Flashcards

The third market is the trading of exchange-listed securities in the OTC market, done to facilitate after-hours trading.

Time value is a component of the cost of an option (premium). The longer that is left until the expiration of the option, the more the premium will be comprised of time value. Time value is determined by subtracting the option’s intrinsic value from the premium paid.

A tombstone is an advertisement that announces a securities offering. It identifies the name of the issuer, the type of security, the underwriters, and where additional information is available. It may be published as soon as the issue is cleared for sale.

A company’s total capitalization includes all of the stock and all of the debt issued.

The trade confirmation must be sent to the client no later than on or before the settlement date. It is usually sent the business day after the trade date. The trade confirmation includes the settlement date, details of the transactions, and any amount of monies owed.

The trade date is the day on which the terms of a transaction, such as price and quantity, are established.  The transaction will be completed at settlement.

A traditional IRA is a retirement vehicle that may be funded annually, up to the limit, by anyone with earned income. The contributions made into a traditional IRA may or may not be tax-deductible, depending upon the client’s situation and current tax code. Traditional IRAs are subject to the required minimum distribution rules. Earnings in a traditional IRA are taxable as ordinary income.

The transfer agent is the person responsible for issuing and redeeming shares of a mutual fund. The transfer agent will have custody of clients’ shares if certificates are not issued. The transfer agent also sends confirmations, distributions, and tax forms to the client.

Treasury bills are short-term government debt sold at a discount from face value. T-bills mature in periods of 4, 13, 26, or 52 weeks. T-bills do not pay periodic interest payments. The interest income is the difference between the purchase price and the face value of the bills at maturity. The bills are sold at auction, at which time the discount is determined.  The bills do not carry a stated interest rate. Treasury bills make up the bulk of the money market.

Treasury bonds are long-term debt issued by the Treasury at face value. Bonds pay interest semi-annually and mature in a period of ten years to thirty years.

Treasury notes are medium-term Treasury debt sold at face value. Notes pay interest semi-annually and mature in one to ten years.

Treasury stock is issued stock that has been repurchased by the company. While the stock is held in the company’s treasury, it has no dividend or voting rights.

Trough is a phase of the business cycle. The trough follows the contraction. It is the low point of economic decline. It precedes the expansion (recovery).

The Trust Indenture Act of 1939 governs debt offerings. It requires all publicly offered, non-exempt issues to be registered under the Securities Act of 1933. Additionally, it requires that the debt be issued under a trust indenture that protects the bondholders.

A trustee is a person who is appointed to act on a beneficiary’s behalf. A trustee may be an individual of legal age and a sound mind. A business may also be granted trusteeship.

The underwriter is a broker-dealer in charge of selling securities. For mutual funds, the underwriter is the person or company in charge of distributing and selling the fund shares to the public.

The underwriting spread is the difference between the price the underwriter pays the issuer for the new shares and the public offering price.  The underwriting spread is also known as the load or sales charge.

UGMA is a law adopted in most states that permits a direct gift to a minor without a trust or guardianship. The donor appoints a custodian to manage the gift until the minor reaches the legal age. There are certain tax rules for these accounts. Some states are UGMA states while others are UTMA states (Uniform Transfer to Minors Act). The major differences between UGMA and UTMA states are the age at which the asset can belong to the minor and the type of investments that can be held.

The Uniform Practice Code is the FINRA code designed to make uniform the customs, practices, and trading techniques among members in the securities business, such as regular way settlement.

The Uniform Securities Act is a state’s securities law. State securities laws are also called blue-sky laws. States have the option of adopting the legislation in its entirety or adapting it as needed.

A unit is the basis of the valuation of an annuity, similar to a share of a mutual fund. During the pay-in, the annuity is valued in accumulation units. During pay-out, the annuity is valued in annuity units.

A unit investment trust is an investment company that invests in a fixed portfolio of securities. An investor will purchase units in the trust representing an undivided interest in the securities held.  A UIT has no management fee or board of directors.

A unit refund life annuity is a life annuity that provides that a guaranteed number of units will be paid. If the annuitant dies before they are paid, the remaining units are paid to a beneficiary.

An unsecured bond is not secured by the pledge of some specific asset or assets of the issuing corporation. Unsecured bonds are also known as debentures. Unsecured bonds represent a higher level of risk to the investor than a secured bond so their nominal yields will be correspondingly higher.

A variable annuity is a type of annuity issued by life insurance companies.  Like fixed annuities, variable annuities guarantee monthly payments for life once the contract is annuitized. The insurance company accepts the mortality risk for the client. However, unlike fixed annuities, the variable annuity contract does not guarantee the amount of the annuity payment or the performance of the account. The annuitant accepts the investment risk, not the company.

Vesting refers to ownership. An employee vests immediately in their contributions into a qualified plan. They will vest in the employer’s contribution over a period of time. Some qualified plans require immediate vesting of employer contributions (SIMPLE), but many have a vesting schedule to encourage employee retention.

Volatility is the magnitude and frequency of price changes within the securities industry over a given period of time.

A warrant is a stock purchase option similar to rights because it allows the holder to purchase stock at a predetermined price. Warrants are usually attached to bonds to make them easier to sell (sweeteners). Warrants are long-term options, expiring in up to 30 years.

A wash sale occurs when the investor sells a security at a loss but has purchased substantially identical securities within a certain time period. The IRS will disallow a loss if the investor repurchases substantially identical securities within 30 days before or after the sale of the security in which the loss was claimed, for a total of 61 days.

The Wilshire 5000 is the broadest U.S. index.

Some mutual funds will offer withdrawal plans to clients whose account balances meet a minimum requirement. With a withdrawal plan, the client requests the systematic withdrawal of his or her account periodically. Withdrawals may be based on a fixed dollar amount, a fixed number of shares, a fixed percentage, or a fixed period of time.  A withdrawal plan is different from an annuity in the fact that the client may outlive the payments.

Working capital is a dollar amount that is found by subtracting a company’s current liabilities from its current assets. Working capital is not good for comparison purposes. It is a measurement of liquidity.

Yield is the rate of return on an investment, usually on an annual basis.

The yield curve is a plot of the yields of debt instruments of varying maturities, starting with short-term, then mid-term, and lastly long-term debt.

When an investor purchases a callable bond in the secondary market that is trading at a premium the most important yield to consider is yield to call (it is called yield to worst in this situation).

A bond’s yield to maturity takes into account the discount or premium paid for the bond and averages the gain (or loss) with the stated interest payment to calculate a yield over a period of time. When a bond is purchased in the secondary market at a discount, the most important yield for the investor to consider is the yield to maturity. A bond’s yield to maturity is also known as its internal rate of return.

A zero coupon bond is a bond in which a broker-dealer has separated the interest payments from the principal amount. The zero coupon bond represents the principal only. Zero coupon bonds are sold at a discount. They are also called STRIPS (separate trading of registered interest and principal). Zero coupon bonds have the highest duration since the investor receives no interest payments. The interest that accrues on a zero coupon bond is taxed each year, making them fairly unpopular investments.