Glossary of Financial Terms — S 

Glossary_S 

  

 

 


Terms


Sales Charge

Fee paid by investors on purchase and sale of mutual fund (unit trust) shares (units). Also called load.

 

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Samurai Bond

A yen-denominated bond issued in Japan by a foreign issuer.

 

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Saving Certificate

A deposit of a fixed maturity and amount usually earning a higher rate of interest than a savings bond.

 

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Seasoned

Refers to a security which has been outstanding in the secondary market for over 90 days.

 

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Sector

A group of securities with similarities (for example, industry type, coupon rate, maturity date and/or rating). The four bond sectors of the market, as we view them: Treasuries, Mortgages, Corporates, and International.

 

Treasuries: All U.S. Treasury Issues. Highest quality (AAA), and liquidity.

 

Mortgages: Agency and other pass-throughs (FNMA,FHLMC,FHA), plus derivatives (CMO’s, PO’s. etc.). Mostly AA-AAA, prepayable at any time.

 

Corporates: All industrial, financial, utility, and other corporate issuers. Terms and quality vary. Generally callable prior to maturity.

 

International: Includes U.S. issuers in foreign markets (Euro’s), foreign issues in U.S. market (Yankees), and foreign issues in foreign markets.

 

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Secular Trend

A long-term movement in the price of a security or of interest rates, either upward or downward, which is not related to seasonal or technical factors.

 

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Secured Debt

Debt that uses specified assets or revenues of the issuer as collateral. In the event of an issuer defaulting, the lenders can force the sale of the assets to meet the payments.

 

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Securities

Stocks, bonds and notes which give evidence to and assure the fulfillment of an obligation.

 

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Securities Act of 1933

A law designed to ensure that new securities offered to the public are clearly and completely described in the registration statement and prospectus. The SEC does not guarantee that the statements are accurate, but attempts to make certain that all relevant information is fully disclosed.

 

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Securities and Exchange Commission

An agency created by Congress to provide laws for the protection of investors in security transactions. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act, the Investment Company Act, the Investment Advisors Act and the Public Utility Holding Company Act.

 

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Securities Depository

A company, usually a domestic bank, whose responsibility includes the custody of securities, administration of fungible securities and the settlement of securities transactions including payment.

 

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SEC Yield

A standard yield calculation developed by the Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by the fund’s filings with the SEC. The yield figure reflects the dividends and interest earned during the period, after the deduction of the fund’s expenses. This is also referred to as the “standardized yield.”

 

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Seed Money

The initial capital used to start a business. Seed capital often comes from the company founders’ personal assets or from friends and family. The amount of money is usually relatively small because the business is still in the idea or conceptual stage. Such a venture is generally at a pre-revenue stage and seed capital is needed for research & development, to cover initial operating expenses until a product or service can start generating revenue, and to attract the attention of venture capitalists.

 

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Sell Off

A sudden sharp decline in prices accompanied by increased volume of trading and a general rise in interest rates.

 

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Senior Loans

Generally issued by a lending syndicate of banks and other lending financial institutions to corporations, which use the borrowed money to finance their operations, and are then packaged and sold to institutional investors. Generally have the highest or one of the highest priorities in a borrower’s capital structure.

 

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Senior Securities

The class of securities that occupies the highest priority in a claim for principal, interest or dividends.

 

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Separate Trading of Registered Interest and Principal of Securities

Process by which a bond is separated into its corpus and coupons which are then sold separately as zero coupon securities.

 

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Serial Bond

An issue that is segmented into a series of maturities which matures in relatively small amounts at stated periodic intervals.

 

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Servicing

The policing and record-keeping functions performed by mortgage lenders. The servicer of a loan sends payments notices, keeps track of the principal balance, ensures that property taxes and mortgage insurance are paid, remits payments to mortgage investors, etc. For these considerations, the servicer is paid a servicing fee.

 

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Servicing Fee

The fee paid to the servicer of a mortgage loan. It is usually a fixed percentage of the outstanding principal balance of the loan, and is taken from the interest portion of the payment.

