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CPI
(Consumer Price Index)
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;
Consumer
Price Index
Crash
A precipitous drop in stock prices. Crashes usually occur after periods
of inflated stock prices followed by a loss in investor confidence.
See: Bear
Market; Black
Monday; Black
Friday; Overvalued
Credit
Balance
1: In a client's cash account at a brokerage firm, the amount that the
firm owes to the client. This equals money deposited and remaining after
any purchases are paid, plus uninvested proceeds from securities sold
and not sent to the client.
2: In a client's
margin account at a brokerage firm a credit balance may mean either: *
Proceeds from short sales that are held in escrow for the securities borrowed
for these sales, plus the required margin for the trade.
* Any free
credit balances, or net balances, which can be withdrawn at any time.
A free credit balance occurs when all previously margined securities have
been paid for in full. Special miscellaneous account (SMA) balances are
not free credit balances. If money is withdrawn, a new or increased debit
balance will be incurred. SMA is generated from the borrowing power of
margin securities within the client's account
See: Debit
Balance; Margin;
Margin
Account; Selling
Short; Special
Miscellaneous Account
Credit
Rating
Assessment of an individual's or corporation's credit history and ability
to pay its obligations. There are several firms that investigate, analyze,
and maintain records on the credit status of individuals and businesses--for
example, Equifax for individuals, and Dun & Bradstreet for commercial
firms. Standard & Poor's and Moody's assign ratings to bonds. In rating
the bonds, credit worthiness is an important factor.
See: Dun
& Bradstreet; Moody's
Investors Service; Rating;
Standard
& Poor's Corporation
Credit
Risk
The risk that the issuer of a security, such as a bond, may default on
interest and/or principal payments or become bankrupt. If either event
occurs, the investor stands to lose part or all of the investment.
See: Default
Credit
Spread
An option spread position whereby the premium of the option sold exceeds
the premium of the option purchased--thus, creating a credit to the investor.
See: Debit
Spread; Options;
Option
Premium; Option
Spread; Spread
Crossed
Market
A condition in which a broker submits a bid that is greater than the lowest
offer of another broker, or vice versa.
See: Asked
Price
CSE
(Cincinnati Stock Exchange)
The first completely automated stock exchange that transacts members'
orders without having an actual trading floor. Orders are placed and executed
via computers.
See: Floor;
Over
The Counter; Stock
Exchange
Cum-Dividend
The literal translation is "with dividend"--that is, a stock
whose buyer is eligible to receive a declared dividend. Stocks are cum-dividend
when a buy trade is made on or before the third day preceding the record
date. After the third day, trades are executed ex-dividend (without dividend).
See: Declaration
Date; Dividend;
Ex-Dividend;
Record
Date
Cum-Rights
The literal translation is "with rights"--that is, during a
rights offering, the period in which the purchaser of stock will receive
the rights. The rights entitle the purchaser to buy a fixed amount of
shares of stock that has not yet been issued. The prospectus that accompanies
a rights distribution states when the rights become ex-rights (without
rights). On the ex-right date, a purchaser will not receive the rights.
See: Ex-Rights;
Prospectus;
Subscription
Right
Cumulative
Preferred Stock
A preferred stock that has a provision stipulating if one or more dividends
are omitted (arrearage) because of insufficient earnings or any other
reason, the dividends will accumulate until they are paid to shareholders.
Cumulative preferred stocks have seniority over common stocks--that is,
a common stock dividend cannot be paid until all cumulative preferred
dividends are current.
See: Arrearage;
Common
Stock; Non-Cumulative
Preferred Stock; Omitted
Dividend; Preferred
Stock
Cumulative
Voting
A method of voting for corporate directors. In contrast to statutory voting,
cumulative voting allows shareholders to multiply the number of shares
owned by the number of directorships being voted. The votes may be cast
in any manner that the holder chooses--all for one director or any combination
thereof. If a corporation, for example, has 6 openings to the Board of
Directors, in statutory voting, a stockholder who owns 100 shares may
cast 100 votes for each opening, thus having 600 votes. In cumulative
voting, the stockholder may vote in the same manner as statutory voting
or cast 600 votes for only one nominee, 300 for two, 200 for three, or
any other combination.
Cumulative
voting allows small shareholders to have a better chance of naming representatives
on the board of directors. Cumulative voting is required under the corporate
laws of some states, and is at the discretion of the corporation in most
others.
