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Fifth letter of a Nasdaq stock descriptor specifying that issue is exempt from Nasdaq listing requirements for a temporary period. CA The two-character ISO 3166 country code for CANADA. CAD The ISO 4217 currency code for Canada Dollar. CADS See Cash Available for Debt Service. 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) CAX The ISO 4217 currency code for Canadian Cent. CBD See: Cash In Advance. CBO See: Collateralized Bond Obligation. CBOE See: Chicago Board Options Exchange CC The two-character ISO 3166 country code for COCOS (KEELING) ISLANDS. CD See: Certificate of deposit CD The two-character ISO 3166 country code for CONGO, THE DEMOCRATIC REPUBLIC OF. CDN See: Canadian Dealing Network CEC See: Commodities Exchange Center CEG See: Canadian Exchange Group CF The two-character ISO 3166 country code for CENTRAL AFRICAN REPUBLIC. CFAT Cash flow after taxes. CFAT See: Cash flow after taxes CFC See: Controlled foreign corporation CFR See: Cost and Freight CFTC See: Commodity Futures Trading Commission CG The two-character ISO 3166 country code for CONG. CH The two-character ISO 3166 country code for SWITZERLAND. CHAP See: Clearing House Automated Payments System CHESS See: Clearing House Electronic Subregister System CHF The ISO 4217 currency code for Swiss Franc. CHIPS See: Clearing House Interbank Payments System CI The two-character ISO 3166 country code for COTE D'IVOIRE. CIF See: Cost Insurance and Freight CK The two-character ISO 3166 country code for COOK ISLANDS. CL The two-character ISO 3166 country code for CHILE. CLF The ISO 4217 currency code for Chile Unidades de Fomento. CLP The ISO 4217 currency code for Chilean Peso. CM The two-character ISO 3166 country code for CAMEROON. CMBS See: Commercial Mortgage Backed Securities CME See: Chicago Mercantile Exchange CML See: Capital market line CMO See: Collateralized mortgage obligation CN The two-character ISO 3166 country code for CHINA. CNY The ISO 4217 currency code for Chinese Renminbi (Yuan). CO The two-character ISO 3166 country code for COLOMBIA. COP The ISO 4217 currency code for Colombian Peso. CPT See: Carriage Paid To CR The two-character ISO 3166 country code for COSTA RICA. CRB See: Commodity Research Bureau. CRC The ISO 4217 currency code for Costa Rican Colon. CTA See: Cumulative Translation Adjustment. Also refers to Commodity Trading Advisor. CU The two-character ISO 3166 country code for CUBA. CUP The ISO 4217 currency code for Cuban Peso. CUSIP See: Committee on Uniform Securities Identification Procedures CV The two-character ISO 3166 country code for CAPE VERDE. CVE The ISO 4217 currency code for Cape Verde Islands Escudo. CX The two-character ISO 3166 country code for CHRISTMAS ISLAND. CY The two-character ISO 3166 country code for CYPRUS. CYP The ISO 4217 currency code for Cyprus Pound. CZ The two-character ISO 3166 country code for CZECH REPUBLIC. CZK The ISO 4217 currency code for Czech Republic Koruna. 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. Calendar Straddle or Combination See Calendar Spread. 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 servicecharge. 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. Cumulative Auction Market Preferred Stocks (CAMPS) Stands for Cumulative Auction Market Preferred Stocks, Oppenheimer & Company's Dutch Auction preferred stock product. Canadian agencies Agency banks established by Canadian Banks in the 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. Canceled Certificates Before the issuance of a new certificate, the old certificate is presented to the Transfer Agent and is canceled. "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. Capacity utilization rate The percentage of the economy's total plant and equipment that is currently in production. Usually, a decrease in this percentage signals an economic slowdown, while an increase signals economic expansion. 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. Capitalization-Weighted Index A stock index which is computed by adding the capitalization (float times price) of each individual stock in the index, and then dividing by the divisor. The stocks with the largest market values have the heavist weighting in the index. See also Float, Divisor. 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. Capped-Style Option A capped option is an option with an established profit cap or cap price. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. A capped option is automatically exercised when the underlying security closes at or above (for a call) or at or below (for a put) the Option's cap price. 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. Caracas Stock Exchange Originally established in 1947 and merged with a competitor in 1974 to become the only securities exchange of Venezuela. Cargo Goods being transported. Carriage and Insurance Paid To (CIP) Seller is responsible for the payment of freight to carry goods to a named overseas destination. The seller is also responsible for providing cargo insurance at minimum coverage against the buyer's risk of loss or damage to the goods during transport. The risk of loss or damage is transferred from the seller to the buyer once the goods are delivered into the carrier's custody. This term may be used for any mode of transport. Carriage Paid To (CPT) Seller is responsible for the payment of freight to carry goods to a named overseas destination. The risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into the carrier's custody. This term may be used for any mode of transport. 