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Financial Glossary

Heard a term you didn’t quite understand on one of our shows? Learn what it means in BNN’s financial glossary. This page contains definitions for a vast array of terms and practices throughout the world of finance. Simply browse by letter.

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Glossary provided by:
© 2010, CSI Global Education Inc.

A

Accounts Payable

Money owed by a company for goods or services purchased, payable within one year. A current liability on the balance sheet.

Accounts Receivable

Money owed to a company for goods or services it has sold, for which payment is expected within one year. A current asset on the balance sheet.

Accredited Investor

An individual or institutional investor who meets certain minimum requirement relating to income, net worth, or investment knowledge. Also referred to as a sophisticated investor.

Accrued Interest

Interest accumulated on a bond or debenture since the last interest payment date.

Adjusted Cost Base

The deemed cost of an asset representing the sum of the amount originally paid plus any additional costs, such as brokerage fees and commissions.

Advance-Decline Line

A tool used in technical analysis to measure the breadth of the market. The analyst takes difference between the number of stocks that increased in value each day less the number that have decreased.

Affiliated Company

A company with less than 50% of its shares owned by another corporation, or one whose stock, with that of another corporation, is owned by the same controlling interests.

After Acquired Clause

A protective clause found in a bond's indenture or contract that binds the bond issuer to pledging all subsequently purchased assets as part of the collateral for a bond issue.

After market

See secondary market.

Agent

An investment dealer operates as an agent when it acts on behalf of a buyer or a seller of a security and does not itself own title to the securities at any time during the transactions. See also Principal.

All or None Order (AON)

An order that must be executed in its entirety ? partial fills will not be accepted.

Allocation

The administrative procedure by which income generated by the segregated fund's investment portfolio is flowed through to the individual contract holders of the fund.

Alpha

A statistical measure of the value a fund manager adds to the performance of the fund managed. If alpha is positive, the manager has added value to the portfolio. If the alpha is negative, the manager has underperformed the market.

Alternative Trading Systems (ATS)

Privately-owned computerized networks that match orders for securities outside of recognized exchange facilities. Also referred to as Proprietary Electronic Trading Systems (PETS) or Non-SRO-Operated Trading Systems (NETS).

American Option

An option that can be exercised at any time during the option's lifetime. See also European Option.

Amortization

Gradually writing off the value of an intangible asset over a period of time. Commonly applied to items such as goodwill, improvements to leased premises, or expenses of a new stock or bond issue. See also Depreciation.

Annual Information Form (AIF)

A document in which an issuer is required to disclose information about presently known trends, commitments, events or uncertainties that are reasonably expected to have a material impact on the issuer's business, financial condition or results of operati

Annual Report

The formal financial statements and report on operations issued by a company to its shareholders after its fiscal year-end.

Annuitant

Person on whose life the maturity and death benefit guarantees are based. It can be the contract holder or someone else designated by the contract holder. In registered plans, the annuitant and contract holder must be the same person.

Annuity

A contract usually sold by life insurance companies that guarantees an income to the beneficiary or annuitant at some time in the future. The income stream can be very flexible. The original purchase price may be either a lump sum or a stream of payments.

Any Part Order

A type of order in which the client will accept all stock in odd, broken or board lots up to the full amount of the order.

Approved Participants

See Participating Organization.

Arbitrage

The simultaneous purchase of a security on one stock exchange and the sale of the same security on another exchange at prices which yield a profit to the arbitrageur.

Arbitration

A method of dispute resolution in which an independent arbitrator is chosen to assist aggrieved parties recover damages.

Arrears

Interest or dividends that were not paid when due but are still owed. For example, dividends owed but not paid to cumulative preferred shareholders accumulate in a separate account (arrears). When payments resume, dividends in arrears must be paid to the to the preferred shareholders before the common shareholders.

Ask

The lowest price a seller will accept for the financial instrument being quoted. See also Bid.

Asset Allocation

Apportioning investment funds among different categories of assets, such as cash, fixed income securities and equities. The allocation of assets is built around an investor's risk tolerance.

Asset Mix

The percentage distribution of assets in a portfolio among the three major asset classes : cash and equivalents, fixed income and equities.

Assets

Everything a company or a person owns or has owed to it. A balance sheet category.

Assignment

The random process by which the clearing corporation allocates the exercise of an option to a member firm. A client of that member firm is then chosen to fulfil the obligation taken on when the option was written, by: in the case of a put, purchasing the underlying security from the put holder; or, in the case of a call, delivering the underlying security to the call holder. See also Exercise.

At-the-Money

An option with a strike price equal to (or almost equal to) the market price of the underlying security.

Attribution Rules

A Canada Revenue Agency rule stating that an investor cannot avoid paying taxes at their marginal rate by transferring assets to other family members who have lower personal tax rates.

Auction Market

Market in which securities are bought and sold by brokers acting as agents for their clients, in contrast to a dealer market where trades are conducted over-the-counter. For example, the Toronto Stock Exchange is an auction market.

Auction Preferred Shares

A type of preferred share that offers a dividend rate determined by an auction between the holder and the issuer.

Audit

A professional review and examination of a company's financial statements required under corporate law for the purpose of ensuring that the statements are fair, consistent and conform with Generally Accepted Accounting Principles (GAAP).

Authorized Shares

The maximum number of common (or preferred) shares that a corporation may issue under the terms of its charter.

Automatic Stabilizers

Elements in the economy which mitigate the extremes of the business cycle by running counter to it. Example government payouts for unemployment insurance in recessionary periods.

Autorité des marchés financiers (Financial Services Authority) (AMF)

The body that administers the regulatory framework surrounding Québec's financial sector: securities sector, the distribution of financial products and services sector, the financial institutions sector and the compensation sector.

Averages

A statistical tool used to measure the direction of the market. The most common average is the Dow Jones Industrial Average.

B

Back-End Load

A sales charge applied on the redemption of a mutual fund.

Balance of Payments

Canada's interactions with the rest of the world which are captured here in the current account and capital account.

Balance Sheet

A financial statement showing a company's assets, liabilities and shareholders' equity on a given date.

Balloon

In some serial bond issues or mortgages an extra-large amount may mature in the final year of the series - the "balloon" payment.

Bank of Canada

Canada's central bank which exercises its influence on the economy by raising and lowering short-term interest rates.

Bank Rate

The minimum rate at which the Bank of Canada makes short-term advances to the chartered banks, other members of the Canadian Payments Association and investment dealers who trade in the money market.

Bankers' Acceptance

A type of short-term negotiable commercial paper issued by a non-financial corporation but guaranteed as to principal and interest by its bank. The guarantee results in a higher issue price and consequent lower yield.

Banking Group

A group of investment firms, each of which individually assumes financial responsibility for part of an underwriting.

Bankrupt

The legal status of an individual or company that is unable to pay its creditors and whose assets are therefore administered for its creditors by a Trustee in Bankruptcy.

Basis Point

A phrase used to describe differences in bond yields, with one basis point representing one-hundredth of a percentage point. Thus, if Bond X yields 11.50% and Bond Y 11.75%, the difference is 25 basis points.

Bear

One who expects that the market generally, or the market price of a particular security, will decline. See also Bull.

Bear Market

A sustained decline in equity prices. Bear markets are usually associated with a downturn (recession or contraction) in the business cycle.

Bearer Security

A security (stock or bond) which does not have the owner's name recorded in the books of the issuing company nor on the security itself and which is payable to the holder, i.e., the holder is the deemed owner of the security. See also Registered Security.

Beneficial Owner

The real (underlying) owner of an account, securities or other assets. An investor may own shares which are registered in the name of an investment dealer, trustee or bank to facilitate transfer or to preserve anonymity, but the investor would be the beneficial owner.

Beneficiary

The individual or individuals who have been designated to receive the death benefit. Beneficiaries may be either revocable or irrevocable.

Best Efforts Underwriting

The attempt by an investment dealer (underwriter) to fulfill a customer's order or to sell an issue of securities, to the best of their abilities, but does not guarantee that any or all of the issue will be sold. The investment dealer is not held liable to fulfill the order or to sell all of the securities. The underwriter acts as an agent for the issuer in distributing the issue.

Beta

A measure of the sensitivity (i.e., volatility) of a stock or a mutual fund to movements in the overall stock market. The beta for the market is considered to be 1. A fund that mirrors the market, such as an index fund, would also have a beta of 1. Funds or stocks with a beta greater than 1 are more volatile than the market and are therefore riskier. A beta less than 1 is not as volatile and can be expected to rise and fall by less than the overall market.

Bid

The highest price a buyer is willing to pay for the financial instrument being quoted. See also Ask.

Blue Chip

An active, leading, nationally known common stock with a record of continuous dividend payments and other strong investment qualities. The implication is that the company is of good investment value.

Blue Sky

A slang term for laws that various Canadian provinces and American states have enacted to protect the public against securities frauds. The term blue skyed is used to indicate that a new issue has been cleared by a securities commission and may be distributed.

Board Lot

A regular trading unit which has uniformly been decided upon by the stock exchanges, in most cases it is 100 shares, but this can vary depending on the price of the stock. See also Standard Trading Unit

Bond

A certificate evidencing a debt on which the issuer promises to pay the holder a specified amount of interest based on the coupon rate, for a specified length of time, and to repay the loan on its maturity. Strictly speaking, assets are pledged as security for a bond issue, except in the case of government "bonds", but the term is often loosely used to describe any funded debt issue.

Bond Contract

The actual legal agreement between the issuer and the bondholder. The contract outlines the terms and conditions - the coupon rate, timing of coupon payments, maturity date and any other terms. The bond contract is usually administered by a trust company on behalf of all the bondholders. Also called a Bond Indenture or Trust Deed.

Bond Indenture

See Bond Contract.

Bond Switches

An investment strategy whereby the investor may sell one bond and replace it with another, to capture some advantage such as yield improvement.

Book Value

The amount of net assets belonging to the owners of a business (or shareholders of a company) based on balance sheet values. It represents the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.

Bottom-Up Investment Approach

An investment approach that seeks out undervalued companies. A fund manager may find companies whose low share prices are not justified. They would buy these securities and when the market finally realizes that they are undervalued, the share price rises giving the astute bottom up manager a profit. See also Top-Down Investment Approach.

Bought Deal

A new issue of stocks or bonds bought from the issuer by an investment dealer, frequently acting alone, for resale to its clients, usually by way of a private placement or short form prospectus. The dealer risks its own capital in the bought deal. In the event that the price has to be lowered to sell out the issue, the dealer absorbs the loss.

Bourse de Montréal

A stock exchange (also referred to as the Montreal Exchange) that deals exclusively with non-agricultural options and futures in Canada, including all options that previously traded on the Toronto Stock Exchange and all futures products that previously traded on the Toronto Futures Exchange.

Broker

An investment dealer or a duly registered individual that is registered to trade in securities in the capacity of an agent or principal and is a member of a Self-Regulatory Organization. The broker does not usually own the securities that it buys and sells, but acts as agent for the buyer or seller and charges a commission for it services.

Broker of Record

The broker named as the official advisor to a corporation on financial matters; has the right of first refusal on any new issues.

Bucketing

Confirming a transaction where no trade has been executed.

Budget Deficit

Occurs when total spending by the government for the year is higher than revenue collected.

Budget Surplus

Occurs when government revenue for the year exceeds expenditures.

Bull

One who expects that the market generally or the market price of a particular security will rise. See also Bear.

Bull Market

A general and prolonged rising trend in security prices. Bull markets are usually associated with an expansionary phase of the business cycle. As a memory aid, it is said that a bull walks with his head up while a bear walks with his head down.

Business Cycle

The recurrence of periods of expansion and recession in economic activity. Each cycle is expected to move through five phases - the trough, recovery, expansion, peak, contraction (recession). Given an understanding of the relationship between the business cycle and security prices an investor or fund manager would select an asset mix to maximize returns.

Business Risk

The risk inherent in a company's operations, reflected in the variability in earnings. A weakening in consumer interest or technological obsolescence usually causes the decline. Examples include manufacturers of vinyl records, eight track recording tapes and beta video machines.

Buy-Back

A company's purchase of its common shares either by tender or in the open market for cancellation, subsequent resale or for dividend reinvestment plans.

Buy-ins

If a client or a broker fails to deliver securities sold to another broker within a specified number of days after the value (settlement) date, the receiving broker may buy-in the securities in the open market and charge the client or the delivering broker the cost of such purchases. See also Fails.

C

Call Feature

A clause in a bond or preferred share agreement that allows the issuer the right to "call back" the securities prior to maturity. The company would usually do this if they could refinance the debt at a lower rate (similar to refinancing a mortgage at a lower rate). Calling back a security prior to maturity may involve the payment of a penalty known as a call premium.

Call Option

The right to buy a specific number of shares at a specified price (the strike price) by a fixed date. The buyer pays a premium to the seller of the call option contract. An investor would buy a call option if the underlying stock's price is expected to rise. See also put option.

Call Price

The price at which a bond or preferred share with a call feature is redeemed by the issuer. This is the amount the holder of the security would receive if the security was redeemed prior to maturity. The call price is equal to par (or a stated value for preferred shares) plus any call premium. See also Redemption Price.

Call Protection

For callable bonds, the period before the first possible call date.

Callable

May be redeemed (called in) upon due notice by the security's issuer.

Canada Deposit Insurance Corporation (CDIC)

 

A federal Crown Corporation providing deposit insurance against loss (up to $60,000 per depositor) when a member institution fails.

Canada Education Savings Grant (CESG)

An incentive program for those investing in a Registered Education Savings Plan (RESP) whereby the federal government will make a matching grant of 20% of the first $2,000 contributed each year to the RESP of a child under age 18.

Canada Pension Plan (CPP)

A mandatory contributory pension plan designed to provide monthly retirement, disability and survivor benefits for all Canadians. Employers and employees make equal contributions. Quebec has its own parallel pension plan Quebec Pension Plan (QPP).

Canada Premium Bonds (CPBs)

A relatively new type of savings product that offers a higher interest rate compared to the Canada Savings Bond and is redeemable once a year on the anniversary of the issue date or during the 30 days thereafter without penalty.

Canada Savings Bonds (CSBs)

A type of savings product that pays a competitive rate of interest and that is guaranteed for one or more years. They may be cashed at any time and, after the first three months, pay interest up to the end of the month prior to being cashed.

Canada Yield Call

A callable bond with a call price based on the greater of (a) par or (b) the price based on the yield of an equivalent-term Government of Canada bond plus a specified yield spread. Also known as a Doomsday call. Sell also Call price and Callable bond.

Canadian Council of Insurance Regulators

The association of insurance regulators in jurisdictions across Canada.

Canadian Depository for Securities Limited (CDS)

CDS provides customers with physical and electronic facilities to deposit and withdraw depository-eligible securities and manage their related ledger positions (securities accounts). CDS also provides electronic clearing services both domestically and internationally, allowing customers to report, confirm and settle securities trade transactions.