 

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Settlement

Cash Settlement: Same day settlement.

 

Corporate Settlement: Settlement five market days after the trade date (term used it the U.S. Market).

 

Delivery Versus Payment Basis: Under this settlement rule, the delivery of and payment for bonds are simultaneous.

 

Domestic Settlement: Settlement according to the accepted market convention.

 

Euroclear Settlement: Settlement is seven calendar days after the trade day. As of June 1995, settlement will be three market days after the trade day.

 

Free Payment Basis: The delivery of a bond and the payment for it are not necessarily simultaneous.

 

International Settlement: The settlement of securities is affected through an international clearing agency such as Euroclear or Cedel. International settlement usually assumes no local or generally recognized holidays.

 

Regular Way Settlement: In the United States, settlement is on the next market day after the trade date.

 

Skip-Day Settlement: Settlement on the day after the next market trade day.

 

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Settlement Date

The date on which the final consummation of a securities transaction takes place and payment is made.

 

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Shadow Banking System

Defined as any levered lender who does not have access to (1) deposit insurance and/or (2) the Fed’s discount window.

 

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Share Class: ‘A shares’

Mutual fund shares of a class that carries a front-end load.

 

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Share Class: ‘B shares’

Mutual fund shares of a class that carries a back-end load.

 

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Share Class: ‘C shares’

Mutual fund shares of a class that carries an ongoing fee. The ongoing fee is often a 12b-1 fee, paid annually.

 

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Share Class: ‘D shares’

Mutual fund shares of a class that carries an ongoing fee. The ongoing fee is often a 12b-1 fee, paid annually.

 

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Share Class: ‘I shares’

Mutual fund shares of a class with higher investment minimums that are available to institutions, though these minimums are often reduced for certain financial intermediaries that aggregate trades on behalf of investors.  These share classes are often offered to investors in qualified retirement plans, such as 401(k)s.

 

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Share Class: ‘P shares’

Mutual fund shares offered primarily through certain asset allocation, wrap fee and other fee-based programs sponsored by broker-dealers and other financial intermediaries.

 

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Share/Par

Refers to par value in the case bonds, and number of shares in the case of stocks.

 

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Sharpe Ratio

This measure relates investment returns to the risk taken, as measured by the standard deviation of returns. A higher ratio represents better return for the risk taken.

 

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Shopping

Making an effort to obtain a better bid or offering from someone else after having received a firm bid or offering from a dealer.

 

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Short

To become an owner; to have sold without ownership in anticipation of subsequently purchasing at a lower price.

 

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Short Covering

The action taken by a trader or investor to buy securities previously sold short in order to deliver them and thereby close out a short position.

 

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Short-Dated Bonds

Bonds that mature in the next five years.

 

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Short Position

Situation that arises when securities that are not owned are sold.

 

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Short Sale

The practice of selling first and buying later. The seller sells a security not owned on the expectation that the market price will fall and the seller will be able to buy the security at a price lower than that at which it was sold.

 

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Short-Term

A type of obligation with a maturity of less than one year.

 

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Simple Yield

A measure of return that is the interest or dividend income from an asset expressed as a percentage of its price.

 

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Singapore Interbank Offered Rate

The posted rate at which prime banks offer to make Asian dollar deposits available to other prime banks.

 

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Single-Family

Refers to mortgages on one-to-four family dwellings.

 

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Sinking Fund

Money, either cash or an acceptable substitute, regularly set aside by a company out of its earnings at stated intervals to redeem all or part of its long-term debt as specified in the indenture. The creation of a sinking fund provides for an orderly amortization of a debt over the life of an issue.

 

A Cash Sinking fund can be satisfied by cash or bonds purchased in the open market or called at the sinking fund call price.

 

A Property Additions Sinking Fund is generally satisfied by pledging a stated portion of the value of unmortgaged property.

 

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Sovereign Bonds

Bonds issued by a foreign government in a currency that is not their own.