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 Available for Debt Service Ratio of cash assets to debt service (interest plus nearby principal). Used in evaluating the risk of a project or firm. The higher the ratio the less likely the firm or project will fail to meet its debt obligations. Cash asset ratio Cash and marketable securities divided by current liabilities. See: Liquidity ratios. Cashed-Based Refering to an option or future that is settled in cash when exercised or assigned. No physical entity, either stock or commodity, is recevied or delivered. 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 in Advance A payment term meaning the buyer pays the seller before shipment is effected. Cash In Lieu (CIL) In a typical exchange offer, "old" shares of the target company are exchanged for "new shares". 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-out Laws These laws enable shareholders to sell their stakes to a "controllin" shareholder at a price based on the highest price of recently acquired shares. This works something like Fair-Price provisions extended to nontakeover situations. A few states have these laws. 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 The process by which the terms of an option contract are fulifilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying stock. 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. Cease-and-desist order An order issued after notice and opportunity for hearing, requiring a depository instition, a holding company or a depository institution official to terminate unlawful, unsafe or unsound banking practices. Cease-and-desist orders are issued by the appropriate federal regulatory agencies under the Financial Institutions Supervisory Act and can be enforced directly by the courts. Cede & Co. Nominee name for The Depository Trust Company, a large clearing house that holds shares in its name for banks, brokers and institutions in order to expedite the sale and transfer of stock. 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 bank intervention The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements. 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. Certificate of Origin A document certifying the country of origin for goods sold internationally. 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 Charter Amendment Limitations These provisions limit shareholders' ability to amend the governing documents of the corporation. This might take the form of a supermajority vote requirement for charter or bylaw amendments, total elimination of the ability of shareholders to amend the bylaws, or the ability of directors beyond the provisions of state law to amend the bylaws without shareholder approval. 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. Check clearing The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system. 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. Class of Options Option contracts of the smae type (call or put) and Style (American, European or Capped) that cover the same underlying security. Classified Board Also known as Staggered Board is one in which, the directors are placed into different classes and serve overlapping terms. Since only part of the board can be replaced each year, an outsider who gains control of a corporation may have to wait a few years before being able to gain control of the board. This slow replacement makes a classified board effectively delays takeovers. Sometimes known as a delay provision. 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. Claused Bill of Lading A bill of lading whit a notation that indicates damage or shortage. Also called foul bill of lading and are the opposite of clean bills of lading. Clawback A dividend clawback is an arrangement whereby the equity owners commit to use dividends they have received in the past to finance the cash needs of the project or corporation in the future. Clawback has a more general definition. For example, premiums paid on an insurance policy may be refunded (or clawed back) if the policy is cancelled in a certain time frame. Such an arrangement is specified in the contract and referred to as a clawback provision. 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 Bill of Lading A bill of lading bearing no findings of damage or shortage. Clean opinion An auditor's opinion reflecting an unqualified acceptance of a company's financial statements. Clean price Bond price excluding accrued interest. Clean Report of Findings A report issued by an inspection firm, indicating that price has been verified, that the goods have been inspected prior to shipment, and that both conform to buyer specifications. 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-end credit An agreement in which advanced credit plus any finance charges are expected to be repaid in full over a definite time. Most real estate and automobile loans are closed-end agreements. 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. Co-agent An institution appointed by the issuer as co-transfer agent accepts and transfers certificates and sends daily activity journals to the primary record-keeping agent. A co-agent does not maintain security holder records, but is used to facilitate the transfer of stock in a geographic region not easily accessible to the issuer or its principal transfer agent. 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. Collecting Bank A bank that assists in obtaining payment in accordance with draft payment terms. 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. Colombo Stock Exchange Established in 1984, the only public stock exchange of Sri Lanka. 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 bank Bank that offers broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and business. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities. 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 |
