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12b-1 Fees

Fees paid out of fund assets to cover the costs of marketing and selling fund shares. "Distribution fees" include fees to compensate brokers and others who sell fund shares, and to pay for advertising, and printing and mailing prospectuses to new investors. "Shareholder Service Fees" are fees that cover the cost of responding to investor inquiries and providing investors with information.

401(k) Plan

An employer-sponsored retirement savings plan that gives employees a choice of investment options, typically mutual funds. Employees who participate in a traditional 401(k) plan have a portion of their pre-tax salary invested directly in the option or options they choose. These contributions and any earnings from the 401(k) investments are not taxed until they are withdrawn.

403(B) Plan

A type of tax-deferred retirement savings program available to employees of public schools, certain non-profits, and some members of the clergy.

529 Account Owner

A person who establishes an account for a student to save money for qualified higher education expenses or tuition for elementary or secondary public, private, or religious schools; also called the account holder or the saver.

529 Education Savings Plan

A type of 529 plan that lets an account owner open an investment account to save for the account beneficiary’s qualified higher education expenses or tuition for elementary or secondary public, private, or religious schools.

529 Plan Offering Circular

529 plan document that has detailed information about the 529 plan; often called a disclosure statement, disclosure document, program description, or offering document.

529 Plan or Program Manager

A financial services firm — a mutual fund company, a brokerage firm, an investment adviser, or an insurance company — that handles all of the transactions and investments within the plan.

529 Plan Sponsor

A state, a state agency or educational institution that chooses a plan manager and determines the rules and limits for its plan.

529 Plans

A 529 plan is a tax-advantaged savings plan designed to encourage saving for educational costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. 

8-K

Public companies file Form 8-K, known as the "current report," to the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate leadership (such as a new director or officer) and preliminary earnings announcements.

Account Fee

A fee that some funds separately impose on investors for account maintenance. For example, individuals with accounts below a specified dollar amount may have to pay an account fee.

Accredited Investors

Under the federal securities laws, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The federal securities laws provide companies with a number of exemptions. For some of the exemptions, such as Rule 506 of Regulation D, a company may sell its securities to what are known as accredited investors.

Advance Fee Fraud

Advance fee frauds ask investors to pay a fee up front – in advance of receiving any proceeds, money, stock, or warrants – in order for the deal to go through.  The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later.  Advance fee frauds may involve the sale of products or services, the offering of investments, lottery winnings, found money, or many other so-called opportunities. 

Fraudsters carrying out advance fee schemes may:

Affinity Fraud

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are - or pretend to be - members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.

After-hours Trading

After-hours trading, also known as extended-hours trading, refers to trading that occurs outside of regular trading hours. Regular trading hours for stocks traded on exchanges and certain other markets are from 9:30 a.m. to 4:00 p.m. Eastern Time. After-hours trading sessions may occur before or after regular trading hours. The duration of after-hours trading sessions varies between markets and trading venues. Investors should contact their brokerage firms to determine if and when after-hours trading sessions are available.

 

All-Or-None Order

An All-Or-None (AON) order is an order to buy or sell a stock that must be executed in its entirety, or not executed at all.  AON orders that cannot be executed immediately remain active until they are executed or cancelled. 

Learn More.

 

American Depositary Receipts (ADRs)

The stocks of most foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs). U.S. depositary banks issue these stocks. Each ADR represents one or more shares of foreign stock or a fraction of a share. If you own an ADR, you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted to the ratio of the ADRs to foreign company shares.

Annual Meeting

Once-a-year meetings where the chief executive officer reports on the year's results to shareholders. At this meeting, shareholders vote to elect the board of directors and on other corporate business.

Annual Report

The annual report to shareholders is a document used by most public companies to disclose corporate information to their shareholders. It is usually a state-of-the-company report, including an opening letter from the Chief Executive Officer, financial data, results of operations, market segment information, new product plans, subsidiary activities, and research and development activities on future programs. Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors.

Annual Report (10K)

A report filed to the SEC by public companies that includes the company's history, audited financial statements, a discussion of products and services, a review of the organization and its operations, and a discussion of the company's major markets.

Annual Return

An annual rate of return is the profit or loss on an investment over a one-year period. There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, multiplying it by 12 expresses an annual rate of return. This is often called the annual percentage rate (A.P.R.).

Annuities

An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

Arbitration and Mediation

Arbitration, a form of alternative dispute resolution, is a technique for the resolution of disputes outside the court system.  In arbitration, the parties agree to have their dispute heard by one or more arbitrators and agree to be bound by their decision.

Ask Price

The term "bid" refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time.  The term "ask"  refers to the lowest price at which a seller will sell the stock.

The bid price will almost always be lower than the ask or “offer,” price.  The difference between the bid price and the ask price is called the "spread."

Ask Price

In the over-the-counter market, the term "ask" refers to the lowest price at which a market maker will sell a specific number of shares.

Asset

Any tangible or intangible item that has value in an exchange. A bank account, a home, or shares of stock are all examples of assets.

Asset Allocation

Asset allocation involves dividing your investments among different categories, such as stocks, bonds, and cash.

Asset Classes

Investments that have similar characteristics. The three main asset classes are stocks, bonds, and cash.

Back-end Load

A sales charge, also known as a "deferred sales charge," investors pay when they redeem (sell) mutual fund shares. Funds generally use these to compensate brokers.

Banking Regulators

The SEC routinely receives questions and complaints from investors about the investment products they have purchased. But not all investments are considered securities under the securities laws. For example, some products, such as notes that have been issued by a bank, may not be securities and are regulated by the banking authorities.

Bankruptcy

Filing for protection under the federal bankruptcy laws can help companies make plans to repay their debts.  A bankrupt company might use Chapter 11 of the Bankruptcy Code to reorganize its business and try to become profitable again.  During the period of the bankruptcy proceeding, management may continue to run the day-to-day business operations but significant business decisions generally must be approved by a bankruptcy court.  While a company that emerges from Chapter 11 bankruptcy protection may resume some or all of its former operations, it may do so with a new group of investors.

Bankruptcy for a Public Company

A company may decide to declare bankruptcy when it suffers from crippling debt.  Federal bankruptcy laws govern how the assets and business of a company will be used to clear its debts.

There are two types of bankruptcy available to companies (Chapter 7 and Chapter 11), but regardless of the type of bankruptcy a company files under, any common stock in a bankrupt company is likely to be worthless.  That is because the common stock (that is, “equity”) is the last in line to receive what’s available to be distributed in a bankruptcy proceeding. 

Basis Point

One one-hundredth (.01) of a percentage point. For example, eight percent is equal to 800 basis points.

Bear Market

A time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.

Beneficial Owner

A beneficial owner holds stocks indirectly, for example, through a bank or broker-dealer. Beneficial owners are sometimes said to be holding shares in "street name."

Bid Price

The term "bid" refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time.  The term ask refers to the lowest price at which a seller will sell the stock.

The bid price will almost always be lower than the ask or “offer,” price.  The difference between the bid price and the ask price is called the "spread."

Binary options

A binary option is a type of options contract in which the payout depends entirely on the outcome of a yes/no proposition and typically relates to whether the price of a particular asset will rise above or fall below a specified amount.   Once the option is acquired, there is no further decision for the holder to make regarding the exercise of the binary option because binary options exercise automatically.  Unlike other types of options, a binary option does not give the holder the right to buy or sell the specified asset.  When the binary option expires, the option holder receives either

Blank Check Company

A blank check company is a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company or companies, other entity, or person. These companies typically involve speculative investments and often fall within the SEC’s definition of "penny stocks" or are considered "microcap stocks."

Blue Sky Laws

In addition to the federal securities laws, every state has its own set of securities laws—commonly referred to as "Blue Sky Laws"—that are designed to protect investors against fraudulent sales practices and activities. While these laws do vary from state to state, most state laws typically require companies making offerings of securities to register their offerings before they can be sold in a particular state, unless a specific state exemption is available. The laws also license brokerage firms, their brokers, and investment adviser representatives.

Board of Directors

A group of people elected by shareholders to oversee the management of a corporation.

