Financial Glossary

FatRabbit Services Financial Glossary
Word/Phrase	Definition
1986 Act	Tax Reform Act of 1986
401(k) plan	A type of salary deferral plan that permits employees to make pretax contributions towards a type of retirement fund, reducing their taxable income. Employers can match some or all employee contributions.
acquisition	When one company buys another company. (Also called M & A, for merger and acquisition. See also Merger.)
active market	A market in which there is a great deal of trading activity. Because of the large number of transactions, active markets are characterized by liquidity. They tend to have narrower spreads between the bid and the ask price than do less active markets.
ADR (American Depository Receipt)	See American Depository Receipt.
ADS (American Depository Share)	See American Depository Share.
affiliate (insider)	A corporation or person that is related to another corporation by shareholding or other means of control. It includes not only a parent or a subsidiary but also corporations that are under common control.
aggressive growth fund	A mutual fund that seeks rapid capital growth often from small or emerging growth companies.
alternative minimum tax	A federal tax computation imposed by Section 55 of the Code to ensure that taxpayers with large income amounts pay at least a threshold amount of federal tax. When an ISO is exercised and not sold in a calendar year, alternative minimum tax (AMT) may be due on the spread. If AMT is paid in such circumstances, a tax credit may be applied against the regular federal income tax liability in future years.
American Depository Receipt (ADR)	A stock representing a specified number of shares in a foreign corporation. Foreign companies are able to issue shares of stock on the U.S. equity markets using ADRs.
American Depository Share (ADS)	A share issued under deposit agreement that represents an underlying security in the issuers home country.
American Stock Exchange (AMEX)	A stock exchange whose companies are, in general, smaller than those traded on the New York Stock Exchange. The American Stock Exchange is located in downtown Manhattan. Merged with NASDAQ.
AMEX (American Stock Exchange)	See American Stock Exchange.
annual report	A financial statement issued each year by a corporation or mutual fund. It lists assets, liabilities, and earnings, as well as some historical information.
annuity	A tax-deferred investment in which the policyholder makes lump-sum or installment payments to an insurance company, then receives income taxation until the earnings are withdrawn, allowing for greater accumulation over time.
applicable laws	The requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the IRS Code, the applicable laws of any stock exchange or quotation system on which the common stock is listed or quoted.
articles of incorporation	The name customarily given to the document that is filed in order to form a corporation. Under various state statues, this document may be called the "certificate of incorporation," "charter," "articles of association," or other similar names.
ask price	The price at which you can buy shares in a security. Also known as the "offer" or just the "ask."
asset	A property that has monetary value, including personal assets, such as a house, a car, jewelry, and financial assets, such as saving and investments.
asset class	One of the three major types of investments; stocks, bonds, and cash equivalents.
attestation	An affidavit or declaration of share ownership by which an optionee exercising an option by a stock swap can avoid surrendering a physical stock certificate for the shares used to exercise the option.
authorized shares	The shares described in the articles of incorporation which a corporation may issue. Modern corporate practice recommends authorization of more shares than it is currently planned to issue.
award	See Restricted Stock Award.
balanced fund	A mutual fund that attempts to produce both income and growth (rather than one or the other) from a mix of stocks, bonds, and cash equivalents.
balance sheet	One of 3 principal financial statements used to determine the status of a company. The balance sheet declares the assets, liabilities and equity of a company.
bear market	A declining market, in which prices are falling because more people want to sell than to buy.
beneficial holder of securities	Person who owns shares through a relationship with the registered owner but who does not have the shares registered in his/her name.
bid-and-asked quotation	A stock price quote given in the form of a price range. The bid is the highest price anyone has declared that he/she wants to pay for a security at a given time; the asked is the lowest price anyone will accept at the same time.
bid price	The price at which you can sell shares in a security. Bid is the highest price a prospective buyer is prepared to pay at a particular time for a trading unit of a particular security.
big board	Traders' term for the New York Stock Exchange (NYSE)
blackout period	A period of time prior to the release of annual or quarterly financial information during which the "Insiders" of a public company are restricted by the company's insider trading policy from trading in company stock. A typical blackout period would be from the first day of the 3rd month in the quarter through 2 full trading days after the quarter's earnings press release.
black-scholes	A complex mathematical formula created by Fischer Black and Myron Scholes, used to calculate the theoretical present value of a stock option at the grant date using variables such as stock price, exercise price, volatility, and expected option term to exercise.
block	An order or transaction involving ten thousand or more shares, or shares in excess of $200,000 in value.
blue chip	A common stock that is highly esteemed as an investment based on good earnings over a long period of time.
blue sky laws	State laws and regulations governing the issuance of securities. Most blue sky laws require the registration of new issues of securities with a state agency that reviews selling documents for accuracy and completeness. Blue sky laws also regulate brokers and salespeople.