Canadian Derivatives Clearing Corporation (CDCC)

The CDCC is a service organization that clears, issues, settles, and guarantees options, futures, and futures options traded on the Bourse de Montreal (the Bourse). The CDCC also provides clearing, settlement, and administrative services to the Winnipeg Commodity Exchange (WCE) and the WCE Clearing Corporation.

Canadian Investor Protection Fund (CIPF)

A fund that protects investors against the insolvency of any member firm. It is financed by the IDA and the exchanges (except the Winnipeg Commodity Exchange) who are collectively referred to as Sponsoring Self-Regulatory Organizations (SSROs).

Canadian Life and Health Insurance Association Incorporated (CLHIA)

The national trade group of the life insurance industry, which is actively involved in overseeing applications and setting industry standards.

Canadian Originated Preferred Securities (COPrS)

Introduced to the Canadian market in March 1999, as long-term junior subordinated debt instruments. This type of security offers features that resemble both long-term corporate bonds and preferred shares.

Canadian Payments Association

Established in the 1980 revision of the Bank Act, this association operates a highly automated national clearing system for interbank payments. Members include chartered banks, trust and loan companies and some credit unions and caisses.

Canadian Securities Administrators (CSA)

The CSA is a forum for the 13 securities regulators of Canada's provinces and territories to co-ordinate and harmonize the regulation of the Canadian capital markets.

Canadian Trading and Quotation System Inc. (CNQ)

Launched in 2003 as an alternative marketplace for trading equity securities and emerging companies.

Canadian Unlisted Board (CUB)

An Internet web-based system for investment dealers to report completed trades in unlisted and unquoted equity securities in Ontario.

CanDeal

Provides institutional investors with electronic access to federal bond bid and offer prices and yields from its six bank-owned dealers.

CanPx

A joint venture of several IDA member firms and operates as an electronic trading system for fixed income securities providing investors with real-time bid and offer prices and hourly trade data.

Capital

Has two distinct but related meanings. To an economist, it means machinery, factories and inventory required to produce other products. To an investor, it may mean the total of financial assets invested in securities, a home and other fixed assets, plus cash.

Capital and Financial Account

Account which reflects the transactions occurring between Canada and foreign countries with respect to the acquisition of assets, such as land or currency. Along with the current account a component of the balance of payments.

Capital Asset Pricing Model (CAPM)

A model that looks at the relationship between risk and return. In simple terms, the CAPM says that the return on an asset or security is equal to the risk-free return plus a risk premium.

Capital Cost Allowance (CCA)

An amount allowed under the Income Tax Act to be deducted from the value of certain assets and treated as an expense in computing an individual's or company's income for a taxation year. It may differ from the amount charged for the period in depreciation accounting.

Capital Gain

Selling a security for more than its purchase price. For non-registered securities, 50% of the gain would be added to income and taxed at the investor's marginal rate.

Capital Leases or Capitalized Leases

An expenditure recorded on the balance sheet as an asset rather than as an expense.

Capital Loss

Selling a security for less than its purchase price. Capital losses can only be applied against capital gains. Surplus losses can be carried forward indefinitely and used against future capital gains. Only 50% of the loss can be used to offset any taxable capital loss.

Capital Market

Financial markets where debt and equity securities trade. Capital markets include organized exchanges as well as private placement sources of debt and equity.

Capital Stock

All shares representing ownership of a company, including preferred as well as common. Also referred to as equity capital.

Capitalization or Capital Structure

Total dollar amount of all debt, preferred and common stock, contributed surplus and retained earnings of a company. Can also be expressed in percentage terms.

Capitalize

Recording an expenditure initially as an asset on the balance sheet rather than as an earnings statement expense, and then writing it off or amortizing it (as an earnings statement expense) over a period of years. Examples include capitalized leases, interest, and research and development.

Carry Forward

The amount of RRSP contributions that can be carried forward from previous years. For example, if a client was entitled to place $13,500 in an RRSP and only contributed $10,000, the difference of $3,500 would be the unused contribution room and can be carried forward indefinitely.

Cash Account

A type of brokerage account where the investor is expected to have either cash in the account to cover their purchases or where an investor will deliver the required amount of cash before the settlement date of the purchase.

Cash Flow

A company's net income for a stated period plus any deductions that are not paid out in actual cash, such as depreciation and amortization, deferred income taxes, and minority interest. For an investor, any source of income from an investment including dividends, interest income, rental income, etc.

Cash value

The current market value of a segregated fund contract, less any applicable deferred sales charges or other withdrawal fees

Cash-Secured Put Write

Involves writing a put option and setting aside an amount of cash equal to the strike price. If the cash-secured put writer is assigned, the cash is used to buy the stock from the exercising put buyer.

CBID

An electronic trading system for fixed-income securities operating in both retail and institutional markets.

Central Bank

A body established by a national Government to regulate currency and monetary policy on a national-international level. In Canada, it is the Bank of Canada; in the United States, the Federal Reserve Board; in the U.K., the Bank of England.

Charting

The use of charts and patterns to forecast buy and sell decisions. See also Technical Analysis.

Chinese Walls

Policies implemented to separate and isolate persons within a firm who make investment decisions from persons within a firm who are privy to undisclosed material information which may influence those decisions. For example, there should be separate fax machines for research departments and sales departments.

Class A and B Stock

Shares that have different classes sometimes have different rights. Some may have superior claims over other classes or may have different voting rights. Class A stock is often similar to a participating preferred share with a prior claim over Class B for a stated amount of dividends or assets or both, but without voting rights; the Class B may have voting rights but no priority as to dividends or assets. Note that these distinctions do not always apply.

Clearing Corporations

A not-for-profit service organization owned by the exchanges and their members for the clearance, settlement and issuance of options and futures. A clearing corporation provides a guarantee for all options and futures contracts it clears, by becoming the buyer to every seller and the seller to every buyer.

Clone Fund

Generally a fund that tries to mimic the performance and/or the objectives of a successful existing fund within a family of funds. A common example of a clone fund is when a fund company issues an RRSP version of a foreign equity fund, consisting of derivatives managed in a way that duplicates the returns of the underlying fund.

Closed-end Fund

See Investment Company.

Closet Indexing

A portfolio strategy whereby the fund manager does not replicate the market exactly but sticks fairly close to the market weightings by industry sector, country or region or by the average market capitalization.

Coincident Indicators

Statistical data that, on average, change at approximately the same time and in the same direction as the economy as a whole.

Collateral Trust Bond

A bond secured by stocks or bonds of companies controlled by the issuing company, or other securities, which are deposited with a trustee.

Commercial Paper

Short-term negotiable debt securities issued by non-financial corporations with terms of a few days to a year.

Commission

The fee charged by a stockbroker for buying or selling securities as agent on behalf of a client.

Commodity

A product used for commerce that is traded on an organized exchange. A commodity could be an agricultural product such as canola or wheat, or a natural resource such as oil or gold. A commodity can be the basis for a futures contract.

Common Stock

Securities representing ownership in a company. They carry voting privileges and are entitled to the receipt of dividends, if declared. Also called common shares.

CompCorp

The short-form name of the Canadian Life and Health Insurance Compensation Corp., a not for profit company whose member firms are issuers of life-insurance contracts and whose mandate is to provide protection to contract holders against the insolvency of a member company.

Competitive Tender

A distribution method used in particular by the Bank of Canada in distributing new issues of government marketable bonds. Bids are requested from primary distributors and the higher bids are awarded the securities for distribution. See also non-competitive tender.

Compound Interest

Interest earned on an investment at periodic intervals and added to the amount of the investment; future interest payments are then calculated and paid at the original rate but on the increased total of the investment. In simple terms, interest paid on interest.

Confirmation

A printed acknowledgement giving details of a purchase or sale of a security which is normally mailed to a client by the broker or investment dealer within 24 hours of an order being executed. Also called a contract.

Conglomerate

A company directly or indirectly operating in a variety of industries, usually unrelated to each other. Conglomerates often acquire outside companies through the exchange of their own shares for the shares of the majority owners of the outside companies.

Consolidated Financial Statements

A combination of the financial statements of a parent company and its subsidiaries, presenting the financial position of the group as a whole.

Consolidation

See Reverse Split.

Constrained Share Companies

Include Canadian banks, trust, insurance, broadcasting and communication companies having constraints on the transfer of shares to persons who are not Canadian citizens or not Canadian residents.

Consumer Price Index (CPI)

Price index which measures the cost of living by measuring the prices of a given basket of goods. The CPI is often used as an indicator of inflation.

Continuation Pattern

A chart formation indicating that the current trend will continue.

Continuous Disclosure

In Ontario, a reporting issuer must issue a press release as soon as a material change occurs in its affairs and, in any event, within ten days. See also Timely Disclosure.

Contract Holder

The owner of a segregated fund contract.

Contraction

Represents a downturn in the economy and can lead to a recession if prolonged.

Contributed Surplus

A component of shareholders' equity which originates from sources other than earnings, such as the initial sale of stock above par value.

Contributions in Kind

Transferring securities into an RRSP. The general rules are that when an asset is transferred there is a deemed disposition. Any capital gain would be reported and taxes paid. Any capital losses that result cannot be claimed.

Conversion Price

The dollar value at which a convertible bond or security can be converted into common stock.

Conversion Privilege

The right to exchange a bond for common shares on specifically determined terms.

Conversion Ratio

The number of common shares for which a convertible security can be exchanged. Convertible preferreds and debentures would have a stated number outlined in their prospectus or indenture as to the exchange rate. For example, the conversion ratio on a bond may be 25. This means that the bond could be exchanged for 25 common shares. If the conversion ratio is divided into par value, the result is called the conversion price.

Convertible

A bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company, in accordance with the terms of the conversion privilege. A company can force conversion by calling in such shares for redemption if the redemption price is below the market price.

Convertible Arbitrage

A strategy that looks for mispricing between a convertible security and the underlying stock. A typical convertible arbitrage position is to be long the convertible bond and short the common stock of the same company.

Convexity

A measure of the rate of change in duration over changes in yields. Typically, a bond will rise in price more if the yield change is negative than it will fall in price if the yield change is positive.

Corporate Note

An unsecured promise made by the borrower to pay interest and repay the principal at a specific date.

Corporation or Company

A form of business organization created under provincial or federal statutes which has a legal identity separate from its owners. The corporation's owners (shareholders) have no personal liability for its debts. See also Limited Liability.

Correlation

A measure of the relationship between two or more securities. If two securities mirror each other's movements perfectly, they are said to have a positive one (+1) correlation. Combining securities with high positive correlations does not reduce the risk of a portfolio. Combining securities that move in the exact opposite direction from each other are said to have perfect negative one (-1) correlation. Combining two securities with perfect negative correlation reduces risk. Very few, if any, securities have a perfect negative correlation. However, risk in a portfolio can be reduced if the combined securities have low positive correlations.

Correlation Coefficient

A measure of the relationship between the returns of two securities or two classes of securities.

Cost Accounting Method

Used when a company owns less than 20% of a subsidiary.

Cost of Goods Sold

An earnings statement account representing the cost of buying raw materials that go directly into producing finished goods.

Cost-Push Inflation

A type of inflation that develops due to an increase in the costs of production. For example, an increase in the price of oil may contribute to higher input costs for a company and could lead to higher inflation.

Country Banks

A colloquial term for non-bank lenders who provide short-term sources of credit for investment dealers; e.g., corporations, insurance companies and other institutional short-term investors, none of whom is under the jurisdiction of the Bank Act. See also Purchase and Resale Agreement.

Coupon Rate

The rate of interest that appears on the certificate of a bond. Multiplying the coupon rate times the principal tells the holder the dollar amount of interest to be paid by the issuer until maturity. For example, a bond with a principal of $1,000 and a coupon of 10% would pay $100 in interest each year. Coupon rates remain fixed throughout the term of the bond. See also Yield.

Covenant

A pledge in a bond indenture indicating the fulfilment of a promise or agreement by the company issuing the debt. An example of a covenant may include the promise not to issue any more debt.

Cover

Buying a security previously sold short. See also Short Sale.

Covered Writer

The writer of an option who also holds a position that is equivalent to, but on the opposite side of the market from the short option position. In some circumstances, the equivalent position may be in cash, a convertible security or the underlying security itself. See also Naked Writer.

Cross on the Board

Also called a put-through or contra order. When a broker has both an order to sell and an order to buy the same stock at the same price, a cross is allowed on the exchange floor without interfering with the limits of the prevailing market.

Cum Dividend

With dividend. If you buy shares quoted cum dividend, i.e., before the ex dividend date, you will receive an upcoming already-declared dividend. If shares are quoted ex-dividend (without dividend) you are not entitled to the declared dividend.

Cum Rights

With rights. Buyers of shares quoted cum rights, i.e., before the ex-rights date, are entitled to forthcoming already-declared rights. If shares are quoted ex rights (without rights) the buyer is not entitled to receive the declared rights.

Cumulative Preferred

A preferred stock having a provision that if one or more of its dividends are not paid, the unpaid dividends accumulate in arrears and must be paid before any dividends may be paid on the company's common shares.

Current Account

Account that reflects all payments between Canadians and foreigners for goods, services, interest and dividends. Along with the capital account it is a component of the balance of payments.

Current Assets

Cash and assets which in the normal course of business would be converted into cash, usually within a year, e.g. accounts receivable, inventories. A balance sheet category.

Current Liabilities

Money owed and due to be paid within a year, e.g. accounts payable. A balance sheet category.

Current Ratio

A liquidity ratio that shows a company's ability to pay its current obligations from current assets. A current ratio of 2:1 is the generally accepted standard. See also Quick Ratio.

Current Yield

The annual income from an investment expressed as a percentage of the investment's current value. On stock, calculated by dividing yearly dividend by market price; on bonds, by dividing the coupon by market price. See also Yield.

CUSIP

Committee on Uniform Security Identification Procedures is the trademark for a standard system of securities identification (i.e., CUSIP numbering system) and securities description (i.e., CUSIP descriptive system) that is used in processing and recording securities transactions in North America.

Custodian

A firm that holds the securities belonging to a mutual fund or a segregated fund for safekeeping. The custodian can be either the insurance company itself, or a qualified outside firm based in Canada.

Cyclical Stock

A stock in an industry that is particularly sensitive to swings in economic conditions. Cyclical Stocks tend to rise quickly when the economy does well and fall quickly when the economy contracts. In this way, cyclicals move in conjunction with the business cycle. For example, during periods of expansion auto stocks do well as individuals replace their older vehicles. During recessions, auto sales and auto company share values decline.

Cyclical Unemployment

The amount of unemployment that rises when the economy softens, firms' demand for labour moderates, and some firms lay off workers in response to lower sales. It drops when the economy strengthens again.

D

Day Order

A buy or sell order that automatically expires if it is not executed on the day it is entered. All orders are day orders unless otherwise specified.

Dealer Market

A market in which securities are bought and sold over-the-counter in which dealers acts as principals when buying and selling securities for clients. Also referred to as the unlisted market.

Dealer's Spread

The difference between the bid and ask prices on a security.

Death benefit

The amount that a segregated fund policy agrees to pay to the beneficiary or the estate on the death of the annuitant.