See: Nonvoting
Stock; Statutory
Voting; Voting
Right
Current
Assets
Corporate assets that are expected to be converted to cash within twelve
months. These assets include cash, accounts receivable, marketable securities
and inventories.
See: Accounts
Receivable; Asset;
Marketable
Securities
Current
Coupon Bond
A municipal, corporate or government bond that has a coupon within half
a percentage point of current market rates. Because these bonds have an
interest rate that is competitive with current market instruments, they
are less volatile than comparably rated bonds with lower coupons.
See: Corporate
Bond; Coupon;
Government
Bond; Municipal
Bond; Rating;
Risk;
Volatility
Current
Liabilities
Debt or other obligations that are due within twelve months.
See: Liability
Current
Market Value (CMV)
The worth of all positions in a client's brokerage account. To determine
the portfolio's current market value, stocks and bonds are valued at their
closing prices. For over-the-counter securities, the bid is used.
See: Closing
Price; Long
Market Value; Over
The Counter; Over
The Counter Securities; Short
Market Value
Current
Ratio
A test of a corporation's liquidity--that is, a corporation's ability
to pay its current obligations from current assets. The ratio is calculated
by dividing current assets by current liabilities.
See: Acid
Test Ratio; Current Assets; Current
Liabilities; Liquidity
Ratio; Quick
Asset Ratio
Current
Yield
The annual interest income from a bond divided by the current market price.
Cushion
Theory
A theory which asserts that if many investors have short positions in
a stock, the stock's price must inevitably rise because the short positions
must eventually be covered by purchases of the stock. If the number of
short positions in a stock is twice as high as the stock daily trading
volume, most technical analysts will be bullish on the stock--that is,
any price rise will force short sellers to cover their short positions,
making the stock's price rise even more.
See: Bull;
Selling
Short; Short
Position; Short
Squeeze; Technical
Analysis; Volume
CUSIP
(Committee On Uniform Securities Identification Procedures)
Committee that assigns codes to securities for the purposes of identification--commonly
just referred to as a "Cusip Number."
Custodial
Account
An account opened on the behalf of a minor by an adult who acts as custodian.
The custodian is usually one of the child's parents--both parents cannot
be custodian. This type of account is opened because minors cannot enter
into contracts. Thus, they cannot make securities transactions for themselves.
Any assets placed into a custodial account are irrevocable. Once the minor
is of majority (usually 18, but some states are 21), they may do what
they please with the assets.
See: Uniform
Gift To Minors Act
Custodian
A financial institution, such as a brokerage firm, or a bank that holds
stock certificates and other assets on the behalf of a mutual fund, corporation
or individual. An individual may also act as a custodian in the case of
an account for an minor.
Custodian
Bank
Bank assigned by a mutual fund to act as its custodian. The bank performs
clerical functions and holds the fund's cash and securities.
See: Custodian;
Mutual
Fund
Customer's
Loan Consent
Agreement signed by a margin customer allowing a broker to borrow their
margined securities to complete delivery of certain failures and to cover
other customers' short positions.
See: Delivery;
Fail
To Deliver; Margin;
Margin
Security; Short
Position
Customer's
Net Debit Balance
The total amount of credit extended by New York Stock Exchange member
firms to finance customers' security purchases.
See: Debit
Balance; Margin
CV
Abbreviation used in newspaper listings of stocks and bonds to denote
a convertible security.
See: Convertible
Securities
Cyclical
Stock
Stock that is strongly affected by changes in economic activity. The stock's
price will rise when the economy turns up, and will fall when the economy
turns down. Examples are automobiles and paper stocks. Non-cyclical stocks,
such as stocks within the food and hospital industries, are not directly
affected by economic changes.
See: Seasonal
Stock
Chicago
Board Options Exchange (CBOE)
Exchange in which options are traded.
See: Options
Chicago
Board Of Trade (CBT)
Exchange in which futures--such as corn, gold, silver and wheat--and futures
options are traded.
See: Futures
Contract; Futures
Market
Chicago
Mercantile Exchange
Exchange in which foreign currency futures and futures options are traded.
Amongst others, some examples are the British pound, Canadian dollar,
French franc, and the Japanese yen. In addition, futures and futures options
are traded on such vehicles as indexes, live cattle, pork bellies and
lumber.