Board	The Board of Directors of the Company. Individuals who are elected by the shareholders of the company to work with the executive management team to asssit with the business decisions.
bond fund	A mutual fund that includes only bonds----typically corporate, municipal, or U.S. government bonds.
bond maturity	The lifetime of a bond, concluding when the final payment of that obligation is due.
bonds	Long term debt instruments secured by a lien on some or all the corporate property. The word bond is sometimes used more broadly to refer also to unsecured debt instruments, i.e., debentures.
book entry	The method of reflecting ownership of publicly traded securities in which customers are listed as the owners of such securities but the registration is to a brokerage firm. Book entry allows shares to be moved electronically through the DTC system. DTC is an electronic method of completing transactions and transfers between brokerage firms without using physical certificates. Shares held by DTC are recorded in the name of its nominee, Cede and Company.
brokerage account	An account with a brokerage firm that allows you to buy and sell securities.
broker	A person who acts as an agent for a buyer or seller, or an intermediary between a buyer and seller, usually charging a commission. A broker who specializes in shares, bonds, commodities, or options must be registered with the exchange where the specific securities are traded.
broker dealer	A securities firm that sells mutual funds or other securities.
bull market	A rising market, in which prices are going up because more people want to buy than sell.
buy-and-hold	An investing strategy that encourages investing for the long term by buying and then "holding," rather than selling based on the market's day-to-day ups and downs.
buyout	The purchase of a controlling percentage of a company's shares.
bylaws	The formal rules of internal governance adopted by a corporation.
call option	The right of a buyer to purchase a specified quantity of a security interest at a fixed price at any time during the life of the option.
capital appreciation	The growth of the principal of your investments.
capital gain distribution	A payment you receive when your mutual fund makes a profit by selling some of the securities in its portfolio. Capital gains distributions are usually made annually, often at the end of the calendar year.
capital gain	The profit you receive when you sell an investment for more than you paid for it. Capital gains are either short-term or long-term and are taxable income and must be reported to the IRS. Long-term capital gains are generally taxed at more favorable rates than short-term capital gains or ordinary income.
capitalization	For a specific company, the total stock market value of all shares of that company's stock.
capital loss	The amount of money you lose when you sell an investment for less than you paid. Capital losses are either short-term or long-term and must be reported to the IRS. Capital losses may be deducted from your annual income.
capital stock	Another phrase for common shares, often used when the corporation has only one class of shares outstanding.
cash account	A brokerage account in which transactions are settled on a cash basis.
cash exercise	The purchase of a stock option with personal funds as payment. Also called an Exercise and Hold.
cash flow	An analysis of the movement of cash through a company.
cashless exercise/ same-day sale	A transaction in which an optionee exercises a stock option and simultaneously sells some or all of the shares, with a portion of the sale proceeds delivered to the company by the broker to pay the exercise price and applicable taxes.
cash merger	A merger transaction in which certain shareholders or interests in a corporation are required to accept cash for their shares.
cede & company	The nominee for Depository Trust Company, the principal central clearing corporation for stock trades.
CEO	"Chief Executive Officer" of a publicly held corporation.
certificate	A physical document that represents ownership of common stock. A certificate is negotiable and should be held either with a stock broker or in a safety deposit box.
certificate of deposit (CD)	A type of investment made with a financial institution, such as a bank or savings and loan. A specified amount is deposited for a specified period of time, at a preset, fixed interest rate.
certificate of incorporation	The document prepared by the Secretary of State that evidences the acceptance of articles of incorporation and the commencement of the corporate existence.
CFO	"Chief Financial Officer."
change in control	A transaction that changes the ownership of the company, such as in a merger or acquisition. The "acquired" company will then be owned by the "acquiring" company.
class action	A lawsuit brought by a plaintiff on behalf of all members of a class of plaintiffs suffering a common wrong.
clawback	A non-compete agreement feature where option exercise profits are recouped by the company for violation of non-compete provisions.
cliff vesting	Vesting schedule terminology for a stock option that designates that a portion of the shares vest at once on a certain date. An example of "cliff" vesting is 25% a year over 4 years.
Code	The Internal Revenue Code of 1986, as amended.
commission	The fee paid to a brokerage firm for executing a trade.
Committee	The Committee of 2 or more Directors appointed by the Board of Directors that serves on the Audit Committee, Compensation Committee or Technical Advisory Board.
common shareholders	The registered holders of common stock who are entitled to dividends of the company. Common stockholders are typically entitled to vote on the selection of directors and other matters.
common stock	Securities that represent an ownership interest in a corporation.
compensation committee	The Committee appointed and given authority by the Board of Directors to make decisions relating to the compensation plan offered to employees of a company. The compensation plan includes the stock benefit plans.
compounding	The effective growth that results from investment income being reinvested. Compound growth has a snowball effect because both the original investment and the income from that investment are reinvested.
consolidation	An amalgamation of two corporations pursuant to statutory provision in which both of the corporations disappear and a new corporation is formed.
consultant	Any person who is engaged by the company or any parent or Subsidiary to render consulting or advisory services to such entity.
control person	Securities law states that a person is deemed to be a "control person" when the person has a control relationship with the issuer or company (i.e. the CEO, the CFO, etc.)
convertible securities	Securities that include the right of exchanging the convertible securities, usually preferred shares or debentures, at the option of their holder, for a designated number of shares of another class, usually common shares, called the conversion securities.
corporation	An entity formed for the purpose of conducting a business.
cost basis	An investment's original cost. This number is used for tax purposes to determine the capital gain or loss from the sale of shares. When shares are sold that were originally acquired from a company stock benefit plan, the cost basis will either be the original cost OR a "new" cost basis which is the fair market value on exercise or purchase date.
currency risk	The possibility that the price in dollars of an international stock may fluctuate as a result of changing currency exchange rates.
