See: Exercise; Expiration Date; Options

Last-In First-Out (LIFO)
A method used to determine the cost of goods sold. In making this evaluation, the method assumes that company's newest inventory (last in) is sold first (first out). When prices are rising, a company using the LIFO method will have lower gross profits and taxable income because the cost of goods sold will be higher (the newest inventory was costlier to produce).

See: First In, First Out; Inventory Turnover

Last Sale
The most recent transaction in a specific security. In contrast, the term "closing sale" is the final trade for a security in a trading day.

See: Closing Sale; Minus Tick; Plus Tick; Selling Short

Late Tape
A delay is displaying price changes of securities. This usually occurs on an especially heavy trading day. When the tape is greater than five minutes late, the security's price is shown without its first number. For example, a trade that occurred at 43 1/8 will be displayed as 3 1/8.

See: Digits Deleted; Tape

LBO (Leveraged Buyout)
A takeover of a corporation in which the acquirer uses borrowed funds. The target firm's assets are commonly used to secure the acquirer's loan. However, they may also use their own assets as collateral. A company's management might also use this technique to takeover their own company--that is, the management takes the company from being publicly owned to privately owned. In most LBOs, shareholders will receive a premium above the security's current market value.

See: Acquisition; Collateral; Current Market Value; Takeover

Leader
1: Stock or group of stocks that are spearheading a rising or declining market. Institutions who want to demonstrate their own market leadership may trade heavily in leaders.

See: Bear Market; Bull Market

2: A company's whose product has a large market share.

Leading Indicators
Twelve components of an index that forecast ups and downs in a business cycle. The numbers, adjusted for inflation, are released monthly by the US Commerce Department's Bureau of Economic Analysis. Its full name is the "Composite Index of 12 Leading Indicators". Some of the components are unemployment, new orders for consumer goods and money supply (M-2).

See: Consumer Price Index; Economic Indicators; Gross National Product; Indicator; Inflation; Money Supply; Producer Price Index

Leg
1: One part of a spread option. A trader, for example, buys a call option and combines it with another call option on the same underlying security that has the same strike price and a different expiration date. Each of the two options is a leg of the spread. Selling one of the legs is termed "Legging Out".

See: Call Option; Expiration Date; Legging Out; Options; Put Option; Spread Option; Strike Price;

2: A prolonged stock market trend. A bull or bear market may have multiple legs.

See: Bear Market; Bull Market; Trend

LEGAL
A New York Stock Exchange computerized database that tracks member firm audits, customer complaints and enforcement actions against member firms. LEGAL is written in all capitals. However, it is not an acronym.

See: Member Firm; NYSE

Legal Entity
Individuals or organizations that can enter into a contract and may be sued for not performing in accordance with the contract. A minor is not a legal entity and cannot sign a contract.

Legal Investment
An investment vehicle that a person with fiduciary responsibilities may purchase. Each state has legal investment guidelines that a fiduciary must follow. Investment grade bonds are an example of a legal investment.

See: Bond; Fiduciary; Investment Grade; Legal List

Legal List
A list of legal investments that are selected by various states in which institutions and fiduciaries, such as insurance companies and banks, may invest. The list is usually comprised of high quality debt and equity securities. Instead of a legal list, some states apply the Prudent Man Rule--the security has to be one that a reasonable man would invest in. In either case, both are used to protect the money that individuals place with fiduciaries and institutions.

See: Fiduciary, Legal Investment; Prudent Man Rule; Risk

Legal Opinion
Written opinion by an attorney who attests to a municipal bond issue's legality--that is, it is authorized and the interest's tax status is correct.

See: Municipal Bond; Qualified Legal Opinion

Legal Transfer
Securities that require more documentation than just a stock or bond power to transfer the certificates from the seller to the buyer. Among others, these certificates may be registered in the name of trusts, decedents, corporations, partnerships, or investment clubs. A corporation who has sold a stock, for example, would need to submit a corporate resolution with a raised seal along with a stock power.

