Glossary

A

Acceptance Company Paper
Short-term negotiable debt securities issued by finance companies to fund loans to consumers for items such as cars and appliances.

Accounts Payable
Debts of a company for goods or services purchased that must be paid within one year. These debts are listed as a current liability on the company's balance sheet.

Accounts Receivable
Money owed to a company for goods and services it has sold. Payment is expected within one year. This money is listed as a current asset on the company's balance sheet.

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

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

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

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.

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

Arbitrage
The simultaneous purchase of a security on one stock exchange and sale of the same security or an equivalent of that security on the same or another exchange which can result in a profit. The profit is the difference between the buy and sell prices and is usually a very small amount per unit. Arbitrage is a sophisticated manoeuvre executed by professional traders.

Arrears
Interest or dividends which were not paid when due and are still owed.

Ask
The lowest price at which someone is willing to sell a security.

Assets
Everything a company or person owns or is owed, such as money, securities, equipment and buildings. Assets are listed on a company's balance sheet.

Associated Company
A company owned jointly by two or more other companies.

At-The-Money Option
An option with an exercise or strike price that is equal, or almost equal, to the current market price of the underlying security.

Audit
Verifying the accuracy of accounting and financial records by a member of the Institute of Chartered Accountants. In some provinces Certified General Accountants and Certified Management Accountants may also act as company auditors.

Authorized Shares
The number of shares a company is legally allowed to sell.

Averages and Indexes or Indices
Statistical tools that measure the state of the stock market or the economy, based on the performance of stocks, bonds or other components. The Dow Jones Industrial Average and the TSE 300 Composite Index are well-known examples.

Averaging Down
Buying more of a security at a lower price than the original investment. The aim of averaging down is to reduce the average cost per unit of the investment.


B

Balance Sheet
A financial statement showing a company's assets, liabilities and shareholders' equity on a given date. It shows what the company owns and what debts it owes.

Balloon
In some serial bond issues a balloon is an extra-large amount that may mature in the final year of the series.

Bank of Canada
The central bank of Canada, founded in the 1930s to facilitate the functioning of the financial system. The Bank of Canada issues and removes bank notes, acts as the federal government's financial advisor on debt management and foreign exchange, and conducts monetary policy to regulate the growth of the country's money supply and influence interest rates.

Bank Rate
The minimum rate at which the Bank of Canada will make short-term advances to the chartered banks and money market dealers. Since 1980 the bank rate has been set at 1/4 of 1% (25 basis points) above the weekly average tender rate of 91-day Government of Canada treasury bills. The upward and downward trend of the bank rate affects the prime lending rates that chartered banks give to their most creditworthy borrowers, as well as rates on all types of bank deposits, short-term paper, bonds and mortgages.

Bankers' Acceptance
A type of short-term negotiable debt instrument issued by a non-financial corporation, such as Ford or General Motors, but guaranteed as to principal and interest by its bank. The guarantee reduces risk and therefore results in a higher issue price and consequent lower yield.

Banking Group
A group of investment dealers, each of which individually assumes financial responsibility for part of an underwriting of a new issue of securities for a corporation.

Bankrupt
The legal status of an individual or company which 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 yields 11.75%, the difference is 25 basis points.

Bear Market
A market in which prices are declining. A "bear" is a person who expects that the market or the price of a particular security will decline.

Bearer Security
A stock or bond which does not have the owner's name recorded in the books of the issuing company or on the security certificate itself. The holder of the certificate is the owner. Interest, dividends or any profits from sales are payable to the holder.

Beneficial Owner
The real owner of a security. An investor may have securities registered in the name of a broker, trustee or bank to facilitate transfer or to preserve anonymity, but the investor is the beneficial owner and will receive any dividends, interest or profits from sales.

Best Efforts Underwriting
The underwriter agrees to use his or her best efforts to sell a new issue of securities, but does not guarantee to the issuing company that any or all of the issue will be sold. The underwriter acts as an agent for the issuer in distributing the issue to his clients.

Bid
The highest price a person is willing to pay for a security.

Blue Chip Stocks
Nationally-known common stock, usually with a continuous dividend payment record in good times and bad and other strong investment qualities. These stocks are usually high-priced but have a tendency to be low-yielding.

Blue Sky
A slang term for laws various Canadian provinces and American states have enacted to protect the public against securities frauds. The term "blue skyed" indicates that a new issue has been cleared by a securities commission and may be sold to the public.

Board Lot
A regular trading unit which has been decided upon by the stock exchanges. For example, one board lot on the Toronto Stock Exchange equals 1000 shares for shares priced under 10 cents each, 500 shares for shares priced between 10 cents and 99 cents, and 100 shares for shares of $1 and over.

Bonds
A certificate which is evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified length of time, and to repay the loan on its maturity. Strictly speaking, assets are pledged as security for the loan, except in the case of government bonds, but the term is often loosely used to describe any debt issue. Bonds are issued by corporations and by federal, provincial and municipal governments. Bond holders are first in line before shareholders to claim any of a company's assets in the event of liquidation.

Book Value
The cash value of a business which, after all debts are paid, belongs to the owners of a company shareholders liquidated. This is calculated by looking at the balance sheet and subtracting the company's liabilities and value of preferred shares from its assets, and then dividing what is left by the total number of common shares outstanding.

Bought Deal
An entire issue of new stocks or bonds bought from the issuer by an investment dealer, frequently acting alone, for resale to its clients. The dealer risks its own money in a bought deal, and in the event that the price has to be lowered to sell out the issue, the dealer absorbs the loss.

Broadened Base Earnings
A concept whereby the earnings per share of a company are computed to include a pro rata share of the earnings of all unconsolidated subsidiaries and associated companies.

Broker
A securities firm or an investment advisor associated with a firm. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities him or herself, but acts as an agent for the buyer and seller and charges a commission for these services.

Bull Market
A market in which prices are rising. A "bull" is a person who expects that the market or the price of a particular security will rise.

Business Day
Those days when most corporate and government offices are open for business, usually any day except Saturday, Sunday and legal holidays.

Buy-ins
If the seller of a security fails to deliver the securities sold to another person within a specified number of days after the settlement date, the buyer may purchase the securities in the open market and charge the seller the cost of such purchases.


C

Call Loan
A loan which may be terminated or "called" at any time by the lender. The loan is then immediately payable, with any accrued interest, by the borrower to the lender. These loans are used to finance purchases of securities and exclude personal loans extended by banks to its customers.

Call Options
An option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase.

Callable
Securities which may be redeemed upon due notice by the security's issuer. In the case of bonds, issuers of bonds may reserve the right to pay off the bond before maturity to take advantage of lower interest rates.

Canadian Investor Protection Fund (CIPF)
An industry sponsored fund that protects investors from losses resulting from the bankruptcy of a member firm. The maximum coverage is $500,000 per account, of which up to $60,000 can be cash. The Canadian Investor Protection Fund is sponsored by the Investment Industry Regulatory Organization of Canada, the Toronto Stock Exchange and Futures Exchange, and the Montreal, Vancouver and Alberta Stock Exchanges.

Canadian Payments Association
This association operates a highly automated national clearing system for interbank payments which reduces costs and increases the efficiency of the clearing system in Canada. Members include chartered banks, trust and loan companies and some credit unions.

Cancel or Change Former Order (CFO)
An order that cancels or changes a customer's current order.

Capital
To economists, capital means the machinery, factories and inventory required to produce other products. To investors, capital means their cash plus the financial assets they have invested in securities, their home and other fixed assets.

Capital Cost Allowance
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 or Loss
Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.

Capital Market
This market brings together all the providers and users of capital, all the financial products, like stocks and bonds which make the transfer of capital possible, and all the people and organizations which support the process.

Capital Stock
All shares representing ownership of a company, including preferred as well as common shares.