current yield	The amount of annual interest on a bond divided by the amount paid for it, expressed as a percentage.
custodial account	An account set up and managed by an adult for the benefit of a minor.
date of exercise	See Exercise Date.
date of grant	See Grant Date.
day order	An order to buy or sell a security that remains valid for one day unless canceled by the customer.
debentures	Long term unsecured debt instruments. See: bonds
debt	An amount owed to a party.
depository trust corporation	The principal central clearing agency for securities trades. See: book entry
derivative suit	A suit brought by a shareholder in the name of a corporation to correct a wrong done to the corporation.
dilution effect	The effect that occurs when additional shares are added to the total common stock number outstanding. Option exercises produce a dilution effect on common stock outstanding as well as the Employee Stock Purchase Plan distribution.
director	A member of the board of directors of the company.
disability	The status given to an employee when the employee can not continue to perform the job. Such status is referenced in Section 22(e)(3) of the Code.
discount broker	A brokerage firm that charges a lower commission than those of a full-service brokerage firm for executing trades.
discount rate	Rate of interest charged by the federal reserve to member banks.
discount stock option	A stock option that has been priced at lower than fair market value on grant date.
disposition	A sale of shares or disposing of shares.
disqualifying disposition	The term "disposition" is used to describe the sale, transfer or gift of shares acquired under a company stock benefit plan. "Disqualifying" describes the fact the sale has not met the terms of the IRS to obtain favorable tax treatment. If shares are purchased/exercised and held for the time required by the IRS, then the sale "qualifies" for the tax benefit of capital gains. For such Disqualifying Dispositions, the company may receive a tax deduction equal to the "spread." The company must report the spread on the employee's W-2 on or for non-employees the reporting must be on a Form 1099.
distribution	A payment to shareholders by a corporation. If out of present or past earnings, it is called a dividend.
diversification	Owning different securities in order to reduce risk, rather than concentrating all of one's money in one or two stocks. Diversification is important to help cushion an investor against an unexpected price decline of any one or a few investments.
dividend	A payment to shareholders from or out of current or past earnings.
dividend reinvestment program (DRP)	The automatic reinvestment of dividends from a stock in more shares of that stock.
Dow Jones Industrial Average	One of the most commonly used measurements of the U.S. stock market. The Dow Jones Industrial Average was created by two reporters, Charles Dow and Eddie Jones, who started publishing the Wall Street Journal in 1889. It is comprised of 30 blue chip stocks.
DTC	Depository Transfer Company. Shares held by DTC are recorded in the name of its nominee, Cede and Company. DTC is a national clearinghouse for the settlement of trades in corporate, municipal and mortgage-backed securities. DTC provides for book-entry settlement of over 90% of securities traded.
DWAC	Deposit/Withdrawal At Custodian. An electronic method of issuing new securities and depositing the shares to a brokerage firm. It is the same electronic method as the DTC system, but DWAC identifies that the shares are newly issued usually drawn from a company's plan reserves.
earnings	A company's revenue after related costs and expenses have been deducted.
earnings per share	A company's net income, minus preferred dividends, divided by its number of weighted common shares outstanding. A well-published financial indicator.
EDGAR	An acronym for Electronic Data Gathering Analysis and Retrieval. An automated computer system of the Securities and Exchange Commission. Companies use this system to file their periodic registration statements. The service offers information about specific companies, including financial sheets that show net income, gross profit, debt, and acquisitions.
eligibility	A designation to identify the criteria that an employee must meet to join or participate in the company's stock benefit plans.
emerging markets fund	A mutual fund that invests chiefly in developing economies. These funds are often volatile and their values can fluctuate substantially.
employee	Any person, including officers and directors, employed by the company or any parent or subsidiary of the company.
Employee Stock Purchase Plan (ESPP)	A plan that allows employees to elect to have some of their paycheck set aside in an ESPP contribution fund. On the purchase date, the funds are used to purchase the company's stock at a discount for the employee. When an ESPP qualifies under Section 423 of the Code, there is no taxation on the "spread" (the value of the stock less the purchase price) to the employee on the date of purchase.
employer	A person or entity who directs employees in a business.
equity	Another name for stock or capital in a company.
equity security	An ownership interest in a company. Common and preferred stock are types of equity securities.
ESPP	Employee Stock Purchase Plan. (See definition under the plan name.)
exchange act	The securities exchange act of 1934, as amended.
exchange option	Options that are granted at a specific exchange rate for participants that elect to forgo cash compensation to receive options.
ex-dividend	For stocks, the period between the announcement of a dividend and payment of that dividend.
executive officer	A person deemed to have decision-making power in the company.
exemption	An exception to a regulation. For example, an exemption to Rule 144 would mean that actions by a person or a company that are normally restricted under Rule 144 are now acceptable under the exemption.
exercisability	The status given to some or all shares of an option for those options to be exercised and converted to stock.
exercise date	The date an employee purchases or buys some portion of his/her stock option.
exercise notice	A form that an employee completes in order to notify the company of his/her decision to exercise a stock option.
exercise price	The price stated in the option for purchase of shares usually set on the date of grant.
exercise	Purchase of an option by the option holder.
expiration date	The last date that a stock option can be exercised and converted to stock.
face value	The value of a bond, note, or other security, as stated on the certificate or instrument, payable upon maturity of the instrument.
fair market value (FMV)	The price at which the company's stock is trading. For purposes of establishing a price for the day in relation to option transactions and events, it is usually the closing price or last trade of the day. In a privately held company, FMV is set by the Board of Directors.
