SIE Exam Definitions 2024-2025. Questions & Correct Verified Answers. Graded A+, Exams of Business Taxation and Tax Management

Download SIE Exam Definitions 2024-2025. Questions & Correct Verified Answers. Graded A+ and more Exams Business Taxation and Tax Management in PDF only on Docsity! SIE Exam Definitions 2024-2025. Questions & Correct Verified Answers. Graded A+ 12b-1 fee - ANSan annual fee charged by a mutual fund for its marketing and distribution costs. Also called a maintenance fee or distribution fee. 529 College Savings Plan - ANSA tax-free savings plan that offers families professionally managed portfolios to help meet specified college expenses. A shares - ANSa class of mutual fund shares that have a front-end sales charge, expressed as a percentage of its net asset value. ABLE account - ANSa tax-advantaged savings account for disabled people and their families, allowing them to save up to $15,000 per year without losing eligibility for such public benefits as SNAP and Medicaid. Accredited Investor - ANSan investor that may participate in private placement offerings without restrictions, usually a large institutional investor, wealthy individual, or an officer of the issuing firm. Accredited Investor Questionnaire - ANSa form confirming to a private placement issuer that the investor is accredited, to be maintained in the issuer's customer file. Accumulation Phase - ANSthe period when an annuitant invests money in an annuity account. Adjustable-rate Preferred Stock - ANSpreferred stock that ties returns and dividends to an outside interest rate, most often a Treasury bill rate. Also known as floating-rate preferred stock. Advance Refunding - ANSa refunding bond in which the old issue remains outstanding for a period longer than 90 days after the refunding bond has been issued. Advisor-sold Plan - ANSa 529 college savings plan offered through an authorized investment firm that provides investment advice and more investment options, and comes with higher fees than a direct-sold plan offered by the state. Affiliate - ANSa person that directly or indirectly controls, is controlled by, or is under common control with another person. Agency Securities - ANSsecurities issued by government-sponsored agencies, such as Fannie Mae and Freddie Mac, but not backed by the full faith and credit of the U.S. government. Agency Transaction - ANSa transaction where a firm acts as broker, serving as an agent or go-between for the buyer and the seller. All-or-none (AON) Commitment - ANSa form of underwriting where the underwriter must sell all the shares in the offering within a specified time or the offering is voided. Alternative Minimum Tax (AMT) bond - ANSa private activity bond that qualifies for tax-exempt status but is subject to paying the alternative minimum tax. Also known as a qualified private activity bond. Compare with public purpose bond and private activity bond (PAB). American Depository Receipt (ADR) - ANSa certificate issued by the U.S. bank for the purpose of trading a specified number of shares of a foreign corporation in the U.S. stock market. American-style Option - ANSan option that can be exercised at any time prior to and including the exercise date. Also called an American option. An interest - ANSa descriptor used to indicate that a bond's purchase price will include its quoted (clean) price plus any accrued interest since the last payment date. Annuitant - ANSan individual entitled to receive benefits or payments from an annuity contract. Annuities - ANScontracts sold by an insurance company used to provide steady income to individuals after retirement, often until death. Annuitization Phase - ANSthe period when an annuitant starts to receive payments from an annuity. Anticipation Notes - ANSmunicipal notes that are issued in advance of, or in anticipation of, an expected source of income. Arbitrage - ANSa riskless transaction in which an investor profits from buying and selling the same promises to repay by a specified future date and also to pay periodic interest along the way. Bond Funds - ANSmutual funds composed of bonds and other debt instruments. Also known as fixed-income funds. Bond Indenture - ANSa legal document filed with the SEC that specifies the terms and conditions of a corporate bond issue. Bond Mutual Fund Volatility Rating - ANSa description of the sensitivity of a bond fund to changes in market conditions or the economy. Bond Point - ANSOne percent of a bond's par value. Book Manager - ANSthe managing underwriter for a securities issue. Book Runner - ANSthe managing underwriter for a securities issue. Book-entry Bonds - ANSa bond whose ownership is recorded by computer at a central depository but for which no certificate is issued. Breakeven Point - ANSthe price point where the buyer of an option will not experience a gain or a loss. Breaking the Buck - ANSa decline in the share price of a money market fund below $1. Breakpoint - ANSthe amount of a mutual fund's purchase beyond which an investor will receive a discount on the front-end sales charge. Breakpoint Sales - ANSthe sale of a mutual fund just under a breakpoint without notifying the customer to receive a higher commission. Broker Call Rate - ANSthe interest rate that banks charge broker-dealers to meet their customers' margin requirements. Broker-dealer - ANSa firm or an individual that buys and sells securities for others or its own account. BrokerCheck - ANSa free online tool created by FINRA to provide information about brokers and brokerage firms to investors. Bullish - ANSa belief that the value of a particular security or the market in general will increase. Bullish Strategy - ANSa trading strategy that is employed when an investor believes the price of a security will increase. Business Continuity Plan - ANSa written document prepared by a member firm identifying procedures to keep the business running in the event of an emergency or significant business disruption. Business Cycle - ANSthe repeated sequence of growth, stagnation, and decline in a national economy. Business Risk - ANSthe risks inherent in an organization's operations and business environment that will adversely impact its profitability. Buy Limit Order - ANSan order to buy a security at a specified price or lower. Buy Stop Orders - ANSan order to buy a security which becomes a market order once a specified stop price has been reached. Buy Stop-limit Order - ANSan order to buy a security that becomes a buy limit order once the specified stop price has been reached. Buying Power - ANSthe amount of excess equity held in a brokerage account that an investor can use to purchase securities. C Shares - ANSa class of mutual fund shares that have a 1% back- end sales charge if sold within the first year and a higher annual expense than either A shares or B shares. Call - ANS1. an option that grants the holder the right to buy a security or asset at a specified price. 