Capitalization or Capital Structure
Total dollar amount of all money invested in a company, such as debt, preferred and common shares, contributed surplus and retained earnings of a company. It can also be expressed as a percentage.

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, amortization, deferred income taxes and minority interest. Cash flow can provide a broader picture of a company's earning power than net earnings alone. Cash flow is important to investors as it shows the company's ability to pay dividends and finance expansion.

Central Bank
A body established by a national government to regulate currency and monetary policy on a national and international level. In Canada it is the Bank of Canada. In the United States it is the Federal Reserve Board and in the United Kingdom it is the Bank of England.

Certificate
An engraved document which shows ownership of a bond, stock or other security.

Certificate of Deposit (CD)
A fixed-income debt security issued by most chartered banks, usually in minimum denominations of $1000 with maturity terms of one to six years.

Class A and B Stock
Names used by companies to distinguish between two classes of common stock. Class A stock may receive cash dividends while Class B may receive stock dividends. There also could be differences in voting rights or in priority of assets. The investor should review the terms of the class designation prior to purchase to understand the rights of that class of stock.

Clearing House
An independent institution that ensures the payment and delivery of stocks and bonds between investment dealers in a timely, cost-efficient manner. For example, an investment dealer may execute 10 trades (buys and sells) in the same security on the same day. Through the clearing house the dealer just settles the difference in the number of shares and the difference in money owed or received.

Closed-end Investment Company
This is a company which uses its capital to invest in other companies. Shares in a closed-end investment company are bought and sold on the stock market and the company's capital remains relatively unchanged.

Close
The last transaction price for a stock on a particular stock exchange at the end of the trading day. If there was not an actual transaction that day, the close can refer to the last posted bid and ask prices.

Collateral
Securities or other property pledged by a borrower as a guarantee for repayment of a loan.

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.

Comfort Letter
A letter filed with the applicable securities commissions by a company's auditor when submitting unsigned financial statements for use in a prospectus. The letter says that the final format of the statements should not be materially different from those attached to the letter. The letter is required because the auditor does not sign the report until the final prospectus is prepared for distribution. The signing is done after the securities commissions have reviewed the prospectus and any required changes have been made.

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 an investment advisor for buying or selling securities as an agent on behalf of a client.

Commodities
Products used for commerce that are traded on a separate, authorized exchange, such as the Winnipeg Commodities Exchange or the Chicago Board of Trade. Commodities include agricultural products and natural resources such as timber, oil and metals, and are the basis for futures contracts traded on these exchanges.

Common Stock or Common Shares
Securities which represent ownership in a company and carry voting privileges. Common shareholders may be paid dividends but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company's assets in the event of liquidation.

Compound Interest
Interest earned on an investment at periodic intervals and added to the original amount of the investment. Future interest payments are then calculated and paid at the original rate but on the increased total of the investment. This is really interest paid on interest.

Computer Assisted Trading System (CATS)
An electronic trading system developed by the Toronto Stock Exchange that allows traders anywhere in the world to trade stocks listed on the exchange. This was the first electronic trading environment developed in Canada.

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

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.

Constrained Share Companies
Canadian banks, trust, insurance, broadcasting and communication companies have limits on the number of shares or percentage of shares owned by people who are not Canadian citizens or residents. Foreign ownership is restricted since these companies or institutions are either culturally important or fundamentally important to the Canadian economy.

Consumer Price Index (CPI)
A major inflation measure computed by Statistics Canada. It measures the change in prices of a fixed basket of a variety of goods and services in the previous month. This basket of goods is supposed to reflect the average needs of a Canadian family.

Continuous Disclosure
A securities issuer must issue a press release as soon as a material change occurs in its affairs and within ten days for any other changes in the company.

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

Convertible Security
A bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company. Convertibles are attractive to investors as they provide the security and income of a bond, debenture or preferred share, as well as the opportunity to participate in the growth of the company through converting to common shares.

Corporation or Company
A form of business organization legally created under provincial or federal statutes which has a legal identity separate from its owners. The corporation's owners shareholders debts only to the extent of their investment, which is called limited liability.

Country Banks
A term for non-bank lenders such as corporations, insurance companies and other institutional short-term investors, none of which are under the jurisdiction of the Bank Act, who provide short-term sources of credit for investment dealers.

Coupon
A mini-certificate actually attached to a bond certificate which represents an actual interest payment. The coupon becomes negotiable on the date the interest is due and usually represents the six month interest payment on the face value of the bond certificate. The term "coupon" is sometimes used as a slang reference to the interest rate paid on a debt instrument, i.e. the coupon of the new Government of Canada March 2015 is 8.75%. This means the interest rate is 8.75% per annum on the face value of the bond.

Cover
Buying a security that you had previously sold short.

Cross on the Board
When an investment dealer has both an order to sell and an order to buy the same stock at the same price, the transaction is allowed without interfering with the limits of the prevailing market. This is also called a put-through or contra order.

Cum Dividend
This means "with dividend." Buyers of shares quoted cum dividend are entitled to an upcoming already-declared dividend.

Cum Rights
This means "with rights." Buyers of shares quoted cum rights are entitled to forthcoming rights.

Cumulative Preferred
A preferred stock which has a provision that if one or more of its dividends are omitted, these unpaid dividends accumulate and must be paid before any dividends may be paid on the company's common shares.

Current Assets
Cash and assets such as accounts receivable and inventories, which in the normal course of business can be converted into cash within a year. Current assets are found on the company's balance sheet.

Current Liabilities
Money owed to the company and due to be paid within a year, such as accounts payable. Current liabilities are found on the company's balance sheet.

Current Ratio or Working Capital Ratio
Current assets of a business divided by current liabilities, thus measuring how much the value of current assets exceeds its liabilities. This is one of the tests to determine how much cash a company has on hand to cover its current liabilities.

Current Return or Yield
The annual income from an investment expressed as a percentage of the investment's current value. On stock, this is calculated by dividing yearly dividends by the market price of the security. On bonds, this is calculated by dividing yearly interest by current price. For example, if the income is $50 a year on an investment with a value of $1,000, the current yield is 5%.

Cyclical Stock
Stock in an industry that is particularly sensitive to swings in economic conditions, such as mining or forestry.


D

Day Order
An order to buy or sell a security valid only on the day the order is given.

Debenture
A certificate of indebtedness of a government or company backed only by the general credit of the issuer and unsecured by property or assets.

Debt
Money borrowed from lenders for a variety of corporate or personal purposes. The borrower pays interest for the use of the money and is obligated to repay the principal amount on a set date.

Deemed Disposition
Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale. For example, 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 the obligations under the terms of the agreement. Examples of this are declining to pay interest or sinking fund payments or failure to redeem the bonds at maturity.

Defensive Stock
Stock of a company with continuous dividend payments, which has demonstrated relatively stable earnings despite poor economic conditions.

Deferred Income Taxes
Income tax that would otherwise be payable currently, but which is not paid immediately. This is because larger allowable deductions are made when calculating taxable income than when 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.

Deferred Profit Sharing Plan (DPSP)
In a DPSP an employer makes cash contributions for an employee's retirement plans out of business profits. The contributions and earnings accumulate tax-free until withdrawn.

Deficiency Letter
A securities commission letter sent to a company that has submitted a preliminary prospectus on a planned new issue of the company's securities. The letter poses any questions the commission wants answered, and outlines any recommendations for changes to the prospectus. When all points raised in the letter are resolved, the issue's final prospectus may be filed.

Deficit
A financial situation for an individual, company or government where expenses exceed income.

Delist
The removal of a security's listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.

Delivery
Securities sellers must deliver the certificates on or before the second business day after the sale. Delayed delivery refers to a transaction in which there is a clear understanding that delivery of the securities involved will be delayed beyond this 2 day period.

Depletion
Refers to the consumption of natural resources which are part of a company's assets. Since oil, mining and gas companies deal in products that cannot be replenished, depletion reduces the company's natural assets over a specified time period. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.