Boiler Room Schemes

Boiler room schemes are large-scale operations designed to lure in as many investors to an investment scam as possible, often using high-pressure sales tactics.   Boiler room scheme operators may cold call investors or solicit investors through emails, text messages, social media, and other means.  Beware of boiler room scheme tactics, including:

Bond

A debt security, similar to an IOU. When you buy a bond, you are lending money to the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal when it "matures," or comes due.

Bond Swap

The investor sells one bond and uses the proceeds to buy another bond, often at the same price.

Bonds

A bond is a debt security, similar to an IOU.  Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.

When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.  In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it “matures,” or comes due after a set period of time. 

Bonds, Corporate

Corporate bonds are bonds issued by companies. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business.

Bonds, Selling Before Maturity

Investors who hold a bond to maturity (when it becomes due) get back the face value or "par value" of the bond. But investors who sell a bond before it matures may get a far different amount. For example, if interest rates have risen since the bond was purchased, the bondholder may have to sell at a discount—below par. But if interest rates have fallen, the bondholder may be able to sell at a premium above par.

Bonus Credits for Annuities

In an attempt to attract purchasers, some insurance companies offer variable annuity contracts with "bonus credits." A bonus credit is the extra amount an insurance company agrees to add to the value of your contract-usually a specified percentage (typically ranging from 1% to 5%) of the payments you make during a certain time period. While bonus credits sound like free money, variable annuities with bonus credits may have higher expenses that offset any gain.

Breakpoint Discounts

Some mutual funds that charge front-end sales loads will charge lower sales loads for larger investments. For example, a fund might charge a 5% front-end sales load for investments up to $25,000, but reduce that to a 4% load for investments between $25,000 and $50,000 and 3% for investments exceeding $50,000. The investment levels required to obtain a reduced sales load  are commonly referred to as "breakpoints."

Broker

An individual who acts as an intermediary between a buyer and seller, usually charging a commission to execute trades. Brokers are required to seek the best execution of trades they make for clients, and if they recommend investments to clients, those investments must be suitable for the client.

Broker Vote

For certain routine matters to be voted upon at shareholder meetings, if you don’t vote by proxy or at the meeting in person, brokers may vote on your behalf at their discretion. These votes may also be called uninstructed or discretionary broker votes. There are stock exchange rules regarding which routine matters brokers may vote upon.

Broker-Dealers: Why They Ask for Personal Information

Brokers generally request personal information from their customers, including financial and tax identification information, to comply with U.S. government laws and rules, as well as rules imposed by self-regulatory organizations (SROs).  Brokers request personal information from new customers as well as from customers who have had long-standing relationships with their firms.

Here are some of the reasons why brokers need to gather this information:

SUITABILITY REQUIREMENTS

Brokerage Account – Closing Your Brokerage Account

Generally, either you or your brokerage firm may close your brokerage account at any time.  The specific steps you will need to follow to close your account are usually found in the terms and conditions of your brokerage account agreement.  In addition, these terms and conditions generally specify when and how your brokerage firm may close your brokerage account at its own discretion.  If you have any questions regarding the terms and conditions in your brokerage agreement, please contact your brokerage firm.  

Bull Market

A time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.

Buying Long

Purchasing or owning shares of stock, with the expectation that the stock will rise in value.

Callable CDs

These give the issuing bank the right to terminate – or "call" – the CD after a set period of time, but they do not give the CD holder the same right. If interest rates fall, the issuing bank might call the CD.

Callable or Redeemable Bonds

Callable or redeemable bonds are bonds that can be redeemed or paid off by the issuer prior to the bonds' maturity date. When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments. Sometimes a call premium is also paid. Call provisions are often a feature of corporate and municipal bonds.

Capital Gain

The profit that comes when an investment is sold for more than the price the investor paid for it.

Cash

Money that can be used to pay for goods or services.

Cash Account

A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased.  An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account (trading on margin).

CD Call Period

Don't assume that a "federally insured one-year non-callable" CD matures in one year. It doesn't. These words mean the bank cannot redeem the CD during the first year. A "one-year non-callable" CD may still have a maturity date that is years in the future.

Certificate of Deposit

A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years.  In exchange, the issuing bank pays you interest.  When you cash in or redeem your CD, you receive the money you originally invested plus any interest.

Certificates of deposit are considered to be one of the safest savings options.  A CD bought through a federally insured bank is insured up to $250,000.  The $250,000 insurance covers all accounts in your name at the same bank, not each CD or account you have at the bank. 

Churning

A broker typically earns a portion of the commissions or other fees on each purchase or sale of securities that the brokerage firm makes for an investor. When a broker engages in excessive buying and selling (i.e., trading) of securities in a customer’s account without considering the customer’s investment goals and primarily to generate commissions that benefit the broker, the broker may be engaged in an illegal practice known as churning.

Red flags of excessive trading may include:

Classes

Different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class of a fund holds identical investments and shares the same investment objectives and policies. But each class has different shareholder services with different fees and expenses, and therefore, each class will have different performance results.

Closing Price

"Closing price" generally refers to the last price at which a stock trades during a regular trading session. For many U.S. markets, regular trading sessions run from 9:30 a.m. to 4:00 p.m. Eastern Time.

Commissions

You will likely pay a commission when you buy or sell a stock through a financial professional.  The commission compensates the financial professional and his or her firm when it is acting as agent for you in your securities transaction.

Complaints

The SEC’s Office of Investor Education and Advocacy (OIEA) receives many types of complaints from individual investors, including complaints against brokers, brokerage firms, investment advisers, transfer agents, mutual funds, and other market participants.

Investors can submit a complaint form to OIEA to report problems with investments, an investment account, or a financial professional, including problems involving:

Consolidated Tape

The "consolidated tape" is a high-speed, electronic system that reports the latest price and volume data on sales of exchange-listed stocks.

Contingent Deferred Sales Load

A type of back-end load, the amount of which depends on the length of time the investor holds his or her shares. For example, a contingent deferred sales load might be 5% if an investor holds his or her shares for one year, 4% after two years, and so on until the load disappears completely.

Conversion

A feature some funds offer that allows investors to automatically switch from one fund class to another, typically one with lower annual expenses, after a set period of time. The fund's prospectus or profile will state whether the fund has a conversion feature.

Convertible Securities

A "convertible security" is a security—usually a bond or a preferred stock—that can be converted into a different security—typically shares of the company's common stock. In most cases, the holder of the convertible determines whether and when to convert. In other cases, the company has the right to determine when the conversion occurs.

Corporate Governance

A framework which may include rules and regulations, corporate charter and bylaws, formal policies, as well as customs and other processes, that determines the leadership, organization, and direction of a company.

Corporate Reports

Corporate reports can provide important information for investors by, for example, telling you whether a company is making money or losing money and why. You'll find this information in the company's quarterly reports on Form 10-Q, annual reports on Form 10-K, and periodic reports of significant events on Form 8-K.

It's usually easy to find information about  publicly reporting companies from the companies themselves, newspapers, brokerage firms, and the SEC. By contrast, it can be extremely difficult to find information about privately held companies.

Coupon

A feature of a bond that denotes the amount of interest due and the date that the payment will be made.

Coupon Payment

The dollar amount of interest paid to an investor. The amount is calculated by multiplying the interest of the bond by its face value.

Coupon Rate

The interest rate on a bond. It is expressed as a semi-annual rate.

Creation Unit

Large blocks of shares in an ETF, typically 50,000 shares or more.

Credit Rating Agencies

Provide their opinion on the creditworthiness of a corporate or government borrower by issuing a grade, or credit rating, on bonds issued by that borrower.

Cumulative Voting

Cumulative voting is a type of voting system that helps strengthen the ability of minority shareholders to elect a director. This method allows shareholders to cast all of their votes for a single nominee for the board of directors when the company has multiple openings on its board. In contrast, in "regular" or "statutory" voting, shareholders may not give more than one vote per share to any single nominee.

Current Yield

The ratio of the interest rate payable on a bond to the actual market price of the bond, stated as a percentage. For example, a bond with a current market price of $1,000 that pays $80 per year would have a current yield of 8%.

Data Tagging

Data tagging, in formats like XBRL or “eXtensible Business Reporting Language,” is gaining popularity as a way to enhance financial reporting.