 

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Spot Price

The price of a security or commodity in the cash market. Used in reference to the futures markets for securities or commodities which underlay various futures contracts.

 

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Spread

The yield or price differential between two different securities. Underwriting spread; the difference between the price to the public and the issuer. The difference between the bid and the asked price or yield in the quotation of a security. Simultaneous purchase and sale of different but related futures contracts, one-to-one or in a ratio; a hedge if the cause of widening or narrowing in the price difference between futures contracts is the same as the cause of gains or losses in an intended cash market transaction.

 

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Spreads

Investments: Diversity of an investment portfolio; greater the spread, lesser the chance of crippling losses or spectacular gains.

 

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Standard Deviation

Statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. In portfolio theory, the past performance of securities is used to determine the range of possible future performances and a probability is attached to each performance. The standard deviation of performance can then be calculated for each security and for the portfolio as a whole. The greater the degree of dispersion, the greater the risk.

 

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State Work Flow

High level diagram showing the states, beginning to end, following each process in work flow; I.e. Trade Flow and Account Flow.

 

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Stock

A certificate of ownership. A contract between the issuing corporation and the owner which gives the latter an interest in the management of the corporation the right to participate in its profits. There are five basic types of stocks:

 

Income Stocks: Income stocks pay unusually large dividends that can be used to generate income without selling the stock. However, the price of income stocks generally does not rise very quickly.

 

Blue Chip Stocks: Blue chip stocks usually pay small but regular dividends and maintain a fairly steady price throughout market ups and downs. Very solid and reliable companies with long histories of consistent growth and stability issue blue chip stocks.

 

Growth Stocks: Growth stocks normally pay little or no dividend because the company needs all of its earnings to finance expansion. Growth stocks are issued by young, entrepreneurial companies that are experiencing a faster rate of growth than their general industries. Because these companies have no proven track record, growth stocks are riskier than other types of stocks but also offer more appreciation potential.

 

Cyclical Stocks: Cyclical stocks tend to go down in price during recessionary periods and up during economic booms. Companies in industries that are affected by general economic trends (such as automobile, heavy machinery and home building) issue cyclical stocks.

 

Defensive Stocks: Defensive stocks are the opposite of cyclical stocks. Defensive stocks, issued by companies producing staples such as food, beverages, drugs, and insurance, typically maintain their value during recessionary periods.

 

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Stocks: Capital

Capital stocks include both common and preferred stocks. The terms “common stock” and “capital stock” are often used interchangeably when a company has no preferred stock.

 

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Stocks: Common

Common stocks are the most common kind of stock. Common stockholders are not guaranteed dividends, but they may receive dividends during the company’s prosperous periods. If a company fails or liquidates, common stockholders are paid after bondholders and preferred stockholders. Common stockholders assume the greater risk, but because they have voting rights at the company’s annual stockholders’ meeting, generally exercise greater control and may gain greater reward in the form of dividends and capital appreciation.

 

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Stocks: Preferred

Preferred stocks pay a fixed dividend regardless of corporate earnings and have priority over common stock in the payment of dividends. Preferred stockholders also have priority over common stockholders in recouping their investment if the company fails or liquidates. However, preferred stock carries no voting rights and, should earnings rise significantly, the preferred holder receives the same fixed dividend while holders of common stock may collect more. The fixed income stream of preferred stock makes it similar in many ways to bonds.

 

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Stop

To agree to trade a specific block of securities at a certain price or better. The agreed trade will be executed in any event. In a Treasury auction, the last competitive bid which is accepted on the high yield side.

 

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Stop Limit Order

An order to buy or sell when a given price is reached or passed, but at that price or better. A stop limited order to buy always specifies a price above the present market price; when the market price reaches the stop limit price, the stop limit order to sell specifies a price below the present market price.

 

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Stop Order

An order to buy or sell when a given price is reached or passed. A stop order to buy always specifies a price above the present market price. A stop order to sell always specifies a price below the present market price. When the stop price is reached or passed, the stop order becomes a market order.

 

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Stop Price

The lowest price the issuer accepts in an auction for a new issue.

