Glossary of Investment Terms (S - T)

This glossary offers a handy reference for some of the more common investment and financial terms.  The information presented here covers topics that are subject to change due to legal and regulatory actions.  Readers should consult with their legal, tax or financial advisors before entering into any agreement or effecting any transactions involving terms or concepts about whose meaning they may be unsure.

S

S&P 500 Index. The S&P 500 is a capitalization-weighted index of 500 stocks maintained by Standard & Poor’s.  It is perhaps the most widely used measure of the U.S. market.

Scale order. An order to buy (or sell) a security, that specifies the total amount to be bought (or sold) at specified price variations.

Scripophily. A term coined in the mid-1970s to describe the hobby of collecting antique bonds, stocks and other financial instruments. Values are affected by beauty of the certificate and the issuer's role in world finance and economic development.

Seat. A traditional term for a membership on an exchange.

SEC. The Securities and Exchange Commission, established by Congress to help protect investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, the Investment Advisers Act and the Public Utility Holding Company Act.

Secondary distribution. Also known as secondary offering. The redistribution of a block of stock some time after it has been sold by the issuing company. The sale is handled off the NYSE by a securities firm, or group of firms, and the shares are usually offered at a fixed price related to the current market price of the stock. Usually the block is a large one, such as might be involved in the settlement of an estate. The security may be listed or unlisted.

Secondary market.  The trading in existing or outstanding shares of securities as opposed to new issues, or initial public offerings. Transactions in the secondary market occur either on an exchange or in the over the counter market.

Securities Industry Automation Corporation (SIAC). An independent organization established by the New York and American Stock Exchanges as a jointly owned subsidiary to provide automation, data processing, clearing and communications services.

Securities Investor Protection Corporation (SIPC). Provides funds for to protect customers' cash and securities that may be on deposit with a SIPC member firm in the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a government agency. It is a non-profit membership corporation created by an act of Congress.

Seller's option. A special transaction on the NYSE that gives the seller the right to deliver the stock or bond at any time within a specified period, ranging from not less than two business days to not more than 60 days.

Sell side. The portion of the securities business in which orders are transacted. The sell side includes retail brokers, institutional brokers and traders, and research departments. If an institutional portfolio manager changes jobs and becomes a registered representative, he or she has moved from the buy side to the sell side.

Senior securities.  Debt securities and preferred stocks. These securities are senior to common stock because they have prior claim to a corporation's assets in the event of bankruptcy.

Serial bond. An issue that matures in part at periodic stated intervals.

Settlement. Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivers securities sold and receives from the broker the proceeds of a sale.

Sharpe ratio. A return / risk ratio developed by William Sharpe.  The return (numerator) is defined as the incremental average return over and above the risk-free rate (T-Bills).  Risk (denominator) is defined as the standard deviation of these investment returns.  What you are looking for here is excess return generated per unit of risk. In other words, are returns generated by smart investment decisions or by taking on excess investment risk.  In an investment analysis, a higher Sharpe Ratio would indicate a manager or an investment achieving higher rates of return per unit of investment risk.

Short covering. Buying stock to return stock previously borrowed to make delivery on a short sale.

Short sale. A transaction by an investor who believes a security will decline and sells it without owning the security.  A broker borrows the stock from an account that holds the stock so delivery can be made to the buyer. The money value of the shares borrowed is deposited by the broker with the lender. Sooner or later, the investor who made the short sale must cover (close) the short position by buying the same amount of stock that was borrowed. If the stock price declines prior to the closing purchase, there is a profit equal to the difference between the original sale price and the subsequent purchase (less transactions costs). If the stock price rises prior to the closing purchase, there is a loss equal to the difference between the original sale price and the subsequent purchase (less transactions costs). Stock exchange and federal regulations govern and limit the conditions under which a short sale may be made on a national securities exchange. Sometimes investors will sell short a stock they already own in order to protect a paper profit. This is know as “selling short against the box.”

Short squeeze.  A situation that occurs when the price of a security increases dramatically, thus pressuring short sellers to cover their short positions in order to avoid greater losses. The covering of short positions serves to raise the price of the security even more, thus increasing the losses of short sellers who have still not covered their short positions.

Short swing profit.  A profit earned on a security held less than six months. Insiders are prohibited from taking short swing profits on the stock of their firm.