2. to purchase a security or asset through use of a call option. Call Option - ANSan option that grants the holder the right to buy a security or asset at a specified price on or before a particular date. Call Premium - ANSthe price paid by the buyer of a call option to the seller. Call Protection - ANSa provision that prohibits redemption during the first few years of a bond's life. Call Risk - ANSthe risk that a callable security will be redeemed by the issuer. Callable Bond - ANSa bond that can be paid off or redeemed prior to its maturity date. Callable Preferred Stock - ANSa class of preferred stock that gives the issuing company the right to call in its shares at a prescribed price after a prescribed date. Capital Gain - ANSthe gain from selling an investment for more than its purchase price. Carrying Agreements - ANSa contract that delegates responsibility to a clearing firm for clearing and settling the trades of an introducing or executing firm. Carrying Broker-dealer - ANSa broker-dealer authorized to clear customer transactions, carry customer accounts, and keep custody of customers' funds and securities for itself and other brokerage firms. Carrying Firm - ANSa broker-dealer that clears customer transactions, keeps custody of customers' funds and securities, and performs other back-office functions. Also called a clearing firm. Cash Account - ANSan account where the customer must pay the full amount for all purchases made by an agreed- upon date and where buying on margin is prohibited. Cash Settlement - ANSa securities transaction that is settled in cash, requiring delivery and payment to be settled on the same day of the trade. Also called same-day settlement. Central Registration Depository (CRD) - ANSan automated database operated by FINRA used to store and maintain records and information on brokerage firms and their registered employees. Certificate of Deposit (CDs) - ANSsavings accounts with a fixed interest rate that restricts access to the funds until a specified maturity date. Certificate of Partnership - ANSa document that names all the members of a partnership as well as the termination date of the partnership. Charitable Remainder Trusts - ANSan irrevocable trust that generates an income stream for its beneficiaries, with the remainder of the donated assets going to a designated charity at the end of the trust's term. Charitable Trust - ANSa trust account whose assets and income are distributed for t he benefit of one or more charitable interests. Chicago Board Options Exchange (CBOE) - ANSa securities exchange for the trading of standardized options contracts, primarily stock, and interest rate options. Churning - ANSthe unethical practice of excessive buying and selling in a customer's securities account to increase the broker's commissions. Civil Penalty - ANSa fine or surcharge assessed for the violation of a statute or regulation. Classical Economics - stock that allows the holder to convert preferred shares into common shares at a set conversion ratio. Cooling-off Period - ANSa period of 20 days after a registration statement for an underwriting of securities is filed with the SEC, during which the underwriter can collect indications of interest from potential investors. Corporate Resolution - ANSa document that gives written authorization to open a securities account with a broker-dealer and names the corporate employees that will have trading authority in the account. Correspondence - ANSany written letter or electronic mail message that is distributed to 25 or fewer retail customers within a 30-calendar-day period. Correspondent Executing Broker-dealer - ANSa broker- dealer that is authorized to execute a trade. Cost Basis - ANSthe buyer's cost of purchasing an asset and the starting value that an investment's profit or loss must be measured against for tax purposes. Also called tax basis. Coupon Payments - ANSthe amount of interest received by a bondholder on each payment date. Coupon Rate - ANSthe percentage of a bond's par value that a bondholder receives annually in interest payments. Creation Unit - ANSa large block of exchange-traded fund shares (ex. 50,000 shares) that an institutional investor or market maker receives in exchange for providing the securities to fill the ETF fund. Credit Agreement - ANSthe part of the margin agreement that details the terms and conditions for receiving the credit that a broker-dealer offers its customer in a margin account. Credit Risk (a.k.a. default risk) - ANSthe risk that a borrower or bond issuer will fail to make payments when due. Credit Spread - ANSthe difference between the yield of a risk-less Treasury bond and a security with credit risk, such as a municipal or corporate bond, that are identical in all other respects except credit quality. Cumulative Preferred Stock - ANSpreferred stock that allows dividends to accumulate when a payment has been omitted or skipped in the past and later resumed. Cumulative Voting - ANSa form of voting in which shareholders may vote their total voting shares for a single candidate for the board of directors. Currency Risk - ANSthe risk that an investment made in another county's currency will experience a substantial loss due to fluctuations in that currency's value prior to converting it back into U.S. dollars. Currency Transaction Report (CTR) - ANSa report submitted to the IRS by a financial institution that receives cash transactions exceeding $10,000from any single customer in a single day, whether conducted in one transaction or several smaller ones. Current Refunding - ANSthe issuance of a refunding bond for the purpose of retiring an old debt within 90 days or less or its issuance. Current Yield - ANSthe coupon rate of a bond divided by its market place. Custodial Accounts - ANSa securities account managed for a