By using computer codes to "tag" different kinds of data in financial reports, the information companies file with the Commission can be made much easier to find and analyze. For example, specific items in a financial statement, such as net income or gross sales, are given computer-readable labels. At the same time, the task of preparing the reports can be automated for the companies who file them.

Day Order

Unless an investor specifies a time frame for the expiration of an order, orders to buy and sell a stock are “Day” orders, meaning they are good only during that trading day.  Day orders that do not execute during regular trading hours expire and will not automatically carry over into after-hours trading or the next regular trading day.

Learn More.

 

Day Trade

FINRA rules define a “day trade” as the purchase and sale, or the sale and purchase, of the same security on the same day in a margin account.  This definition encompasses any security, including options.  Selling short and purchasing to cover a position in the same security on the same day is also considered a day trade.

Exceptions to this definition include:

Day Trading

Day traders rapidly buy, sell and short-sell stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time.

Debentures

An unsecured bond backed solely by the general credit of a company.

Default

A failure by an issuer to pay principal or interest when due, or to fulfill other obligations, such as reporting requirements.

Deferred Annuity

With a deferred annuity, you make payments to an insurance company, which will be free from taxes until you reach a particular age or a date specified in your contact.

Deferred Sales Charge

A sales charge, also known as a "Back-end Load," investors pay when they redeem (sell) mutual fund shares. Funds generally use these to compensate brokers.

Defined Benefit Plan

Defined benefit plans also are known as pension plans. Employers sponsor defined benefit plans and promise the plan's investments will provide you with a specified monthly benefit at retirement. The employer bears the investment risks.

Defined Contribution Plan

A retirement savings plan, such as a 401(k) plan, that does not promise a specific payment upon retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account. The employee bears the investment risks.

Derivatives

Financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. For example, a stock option is a derivative because its value changes in relation to the price movement of the underlying stock.

Disclosure

Information about a company’s financial condition and business that it makes public. Investors can use this information to make informed investment decisions about the company’s securities. 

Discount

A bond sold before it matures might not sell at full par value. If it sells below par, it is selling at discount.

Discount Note

Short-term obligations issued at a discount from face value. Discount notes have no periodic interest payments; the investor receives the note's face value at maturity. For example, a one-year, $1,000 face value discount note purchased at issue at a price of $950, would yield $50 or 5.26% ($50/$950).

Distribution Fees

Fees paid out of fund assets to cover marketing and selling fund shares. These fees may cover advertising costs, compensating brokers and others who sell fund shares, payments for printing and mailing prospectuses to new investors, and providing sales literature to prospective investors. Distribution fees sometimes are referred to as "12b-1 fees."

Distribution [and/or Service] (12b-1) Fees

 

So-called “12b-1 fees” are fees paid out of mutual fund or ETF assets to cover the costs of distribution – marketing and selling mutual fund shares – and sometimes to cover the costs of providing shareholder services.

12b-1 fees get their name from the SEC rule that authorizes a fund to charge them.  The rule permits a fund to pay these fees out of fund assets only if the fund has adopted a plan (“12b-1 plan”) authorizing their payment.

Diversification

Diversification is a strategy that can be neatly summed up as "Don't put all your eggs in one basket." The strategy involves spreading your money among various investments in the hope that if one loses money, the others will make up for those losses.

Dividend

A portion of a company's profit paid to shareholders. Public companies that pay dividends usually do so on a fixed schedule although they can issue them at any time. Unscheduled dividend payments are known as special dividends or extra dividends.

DTC Chills and Freezes

Should problems arise with a company or its securities on deposit at The Depository Trust Company (DTC), DTC may impose a “chill” or a “freeze” on all the company’s securities.

A “chill” is a restriction placed by DTC on one or more of DTC’s services, such as limiting a DTC participant’s ability to make a deposit or withdrawal of the security at DTC.  A chill may remain imposed on a security for just a few days or for an extended period of time depending upon the reasons for the chill and whether the issuer or transfer agent corrects the problem.

Early Withdrawal

If a CD is redeemed before it matures, you may have to pay a penalty or forgo a portion of the interest.

EDGAR

The SEC’s EDGAR database provides free public access to corporate information, allowing you to quickly research a company’s financial information and operations by reviewing registration statements, prospectuses and periodic reports filed on Forms 10-K and 10-Q. You also can find information about recent corporate events reported on Form 8-K.

Learn more.

Education Savings Plan

A type of 529 plan that lets an account owner open an investment account to save for the account beneficiary’s qualified higher education expenses or tuition for elementary or secondary public, private, or religious schools.

Employee Retirement Income Security Act (ERISA)

The Employee Retirement Income Security Act of 1974, which is administered by the U.S. Department of Labor. ERISA does not require employers to offer a pension plan. But it does require employers who do offer them to meet certain minimum standards.

Enrollment Fee

Fees that direct-sold college savings plans may charge to join in the program.

Ex-Dividend Dates

To determine whether you should get a dividend, you need to look at two important dates. They are the "record date" or "date of record" and the "ex-dividend date" or "ex-date."

When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Companies also use this date to determine who is sent proxy statements, financial reports, and other information.

Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends

To determine whether you should get a dividend, you need to look at two important dates. They are the "record date" or "date of record" and the "ex-dividend date" or "ex-date."

When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Companies also use this date to determine who is sent proxy statements, financial reports, and other information.

Exchange Fee

A fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.

Exchange-Traded Fund (ETF)

Exchange-traded funds (ETFs) are SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonds, or other assets. In return, investors receive an interest in the fund.  Most ETFs are professionally managed by SEC-registered investment advisers.  Some ETFs are passively-managed funds that seek to achieve the same return as a particular market index (often called index funds), while others are actively managed funds that buy or sell investments consistent with a stated investment objective.  ETFs are not mutual funds.

Expense Ratio

The fund's total annual operating expenses, including management fees, distribution fees, and other expenses, expressed as a percentage of average net assets.

Fair Disclosure, Regulation FD

Regulation FD addresses the selective disclosure of information by publicly traded companies and other issuers. Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must also make public disclosure of that information. In this way, Regulation FD aims to promote full and fair disclosure.

Filing and Registration Fees

The SEC collects fees under various provisions of the securities laws, including the following:

Section 6(b) of the Securities Act of 1933 (for registrations of securities);

Section 13(e) of the Securities Exchange Act of 1934 (for specified repurchases of securities);

Section 14(g) of the Securities Exchange Act of 1934 (for proxy solicitations and statements in corporate control transactions); and 

Fill-Or-Kill Order

A Fill-Or-Kill order is an order to buy or sell a stock that must be executed immediately in its entirety; otherwise, the entire order will be cancelled (i.e., no partial execution of the order is allowed). 

Learn More.

 

Financial Planners

A financial planner typically prepares financial plans for his or her clients. The kinds of services financial planners offer can vary widely. Some financial planners assess every aspect of your financial life—including saving, investments, insurance, taxes, retirement, and estate planning—and help you develop a detailed strategy or financial plan for meeting all your financial goals. Other professionals call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products and sometimes products that aren't securities.

Financial Product

Examples of financial products include but are not limited to the following: stocks, bonds, derivatives, and currencies.

Financial Professionals – Background Checks

You should check out the registration status and background of any financial professional before becoming a client.  Even if a close friend or family member recommends a financial professional, you should still check out that person to make sure they are licensed and for signs of potential problems.  Anyone registered to sell securities or provide investment advice generally must disclose certain customer complaints, lawsuits and arbitrations, regulatory actions, employment terminations, bankruptcy filings, and certain other criminal or civil legal proceedings.  You should also be able to f

Fixed Annuity

An insurance product that promises a minimum rate of interest while your account is growing. The insurance company also guarantees that the periodic payment will be for a set amount for a fixed period, such as 20 years, or an indefinite period, such as your lifetime.

Floor

The lower limit for the interest rate on a floating-rate bond.

Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act (“FCPA”) generally prohibits the bribing of foreign officials. The FCPA also requires publicly traded companies to maintain accurate books and records and to have a sys-tem of internal controls sufficient to provide reason-able assurances that transactions are executed and assets are accounted for in accordance with management’s authorization and recorded as necessary to permit the preparation of financial statements in conformity with generally accepted accounting principles (known as “GAAP”).

