Compound Annual Growth Rate

Compound growth rate

See: Compound Annual Growth Rate

Compound interest

Interest paid on previously earned interest as well as on the principal.

Compound option

Option on an option.

Compounding

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

The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the contoller (which means the same thing).

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.

Concave

Property that a curve is below a straight line connecting two end points. If the curve falls above the straight line, it is called convexity.

Concentration account

A single centralized account into which funds collected at regional locations (lockboxes) are transferred.

Concentration Banks

A small number of large banks a firm contracts with to periodically collect the firm's deposit balances from a group of smaller banks.

Concentration services

Movement of cash from different lockbox locations into a single concentration account from which disbursements and investments are made.

Concession

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 high 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.

Condor

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 canceled and was not executed". One does not have to honor any trade reported after given a "firm out".

Confirmation

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.

Conglomerate

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.

Consignment

Transfer of goods to a seller while title to the merchandise is retained by the owner.

Consol

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.

Consolidation

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.

Consortium

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 US inflation. The US Department of Labor publishes the CPI every month.

Consumption tax

See: Value-added tax

Contagion

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 correlation's 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, correlation's (and volatility) are known to increase, so what might appear to be excessive may not be contagion.

Contango

A market condition in which futures prices are higher in the distant delivery months.

Contingency graph

A plot of the net profit to a speculator in currency options under various exchange rate scenarios.

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.

Contingent Voting Power

Enables preferred stockholders to vote when the company fails to satisfy the agreement between itself and the preferred stockholders.

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.

Contract

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 Claim

An amount that by legal agreement must be paid periodically to the buyer of a security; contractual claim may also specify the time at which the principal must be repaid and other details.

Contractual Intermediary

Holder of an indirect claim in through a legal agreement that specifies that the individual must make periodic, fixed payments to the intermediary in exchange for the right to receive payments from the intermediary in the future.

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.

Contrarian

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.

Contrarian investing

Ignoring market trends by buying securities that the investor considers undervalued and out of favor with other investors.

Contributed capital

See: Paid-in capital

Contribution

Money placed in an individual retirement account (IRA), an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.

Contribution margin

The difference between variable revenue and variable cost.

Control

50% of the outstanding votes plus one vote.

Control Limits

The upper and lower limits on the acceptable level of cash that minimizes the sum of the opportunity cost of excessive cash and the cost of marketable security transactions.

Control parameters

In a nonlinear dynamic system, the coefficient of the order parameter; the determinant of the influence of the order parameter on the total system. See: Order Parameter.

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 US stockholders, each of whom owns at least 10% of the voting power.

Controller

The corporate manager responsible for the firm's accounting activities. Sometimes referred to as the comptroller (which means the same thing).

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).

Convergence

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.

Conversion

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 Period

The time period during which an investor can exchange a convertible security for common stock.

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.

Convertibility

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 benefits from capital appreciation should the convertible's premium rise. This form of investing is far from riskless and requires constant monitoring. See: Chinese hedge and setup

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.

Convex

Curved, as in the shape of the outside of a circle. Usually referring to the price/required yield relationship for option-free bonds.

Convexity

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.

Cooperative

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.

Corporation

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.

Corpus

See: Principal

Correction

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.

Correlation

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.

Correlation Dimension

An estimate of the Fractal Dimension which measures the probability that two points chosen at random will be within a certain distance of each other, and examines how this probability changes as the distance is increased. White noise will fill its space since its components are uncorrelated, and its correlation dimension is equal to whatever dimension it is placed in. A dependent system will be held together by its correlations and retain its dimension whatever embedding dimension it is placed in, as long as it is greater than its fractal dimension.

Correlation Integral

The probability that two points are within a certain distance from one another. Used in the calculation of the correlation dimension.

Correspondent

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.

Cost Recovery Period

The number of years it takes to fully depreciate a capital asset. This time period is based on classification of the depreciable life of an asset.

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.

Counterparties

The parties to an interest rate swap.

Counterparty

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.

Counterpurchase

Exchange of goods between two parties under two distinct contracts expressed in monetary terms.

Country allocations

The percentages of a fund's net assets distributed to securities of various countries. These percentages serve as an indicator of a fund's diversification and its vulnerability to fluctuations in foreign financial markets or currency exchange rates.

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 diversification

Investment of a global or international portfolio's assets in securities of various countries.

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 which impacts the value of the country's bonds and equities.

Credit quality

A measure of a bond issuer's ability to repay interest and principal in a timely manner.

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.

Coupon

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: Equivalent 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.

Covariance

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.

Covenants

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).

Cover

The purchase of a contract to offset a previously established short position.

Coverage

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 it 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 Foreign Currency Loan

A loan denominated in a currency other than that of the borrower's home country, for which repayment terms are prearranged through the use of a forward currency contract.

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 Interest Rate Parity

The principle that the yields from interest-bearing foreign and domestic investments should be equal when the forward currency market is used to predetermine the domestic currency payoff from a foreign investment.

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 position

Use of an option in a trading strategy in the underlying asset is already owned.