Depreciation
Systematic charges made 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 represent any cash outlay nor are any funds earmarked for the purpose. It reduces the company's fixed assets to zero over a specified time period.

Dilution
Reducing the actual or potential earnings per share by issuing more shares or giving options to obtain more.

Direct or Indirect Holdings
These are the holdings of an individual or company in other companies. For example, company A owns 500,000 shares of company B's 1,000,000 outstanding shares. Company A therefore has a 50% direct interest in company B. Company B, in turn, owns 300,000 of company C's outstanding 500,000 shares. Company B therefore has a 60% direct interest in company C. Company A (by virtue of its 50% direct interest in company B) has a 30% indirect interest in company C.

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

Disaster Out Clause
A clause in an underwriting agreement allowing the underwriter to cancel the agreement, should a law, event or major financial occurrence transpire that adversely affects financial markets in general or the issuer in particular.

Disclaimer Clause
Securities commissions require that all prospectuses carry a disclaimer on the front page stating that the securities commission itself has in no way approved the merits of the securities being offered for sale.

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

Discounted
When some anticipated event such as increased dividends or lower earnings has already been reflected in the market price of a stock, it is said to be "already discounted" by the market.

Discount Brokers
Brokerage firms that offer lower commission rates than investment dealers, but do not offer the services that investment dealers do, such as advice, research and portfolio planning.

Discretionary Account
A securities account where the client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades on behalf of that investor. These are opened up as a matter of convenience to clients who are unable to attend to their own accounts through illness or absence from the country.

Diversification
Spreading investment to reduce risk by buying different securities from various companies, businesses, locations and governments.

Dividends
An amount distributed out of a company's profits to its shareholders in proportion to the number of shares they hold. A preferred dividend usually is for a fixed amount, while a common dividend may fluctuate with the profits of the company. A company is under no legal obligation to pay either preferred or common dividends.

Dollar Cost Averaging
Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time, thereby averaging the cost paid per share.

Dow Jones Industrial Average (DJIA)
An average made up of 30 blue chip stocks that trade daily on the New York Stock Exchange. The DJIA is used as an overall indicator of market performance although criticism is periodically raised over how it is calculated, as well as the fact that so few companies are included so that it may not be a truly representative indicator of market activity.

Dow Jones Transportation Average
Similar to the Dow Jones Industrial Average, this average is made up of 20 transportation stocks that trade daily on the New York Stock Exchange.

Dow Theory
A theory of market analysis based upon the performance of the Dow Jones Industrial and Transportation Averages. The theory is that the market is in a basic upward trend if one of these averages advances above a previous important high, accompanied or followed by a similar advance in the other. When both averages dip below previous important lows, this is regarded as confirmation of a basic downward trend.

Draft Prospectus
A prospectus prepared for internal use and discussion by the company issuing securities and the underwriters. It is not for outside distribution and shows only basic data on the company with little final detail about the terms of the planned underwriting. It is not a legal document and does not have to be drawn up strictly to securities commission standards. It is an earlier version of a preliminary prospectus and cannot be used in offering the security.


E

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 Common Share
The portion of after-tax profits of a company attributable to a single common share.

Equipment Trust Certificate
A security, more common in the U.S. than in Canada, that is generally issued by a railroad or airline to pay for new moveable equipment. It is secured by a first lien on the equipment.

Equities
The stock, or ownership of shareholders in a company.

Equity Earnings
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.

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. This technique is commonly used by mining and oil companies when treasury shares (authorized but unissued shares) are issued for new properties. Shares can be released from escrow (freed to be bought and sold) only with the permission of applicable authorities such as the stock exchange and/or the provincial securities commission.

Estate Planning
The process of planning the transfer of all personal assets at death to chosen beneficiaries.

Ex Dividend
This means "without dividend." If a share quoted ex dividend is purchased, the investor is not entitled to an upcoming already-declared dividend. The seller receives this dividend.

Ex Rights
This means "without rights." Buyers of shares quoted ex rights are not entitled to forthcoming rights.

Exchange Fund Account
A special federal government account operated by the Bank of Canada to intervene in the world's foreign exchange markets and affect Canada's foreign exchange rate. Direct intervention to change the direction of exchange rate fluctuations is infrequent, and public economic policies are more significant in changing supply and demand for foreign exchange, and therefore the exchange rate.

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.

Exempt Market
An unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus is not required to raise money privately from these private investors (largely institutions, but also individual investors) and registration of the issue with a securities commission is not needed.

Exempt Purchaser
A category of institutional investors to which the sale of a new issue of securities does not require the issuer to file a prospectus with the applicable securities commission.

Exercise
The action taken by the holder of a call option if he or she wishes to purchase the underlying security, or by the holder of a put option if he or she wishes to sell the underlying security. Also refers to the action taken by a rights or warrant holder.

Exercise Price
The price at which the underlying stock of a call option can be purchased, or the price at which the underlying stock of a put option can be sold. Also referred to as the strike price.

Expiration Date
The date when put and call options and rights and warrants expire, as well as other privileges or conversion features.

Extendible Bond or Debenture
A bond or debenture issued with a specific maturity date, but granting the holder the option to extend the maturity date by a specified number of years.

Extra
Short for "extra dividend." A dividend in the form of either stock or cash in addition to the regular common dividend the company usually pays to shareholders. Also referred to as a special dividend.

F

Face Value
The value of a bond or debenture that appears on the face of the certificate. Face value is the amount the issuer promises to pay at maturity. Face value is no indication of market value. For example, a low grade bond may have a face value of $1000 but can trade at a market price of $130.

Fails
Short for failed deliveries. It is the failure to deliver a security on the settlement date, or the date agreed upon when the trade was done.

Fair Market Value
The value of an asset, under the assumption it is sold to a willing purchaser by a willing seller, under normal conditions.

Fee-Based Accounts
Client accounts in which the investment dealer does not charge commissions, but charges a fee based on the value of the investor's account instead.

Fill-or-Kill
A client order that stipulates that as soon as a portion of the order which can be traded immediately is completed, any remaining portion of the order not filled is cancelled.

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

Finance or Acceptance Company Paper
Short-term negotiable debt securities similar to commercial paper, but issued by finance companies.

Financial Instruments
The term used for debt instruments, which are loans with an agreement to pay back funds with interest, or equity securities, which are shares or stock in a company.

Financial Intermediary
An institution such as a bank, life insurance company, credit union or mutual fund company which receives cash and invests it on behalf of the suppliers of the cash.

Firm Bid – Firm Offer
A firm bid is an undertaking to buy a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the seller. A firm offer is an undertaking to sell a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the buyer.

First-In-First-Out (FIFO)
A method of valuing inventory which assumes that the first items bought are also the first items used or sold.

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

Fiscal Policy
The policy pursued by the federal government to direct the economy through taxation and the level and allocation of government spending.

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 which finds December 31st too early a date to close its books after the holiday rush and has a January 31st fiscal year-end instead.

Fixed Asset
A tangible long-term asset such as land, buildings or machinery, held for use rather than for processing or resale. Fixed assets are found on a company's balance sheet.

Fixed Charge
A company's expenses, such as debt interest, which it must pay and which are deducted from income before income taxes are calculated.

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

Flat
When the quoted market price of a bond or debenture is only the total cost of the bond or debenture, instead of the cost of the debt instrument plus accrued interest. Bonds and debentures in default of interest trade flat.

Floor Traders
Employees of a member of a stock exchange who execute buy and sell orders on the floor (trading area) of the exchange for their firm and its clients.

Flow-Through Shares
Tax deductions and credits, normally available only to a corporation, are given to the owners of the corporation's flow-through shares. Canadian exploration and mining companies are able to issue such shares at a premium because investors are considered to be funding exploration and development costs and are therefore entitled to deduct these expenses from all other income.

Formula Investing
These are investment strategies. One formula involves shifting funds from common shares to preferred shares or bonds as the stock market rises above a predetermined point.