Foreign currency exchange (forex)

A foreign currency exchange rate is a price that represents how much it costs to buy the currency of one country using the currency of another country. Currency traders buy and sell currencies through forex transactions based on how they expect currency exchange rates will fluctuate. When the value of one currency rises relative to another, traders will earn profits if they purchased the appreciating currency, or suffer losses if they sold the appreciating currency.

 

Additional Information

Foreign Regulators

The SEC is the primary overseer of the U.S. securities markets while foreign regulators oversee securities markets in other jurisdictions. The SEC and most foreign securities regulators are members of International Organization of Securities Commissions (IOSCO), which develops, implements and promotes adherence to internationally recognized standards for securities regulation.

Form 10-K

The federal securities laws require publicly reporting companies to disclose information on an ongoing basis. For example, domestic companies must submit annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for a number of specified events and must comply with a variety of other disclosure requirements.

Form 10-Q

The federal securities laws require publicly reporting companies to disclose information on an ongoing basis. For example, domestic issuers must submit annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for a number of specified events and must comply with a variety of other disclosure requirements.

Form 13F -—Reports Filed by Institutional Investment Managers

An institutional investment manager that uses the U.S. mail (or other means or instrumentality of interstate commerce) in the course of its business, and exercises investment discretion over $100 million or more in Section 13(f) securities (explained below) must report its holdings quarterly on Form 13F with the Securities and Exchange Commission (SEC).

Form 8-K

In addition to filing annual reports on Form 10-K and quarterly reports on Form 10-Q, publicly reporting companies must report certain material corporate events on a more current basis. Form 8-K is known as a “current report” and it is the report that companies must file with the SEC to announce major events that shareholders should know about.

Form D

Companies may use an exemption under Regulation D to offer and sell securities without having to register the offering with the SEC. When relying on such an exemption, companies must file what’s known as a "Form D" after they first sell their securities.

Fraudster

A person whose goal is to con people out of their money.

Free look Period

Variable annuity contracts typically have a "free look" period of ten or more days. During this period, you are free to terminate your contract without paying any surrender charges and you will receive a refund for the amount you paid. The "free look" period is a time for you to continue to ask questions so that you understand the variable annuity and are sure that it is right for you.

Freeriding

In a cash account, an investor must pay for the purchase of a security before selling it.  If an investor buys and sells a security before paying for it, the investor is “freeriding” which is not permitted under the Federal Reserve Board’s Regulation T and may require the investor’s broker to

Freeze, Brokerage Account

In a cash account, an investor must pay for the purchase of a security before selling it.  If an investor buys and sells a security before paying for it, the investor is “freeriding,” which is not permitted under the Federal Reserve Board’s Regulation T and may require the investor’s broker to “freeze” the investor’

Front-end Load

An upfront sales charge investors pay when they buy fund shares. It generally is used by the fund to compensate brokers. A front-end load is deducted from the purchase and reduces the amount available to buy fund shares.

Future Value

The value of an asset at a specified date in the future.

Futures contract

An agreement to buy or sell a specific quantity of a commodity or financial instrument at a specified price on a particular date in the future.

Futures Market

Markets that trade futures contracts for commodities such as gold, oil or wheat, as well as financial futures.

General Obligation Bond

A municipal bond not secured by any assets; instead it is backed by the issuer's power to tax residents to pay bondholders.

Generally Accepted Accounting Principles (GAAP)

GAAP (Generally Accepted Accounting Principles) are accounting standards, conventions and rules. It is what companies use to measure their financial results. These results include net income as well as how companies record assets and liabilities. In the US, the SEC has the authority to establish GAAP. However, the SEC has historically allowed the private sector to establish the guidance. See The Financial Accounting Standards Board.

Going Private

A publicly held company generally means a company that has a class of securities that is registered with the SEC because those securities are widely held or traded on a national securities exchange. When a public company is eligible to deregister a class of its equity securities, either because those securities are no longer widely held or because they are delisted from an exchange, this is known as “going private.”

Good-Til-Cancelled Order

A Good-Til-Cancelled (GTC) order is an order to buy or sell a stock that lasts until the order is completed or canceled. Brokerage firms typically limit the length of time an investor can leave a GTC order open.  This time frame may vary from broker to broker.  Investors should contact their brokerage firms to determine what time limit would apply to GTC orders. 

Learn More.

Hedge Funds

Like mutual funds, hedge funds pool investors’ money and invest the money in an effort to make a positive return.  Hedge funds typically have more flexible investment strategies than mutual funds.  Many hedge funds seek to profit in all kinds of markets by using leverage (in other words, borrowing to increase investment exposure as well as risk), short-selling and other speculative investment practices that are not often used by mutual funds.

High-yield Bond (or Junk Bond)

Bonds that are believed to have a higher risk of default and receive low ratings by credit rating agencies, namely bonds rated Ba or below (by Moody's) or BB or below (by S&P and Fitch). These bonds typically are issued at a higher yield (for example, a higher interest rate) than more creditworthy bonds, reflecting the perceived higher risk to investors.

High-Yield Investment Programs

High-Yield Investment Programs (HYIP) are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible returns at little or no risk to the investor. A HYIP website might promise annual (or even monthly, weekly, or daily!) returns of 30 or 40 percent – or more. Some of these scams may use the term “prime bank” program. Fraudsters may use social media to promote a HYIP website or may encourage investors to use social media to share information about a HYIP website with others.

Householding Rules

Investors often invest in funds through a variety of individual and family accounts and, as a result, sometimes receive multiple copies of the same documents from those funds.  To avoid duplication, the SEC allows funds to deliver a single copy of the same document to investors who share the same address.

Immediate Annuity

This annuity has no accumulation phase. Instead, you start receiving annuity payments right after you purchase the annuity.

Immediate-Or-Cancel Order

An Immediate-Or-Cancel (IOC) order is an order to buy or sell a stock that must be executed immediately. Any portion of an IOC order that cannot be filled immediately will be cancelled. 

Learn More.

Impersonators

Impersonators may falsely claim to be affiliated with the SEC (or another federal government agency) in an attempt to steal your personal information or your money. Federal government agencies, including the SEC, do not endorse or sponsor any particular securities, issuers, products, services, professional credentials, firms, or individuals.

Index Fund

An "index fund" describes a type of mutual fund or unit investment trust (UIT) whose investment objective typically is to achieve approximately the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index or the Wilshire 5000 Total Market Index.

Initial Public Offerings, Why Individuals Have Difficulty Getting Shares

The underwriters and the company that issues the shares control the IPO process. They have wide latitude in allocating IPO shares. The SEC does not regulate the business decision of how IPO shares are allocated.

While smaller or individual investors are finding it easier to buy IPO shares through online brokerage firms, they may still find it difficult to buy IPO shares for a number of reasons:

Initial Public Offerings: Eligibility to Get Shares at Broker-Dealers

No brokerage firm can guarantee you will be able to purchase shares in an initial public offering (IPO).

While it can be difficult for individual investors to buy IPO shares, more firms, including several online brokers, offer IPOs.  Because these firms often have a small allotment of shares to sell to the public, your ability to buy these shares – especially "hot" IPOs – may be limited no matter which firm you do business with.

Insider Trading

Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.

Examples of insider trading cases that have been brought by the SEC are cases against:

Interest

The price paid for borrowing money. It is expressed as a percentage rate over a period of time.

Interest rates may be fixed, meaning the rate is set and will not change, or may be variable or "floating," meaning the rate may move higher or lower over time.

Internet Fraud

The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort, or money. Anyone can reach tens of thousands of people by building an Internet Web site, posting a message on an online bulletin board, entering a discussion in a live "chat" room, or sending mass e-mails. It's easy for fraudsters to make their messages look real and credible. But it's nearly impossible for investors to tell the difference between fact and fiction.

Interval Fund

An interval fund is a type of investment company that periodically offers to repurchase its shares from shareholders. That is, the fund periodically offers to buy back a stated portion of its shares from shareholders. Shareholders are not required to accept these offers and sell their shares back to the fund.