FASB	See Financial Accounting Standards Board.
FDIC	An acronym for the Federal Deposit Insurance Corporation, a U.S. government agency that insures cash deposits, including certification of deposit, that have been placed in member institutions, for up to $100,000 for each institution.
Financial Accounting Standards Board (FASB)	Independent advisory body composed of representatives of the accounting profession and the SEC that issue the accounting opinions and rulings that comprise GAAP.
financial statements	There are three principal financial statements used to determine the status of a company. These are the profit and loss statement, the balance sheet, and the statement of cash flows.
Form 3	The initial form filed with the SEC, the issuer and the issuer's stock exchange pursuant to Section 16(a) of the Securities Exchange Act of 1934 by all board of directors, officers, and holders of 10% or more of any class of equity securities of the issuer. Form 3 details the direct and indirect holdings of the issuer's stock as well as the number of options, warrants, rights, and convertible stocks or bonds.
Form 4	Periodic form filed with the SEC, the issuer and the issuer's stock exchange when there has been a non-exempt change in an insider's ownership of company stock, such as a purchase, sale or option exercise.
Form 5	Year-end form filed with the SEC, the issuer and the issuer's stock exchange to report certain transactions exempt from form 4 reporting and any changes not previously reported by the insider on Form 3 or Form 4.
fund family	A group of mutual funds from the same organization.
GAAP	See Generally Accepted Accounting Principles.
Generally Accepted Accounting Principles (GAAP)	Substantive rules for the practice of accounting as established by the body of opinions and decisions issued by FASB.
general partners	Partners that participate in management of the business. A general partner is liable for the obligations of the business of the partnership.
global fund	A mutual fund that invests in both U.S. and non-U.S. companies. Typically 20% to 50% of the money is in U.S. equities.
going private	Refers to a transaction in which shareholders of a publicly held corporation are compelled to accept cash for their shares while the business converts to ownership by the officers, directors, or large shareholders; a going private transaction may involve a merger of the publicly held corporation into a subsidiary in a cash merger.
golden parachute	Slang term for a lucrative contract given to a top executive of a corporation which provides additional benefits in case the company is taken over and the executive is either forced to leave the newly formed company or voluntarily leaves.
good-till-canceled	A limit order that a customer places with a brokerage firm to buy or sell stock; it remains valid until executed or canceled by the customer.
grant date	The date on which the board of directors or the stock option committee approved the grant.
grant number	A unique number assigned to each stock option grant or award.
grant price	The price at which the option shares may be purchased.
grant	The offering of a stock option or an award to purchase shares at a set price with a set vesting schedule.
grant type	The kind of option granted, either an Incentive Stock Option (ISO) or Non-Qualified Option (NQ).
growth and income fund	A mutual fund that seeks both capital appreciation (growth) and current income. Stocks are selected based on both their appreciation potential and their ability to pay dividends.
hedging	Actions taken by investors to reduce a possible loss.
holding company	A corporation that owns a majority of the shares of one or more other corporations; a holding company is not engaged in any business other than the ownership of shares.
holding period	Under federal securities law, the holding period refers to the time that securities must be held before they can be sold under Rule 144. It is one year under Rule 144(d) and two years under Rule 144(k).
incentive stock options (ISO)	An option that does not require payment of income taxes upon exercise. Statutory stock option plan described in Section 422 of the Code.
income	Earnings or wages. Also, see Taxable Income.
income fund	A mutual fund that seeks current income over capital growth, often by investing in bonds and high-yielding stocks.
income statement	Financial statement showing a company's revenues and expenses over a period of time. Also called the Profit and Loss Statement.
indemnification	Refers to the practice by which corporations pay expenses of officers or directors who are named as defendants in litigation relating to corporate affairs.
indenture	The contract which defines the rights of holders of bonds or debentures as against the corporation.
independent contractor	A person working for a business who does not have the "employee" status.
index	A group of securities considered yardsticks of market behavior.
initial public offering (IPO)	Corporation's first offering of its own stock to the public.
insider	Insider is any person who has a corporate relationship, whether direct or indirect, and has access to material, non-public information on the company. It is a violation of law for an insider to trade the corporation's securities when in possession of such non-public information. Generally insiders are identified as a corporate officer, board of director or 10% or more shareholder of a publicly owned company and members of his or her immediate family.
insider trading	Transactions in shares of publicly held corporations by a person with inside or advance information on the company's stock prior to dissemination of such information to the general public by way of a press release; such trading by insiders may be a violation of law.
institutional investors	Large investors who hold funds such as mutual funds pension funds, insurance companies.
interest	Payments made to compensate an investment at a fixed percentage rate during each year the investment is owned.
Internal Revenue Code of 1986	Federal statute setting out the rules for assessment and payment of taxes.
Internal Revenue Service (IRS)	Agency of federal government that administers and interprets the Code.
international fund	A mutual fund that invests only in foreign companies and holds no stock in U.S. companies.
in the money	With respect to stock options, an option that has an exercise price that is lower than the current FMV.
investment bankers	Commercial organizations involved in the business of handling the distribution of new issues of securities.
investment companies	Corporations that are engaged in the business of investing in securities in other businesses; the most common kind of investment company is the mutual fund.