 

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Straddle

An option position that is a combination of a put and a call on the same security at different strike prices for the same expiration date. A futures position that is any combination of both long and short contracts of the same security for different delivery months.

 

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Straight Bond

A bond with unquestioned right to repayment of principal at a specified future date, unquestioned right to fixed interest payments on stated dates and no right to any additional interest, principal or conversion privilege.

 

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Street

The New York Financial Community in the Wall Street area, or the broker/dealer community in general.

 

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Street Name

Registration of securities in the name of a broker bank or other third party instead of the owner. Facilitates transfer of record ownership and the clearance and settlement of securities transactions.

 

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Street Practice

Any procedure generally agreed upon and in use by the financial community. Specifically, the collection of conventions in general use by the financial community regarding calculations of yields or prices.

 

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Strike Price

The price at which an option may be exercised for the underlying security.

 

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Sub-Investment Grade

Bonds that are rated below investment grade (BBB). Also known as Junk Bonds or High Yield Bonds.

 

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Subject

Refers to a quote or indication of price that is not firm and cannot be relied upon as the basis for a transaction. In new issue terminology, a term indicating to would-be buyers that all securities have been circled. However, depending on subsequent availability, the order may be filled.

 

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Subordinated

Refers to a promise to pay or a security with a promise to pay which cannot legally be fulfilled until payments on certain other obligations have been made and any other conditions (defined in the indenture) have been met. These other obligations are said to be senior to the subordinated obligation.

 

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Subprime

A mortgage loan to a borrower with a FICO score lower than 660 and generally higher than 590. (FICO scores indicate the credit-worthiness of a borrower. Excellent scores range above 720.) Subprime loans are usually comprised of adjustable-rate mortgages with loan-to-value ratio near 85 % and very limited documentation of stated income.

 

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Sub Process

A type of activity assigned within Process Charter to link an activity in one process flow to a start box in a separate file, creating a parent/child relationship.

 

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Supranational

A multinational organization with the backing of a number of national governments (e.g. The World Bank).

 

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Surplus

The amount by which revenues exceed expenditures.

 

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Swap

The sale of one security for the purchase of another. Bond swaps fall into three basic categories, although a given swap may have aspects of two or more of these:

 

Substitution Swaps: swaps done in order to improve upon one or more characteristics of the original bonds. Swaps done for yield pickup, quality improvement or change in call protection are in this category.

 

Intermarket Spread Swaps: swaps done in anticipation of a (favorable) change in the price or yield spread between the two issues from two different sectors of the market.

 

Rate Anticipation Swaps: swaps done in anticipation of a (favorable) change in the overall level of interest rates. Rate anticipation swaps generally consist of lengthening maturity and/or lowering coupon when bullish and shortening maturity and/or increasing coupon when bearish.

 

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Swaps

Exchange of one type of asset, cash flow, investment, liability, or payment for another. Common types of swap include: (1) Currency swap: simultaneous buying and selling of a currency to convert debt principal from the lender’s currency to the debtor’s currency. (2) Debt swap: exchange of a loan (usually to a third world country) between banks. (3) Debt to equity swap: exchange of a foreign debt (usually to a Third World country) for a stake in the debtor country’s national enterprises (such as power or water utilities). (4) Debt to debt swap: exchange of an existing liability into a new loan, usually with an extended payback period. (5) Interest rate swap: exchange of periodic interest payments between two parties (called counter parties) as means of exchanging future cash flows.

 

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Syndicate

A limited partnership agreement among underwriters. A group of investment bankers who underwrite and distribute as agreed a new issue of securities or a large block of an outstanding issue.

 

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Syndicate is Terminated

Means that all the underwriters have been freed from all price and trading restrictions imposed during syndication and that the security is trading or is expected to trade at or over its initial offering price.

 

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SyndicateRestrictions

The contractual obligations placed on the underwriting group relating to distribution, price limitations and market transactions.

 

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Information contained herein is believed to be reliable, but the accuracy and completeness of this material cannot be guaranteed.

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