Debenture

A certificate of indebtedness of a government or company backed only by the general credit of the issuer and unsecured by mortgage or lien on any specific asset. In other words, no specific assets have been pledged as collateral.

Debt

Money borrowed from lenders for a variety of purposes. The borrower typically pays interest for the use of the money and is obligated to repay it at a set date.

Debt Ratios

Financial ratios that show how well the company can deal with its debt obligations.

Debt/Equity Ratio

A ratio that shows whether a company's borrowing is excessive. The higher the ratio, the higher the financial risk.

Declining Industry

An industry moving from the maturity stage. It tends to grow at rates slower than the overall economy, or the growth rate actually begins to decline.

Deemed Disposition

Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale, e.g., there is a deemed disposition on death or emigration from Canada.

Default

A bond is in default when the borrower has failed to live up to its obligations under the trust deed with regard to interest, sinking fund payments or has failed to redeem the bonds at maturity.

Default Risk

The risk that a debt security issuer will be unable to pay interest on the prescribed date or the principal at maturity. Default risk applies to debt securities not equities since equity dividend payments are not contractual.

Defensive Stock

A stock of a company with a record of stable earnings and continuous dividend payments and which has demonstrated relative stability in poor economic conditions. For example, utility stock values do not usually change from periods of expansion to periods of recession since most individuals use a constant amount of electricity.

Deferred Annuity

This type of contract, usually sold by life insurance companies, pays a regular stream of income to the beneficiary or annuitant at some agreed-upon start date in the future. The original payment is usually a stream of payments made over time, ending prior to the beginning of the annuity payments. See also Annuity.

Deferred Charges

An asset shown on a balance sheet representing payments made by the company for which the benefit will extend to the company over a period of years. Similar to a prepaid expense except that the benefit period is for a longer period. Deferred charges may include expenses incurred in issuing bonds, organizational expenses or research expenses.

Deferred Preferred Shares

A type of preferred share that pays no dividend until a future maturity date.

Deferred Profit Sharing Plan (DPSP)

A trust arrangement whereby an employer distributes a certain percentage of company profits to his/her employees. It must be an arms length transaction, and employees are not eligible to make a contribution.

Deferred Revenue

The revenue recorded when a company receives payment for goods or services that it has not yet provided. For example, a prepaid subscription to a magazine.

Deferred Sales Charge

The fee charged by a mutual fund or insurance company for redeeming units. It is otherwise known as a redemption fee or back-end load. These fees decline over time and are eventually reduced to zero if the fund is held long enough.

Defined Benefit Plan

A type of registered pension plan in which the annual payout is based on a formula. The plan pays a specific dollar amount at retirement using a predetermined formula.

Defined Contribution Plan

A type of registered pension plan where the amount contributed is known but the dollar amount of the pension to be received is unknown. Also known as a money purchase plan.

Deflation

A sustained fall in prices where the annual change in the CPI is negative year after year.

Delayed Floater

A type of variable rate preferred share that entitles the holder to a fixed dividend for a predetermined period of time after which the dividend becomes variable. Also known as a fixed-reset or fixed floater.

Delayed Opening

Postponement in the opening of trading of a security the result of a heavy influx of buy and/or sell orders.

Delist

Removal of a security's listing on a stock exchange.

Delivery

Delayed Delivery - A transaction in which there is a clear understanding that delivery of the securities involved will be delayed beyond the normal settlement period. Good Delivery - When a security that has been sold is in proper form to transfer title by delivery to the buyer. Regular Delivery - Unless otherwise stipulated, sellers of stock must deliver it on or before the third business day after the sale.

Demand Pull Inflation

A type of inflation that develops when continued consumer demand pushes prices higher.

Demutualization

The process by which insurance companies, owned by policy holders, reorganize into companies owned by shareholders. Policy holders become shareholders in an insurance company.

Depletion

Refers to consumption of natural resources that are part of a company's assets. Producing oil, mining and gas companies deal in products that cannot be replenished and as such are known as wasting assets. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.

Deposit-based guarantee

A maturity guarantee consisting of separate guarantees and guarantee dates for each of the deposits made in a segregated fund policy over time.

Depreciation

Systematic charges against earnings to write off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not involve the expenditure of cash.

Derivative

A type of financial instrument whose value is based on the performance of an underlying financial asset, commodity, or other investment. Derivatives are available on interest rates, currency, stock indexes. For example, a call option on IBM is a derivative because the value of the call varies in relation to the performance of IBM stock. See also Options.

Direct Bonds

This term is used to describe bonds issued by governments that are first-hand obligations of the government itself. See also Guaranteed Bonds.

Directional Hedge Funds

A type of hedge fund that places a bet on the anticipated movements in the market prices of equities, fixed-income securities, foreign currencies and commodities.

Director

Person elected by voting common shareholders at the annual meeting to direct company policies.

Directors' Circular

A document that must be sent to all shareholders by the directors of a company that is the target of a takeover bid. A recommendation to accept or reject the bid, and reasons for this recommendation, must be included.

Disclosure

One of the principles of securities regulation in Canada. This principle entails full, true and plain disclosure of all material facts necessary to make reasoned investment decisions.

Discount

The amount by which a preferred stock or bond sells below its par value.

Discount Brokers

Brokerage house that buys and sells securities for clients at a greater commission discount than full-service firms.

Discount Rate

In computing the value of a bond, the discount rate is the interest rate used in calculating the present value of future cash flows.

Discouraged Workers

Individuals that are available and willing to work but cannot find jobs and have not made specific efforts to find a job within the previous month.

Discretionary Account

A securities account where the client has given specific written authorization to a partner, director or qualified portfolio manager to select securities and execute trades for him. See also Managed Account and Wrap Account.

Disinflation

A decline in the rate at which prices rise ? i.e., a decrease in the rate of inflation. Prices are still rising, but at a slower rate.

Disposable Income

Personal income minus income taxes and any other transfers to government.

Diversification

Spreading investment risk by buying different types of securities in different companies in different kinds of businesses and/or locations.

Dividend

An amount distributed out of a company's profits to its shareholders in proportion to the number of shares they hold. Over the years a preferred dividend will remain at a fixed annual amount. The amount of common dividends may fluctuate with the company's profits. A company is under no legal obligation to pay preferred or common dividends.

Dividend Discount Model

The relationship between a stock's current price and the present value of all future dividend payments. It is used to determine the price at which a stock should be selling based on projected future dividend payments.

Dividend Payout Ratio

A ratio that measures the amount or percentage of the company's net earnings that are paid out to shareholders in the form of dividends.

Dividend Reinvestment Plan

The automatic reinvestment of shareholder dividends in more shares of the company's stock.

Dividend Tax Credit

A procedure to encourage Canadians to invest in preferred and common shares of taxable, dividend-paying Canadian corporations. The taxpayer pays tax based on grossing up (i.e., adding 25% to the amount of dividends actually received) and obtains a credit against federal and provincial tax based on the grossed up amount in the amount of 131/3%.

Dividend Yield

A value ratio that shows the annual dividend rate expressed as a percentage of the current market price of a stock. Dividend yield represents the investor's percentage return on investment at its prevailing market price.

Dollar Cost Averaging

Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time, thereby reducing the average cost paid per unit.

Domestic Bonds

Bonds issued in the currency and country of the issuer. For example, a Canadian dollar-denominated bond, issued by a Canadian company, in the Canadian market would be considered a domestic bond.

Dow Jones Industrial Average (DJIA)

A price-weighted average that uses 30 actively traded blue chip companies as a measure of the direction of the New York Stock Exchange.

Drawdown

A cash management open-market operation pursued by the Bank of Canada to influence interest rates. A drawdown refers to the transfer of deposits to the Bank of Canada from the direct clearers, effectively draining the supply of available cash balances. See also Redeposit.

Due Diligence Report

When negotiations for a new issue of securities begin between a dealer and corporate issuer, the dealer normally prepares a due diligence report examining the financial structure of the company.

Duration

A measure of bond price volatility. The approximate percentage change in the price or value of a bond or bond portfolio for a 1% point change in interest rates. The higher the duration of a bond the greater its risk.

Dynamic Asset Allocation

An asset allocation strategy that refers to the systematic rebalancing, either by time period or weight, of the securities in the portfolio, so that they match the long-term benchmark asset mix among the various asset classes.

E

Earned Income

Income that is designated by Canada Revenue Agency for RRSP calculations. Most types of revenues are included with the exception of any form of investment income and pension income.

Earnings or Income Statement

A financial statement which shows a company's revenues and expenditures resulting in either a profit or a loss during a financial period.

Earnings Per Share (EPS)

A value ratio that shows the portion of net income for a period attributable to a single common share of a company. For example, a company with $100 million in earnings and with 100 million common shareholders would report an EPS of $1 per share.

Economic Indicators

Statistics or data series that are used to analyze business conditions and current economic activity. See also leading, lagging, and coincident indicators.

Economies of Scale

An economic principle whereby the per unit cost of producing each unit of output falls as the volume of production increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods.

Efficient Market Hypothesis

The theory that a stock's price reflects all available information and reflects its true value.

Election Period

When an investor purchases an extendible or retractable bond, they have a time period in which to notify the company if they want to exercise the option.

Elliot Wave Theory

A theory used in technical analysis based on the rhythms found in nature. The theory states that there are repetitive, predictable sequences of numbers and cycles found in nature similar to patterns of stock movements.

Embedded Option

A term used to describe the convertible, retractable or extendible features of some securities. These features can often be valued using the same techniques used to value options.

Emerging Industries

Brand new industries in the early stages of growth. Often considered as speculative because they are introducing new products that may or may not be accepted and may face strong competition from other new entrants.

Enterprise Multiple (EM)

A ratio used to measure a company's overall value by comparing its enterprise value to its earnings before interest, taxes and amortization or EBITDA.

Enterprise Value (EV)

Reflects what it would cost to purchase a company as a whole. EV is calculated as the market value of the company's common equity, preferred equity and debt less any cash or investments that it records on its balance sheet.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Equipment Trust Certificate

A type of debt security that was historically used to finance "rolling stock" or railway boxcars. The cars were the collateral behind the issue and when the issue was paid down the cars reverted to the issuer. In recent times, equipment trusts are used as a method of financing containers for the offshore industry. A security, more common in the U.S. than in Canada.

Equity

Ownership interest in a corporation's stock that represents a claim on its earnings and assets. See also stock.

Equity Dividend Shares

Shares that trade like bonds and preferred shares, but can benefit from increases in dividends paid on the underlying common shares. Also known as structured preferreds. See also Split Shares.

Equity Income

A company's share of an unconsolidated subsidiary's earnings. The equity accounting method is used when a company owns 20% to 50% of a subsidiary.

Equity Method

An accounting method used to determine income derived from a company's investment in another company over which it exerts significant influence.

Escrowed or Pooled Shares

Outstanding shares of a company which, while entitled to vote and receive dividends, may not be bought or sold unless special approval is obtained. Mining and oil companies commonly use this technique when treasury shares are issued for new properties. Shares can be released from escrow (i.e. freed to be bought and sold) only with the permission of applicable authorities such as a stock exchange and/or securities commission.

Eurobonds

Bonds that are issued and sold outside a domestic market and typically denominated in a currency other than that of the domestic market. For example, a bond denominated in Canadian dollars and issued in Germany would be classified as a Eurobond.

European Option

An option that can only be exercised on a specified date - normally the business day prior to expiration.

Event-Driven Hedge Funds

A type of hedge fund that seeks to profit from unique events such as mergers, acquisitions, stock splits or buybacks.

Ex-Ante

A projection of expected returns - what investors expect to realize as a return.

Exchange Fund Account

A special federal government account operated by the Bank of Canada to hold and conduct transactions in Canada's foreign exchange reserves on instructions from the Minister of Finance.

Exchange Rate

The price at which one currency exchanges for another.

Exchange-Traded Funds (ETFs)

Open-ended mutual fund trusts that hold the same stocks in the same proportion as those included in a specific stock index. Shares of an exchange-traded fund trade on major stock exchanges. Like index mutual funds, ETFs are designed to mimic the performance of a specified index by investing in the constituent companies included in that index. Like the stocks in which they invest, shares can be traded throughout the trading day.

Ex-Dividend

A term that denotes that when a person purchases a common or preferred share, they are not entitled to the dividend payment. Shares go ex-dividend two business days prior to the shareholder record date. See also cum dividend.

Exempt List

Large professional buyers of securities, mostly financial institutions, that are offered a portion of a new issue by one member of the banking group on behalf of the whole syndicate. The term exempt indicates that this group of investors is exempt from receiving a prospectus on a new issue as they are considered to be sophisticated and knowledgeable.

Exempt Market

An unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus has not been required to raise money privately from private investors (largely institutions, but also individuals) and registration with a securities commission for those so dealing has not been needed.

Exercise

The process of invoking the rights of the option or warrant contract. It is the holder of the option who exercises his or her rights. See also Assignment.

Exercise Notice

The instructions tendered by the option holder, through the investment dealer, which states the holder's decision to activate the rights given in the option contract. Once tendered, it is irrevocable. The holder of a call will buy the underlying security while the holder of a put will sell the underlying security.

Exercise Price

The price at which a derivative can be exchanged for a share of the underlying security (also known as subscription price). For an option, it is the price at which the underlying security can be purchased, in the case of a call, or sold, in the case of a put, by the option holder. Synonymous with strike price.

Expansion

A phase of the business cycle characterized by increasing corporate profits and hence increasing share prices, an increase in the demand for capital for business expansion, and hence an increase in interest rates.

Expectations Theory

A theory stating that the yield curve is shaped by a market consensus about future interest rates.

Expiration Date

The date on which certain rights or option contracts cease to exist. For equity options, this date is usually the Saturday following the third Friday of the month listed in the contract. This term can also be used to describe the day on which warrants and rights cease to exist.

Ex-Post

The rate of return that was actually received. This historic data is used to measure actual performance.

Ex-Rights

A term that denotes that the purchaser of a common share would not be entitled to a rights offering. Common shares go ex-rights two business days prior to the shareholder of record date.

Extendible Bond or Debenture

A bond or debenture with terms granting the holder the option to extend the maturity date by a specified number of years.

Extension Date

For extendible bonds the maturity date of the bond can be extended so that the bond changes from a short-term bond to a long-term bond.

Extraordinary Items

An event not typical of normal business activity and do not occur on a regular basis. For example, a company may write off an underperforming division or it may sell a large amount of real estate in a given fiscal year. The results of these special gains or losses are included as an extraordinary item on the earnings statement.

F

Face Value

The value of a bond or debenture that appears on the face of the certificate. Face value is ordinarily the amount the issuer will pay at maturity. Face value is no indication of market value.

Factors of Production

The resources that consumers, firms, and governments use to produce goods and services and include labour, natural resources, entrepreneurship and capital.

Fiduciary Responsibility

The responsibility of an investment advisor, mutual fund salesperson or financial planner to always put the client's interests first. The fiduciary is in a position of trust and must act accordingly.

Final Good

A finished product, one that is purchased by the ultimate end user.