IPO (initial public offering)	A private company whose shares are being offered to the public for the first time. Also called a "new issue."
IRA (individual retirement account)	A retirement account that provides tax benefits.
irrevocable living trust	A legal agreement to transfer funds from a donor to a beneficiary through a trust that generally offers tax advantages.
ISO (incentive stock option) shares	Stock purchased by exercising an incentive stock option.
issued shares	Shares a corporation actually issues through any of the following: an IPO, exercising an option, purchasing shares offered under a restricted stock award, purchasing shares under an ESPP.
issuer	The corporation, municipality, or government agency that issues a bond or security.
joint venture	Limited purpose partnership largely governed by the rules applicable to partnerships.
Keogh Plan	An retirement plan for a sole proprietorship or partnership.
large capitalization stock	The stock of a company with a market value of approximately $9 billion or more.
leave of absence (LOA)	A temporary absence from employment pursuant to the Family Medical Leave Act, jury duty or military duty. This type of leave is usually a paid leave. An unpaid leave of absence is a temporary absence from employment that is usually for personal reasons.
legend	A notice printed on a stock certificate stating that transfer or sale of the shares represented by that certificate is restricted.
leverage buyout	Process of buying a corporation's stock with borrowed money, then repaying at least part of the debt from the corporation's assets.
limit order	An order to buy or sell a stock at a customer-specified price.
liquid investment	An investment that can be easily converted to cash.
load	A one-time sales commission that is assessed by some mutual funds to compensate the broker or financial planner who sells them.
lockup	A restriction that is set by the underwriters of an IPO to restrict certain individuals from trading in that stock. A lockup period is set to maintain an orderly trading market of newly issued securities and is usually for a period of 180 days after IPO.
lockup period	A lock-up period is set to maintain an orderly trading market of newly issued securities.
long-term capital gain	That part of the gains from selling a stock or mutual fund that you have owned for more than one year.
mandatory holding period	A period of time after granting, vesting, exercising, or purchasing during which the underlying stock cannot be sold.
margin trading	Using borrowed funds for trading stock.
market capitalization	The total value of a company's stock, calculated by multiplying the number of shares outstanding by the current market price per share.
market order	A order to buy or sell a stock at the market's current displayed price.
market value	For a stock, the total number of shares outstanding multiplied by the price per share.
material	An accounting term that means a value is significant to a decision being made.
material, non-public	The terms used to describe "information" that is known by persons having a relationship with the company but not known by the general public, and such information is substantial in nature.
maturity date	Date on which the principal amount of a security becomes due and payable.
measurement date	For accounting purposes, the first day on which the number of shares and the option price for an option are known.
merger	Combination of two or more corporations in which one of the companies survives and the other disappears.
monetary policy	Actions by the Federal Reserve Board to control the money supply, bank lending, and interest rates.
money market fund	A mutual fund that invests slowly in short-term securities with high quality.
municipal bond	An obligation of a state, city, town, or public authority; the interest paid on municipal bonds is exempt from federal taxes.
mutual fund	An investment company that pools the money of many investors and buys various securities.
NASDAQ	An acronym for National Association of Securities Dealers Automated Quotations; a computerized system for reporting current price quotations and the principal recording device for transactions on over-the-counter securities.
National Association of Securities Dealers (NASD)	Independent governing body for brokers and securities dealers.
net worth	The amount by which the assets exceed the liabilities; the total value of all of the assets you own once you have deducted any outstanding debts.
new issue	A security being offered to the public for the first time and subject to SEC rules; new issues may be initial public offerings by private companies or additional securities offered by public companies.
New York Stock Exchange	The oldest and largest stock exchange in the U. S.; founded in 1792, the NYSE is located at 11 Wall Street in New York City.
no-action letter	Interpretive letter issued by the SEC to a specific party indicating the SEC staff's advice regarding the application of specific securities forms or rules.
no-load fund	Type of mutual fund for which no commission is charged to make a purchase.
non-qualified stock option	An option that is taxable on the date of exercise whether or not the shares are sold. The taxes that will be withheld at the time of exercise are federal and state income tax, FICA, Medicare and local taxes. An option that does not qualify for ISO status.
no par shares	Shares issued under a par value status that are stated to have no par value.
odd lot	A trade involving less than 100 shares.
offering	A corporation's offering of its own stock to the public.
offering period	In an ESPP, the period starting with the grant or offering date and ending with the purchase date. The offering period can have one or more purchase periods.
offering price	The purchase price per share of a mutual fund which is determined by adding any sales charges that apply to the fund's net asset value per share.
officer	A person who is an officer of the company within the meaning of Section 16 of the Exchange Act. Some officer titles are CEO, COO, CFO, EVP, or VP.
open order	A buy or sell order placed with a broker that has not yet been executed or canceled .
option agreement	A written or electronic agreement between the company and an optionee outlining the terms and conditions of an individual option grant. The option agreement is subject to the terms and conditions of the plan.
option (as in the "options market")	In the securities markets, an option is a contract that allows an investor to control 100 shares of stock for a pre-agreed period of time. Many brokerages offer index and listed stock options on all of the major exchanges. An option, either a "put" option or "call" option, is a versatile investment vehicle for investors who understand their risks and limitations.
