Flashcards
A limit order is an order to buy or sell at stock at a certain price or better. Limits are orders that are away from the current market price and as such, they are held on the books of the specialist (designated market maker). Open buy limits are below the current market price, and open sell limits are above the current market price. Limit orders can be good for the day or good ‘til canceled. Limit orders never become market orders.
An LLC is a business entity that is recognized at the state level but is not recognized by the IRS. An LLC has one or more members. An LLC is a pass-through entity that provides members with limited liability.
A limited partner, also called a subscriber, is an investor in a limited partnership. Limited partners have no say in how the partnership is managed. Limited partners have limited liability, they can lose whatever they have invested as well as any amount related to a recourse note. Limited partners receive form K-1 with their portion of profits or losses that flow through onto their individual tax returns.
A limited partnership is a form of business with one or more general partners and one or more limited partners. The general partners have unlimited liability. The limited partners have limited liability. It is a flow through tax entity that files Form 1065, as an information return only.
The limited partnership agreement spells out the responsibilities of the partners.
A limited power of attorney grants a third party limited trading authority. It allows a person other than the account owner to place trades in the account, but they cannot withdraw money or securities. Often referred to as a limited trading authorization.
Liquidation is the process of redeeming mutual fund shares. Also called redemption. Liquidation can also refer to the process of settling debts after a corporate bankruptcy.
In the event of a corporate liquidation who gets paid when is the liquidation priority. Secured creditors are paid first, then unsecured creditors (back wages, taxes, and debentures), preferred stock, common stock, and lastly foreign investors.
Liquidity refers to how easily can an asset be turned into cash.
Liquidity risk is the risk that the asset may not be easily sold. Liquidity risk is also referred to as marketability risk. Direct participation programs (DPPs) have the greatest liquidity risk since they do not trade in the secondary market.
Listed securities are those securities that meet the requirements to be listed on one of the national securities exchanges. There are many nationally registered securities exchanges in the United States. Listing requirements vary amongst the different exchanges. The three exchanges that conduct the largest volume of trades in the United States include the NASDAQ Stock Market, the NYSE, and the BATS Exchange.
A living trust is a trust that is created while the donor is alive. Living trusts are also called intro vivos trusts
Long is used to describe owning a security.
A long-term capital gain or loss occurs on securities that were held for longer than 12 months.
LEAPS are long-term options, good for two to three years.
Dealers make the market. Market making involves a firm buying a particular over-the-counter stock for its own account at its own risk (taking a position).
Management companies actively buy, sell and trade the securities that are held in the company’s portfolio according to a prescribed investment objective. All mutual funds are management companies. Management companies may be open end funds, closed end funds, ETFs, diversified or non-diversified.
A margin sale involves the purchase of a security with the use of borrowed money. The Federal Reserve Board sets the percentage of the price that the buyer must provide under Regulation T as initial equity, currently, 50% or $2,000, whichever is greater. To buy securities on margin is risky.
The market maker is the dealer side of broker-dealer. The dealer takes an inventory position in a security, making the market.
A market order is an order that will be executed immediately at the best available price.
Market risk is a type of systematic risk. The markets will go up and they will go down. Market risk is the uncertainty about the loss of capital due to changes in the market price of the security. Market risk cannot be reduced with diversification. Diversifying by asset class helps to reduce market risk.
The market value is the price an investor will pay for each share of common stock at any given time. Market value is determined by the laws of supply and demand. Market value is also known as market price.
Marketability refers to the ease with which a security can be bought or sold. Also known as liquidity risk.
The markup is the amount added to the lowest current offering price when the broker-dealer is acting as a dealer and trading with a client.
Matched orders are a form of market manipulation where simultaneous trading of a security is done to create the misleading appearance of active trading. Matched orders are prohibited.
The maturity date is the date on which a company is scheduled to repay the principal of a bond to the bondholder. Corporate bonds mature in up to 30 years.
The mean is the average of the set of numbers.
The median is the middle number of the set of numbers.
Mining refers to complex mathematical processes used to develop new coins, such as bitcoin, or verify new transactions. Mining usually involves many computers working to solve complex mathematical calculations on a block of transactions. Once solved or “mined,” the new coin is added to the blockchain.