customer by a third party. Also called a fiduciary account. Customer Complaint - ANSany written statement from a customer alleging a grievance that involves the activities of a member firm or its associated persons in connection with the solicitation or execution of a securities transaction. Customer Identification Program (CIP) - ANSa program mandated by the U.S. PATRIOT Act that requires broker-dealers to independently verify the identity of its customers. Customer-specific Obligation - ANSthe obligation to determine if a security or investment strategy is suited for a customer based on their investment profile. Customer-specific Suitability - ANSa broker-dealer's obligation to determine if a security or investment strategy is suited for a customer based on their investment profile. Cyclical Stocks - ANSstocks whose performances track the ups and downs of the business cycle. Dark Pool - ANSa private trading system that allows participants to make transactions without displaying quotes to the public. Day Trading - ANSthe practice of buying and selling the same security on the same day to try to take advantage of small changes in the market. Dealer - ANSan individual or firm that buys and sells securities out of its own inventory of securities. Debenture - ANSan unsecured bond that is backed only by the full faith and credit of the issuer. Debt Financing - ANSthe practice of raising money by issuing debt securities (ex. bonds). Debt Security - ANSa security issued by a borrower that represents a promise to repay money borrowed with a certain rate of interest and by a certain time. Debt Service Coverage Ratio - ANSa measure of how well an issuer's net operating income is able to cover its outstanding debt payments. Declaration Date - ANSthe date that a company's board of directors declares a dividend. Defease - ANSto remove a loan or bond as a liability on a balance sheet when the borrower has set aside sufficient funds to service the debt. Defensive Stocks - ANSa stock whose performance does not significantly respond to changes in the economy. Also called non-cyclical stock. Deferred Compensation Plan - ANSa non-qualified retirement plan in which employees sign a contract with the employer agreeing to defer some of their compensation until retirement. Defined Benefit Plan - ANSa qualified retirement plan funded by the employer that promises a specific benefit upon retirement. Defined Contribution Plan - ANSa qualified retirement plan funded by both employer and employee, whose future benefits fluctuate based on the investment's earnings. Depository Trust and Clearing Corporation (DTCC) - ANSthe organization that transfers the ownership of securities cleared through the National Securities Clearing Corporation. Depository Trust Company (DTC) - ANSthe organization that serves as a central depository for securities certificates. Depression - ANSa severe contraction of the national economy that lasts more than 6 quarters (18 months). Derivative Suit - the new owner receiving the dividend. Excess Equity - ANSequity above 50% of the long market value (LMV) in a margin account. Excess Margin Securities - ANSsecurities in a customer's margin account having a market value in excess of 140% of he customer's debit balance. Exchange Rate - ANSthe rate at which two national currencies trade for each other. Exchange-traded Funds (ETF) - ANSan investment fund that contains stocks, bonds, or other assets, typically tracking an index, and is traded on a stock exchange. Exchange-traded Notes (ETN) - ANSan unsecured debt security that trades on an exchange and offers a return linked to a market index or other benchmark. Executing Broker-dealer - ANSa broker-dealer that can execute trades but must clear them through a separate clearing firm. Exempt Securities - ANSsecurities that are not required to be registered by the SEC, generally those backed by a government or government agency. Exempt Transaction - ANSan offering that does not involve a public offering or is otherwise not required to meet traditional registration requirements. Exercise Price - ANSthe price at which the underlying security of an option may be bought or sold when exercised. Also called strike price. Expansion - ANSa phase of the business cycle in which the economy experiences an increase in economic activity, loosening credit and falling unemployment. Expansionary Fiscal Policy - ANSgovernment policy intended to boost a sluggish economy by lowering taxes and increasing government spending. Extended Hours Trading - ANSthe time when an investor can buy and sell securities outside of normal market hours, both pre-market hours and after-market hours. Extension Risk - ANSthe risk of loss to an investor in a mortgage -backed security that comes from lower than expected prepayments due to rising interest rates. Face- amount Certificate Company - ANSan investment company that issues debt securities called face-amount certificates backed by assets such as real property or other securities. Fannie Mae - ANSa Government-Sponsored Enterprise that purchases mortgages from thrift banks and pools them to create mortgage-backed securities and collateralized mortgage obligations. Its official name is the Federal National Mortgage Association. Feasibility Study - ANSa study conducted to assess the need for a specific project, its financial and structural viability, and its overall level of risk. Federal Deposit Insurance Corporation (FDIC) - ANSa U.S. agency that insures bank deposits. Federal Funds - ANSexcess reserves (money) that commercial banks deposit at regional Federal Reserve Banks. Federal Funds Rate - ANSthe interest rate that banks charge each other for overnight loans. Fiduciary - ANSa person, such as a trustee, broker, or guardian, who has the power to act on a customer's behalf and the obligation to behave in the customer's best interests. Fiduciary Duty - ANSa legal obligation to put someone else's interests above one's own. Filing Status - ANSa taxpayer's status, whether single, married, head of household, etc., which affects their tax bracket. Final Prospectus - ANSthe document that accompanies a public offering to sell securities after the registration statement has become effective. Financial Crimes Enforcement Network (FinCEN) - ANSthe bureau within the Treasury Department that enforces the Bank Secrecy Act of 1970. Financial Industry