Legally, interval funds are classified as closed-end funds, but they are very different from traditional closed-end funds in that:

Invest

To engage in any activity in which money is put at risk for the purpose of making a profit.

Investigations

The SEC’s Division of Enforcement conducts investigations into potential violations of the federal securities laws. Common violations include misrepresenting important information about potential investments, manipulating the market prices of securities, stealing customers’ funds or securities, insider trading, and selling unregistered securities.

Investment Adviser

An investment adviser is a person or firm that is engaged in the business of providing investment advice to others or issuing reports or analyses regarding securities, for compensation. Investment advisers may include money managers, investment consultants, financial planners, general partners of hedge funds, and others who are compensated for providing advice about securities.

Investment Company

A company that issues and invests in securities. The three types of investment companies are mutual funds, closed-end funds, and unit investment trusts.

Investment-grade Bond (or High-grade Bond)

Bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies, namely bonds rated Baa (by Moody's) or BBB (by S&P and Fitch) or above. These bonds tend to be issued at lower yields than less creditworthy bonds.

Issuer

The entity obligated to pay principal and interest on a bond.

Late Payment of Interest on Bonds

nvestors sometimes complain to the SEC staff about late payments of interest owed to them on their bonds. The SEC, however, does not generally regulate this issue. Instead, the process for paying bondholders ordinarily involves banking transactions that are subject to the supervision of state and federal banking authorities.

Liability/Debt

An amount owed to a person or organization for borrowed funds. Loans, notes, bonds, and mortgages are forms of debt. These different forms all call for borrowers to pay back the amount they owe, typically with interest, by a specific date, which is set forth in the repayment terms.

Lifecycle Funds

A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its "target date." A lifecycle fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Lifecycle funds also are known as target date funds.

Limit Orders

A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.

Liquidity (or Marketability)

Liquidity generally refers to how easily or quickly a security can be bought or sold in a secondary market. Liquid investments can be sold readily and without paying a hefty fee to get money when it is needed.

A stock’s liquidity generally refers to how rapidly shares of a stock can be bought or sold without substantially impacting the stock price. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to.

Listing Standards

Before a company’s stock can begin trading on an exchange, the company must meet certain minimum financial and non-financial requirements, or "initial listing standards." Initial listing standards generally include a company’s total market value and stock price, and the number of publicly traded shares and shareholders of the company. Once listed on an exchange, a company must continue to meet a various financial and non-financial requirements, or “continued listing standards.” Continued listing standards are similar to initial listing standards, but may include additional requirements.

Load

The amount that investors pay when they buy (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC's rules do not limit sales loads a fund may charge, but FINRA's rules cap mutual fund sales loads at 8.5% of the purchase or sale, or at lower levels, depending on other fees and charges.

London Interbank Offered Rate (LIBOR)

The interest rates banks charge each other for short-term loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.

Lost and Stolen Securities Program

Congress directed the establishment of the Lost and Stolen Securities Program (LSSP) to curtail trafficking in lost, stolen, missing, and counterfeit securities certificates.  Rule 17f-1 under the Exchange Act governs LSSP operations.  The LSSP consists mainly of a database for securities that have been reported lost, stolen, missing, or counterfeit.

Lost or Stolen Stock Certificates

Brokerage firms, banks, transfer agents and corporations have procedures in place to help investors replace lost or stolen certificates.

Maintenance Fee

Fees that direct-sold college savings plans may charge for continued participation in the plan.

Management Fee

A fee paid out of fund assets to the fund's investment adviser for investment portfolio management. A fund's management fees appear under Annual Fund Operating Expenses in the fee table in the fund's prospectus.

Margin Account

A “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities.  Margin increases investors’ purchasing power, but also exposes investors to the potential for larger losses.

Learn More.

Margin Call

If you buy on margin and the value of your securities declines, your brokerage firm can require you to deposit cash or securities to your account immediately, or sell any of the securities in your account to cover any shortfall, without informing you in advance. The brokerage firm decides which of your securities to sell. Even if the brokerage firm notifies you that you have a certain number of days to cover the shortfall, it still may sell your securities before then. A brokerage firm may at any time change the threshold at which customers are subject to a margin call.

Market Capitalization

Market capitalization is the value of a corporation determined by multiplying the current public market price of one share of the corporation by the number of total outstanding shares.

Market Index

A measurement of the performance of a specific "basket" of stocks considered to represent a particular market or sector of the U. S. economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 "blue chip" stocks of U.S. companies.

Market Indices

A market index tracks the performance of a specific "basket" of stocks that represent a particular market or economic sector. U.S. examples include the Dow Jones Industrial Average, an index of 30 "blue chip" U.S. company stocks, the Standard and Poor's 500 Index, and the Wilshire 5000 Index, which includes most publicly traded U.S. stocks.

Market Makers

A "market maker" is a firm that stands ready to buy or sell a stock at publicly quoted prices. 

Learn More.

Market Manipulation

Market manipulation is when someone artificially affects the supply or demand for a security (for example, causing stock prices to rise or to fall dramatically).

Market manipulation may involve techniques including:

Market Order

A market order is an order to buy or sell a stock at the current market price. Unless you specify otherwise, your broker will enter your order as a market order. The advantage of a market order is that as long as there are willing buyers and sellers, you are almost always guaranteed your order will be executed. The disadvantage is the price you pay when your order is executed may not be the price you expected.

Markups

When a broker-dealer sells you securities out of its inventory, the broker-dealer acts as a principal in the transaction (that is, selling to you directly the securities it holds).  When acting in a principal capacity the broker-dealer generally will be compensated by selling the security to you at a price that is higher than the market price (the difference is called a markup), or by buying the security from you at a price that is lower than the market price (the difference is called a markdown).

Medallion Signature Guarantees: Preventing the Unauthorized Transfer of Securities

If you hold securities in physical certificate form and want to transfer or sell them, you will need to sign the certificates and securities powers--a legal document, separate from a securities certificate that investors use to transfer or assign ownership to another person or entity. You will need to get your signature guaranteed on all documents before a transfer agent will accept the transaction instructions.

Mediation and Arbitration

Arbitration, a form of alternative dispute resolution, is a technique for the resolution of disputes outside the court system.  The parties to a dispute refer it to arbitration by one or more persons and agree to be bound by the arbitration decision.

Mergers

Mergers are transactions involving the combination of generally two or more companies into a single entity. The need for shareholder approval of a merger is governed by state law.  Typically, a merger must be approved by the holders of a majority of the outstanding shares of the target company.  Approval of the acquiring company’s shareholders may also be required under certain circumstances (for example, the exchange listing standards may require a shareholder approval if the number of shares of the acquiring company offered as merger consideration exceeds a specified threshold). 

Microcap stock

The term “microcap stock” (sometimes referred to as “penny stock”) applies to companies with low or micro market capitalizations.  Companies with a market capitalization of less than $250 or $300 million are often called “microcap stocks” – although many have market capitalizations of far less than those amounts.  The smallest public companies, with market capitalizations of less than $50 million, are sometimes referred to as “nanocap stocks.” 

Mini-Tender Offers

"Mini-tender" offers are tender offers that, when consummated, will result in the person who makes the tender offer owning less than five percent of a company’s stock. The people behind these offers—also known as "bidders"—frequently use mini-tender offers to catch shareholders off guard. Most bidders won’t use the term “mini-tender offer” to describe their offer to buy shares. They count on investors jumping to the conclusion that the price offered includes the premium usually present in larger, traditional tender offers.

Money Market Fund

A money market fund is a type of mutual fund that has relatively low risks compared to other mutual funds and most other investments and historically has had lower returns. Money market funds invest in high quality, short-term debt securities and pay dividends that generally reflect short-term interest rates. Many investors use money market funds to store cash or as an alternative to investing in the stock market.

Mortgage-Backed Securities and Collateralized Mortgage Obligations

Mortgage-backed securities (MBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans, most commonly on residential property. Mortgage loans are purchased from banks, mortgage companies, and other originators and then assembled into pools by a governmental, quasi-governmental, or private entity. The entity then issues securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization.

 

Mutual Fund Classes

Some mutual funds offer investors different types of shares, known as "classes."  Each class invests in the same portfolio of securities and has the same investment objectives and policies.  But each class has different shareholder services and/or distribution arrangements with different fees and expenses.  Because of the different fees and expenses, each class will likely have different performance results.

