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DEA
(Designated Examining Authority)
A self-regulatory body that has surveillance responsibility for specific
broker-dealers. As some firms have memberships on several exchanges, and
in the NASD and MSRB, one regulator is designated to a firm.
See: MSRB;
NASD
Dealer
An individual or firm in the securities business who acts as a principal
rather than as an agent in a specific transaction. Principles buy and
sell securities for their own account and risk.
A dealer's
profit or loss is derived from the difference between the price he/she
pays for the security and the price he/she receives when selling the security
to a customer.
Because most
individuals and firms act as both brokers and dealers, the term broker-dealer
is commonly used.
See: Principal
Deal
Stock
A company's stock that rises or falls due to takeover rumors.
See: Garbatrage;
In
Play; Rumortrage;
Takeover
Debenture
An unsecured (without collateral) bond backed only by the integrity of
the issuer (borrower). The parameters of the bond are set forth in an
agreement called an indenture.
See: Indenture
Debenture
Stock
A stock issued under an agreement that provides for fixed payments at
scheduled intervals. A debenture stock is more similar to a preferred
stock than a debenture. In the case of a company's liquidation, it is
treated as an equity. Investors will not receive payment until all debt
is paid.
See: Debenture
Debit
Balance
Money owed to a broker from the purchase of stock or bonds in a customer's
margin account. This money is a loan extended by the broker to the margin
customer and the customer pays interest on the debit balance in the account.
See: Margin;
Margin
Account
Debit
Spread
An option spread in which the premium of the bought option is greater
than the premium of the one sold.
See: Credit
Spread; Option
Premium; Option
Spread
Debt
1: Common name for bonds and other forms of paper evidencing the amount
owed and whether it is payable on a specific date or on demand.
2: One party's
legal obligation to pay another party in accordance with an expressed
or implied agreement. The debt may or may not be secured.
Debt
Instrument
A written agreement denoting that the issuer promises to reimburse a debt.
Examples are Treasury Bills, Notes and Bonds, Banker's Acceptances, Commercial
Paper and Certificate of Deposits.
See: Certificate
Of Deposit; Commercial
Paper; Treasury
Bill; Treasury
Bond; Treasury
Note
Debt
Limit
The maximum amount of debt that a municipality is permitted to incur--also
known as "debt ceiling."
Debtor
A business or individual that borrowed money that needs to be reimbursed
to the creditor.
Debt
Retirement
The repayment of specific debt. There are two methods used to retire debt--sinking
fund and serial. Sinking fund and serial bonds are not types of bonds,
just methods of retiring them. The sinking fund method, in which money
is set aside each year to retire debt, is most commonly used for corporate
debt. Conversely, the serial method is more commonly used in the debt
retirement of municipal bonds. When bonds are issued in serial form, parts
of the issue, known as a "series," are retired in various time
schedules, usually semiannually or annually.
Debt
Security
Securities, such as Treasury Bills and Commercial Paper, that represent
money borrowed by the issuer. This money must be repaid by the maturity
date at a specified interest rate unless it was an original issue discount
purchase.
See: Commercial
Paper; Original
Issue Discount; Treasury
Bill
Debt
Service
The yearly amount needed to make interest and current maturities of principal
payments on a bond issue.
See: Ability
To Pay
Debt-to-Equity
Ratio
1: The ratio of a company's securities with fixed charges to the company's
common stock equity. To calculate, divide the total amount of preferred
stock and bonds by the amount of common stock equity.
2: In the
case of liquidation, the ratio indicates the extent owner's equity can
cover creditors' claims. It is calculated by dividing total liabilities
by total shareholders' equity.
See: Liquidation
3: A ratio
that is used to measure leverage. Leverage is the use of borrowed money
to increase the return on owners' equity. To calculate, divide the total
amount of long term debt by the total amount of shareholders' equity.
See: Shareholder's
Equity
Declaration
Date
A specified date that the board of directors of a corporation declares
and authorizes a dividend payment. At this time, the dividend becomes
a corporate obligation.
See: Dividend
Deduction
An expense that can be subtracted from an individual's adjusted gross
income to obtain their taxable income. The type of expense deductions
allowed is determined by the Internal Revenue Service (IRS). Examples
include state and local taxes, charitable contributions and mortgage interest
paid.
Deep
Discount Bond
A bond that trades substantially below its face value--usually more than
20% from its face value. The term is usually used in reference to zero
coupon bonds. Although original issue discount bonds and deep discount
bonds are similar, deep discount bonds are issued at a par value of $1,000.
The value of a deep discount bond generally increases faster as interest
rates fall and declines faster as rates rise.
See: Discount;
Current
Coupon Bond; Original
Issue Discount
Deep
In The Money
A call option whose exercise (strike) price is considerably below the
underlying security's current market price--that is, the strike price
is 5 or more points below the underlying security's current market price.