Final Prospectus

The prospectus which supersedes the preliminary prospectus and is accepted for filing by applicable provincial securities commissions. The final prospectus shows all required information pertinent to the new issue and a copy must be given to each first-ti

Finance or Acceptance Company Paper

Short-term negotiable debt securities similar to commercial paper, but issued by finance companies.

Financial Intermediary

An institution such as a bank, life insurance company, credit union or mutual fund which receives cash, which it invests, from suppliers of capital.

Financial Leverage

Involves using borrowed capital to increase the potential return of an investment. For example, corporations borrow money to buy assets when they expect a return on those assets that is greater than the cost of borrowing.

Financial Risk

The additional risk placed on the common shareholders from a company's decision to use debt to finance its operations.

Financing

The purchase for resale of a security issue by one or more investment dealers. The formal agreement between the investment dealer and the corporation issuing the securities is called the underwriting agreement. A term synonymous with underwriting.

Firm Bid - Firm Offer

An undertaking to buy (firm bid) or sell (firm offer) a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the seller in the case of a firm bid or the buyer in the case of a firm offer.

First Mortgage Bonds

The senior securities of a company as they constitute a first charge on the company's assets, earnings and undertakings before unsecured current liabilities are paid.

First-In-First-Out (FIFO)

Inventory items acquired earliest are sold first.

Fiscal Agent

An investment dealer appointed by a company or government to advise it in financial matters and to manage the underwriting of its securities.

Fiscal Policy

The policy pursued by the federal government to influence economic growth through the use of taxation and government spending to smooth out the fluctuations of the business cycle.

Fiscal Year

A company's accounting year. Due to the nature of particular businesses, some companies do not use the calendar year for their bookkeeping. A typical example is the department store that finds December 31 too early a date to close its books after the Christmas rush and so ends its fiscal year on January 31.

Fixed Asset

A tangible long-term asset such as land, building or machinery, held for use rather than for processing or resale. A balance sheet category.

Fixed Exchange Rate Regime

A country whose central bank maintains the domestic currency at a fixed level against another currency or a composite of other currencies.

Fixed Floater Preferred

See Delayed Floater.

Fixed-Income Securities

Securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares.

Fixed-Reset Preferred

See Delayed Floater.

Flat

Means that the quoted market price of a bond or debenture is its total cost (as opposed to an accrued interest transaction). Bonds and debentures in default of interest trade flat.

Floating Exchange Rate

A country whose central bank allows market forces alone to determine the value of its currency, but will intervene if it thinks the move in the exchange rate is excessive or disorderly.

Floating Rate

A term used to describe the interest payments negotiated in a particular contract. In this case, a floating rate is one that is based on an administered rate, such as the Prime Rate. For example, the rate for a particular note may be 2% over Prime. See also Fixed Rate.

Floating-Rate Debentures

A type of debenture that offers protection to investors during periods of very volatile interest rates. For example, when interest rates are rising, the interest paid on floating rate debentures is adjusted upwards every six months.

Floor Trader

Employee of a member of a stock exchange, who executes buy and sell orders on the floor (trading area) of the exchange for the firm and its clients.

Forced Conversion

When a company's stock rises in value above the conversion price a company may force the convertible security holder to exchange the security for stock by calling back the security. Faced with receiving a lower call price (par plus a call premium) or higher valued shares the investor is forced to convert into common shares.

Foreign Bonds

If a Canadian company issues debt securities in another country, denominated in that foreign country's currency, the bond is known as a foreign bond. A bond issued in the U.S. payable in U.S. dollars is known as a foreign bond or a "Yankee Bond". See also Eurobond.

Foreign Exchange Rate Risk

The risk associated with an investment in a foreign security or any investment that pays in a denomination other than Canadian dollars, the investor is subject to the risk that the foreign currency may depreciate in value.

Foreign Pay

A Canadian debt security issued in Canada but pays interest and principle in a foreign currency is known as a foreign pay bond. This type of security allows Canadians to take advantage of possible shifts in currency values.

Forward

A forward contract is similar to a futures contract but trades on an OTC basis. The seller agrees to deliver a specified commodity or financial instrument at a specified price sometime in the future. The terms of a forward contract are not standardized but are negotiated at the time of the trade. There may be no secondary market.

Frictional Unemployment

Unemployment that results from normal labour turnover, from people entering and leaving the workforce and from the ongoing creation and destruction of jobs.

Front Running

Making a practice, directly or indirectly, of taking the opposite side of the market to clients, or effecting a trade for the advisor's own account prior to effecting a trade for a client.

Front-End Load

A sales charge applied to the purchase price of a mutual fund when the fund is originally purchased.

Full Employment

The level of unemployment due solely to both frictional and structural factors, or when cyclical unemployment is zero.

Fully Diluted Earnings per Share

Earnings per common share calculated on the assumption that all convertible securities are converted into common shares and all outstanding rights, warrants, options and contingent issues are exercised.

Fundamental Analysis

Security analysis based on fundamental facts about a company as revealed through its financial statements and an analysis of economic conditions that affect the company's business. See also Technical Analysis.

Funded Debt

All outstanding bonds, debentures, notes and similar debt instruments of a company not due for at least one year.

FundServ

An industry organization that administers segregated fund offerings as well as provides clearing and settlement services to mutual funds.

Future Income Taxes

Income tax that would otherwise be payable currently, but which is deferred by using larger allowable deductions in calculating taxable income than those used in calculating net income in the financial statements. An acceptable practice, it is usually the result of timing differences and represents differences in accounting reporting guidelines and tax reporting guidelines.

Futures

A contract in which the seller agrees to deliver a specified commodity or financial instrument at a specified price sometime in the future. A futures contract is traded on a recognized exchange. Unlike a forward contract, the terms of the futures contract are standardized by the exchange and there is a secondary market. See also Forwards.

G

GAAP

Acronym for Generally Accepted Accounting Principles which are conventions, procedures and guidelines for accounting practices.

Good Delivery Form

When a security is sold it must be delivered to the broker properly endorsed, not mutilated and with (if any) coupons attached. To avoid these difficulties and as a general practice most securities are held in street form with the broker.

Good Faith Money

A deposit of money by the buyer or seller of a futures product which acts as a financial guarantee as to the fulfilment of the contractual obligations of the futures contract. Also called a performance bond or margin.

Good Through Order

An order to buy or sell that is good for a specified number of days and then is automatically cancelled if it has not been filled.

Good Till Cancelled Order

An order that is valid from the date entered until the close of business on the date specified in the order. If the order has not been filled by the close of the market on that date, it is cancelled. This type of order can be cancelled or changed at any time.

Goodwill

Generally understood to represent the value of a well-respected business - its name, customer relations, employee relations, among others. Considered an intangible asset on the balance sheet.

Government Securities Distributors

Typically an investment dealer or bank that is authorized to bid at Government of Canada debt auctions.

Greensheet

Highlights for the firm's sales representatives the salient features of a new issue, both pro and con in order to successfully solicit interest to the general public. Dealers prepare this information circular for in-house use only.

Grey Market

A colloquialism used to describe the unlisted if, as, and when market for newly issued but as of yet, unlisted securities. It is an over-the-counter market.

Gross Domestic Product (GDP)

The value of all goods and services produced in a country in a year.

Gross National Product (GNP)

The value of all goods and services produced by Canadian nationals, whether at home or abroad. It is equal to GDP plus profits and interest on Canadian investments in other countries, minus profits and interest paid to foreign holders of Canadian investments.

Gross Profit Margin

A profitability ratio that shows the company's rate of profit after allowing for cost of goods sold.

Growth Stock

Common stock of a company with excellent prospects for above-average growth; a company which over a period of time seems destined for above-average expansion.

Guaranteed amount

The minimum amount payable under death benefits or maturity guarantees provided for under the terms of the segregate fund contract.

Guaranteed Bonds

Bonds issued by a crown corporation but guaranteed by the applicable government as to interest and principal payments.

Guaranteed Income Supplement (GIS)

A pension payable to OAS recipients with no other or limited income.

Guaranteed Investment Certificate (GIC)

A deposit instrument most commonly available from trust companies, requiring a minimum investment at a predetermined rate of interest for a stated term. Generally non-redeemable prior to maturity but there can be exceptions.

Guaranteed Investment Fund (GIF)

A type of segregated fund whose underlying asset is a mutual fund. GIFs are often described as consisting of mutual funds with segregated fund wrappers.

H

Halt in Trading

A temporary halt in the trading of a security to allow significant news to be reported and widely disseminated. Usually the result of a pending merger or a substantial change in dividends or earnings.

Hedge Funds

Lightly regulated pools of capital in which the hedge fund manager invests a significant amount of his or her own capital into the fund and whose offering memorandum allows for the fund to execute aggressive strategies that are unavailable to mutual funds such as short selling.

Hedging

A protective manoeuvre; a transaction intended to reduce the risk of loss from price fluctuations.

High Saling

Deliberately causing the last sale for the day in a security to be higher than warranted by the prevailing market conditions (also referred to as window dressing).

High Water Mark

Used in the context of how a hedge fund manager is compensated. The high water mark sets the bar above which the fund manager is paid a portion of the profits earned for the fund.

Holding Period Return

A transactional rate of return measure that takes into account all cash flows and increases or decreases in a security's value for any time frame. Time frames can be greater or less than a year.

Hypothecate

To pledge securities as collateral for a loan. Referred to as collateral assignment or hypotec in Quebec for segregated funds.

I

i60s

A type of investment known as index participation units that trade on the Toronto Stock Exchange. They provide an easy way for investors to participate in the performance of the S&P/TSX 60 Index, as each unit represents an equal beneficial interest in a trust that holds stocks of companies included in that Index. The Fund holds company shares in the same proportion as they are reflected in the Index. The Fund is designed to provide economic benefits similar to a direct investment in the shares of the Index.

Income Bond

Generally, an income bond promises to repay principal but to pay interest only when earned. In some cases, unpaid interest on an income bond may accumulate as a claim against the company when the bond matures.

Income Splitting

A tax planning strategy whereby the higher-earning spouse transfers income to the lower-earning spouse to reduce taxable income.

Income Statement

See Earnings Statement.

Income Tax Act (ITA)

The legislation dictating the process and collection of federal tax in Canada, administered by Canada Revenue Agency.

Income Trusts

A type of investment trust that holds investments in the operating assets of a company. Income from these operating assets flows through to the trust, which in turn passes on the income to the trust unitholders.

Index

A measure of the market as measured by a basket of securities. An example would be the S&P/TSX Composite Index or the S&P 500. Fund managers and investors use a stock index to measure the overall direction and performance of the market.

Indexing

A portfolio management style that involves buying and holding a portfolio of securities that matches, closely or exactly, the composition of a benchmark index.

Individual variable insurance contract (IVIC)

The term used in the IVIC Guidelines to describe a segregated fund contract.

Inflation

A generalized, sustained trend of rising prices.

Inflation Rate

The rate of change in prices. See also Consumer Price Index.

Inflation Rate Risk

The risk that the value of financial assets and the purchasing power of income will decline due to the impact of inflation on the real returns produced by those financial assets.

Information Circular

Document sent to shareholders with a proxy, providing details of matters to come before a shareholders' meeting.

Initial Public Offering (IPO)

A new issue of securities offered to the public for investment for the very first time. IPOs must adhere to strict government regulations as to how the investments are sold to the public.

Initial sales charge

A commission paid to the financial adviser at the time that the policy is purchased. This type of sales charge is also known as an acquisition fee or a front-end load.

Insider

All directors and senior officers of a corporation and those who may also be presumed to have access to non-public or inside information concerning the company; also anyone owning more than 10% of the voting shares in a corporation. Insiders are prohibited from trading on this information.

Insider Report

A report of all transactions in the shares of a company by those considered to be insiders of the company and submitted each month to securities commissions.

Instalment Debentures

A bond or debenture issue in which a predetermined amount of principal matures each year.

Instalment Receipts

A new issue of stock sold with the obligation that buyers will pay the issue price in a specified series of instalment payments instead of one lump sum payment. Also known as Partially Paid Shares.

Institutional Investor

Organizations, such as a pension fund or mutual fund company, that trade large volumes of securities and typically have a steady flow of money to invest.

Insured Asset Allocation

An asset allocation strategy whereby there is a base portfolio value below which the portfolio is not allowed to drop.

Intangible Asset

An asset having no physical substance (e.g., goodwill, patents, franchises, copyrights).

Integrated Asset Allocation

An asset allocation strategy that refers to an all-encompassing strategy that includes consideration of capital market expectations and client risk tolerance.

Interest

Money charged by a lender to a borrower for the use of his or her money.

Interest Coverage Ratio

A debt ratio that tests the ability of a company to pay the interest charges on its debt and indicates how many times these charges are covered based upon earnings available to pay them.

Interest Rate Risk

The risk that changes in interest rates will adversely affect the value of an investor's portfolio. For example, a portfolio with a large holding of long-term bonds is vulnerable to significant loss from changes in interest rates.

International Monetary Fund (IMF)

Entity whose purpose is to promote cooperation and collaboration on international monetary and trade issues.

Interval Funds

A type of mutual fund that has the flexibility to buy back its outstanding shares periodically. Also known as closed-end discretionary funds.

In-the-Money

A call option is in-the-money if its strike price is below the current market price of the underlying security. A put option is in-the-money if its strike price is above the current market price of the underlying security. The in-the-money amount is the option's intrinsic value.

Intrinsic Value

That portion of a warrant or call option's price that represents the amount by which the market price of a security exceeds the price at which the warrant or call option may be exercised (exercise price). Considered the theoretical value of a security (i.e., what a security should be worth or priced at in the market).

Inventory

The goods and supplies that a company keeps in stock. A balance sheet item.

Inventory Turnover Ratio

Cost of goods sold divided by inventory. The ratio may also be expressed as the number of days required to sell current inventory by dividing the ratio into 365.

Investment

The use of money to make more money, to gain income or increase capital or both.

Investment Advisor (IA)

An individual licensed to transact in the full range of securities. IAs must be registered in by the securities commission of the province in which he or she works. The term refers to employees of SRO member firms only. Also known as a Registrant or Registered Representative (RR).

Investment Company, or Fund

A company which uses its capital to invest in other companies. There are two principal types: closed-end and open-end or mutual fund. Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization is fixed. Open-end funds sell their own new shares to investors, buy back their old shares, and are not listed. Open-end funds are so-called because their capitalization is not fixed; they normally issue more shares or units as people want them.

Investment Counsellor

A professional engaged to give investment advice on securities for a fee.

Investment Dealer

A person or company that engages in the business of trading in securities in the capacity of an agent or principal and is a member of the IDA.

Investment Dealers Association (IDA) of Canada

The Canadian investment industry's national trade association and self-regulatory organization. The IDA seeks to foster efficient capital markets by encouraging participation in the savings and investment process, and by ensuring the integrity of the marketplace.

Investment Policy Statement

The agreement between a portfolio manager and a client that provides the guidelines for the manager.