optionee	Individual who has been granted an option.
option exchange program	A program whereby outstanding options are exchanged for options with a lower exercise price.
option exercise methods	The methods to exercising an option are cash, same-day sale or cashless, sell-to-cover, swap or by loan.
option price	See "exercise price."
option	The right to purchase a stated number of shares of stock, at a stated price, for stated period of time.
ordinary income	Income that does not qualify for favorable tax treatment.
out-of-the-money	With respect to stock options, an option that has an exercise price that is higher than the current FMV. These options are also calle "underwater" options.
outside directors	Directors of publicly held corporations who do not hold executive positions in the company; outside directors may include investment bankers, attorneys, or others who provide advice or services to the corporation's management.
over-the-counter	Refers to the NASDAQ securities market which consists of brokers who purchase or sell securities by computer or telephone rather than through an exchange.
parent	A corporation that owns the controlling interest in the business and securities of another corporation.
participant	An employee who purchases shares under the Employee Stock Purchase Plan.
par value	An arbitrary or nominal value assigned to each share by the company's charter documents. Par value has no relation to the fair market value. The Model Business Corporation Act (1984) and the statutes of many states have eliminated the concept of par value.
payable date	The date on which a dividend of distribution is actually paid to the shareholder.
penny stock	A low-priced stock, generally selling below one dollar per share.
performance accelerated restricted stock award plans (PARSAPs)	Grants of restricted stock or restricted stock units which may vest early upon attainment of specified performance objectives.
performance shares	Grants of actual shares of stock or "phantom stock" whose vesting schedule or payment schedule is contingent on performance as measured against predetermined objectives over a period of time.
performance stock options	Options that have some aspect of their vesting or exercise price subject to specified performance criteria and will only vest if performance criteria are met.
phantom stock award	A type of incentive grant in which the recipient is not issued actual shares of stock on the grant date but receives an account credited with certain number of hypothetical shares. The value of the account increases or decreases over time based on the appreciation or depreciation of the stock price and the crediting of phantom dividends. Payouts may be settled in cash or stock.
Plan Administrator	This definition is usually found in the Stock Plan documentation and identifies the Board of Directors or any of its Committees as the Plan Administrator. The Plan Administrator has the power to initiate, make changes to, and/or retire a stock plan.
plan	A program that is written by the company, approved by the Board, for the purpose of outlining a benefit for the employees, consultants and members of the Board that provides for the issuance of equity securities.
point	A one-dollar change in a stock's market price. If a stock is up 10 points, its price has increased by $10.
poison pill	An issue of shares by a corporation as a protection against an unwanted takeover. A poison pill creates certain rights for existing shareholders and raises the potential cost of an acquisition.
pooling agreement	Contractual agreement among shareholders relating to the voting of their shares.
portfolio	An investor's collection of securities owned.
preferred stock	Shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders.
price/earnings ratio	A stock's current price divided by its earnings of the last year. A stock's P/E is an indicator of the market's expectations about that stock.
prime rate	The interest rate charged by banks for the customers they deem most creditworthy.
principal	The amount of money that is financed, borrowed, or invested.
private company	A company that does not have its securities publicly traded.
private letter ruling (PLR or LTR)	Ruling issued by the IRS to a specific taxpayer, indicating the IRS interpretation of the tax law with respect to a stated set of facts.
promissory note	A note or loan to pay a specified amount at a set interest rate due at a specific time.
prospectus	Document furnished to a prospective purchaser of a security that describes the security being purchased, the issuer, and the investment or risk characteristics of the security.
proxy	A shareholder's written authorization giving someone else the authority to cast his or her vote at a shareholder's meeting.
proxy statement	The document required by SEC regulation to be distributed annually to its shareholders in advance of the shareholders meeting. The purpose of the proxy statement is to provide shareholders with the list of proposals that need to be approved with the shareholder's vote, the detailed information about each proposal, and detailed information on the directors, officers, and principal shareholders of the company.
publicly held corporation	A corporation with shares held by numerous persons. Shares of publicly held corporations are usually traded either on a securities exchange or over-the-counter.
public offering	Involves the sale of securities by an issuer or a person controlling the issuer to members of the public; generally involves a private company selling the securities of the company to the public.
purchase period	Under an employee stock purchase plan, this is the period of time over which payroll deductions are made. The payroll deductions accumulated over the period are used to purchase stock at the end of the purchase period.
put option	Right of a buyer to sell a specified quantity of a security interest at a fixed price at any time during the life of the option.
qualifying disposition	The term "disposition" is used to describe the sale, transfer or gift of shares acquired under a company stock benefit plan. "Qualifying" describes the fact the sale has, indeed, met the terms of the IRS to obtain favorable tax treatment. If shares are purchased/exercised and held for the time required by the IRS, then the sale "qualifies" for the tax benefit of capital gains.
rating	An evaluation of a bond issuer's creditworthiness by a rating service.
recognize	A IRS word used to describe how the IRS "views" the consequences of when and how income is determined.
record date	Date on which the identity of shareholders entitled to vote or to receive dividends is ascertained.
record owner	The person whose name the shares are registered on the records of the corporation.
redemption	The reacquisition of a security by the issuer pursuant to a provision in the security that specifies the terms on which the reacquisition may take place.
registration statement	A notice regarding the issuance of securities under the Securities Act of 1933 that permits the public sale of the securities.
registration	The name that appears on the stock certificate.