Regulatory Authority (FINRA) - ANSa self-regulatory organization that writes and enforces rules governing the securities industry, provides market surveillance, arbitrates disputes, and licenses its registered persons. Financial Stability Oversight Council - ANSan entity created by the Dodd-Frank Act to identify and monitor excessive risks to the financial system generated from large banks and other financial entities, including hedge funds. Firm Commitment Underwriting - ANSan agreement that the underwriter of a new securities issue will purchase all the securities at a discount and commit to sell them all to the public at a public offering price. Firm Element - ANSa component of FINRA's continuing education program that requires member firms to prepare a annual compliance training plan and deliver it to all registered personnel who have contact with the public. First Call Date - ANSthe earliest date on which a bond is callable. First Market - ANSan auction market where securities are traded on an exchange floor. Fiscal Policy - ANSthe means by which government adjusts tax rates and spending levels to manage the national economy. Fixed Annuity - ANSan annuity contract in which the insurer guarantees a fixed rate of return on the money deposited on a tax-deferred basis. Fixed-rate Preferred Stock - ANSpreferred stock with a dividend payment that is set at a fixed dollar value or a percentage of the par value of the stock, as stated on the stock certificate. Flat Yield Curve - ANSa yield curve that indicates short-, medium-, and long-term bonds all paying similar yields. Flipping - ANSthe practice of immediately reselling bonds bought in a primary offering with the intention of profiting from a large markup. Floating Currencies - ANScurrencies whose values are determined by supply and demand in the foreign exchange market. Floating-rate Preferred Stock - ANSpreferred stock that ties returns and dividends to an outside interest rate, most often a Treasury bill rate. Also called Adjustable-rate preferred stock. Follow-on Offering - ANSan issue of additional shares by a company that already has stock listed on a stock exchange. Foreign Exchange - ANSany currency other than the local currency that is used to settle international transactions. Foreign Stock Funds - ANSequity funds that invest in countries outside the investor's country of residence. Form BD - ANSa form that a registrant must file with both FINRA and the SEC when investments will fail to outperform inflation, resulting in a loss of an investor's purchasing power over time. Initial Public Offering (IPO) - ANSthe first offering of shares for a company that has never issued shares before. Insider - ANSa person who is an affiliate of a company or, for purposes of insider trading, anyone who has material, non-public information on a publicly traded company. Insider Trading - ANSthe buying or selling of a securities based on one's access to confidential proprietary information that is not available to the general public. Institutional Communication - ANSa written communication, including electronic communication, that will be distributed or made available only to institutional investors. Institutional Investor - ANSan account of a bank, savings and loan association, insurance company, registered investment company, registered investment adviser, or individual with total assets of at least $50 million. Integration - ANSin money laundering, the movement of layered funds no longer traceable to their criminal origins back into the legitimate financial world. Inter Vivos Trust - ANSa trust that is created while the owner of the assets is still living. Interest Rate Risk - ANSthe risk that the value of an investment will fall due to changing interest rates. Internal Rate of Return - ANSthe interest rate that sets the net present value of an investment's cash flows to zero, used to elevate investment choices. International Fund - ANSa mutual fund that focuses on non-U.S. investments. Interpositioning - ANSthe illegal practice of adding a second broker to a transaction solely to generate an additional commission. Intrinsic Value - ANSin options trading, the difference between the strike price and the market value of the underlying security, when the option is in the money. Introducing Broker - ANSa broker that may solicit orders from customers but cannot execute or clear trades. Inverse ETF - ANSan exchange-traded fund that uses derivative products to profit from the decline of an index of underlying stocks. Inverted Yield Curve - ANSa yield curve that indicates short-term bonds are paying a higher yield than medium-or long-term bonds. Investment Adviser - ANSa person or firm that either advises others with regard to investing in securities or issues analyses or reports concerning securities as part of its regular business. Investment Company - ANSa company whose primary business is to invest in and issue securities. Investment Grade - ANSa bond rating ranging from AAA/Aaa to BBB/Baa, indicating that the issue has a high credit rating or medium credit rating. Irrevocable Trust - ANSa trust that cannot be undone or revoked once set up. Joint Account - ANSan account in which more than one party can access and trade in the account. Joint Tenants in Common (JTIC) Account - ANSa joint account where the owners specify a percentage split among them and have no rights of survivorship. Joint Tenants with Rights of Survivorship (JTWROS) Account - ANSa joint account where all surviving owners receive a pro rata share of the assets of an account holder who has died. Junk Bonds - ANSa bond with a Standard & Poor's or Fitch rating below BBB- or a Moody's rating below Baa3. Keynesian Economics - ANSa school of thought that government fiscal and monetary policy should play a key role in monitoring a national economy by regulating output and consumer demand. Know Your Customer Rule - ANSa rule that calls for broker-dealers to collect essential personal and financial details on customers in order to make suitable recommendations. Late Trading - ANSthe unethical practice of placing mutual fund orders after the close of trading at the NAV already calculated. Layering - ANSin money laundering, the wire transfer of funds through a series of accounts in an attempt to hide the funds' true origins. Lead Trusts - ANSa type of charitable trust that charity first