Investor

One whose principal concern is the minimization of risk, in contrast to the speculator, who is prepared to accept calculated risk in the hope of making better-than-average profits, or the gambler, who is prepared to take even greater risks.

Irrevocable beneficiary

A beneficiary whose entitlements under the segregated fund contract cannot be terminated or changed without his or her consent.

Issue

Any of a company's securities; the act of distributing such securities.

Issued Shares

That part of authorized shares that have been sold by the corporation and held by the shareholders of the company.

Issuer Bid

An offer by an issuer to security holders to buy back any of its own shares or other securities convertible into its shares.

J

Jitney

The execution and clearing of orders by one member of a stock exchange for the account of another member. Example: Broker A is a small firm whose volume of business is not sufficient to maintain a trader on the floor of the exchange. Instead it gives its orders to Broker B for execution and clearing and pays a reduced percentage of the normal commission.

Junior Bond Issue

A corporate bond issue, the collateral for which has been pledged as security for other more senior debt issues and is therefore subject to these prior claims.

Junior Debt

One or more junior bond issues.

K

Keynesian Economics

Economic policy developed by British economist John Maynard Keynes who proposed that active government intervention in the market was the only method of ensuring economic growth and prosperity. See also monetarism.

Know Your Client Rule (KYC)

The cardinal rule in making investment recommendations. All relevant information about a client must be known in order to ensure that the registrant's recommendations are suitable.

L

Labour Force

The sum of the population aged 15 years and over who are either employed or unemployed.

Labour Sponsored Venture Capital Corporations (LSVCC)

LSVCCs are investment funds, sponsored by labour organizations, that have a specific mandate to invest in small to medium-sized businesses. To encourage this mandate, governments offer generous tax credits to investors in LSVCCs.

Lagging Indicators

A selection of statistical data, that on average, indicate highs and lows in the business cycle behind the economy as a whole. These relate to business expenditures for new plant and equipment, consumers' instalment credit, short-term business loans, the overall value of manufacturing and trade inventories.

Large Value Transfer System (LVTS)

A Canadian Payments Association electronic system for the transfer of large value payments between participating financial institution.

Leading Indicators

A selection of statistical data that, on average, indicate highs and lows in the business cycle ahead of the economy as a whole. These relate to employment, capital investment, business starts and failures, profits, stock prices, inventory adjustment, housing starts and certain commodity prices.

LEAPS

Long Term Equity Anticipation Securities are long-term (2-3 year) option contracts.

Leverage

The effect of fixed charges (i.e., debt interest or preferred dividends, or both) on per-share earnings of common stock. Increases or decreases in income before fixed charges result in magnified percentage increases or decreases in earnings per common share. Leverage also refers to seeking magnified percentage returns on an investment by using borrowed funds, margin accounts or securities which require payment of only a fraction of the underlying security's value (such as rights, warrants or options).

Liabilities

Debts or obligations of a company, usually divided into current liabilities - those due and payable within one year - and long-term liabilities - those payable after one year. A balance sheet category.

Life Cycle

A model used in financial planning that tries to link age with investing. The underlying theory is that an individual's asset mix will change, as they grow older. However the life cycle is not a substitute for the "know your client rule".

Limit Order

A client's order to buy or sell securities at a specific price or better. The order will only be executed if the market reaches or betters that price.

Limited Liability

The word limited at the end of a Canadian company's name implies that liability of the company's shareholders is limited to the money they paid to buy the shares. By contrast, ownership by a sole proprietor or partnership carries unlimited personal legal responsibility for debts incurred by the business.

Limited Partnership

A type of partnership whereby a limited partner cannot participate in the daily business activity and liability is limited to the partner's investment.

Liquidity

1. The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. 2. A corporation's current assets relative to its current liabilities; its cash position.

Liquidity Preference Theory

A theory that tries to explain the shape of the yield curve. It postulates that investors want to invest for the short-term because they are risk averse. Borrowers, however, want long-term money. In order to entice investors to invest long-term, borrowers must offer higher rates for longer-term money. This being the case, the yield curve should slope upwards reflecting the higher rates for longer borrowing periods.

Liquidity Ratios

Financial ratios that are used to judge the company's ability to meet its short-term commitments. See current ratio.

Liquidity Risk

The risk that an investor will not be able to buy or sell a security quickly enough because buying or selling opportunities are limited.

Listed Stock

The stock of a company which is traded on a stock exchange.

Listing Agreement

A stock exchange document published when a company's shares are accepted for listing. It provides basic information on the company, its business, management, assets, capitalization and financial status.

Load

The portion of the offering price of shares of most open-end investment companies (mutual funds) which covers sales commissions and all other costs of distribution.

London InterBank Offered Rate (LIBOR)

The rate of interest charged by large international banks dealing in Eurodollars to other large international banks.

Long Position

Signifies ownership of securities. "I am long 100 BCE common" means that the speaker owns 100 common shares of BCE Inc.

Long-Term Bond

A bond or debenture maturing in more than ten years.

M

Macroeconomics

Focuses on the performance of the economy as a whole by analyzing such important issues as unemployment, inflation, recessions, government spending and taxation, poverty and inequality, budget deficits and national debts.

Major Trend

Underlying price trend prevailing in a market despite temporary declines or rallies.

Managed Account

Similar to a Discretionary Account but more long-term in nature. May be solicited.

Management Expense Ratio

The total expense of operating a mutual fund expressed as a percentage of the fund's net asset value. It includes the management fee as well as other expenses charged directly to the fund such as administrative, audit, legal fees etc., but excludes brokerage fees. Published rates of return are calculated after the management expense ratio has been deducted.

Management Fee

The fee that the manager of a mutual fund or a segregated fund charges the fund for managing the portfolio and operating the fund. The fee is usually set as fixed percentage of the fund's net asset value.

Managers' Discussion and Analysis (MD&A)

A document that requires management of an issuer to discuss the dynamics of its business and to analyze its financial statements with the focus being on information about the issuer's financial condition and operations with emphasis on liquidity and capital resources.

Margin

The amount of money paid by a client when he or she uses credit to buy a security. It is the difference between the market value of a security and the amount loaned by an investment dealer.

Margin Agreement

A contract that must be completed and signed by a client and approved by the firm in order to open a margin account. This sets out the terms and conditions of the account.

Margin Call

When an investor purchases an account on margin in the expectation that the share value will rise, or shorts a security on the expectation that share price will decline, and share prices go against the investor, the brokerage firm will send out a margin call requiring that the investor add additional funds or marketable securities to the account to protect the broker's loan.

Marginal Tax Rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.

Market

Any arrangement whereby products and services are bought and sold, either directly or through intermediaries.

Market Capitalization

The dollar value of a company based on the market price of its issued and outstanding common shares. It is calculated by multiplying the number of outstanding shares by the current market price of a share.

Market Correction

A price reversal that typically occurs when a security has been overbought or oversold in the market.

Market Maker

A trader employed by a securities firm who is authorized and required, by applicable self-regulatory organizations (SROs), to maintain reasonable liquidity in securities markets by making firm bids or offers for one or more designated securities.

Market Order

An order placed to buy or sell a security immediately at the best current price.

Market Regulation Services Inc. (RS)

An SRO that acts as the independent regulation services provider for Canadian equity markets, including the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSX VN), and Canadian Trading and Quotation System (CNQ). RS regulates trading on these marketplaces to ensure transactions are executed properly, fairly and in compliance with trading rules.

Market Risk

The non-controllable or systematic risk associated with equities.

Market Segmentation Theory

A theory on the structure of the yield curve. It is believed that large institutions shape the yield curve. The banks prefer to borrow short term while the insurance industry, with a longer horizon, prefers long-term money. The supply and demand of the large institutions shapes the curve.

Market Timing

Decisions on when to buy or sell securities based on economic factors, such as the strength of the economy and the direction of interest rates, or based on stock price movements and the volume of trading through the use of technical analysis.

Marketability

A measure of the ability to buy and sell a security. A security has good marketability if there is an active secondary market in which it can be easily bought and sold at a fair price.

Marketable Bonds

Bonds for which there is a ready market (i.e. clients will buy them because the prices and features are attractive).

Market-Out Clause

A clause that allows a dealer to cancel the issue if market conditions changed to the point where the issue becomes un-saleable.

Marking-to-Market

The process in the futures market in which the daily price changes are paid by the parties incurring losses to the parties earning profits.

Married Put or a Put Hedge

The purchase of an underlying asset and the purchase of a put option on that underlying asset.

Material Change

A change in the affairs of a company that is expected to have a significant effect on the market value of its securities.

Mature Industry

An industry that experiences slower, more stable growth rates in earnings and sales than growth or emerging industries, for example.

Maturity

The date on which a loan or a bond or debenture comes due and is to be paid off.

Maturity date

The date at which the contract expires, and the time at which any maturity guarantees are based. Segregated fund contracts normally mature in 10 years, although companies are allowed to set longer periods. Maturities of less than 10 years are permitted only for funds such as protected mutual funds, which are regulated as securities and are not segregated funds.

Maturity guarantee

The minimum dollar value of the contract after the guarantee period, usually 10 years. This amount is also known as the annuity benefit.

Medium-Term Bond

A bond or debenture maturing in over three but less than ten years.

Member Firm

A stock brokerage firm or investment dealer which is a member of a stock exchange or the Investment Dealers Association of Canada.

Microeconomics

Analyzes the market behaviour of individual consumers and firms, how prices are determined, and how prices determine the production, distribution, and use of goods and services.

Monetarists

School of economic theory which states that the level of prices as well as economic output is determined by an economy's money supply. This school of thought believes that control of the money supply is more vital to economic prosperity than the level of government spending, for example. See also Keynesian Policy.

Monetary Aggregates

An aggregate that measures the quantity of money held by a country's households, firms and governments. It includes various forms of money or payment instruments grouped according to their degree of liquidity, such as M1, M2 or M3.

Monetary Condition Index

A measure of the degree of tightening or easing in monetary conditions in the economy based on interest and exchange rates relative to a given base period.

Monetary Policy

Economic policy designed to improve the performance of the economy by regulating money supply and credit. The Bank of Canada achieves this through its influence over short-term interest rates.

Money Market

That part of the capital market in which short-term financial obligations are bought and sold. These include treasury bills and other federal government securities maturing in three years or less and commercial paper, bankers' acceptances, trust company guaranteed investment certificates and other instruments with a year or less left to maturity. Longer term securities, when their term shortens to the limits mentioned, are also traded in the money market.

Money Purchase Plan (MPP)

A type of Registered Pension Plan; also called a Defined Contribution Plan. In this type of plan, the annual payout is based on the contributions to the plan and the amounts those contributions have earned over the years preceding retirement. In other words, the benefits are not known but the contributions are.

Montreal Exchange (ME)

See Bourse de Montréal.

Mortgage

A contract specifying that certain property is pledged as security for a loan.

Mortgage Backed Securities

Similar to bonds, the current $ 5,000 units with five-year terms are backed by a share in a pool of home mortgages insured under the National Housing Act. Units pay interest and a part of principal each month and, if homeowners prepay their mortgages, may pay out additional amounts of principal before normal maturity. They trade in the bond market at prices reflecting current interest rates.

Mortgage Bond

A bond issue secured by a mortgage on the issuer's property.

Moving Average

The average of security or commodity prices calculated by adding the closing prices for the underlying security over a pre-determined period and dividing the total by the time period selected.

Moving Average Convergence-Divergence (MACD)

A technical analysis tool that takes the difference between two moving averages and then generates a smoothed moving average on the difference (the divergence) between the two moving averages.

Multiple

A colloquial term for the price-earnings ratio of a company's common shares.

Mutual Fund

An investment fund operated by a company that uses the proceeds from shares and units sold to investors to invest in stocks, bonds, derivatives and other financial securities. Mutual funds offer investors the advantages of diversification and professional management and are sold on a load or no load basis. Mutual fund shares/units are redeemable on demand at the fund's current net asset value per share (NAVPS).

Mutual Fund Dealers Association (MFDA)

The Self-Regulatory Organization (SRO) that regulates the distribution (dealer) side of the mutual fund industry in Canada.

N

Naked Writer

A seller of an option contract who does not own an offsetting position in the underlying security or a suitable alternative.

NASDAQ

An acronym for the National Association of Securities Dealers Automated Quotation System. NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded OTC.

National Debt

The accumulation of total government borrowing over time .It is the sum of past deficits minus the sum of past surpluses.

National Policies

The Canadian Securities Administrators have developed a number of policies that are applicable across Canada. These coordinated efforts by the CSA are an attempt to create a national securities regulatory framework. Copies of policies are available from each provincial regulator.

National Registration Database (NRD)

A web-based system that permits mutual fund salespersons and investment advisors to file applications for registration electronically.

Natural Unemployment Rate

Also called the full employment unemployment rate or the non-accelerating inflation rate of unemployment (NAIRU). At this level of unemployment, the economy is thought to be operating at close to its full potential or capacity.

Near Banks

See Country Banks.

Negative Pledge Provision

A protective provision written into the trust indenture of a company's debenture issue providing that no subsequent mortgage bond issue may be secured by all or part of the company's assets, unless at the same time the company's debentures are similarly secured.

Negotiable

A certificate that is transferable by delivery and which, in the case of a registered certificate, has been duly endorsed and guaranteed.

Negotiated Offer

A term describing a particular type of financing in which the investment dealer negotiates with the corporation on the issuance of securities. The details would include the type of security to be issued, the price, coupon or dividend rate, special features and protective provisions.

Net Asset Value

For a mutual fund, net asset value represents the market value of the fund's share and is calculated as total assets of a corporation less its liabilities. Net asset value is typically calculated at the close of each trading day. Also referred to as the book value of a company's different classes of securities.

Net Carrying Amount (Net Book Value of the Assets)

The value of capital assets recorded on the balance sheet less accumulated depreciation or amortization.

Net Change

The change in the price of a security from the closing price on one day to the closing price on the following trading day. In the case of a stock which is entitled to a dividend one day, but is traded ex-dividend the next, the dividend is not considered in computing the change. The same applies to stock splits. A stock selling at $100 the day before a two-for-one split and trading the next day at $50 would be considered unchanged. The net change is ordinarily the last figure in a stock price list. The mark + 1.10 means up $1.10 a share from the last sale on the previous day the stock traded.

Net Earnings

That part of a company's profits remaining after all expenses and taxes have been paid and out of which dividends may be paid.

Net Profit Margin

A profitability ratio that indicates how efficiently the company is managed after taking into account both expenses and taxes.

New Account Application Form (NAAF)

A form that is filled out by the client and the IA at the opening of an account. It gives relevant information to make suitable investment recommendations. The NAAF must be completed and approved before any trades are put through on an account.

New Issue

An offering of stocks or bonds sold by a company for the first time. Proceeds may be used to retire outstanding securities of the company, to purchase fixed assets or for additional working capital. New debt issues are also offered by government bodies.

New York Stock Exchange (NYSE)

Oldest and largest stock exchange in North America with more than 2,700 companies listed on the exchange.