Mutual Fund Fees and Expenses

As with any business, running a mutual fund involves costs. For example, there are costs incurred in connection with particular investor transactions, such as investor purchases, exchanges, and redemptions. There are also regular fund operating costs that are not necessarily associated with any particular investor transaction, such as investment advisory fees, marketing and distribution expenses, brokerage fees, and custodial, transfer agency, legal, and accountants’ fees.

Mutual Fund Prospectus

Mutual funds must provide a copy of the fund’s prospectus to shareholders after they purchase shares, but investors can – and should – request and read the fund’s prospectus before making an investment decision. There are two kinds of prospectuses: (1) the statutory prospectus; and (2) the summary prospectus. The statutory prospectus is the traditional, long-form prospectus with which most mutual fund investors are familiar. The summary prospectus, which is used by many funds, is just a few pages long and contains key information about a fund.

Mutual Fund Redemptions

A mutual fund company generally must pay redemption proceeds to a shareholder within seven days of receiving a redemption request from the shareholder. Exceptions apply on days when the New York Stock Exchange is closed, during certain emergencies, or when the SEC issues an order delaying redemptions to protect shareholders in the fund.

Mutual Funds, Past Performance

This year's top-performing mutual funds aren't necessarily going to be next year's best performers. It’s not uncommon for a fund to have better-than-average performance one year and mediocre or below-average performance the following year. That's why the SEC requires funds to tell investors that a fund's past performance does not necessarily predict future results. You can learn what factors to consider before investing in a mutual fund by reading Mutual Fund Investing: Look at More Than a Mutual Fund's Past Performance. You can also learn more about investment performance claims by reading Investor Bulletin: Performance Claims..

National Securities Exchange


A "national securities exchange" is a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934.  For a complete list of national securities exchanges and recently approved exchange applications please check here.

Nationally Recognized Municipal Securities Information Repositories (NRMSIRs)

Prior to July 1, 2009, a Nationally Recognized Municipal Securities Information Repository (NRMSIR) was an entity, designated by the Securities and Exchange Commission, to which an issuer of municipal securities or an obligated person that entered into a continuing disclosure agreement was contractually required to send annual financial information and disclosures of certain events relating to a municipal security.

Net Asset Value

"Net asset value," or "NAV," of an investment company is the company's total assets minus its total liabilities. For example, if an investment company has securities and other assets worth $100 million and has liabilities of $10 million, the investment company's NAV will be $90 million. Because an investment company's assets and liabilities change daily, NAV will also change daily. NAV might be $90 million one day, $100 million the next, and $80 million the day after.

Net Income

The profit earned by a company after all expenses and taxes have been deducted from revenue. A simple way to think about net income is it’s the price of a widget multiplied by the number of widgets sold (this result is revenue) minus the cost to make and sell the widgets, other expenses and any interest or taxes.

No Action Letters

An individual or entity who is not certain whether a particular product, service, or action would constitute a violation of the federal securities law may request a "no-action" letter from the SEC staff.

No-load Fund

A fund that does not charge any type of sales load. But not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses.

Old Stock and Bond Certificates

An old stock or bond certificate may still be valuable even if it no longer trades under the name printed on the certificate. The company may have merged with another company or simply changed its name. Keep in mind that due to corporate reorganizations (such as splits, mergers, or reverse mergers), the current share price may not be useful in determining the certificate's value, if any.  If the name of the transfer agent is printed on the certificate, contacting the transfer agent is the easiest way to learn about the certificate.  If the transfer agent whose name appears on the certificate is no longer in existence, contacting the state agency that handles incorporations in the state in which the company was incorporated may prove useful.  Certificate holders who have a brokerage account may want to ask their broker if they can assist in researching the certificate.

 

Open-end Company

The legal name for a mutual fund. An open-end company is a type of investment company.

Operating Expenses

The costs a fund incurs in running the fund, including management fees, distribution fees, and other expenses.

Options

Options are contracts giving the purchaser the right – but not the obligation -- to buy or sell a security at a fixed price within a specific period of time. Stock options are traded on a number of exchanges.

OTC Bulletin Board (OTCBB)

The OTC Bulletin Board (OTCBB) (link is external) is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many over-the-counter securities that are not listed on a national securities exchange. Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities.

PIPE Offerings

“PIPE” stands for “private investment in public equity.” In a PIPE offering, investors commit to purchase a certain number of restricted shares from a company at a specified price. The company agrees, in turn, to file a resale registration statement so that the investors can resell the shares to the public. To the extent that they increase the supply of a company’s stock in the market, PIPE offerings can potentially dilute the value of existing shares.

Ponzi Schemes

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi schemes are named after Charles Ponzi. In the 1920s, Ponzi promised investors a 50% return within a few months for what he claimed was an investment in international mail coupons. Ponzi used funds from new investors to pay fake “returns” to earlier investors.

Portfolio

The combined holdings of stock, bond, commodity, real estate and other investments by an individual or institutional investor.

Premium

The amount by which the price of a bond exceeds its principal (par) amount.

Prepaid Tuition Plans

A type of 529 plan that lets an account owner purchase units or credits at participating colleges or universities for future tuition for the account beneficiary.

Prepayment

The unscheduled partial or complete payment of the principal amount outstanding on a loan, such as a mortgage, before it is due.

Prepayment Risk

The risk that principal repayment will occur earlier than scheduled, forcing the investor to reinvest at lower prevailing rates.

Price-earnings (P/E) Ratio

A company's P/E ratio is a way of gauging whether the stock price is high or low compared to the past or to other companies. The ratio is calculated by dividing the current stock price by the current earnings per share. Earnings per share are calculated by dividing the earnings for the past 12 months by the number of common shares outstanding.

Primary Market

Markets in which newly issued securities are sold to investors and the issuer receives the proceeds.

Principal

The total amount of money being borrowed or lent; the initial amount of money invested.

Product Description

A summary of key information about an ETF that explains how to obtain a prospectus.

Profit

Revenue minus cost; money made on a transaction.

Promissory Notes

Promissory notes are a form of debt that companies sometimes use to raise money. They typically involve investors loaning money to a company in exchange for a fixed amount of periodic income. Although promissory notes can be appropriate investments for many individuals, some fraudsters use promissory notes to defraud investors, especially the elderly.

Prospectus

A document that describes the mutual fund to prospective investors. Every mutual fund provides a prospectus with information about the mutual fund's investment objectives, risks, past performance, and expenses. You can get a prospectus from the mutual fund company's website or by mail. A broker or other financial professional also can provide you with a copy.

Proving Securities Ownership

Proving securities ownership is easier if you can remember how the security was acquired.

Brokerage Firm

If you bought the security through a brokerage firm, contact the firm and ask if they have a record of your ownership.  Brokerage firms are required to keep records for only six years.  Copies of confirmations are only required to be kept for three years.  In many cases, brokers may retain records longer at their own discretion.

Transfer Agent

Proxy Statements

A document sent to shareholders letting them know when and where a shareholders’ meeting is taking place and detailing the matters to be voted upon at the meeting.  You can attend the meeting and vote in person or cast a proxy vote

Learn more.

Proxy Statements: How to Find

A company is required to file its proxy statements with the SEC no later than the date proxy materials are first sent or given to shareholders. You can see this filing by using the SEC's database, known as EDGAR.  Enter the company’s name here and select the appropriate company to view its SEC filings.

Proxy Voting

A way for shareholders to vote for corporate directors and on other matters affecting the company without having to personally attend the meeting.

Public Company

A company that offers its securities through an offering and now has those securities traded on the open market.

Public Documents

How to Access Information or Help

If you have questions and inquiries relating to the SEC, to federal securities laws or investments, your inquiry should be submitted via this Questions and Feedback form. Click here for Fast Answers.

Information about contacting the SEC can be found here.

Pump and Dump Schemes

In a pump and dump scheme, fraudsters typically spread false or misleading information to create a buying frenzy that will “pump” up the price of a stock and then “dump” shares of the stock by selling their own shares at the inflated price. Once the fraudsters dump their shares and stop hyping the stock, the stock price typically falls and investors lose money.  