and then, after a certain period of time, pays the beneficiaries the remainder of the money in the trust. Legend Stock - ANSstock acquired from an issue in a private placement or other exempt offering. Also called restricted stock. Letter of Intent (LOI) - ANSa non- binding agreement to agree, indicating an intention to finalize a deal or take a certain action at a later date, subject to due diligence, or fulfillment of certain conditions. Letter Stock - ANSstock acquired from an issuer in a private placement or other exempt offering that can only be resold through a Rule 144 exemption. Also called restricted stock. Leverage - ANSthe use of debt to finance an investment activity. Leveraged ETF - ANSan exchange-traded fund that uses derivative products to receive daily returns two or three times above the returns of the index it is tracking. LIBOR (London Interbank Offered Rate) - ANSthe interest rate that banks use to borrow from one another in the international market, used as the global benchmark for the short-term interest rates. Lifecycle Fund - ANSa type of mutual fund whose asset allocation automatically adjusts to become more conservative as the investor gets older. Limit Order - ANSan order to buy or sell a security at a specified price or better. Limited Partnership (LP) - ANSa business organization that must have a minimum of two members. Limited Trading Authority - ANSa level of authorization that allows a broker to make trades in a customer account without consulting the investor, but not to withdraw funds. Liquidation - ANSthe process of converting assets into cash by selling them on the open market, such as by closing an options position or by selling off the assets of an insolvent business. Liquidity Risk - ANSthe risk that a firm will be unable to meet its cash flow obligations without incurring large losses. Liquidity Spread - ANSthe spread between long- and short- term treasury securities. Loan Consent Agreement - ANSa document that permits the Bond - ANSa secured bond where the collateral is real estate. Mortgage-backed Security (MBS) - ANSa securitized bond backed by the mortgage payments of a pool of mortgages. Municipal Bond - ANSa bond issued by a state, county, city, or municipal agency to finance a public-purpose project. Municipal Finance Professional - ANSany person who is primarily engaged in or supervises the activities of underwriting, trading, or selling municipal securities; providing financial or investment advice or research; or any other activity that involves public communication with investors. Municipal Fund Security - ANSa fund of securities that is issued by a state or municipality, such as a local government investment pool, 529 college savings plan, or ABLE account. Municipal Securities Rulemaking Board (MSRB) - ANSa self-regulatory organization that establishes rules for the regulation of the municipal securities market. Mutual Fund - ANSa management company whose shares are not traded on the secondary market but are bought and sold directly from the fund and whose size varies with every purchase or sale. Mutual Fund Market Timing - ANSa practice in which traders buy and sell mutual funds to profit from the differences between the daily closing NAV and the next day's NAV due to events that occur between the two days. Naked Call - ANSa call option written by an investor that does not own the underlying security. NASAA (North American Securities Administrators Association) - ANSa coalition of state, provincial, and territorial securities administrators that work together to standardize laws and protect investors. NASDAQ - ANSa U.S. electronic stock exchange that typically attracts growth-stage companies. National Association of Securities Dealers (NASD) - ANSan SRO that oversaw and regulated the over-the-counter securities until it consolidated with NYSE to become FINRA. National Securities Clearing Corporation (NSCC) - ANSa business entity that clears and settles trades among U.S. brokerage firms, exchanges, and other clearing corporations. Negotiated Market - ANSa securities market facilitated by multiple market makers who post competing bid and ask prices over a computerized network. Negotiated Underwriting - ANSa securities offering where an issuer selects an underwriter by negotiating terms and conditions directly with each candidate. Net Asset Value (NAV) - ANSthe book value of a mutual fund, calculated by subtracting the fund's expenses from the fair market value of its securities and dividing by the number of shares. New Account Form - ANSa form completed when a partnership opens a trading account that contains personal information about each partner. New Customer Account Form - ANSa form kept at brokerage firms that contains specific personal and financial identification information from customers. No-load Funds - ANSmutual funds that do not charge a sales commission, usually purchased directly from the mutual fund company or though a discount brokerage. Nominal Yield - ANSthe percentage of a bond's par value that a bondholder receives annually. Non-cumulative Preferred Stock - ANSpreferred stock that does not entitle the shareholder to dividends that have been omitted in the past once dividend payments are resumed. Non-Cyclical Stocks - ANSstocks that do not significantly respond to changes in the economy. Non- diversified Company - ANSa management company whose securities do not have the variety sufficient to meet the requirements of a diversified management company. Non-qualified Retirement Plan - ANSa retirement plan that does not meet ERISA standards of eligibility, participation, documentation, and vesting, funded with after- tax dollars and used to provide special benefits to highly paid employees. Non- traditional ETF - ANSan exchange-traded fund selected to either exceed the performance of a stock index (leveraged ETF) or do the opposite (inverse ETF). Nonrecourse Note - ANSa loan in which the lender cannot go after the personal assets of the borrower if the loan collateral is insufficient to cover a default. Commonly used in limited liability companies. Offer - ANSthe price at which a market maker is willing to sell a security. Offering Circular - ANSan abbreviated prospectus that can be used for new equity securities issues under $5 million. Office of Foreign Assets Control (OFAC) - ANSa division of the Treasury Department