Master Limited Partnerships (MLPs) are publicly listed limited partnerships that trade on a national securities exchange, therefore they are typically more liquid than traditional limited partnerships. Most MLPs have general partners and many limited partners (the investors). The general partners manage the day-to-day operations, while the limited partners purchase shares in the MLP and provide capital in return for cash distributions from the entity’s operations. MLPs primarily focus on natural resource-related activities, including oil, gas, coal, timber, and certain ways of transporting commodities.
The mode is the number that occurs most frequently in the set of numbers.
Modern Portfolio Theory is the work of Harry Markowitz. Modern Portfolio Theory states that investments should not be viewed in isolation but in relationship to each other. Modern portfolio theory’s goal is to build the most efficient portfolio. An efficient portfolio offers the most return for a given level of risk or the least risk for a given amount of return. A collection of efficient portfolios is called an efficient frontier.
Monetary policy is set by the Federal Reserve. Monetary policy includes buying and selling U.S. government securities through open market operations, setting the target for the federal funds rate, setting the discount rate, and determining banks’ reserve requirements. Monetary policy is designed to control the economy through manipulation of the money supply.
Money laundering involves the conversion of illegally obtained funds into legal tender. There are three stages to money laundering: placement, layering, and integration. Broker-dealers must have Anti-Money Laundering procedures designed to detect this practice.
The money market is the market where short-term debt issues trade. Money market instruments are forms of debt that mature in one year or less and are very liquid. Treasury bills make up the bulk of trading in the money market.
In the portfolio of a money market fund are short-term debt instruments, with a maximum maturity of one year. Money market funds are conservative investments. They attempt to maintain a stable NAV of $1 per share but do not guarantee it. Money market funds are good for investors looking for safety and liquidity. They pay very little income.
A Monte Carlo Simulation is a statistical method used to determine the most likely outcomes by assigning random values based on the risk and return characteristics for a specific security or a portfolio of securities.
Moody’s is a rating company. They rate bonds, commercial paper, preferred and common stock, and municipal short term debt. Moody’s rates consist of both uppercase and lowercase letters. Baa or higher are considered investment grade securities.
The mortality guarantee is part of a variable annuity contract under which the company agrees to continue annuity payments even if the annuitant lives longer than the mortality tables predicted.
The most common type of secured bond is a mortgage bond. A mortgage bond is a type of corporate debt that is backed by real estate collateral; land, or buildings owned by the corporation. In the event of a corporate liquidation, the land or buildings will be sold to pay off the mortgage bondholders.
Municipal bonds are debt issued by any district, authority, or government (state, county, city, township, and so on) other than the federal government. The debt is issued at face value, paying a stated interest rate semi-annually. Interest on municipal debt is federal income tax-free, but capital gains are taxable. If the investor purchases municipal debt issued in the same state that they live in then the interest is double-exempt, tax-free at both the state and federal levels.
The portfolio of a municipal bond fund consists of municipal bonds, offering the investor federally income tax free dividends.
The MSRB is the self-regulatory agency for the municipal securities industry. The MSRB has rule-making authority but does not have enforcement ability. MSRB rules are enforced by various regulatory agencies, including FINRA and the SEC.
An open end mutual fund is a type of management company that continuously offers new shares. The shares are redeemable and represent ownership in a pool of securities (the fund’s portfolio). The shares are redeemed at their next determined net asset value per share, within seven calendar days. Mutual funds must be sold with a prospectus. The prospectus will describe the costs associated with the fund and the fund’s investment objective.
When an investor sells a call and does not own the underlying security they are said to be naked. To sell a naked call exposes the investor to unlimited risk. Uncovered is used to describe selling an option on a security that the investor does not own.
NASDAQ, or the National Association of Securities Dealers Automated Quotation system, lists the bid and offering prices for the securities that are listed on the NASDAQ. Market makers enter their prices into this negotiated marketplace.
The NSCC is an organization that acts as the middleman between broker-dealers and exchanges.
It is the National Securities Markets Improvement Act of 1996 that created federally covered securities and federally covered advisers.
A negotiable CD is sold by banks to institutional investors. They are money market instruments, with high face amounts. Negotiable CDs are backed by the FDIC, up to $250,000. They are sold at face value and pay semi-annual interest.
The over-the-counter market (OTC) is a negotiated market.