Sinking fund. Money regularly set aside by a company to redeem its bonds, debentures or preferred stock from time to time as specified in the indenture or charter.

Specialist. A member of the New York Stock Exchange who has two primary functions.  First, the specialist must maintain an orderly market in the securities registered to the specialist by buying or selling for their own account, to a reasonable degree, when there is a temporary disparity between supply and demand. Second, the specialist acts as a broker's broker. When commission brokers on the exchange floor receive a limit order, such as a buy at $50 for a stock then selling at $60, they cannot wait at the post where the stock is traded to see if the price reaches the specified level. They leave the order with a specialist, who will try to execute it in the market if and when the stock declines to the specified price. At all times the specialists must put their customers' interests above their own.

Speculation. The assumption of a relatively large risk of loss in hopes of a significant gain.

Spin off. The separation of a subsidiary or division of a corporation from its parent company by issuing shares in a new corporate entity. Shareowners in the parent company receive shares in the new company in proportion to their original holding, with the combined post spin-off value of the parent and the spin-off usually remaining approximately the same as the value of the parent before the spin-off.

Split. The division of the outstanding shares of a corporation into a larger number of shares. A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding. Each holder of 100 shares before the 3-for-1 split would have 300 shares, although the proportionate equity in the company would remain the same.

Spread position.  The existence of a spread option in an account, i.e., a long and short position in options of the same security or index.

Standard deviation. Standard deviation measures the dispersal or uncertainty in a random variable, e.g., investment returns.  It measures the degree of variation of returns around the mean or (average) return.  The more volatility of the investment returns, the higher the standard deviation will be.  For this reason, standard deviation is often used as one measure of investment risk.  A more volatile stock or investment would have a higher standard deviation.

Stock exchange. An organized marketplace for securities featured by the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors.

Stock dividend. A dividend paid in securities rather than in cash. The dividend may be additional shares of the issuing company, or in shares of another company (usually a subsidiary) held by the company.

Stockholder of record. A stockholder whose name is registered on the books of the issuing corporation.

Stock index futures. Futures contracts based on market indexes, e.g. NYSE Composite Index Futures Contracts.

Stock power.  A form used in the transfer of registered securities from one owner to another. A stock power replicates the assignment form on the back of the stock certificate, but it is separated from the certificate. Hence, a stock power is sometimes called an "assignment separate from certificate". Although both achieve the same goal, a stock power has a safety advantage in that it is a separate document.

Stock ticker symbols. Every corporation whose transactions are reported on a stock exchange has been given a unique identification symbol of up to four letters.  Stocks listed on the NYSE or Amex have symbols with up to three letters.  Nasdaq and OTC stocks have four-letter symbols.  Sometimes additional letters are appended for special purposes, e.g., .PK, .OB or .OTCBB all mean that the stock has been de-listed and no longer trades on an exchange, but on the less liquid and more volatile over-the-counter market. More specifically, a .PK indicates that the stock is now trading on the pink sheets, while an .OB suffix or .OTCBB prefix represents the over-the-counter bulletin board. A complete list of fifth symbols used by the NASDAQ is as follows:

            A - Class A
            B - Class B
            C - Issuer qualifications exceptions
            D - New
            E - Delinquent in required filings with the SEC
            F - Foreign
            G - First convertible bond
            H - Second convertible bond
            I - Third convertible bond
            J - Voting
            K - Nonvoting
            L - Miscellaneous situations, e.g., depositary receipts, stubs, additional warrants or units
            M - Fourth class of preferred shares
            N - Third class preferred of preferred shares
            O - Second class preferred of preferred shares
            P - First class preferred of preferred shares
            Q - Bankruptcy proceedings
            R - Rights
            S - Shares of beneficial interest
            T - With warrants or with rights
            U - Units
            V – When issued and when distributed
            W - Warrants
            X - Mutual Fund
            Y - ADR (American Depositary Receipt)
            Z - Miscellaneous situations, e.g., depositary receipts, stubs, additional warrants or units

Stop limit order. A stop order that becomes a limit order after the specified stop price has been reached.

Stop order. An order to buy at a price above or sell at a price below the current market. Stop buy orders are generally used to limit loss or protect unrealized profits on a short sale. Stop sell orders are generally used to protect unrealized profits or limit loss on a holding. A stop order becomes a market order when the stock sells at or beyond the specified price and, thus, may not necessarily be executed at that price.