Fully Diluted Earnings Per Share
Earnings per common share calculated on the assumption that all convertible securities are converted into common shares, such as convertible preferred shares, convertible debentures, stock options (under employee stock-option plans) and warrants.

Fundamental Analysis
An analysis of securities based on the fundamental facts about a company, such as sales, earnings and dividend prospects. This is in contrast to technical analysis.

Funded Debt
All outstanding bonds, debentures, notes and similar debt instruments of a company payable after one year.

Futures Contract
An agreement to buy or sell a commodity sometime in the future.


G

General Mortgage Bond
A bond which is secured by a blanket mortgage on the company's property, but which is usually subordinated to one or more other mortgage bonds.

Goodwill
Goodwill is an intangible asset of a company. The buyer of a business is often willing to pay for the "good name" of the business in addition to the value of its assets. Goodwill appears on the balance sheet as the excess of the amount paid for the shares over their net asset value.

Gross-up and Credit System
A procedure to encourage Canadians to invest in preferred and common shares of taxable, dividend-paying Canadian corporations by giving a tax break to such investors. The taxpayer pays tax based on grossing-up i.e. adding 25% to the amount of dividends actually received and then obtaining a credit against federal and provincial tax based on the grossed-up amount. This system is not available on interest from bonds.

Growth Stock
Usually a non-dividend paying common stock of a company with expansion potential. The corporate funds that would normally be paid to shareholders as dividends are put back into the company to pay for expansion. Growth stocks have the potential for capital gains rather than income.

GT – Good Through order
An order that is valid until filled or cancelled or until the close of business on a specified expiry date

GTC Order
This stands for a "good till cancelled" order. This is an order to buy or sell a security at a specified price, which is valid until executed or cancelled. This is the same as an open order.

Guaranteed Investment Certificates (GICs)
A deposit instrument most commonly available from trust companies or banks requiring a minimum investment at a predetermined rate of interest for a stated term, i.e. one year, five years, etc. Generally non-redeemable and non-transferable prior to maturity, but there can be exceptions.


H

Hedge
A transaction used as a protective manoeuvre intended to reduce the risk of loss from price fluctuations of securities.

High
The highest price that was paid for a stock during a certain period. For example, the high for the day was $80, but the high for the year was $120.

Holding Company
A company that owns the securities of another company, usually with voting control.

Horizontal Spread
Purchasing either a call or put option and simultaneously selling the same type of option with the same strike price but a different expiration month.

Hypothecate
To pledge securities as collateral for a loan.


I

If, as and when
Indicates a conditional transaction in a security that is authorized for issuance, but not issued yet. New primary offerings can trade on an "if, as and when" issued basis prior to listing on an exchange.

In-and-Out
The purchase and sale of the same security within a short period of time, usually a day, week or month. An in-and-out trader is more interested in profiting from day-to-day price fluctuations than in receiving dividends or long-term growth.

In-The-Money Option
A call option is in-the-money if its exercise or strike price is below the current market price of the underlying stock. A put option is in-the-money if its strike price is above the current market price of the underlying stock.

Income Bond
Generally, an income bond promises to repay principal but only to pay interest when the company earns a certain amount of money. In some cases, if the interest is unpaid on an income bond, it may accumulate as a claim against the company when the bond matures.

Income Stock
A common stock that pays, or is expected to pay, an attractive dividend to shareholders. Usually stock from a more mature company that does not expect expansion or growth.

Index or Average
A statistical tool that measures the state of the stock market or the economy, based on the performance of stocks or other meaningful components. Examples are the TSE 300 Composite Index, The Montreal Exchange Market Portfolio Index and the Dow Jones Industrial Average.

Insider
Directors, senior officers and any other people, such as lawyers and accountants, who can be presumed to have access to non-public information concerning a company. It also includes anyone owning more than 10% of the voting shares in a corporation.

Insider Report
A report of all transactions in the shares of a company made by those considered to be insiders of the company. It is submitted each month to the provincial securities commissions and allows the administrators to monitor trading by such people to ensure regulations are not violated.

Installment Debentures
A bond or debenture issue in which a predetermined amount of the principal becomes due and payable each year. Also called a serial bond or debenture. This is popular as a municipal financing vehicle.

Installment Receipts
A new issue of stock sold with the obligation that buyers will pay the issue price in a series of installment payments instead of one lump sum payment. This is also known as partially paid shares. The buyer usually pays a deposit upon settlement, perhaps one-half the issue price of the shares, with the balance to be paid in one year.

Institutional Clients
The sales department of a securities firm serves two categories of clients. The institutional segment deals with banks, insurance companies, trust companies, pension fund managers and large corporations. The retail branch deals with individual investors.

Intangible Asset
An asset which has no physical substance, such as goodwill, patents, trademarks and copyrights.

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

Interim Certificates
When a new issue of a security is marketed, temporary certificates, called interim certificates, are sometimes delivered. These are later exchanged for permanent or definitive certificates.

Interim Statements
These are financial statements issued for a certain period within a fiscal year, such as a three-month or first quarter interim statement.

Intrinsic Value
That portion of a warrant, right or call option's price that represents the amount by which the market price of the underlying security exceeds the price at which the warrant, right or call option may be exercised. The intrinsic value of a put is calculated as the amount by which the underlying security's market value is below the price at which the put option can be exercised.

Inventory
For most companies this is merchandise, raw materials, unfinished products and finished products of a business that have not yet been sold. Investment dealers hold inventories of shares, bonds, debentures and other investment products to fill long and short positions for clients.

Inventory Turnover Ratio
This is the cost of goods sold by a company, divided by its inventory. The ratio may also be expressed in terms of the number of days required to sell current inventory by dividing the ratio into 365. This ratio indicates the efficiency of management in turning over the company's inventory and can be used to compare with other companies in the same field.

Investment
The purchase or ownership of a security to make money by gaining income, increasing capital, or both. Investments may also include artwork, antiques and real estate.

Investment Advisor
This is a person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products. Investment advisors must attain set educational qualifications, follow certain rules and regulations and be registered by the securities commission in the province in which he or she works.

Investment Counsellor
A specialist in the investment industry paid by fee to provide advice and research to investors with larger sized accounts.

Investment Dealer
This refers to securities firms which employ investment advisors to work with retail and institutional clients and has underwriting, trading and research departments.

Investment Industry Regulatory Organization of Canada (IIROC)
IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.

Investor
A person whose principal concern in the purchase of a security is the minimizing of risk, compared 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. More generally it refers to people who invest money in investment products.

Issue
Any of a company's securities, or the act of distributing them. Issued shares refer to that part of the authorized shares which have been issued for sale by the corporation. The total number of authorized shares does not have to be issued.

Issuer Bid
An offer by an issuer to buy back some of its own securities. This is usually done because the company feels the market is undervaluing its securities.


J

Jitney
The execution and clearing of orders by one member of a stock exchange for the account of another member. For example, investment dealer A is a small firm whose volume of business is not sufficient to maintain a trader on the exchange. Instead it gives its orders to investment dealer B for execution 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 therefore ranks behind these prior claims.

Junior Debt
One or more junior bond issues.

K

Key Person Insurance
Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee.


L

Lagging Indicators
These are market indicators that often continue an upward trend after the peak of the economy has been signalled by other economic indicators leading indicators.

Last-In-First-Out (LIFO)
A method of valuing inventory which assumes that the last articles bought are the first used or sold.

Leading Indicators
These are market indicators that usually move before the general economy changes direction. Such indicators include employment, profits and certain commodity prices. For example, business profits start to rise during an economic expansion, but as the economy reaches the peak the rate at which profits increase slows down. Profits begin to flatten out and decrease as employment costs increase (caused by overtime needed to meet high demand) and cut into profit margins. At the peak of the economy, profits already are beginning to fall. Therefore profits lead the general economy and give some warning of economic conditions to come.