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.

Covering

Using forward currency contracts to predetermine the domestic currency amount of an expected future foreign receipt or payment.

CPI

A measure of inflation. See: Consumer Price Index.

Cramdown

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.

Crash

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.

Credit

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 linked security

A note whose cash flow depends upon a credit event or credit measure of a referenced entity or asset such as default, credit spread, or rating change. The manager would purchase such a note to hedge against possible down grades, or loan defaults that would guarantee payment into the portfolio of the manager even if moneys on referenced assets are reduced.

Credit period

The length of time for which a firm's customer is granted credit.

Credit Policy Delay

The period between the sale of goods for a credit and the payment for those goods. This lag is determined largely by the selling firm's credit policy.

Credit Rating Agencies

Firms that compile information on and issue public credit ratings for a large number of companies.

Credit Standards

The guidelines a company follows to determine whether a credit applicant is creditworthy.

Credit Terms

The conditions under which credit will be extended to a customer. The components of credit terms are: cash discount, credit period, net period.

Covered position

Use of an option in a trading strategy in the underlying asset is already owned.

Credit quality

A measure of the likelihood of default. Rating agencies assign letter designations such as AAA, AA, and so forth.

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.

Creditor

Lender of money.

Creditor's committee

A group representing firms that have claims on a company facing bankruptcy or extreme financial difficulty.

Creditworthiness

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

CREST is CrestCo's real-time settlement system for UK and Irish shares and other corporate securities. CrestCo has provided settlement systems for government bonds and money market instruments in the UK since 1990.

Crisp Sets

The fuzzy set term for traditional set theory. That is, an object either belongs to a set, or does not.

Critical Levels

Values of control parameters where the nature of a nonlinear dynamic system changes. The system can bifurcate, or make the transition from stable to turbulent behavior. An example is the straw that breaks the camel's back.

Cross

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 factoring

Concluding a transaction by a network of factors across borders. The exporter's factor can contact correspondent factors in other countries to handle the collection of accounts receivable.

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.

Cross-default

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.

Cross-holdings

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 US dollar, the currency in which most exchanges are usually quoted.

Cross-sectional analysis

Assessment of relationships among a cross-section of firms, countries, or some other variable at one particular time.

Cross-Sectional Ratio Analysis

A method of analysis that compares a firm's ratios with some chosen industry benchmark. The benchmark usually chosen is the average ratio value for all firms in an industry for the time period under study.

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.

Cross-border bonds

Bonds that firms issue in the international market.

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 on a 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 total return

The actual performance of a fund over a particular period.

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

Money.

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 Board

Entity charged with maintaining the value of a local currency with respect to some other specified currency.

Currency call option

Contract that gives the holder the right to purchase a specific currency at a specified price (exchange rate) within a specific period of time.

Currency diversification

Using more than one currency as an investing or financing strategy. Exposure to a diversified currency portfolio typically entails less exchange rate risk than if all the portfolio exposure were in a single foreign currency.

Currency Exchange Risk

Uncertainty about the rate at which revenues or costs denominated in one currency can be converted into another currency.

Currency futures contract

Contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

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 in circulation

Paper money, coins, and demand deposits that constitute all the money circulating in the economy.

Currency no longer issued

Old and new series gold and silver certificates, Federal Reserve notes, national bank notes, and 1890 Series Treasury notes.

Currency put option

Contract that gives the holder the right to sell a particular currency at a specified price (exchange rate) within a specified period of time.

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 Bond

Bonds on which the coupon is set approximately equal to the bonds' yield to maturity at the time of their issuance.

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 income bonds

Bonds paying semiannual interest to holders. Interest is not included in the accrued discount.

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.

Cushion

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

Either (1) a bank, agent, trust company, or other organization responsible for safeguarding financial assets, or (2) the individual who oversees the mutual fund assets of a minor's custodial account.

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.

Cycles

A full orbital period.

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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If you have further questions, please call our customer service department at (800) 225-6196.

*Costs and expenses vary, and may include a sales load, deferred sales charge, and transaction fees. Each individual investor should consider the investment objectives, risks, and charges and expenses of the investment company before investing. The prospectus contains this and other information about the investment company. A prospectus can be obtained by calling or writing to StockCross Financial Services or the website of the fund family. Please read the Mutual Fund Disclosure and Prospectus carefully before investing.

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Brokerage Products and Services offered by StockCross Financial Services, Inc. - Member FINRA and SIPC.

Investors should consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the investment company.  To obtain a prospectus contact StockCross at 800.225.6196. Read the prospectus carefully before investing.

Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in the StockCross Options Application and Agreement, Customer Agreement, and by downloading the Characteristics and Risks of Standardized Options, and 2012 Supplements from The Options Clearing Corporation, or by requesting a copy from StockCross free of charge. 

Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. The Margin Disclosure Statement and Agreement (PDF) is available for download, or by requesting a copy from StockCross free of charge. 

Testimonials may not be representative of the experience of other clients and are no guarantee of future performance or success.

Copyright StockCross Financial Services, Inc. 2016.