Purchase Fee

A shareholder fee that some funds charge when investors buy mutual fund shares. This is not the same as, and may be in addition to, a front-end load.

Purchasing Power

The amount of goods and services that can be purchased by a given unit of currency, taking into account the effect of inflation.

Pyramid Schemes

A pyramid scheme is an investment fraud in which new participants’ fees are typically used to pay money to existing participants for recruiting new members. Pyramid scheme organizers may pitch the scheme as a business opportunity such as a multi-level marketing (MLM) program. Fraudsters frequently use social media, Internet advertising, company websites, group presentations, conference calls, and YouTube videos to promote a pyramid scheme.

All pyramid schemes eventually collapse, and most investors lose their money. Hallmarks of a pyramid scheme include:

Quarterly Reports (10Q)

Each quarter, public companies file reports to the SEC containing unaudited financial statements and information about the company's operations in the previous three months.

Quiet Period

The federal securities laws do not define the term “quiet period.”  However, that term is used to refer to the period of time surrounding the filing of a registration statement during which an issuer of securities must ensure that its offering-related communications comply with the federal securities laws.  This period lasts, at a minimum, from the time an issuer files a registration statement with the SEC to the time that SEC staff declare the registration statement “effective.” During that period, issuers and other participants in the registered offering must be careful that any “offer” o

Real Estate Investment Trust (REIT)

Real estate investment trusts (“REITs”) allow individuals to invest in large-scale, income-producing real estate. A REIT is a company that owns and typically operates income-producing real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Unlike other real estate companies, a REIT does not develop real estate properties to resell them. Instead, a REIT buys and develops properties primarily to operate them as part of its own investment portfolio.

Real Return

Real return is what is earned on an investment after accounting for taxes and inflation. Real returns are lower than nominal returns, which do not subtract taxes and inflation.

Rebalancing

Rebalancing brings a portfolio back to its original asset allocation mix. This is necessary because over time, some investments will grow faster than others, and holdings may become out of alignment with investment goals.

Recovering Funds

Investors who are victims of securities law violations may be eligible to receive money recovered from fraudsters. Sometimes a successful SEC enforcement action results in recovered funds being distributed to victims.

Processes that may help victims recover money include: fair funds and disgorgement funds; receiverships; brokerage account customer protections; corporate bankruptcy proceedings; and private class action lawsuits.

Redemption Fee

A shareholder fee that some funds charge when investors redeem (sell) mutual fund shares. Redemption fees, which must be paid to the fund, are not the same as and may be in addition to a back-end load, which is typically paid to a broker. The SEC generally limits redemption fees to 2% of the sales amount.

Registered Owner

A registered owner or record holder holds stocks directly with the company, rather than in "street name." Registration Statement -- By law, public companies in the U.S. must disclose important financial information before they issue securities for sale to the public. This report, known as a registration statement, is filed with the SEC.

Registration Statement

A registration statement is a filing with the SEC making required disclosures in connection with the registration of a security, a securities offering or an investment company under federal securities laws.  Registration statements for securities offerings often include a prospectus, which is the disclosure document describing the offering, the securities and the

Regulation A

Under the federal securities laws, any offer or sale of a security must either be registered with the SEC or meet an exemption.  Regulation A is an exemption from the registration requirements, allowing companies to offer and sell their securities without having to register the offering with the SEC. 

Regulation Crowdfunding

Crowdfunding refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.   

If a company would like to offer and sell securities through crowdfunding, they must comply with the federal securities laws.  Under the federal securities laws, any offer or sale of a security must either be registered with the SEC or meet an exemption. 

Regulation D Offerings

Under the federal securities laws, any offer or sale of a security must either be registered with the SEC or meet an exemption. Regulation D under the Securities Act provides a number of exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the offering with the SEC.

Restricted Securities

Restricted securities are securities acquired in an unregistered, private sale from the issuing company or from an affiliate of the issuer. They typically bear a “restrictive” legend clearly stating that you may not resell them in the public marketplace unless the sale is exempt from the SEC’s registration requirements.

Revenue

The total amount of money, or gross income, generated by a company from selling its goods and services. A simple way to think about revenue is it’s the price of a widget multiplied by the number of widgets sold.

Revenue Bond

A municipal bond not backed by the government's taxing power but by revenues from a specific project or source, such as highway tolls or lease fees.

Reverse Stock Splits

When a company completes a reverse stock split, each outstanding share of the company is converted into a fraction of a share.  For example, if a company declares a one for ten reverse stock split, every ten shares that you own will be converted into a single share.  If you owned 10,000 shares of the company before the reverse stock split, you will own a total of 1,000 shares after the reverse stock split. 

Risk

In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the potential harm that could arise when financial returns are not what the investor expected. In general, as investment risks rise, investors seek higher returns to compensate them for taking on such risks.

Risk Tolerance

An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.

Robo-Adviser

The term “robo-adviser” generally refers to an automated digital investment advisory program.  In most cases, the robo-adviser collects information regarding your financial goals, investment horizon, income and other assets, and risk tolerance by asking you to complete an online questionnaire.  Based on that information, it creates and manages an investment portfolio for you.

Roth 401(k) Plan

An employer-sponsored Roth 401(k) plan is similar to a traditional plan with one major exception. Contributions by employees are not tax deferred but are made with after-tax dollars. Income earned on the account from interest, dividends, or capital gains, is tax-free.

Rule 504 of Regulation D

Rule 504 of Regulation D provides an exemption from the registration requirements of the federal securities laws for some companies when they offer and sell up to $5,000,000 of their securities in any 12-month period.  Except in limited circumstances, purchasers of securities offered pursuant to Rule 504 receive 

Rule 506 of Regulation D

Rule 506 of Regulation D provides two distinct exemptions from registration for companies when they offer and sell securities. Companies relying on the Rule 506 exemptions can raise an unlimited amount of money.

Rulemaking, How It Works

Rulemaking is the process that federal agencies use to make rules. Some rulemaking implements laws passed by Congress and signed by the President. Other rulemaking updates rules under existing laws or creates new rules within an agency’s existing authority that the agency believes are needed. The process is designed to give members of the public an opportunity to provide their opinions.

Sales Charge (or Load)

The amount that investors pay when they buy (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC's rules do not limit sales loads a fund may charge, but FINRA's rules cap mutual fund sales loads at 8.5% of the purchase or sale, or at lower levels, depending on other fees and charges.

Savings

Income that is not spent on consumption but is put aside.

Savings Bond Calculator

If you own or are considering purchasing a U.S. savings bond, the U.S. Department of Treasury's Bureau of the Fiscal Service has designed a useful tool for determining the present and future value--as well as historical information, current interest rate, next accrual date, final maturity date, and year-to-date interest earned. Known as the Savings Bond Calculator, it can help you make more informed investment decisions about savings bonds.

Savings Bonds

Savings bonds are debt securities issued by the U.S. Department of the Treasury to help pay for the U.S. government’s borrowing needs. U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. For more information on savings bonds, visit TreasuryDirect.gov.  

Say-on-pay Vote

Required by law, most public companies must periodically (at least every three years) provide their shareholders with an advisory vote on the compensation of the most highly compensated executives. Companies are required to disclose (usually in a proxy statement [hyperlink to defined term]) how their compensation policies and decisions have taken into account the results of their most recent say-on-pay vote.

Schedules 13D and 13G

Schedules 13D and 13G are commonly referred to as a “beneficial ownership reports.” The term "beneficial owner" is defined under SEC rules. It includes any person who directly or indirectly shares voting power or investment power (the power to sell the security).

Section 1035

This part of the U.S. tax code allows you to exchange an existing variable annuity contract for a new annuity contract without paying tax on the income and investment gains in your current account. But you may have to pay surrender charges on your old annuity if you are still within the surrender period.

Securities Act Rule 144

Federal securities laws may deem certain securities as restricted or control securities. Selling restricted or control securities in the marketplace can be a complicated process. Under federal securities laws, all offers and sales of securities must be registered with the SEC or qualify for some exemption from the registration requirements. If you have acquired restricted securities or hold control securities and want to publicly sell them, you may need to make special efforts to show that your public sales are exempt from registration.