Regulation T amendment (Reg T)	The Federal Reserve Board's provision to allow the extension of credit by brokers to optionees in order to permit same-day sales. This eliminates the need for brokers to charge interest during the time period from the date of the sale from the option that has been exercised and the date that the shares arrive to settle the sale.
reload option	A replacement stock option granted by some companies to optionees upon a "stock swap".
reorganization	A general term describing corporate personnel readjustments.
repricing	The exchange of high-priced, usually "out-of-the-money" stock options, for lower-priced options.
repurchase right	A corporation's right to buy back the exercised and unvested shares upon the employee's termination of employment.
reserves	The number of shares of common stock which have been authorized for issuance under the plan but not yet granted under an option.
restricted securities	Securities acquired directly or indirectly from an Issuer or from an affiliate of the Issuer, in a transaction or chain of transactions not involving any "public offering" (pre-IPO stock issuances). Restricted securities (the term also includes securities sold privately under the Rule 144A exemption to a "Qualified Institutional Buyer") are sometimes referred to as "investment stock," "investment letter stock", or "letter stock."
restricted stock award	Grants of shares of stock subject to restrictions on sale and risk of forfeiture until vested by continued employment or services.
restricted stock	Shares of common stock that retain certain sale or transfer restrictions.
retained earnings	Net profits accumulated by a corporation after payment of dividends.
retirement plan distribution	A withdrawal of funds from a retirement plan.
revenue ruling	Ruling published by the IRS stating the IRS position and establishing precedent for audit positions by taxpayers on the application of the tax law to specific facts.
reverse stock split	A conversion of the number of shares outstanding to a reduced number by the split conversion ratio. For example, if the company has a 1:2 reverse stock split, then the current number of shares outstanding is multiplied by 1 and divided by 2.
right	An optionee's entitlement to the shares under an option.
right of first refusal	Restriction imposed on shares that entitles the corporation to purchase shares of stock before the shares may be purchased by a third party.
rollover IRA	A tax-free transfer of assets from one qualified plan to another.
Roth IRA	A type of investment plan that is structured to provide benefits to a broad segment of the population. The Roth IRA was first available for the 1998 tax year.
Rule 145	Rule 145 governs the issuance of securities in a merger, consolidation or stock-for-assets exchange.
S-1	A "Registration Statement" under the securities act of 1933 that a company files with the SEC to register its stock for sale. The S-1 form is generally the form used by a private company that is "going public." It contains the Prospectus along with a number of exhibits and other information about the company.
S-3	A shorter form of Registration Statement than the S-1 form that can be used by certain already-public companies to sell additional shares.
S-8	A very brief form of Registration Statement filed with the SEC to register shares to be issued under a stock plan.
same-day sale	A "cashless" exercise method whereby the option holder exercises an option with the company and at the same time sells the shares through a stock broker. This method allows the option holder to pay for the total option price and any tax withholdings from the proceeds that will be realized from the sale of the shares without coming up with cash.
secondary offering	Public sale of previously issued securities owned by large investors.
Section 16	Section 16 of the Securities Exchange Act of 1934 (1934 Act) that regulates trades by officers, directors and 10% or greater shareholders.
Section 16(a) reporting	Section of the Securities and Exchange Act of 1934 requiring that the officers and directors of a public company report all holdings and trading activity done by them or any member of their immdiate family. The reports are filed on Forms 3, 4, and 5.
Section 16(b)	The section of the Securities Exchange Act of 1934 that outlines the "short-swing profits" recovery provision. Any director, officer or beneficial owner of more than 10% of a company's stock may not carry opposite trading activity (a buy and then a sale, or a sell and then a buy) within 6 months of each other. IIf such trading does occur, then the profits realized upon the trade must be turned over to the company.
Section 423 plan	A type of employee stock purchase plan that is governed under Section 423 of the Code. It allows employees to purchase stock and not have a taxable event at the time of purchase.
Section 83(b) election	A notice that is filed with the IRS to designate that the employee/taxpayer wishes to incur the income and pay taxes on the full amount of the gain at the time of purchase instead of paying the taxes on such future date(s) when the employee acquires the rights to such shares on the vesting dates.
securities	A general term for shares of stock, bonds, and debentures.
Securities and Exchange Commission (SEC)	Agency of federal government that regulates securities-related transactions.
Securities Exchange Act of 1933	Federal statute setting out the rules for the offer of securities, the full disclosure requirements in the registration statements, and the exemptions from registration.