NEX

A new and separate board of the TSX Venture Exchange that provides a trading forum for companies that have fallen below the Venture Exchange's listing standards. Companies that have low levels of business activity or who do not carry on active business will trade on the NEX board, while companies that are actively carrying on business will remain with the main TSX Venture Exchange stock list.

No Par Value (n.p.v.)

Indicates a common stock has no stated face value.

Nominal GDP

Gross domestic product based on prices prevailing in the same year not corrected for inflation. Also referred to as current dollar or chained dollar GDP.

Nominal Rate

The quoted or stated rate on an investment or a loan. This rate allows for comparisons but does not take into account the effects of inflation.

Nominee

A person or firm (bank, investment dealer, CDS) in whose name securities are registered. The shareholder, however, retains the true ownership of the securities.

Non-Client and Professional Orders

A type of order for the account of partners, directors, officers, major shareholders, IAs and employees of member firms that must be marked "PRO" , "N-C" or "Emp", in order to ensure that client orders are given priority for the same securities.

Non-Competitive Tender

A method of distribution used in particular by the Bank of Canada for Government of Canada marketable bonds. Primary distributors are allowed to request bonds at the average price of the accepted competitive tenders. There is no guarantee as to the amount, if any, received in response to this request.

Non-controlling Interest

1. The equity of the shareholders who do not hold controlling interest in a controlled company; 2. In consolidated financial statements (i) the item in the balance sheet of the parent company representing that portion of the assets of a consolidated subsidiary considered as accruing to the shares of the subsidiary not owned by the parent; and (ii) the item deducted in the earnings statement of the parent and representing that portion of the subsidiary's earnings considered as accruing to the subsidiary's shares not owned by the parent. Also referred to as minority interest.

Non-Cumulative

A preferred dividend that does not accrue or accumulate if unpaid.

Non-Trading Employees

Employees of securities firms who are not primarily engaged in sales may occasional accept orders from the public. Such employees are designated as Non-Trading Employees and may be exempt from registration by the administrator.

O

Odd Lot

A number of shares which is less than a board lot. Usually refers to a securities trade for less than 100 shares, sometimes called a broken lot. Trading in less than 100 shares typically incurs a higher per share commission.

Of Record

On the company's books or records. If, for example, a company announces that it will pay a dividend on January 15 to shareholders of record, every shareholder whose name appears on the company's books on that date will be sent a dividend cheque from the company.

Offer

The lowest price at which a person is willing to sell; as opposed to bid which is the highest price at which one is willing to buy.

Offering Memorandum

This document is prepared by the dealer involved in a new issue outlining some of the salient features of the new issue, but not the price or other issue-specific details. It is used as a pre-marketing tool in assessing the market for the issue as well as for obtaining expressions of interest.

Offering Price

The price that an investor pays to purchase shares in a mutual fund. The offering price includes the charge or load that is levied when the purchase is made.

Office of the Superintendent of Financial Institutions (OSFI)

The federal regulatory agency whose main responsibilities regarding insurance companies and segregated funds are to ensure that the companies issuing the funds are financially solvent.

Officers

Corporate employees responsible for the day-to-day operation of the business.

Offsetting Transaction

A futures or option transaction that is the exact opposite of a previously established long or short position.

Off-the-Board

This term may refer to transactions over-the-counter in unlisted securities, or, in a special situation, to a transaction involving a block of listed shares which is not executed on a recognized stock exchange.

Old Age Security (OAS)

A government pension plan payable at age 65 to all Canadian citizens and legal residents

Ombudsman for Banking Services and Investments (OBSI)

An independent organization that investigates customer complaints against financial services providers.

Open Interest

The total number of outstanding option contracts for a particular option series. An opening transaction would increase open interest, while a closing transaction would decrease open interest. It is used as one measure of an option class's liquidity.

Open Market Operations

Method through which the Bank of Canada influences interest rates by trading securities with participants in the money market.

Open Order

An order usually entered at a specified price (perhaps at the market) to buy or sell a security that is held open until executed or cancelled.

Open-End Fund

See Mutual Fund.

Opening Transaction

An option transaction that is considered the initial or primary transaction. An opening transaction creates new rights for the buyer of an option, or new obligations for a seller. See also Closing Transaction.

Operating Band

The Bank of Canada's 50-basis-point range for the overnight lending rate. The top of the band, the Bank Rate, is the rate charged by the Bank on LVTS advances to financial institutions. The bottom of the band is the rate paid by the Bank on any LVTS balances held overnight by those institutions. The middle of the operating band is the target for the overnight rate.

Operating Cash Flow Ratio

A liquidity ratio that shows how well liabilities to be paid within one year are covered by the cash flow generated by the company's operating activities.

Operating Income

The income that a company records from its main ongoing operations.

Operating Performance Ratios

A type of ratio that illustrates how well management is making use of company resources.

Option

A profitability ratio that is a stringent measure of a company's ability to manage its resources effectively.

Option Premium

The amount paid to enter into an option contract, paid by the buyer to the seller or writer of the contract.

Option Writer

The seller of the option who may be obligated to buy (put writer) or sell (call writer) the underlying interest if assigned by the option buyer.

Oscillator

A technical analysis indicator used when a stock's chart is not showing a definite trend in either direction. When the oscillator reading reaches an extreme value in either the upper or lower band, this suggest that the current price move has gone too far. This may indicate that the price move is overextended and vulnerable.

Out-of-the-Money

A call option is out-of-the-money if the market price of the underlying security is below its strike price. A put option is out-of-the-money if the market price of the underlying security is above the strike price.

Output Gap

The difference between the actual level of output and the potential level of output when the economy is using all available resources of capital and labour.

Outstanding Shares

That part of issued shares which remains outstanding in the hands of investors.

Over-allotment Option

An activity used to stabilize the after-market price of a recently issued security. If the price increases above the offer price, dealers can cover their short position by exercising an over-allotment option (also referred to as a green shoe option) by either increasing demand in the case of covering a short position or increasing supply in the case of over-allotment option exercise.

Overcontribution

An amount made in excess to the annual limit made to an RRSP. An overcontribution in excess of$2,000 is penalized at a rate of 1 percent per month.

Override

In an underwriting, the additional payment the Financing Group receives over and above their original entitlement for their services as financial advisors and syndicate managers or leads.

Over-the-Counter (OTC)

A market for securities made up of securities dealers who may or may not be members of a recognized stock exchange. Over-the-counter is mainly a market conducted over the telephone. Also called the unlisted, inter-dealer or street market. NASDAQ is an example of an over-the-counter market.

P

Paper Profit

An unrealized profit on a security still held. Paper profits become realized profits only when the security is sold. A paper loss is the opposite to this.

Par Value

The stated face value of a bond or stock (as assigned by the company's charter) expressed as a dollar amount per share. Par value of a common stock usually has little relationship to the current market value and so no par value stock is now more common. Par value of a preferred stock is significant as it indicates the dollar amount of assets each preferred share would be entitled to should the company be liquidated.

Pari Passu

A legal term meaning that all securities within a series have equal rank or claim on earnings and assets. Usually refers to equally ranking issues of a company's preferred shares.

Participating Feature

Preferred shares which, in addition to their fixed rate of prior dividend, share with the common in further dividend distributions and in capital distributions above their par value in liquidation.

Participating Organizations

A firm entitled to trade through the Toronto Stock Exchange or TSX Venture Exchange. The equivalent term on the Bourse de Montreal is Approved Participant.

Participation Rate

The share of the working-age population (15 to 65) that is in the labour market, either working or looking for work.

Partnership

A form of business organization that involves two or more people contributing to the business and legislated under the federal Partnership Act.

Past Service Pension Adjusted (PSPA)

An employer may increase a member's pension by the granting of additional past service benefits to an employee in a defined benefit plan. Plan members who incur a PSPA will have their RRSP contribution room reduced by the amount of this adjustment.

Payback Period

The time that it takes for a convertible security to recoup its premium through its higher yield, compared with the dividend that is paid on the stock.

Peer Group

A group of managed products (particularly mutual funds) with a similar investment mandate.

Penny Stocks

Low-priced speculative issues selling at less than $1 a share. Frequently used as a term of disparagement, although some penny stocks have developed into investment calibre issues.

Pension Adjustment (PA)

The amount of contributions made or the value of benefits accrued to a member of an employer-sponsored retirement plan for a calendar year. The PA enables the individual to determine the amount that may be contributed to an RRSP that would be in addition to contributions into a Registered Pension Plan.

Performance Bonds

What is often required upon entry into a futures contract giving the parties to a contract a higher level of assurance that the terms of the contract will eventually be honoured. The performance bond is often referred to as margin.

Perpetual Bonds

A unique type of debt security that has no maturity date.

Personal Disposable Income

The amount of personal income an individual has after taxes. The income that can be spent on necessities, non-essential goods and services, or that can be saved.

Phillips Curve

A graph showing the relationship between inflation and unemployment. The theory states that unemployment can be reduced in the short run by increasing the price level (inflation) at a faster rate. Conversely, inflation can be lowered at the cost of possibly increased unemployment and slower economic growth.

Piggyback Warrants

A second series of warrants acquired upon exercise of primary warrants sold as part of a unit.

Point

Refers to security prices. In the case of shares, it means $1 per share. In the case of bonds and debentures, it means 1% of the issue's par value, which is almost universally 100. On a $1,000 bond, one point represents 1% of the face value of the bond or $10.

Policy-based guarantee

A maturity guarantee based on the date when the policy was first issued. This type of guarantee may involve restrictions on the size of and date of subsequent deposits.

Political Risk

The risk associated with a government introducing unfavourable policies making investment in the country less attractive. Political risk also refers to the general instability associated with investing in a particular country.

Pooled Shares

See Escrowed Shares.

Pooling of Interest

Occurs when a company issues treasury shares for the assets of another company so that the latter becomes a division or subsidiary of the acquiring company. Subsequent accounts of the parent company are set up to include the retained earnings and assets at book value (subject to certain adjustments) of the acquired company.

Portfolio

Holdings of securities by an individual or institution. A portfolio may contain debt securities, preferred and common stocks of various types of enterprises and other types of securities.

Potential Output

The maximum amount of output the economy is capable of producing during a given period when all of its available resources are employed to their most efficient use.

Preemptive Rights Clause

A term in a company's charter that states that if a company wishes to issue additional new shares they must give the right of first refusal to the existing shareholders. This allows the existing shareholders to maintain their proportionate interest.

Preferred Dividend Coverage Ratio

A type of profitability ratio that measures the amount of money a firm has available to pay dividends to their preferred shareholders.

Preferred Shares

A class of share capital that entitles the owners to a fixed dividend ahead of the company's common shares and to a stated dollar value per share in the event of liquidation. Usually do not have voting rights unless a stated number of dividends have been omitted. Also referred to as preference shares.

Preliminary Prospectus

The initial document released by an underwriter of a new securities issue to prospective investors.

Premium

The amount by which a preferred stock or debt security may sell above its par value. In the case of a new issue of bonds or stocks, the amount the market price rises over the original selling price. Also refers to that part of the redemption price of a bond or preferred share in excess of face value, par value or market price. In the case of options, the price paid by the buyer of an option contract to the seller.

Prepaid Expenses

Payments made by the company for services to be received in the near future. For example, rents, insurance premiums and taxes are sometimes paid in advance. A balance sheet item.

Prescribed Rate

A quarterly interest rate set out, or prescribed by Canada Revenue Agency under attribution rules. The rate is based on the Bank of Canada rate.

Present Value

The current worth of a sum of money that will be received sometime in the future.

Price-Earnings (P/E) Ratio

A value ratio that gives investors an idea of how much they are paying for a company's earnings. Calculated as the current price of the stock divided current earnings per share.

Primary Distribution or Primary Offering of a New Issue

The original sale of any issue of a company's securities.

Primary Market

The market for new issues of securities. The proceeds of the sale of securities in a primary market go directly to the company issuing the securities. See also Secondary Market.

Prime Rate

The interest rate chartered banks charge to their most credit-worthy borrowers.

Principal

The person for whom a broker executes an order, or a dealer buying or selling for its own account. The term may also refer to a person's capital or to the face amount of a bond.

Private Placement

The underwriting of a security and its sale to a few buyers, usually institutional, in large amounts.

Pro Forma

A term applied to a document drawn up after giving effect to certain assumptions or contractual commitments not yet completed. For example, an issuer of new securities is required to include in the prospectus a statement of its capitalization on a pro forma basis after giving effect to the new financing.

Pro Rata

In proportion to. For example, a dividend is a pro rata payment because the amount of dividend each shareholder receives is in proportion to the number of shares he owns.

Probate

A provincial fee charged for authenticating a will. The fee charged is usually based on the value of the assets in an estate rather than the effort to process the will.

Productivity

The amount of output per worker used as a measure of efficiency with which people and capital are combined in the output of the economy. Productivity gains lead to improvements in the standard of living, because as labour, capital, etc. produce more, they generate greater income.

Profitability Ratios

Financial ratios that illustrate how well management has made use of the company's resources.

Program Trading

A sophisticated computerized trading strategy whereby a portfolio manager attempts to earn a profit from the price spreads between a portfolio of equities similar or identical to those underlying a designated stock index, e.g.,the Standard & Poor 500 Index, and the price at which futures contracts (or their options) on the index trade in financial futures markets. Also refers to switching or trading blocks of securities in order to change the asset mix of a portfolio.

Prospectus

A legal document that describes securities being offered for sale to the public. Must be prepared in conformity with requirements of applicable securities commissions. See also Red Herring and Final Prospectus.

Protected Funds

A fund legally structured as a mutual fund trust and not governed by insurance legislation. This type of segregated fund can be sold by registered mutual fund salespeople at bank branches and by individual financial advisors who lack life insurance licenses.

Proxy

Written authorization given by a shareholder to someone else, who need not be a shareholder, to represent him or her and vote his or her shares at a shareholders' meeting.

Prudent Man Rule

An investment standard. In some provinces, the law requires that a fiduciary, such as a trustee, may invest funds only in a list of securities designated by the province or the federal government. In other provinces, the trustee may invest in a security if it is one that an ordinary prudent person would buy if he were investing for the benefit of other people for whom he felt morally bound to provide. Most provinces apply the two standards.

Public Float

That part of the issued shares that are outstanding and available for trading by the public, and not held by company officers, directors, or investors who hold a controlling interest in the company. A company's public float is different from its outstandi

Purchase Fund

A fund set up by a company to retire through purchases in the market a specified amount of its outstanding preferred shares or debt if purchases can be made at or below a stipulated price. See also sinking fund.

Pure Insurance

See Term Insurance.

Put Option

A right to sell the stock at a stated price within a given time period. Those who think a stock may go down generally purchase puts. See also call option.

Q

Quantitative Analysis

The study of economic and stock valuation patterns in order to identify and profit from any anomalies.

Quebec Business Investment Company (QBIC)

A private corporation that collects funds from individuals and then acquires the common stock of eligible private small and medium-sized corporations that have their head offices in Quebec.

Quick Ratio

A more stringent measure of liquidity compared with the current ratio. Calculated as current assets less inventory divided by current liabilities. By excluding inventory, the ratio focuses on the company's more liquid assets.