Legal Investment
In some provinces the law requires that a trustee may only invest funds in a list of securities designated by the province or the federal government.

Leverage
The effect of fixed charges such as debt interest or preferred dividends 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 applies to seeking magnified percentage returns on an investment by using borrowed funds, margin accounts or buying securities which require payment of only a fraction of the underlying security's value, such as rights, warrants or options.

Leveraged Buy Out (LBO)
A takeover financed to a large degree by debt that is secured, serviced and repaid through the cash flow and assets of the acquired company. Typically, an LBO is financed predominantly by bank debt and low quality bonds, and to a minimum degree by equity. Its extreme leverage makes an LBO dependent upon a stable economy and stable interest rates, as well as a stable cash flow from the acquired company for its success.

Liabilities
These are the debts and obligations of a company. Current liabilities are debts due and payable within one year. Long-term liabilities are those payable after one year. Liabilities are found on a company's balance sheet.

Lien
This is the claim against property pledged or mortgaged to secure performance of an obligation.

Life Annuity
A contract which guarantees the planholder a regular monthly income for life in exchange for an amount of money in a Registered Retirement Savings Plan (RRSP).

Limit Order
This is a client's order to buy or sell a security at a specific price. The order can be executed only at that price or a better one. It sets the maximum price the client is willing to pay as a buyer, and the minimum price he or she is willing to accept as a seller.

Limited Liability
When "limited" is at the end of a Canadian company's name, the company's shareholders' responsibility for the debts of the company is limited to the amount of money they paid to buy the shares. In contrast, ownership of a company by a sole proprietor or partnership carries unlimited personal legal responsibility for debts incurred by the business.

Liquidation
The process of converting property and securities into cash. When a company is dissolved or closed down, cash remaining after sale of its assets and payment of all indebtedness is distributed to the shareholders, beginning with the preferred shareholders and ending with the common shareholders.

Liquidity
This refers to how easily securities can be bought or sold in the market. A security is liquid when there are enough units outstanding to allow large transactions without a substantial change in price. Liquidity is one of the most important characteristics of a good market. Liquidity also refers to how easily investors can convert their securities into cash and refers to a corporation's cash position, i.e. how much the value of current assets exceed current liabilities.

Listed Stock
The stock of a company which is traded on a stock exchange. Companies pay fees to the exchange to be listed and must abide by the rules and regulations set out by the exchange to maintain listing privileges.

Listing Statement
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
A charge added to mutual funds which covers sales commissions and all other costs of distribution. The load, usually a percentage of the money invested in the fund, may be charged as a front-end, on the purchase of the fund, or as a back-end, when the fund is sold or redeemed.

Locked In
When an investor has a profit on a security owned, but does not sell because of either the absence of a market or some legal restriction on the sale of the security. Also refers to an investor holding a security which has declined below the purchase price who cannot sell without incurring a loss.

Long
Term used to signify ownership of securities. "I am long 100 BCE common" means that the investor owns 100 common shares of BCE Inc.

Long-Term Bond or Debenture
A bond or debenture maturing in more than 10 years.

Low
This is the lowest price paid for a stock during a certain period. For example, the low for the day was $15, but the low for the year was $7.50.


M

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

Managed Account
This is similar to a discretionary account where a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades, but on a continuing basis and for a fee. Managed accounts can be solicited whereas discretionary accounts are opened as a matter of convenience to clients who are ill or out of the country.

Margin Account
A client account where he or she uses credit from the investment dealer to buy a security. The client needs to deposit a "margin" amount with the balance being advanced by the investment dealer against acceptable collateral such as investments. The investment dealer can make a "margin call" and demand that the client deposit more money or securities when the value of the account falls below a certain level. If the client does not meet the margin call, the dealer can sell the securities in the margin account at a possible loss to cover the balance owed. The client is also charged interest on the money borrowed from the investment dealer for the purchase of the securities.

Market Maker
An authorized trader employed by an investment dealer who is required by the applicable self-regulatory organizations 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 Out Clause
A clause in an underwriting agreement allowing the underwriter to cancel the agreement without penalty for certain specified reasons, such as the issue becoming unsaleable due to an unexpected change in securities markets, or in the affairs of the company whose securities are being underwritten.

Market Price
The most recent price at which a security transaction took place.

Marketable
Easily bought or sold.

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 share ownership of the company that could affect control, or the acquisition or disposition of any securities in another company. A material change must be reported to the applicable self-regulatory organization.

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

Medium-Term Bond or Debenture
A bond or debenture which matures in more than three years, but less than 10.

Member Firm
An investment dealer which owns a seat on a particular stock exchange or is a member of the Investment Industry Regulatory Organization of Canada

Merger
The act of one company permanently joining another to become one company.

Minority Interest
This appears on consolidated financial statements where the parent company's figures are combined with those of its subsidiaries. Even if the parent company owns less than 100 of a subsidiary's stock, all of the subsidiary's assets and liabilities are combined in the consolidated financial statements. To compensate, the part not owned by the parent company is minority interest and is shown as a liability on the balance sheet and deducted in the earnings statement.

Monetary Policy
A policy followed by the federal government through the Bank of Canada for controlling credit and the money supply in the economy. The policy will vary according to the anti-inflationary or job-creating results the government primarily desires to achieve.

Money Market
That part of the capital market in which short-term financial obligations are bought and sold. These include federal government treasury bills, short term Government of Canada bonds, commercial paper, bankers' acceptances and guaranteed investment certificates. Longer term securities, when their term shortens to three years, are also traded in the money market.

Mortgage
A contract specifying that certain property is pledged as security for a loan. The money is to be repaid in installments which usually combine principal and interest payments.

Mortgage Backed Securities
Similar to bonds, these securities are backed by a share in a pool of home mortgages insured under the National Housing Act. The securities pay interest and a part of the principal each month and, if home owners 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.

Mutual Funds
These are open-end funds that are not listed for trading on a stock exchange and are issued by companies which use their capital to invest in other companies. Mutual funds sell their own new shares to investors and buy back their old shares upon redemption. Capitalization is not fixed and normally shares are issued as people want them.


N

NASD
The National Association of Securities Dealers, Inc. This is the American self-regulatory organization of the securities industry responsible for the regulation of NASDAQ and the over-the-counter markets.

NASDAQ
The National Association of Securities Dealers Automated Quotations System, the electronic, over-the-counter, screen-based communications system used by the second largest U.S. securities market.

Negative Pledge Provision
A protective provision written into the trust deed 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. Transferable from one party to another.

Net Asset Value
Total assets of a corporation less its liabilities. Also referred to as shareholders' equity.

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. For example, ABC traded yesterday at 255/8 and today it closed at 27. The net change is 13/8. 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.

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 Sales
Gross sales less any applicable excise taxes, returns, allowances and discounts or rebates given to customers.

Net Worth
The difference between a company's total assets less its total liabilities. Also referred to as shareholders' equity.

New Issue
A stock or bond issue sold by a company for the first time. Proceeds may be used to retire outstanding securities of the company, or be used for a new plant or equipment or for additional working capital. New debt issues are also offered by governments.

No Par Value (n.p.v.)
Common stock that has no stated face value. This is the usual practice in Canada so it is assumed and not always stated on the share certificate.

Nominal Interest Rate
The stated interest rate, which does not take inflation into consideration.

Non-Cumulative
A preferred dividend which does not accumulate if unpaid.

Note
An unsecured promise to pay, such as a promissory note.


O

Odd Lot
A number of shares equalling less than a board lot, the regular trading unit decided upon by the particular stock exchange. Also, an amount less than the par value of one trading unit on the over-the-counter market.

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

Offer
An offer is the same as an ask, which is the lowest price at which a person is willing to sell a security. This is opposed to a bid, which is the highest price at which a person is willing to buy a security.