Securities Exchange Act of 1934	Federal statute that requires issuers to register their securities before they can be traded. Also mandates periodic reporting, proxy solicitations, and designates rules for insider trading.
selling long	Selling a security that you own.
selling short	Selling a security that you do not own in the anticipation that the stock will go down and you will buy it at a lower price. A cash requirement is needed to secure a short position. Also called "margining stock."
settlement date	The date when payment is due, either to the customer or to the broker. For most stock transactions, this is the third business day after the transaction date.
share	A unit of ownership in a company, also called common stock.
share dividend	A proportional distribution of shares instead of cash consideration to existing shareholders.
shareholders	The persons who own shares of either common or preferred stock.
shares outstanding	The number of company shares held by all shareholders on a given date, as tracked by the transfer agent.
share split	A proportional change in the number of shares owned by every shareholder.
short-swing profit	The profits realized from opposite trading activity (a buy and then a sale, or a sell and then a buy) within 6 months of each other and the trading is done by a director, officer or beneficial owner of more than 10% of a company's stock. The profits realized upon such a trade are in violation of Section 16(b) of the SEC Act of 1934 and must be turned over to the company.
short-term capital gain	A profit on the sale of a stock or mutual fund that the investor owned for less than one year.
split	See Stock Split.
spread	With reference to a stock option, the difference between the grant price and the fair market value on the exercise date. Also referred to as the "gain" or the "bargain element."
statement	A monthly or quarterly record of trading activity from the broker.
statutory holding period	Holding period that was established by Sections 422 and 423 of the Code for ISO's and ESPP. The "holding period" is 1 year from exercise and 2 years from grant.
statutory option	An incentive stock option as defined by the Code; also can refer to shares to be purchased under an ESPP.
stock appreciation right(SAR)	A contractual right, often granted in tandem with an option, that allows an individual to receive cash or stock of a value equal to the appreciation of the stock from the grant date to the date the SAR is exercised.
stock	A type of security that represents part ownership of a company.
stock certificate	A certificate of ownership of shares of a company's stock.
stock dividend	A distribution of additional shares of stock to stockholders.
stockholders	See Shareholder.
stock option agreement	See Option Agreement.
stock option deferral	A variation of the Non-qualified Stock Option. To execute this type of transaction, an employee makes an election at least 6 months prior to the exercise of the option to defer the receipt of the option shares for a specified period of time.
stock option plan	See Plan.
stock option	See Option.
stock option types	There are two types - the incentive option and the nonqualified option. The primary difference relates to the timing of taxation.
stock purchase agreement	An agreement or notice that states the terms and conditions for the purchase of common stock of the company.
stock purchase plan	See Employee Stock Purchase Plan.
stock split	Issuance of new shares of stock to stockholders in a proportional ratio to the shares they already own.
stock swap	Exercise of option using already-owned company stock.
street name	The practice of registering securities in the name of a brokerage firm. Such certificates are endorsed through a stock power.
strike price	See Option Price.
subsidiary	A corporation that is at least majority owned, and may be wholly owned, by another corporation.
takeover bid	Generic term to describe an attempt by an outside corporation or group usually called the aggressor to get control away from incumbent management.
TAMRA	Technical and Miscellaneous Revenue Act of 1988
tax consequences	The results that occur when a taxpayer performs a transaction or event that brings on a tax obligation.
tax deferral	The postponement of a tax obligation until sometime in the future.
tax withholding	See Withholding Tax.
tender offer	A public invitation by an aggressor to shareholders of a target corporation to tender their shares for purchase by the aggressor at a stated price.
term (as in option term)	The period of time that an option is in active status.
termination of employment	An employee leaves or is terminated by the company and therefore his/her employment is terminated.
ticker symbol	An abbreviation of a security's name that is used to identify it for trading purposes and in newspaper financial pages and price quotations.
time-accelerated restricted stock award plans (TARSAPs)	Grants of restricted stock or restricted stock units that have a time-vesting schedule which may vest early upon attainment of specified performance objectives.
trade date	The actual date on which a security is bought or sold.
trading day	A day on which the stock exchanges and the Nasdaq System are open for trading. The stock exchange can never be closed for more than 3 consecutive days.
transferable stock option (TSO)	Option that may be transferred from the employee to a non-employee third party, usually to a trust.
transfer agent	An institution or agency that acts as the recordkeeper of the stock holdings and stockholders of a company. The Transfer Agent issues and transfers stock in book entry or in certificate form. The agent also issues the new stock from option exercises and purchases under an Employee Stock Purchase Plan.
transfer	The change of ownership from one party to another.
treasury shares	Shares that were once issued and outstanding but which have been reacquired by the corporation and are held in a separate treasury stock account.
underwater	An option that has an exercise price that is higher than the current FMV of the company's stock.
underwriters	Persons, agent or broker who buy shares with the intention of further distribution.
unvested options	Options that the employee/optionee has the opportunity to purchase either now or in the future but will not have the rights to own until the vesting date(s) have lapsed.
unvested shares	Shares of the company's stock that the employee/shareholder has paid for but not yet earned the rights to retain and or sell.
vest date	The date on which the option holder has ownership rights to such shares and can purchase them, or the date that the shares are no longer subject to repurchase by the company.
vesting schedule	A schedule that outlines the calendar dates that such option shares will transfer ownership rights to the optionee.
vest	The first point at which rights under an option are in the hands of the optionee and are not subject to a substantial risk of forfeiture, usually earned over time by continued employment.
voting rights	The right of a shareholder who owns stock in a corporation to vote on proposals that require shareholder approval.
warrants	A type of option to purchase shares issued by a corporation. Warrants are typically long period options, are freely transferable, and if the underlying shares are listed on a securities exchange, are also publicly traded.
withholding tax	The taxes that are due at the time income is incurred. Such taxes are required to be withheld by the company and paid to the proper government agency on behalf of the employee.
yield (return)	Income received from an investment.