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Cold
Calling
Telephone calls made to unknown individuals by account executives. The
account executive prospects these individuals for potential brokerage
clients.
See: Account
Executive
Collateral
Assets, such as securities, that are pledged to a lender by a borrower.
The assets secure the loan until the borrower repays it. In the event
the borrower defaults, the lender has the legal right to sell the assets
to pay off the loan.
See: Asset;
Default;
Pledge
Collateral
Trust Bond
A bond secured by the securities of another corporation, usually the securities
of the issuer's wholly owned subsidiary.
Combination
An option position that is effected by either a purchase of two long positions
or two short positions. The investor purchases a call and a put (or sells
a call and a put) with different expiration dates and/or different strike
prices.
See: Call
Option; Expiration
Date; Long
Position; Options;
Put
Option; Short
Position; Strike
Price
Commercial
Paper
Debt instruments that are issued by established corporations to meet short
term financing needs. Such instruments are unsecured and have maturities
ranging from 2 to 270 days. Commercial paper is rated by Standard &
Poor's and Moody's.
See: Debt
Instrument; Maturity
Date; Moody's
Investors Service; Rating;
Standard
& Poor's Corporation; Unsecured
Debt
Commission
A fee paid to a broker for executing security trades. The commission is
usually based on the dollar amount of the trade or the number of shares
traded.
See: Trade
Committee
On Uniform Securities Identification Procedures (CUSIP)
Committee
that assigns codes to securities for the purposes of identification--commonly
just referred to as a "Cusip Number."
Commodities
Bulk products, such as metals, grains, and foods, that are traded on a
commodities exchange.
See: Spot
Market
Common
Stock
Securities which represent an ownership interest in a public corporation.
Owners are entitled to vote on the selection of directors and other important
matters as well as to receive dividends when they are declared. If a corporation
is liquidated, the claims of secured and unsecured creditors, bondholders
and owners of preferred stock have priority over the claims of common
stockholders.
See: Appreciation;
Capital
Stock; Classified
Stock; Preferred
Stock; Unsecured
Debt; Voting
Right
Common
Stock Equivalent
Bond or preferred stock that is convertible into common stock. A warrant
(or a right) to purchase common stock at a specified price, usually at
a discount from market price, is also common stock equivalents. If common
stock equivalents are converted, the equity of existing shareholders may
become diluted. Thus, their conversion or exercise is factored in when
calculating fully diluted earnings per share.
See: Convertible
Bond; Convertible Debenture; Convertible
Preferred Stock; Convertible Securities;
Dilution;
Right;
Warrant
Common
Stock Fund
A mutual fund that invests almost entirely in common stocks, although
their objectives may vary greatly.
See: Common
Stock; Mutual
Fund
Community
Property
A special ownership for married couples under laws of community property.
Not all states have community property laws. Each has equal rights to
any appreciation or income derived from those assets.
See: Joint
Tenancy
Competitive
Bid
Price and terms submitted in a sealed bid to an issuer by an underwriter.
The issuer will award the contract to the underwriting syndicate who bids
the best price or most advantageous terms. The competitive bid process
is mostly used by municipalities, utilities, and railroads.
See: Issuer;
Underwrite
Concession
The per-share compensation received by the members of the underwriting
group. The concession is the difference between the price at which the
underwriter purchased the securities from the issuer and the price at
which the underwriter sells the shares to the public (public offering
price).
Confirmation
Written notification, from a broker to a client, that summarizes the details
of a securities transaction. Some details include the security's name,
number of shares, price and whether the broker acted as principal or agent.
See: Agency
Transaction
Consumer
Price Index (CPI)
A measure of price changes in consumer goods--also known as the "cost
of living index." The index is calculated monthly by the US Bureau
of Labor Statistics. Some CPI components are food, housing costs and transportation.
See: Deflation;
Inflation;
Producer
Price Index
Contingent
Order
The placement of two orders in which one of the orders cannot be executed
unless other one is executed. A customer, for example, places a buy order
at the market and a sell limit order in which the buy cannot be executed
unless the sell limit is executed. Contingent orders are discouraged by
brokers because the order that cannot be executed immediately also usually
cannot be placed until the other order is executed.
See: Limit
Order; Market
Order; Orders
Contrarian
Investor who do the opposite of what most other investors are doing. In
other words, if most investors are buying, the contrarian will sell and
vice versa. The contrarian believes that when the market is going up,
most people are already or nearly fully invested and have no additional
funds to make more purchases. Thus, if the market has not already reached
its peak, it will do so in the near future. Conversely, when other investors
believe the market will or is declining, they have already sold their
investments. Thus, there are little or no sellers left and the market
can only go up.
See: Bear
Market; Bull
Market
Control
Person
Any officer, director, or 10% stockholder (and their immediate family)
of a corporation.
See: Director;
Immediate
Family; Insider
Control
Relationship
An association between a broker-dealer and an issuer such that the broker-dealer
has influence in the issuance of bonds by the issuer.
See: Bond;
Broker-Dealer;
Issuer
Control
Stock
Stock owned by a control person.
See: Control
Person
Convertible
Bond
A bond that may be exchanged for the common stock of the same company.
If the bondholder wishes to convert the bond, it must be done according
to the terms of the indenture.