Street name. Securities held in the name of a broker instead of a customer's name are said to be carried in "street name." This occurs when the securities have been bought on margin or when the customer wishes the security to be held by the broker.

Strike price. Also known as the exercise price. The price at which the holder (buyer) of an option can purchase (call) or sell (put) the underlying stock.

Swapping. Selling one security and buying a similar one almost at the same time to take a loss, usually for tax purposes.

Syndicate. A group of investment bankers who together underwrite and distribute a new issue of securities or a large block of an outstanding issue.

T

T-Bill (treasury bill).  T-bills is the common term for "Treasury bills" which are a short-term debt obligation of the U.S. government that is purchased at a discount from face value, i.e., they are bought at a discounted price and mature at face value. The amount of the discount is considered the interest. They are sold in denominations of from $10,000 to $1 million, and have maturities of either 13 weeks, 26 weeks or 52 weeks.

Technical research. Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, trends and patterns, which are revealed by charting these factors, and attempts to assess the possible effect of current market action on future supply and demand for securities and individual issues.

Tender offer. A public offer to buy shares from existing stockholders of one public corporation by another public corporation under specified terms good for a certain time period. Stockholders are asked to "tender" (surrender) their holdings for stated value, usually at a premium above current market price, subject to the tendering of a minimum and maximum number of shares.

Testamentary trust.  A trust that is established within a person's will. This differs from an intervivos trust that is created during the grantor's lifetime.

Third market. Trading of stock exchange-listed securities in the over-the-counter market by non-exchange member brokers.

Ticker. A system that continuously provides the last sale prices and volume of securities transactions on exchanges.

TIPS (Treasury Inflation-Protected Securities). TIPS are U.S. Treasury securities that pay a fixed rate of interest, but have the value of their principal adjusted semiannually based on changes in the Consumer Price Index. TIPS are used to protect a fixed income investment from inflation.  The interest rate is applied to the inflation-adjusted principal, not the original face value. If inflation occurs throughout the life of the security, every interest payment will be greater than the one before it. The converse is true however in the event of deflation. Upon maturity, the U.S. Treasury will pay the greater of either the inflation-adjusted principal or the original face value.

U.S. Intermediate-term Government Bond Index. This index is composed of U.S. Treasury securities with an average maturity of approximately five years.

Time horizon.  The expected amount of time you will be investing in order to certain financial goals. An investor with  a longer time horizon is better situated to assume a greater amount of risk which is usually associated with investment strategies which target higher returns.

Total return.  An investment’s annual return based on all appreciation, dividends and interest.

Trader. Individuals who buy and sell for their own accounts for short-term profit. Also, an employee of a broker/dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients.

Trading post. The structure on the floor of the New York Stock Exchange at which stocks or options are bought and sold.

Transfer. This term may refer to two different operations. For one, the delivery of a stock certificate from the seller's broker to the buyer's broker and legal change of ownership, normally accomplished within a few days. For another, to record the change of ownership on the books of the corporation by the transfer agent. When the purchaser's name is recorded, dividends, notices of meetings, proxies, financial reports and all pertinent literature sent by the issuer to its securities holders are mailed directly to the new owner.

Transfer agent. A transfer agent keeps a record of the name of each registered shareowner, his or her address, the number of shares owned, and sees that certificates presented for transfer are properly canceled and new certificates issued in the name of the new owner.

Treasury bond.  A long term debt obligation of the U.S. government that has a maturity of more than 10 years. They are issued in $1,000 denominations and pay interest semiannually.

Treasury note.  A intermediate term debt obligation of the U.S. government that has maturities of one to ten years. They are issued in $1,000 denominations and pay interest semiannually.

Treasury stock. Stock issued by a company that is later reacquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired. Treasury stock receives no dividends and has no vote while held by the company.

Turnover rate. The volume of shares traded in a year as a percentage of the total number of shares that are listed on an exchange, outstanding for an individual issue, or held in an institutional portfolio.

12B-1 fees.  A fee that is levied by a mutual fund, usually on a yearly basis, to fund payments for distribution and marketing costs of the fund.  A mutual fund that charges a 12B-1 fee must disclose this in writing.