Quotation and Trade Reporting Systems (QTRS)

Recognized stock markets that operate in a similar manner to exchanges and provide facilities to users to post quotations and report trades.

Quotation or Quote

The highest bid to buy and the lowest offer to sell a security at a given time. Example: A quote of 45.40 - 45.50 means that 45.40 is the highest price a buyer will pay and 45.50 the lowest price a seller will accept.

R

Rally

A brisk rise in the general price level of the market or in an individual stock.

Random Walk Theory

The theory that stock price movements are random and bear no relationship to past movements.

Rate of Return

See Yield.

Rational Expectations

School of economic theory which argues that investors are rational thinkers and can make intelligent economic decisions after evaluating all available information.

Real Estate Investment Trust (REIT)

An investment trust that specializes in real estate related investments including mortgages, construction loans, land and real estate securities in varying combinations. A REIT invests in and manages a diversified portfolio of real estate.

Real GDP

Gross Domestic Product adjusted for changes in the price level. Also referred to as constant dollar GDP.

Real Interest Rate

The nominal rate of interest minus the percentage change in the Consumer Price Index (i.e. the rate of inflation).

Record Date

The date on which a shareholder must officially own shares in a company to be entitled to a declared dividend. Also referred to as the date of record.

Red Herring Prospectus

A preliminary prospectus so called because certain information is printed in red ink around the border of the front page. It does not contain all the information found in the final prospectus. Its purpose: to ascertain the extent of public interest in an issue while it is being reviewed by a securities commission.

Redemption

The purchase of securities by the issuer at a time and price stipulated in the terms of the securities. See also call feature.

Redemption Price

The price at which debt securities or preferred shares may be redeemed, at the option of the issuing company.

Redeposit

An open-market cash management policy pursued by the Bank of Canada. A redeposit refers to the transfer of funds from the Bank to the direct clearers (an injection of balances) that will increase available funds. See also Drawdown.

Registered Education Savings Plans (RESPs)

A type of government sponsored savings plan used to finance a child's post secondary education.

Registered Pension Plan (RPP)

A trust registered with Canada Revenue Agency and established by an employer to provide pension benefits for employees when they retire. Both employer and employee may contribute to the plan and contributions are tax-deductible. See also Defined Contribution Plan and Defined Benefit Plan.

Registered Retirement Income Fund (RRIF)

A tax deferral vehicle available to RRSP holders. The planholder invests the funds in the RRIF and must withdraw a certain amount each year. Income tax would be due on the funds when withdrawn.

Registered Retirement Savings Plan (RRSP)

An investment vehicle available to individuals to defer tax on a specified amount of money to be used for retirement. The holder invests money in one or more of a variety of investment vehicles which are held in trust under the plan. Income tax on contributions and earnings within the plan is deferred until the money is withdrawn at retirement. RRSPs can be transferred into Registered Retirement Income Funds upon retirement.

Registered Security

A security recorded on the books of a company in the name of the owner. It can be transferred only when the certificate is endorsed by the registered owner. Registered debt securities may be registered as to principal only or fully registered. In the latter case, interest is paid by cheque rather than by coupons attached to the certificate. See also Bearer Security.

Registrar

Usually a trust company appointed by a company to monitor the issuing of common or preferred shares. When a transaction occurs, the registrar receives both the old cancelled certificate and the new certificate from the transfer agent and records and signs the new certificate. The registrar is, in effect, an auditor checking on the accuracy of the work of the transfer agent, although in most cases the registrar and transfer agent are the same trust company.

Regular Delivery

The date a securities trade settles - i.e., the date the seller must deliver the securities. See also settlement date.

Regular Dividends

A term that indicates the amount a company usually pays on an annual basis.

Reinvestment Risk

The risk that interest rates will fall causing the cash flows on an investment, assuming that the cash flows are reinvested, to earn less than the original investment. For example, yield to maturity assumes that all interest payments received can be reinvested at the yield to maturity rate. This is not necessarily true. If interest rates in the market fall the interest would be reinvested at a lower rate. Reinvestment risk recognizes this risk.

Relative Strength Graph

Shows the relative strength of a stock compared to the action of the market as a whole. The price of the stock is calculated as a ratio of some market performance series such as the Dow Jones Industrial Average.

Relative Value Hedge Funds

A type of hedge fund that attempts to profit by exploiting irregularities or discrepancies in the pricing of related stocks, bonds or derivatives.

Reporting Issuer

Usually, a corporation that has issued or has outstanding securities that are held by the public and is subject to continuous disclosure requirements of securities administrators.

Reserve

An amount set aside from retained earnings to provide for the payment of contingencies, retirement of preferred stock, or other necessary payouts.

Reset

A contract provision which allows the segregated fund contract holder to lock in the current market value of the fund and set a new maturity date 10 years after the reset date. Depending on the contract, the reset dates may be chosen by the contract holder or be triggered automatically.

Resistance Level

The opposite of a support level. A price level at which the security begins to fall as the number of sellers exceeds the number of buyers of the security.

Restricted Shares

Shares that participate in a company's earnings and assets (in liquidation), as common shares do, but generally have restrictions on voting rights or else no voting rights.

Retail Investor

Individual investors who buy and sell securities for their own personal accounts, and not for another company or organization. They generally buy in smaller quantities than larger institutional investors.

Retained Earnings

The cumulative total of annual earnings retained by a company after payment of all expenses and dividends. The earnings retained each year are reinvested in the business.

Retained Earnings Statement

A financial statement that shows the profit or loss in a company's most recent year.

Retractable

A feature which can be included in a new debt or preferred issue, granting the holder the option under specified conditions to redeem the security on a stated date - prior to maturity in the case of a bond.

Return Forecasting

The prediction of rates of return for each of the three major asset classes as part of the asset allocation process.

Return on Equity

A profitability ratio expressed as a percentage representing the amount earned on a company's common shares. Return on equity tells the investor how effectively their money is being put to use.

Return on Invested Capital

A profitability ratio that shows the amount earned on a company's total capital - the sum of its common and preferred shares and long-term debt. It is a useful measure of management efficiency.

Reversal Patterns

Formations that usually precede a sizeable advance or decline in stock prices.

Reverse Split

A process of retiring old shares with fewer shares. For example, an investor owns 1,000 shares of ABC Inc. pre split. A 10 for 1 reverse split or consolidation reduces the number held to 100. Results in a higher share price and fewer shares outstanding.

Revocable beneficiary

A beneficiary whose entitlements under the segregated fund contract can be terminated or changed without his or her consent.

Right

A short-term privilege granted to a company's common shareholders to purchase additional common shares, usually at a discount, from the company itself, at a stated price and within a specified time period. Rights of listed companies trade on stock exchanges from the ex-rights date until their expiry.

Right of Action for Damages

Most securities legislation provides that those who sign a prospectus may be liable for damages if the prospectus contains a misrepresentation. This right extends to experts e.g., lawyers, auditors, geologists, etc., who report or give opinions within the text of the document.

Right of Redemption

A mutual fund's shareholders have a continuing right to withdraw their investment in the fund simply by submitting their shares to the fund itself and receiving in return the dollar amount of their net asset value. This characteristic is the hallmark of mutual funds. Payment for the securities that have been redeemed must be made by the fund within 3 business days from the determination of the net asset value.

Right of Rescission

The right of a purchaser of a new issue to rescind the purchase contract within the applicable time limits if the prospectus contained an untrue statement or omitted a material fact.

Right of Withdrawal

The right of a purchaser of a new issue to withdraw from the purchase agreement within two business days after receiving the prospectus.

Risk Free Rate

The rate of return an investor would receive if he or she invested in a risk free investment, such as a treasury bill.

Risk Premium

A rate that has to be paid in addition to the risk free rate (T-bill rate) to compensate investors for choosing securities that have more risk than T-Bills.

Risk Return Trade-off

A graph that shows the relationship between the risk associated with an investment and the expected return on that investment. Investors hope to get higher returns when investing in higher risk securities.

Risk-averse

Descriptive term used for an investor unable or unwilling to accept the probability or chance of losing capital. See also risk-tolerant.

Risk-tolerant

Descriptive term used for an investor willing and able to accept the probability of losing capital. See also risk-averse.

S

S&P/TSX Composite Index

A benchmark used to measure the performance of the broad Canadian equity market..

Sacrifice Ratio

Describes the extent to which Gross Domestic Product must be reduced with increased unemployment to achieve a 1% decrease in the inflation rate.

Sale and Repurchase Agreements (SRAs)

An open-market operation by the Bank of Canada to offset undesired downward pressure on overnight financing costs.

Scholarship Trusts

A type of managed product created to help parents save for their children's post-secondary education. The subscribers (parents or grandparents) make contributions that are used to purchase units in a scholarship trust.

Seat

A traditional term for membership on a stock exchange.

SEC

The Securities and Exchange Commission, a federal body established by the United States Congress, to protect investors in the U.S. In Canada there is no national regulatory authority; instead, securities legislation is provincially administered.

Secondary Issue

Refers to the redistribution or resale of previously issued securities to the public by a dealer or investment dealer syndicate. Usually a large block of shares is involved (e.g., from the settlement of an estate) and these are offered to the public at a fixed price, set in relationship to the stock's market price.

Secondary Market

The market where securities are traded through an exchange or over-the-counter subsequent to a primary offering. The proceeds from trades in a secondary market go to the selling dealers and investors, rather than to the companies that originally issued the shares in the primary market. Securities: Paper certificates or electronic records that evidence ownership of equity (stocks) or debt obligations (bonds).

Securities

Paper certificates or electronic records that evidence ownership of equity (stocks) or debt obligations (bonds).

Securities Acts

Provincial Acts administered by the securities commission in each province, which set down the rules under which securities may be issued and traded.

Securities Administrator

A general term referring to the provincial regulatory authority (e.g., Securities Commission or Provincial Registrar) responsible for administering a provincial Securities Act.

Securities Eligible for Reduced Margin

Securities which demonstrate sufficiently high liquidity and low price volatility based on meeting specific price risk and liquidity risk measures.

Securitization

Refers in a narrow sense to the process of converting loans of various sorts into marketable securities by packaging the loans into pools. In a broader sense, refers to the development of markets for a variety of debt instruments that permit the ultimate borrower to bypass the banks and other deposit-taking institutions and to borrow directly from lenders.

Security Market Line

A formula that depicts the risk-return trade-off for securities. The formula can be used to calculate the expected return on a stock or an equity fund.

Segregated Funds

Insurance companies sell these funds as an alternative to conventional mutual funds. Like mutual funds, segregated funds offer a range of investment objectives and categories of securities e.g. equity funds, bond funds, balanced funds etc. These funds have the unique feature of guaranteeing that, regardless of how poorly the fund performs, at least a minimum percentage (usually 75% or more) of the investor's payments into the fund will be returned when the fund matures.

Self Directed RRSP

A type of RRSP whereby the holder invests funds or contributes certain acceptable assets such as securities directly into a registered plan which is usually administered for a fee by a Canadian financial services company.

Self Regulatory Organization (SRO)

An organization recognized by the Securities Administrators as having powers to establish and enforce industry regulations to protect investors and to maintain fair, equitable, and ethical practices in the industry and ensure conformity with securities legislation. Canadian SROs include the Investment Dealers Association, Market Regulation Services, the Mutual Fund Dealers Association, the Montreal Exchange, the Toronto Stock Exchange, the TSX Venture Exchange and the Winnipeg Commodity Exchange.

Selling Group

Investment dealers or others who assist a banking group in marketing a new issue of securities without assuming financial liability if the issue is not entirely sold. The use of a selling group widens the distribution of a new issue.

Sentiment Indicators

Measure investor expectations or the mood of the market. These indicators measure how bullish or bearish investors are.

Serial Bond or Debenture

See Installment Debenture.

Settlement Date

The date on which a securities buyer must pay for a purchase or a seller must deliver the securities sold. For most securities, settlement must be made on or before the third business day following the transaction date.

Shareholders' Equity

A balance sheet item that represents the excess of the company's assets over its liabilities and shows shareholder's interest in the company. Also referred to as net worth as it represents the ownership interest of common and preferred shareholders in a company.

Short Form Prospectus Distribution System

This system allows reporting issuers to issue a short form prospectus that contains only information not previously disclosed to regulators. The short form prospectus contains by reference the material filed by the corporation in the Annual Information Form.

Short Position

Created when an investor sells a security that he or she does not own. See also short sale.

Short Sale

The sale of a security which the seller does not own. This is a speculative practice done in the belief that the price of a stock is going to fall and the seller will then be able to cover the sale by buying it back later at a lower price, thereby making a profit on the transactions. It is illegal for a seller not to declare a short sale at the time of placing the order. See also Margin.

Short-term Bond

A bond or debenture maturing within three years.

Short-term Debt

Company borrowings repayable within one year that appear in the current liabilities section of the balance sheet. The most common short-term debt items are: bank advances or loans, notes payable and the portion of funded debt due within one year.

Simplified Prospectus

A condensed prospectus distributed by mutual fund companies to purchasers and potential purchasers of fund units or shares.

Sinking Fund

A fund set up to retire most or all of a debt or preferred share issue over a period of time. See also purchase fund.

Small Cap

Reference to smaller growth companies. Small cap refers to the size of the capitalization or investments made in the company. A small cap company has been defined as a company with an outstanding stock value of under $500 million. Small cap companies are considered more volatile than large cap companies.

Soft Landing

Describes a business cycle phase when economic growth slows sharply but does not turn negative, while inflation falls or remains low.

Soft Retractable Preferred Shares

A type of retractable preferred share where the redemption value may be paid in cash or in common shares, generally at the election of the issuer.

Sole Proprietorship

A form of business organization that involves one person running a business whereby the individual is taxed on earnings at their personal income tax rate.

SPDRs

An acronym for the Standard & Poor Depository Receipts (a type of derivative). These mirror the S&P 500 Index. They are referred to as Spiders.

Special Purchase and Resale Agreements (SPRAs)

An open-market operation used by the Bank of Canada to relieve undesired upward pressure on overnight financing rates.

Speculator

One who is prepared to accept calculated risks in the marketplace. Objectives are usually short to medium-term capital gain, as opposed to regular income and safety of principal, the prime objectives of the conservative investor.

Split Shares

A type of common share that has been split into two components. The dividend payments are directed to the equity dividend share, while the capital gain potential is assigned to the capital share. Also known as structured preferreds and equity dividend shares.

Sponsoring Self-Regulatory Organization (SSRO)

An SRO that sponsors the Canadian Investor Protection Fund. The SSROs are the IDA, the Montreal Exchange, the Toronto Stock Exchange and the TSX Venture Exchange.

Spot Price

The market price of a commodity or financial instrument that is available for immediate delivery.

Spousal RRSP

A special type of RRSP to which one spouse contributes to a plan registered in the beneficiary spouse's name. The contributed funds belong to the beneficiary but the contributor receives the tax deduction. If the beneficiary removes funds from the spousal plan in the year of the contribution or in the subsequent two calendar years, the contributor must pay taxes on the withdrawn amount.