See: Bond;
Common Stock; Convertible
Securities
Convertible
Debenture
A debenture that may be exchanged into common shares at the owner's option
as long as it is in accordance with the issue's terms.
See: Common
Stock; Convertible Securities;
Debenture
Convertible
Preferred Stock
A preferred stock that may be exchanged into common shares at the owner's
option as long as it is in accordance with the issue's terms.
See: Common
Stock; Convertible Securities;
Preferred
Stock
Convertible
Securities
Corporate securities (usually preferred stock or bonds) that are exchangeable
into a fixed number of shares of common stock at a stipulated price. Convertibles
may also be exchanged into other forms of the security, but it is unusual.
Convertible securities are usually bought by investors who want higher
income than what can be received from common stock combined with a greater
potential for appreciation than what can be received from regular bonds.
A corporation will issue convertibles to enhance the marketability of
their securities.
See: Common
Stock Equivalent; Convertible Bond;
Convertible Debenture; Convertible
Preferred Stock; Kicker
Cooling-off
Period
The period between the filing date of a registration statement with the
Securities and Exchange Commission and the date the securities are offered
to the public (the effective date). Typically, this interval is 20 days.
The cooling-off period is also known as the Waiting Period.
Cornering
The Market
The practice of purchasing a security or commodity in volume such that
the purchaser has complete supply and demand control of a security.
See: Commodities;
Security;
Volume
Corporate
Bond
Debt instrument issued by a corporation. In contrast to most municipal
and government bonds, which are not traded on major exchanges and are
tax-free, corporate bonds are traded on major exchanges and the interest
paid to the investor is taxable.
See: Bond;
Debt
Instrument; Government
Bond; Municipal
Bond
Corporate
Charter
A document that is prepared during the formation of a corporation. It
states the corporation's goals and objectives as well as what the corporation
can do and cannot do to fulfill its goals.
See: Bylaws;
Corporate Resolution; Corporation;
Incorporation
Corporate
Resolution
A document in which a corporation's board of directors states who is authorized
to act on behalf of the corporation.
See: Corporate
Charter; Corporation; Director
Corporation
A legal entity chartered by a state or the federal government and is separate
and distinct from the persons who own it. A corporation is considered
an artificial person--it may own property, incur debts, sue or be sued.
Some distinguishing features of corporations are: * Ownership is held
by stockholders who have limited liability--that is, they can only lose
what they invest. * Transfer of ownership is accomplished through the
sale of stock shares. * Perpetual existence (unless ended through bankruptcy,
a merger, tender or takeover).
See: Bylaws;
Corporate Charter; Corporate
Resolution; Limited
Liability
Correction
Reverse movement, usually downward, in an individual security's price.
If the overall market has been rising and then has a sharp fall, this
is said to be a "correction within an upward trend." Technical
analysts note that, in a bull market, corrections should be expected--no
market, or security, moves straight up or down.
See: Bull
Market; Technical
Analysis; Trend
Coupon
Paper that evidences an issuer's promise to pay interest when due. A coupon
is usually attached to the debt security. When the due date arrives, the
coupon is detached and submitted for payment.
See: Coupon
Bond; Coupon Rate; Debt
Security
Coupon
Bond
A bond in a form that has interest coupons attached. The coupons are clipped
as they come due (usually semiannually) and are submitted by the bondholder
for payment of interest.
See: Bearer
Bond; Book-Entry
Securities; Certificateless
Municipal; Coupon; Registered
Security
Coupon
Rate
Interest rate on a debt security that the issuer promises to pay the holder
until maturity. The rate is expressed as an annual percentage of face
value. For example, a bond with a 9% coupon will pay $9 per $100 of the
face amount per year. The annual payment is usually divided into semiannual
installments.
See: Coupon;
Debt
Security; Face
Value; Issuer
Covered
Call Option
Said of a short call option position in which the investor owns the underlying
security or a security convertible into the underlying security. For example,
an investor owns 500 shares of XYZ and writes (sells) 5 XYZ call options.
The 500 shares cover the call options sold--that is, if the writer is
assigned (the option is exercised), the 500 shares will meet the obligation
of the option contract. The writer does not have to go into the market
to obtain the shares to deliver to the option exerciser.
See: Call
Option; Convertible Securities;
Exercise;
Naked
Option; Options;
Option
Writer; Put
Option; Short
Position; Underlying
Security
Covered
Put Option
Said of a short put option position in which the investor has a short
position in the underlying security or a security convertible into the
underlying security. For example, an investor is short 500 shares of XYZ
(from selling short) and writes (sells) 5 XYZ put options. The short position
covers the put options sold--that is, if the writer is assigned (the option
is exercised), the short position will meet the obligation of the option
contract. When the put writer is assigned, the XYZ is bought from the
long put holder and the stock covers (closes) the investor's original
short position in the underlying security. Put writers are also considered
to be covered if they obtain a bank guarantee letter.
See: Call
Option; Exercise;
Guarantee
Letter; Long
Position; Naked
Option; Option
Writer; Options;
Put
Option; Short
Position; Underlying
Security
Covering
Short
Buying securities to close a short position in which an investor previously
sold short.
See: Close
A Position; Selling
Short; Short
Position
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