In regard to a put option, the exercise price is well above the underlying
security's current market price--that is, the strike price is 5 or more
points above the underlying security's current market price.
When buying
a deep-in-the-money call option, the premium is high because the holder
has the right to purchase the stock at an exercise price that is substantially
below the underlying security's current market price.
See: Call
Option; Deep Out Of The Money; Exercise;
In
The Money; Options;
Out
Of The Money; Put
Option; Strike
Price; Underlying
Security
Deep
Out Of The Money
A call option whose exercise (strike) price is considerably above the
underlying security's current market price--that is, the strike price
is 5 or more points above the underlying security's current market price.
In regard to a put option, the exercise price is well below the underlying
security's current market price--that is, the strike price is 5 or more
points below the underlying security's current market price.
When buying
a deep-out-of-the-money option, the premium is small because the option
may never be profitable.
See: Call
Option; Deep In The Money; Exercise;
In
The Money; Options;
Out
Of The Money; Put
Option; Strike
Price; Underlying
Security
Default
The failure of a debtor to make timely payments of principal and/or interest.
If the debtor defaults, the bondholders may make claims against the issuer's
assets to get back their principal.
Defeasance
Bonds
A process whereby a corporation gets rid of old, low-rate debt without
paying it back before maturity--another term for "advance refunded
bonds."
The corporation
uses newly purchased bonds that have a lower face value and pay higher
interest or have a higher market value. In doing this, the corporation's
balance sheet becomes more debt free and earnings will increase by the
amount that the old debt's face value exceeds the cost of the new debt.
Another type
of defeasance occurs when a corporation solicits a brokerage firm to buy
the outstanding bonds of the old corporate debt issue. The brokerage firm
will then exchange the old debt issue for a new corporate stock issue
equal to the market value of the old debt. The broker will then sell the
stock at a profit.
Defensive
Securities
Securities that are steadier than the average stock or bond and provide
the investor a safe return on their money. Because of the corporation's
business (e.g. utility and food industries), its securities are relatively
resistant to general economic changes. Thus, when the stock market is
weak, defensive securities are apt to decline less than the overall market.
Deferral
of Taxes
The deferment of making tax payments from this year to a later year. For
example, money in an Individual Retirement Account (IRA) grows tax deferred
until the money is withdrawn from the account.
See: IRA
Deferred
Account
An account, such as an Individual Retirement Account or Profit Sharing
Plan, that delays taxes until a later date.
See: Annuity;
Individual
Retirement Account; Profit
Sharing Retirement Plan
Deferred
Annuity
An annuity in which its contract provides that payments to the annuitant
are delayed until certain thresholds have been attained (e.g., when the
annuitant attains a certain age)--also called a "deferred payment
annuity."
See: Annuity
Deferred
Interest Bond
A bond, such as a zero coupon bond, that pays interest and repays principal
in one lump sum at maturity.
See: Current
Coupon Bond; Zero
Coupon Security
Deferred
Sales Charge
See: Back-End
Load
Deficiency
Letter
A written notice sent by the Securities and Exchange Commission (SEC)
to the issuer of an anticipated new issue. The notice states that there
are omissions of material fact in the registration statement and/or that
the preliminary prospectus needs revision. If immediate action is not
taken by the issuer, the registration period may need to be extended.
See: SEC
Deficit
The amount by which expenditures exceed the amount budgeted or the amount
by which liabilities exceed income and assets. Deficits can be corrected
by borrowing money or by selling assets.
See: Asset;
Liability
Deficit
Financing
The borrowing of money by government agencies to procure revenue shortages.
Deficit financing may stimulate the economy for a while, but usually ends
up being an economic hindrance by pushing up interest rates.
See: Deficit
Spending
Deficit
Net Worth
The amount that liabilities exceed assets and capital stock--also referred
to as "negative net worth."
See: Capital
Stock
Deficit
Spending
A shortage that is financed by government borrowing. This shortage occurs
when the amount of government expenditures exceeds government revenues.
See: Deficit
Financing
Defined
Benefit Pension Plan
A retirement plan that stipulates that each participant will receive a
set payment after a predetermined number of years of service. It does
not pay taxes on investments within the plan. Contributions to the plan
may be by employer only, employee only or both.
See: 401(K)
Plan; IRA
Deflation
A persistent price decline of goods and services--the inverse to inflation.
Deflation usually occurs during a recession and is characterized by supply
exceeding demand, and while there is increased buying power, the amount
of currency in circulation is greatly reduced. Marked deflation generally
affects production and employment negatively. Deflation should not be
confused with disinflation, which is a result of a slow down in the rate
that prices increase.
See: Disinflation;
Inflation
Deflator
Statistical factor used to adjust the difference between real value and
inflation affected value.
See: Inflation
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