Open-End or Mutual Fund Investment Company
This is a company which uses its capital to invest in other companies. Open-end, or mutual funds, sell their own new shares to investors, buy back their old shares, and are not listed for trading on a stock exchange. Open-end funds get their name because their capitalization is not fixed and they normally issue more shares as people want them.

Open Order
An order to buy or sell a security at a specified price which is valid until executed or cancelled.

Open Outcry
Verbal bids and offers made on the trading floors of stock exchanges. This method of public auction is disappearing as stock exchanges become automated.

Option
An investor who purchases an option has the right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, a call option gives the right to buy the security.

Option Eligible Securities
Securities which meet the eligibility criteria as underlying securities for put and call options on a stock exchange.

Option Holder
The buyer of either a call or put option.

Option Premium
This is the price of an option. It is the amount of money that the option holder pays for the rights and the option writer receives for the obligations granted by the option.

Option Writer
The seller of either a call or put option. The option writer receives payment, called a premium, and is obligated to buy or sell the underlying security at a specified price, within a certain period of time, if called upon to do so.

Out-of-the-Money Option
A call option is out-of-the-money if its exercise or strike price is above the current market price of the underlying security. A put option is out-of-the-money if its exercise or strike price is below the current market price of the underlying security.

Out-of-Line
A security which appears to be selling too low or too high in relation to comparable issues.

Outstanding Shares
Securities that have been issued and sold to shareholders are referred to as outstanding.

Over-the-Counter (OTC)
A securities market made up of dealers who make trades over the telephone and/or computer. It is also called "unlisted market," "street market" and "between or inter-dealer market." Almost all bonds and debentures, as well as some stocks, are traded over-the-counter in Canada.

P

Paper
A short-term negotiable debt security or promise to pay.

Paper Profit
A profit on a security which has not been taken. Paper profits become realized profits only when the security is sold. A paper loss is the opposite to this. An example of a paper profit would be the purchase of ABC at $25. It is now trading at $27, so the paper profit is $2 per share.

Par Value
The stated face value of a bond or, in the case of stock, an amount assigned by the company's charter and expressed as a dollar amount per share. Par value of common stock usually has no relationship to the current market value and so no par value stock is issued. Par value of preferred stock is significant, however, as it indicates the dollar amount of assets each preferred share would be entitled to in the event of liquidation of the company.

Pari Passu
This means "in equal proportion." It usually refers to equally ranking issues of a company's preferred shares.

Participating Feature
This applies to some preferred stocks which, in addition to a fixed rate of dividend, also share in the earnings of the company and may receive additional dividends over and above their specified dividend rate.

Penny Stocks
Low-priced speculative issues of stock selling at less than $1.00 a share.

Piggy Back Warrants
Some warrants entitle the holder to acquire shares plus additional warrants at a later date. The warrants that are received upon the exercise of the initial warrants are known as piggy back warrants.

Points
Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds and debentures, one point means 1% of par value. Par value is almost universally 100 for bonds.

Poison Pill
A corporate provision to combat hostile takeovers. When triggered, the poison pill allows shareholders to acquire additional shares at below market price, thereby increasing the number of shares outstanding and making the takeover prohibitively expensive. Such plans are relatively new in corporate Canada and are the subject of some controversy regarding whom they are designed to protect.

Pooling of Interest
This 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
The entire combination of securities or investments an individual or institution holds. A portfolio can contain a variety of government and company bonds, preferred and common stocks from different businesses and other types of securities and assets.

Preferred Stocks or Shares
A class of stock that entitles the owners to a stated dollar value per share in liquidation (paid after bondholders) and a fixed dividend paid ahead of the company's common shares. Preferred shares usually only have voting rights when a stated number of dividends have been missed. Preferred shares are generally considered income investments.

Premium
1. The amount by which a bond or preferred stock may sell above its par value. In the case of a new issue of bonds or stocks, the premium is the amount the market price rises over the original selling price. 2. The premium can also refer to the part of the redemption price of a bond or preferred stock that is in excess of face value, par value or market price. 3. When referring to options, the premium is the price paid by the buyer of an option contract to a seller.

Price-Earnings Ratio or PE Multiple
This is a common stock's current market price divided by annual per share earnings. This ratio is a short way of saying that a share is selling at so many times its actual or anticipated annual earnings. A price-earnings ratio is one tool used to compare one share to another.

Primary Offering or Primary Market
The original sale of any new issue of a company's securities.

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

Principal
A dealer buying or selling securities for his or her own account. The term "principal" can also refer to a person's capital or to the face value of a bond.

Prior Preferred
A preferred stock which in the liquidation of the issuing company would rank ahead of other classes of preferred shares as to asset and dividend entitlement.

Private Placements
The underwriting of a security and its sale to a few buyers, usually institutional, in large amounts. No formal prospectus is needed to be prepared in this instance as the buyers are considered to be sophisticated.

Pro Forma
When a new issue is being planned for distribution, the corporation issuing the security must tell the suppliers of the new capital how they intend on spending the money received from the sale of the securities. The corporation publishes a pro forma balance sheet which integrates the new pool of money into their current operation. This shows the shareholders how the corporation would have spent the money if they had it on the day the pro forma balance sheet was created.

Pro Rata
This means "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 or she owns.

Profit Taking
Selling securities to take a profit. The process of converting paper profits into cash.

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's 500 Index, and the price at which futures contracts (or their options) on the index trade in financial futures markets.

Prospectus
A legal document which describes the securities being offered for sale to the public. These documents usually disclose pertinent information concerning the company's operations, securities, management and purpose of the offering. The prospectus must be prepared in accordance with requirements of the applicable provincial securities commissions.

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

Prudent Portfolio Rule
In some provinces the law requires that a trustee may only invest in a security if it is one which an ordinary prudent person would buy if he or she were investing for the benefit of other people for whom he or she felt morally bound to provide. Some provinces apply both this rule and the rule under legal investment, where a list of specific securities has been designated.

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. Purchases are made at or below a stipulated price.

Push-out
During a stock split, a push-out occurs when new shares are forwarded directly to the registered holders of old share certificates, without the holders having to surrender these old shares. Both old and new shares have equal value.

Put Options
An option which gives the holder the right, but not the obligation, to sell a fixed amount of a certain stock at a specified price within a specified time. Puts are purchased by those who think a stock may go down in price.


Q

Quotation or Quote
The highest bid to buy and the lowest offer to sell a security at a given time. For example, a quote of 45 1/445 1/2 means that 45 1/4 is the highest price a buyer will pay and 45 1/2 is 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.

Reaction
A temporary price weakness in a security following a price upswing.

Real Estate Investment Trust (REIT)
An investment vehicle that invests funds on behalf of its investors in real estate-related investments such as construction loans, mortgages, land and real estate company securities.

Real Interest Rate
The nominal rate of interest minus the percentage change in the Consumer Price Index, or the rate of inflation.

Record Date
Security owners are entitled to splits and distributions. The record date is the date on which a person or an entity is viewed as the owner of a security on company’s books. To become the shareholder of record for a stock, the security must be settled in the shareholder’s account, which typically occurs 2 business days after the purchase date.

Red Herring
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 is 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 issuing company from the holder, at a time and price stipulated in the original terms of the securities. The redemption price is the price at which debt securities or preferred shares may be redeemed at the option of the issuing company.

Refinancing or Refunding
When new securities are sold by a government or a company and the money is used to pay off existing loans. The object may be to save interest costs, extend the maturity of the loan, or both.

Registered Pension Plan (RPP)
A RPP is a trust registered with Revenue Canada and established by a company to provide pension benefits for its employees when they retire. Both employee and employer contributions to the plan are tax deductible.

Registered Representative
Now more commonly referred to as an investment advisor. This is a person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products. Investment advisors must attain set educational qualifications, follow certain rules and regulations and be registered by the securities commission of the province in which he or she works.