that administrators sanctions against trading with certain identified enemies of the U.S. Open Market Operations - ANSa tool of the Federal Reserve in which it buys and sell U.S. Treasury and federal agency securities in the secondary market. Open-end Management Company - ANSa management company whose shares are not traded on the secondary market but are bought and sold directly fro the fund and whose size varies with every purchase or sale. Opening a Position - ANSentering an investment position by executing a trade to buy or sell a new options or futures contract. Opportunity Cost - ANSthe value that might have been gained when one use of capital has been selected over its best alternative use. Option - ANSa contract that gives the owner the right to buy or sell an asset, security, or derivative at a specified price. Options Account - ANSa type of account that allows the customer to purchase options to buy or sell a specific security at a set price by a certain date. Options Clearing Corporation (OCC) - ANSan organization that is the sole issuer of option contracts in the U.S. and that clears and settles options contracts executed on the Chicago Board Options Exchange. Options Disclosure Document - ANSa publication of the Options Clearing Corporation describing the characteristics and risks of options trading that must be delivered to customers by the time the right to maintain her current share of ownership in a company by purchasing a proportionate amount of securities in a rights offering. Preferred Stock - ANSa stock that has a higher claim on a corporation's assets and earnings than common stock but pays a fixed dividend and has no voting rights. Premium - ANSthe amount paid to acquire an option or warrant or to keep an insurance policy active. Premium Bond - ANSa bond that trades for a price above its par value. Prepaid Tuition Plan - ANSa tax-free 529 college savings plan where tuition "credits" paid at current costs are guaranteed to increase in value at the same rate as college tuition. Prepayment Risk - ANSthe risk to a lender that the principal of a loan will be paid prior to its scheduled maturity as a result of falling interest rates. Primary Dealer - ANSa select group of banks and broker-dealers that serve as the trading counterparties to the Federal Reserve and agree to bid on all Treasury auctions and then sell the securities to the public. Primary Market - ANSthe market where new securities are sold for the first time to the public. Primary Offering - ANSthe offering of a new securities issue for sale to the public. Prime Broker - ANSa financial institution that provides services such as trade clearance and settlement to other firms. Prime Rate - ANSa short-term interest rate that banks charge their highest-rated customers and commonly used as a benchmark to set other interest rates. Principal - ANS1. a person engaged in managing FINRA-registered employees. 2. the par value of a bond. Principal Transaction - ANSa securities transaction in which the broker-dealer buys or sells for its own account. Private Activity Bond - ANSa municipal bond that does not qualify for federal tax exemption because its funding does not provide a significant public benefit. Private Placement - ANSthe offering of a securities issue to a select group of private investors who agree not to resell it within a specified period. Private Placement Memorandum (PPM) - ANSa document, drafted by the issuer of a private placement, that describes the issuer's business, its relevant financial information, the terms and conditions of the offering, and its risks and expenses. Private Securities Transaction - ANSa transaction made by an associated person outside of his member firm. Private-placement REIT - ANSa type of real estate investment trust that does not trade on an exchange and is exempt from SEC registration and its disclosure rules. Probate - ANSa process in which a special court processes a deceased person's will, determining how the assets will be distributed. Progressive Tax System - ANSa tax system in which non-investment income is divided into brackets that are taxed at increasingly higher rates as an individual earns more money. Protective Covenant - ANSa bond covenant that requires the issuer to take certain positive actions to maintain its financial performance and reduce the chance of acquisition or default. Protective Provision - ANSa feature of preferred stocks permitting shareholders to veto certain actions by the company, such as a merger or the raising of capital. Proxy - ANSan authorization to vote for a designated person on behalf of the shareholder. Public Offering - ANSa way of raising capital by issuing securities to the investing public. Public Offering Price (POP) - ANSthe price that is charged to the public for a mutual fund, equal to the net asset value and, if applicable, a sales charge. Pump and Dumps - ANSa form of communications fraud that involves individuals "pumping" up the price of a security through false advertising to generate investment, then "dumping" their own shares at an inflated value before the rest of the investors sell. Purchasing Power Risk - ANSthe risk that investments will fail to outperform inflation, resulting in a loss of an investor's purchasing power over time. Put - ANS1. an option that grants the holder the right to sell the security or asset at a specified price. 2. to sell a security or asset through use of a put option. Put Bond - ANSa bond that allows the investor to redeem it at par before the maturity date. Qualified Decision - ANSa decision by the SEC that requires an issuer to file an amendment to the registration statement for its new securities offering. Qualified Institutional Buyer (QIB) - ANSan institutional investor, that is a business entity and manages at least $100 million in assets. Qualified Retirement Plan - ANSa retirement plan that meets ERISA eligibility, participation, documentation, and vesting standards and allows participants to make contributions with pre-tax dollars and deduct them from their annual income when calculating taxes. Quantitative Suitability - ANSthe suitability of a series of transactions for a customer from a financial standpoint. Quantitative Suitability Obligation - ANSthe FINRA requirement that a broker-dealer must reasonably believe that a series of recommended transactions for a customer are not