Spread

The gap between bid and ask prices in the quotation for a security. Also a term used in option trading.

SRO

Short for self regulatory organization such as the Investment Dealers Association of Canada and the principal stock exchanges.

Standard Deviation

A statistical measure of risk. The larger the standard deviation, the greater the volatility of returns and therefore the greater the risk.

Standard Trading Unit

The replacement term for a board lot under the Universal Market Integrity Rules (UMIR), which recognizes that different marketplaces may use different sizes for board lots.

Statement of Cash Flow

A financial statement which provides information as to how a company generated and spent its cash during the year. Assists users of financial statements in evaluating the company's ability to generate cash internally, repay debts, reinvest and pay dividends to shareholders.

Statement of Material Facts

A document presenting the relevant facts about a company and compiled in connection with an underwriting or secondary distribution of its shares. It is used only when the shares underwritten or distributed are listed on a recognized stock exchange and takes the place of a prospectus in such cases.

Stock

Ownership interest in a corporation's that represents a claim on its earnings and assets.

Stock Dividend

A pro rata payment to common shareholders of additional common stock. Such payment increases the number of shares each holder owns but does not alter a shareholder's proportional ownership of the company.

Stock Exchange

A marketplace where buyers and sellers of securities meet to trade with each other and where prices are established according to laws of supply and demand.

Stock Savings Plan

Some provinces allow individual residents of the particular province a deduction or tax credit for provincial income tax purposes on investments made in certain prescribed vehicles. The credit or deduction is a percentage figure based on the value of investment.

Stock Split

An increase in a corporation's number of shares outstanding without any change in the shareholders' equity or market value. When a stock reaches a high price making it illiquid or difficult to trade, management may split the stock to get the price into a more marketable trading range. For example, an investor owns one board lot of a stock that now trades at $70 each (portfolio value is $7,000). Management splits the stock 2:1. The investor would now own 200 new shares at a market value, all things being equal, of $35 each, for a portfolio value of $7,000.

Stop Buy Orders

An order to buy a security only after it has reached a certain price. This may be used to protect a short position or to ensure that a stock is purchased while its price is rising. According to TSX rules these orders become limit orders when the stop price is reached.

Stop Loss Orders

The opposite of a stop buy order. An order to sell a security after its price falls to a certain amount, thus limiting the loss or protecting a paper profit. According to TSX rules these orders become limit orders when the stop price is reached.

Stop Orders

Orders that are used to buy or sell after a stock has reached a certain price. See stop buy orders, stop loss orders.

Strategic Asset Allocation

An asset allocation strategy that rebalances investment portfolios regularly to maintain a consistent long-term mix.

Street Name

Securities registered in the name of an investment dealer or its nominee, instead of the name of the real or beneficial owner, are said to be "in street name". Certificates so registered are known as street certificates.

Strike Price

The price, as specified in an option contract, at which the underlying security will be purchased in the case of a call or sold in the case of a put. See also exercise price.

Strip Bonds or Zero Coupon Bonds

Usually high quality federal or provincial government bonds originally issued in bearer form, where some or all of the interest coupons have been detached. The bond principal and any remaining coupons (the residue) then trade separately from the strip of detached coupons, both at substantial discounts from par.

Structural Unemployment

amount of unemployment that remains in an economy even when the economy is strong. Also known as the natural unemployment rate, the full employment unemployment rate, or the non-accelerating inflation rate of unemployment (NAIRU).

Structured Preferreds

See Equity Dividend Shares.

Subordinate Debenture

A type of junior debenture. Subordinate indicates that another debenture ranks ahead in terms of a claim on assets and profits.

Subscription or Exercise Price

The price at which a right or warrant holder would pay for a new share from the company. With options the equivalent would be the strike price.

Subsidiary

Company which is controlled by another company usually through its ownership of the majority of shares.

Suitability

A registrant's major concern in making investment recommendations. All information about a client and a security must be analyzed to determine if an investment is suitable for the client in accounts where a suitability exemption does not apply.

Superficial Losses

Occur when an investment is sold and then repurchased at any time in a period that is 30 days before or after the sale.

Supply-Side Economics

An economic theory whereby changes in tax rates exert important effects over supply and spending decisions in the economy. According to this theory, reducing both government spending and taxes provides the stimulus for economic expansion.

Support Level

A price level at which a security stops falling because the number of investors willing to buy the security is greater than the number of investors wishing to sell the security.

Surrender Value

The cash value of an insurance contract as of the date that the policy is being redeemed. This amount is equal to the market value of the segregated fund, less any applicable sales charges or administrative fees.

Suspension of Trading

An interruption in trading imposed on a company if their financial condition does not meet an exchange's requirements for continued trading or if the company fails to comply with the terms of its listing agreement.

Swap

An over-the-counter forward agreement involving a series of cash flows exchanged between two parties on specified future dates.

Sweetener

A feature included in the terms of a new issue of debt or preferred shares to make the issue more attractive to initial investors. Examples include warrants and/or common shares sold with the issue as a unit or a convertible or extendible or retractable feature.

Syndicate

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

System for Electronic Disclosure by Insiders (SEDI)

SEDI facilitates the filing and public dissemination of insider reports in electronic format via the Internet.

System for Electronic Document Analysis and Retrieval (SEDAR)

SEDAR facilitates the electronic filing of securities information as required by the securities regulatory agencies in Canada and allows for the public dissemination of information collected in the filing process.

Systematic Risk

A non-controllable, non-diversifiable risk that is common to all investments within a given asset class. With equities it is called market risk, with fixed income securities it would be interest rate risk.

Systematic Withdrawal Plan

A plan that enables set amounts to be withdrawn from a mutual fund or a segregated fund on a regular basis.

T

T3 Form

Referred to as a Statement of Trust Income Allocations and Designations. When a mutual fund is held outside a registered plan, unitholders of an unincorporated fund is sent a T3 form by the respective fund.

T4 Form

Referred to as a Statement of Remuneration Paid. A T4 form is issued annually by employers to employees reporting total compensation for the calendar year. Employers have until the end of February to submit T4 forms to employees for the previous calendar year.

T5 Form

Referred to as a Statement of Investment Income. When a mutual fund is held outside a registered plan, shareholders are sent a T3 form by the respective fund.

Tactical Asset Allocation

An asset allocation strategy that involves adjusting a portfolio to take advantage of perceived inefficiencies in the prices of securities in different asset classes or within sectors.

Takeover Bid

An offer made to security holders of a company to purchase voting securities of the company which, with the offeror's already owned securities, will in total exceed 20% of the outstanding voting securities of the company. For federally incorporated companies, the equivalent requirement is more than 10% of the outstanding voting shares of the target company.

Tax Loss Selling

Selling a security for the sole purpose of generating a loss for tax purposes. There may be times when this strategy is advantageous but investment principles should not be ignored.

T-Bills

See Treasury bills.

Technical Analysis

A method of market and security analysis that studies investor attitudes and psychology as revealed in charts of stock price movements and trading volumes to predict future price action.

Term Insurance

A type of insurance policy that pays a death benefit if the insured dies within the given contracted period. It is sometimes called pure insurance as it does not have a savings component and is put in place strictly for insurance purposes.

Term to Maturity

The length of time that a segregated fund policy must be held in order to be eligible for the maturity guarantee. Normally, except in the event of the death of the annuitant, the term to maturity of a segregated-fund policy is 10 years.

Thin Market

A market in which there are comparatively few bids to buy or offers to sell or both. The phrase may apply to a single security or to the entire stock market. In a thin market, price fluctuations between transactions are usually larger than when the market is liquid. A thin market in a particular stock may reflect lack of interest in that issue, or a limited supply of the stock.

Tilting Yield Curve

The yield curve that results from a decline in long-term bond yields while short-term rates are rising.

Time to Expiry

The number of days or months or years until expiry of an option or other derivative instrument.

Time Value

The amount, if any, by which the current market price of a right, warrant or option exceeds its intrinsic value.

Timely Disclosure

An obligation imposed by securities administrators on companies, their officers and directors to release promptly to the news media any favourable or unfavourable corporate information which is of a material nature. Broad dissemination of this news allows non-insiders to trade the company's securities with the same knowledge about the company as insiders themselves. See also Continuous Disclosure.

Time-Weighted Rate of Return (TWRR)

A measure of return calculated by averaging the return for each subperiod in which a cash flow occurs into a return for a reporting period.

Tombstone Advertisements

A written advertisement placed by the investment bankers in a public offering of securities as a matter of record once the deal has been completed.

Top-Down Approach

A type of fundamental analysis. First, general trends in the economy are analyzed. This information is then combined with industries and companies within those industries that should benefit from the general trends identified.

Toronto Stock Exchange (TSX)

The largest stock exchange in Canada with over 1,700 companies listed on the exchange.

Trade-weighted Exchange Rate

Rate produced by the Bank of Canada that measures the Canadian dollar's movements against ten major currencies.

Trading Unit

Describes the size or the amount of the underlying asset represented by one option contract. In North America, all exchange-traded options have a trading unit of 100 shares.

Trailer Fee

Fee that a mutual fund manager may pay to the individual or organization that sold the fund for providing services such as investment advice, tax guidance and financial statements to investors. The fee is paid annually and continues for as long as the investor holds shares in the fund.

Transaction Date

The date on which the purchase or sale of a security takes place.

Transfer Agent

An agent, usually a trust company, appointed by a corporation to maintain shareholder records, including purchases, sales, and account balances. The transfer agent may also be responsible for distributing dividend cheques.

Treasury Bills

Short-term government debt issued in denominations ranging from $1,000 to $1,000,000. Treasury bills do not pay interest, but are sold at a discount and mature at par (100% of face value). The difference between the purchase price and par at maturity represents the lender's (purchaser's) income in lieu of interest. In Canada, such gain is taxed as interest income in the purchaser's hands.

Treasury Shares

Authorized but unissued stock of a company or previously issued shares that have been re-acquired by the corporation. The amount still represents part of those issued but is not included in the number of shares outstanding. These shares may be resold or used as part of the option package for management. Treasury shares do not have voting rights nor are they entitled to dividends.

Trend

Shows the general movement or direction of securities prices. The long-term price or trading volume of a particular security is either up, down or sideways.

Trust Deed (Bond Contract)

This is the formal document that outlines the agreement between the bond issuer and the bondholders. It outlines such things as the coupon rate, if interest is paid semi-annually and when, and any other terms and conditions between both parties.

Trustee

For bondholders, usually a trust company appointed by the company to protect the security behind the bonds and to make certain that all covenants of the trust deed relating to the bonds are honoured. For a segregated fund, the trustee administers the assets of a mutual fund on behalf of the investors.

TSX Venture Exchange

Canada's public venture marketplace, the result of the merger of the Vancouver and Alberta Stock Exchanges in 1999.

Two Way Security

A security, usually a debenture or preferred share, which is convertible into or exchangeable for another security (usually common shares) of the same company. Also indirectly refers to the possibility of profiting in the future from upward movements in the underlying common shares as well as receiving in the interim interest or dividend payments.

U

Underlying Security

The security upon which a derivative contract, such as an option, is based. For example, the ABC June 35 call options are based on the underlying security ABC.

Underwriting

The purchase for resale of a security issue by one or more investment dealers or underwriters. The formal agreements pertaining to such a transaction are called underwriting agreements.

Unemployment Rate

The percentage of the work force that is looking for work but unable to find jobs.

Unit

Two or more corporate securities (such as preferred shares and warrants) offered for sale to the public at a single, combined price.

Unit Value

The value of one unit of a segregated fund. The units have no legal status, and are simply an administrative convenience used to determine the income attributable to contract holders and the level of benefits payable to beneficiaries.

Universal Market Integrity Rules (UMIR)

A common set of trading rules that are applied in all markets in Canada. UMIR are designed to promote fair and orderly markets.

Unlisted

A security not listed on a stock exchange but traded on the over-the-counter market.

Unlisted Market

See also dealer market.

V

Valuation day

The day on which the assets of a segregated fund are valued, based on its total assets less liabilities. Most funds are valued at the end of every business day.

Value Manager

A manager that takes a research intensive approach to finding undervalued securities.

Value Ratios

Financial ratios that show the investor the worth of the company's shares or the return on owning them.

Variable Rate Preferreds

A type of preferred share that pays dividends in amounts that fluctuate to reflect changes in interest rates. If interest rates rise, so will dividend payments, and vice versa.

Variance

Another measure of risk often used interchangeably with volatility. The greater the variance of possible outcomes the greater the risk.

Vested

The employee's right to the employer contributions made on his or her behalf during the employee's period of enrollment.

Volatility

A measure of the amount of change in the daily price of a security over a specified period of time. Usually given as the standard deviation of the daily price changes of that security on an annual basis.

Voting Right

The stockholder's right to vote in the affairs of the company. Most common shares have one vote each. Preferred stock usually has the right to vote only when its dividends are in arrears. The right to vote may be delegated by the shareholder to another person. See also Proxy.

Voting Trust

An arrangement to place the control of a company in the hands of certain managers for a given period of time, or until certain results have been achieved, by shareholders surrendering their voting rights to a trustee for a specified period of time.

W

Waiting Period

The period of time between the issuance of a receipt for a preliminary prospectus and receipt for a final prospectus from the securities administrators.

Warrant

A certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit. Warrants are usually issued with a new issue of securities as an inducement or sweetener to investors to buy the new issue.

Winnipeg Commodity Exchange (WCE)

An exchange that trades agricultural futures and options exclusively.

Working Capital

Current assets minus current liabilities. This figure is an indication of the company's ability to meet its short-term debts.

Working Capital Ratio

Current assets of a company divided by its current liabilities.

Wrap Account

Also known as a wrap fee program. A type of fully discretionary account where a single annual fee, based on the account's total assets, is charged, instead of commissions and advice and service charges being levied separately for each transaction. The account is then managed separately from all other wrap accounts, but is kept consistent with a model portfolio suitable to clients with similar objectives.

Writer

The seller of either a call or put option. The option writer receives payment, called a premium. The writer in then obligated to buy (in the case of a put) or sell (in the case of a call) the underlying security at a specified price, within a certain period of time, if called upon to do so.

Y

Yield - Bond & Stock

Return on an investment. A stock yield is calculated by expressing the annual dividend as a percentage of the stock's current market price. A bond yield is more complicated, involving annual interest payments plus amortizing the difference between its current market price and par value over the bond's life. See also Current Yield.

Yield Curve

A graph showing the relationship between yields of bonds of the same quality but different maturities. A normal yield curve is upward sloping depicting the fact that short-term money usually has a lower yield than longer-term funds. When short-term funds are more expensive than longer-term funds the yield curve is said to be inverted.

Yield spread

The difference between the yields on two debt securities, normally expressed in basis points. In general, the greater the difference in the risk of the two securities, the larger the spread.

Yield to Maturity

The rate of return investors would receive if they purchased a bond today and held it to maturity. Yield to maturity is considered a long term bond yield expressed as an annual rate.

Z

Zero Coupon Bonds

See Strip Bonds.


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