See: Futures
Contract; Index;
Options
Cincinnati
Stock Exchange (CSE)
The first completely automated stock exchange that transacts members'
orders without having an actual trading floor. Orders are placed and executed
via computers.
See: Floor;
Over
The Counter; Stock
Exchange
Circuit
Breakers
Procedures established to forestall the market from spiraling down. Circuit
breakers will "kick-in" when the market has dropped by a specific
amount within a certain period. At that time, the major stock and commodities
exchanges will temporarily stop trading in stocks and stock index futures
to give floor traders time to rebalance buy and sell orders. Circuit breakers
were introduced in 1987 after Black Monday. The levels were revised when
the market had another steep drop in October 1989.
See: Black
Monday; Floor
Trader; Program
Trading; Stock
Exchange
Classified
Stock
Equity that is divided into more than one type of common stock, usually
designated as Class A and Class B. The differences between the classes
are designated in a corporation's charter and bylaws. Class A usually
has an advantage in terms of voting power, although additional dividend
and liquidation privileges may also be granted. Class B stock was formed
primarily as a means of preserving control as Class B stock usually carries
limited voting powers.
See: Common
Stock; Liquidation;
Voting
Right
Class
Of Option
Option contracts of the same type and underlying security. If the option
class also has the same exercise price and expiration date, it is called
an "option series."
See: Exercise
Price; Expiration
Date; Option
Series; Options;
Strike
Price
Close
A Position
The elimination of an investment from a portfolio. If the security is
a long position, the investment is sold. If the security is a short position,
the investment is bought.
See: Closing
Transaction; Long
Position; Portfolio;
Short
Position
Close,
The
At the end of a trading session, the final trade in a security.
See: Closing
Price; Opening,
The
Closed
End Indenture
A secured bond indenture that does not allow collateral to be repledged
for issuance of additional bonds.
Closed
End Fund
An investment company that issues a fixed number of shares and is usually
listed on a stock exchange. An investor who wishes to buy shares must
purchase them from investors who wishes to sell their shares. They do
not deal with the investment company directly.
See: Closed
End Management Company; Dual
Purpose Investment Company; Investment
Company; Open
End Management Company
Closed
End Management Company
Term used interchangeably with "closed-end fund." It is an investment
company that issues a fixed number of shares and is listed on a major
stock exchange. An investor who wishes to buy shares must purchase them
from an investor who wishes to sell their shares. They do not deal with
the investment company directly.
See: Closed
End Fund; Investment
Company; Open
End Management Company
Closed
Fund
An open-end mutual fund that has grown so large that it no longer will
issue new shares. However, some funds will allow investors, who are already
shareholders, to purchase additional shares.
See: Investment
Company; Mutual
Fund; Open
End Management Company
Close-Out
The liquidation of a client's position because the client has not met
a margin call that was generated because of a margin purchase or a short
sale.
See: Close
A Position; Frozen
Account; Liquidation;
Margin;
Margin
Call; Selling
Short; Sell
Out Procedures
Closing
Price
At the end of a trading session, the price of the final trade in a security.
See: Close,
The
Closing
Purchase
An option writer's (seller) purchase of an option that has the same features
(series) of the option previously sold to affect a liquidation of the
writer's position. When an option writer sells an option, it is said that
the trade is a "sell to open." When closing the position, the
writer places an order to "buy to close."
See: Liquidation;
Options;
Option
Series; Option
Writer
Closing
Quote
The last bid and offer prices recorded by a market maker or specialist
at the trading day's close.
See: Closing
Sale; Market
Maker; Specialist
Closing
Sale
A sale of an option that has the same features (series) as an option previously
purchased to affect a liquidation of the option position. When an investor
wishes to buy an option, the order is placed as a "buy to open."
Conversely, when closing the position, the investor places an order to
"sell to close."
See: Closing
Transaction; Options;
Option
Series
Closing
Transaction
An option that is purchased or sold to eliminate an existing long or short
position.
See: Closing
Purchase; Closing Sale; Long
Position; Options;
Short
Position
CMV
(Current Market Value)
The worth of all positions in a client's brokerage account. To determine
the portfolio's current market value, stocks and listed bonds are valued
at their closing prices. For over-the-counter securities, the bid is used.
See: Closing
Price; Long
Market Value; Over
The Counter; Over
The Counter Securities; Short
Market Value
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