excessive from a financial standpoint. Real Estate Direct Participation Program (DPP) - ANSa business entity, usually a limited partnership, organized to invest in real estate that passes on losses and gains to its investors. Real Estate Investment Trust (REIT) - ANSa type of company, modeled on a mutual fund, that buys, develops, manages, and sells a portfolio of income-producing properties. Real Estate Limited Partnership (RELP) - ANSa limited partnership entity organized to invest in real estate, which passes on losses and gains to its investors. Reasonable- basis Obligation - ANSthe suitability obligation of a broker-dealer to fully comprehend the liabilities and risks of a security or investment strategy and decide whether or not it is advisable for at least some customers. Recession - ANSa contraction of the national economy that last more than two quarters (six months). Record Date - ANSthe date by which a purchaser must be the owner of record in holder turns 70 1/2. Residual Claim - ANSa stockholder's claim to corporate earnings when all debt obligations have been satisfied after a liquidation. Restricted Account - ANSa margin account in which the equity falls below 50% of the long market value (LMV). Restricted Person - ANSa person to whom shares of an IPO cannot be sold, including any broker-dealer and its personnel, owner of a broker-dealer, finder, or portfolio manager that has a beneficial interest i the new issue. Restricted Securities - ANSsecurities acquired from an issuer in a private placement or other exempt offering , whose resale is prohibited for a certain period of time from the date of purchase. Retail Communication - ANSany written communication that will be distributed or made available to more than 25 retail investors within any 30- calendar-day period. Return on Investment (ROI) - ANSa profitability ratio that measures a project or company's ability to provide a return to investors by dividing net income by net worth. Reverse Stock Split - ANSa corporate action that reduces the number of a company's traded shares in order to increase the value of those shares. Revocable Living Trust - ANSa trust that can be revoked (eliminated) at any time prior to death by the person who owns the assets (the trustor). Right of Accumulation (ROA) - ANSthe right to take advantage of breakpoints in a fund based on the investor's total investment. Rights Offering - ANSa new securities issue offered exclusively to current shareholders, allowing them the right to maintain their existing proportion of ownership. Risk Disclosure Document - ANSa document that describes the risks of investing in certain securities and derivatives, such as options, futures, and penny stocks. Risk Trading Disclosure Document - ANSa document highlighting the risks of extended hours trading that customers must be provided before they can trade outside of regular market hours. Road Show - ANSa series of management presentations where an issuer and lead underwriter solicit investor interest in a public offering and collect market information. Roth IRA - ANSan individual retirement account funded with after-tax dollars that allows an investor's money to grow tax-free. Rule 144 - ANSan SEC rule that requires investors who buy securities in a private placement to hold them for a certain amount of time before they sell them. Rule 144A - ANSan SEC rule that allows issuers and non-issuers to sell restricted securities to qualified institutional buyers (QIBs) without restrictions. Rule 145 - ANSa rule requiring a proposed merger or acquisition to be registered with the SEC if it involves the sale or exchange of assets among the companies. Rule 147 - ANSan SEC rule that allows an exemption from registration for intrastate offerings. Rule 504 - ANSa rule under Regulation D that exempts some private placement issuers from registration if they limit their offerings to under $5 million in any 12- month period. Rule 506 (b) - ANSa rule under Regulation D that exempts private placement issuers from registration if they restrict the number of non-accredited investors to 35. Rule 506 (c) - ANSa rule under Regulation D that exempts private placement issuers from registration and allows them to solicit and advertise the issue if all its investors are accredited investors. Russell 2000 - ANSa market index that tracks 2,000 small cap companies and is commonly used as a guide to small-cap performance. S&P 500 - ANSan index of 500 large-cap, publicly traded companies drawn from the primary sectors of the U.S. economy. Secondary Market - ANSthe market where previously issued securities are bought and sold by the public at large. Secondary Offering - ANSthe sale of additional shares to the public after an initial public offering, which may be offered by a seasoned company in a follow-on offering or by a major shareholder wishing to liquidate some or all of her holdings. Sector Mutual Funds - ANSmutual funds that invest in a specific industry or sector of the economy and, therefore, are not as diversified as other types of mutual funds. Securities Act of 1933 - ANSa law that was enacted to regulate how securities are registered, issued, and distributed to the public for the first time. Securities Investor Protection Corporation (SIPC) - ANSnonprofit corporation that provides limited insurance for the assets contained in the investors' accounts of a broker-dealer. Securitization - ANSthe practice of backing a bond or other security with a pool of debt instruments, such as residential mortgages, auto loans, and credit card debt. Selected Dealers - ANSa group of broker-dealers who help sell shares of a public offering to investors but have no obligation to buy the bonds. Self-regulatory Organization (SRO) - ANSa non-government entity authorized to regulate its own members by creating and enforcing rules of conduct and industry standards. Sell Limit Order - ANSan order given to a broker to sell a security at a specified price or higher. Sell Stop Order - ANSa price order to sell a security immediately once it reaches a specified price. Sell Stop-Limit Order - ANSa price order to sell a security at a specified price or higher once the specified (stop) price has been reached. Selling Away - ANSthe practice of soliciting a customer to purchase securities that are not held or offered by the member firm. Selling Dividends - ANSthe dishonest