Registered Retirement Income Fund (RRIF)
A RRIF is a tax deferral vehicle available to Registered Retirement Savings Plan (RRSP) holders who de-register their plans. The plan holder invests the withdrawn RRSP funds in the RRIF and each year must withdraw and pay income tax on a set fraction of the total assets in the fund.

Registered Retirement Savings Plan (RRSP)
A 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 is deferred until the money (the amount originally deposited plus any interest or dividends made on that money) is withdrawn at retirement. RRSPs can be converted into Registered Retirement Income Funds.

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

Registered Tax Deferral Savings Plans
Government-approved savings plans such as Registered Pension Plans, Registered Retirement Savings Plans and Registered Retirement Income Funds, in which funds contributed by individuals are tax-deductible within certain limits and investment earnings accumulate in the plans on a tax-deferred basis until de-registration or maturity of the plans.

Registrar
Usually a trust company appointed by a company to manage the issuance and registration of securities certificates.

Registration
1. The process of securities registration involves filing a prospectus with the securities administrators as required under the Securities Act of each province in which the securities will be offered. 2. Investment dealers and sales staff involved in the investment business must be registered with the applicable self-regulatory organization. Before registration is allowed, basic standards must be met, such as minimum capital requirements for a firm and minimum educational qualifications for personnel.

Reporting Issuer
A corporation that has issued and outstanding securities held by the public and is subject to the continuous disclosure requirements of securities administrators.

Repurchase Agreements
An agreement between a seller and a buyer, usually in government securities, in which the seller agrees to buy back the security at a later date.

Resistance
Used in technical analysis to describe a price level that a security has difficulty reaching.

Restricted Shares
Shares that have limited voting rights or in some cases, no voting rights. These shares participate in a company's earnings and assets in liquidation as common shares do and are sometimes referred to as restricted common shares. Restricted shares may not command the same market price as voting common shares of the same company since they do not have voting rights.

Retained Earnings
The cumulative total portion of annual earnings retained by a company after payment of all expenses and dividends. Can be considered money that the company puts back into its business for expansion, etc.

Retractable
A feature which can be included in a new debt issue or preferred share which grants the holder the option, under specified conditions, to redeem the security on a stated date. This date would be prior to maturity in the case of a debt issue.

Return
The income earned or a capital gain made on an investment.

Reverse Split
The exchange of a greater number of a company's shares for a lesser number. For example, exchanging three shares for one. This results in a higher share price and less shares outstanding. This is also called a consolidation or a negative split.

Right
The temporary privilege granted to a company's existing common shareholders to acquire additional common shares directly from the company at a stated price. The price is usually at a discount to the market price of the common stock on the day the rights are issued, and the rights only are good within a specified time period. Rights of listed companies trade on stock exchanges from the ex rights date until their expiry, so holders can either exercise the rights or they can sell them.

Right of Rescission
The right of a purchaser of a new issue to withdraw from the purchase agreement within the specific province's 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
The future chance or probability of loss.


S

Scrip
A certificate exchangeable for cash before a specified date, after which it may have no value. Usually issued for fractions of shares in connection with a stock dividend or split or in a reorganization of a company. For example, a one-for-three stock dividend would result in many shareholders being entitled to a fraction of a share (1/3 or 2/3) for which scrip would be issued instead of an actual stock certificate.

Seat
The traditional term for membership on a stock exchange. An investment dealer would buy a seat on the exchange and one employee would be designated as the seat holder.

SEC
The Securities and Exchange Commission, a federal body established by the United States Congress as a national U.S. regulatory authority. In Canada there is no national regulatory authority because securities legislation is provincially administered.

Secondary Distribution or Secondary Offering
The redistribution of a block of stock after it has been initially sold by the issuing company. 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
Secondary markets are the stock exchanges and the over-the-counter market. Securities are first issued as a primary offering to the public. When the securities are traded from that first holder to another, the issues trade in these secondary markets.

Securities
Transferable certificates of ownership of investment products such as notes, bonds, stocks, futures contracts and options.

Securities Administrator
A general term referring to the provincial regulatory authority (e.g. securities commission) responsible for administering provincial securities acts.

Securities Advisor
A person or firm registered with applicable securities commissions to generally advise the public on securities, often through publications.

Securities Commission
Each province has a securities commission or administrator which oversees the provincial securities act. This act is a set of laws and regulations which set down the rules under which securities may be issued and traded.

Securitization
1. 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. 2. In a narrow sense it also refers to the process of converting loans of various sorts into marketable securities by packaging the loans into pools and then selling shares of ownership in the pool itself.

Self-Regulatory Organizations (SROs)
Many important rules governing securities industry practices and standards in Canada are set by the self-regulatory organizations, which include the Vancouver, Alberta and Toronto Stock Exchanges, the Montreal Exchange and the Investment Industry Regulatory Organization of Canada. Many of the regulatory and compliance functions have been delegated to the SROs by the provincial securities administrators.

Selling Group
Investment dealers who assist a banking group in marketing a new issue of securities in order to obtain wide distribution. These dealers do not assume financial responsibility for the underwriting of the issue as the banking group does.

Senior Bond Issue
A corporate bond issue which has priority over other bonds as to its claim on the company's assets and earnings. An example is a first mortgage bond.

Senior Debt
A senior debt issue ranks before other issues in terms of claims on assets in the event of a company break-up. For example, senior bonds rank before junior bonds, which rank before senior debentures, which rank before junior debentures, etc.

Serial Bond or Debenture
A bond or debenture issue in which a predetermined amount of the principal becomes due and payable each year.

Settlement Date
The date on which a security buyer must pay for his or her purchase, or a seller must deliver the securities he or she has sold. In Canada, investors have 2 days to pay for a purchase or, if selling, 2 days to turn in the securities certificate if it is in their possession.

Shareholder or Stockholder
Someone who owns preferred or common shares of a company.

Shareholders' Equity
Ownership interest of common and preferred stockholders in a company. It is also the difference between the assets and liabilities of a company, which is sometimes called net worth, or just "equity."

Shareholder of Record
A shareholder whose name is registered in the records of a company whose shares he or she holds. Dividend payments and rights issues are announced as being payable to shareholders of record.

Shares or Stocks
These two terms are used interchangeably. Certificates representing ownership in a corporation and the appropriate claim on the corporation's earnings and assets.

Short Selling
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 the security back at a lower price. The profit would be the difference between the initial selling price and the subsequent purchase price. It is illegal for a seller not to declare a short sale at the time of placing the order.

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 company's balance sheet. The most common short-term debt items are bank advances or loans, notes payable, debentures and bonds due within one year.

Sinking Fund
A fund set up by a company to retire, over a period of time, the major part of a preferred share issue, or a debt issue prior to maturity. The fund helps to "pay off" the debt issue over the term of the issue and can be compared to principal payments made by a mortgage holder. Even though the issue is outstanding until maturity, the small incremental payments made under a sinking fund can make the maturity of the bond issue less onerous on the company. Instead of having to re-fund the entire issue, there may only be a small outstanding balance. A sinking fund security is attractive to investors as there is more assurance that the debt will be repaid on maturity.

Speculator
A speculator is one who is prepared to accept calculated risks in the marketplace for attractive potential returns. A speculator's objective is usually short to medium term capital gain, whereas regular income and safety of principal are the prime goals of the conservative investor.

Spread
1. The gap between the bid and ask prices in the quotation for a security. 2. The term can also be applied to certain strategies for options and commodities where the investor is trading on the differences in prices between two related securities.

Statement of Changes in Financial Position
A financial statement which provides information as to how a company generated and spent its cash during the year. It links the company's balance sheets for two successive years and provides a summary of the incoming and outgoing movement of a company's funds for the period. It explains changes in working capital (current assets less current liabilities) from one year to the next.

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.

Stockholder or Shareholder
Someone who owns preferred or common shares of a company.

Stock Consolidation
The opposite of a stock split. A number of existing shares are combined into a smaller number of shares, ie. turning every three shares into one.