See: Bond Power; Corporate Resolution; Stock Power; Transfer

Legging Out
Closing one side of a hedge position that leaves the other side as a long or short position. A leg, according to Wall Street lingo, is one side of a hedge transaction. A trader, for example, has an option spread in which he bought an XYZ May 50 call and a sold an XYZ July 65 call. If the XYZ May 50 call (one side of the hedge) is closed (sold), the trader is legging out. The trader is left with a short leg.

See: Hedging; Leg; Long Position; Option Spread; Short Position

Letter Of Intent (LOI)
1: A contract signed by a mutual fund shareholder that indicates that the shareholder intends to invest at least a certain amount of money, during a 13-month period, to qualify for a reduced percentage sales charge. A letter of intent may be backdated a maximum of 90 days. Any shares, bought before the letter of intent was signed and within the 90 days, will be adjusted to reflect the reduced sales charge.

See: Breakpoint; Mutual Fund

2: A letter of intent may also refer to a preliminary contract between two parties negotiating a merger or an acquisition.

See: Acquisition; Merger; Takeover

Letter Security
A security that is not registered with the SEC and thus, cannot be sold in the marketplace. The issues are sold under an investment letter in which the purchaser states the purchase is for investment purposes and not for resale. The certificates have a restrictive legend that indicates they are not registered. Because the investment letter is essential to the security's issuance, this type of security is called either "letter security", "letter stock", or "letter bond".

See: Registered Security; Unregistered Stock

Letter Of Testamentary
A court issued affidavit that appoints an executor for a decedent's estate.

See: Estate; Executor; Probate

Level Debt Service
A stipulation in a municipal charter stating that each year's interest and principal payments on municipal debt must be relatively equal. This attempts to make it easier to project the amount of tax revenue needed to meet obligations.

See: Debt; Interest; Municipal Bond; Principal Amount

Level I Service Of NASDAQ
An electronic subscription service that provides the highest bid and lowest offer on NASDAQ traded securities. Brokerage firms use this service to give current quotes to its brokers and clients.

See: Level II Service Of NASDAQ; Level III Service Of NASDAQ; NASDAQ

Level II Service Of NASDAQ
An electronic subscription service that identifies market makers and provides their bids and offers on NASDAQ trade securities. The service gives competitive information on NASDAQ traded securities. It is only accessible to traders of NASD members and institutional investors.

See: Institutional Investor; Level I Service Of NASDAQ; Level III Service Of NASDAQ; Market Maker; NASDAQ; NASD

Level III Service Of NASDAQ
An electronic subscription service that is accessible only to registered market makers. It allows them to enter their own bids and offers for securities in which they are registered. In effect, Level III is an electronic marketplace.

See: Level I Service Of NASDAQ; Level II Service Of NASDAQ; Market Maker; NASDAQ

Leveraged Buyout (LBO)
A takeover of a corporation in which the acquirer uses borrowed funds. The target firm's assets are commonly used to secure the acquirer's loan. However, they may also use their own assets as collateral. A company's management might also use this technique to takeover their own company--that is, the management takes the company from being publicly owned to privately owned. In most LBOs, shareholders will receive a premium above the security's current market value.

See: Acquisition; Collateral; Current Market Value; Takeover

Leveraged Company
A company that has debt in its capital structure. A company whose capital structure consists of more than one third debt is commonly considered to be highly leveraged.

See: Debt; Working Capital

Leveraged Investment Company
1: An open-end investment company or mutual fund that is allowed to borrow capital from a lender. This provision must be stated in its charter.

2: A dual-purpose investment company that issues both income and capital shares. Holders of income shares receive dividends and interest on investments. Holders of capital shares receive all capital gains on investments. Essentially, each class of shareholder leverages the other.

See: Dual Purpose Investment Company; Investment Company; Mutual Fund; Open End Management Company