Securities Analyst Recommendations

Analyst recommendations can have a significant effect on a company’s stock price, especially when the recommendations are widely disseminated through television appearances or other electronic and print media.  The SEC receives a number of complaints about analysts who recommend buying a stock in a company from investors who believe the analyst has a financial stake in the company or some other conflict of interest.

Securities Investor Protection Corporation (SIPC)

If your brokerage firm goes out of business and is a member of the Securities Investor Protection Corporation (SIPC), then your cash and securities held by the brokerage firm may be protected up to $500,000, including a $250,000 limit for cash. When a SIPC member becomes insolvent, SIPC will ask a court to appoint a trustee to supervise the firm's liquidation and to process investors' claims.

Security

An investment instrument such as a stock or bond.

Senior Bond

A bond that has a higher priority than another bond's claim to the same class of assets in case of a default or bankruptcy. Settlement Date -- The agreed date for the delivery of bonds and payment of funds.

Settling Securities Transactions, T+2

Investors must complete or "settle" their security transactions within two business days. This settlement cycle is known as "T+2," shorthand for "trade date plus two days." 

T+2 means that when you buy a security, your payment must be received by your brokerage firm no later than two business days after the trade is executed. When you sell a security, you must deliver to your brokerage firm your securities certificate no later than two business days after the sale. 

Shareholder Service Fees

Fees paid to respond to inquiries from investors and provide them with information about their investments.

Short Sale Volume and Transaction Data

To increase the transparency surrounding short sale transactions, several self-regulatory organizations (SROs) are providing on their websites daily aggregate short selling volume information for individual equity securities.  The SROs are also providing website disclosure on a one-month delayed basis of information regarding individual short sale transactions in all exchange-listed equity securities.  For short sale data provided by a specific SRO, you can click on the hyperlinks below.

Short Sales

A short sale occurs when you sell stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.

Spin-Offs

In a "spin-off," a parent company distributes shares of a subsidiary to the parent company's shareholders so that the subsidiary becomes a separate, independent company. The shares are usually distributed on a pro rata basis. State law and the rules of the stock exchanges determine whether a company must seek shareholder approval for a spin-off.

State Securities Regulators

While the SEC regulates and enforces the federal securities laws, each state has its own securities regulator who enforces what are known as "blue sky" laws. These laws cover many of the same activities the SEC regulates, such as the sale of securities and those who sell them, but are confined to securities sold or persons who sell them within each state.

Statement of Additional Information (SAI)

Conveys information about an open or closed-end fund that some investors find useful. Funds are not required to provide investors with the SAI, but they must provide it for free upon request. Also known as "Part B" of the fund's registration statement.

Stock

An instrument that signifies an ownership position (called equity) in a corporation, and a claim on its proportional share in the corporation's assets and profits. Most stocks also provide voting rights, which give shareholders a proportional vote in certain corporate decisions, such as the election of corporate directors.

Stock Market

A general term for the organized trading of stocks through exchanges, over-the-counter, and computerized trading venues.

Stock Quotes

Listings of prices to buy and sell a specific stock. During trading, quotes show bids, the prices buyers are willing to pay, and offers, the prices sellers are willing to accept. Historical data provides the opening and closing price for each day of trading, and the daily high and low price for a stock, along with trading volume.

Surrender Charge

A type of sales charge that applies if you withdraw money from a variable annuity within a certain period of time, usually six to ten years. This is known as the surrender period. The charge declines over time until it no longer applies. For example, a 7% surrender charge might apply in the first year after purchase. The charge may fall to 6% in the second year, 5% in the third year and so on, until the eighth year, when it no longer applies.

Target Date Fund

A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its "target date." A target date fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Target date funds also are known as lifecycle funds.

Tender Offer

A tender offer is typically an active and widespread solicitation by a company or third party (often called the “bidder” or “offeror”) to purchase a substantial percentage of the company’s securities.  Bidders may conduct tender offers to acquire equity (common stock) in a particular company or debt issued by the company.  A tender offer where the company seeks to acquire its own securities is often referred to as an issuer tender offer.  A tender offer where a third party seeks to acquire another company’s securities is referred to as a third party tender offer.  

Ticker

Each publicly traded common stock in the U.S. receives a short abbreviation that identifies it, known as its stock symbol or stock ticker symbol. Some stocks have single-letter ticker symbols while others may have up to five. Letters that appear after a ticker provide additional information. For instance, the letter "Q" after a ticker signifies that the company is in bankruptcy.

Time Horizon

Your time horizon is the number of months, years, or decades you need to invest to achieve your financial goal.

Total Annual Fund Operating Expense

The total of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. You'll find the total in the fund's fee table in the prospectus.

Transferring Your Brokerage Account

All brokerage account transfers start and end with your new firm.  Customers initiate the transfer process by completing a Transfer Instruction Form (TIF) and sending it to the new firm.  Most account transfer delays occur because the TIF is either incorrect or incomplete.  It is critical that you use the correct form and fill it out very carefully.  Be sure to provide the requested information exactly as it appears on your old account.

Treasury Securities

Treasury securities—including Treasury bills, notes, and bonds—are debt obligations issued by the U.S. Department of the Treasury. Treasury securities are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government.  The income from Treasury securities may be exempt from state and local taxes, but not from federal taxes. For more information about Treasury securities, visit TreasuryDirect.gov.  

Trustee

An institution, usually a bank, designated by the issuer as the custodian of funds and official representative of bondholders.

Ultra-Short Bond Funds

Ultra-short bond funds are mutual funds that generally invest in fixed income securities with extremely short maturities, or time periods in which they become due for payment.

Variable Annuities

A variable annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments.  In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.  You can choose to invest your purchase payments in a range of investment options, which are typically mutual funds.  The value of your account in a variable annuity will vary, depending on the performance of the investment options you have chosen.

Variable annuities often also offer many features including:

Variable Annuities - Free Look Period

You may cancel your contract within a short period (usually lasting at least 10 days) of receiving it without a surrender charge. Upon cancellation, you will typically receive a refund of your purchase payments. The refund may be adjusted up or down to reflect the performance of your investment options. The length of the free look period may vary depending on the state where you signed your application.

Throughout the "free look" period, you may continue to ask questions to ensure that you understand the variable annuity and to ensure that the investment is right for you.

Variable Annuity Surrender Charges

A "surrender charge" is a type of sales charge you must pay if you sell or withdraw money from a variable annuity during the "surrender period" – a set period of time that typically lasts six to eight years after you purchase the annuity.  Surrender charges will reduce the value and the return of your investment.

Learn more     

Variable Life Insurance

A variable life insurance policy is a contract between you and an insurance company. It is intended to meet certain insurance needs, investment goals, and tax planning objectives. It is a policy that pays a specified amount to your family or others (your beneficiaries) upon your death. It also has a cash value that varies according to the amount of premiums you pay, the policy’s fees and expenses, and the performance of a menu of investment options—typically mutual funds—offered under the policy.

Variable-rate CDs

These have changeable interest rates. Some variable-rate CDs feature a "multi-step" or "bonus rate" structure in which interest rates increase or decrease over time according to a pre-set schedule. Other variable-rate CDs pay interest rates that track the performance of a specified market index, such as the S&P 500 Index.

Viatical Settlements

A viatical settlement allows you to invest in another person's life insurance policy.  With a viatical settlement, you purchase the policy (or part of it) at a price that is less than the death benefit of the policy.  When the seller dies, you collect the death benefit.

Wash Sales

A wash sale occurs when you sell or trade securities at a loss and within 30 days before or after the sale you:

Buy substantially identical securities,

Acquire substantially identical securities in a fully taxable trade, or

Acquire a contract or option to buy substantially identical securities.

Wrap Account

A wrap account is an investment account where a "wrapped" fee or fees cover all of the management, brokerage and administrative expenses for the account. The fee or fees are generally based on the total market value of the investment account.

Yield

The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.

Yield Curve

A line graph that shows the relative yields on debt over a range of maturities from three months to 30 years. Investors, analysts and economists use yield curves to evaluate bond markets and interest rate expectations.

Zero Coupon Bond

Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investor will receive when the bond "matures" or comes due.