Stock Dividend
Dividends paid to shareholders in shares of stock rather than cash.

Stock Exchange or Stock Market
An organized marketplace where buyers and sellers are brought together to buy and sell stocks and must follow certain rules, regulations and guidelines.

Stock Index
An indicator used to measure and report value changes in a specific group of stocks. For example, the TSE 300 Index measures 300 stocks with the greatest market capitalization of all the companies listed on the Toronto Stock Exchange.

Stock Savings Plan
Some provinces, such as Quebec, Nova Scotia, Saskatchewan and Newfoundland offer stock savings plans which allow individuals in those provinces a deduction or tax credit for provincial income tax purposes. The credit or deduction is a percentage figure based on the value of investment in certain prescribed vehicles.

Stock Split
Division of a company's outstanding common shares into a larger number of common shares. A three-for-one split by a company with one million shares outstanding would result in three million shares outstanding. Each holder of 100 shares before the three-for-one split would have 300 shares after the split, but his or her proportionate equity in the company would remain the same.

Stocks or Shares
These two terms are used interchangeably. Certificates representing ownership in a corporation and the appropriate claim on the corporation's earnings and assets.

Stock Symbol
An unique three or four letter symbol assigned to a security trading on a stock exchange. For example, Hollinger Inc. is listed as HLG on the Toronto Stock Exchange.

Stop Loss and Stop Buy Orders
Orders for certain securities when the price of a stock rises or falls to a specified price. A stop loss order is an order to sell when the price of the stock declines to, or below, a stated price. The purpose of this is to reduce the amount of loss that might occur. A stop buy order is an order to buy a stock when the price rises to a certain level. This is given by a person who has sold a security short and is an attempt to reduce loss or protect a profit should the price rise unexpectedly.

Street Certificate or "Street Name"
Most people who own securities today do not physically have possession of the stock or bond certificates. Their securities are kept on their behalf by their investment dealer, which is called keeping securities in "street name." All interest payments and dividends are passed onto the client by crediting their account with the dealer.

Strike Price
The price at which the underlying stock of a call option can be purchased, or the price at which the underlying stock of a put option can be sold. Also referred to as the 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 trade separately from the strip of detached coupons, both at substantial discounts from par.

Stripped Debentures
Debentures which have been separated from other securities, such as warrants, which were originally issued together as a unit.

Subject Bid, Subject Offer
A bid or offer made for a security that indicates the buyer's interest, in the case of a bid, or the seller's interest, in the case of an offer, but does not commit the buyer or seller to the purchase or sale of the security at that price or time.

Subsidiary
A company which is controlled by another company, usually by owning the majority of the first company's shares.

Surplus
Contributed surplus is a balance sheet figure which originates from sources other than earnings, such as the initial sale of stock above par value. Earned surplus, or retained earnings, is the amount of accumulated earnings retained in the business after the payment of all expenses and dividends.

Surtax
An additional income tax over and above the regular income tax amount. Usually used as a temporary measure to raise funds for short-term needs.

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 of sweeteners include warrants, or convertible, extendible or retractable features.

Switching
Selling one security and buying another.

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


T

Takeover Bid
An offer made to security holders of a company to purchase their voting securities which, together with the offering individual's already owned securities, will total over 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 Bracket
Although income tax is paid by most wage or income earners, the rate of income tax paid increases as income exceeds certain amounts, called brackets.

Tax Credit
Tax credits reduce taxes payable to the same extent for all taxpayers, regardless of their income level and marginal tax rate. Deductions from taxable income, however, are more valuable as your income and tax rate increases.

Tax Shelter
This is an investment that offers tax savings in some form, such as immediate deductions, credits or income deferral.

T-Bill
Common term for a government treasury bill, which is a short-term government debt issue.

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. This analysis may be used to assess possible future price action.

Term Deposit Receipt
A deposit instrument most commonly available from chartered banks requiring a minimum investment at a predetermined rate of interest for a stated term. The interest rate varies according to the amount invested and the term to maturity, but is competitive with comparable alternative investments. A reduced interest rate usually applies if funds are withdrawn prior to maturity.

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.

Time Limit Order
A client order that specifies the time during which it can be executed.

Time Value or Extrinsic Value
The amount that the current market price of a right, warrant or option exceeds its intrinsic value. Intrinsic value is the amount by which the market price of a security exceeds the price at which the warrant, right or option may be exercised. The intrinsic value of a put is calculated as the amount by which the market price of the underlying security is below the exercise price.

Timely Disclosure
The obligation for companies to promptly release to the news media any favorable or unfavorable corporate information which is of a material nature. This obligation is imposed by the securities administrators on companies. Broad dissemination of this news allows all investors to trade the company's securities with the same knowledge about the company as insiders.

Trader
1. Employee of an investment dealer who executes buy and sell orders for the dealer and its clients either on a stock exchange or the over-the-counter market. 2. The term is also used to describe a client who buys and sells frequently with the objective of short-term profit.

Trading Halt
Suspension of trading in a security while material news from the issuer is being spread. A trading halt gives all investors equal opportunity to hear the news and make any appropriate trade decisions.

Trading Units
Different par values make up trading units for the over-the-counter market. For example, one trading unit of Government of Canada treasury bills is $250,000 par value, while one trading unit of provincial bonds and guarantees is $25,000 par value.

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

Transfer Agent
A trust company appointed by a company to keep a record of the names, addresses and number of shares held by its shareholders. Frequently the transfer agent also distributes dividend cheques.

Treasury Bills
Short-term government debt, usually issued in trading units of $250,000 and sold chiefly to large institutional investors. Treasury bills do not pay interest but are sold at a discount and mature at par (100). The difference between the purchase price and par at maturity represents the 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.

Trustee
1. Usually a trust company appointed by the company to protect the security behind the company's bonds and to make certain that all covenants of the trust deed relating to the bonds are honored. 2. A person who holds property and securities in trust for another person.

U

Underlying Securities
The specific security that is bought or sold by exercising an option.

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."

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

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


V

Venture Capital
Money raised by companies to finance new, risky ventures.

Volatility
The rate of change in the price of a security over a given time.

Volume
The amount of shares bought and sold on a stock exchange.

Voting Right
The stockholder's right to vote in the affairs of the company. Most common shares have one vote each and preferred stock usually only has the right to vote when its dividends are in default. The right to vote may be delegated by the stockholder to another person, called voting by proxy. Voting rights give the stockholder a say in the company's affairs and such rights can increase the value of the stock.

Voting Trust
A device 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. This is done by shareholders surrendering their voting rights to a trustee for a specified period of time.


W

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

Working Capital
Current assets of a company minus its current liabilities. This figure shows the company's liquidity and ability to meet its short-term debts.

Working Capital Ratio
Current assets of a company divided by its current liabilities. This is a measure of a company's liquidity.

Working Control
Theoretically, ownership of 51% of a company's voting stock is necessary to exercise control. In practice, and this is particularly true in the case of a large corporation, effective control sometimes can be exerted through ownership, individually or by a group acting in concert, of less than 50%.

Wrap Account
A type of fully discretionary account (in which a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades for him or her). A single annual fee, based on the account's total assets, is charged instead of commissions 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. This is also known as a wrap fee program.


XYZ

Yield
This is the measure of the return on an investment and is shown as a percentage. A stock yield is calculated by dividing the annual dividend by the current market price of the stock. For example, a stock selling at $50 and with an annual dividend of $5.00 per share yields 10%. A bond yield is a more complicated calculation, involving annual interest payments plus amortizing the difference between its current market price and par value over the life of the bond.

Yield Curve
A graphic representation of the relationship among yields of bonds of the same quality, but with different maturities.

Yield to Maturity
The rate of return an investor receives if a fixed-income security is held to maturity.

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 trade separately from the strip of detached coupons, both at substantial discounts from par. Also called strip bonds.