practice of encouraging a customer to buy securities because they are about to pay a dividend, generating a commission for the broker to no benefit for the customer. Selling Group - ANSa group of broker-dealers who help sell shares of an offering to investors but have no obligations to by the bonds. Settlement - ANSthe process where securities that have been sold are delivered to the buyer and paid for the seller. Settlement Date - ANSthe date that buyers are expected to pay for the securities they stands for Separate Trading of Registered Interest and Principal of Securities. Subscription Agreemtment - ANSa form that investors fill out and sign before entering into a private placement, disclosing certain personal and financial information and agreeing to purchase a certain number of shares. Subscription Price - ANSthe price, usually below the market price, at which shareholders holding rights certificates may purchase shares in a rights offering. Subscription Right - ANSthe privilege of existing stockholders to retain their percentages of ownership by subscribing to new issues of the security on a pro rata basis. Suitability - ANSan investor's ability given his personal qualities and investment profile to accept the risks of a particular investment strategy. Suitability Analysis - ANSthe broker-dealer's analysis of an investor's personal and investment profile to decide her ability to accept the risks of a particular investment strategy. Surrender Period - ANSthe length of time that investors in an annuity are required to wait before they can make withdrawals without incurring a surrender fee. Surrender Value - ANSthe amount of cash a life insurance policy or annuity pays a policyholder who voluntarily terminates a policy before its maturity. Suspicious Activity Report (SAR) - ANSa document that financial institutions must file with FinCEN to report any suspicious activity that might indicate money laundering or fraud. Syndicate - ANSa group of underwriters responsible for distributing a new securities offering. T+2 - ANSnotation that represents regular way settlement for securities, which occurs two business days after the the trade date. Tax-exempt Commercial Paper - ANSshort-term promissory notes issued by states and municipalities with maturities up to 270 days, typically backed by a line of credit from a bank. Term Bond - ANSa bond issue where all bonds mature at the same date. Term Sheet - ANSa non-binding document given to potential investors that describes the terms and conditions of a proposed business agreement, such as a private placement. Testamentary Trust - ANSa trust that is initiated upon a person's death according to the terms of a will. Third Market - ANSa negotiated market where institutional investors and broker-dealers buy and sell exchange-listed securities over the counter. Time Value - ANSthe portion of an option's premium that is based on the amount of time remaining before it expires. Toll - ANSto delay the effect of a statute, such as suspending the two-year license expiration period for inactive FINRA members entering military service. Tombstone Ad - ANSan unadorned print advertisement listing basic details about a new securities issue and the members of the underwriting group. Tracking Risk - ANSis the risk that an ETF will not adequately mimic the index it is tracking. Trade Confirmation - ANSa broker's printed notification to a customer of a securities transaction, complete with trade details. Trade Deficit - ANSthe dollar amount that a country's imports exceed its exports. Trade Flat - ANSa description given to bonds whose market prices don't include accrued interest. Trade Shredding - ANSsplitting orders or executions into multiple smaller orders or executions for the purpose of earning additional commissions. Trade Surplus - ANSthe dollar amount that a country's exports exceed its imports. Transfer Agent - ANSa bank or trust company hired to keep ownership records of an issuer's securities and in what form the stocks and bonds are held. Transfer on Death (TOD) Registration - ANSa form of registration with a broker-dealer in which customers designate an individual to receive the securities in their account upon death. Treasuries - ANSname given to securities issued by the U.S. Treasury and backed by the full faith and credit of the U.S. government. Treasury Bill (T-bill) - ANSa debt security issued by the federal government with a maturity of one year or less. Treasury Bond (T-bond) - ANSa debt security issued by the federal government with maturities that range from 10 to 30 years. Treasury Shares (Stock) - ANSshares of issued stock that have been repurchased by the issuing company and removed from public circulation. Trough - ANSthe phase of the business cycle that marks the lowest point of the contraction phase and the beginning of an economic expansion. Trust - ANSa type of account where the assets of one party (the trustor) are held and managed by a second party (the trustee) for the future benefit of a third party (the beneficiary). Trust Indenture - ANSan agreement in a bond contract that spells out the covenants (commitments) to be honored by the issuer and allows a trustee to take action on behalf of the bondholders in the event of default. Trust Indenture Act of 1939 - ANSa U.S. law that requires bond indentures to be qualified by the SEC for all corporate bond issues over $5 million. Trustee - ANSa fiduciary given legal title to administer trust property on a beneficiaries' behalf. Trustor - ANSan individual who creates a trust by placing his own assets under the management of a trustee for the benefit of a beneficiary. UGMA Account - ANSa custodian account held and managed on a minor's behalf until reaching the age of majority in his state of residence. Underlying Stock - ANSthe product that forms the basis of a stock option or futures contract and that must be delivered when the contract is exercised. Underwriter - ANSa financial institution that assets an issuer in issuing new securities by purchasing the company's shares and reselling them to investors. Underwriting Fee - ANSa fee paid to the syndicate members of a securities issuance for assuming the risk of unsold shares. Underwriting Spread - ANSthe difference between the public offering price and the price at which the issuer will sell shares to the underwriters. Uniform Transfer-on-