The storage and protection of customers’ securities, typically held in a vault, provided as a service by a bank or institution acting as agent for the customer.
An analysis examining the likely performance of an investment under a wide range of possible interest rate environments.
An adjustment made to economic indicators to allow for predictable rises and falls in their value caused by seasonal factors. Seasonal adjustments make it easier to discern the underlying trend of the indicator. Adjustment is made by deducting an average of the change in a set number of previous years from the latest change, showing whether a rise or fall is unusual or purely seasonal.
Market for issues previously offered or sold.
The section of the Internal Revenue Code under which not-for-profit organizations receive their tax-exempt status.
The grouping of securities into a category, based upon similarities that they share. Typically, securities found in a distinct industry are grouped together.
Debt backed by specific assets or revenues of the borrower. In the event of default, secured lenders can force the sale of such assets to meet their claims.
The U.S. regulatory body responsible for overseeing and administering rules governing all sectors of the securities industry. Its purpose is to protect investors and maintain the integrity of financial markets.
Securitization may be broadly defined as the process of issuing new securities backed by a pool of existing assets such as loans, residential or commercial mortgages, credit card debt, or other assets. These securities, which are generally referred to as “mortgage or asset-backed securities” are issued and sold to investors (principally institutions) and the cash flows or economic values following the assets are redirected to them. Securitization includes a diverse array of assets, such as residential and commercial mortgage loans, trade receivables, credit card balances, consumer loans, lease receivables, automobile loans, insurance receivables, commercial bank loans, health care receivables, and obligations of purchasers to natural gas producers, future rights to entertainment royalty payments and other consumer and business receivables.
A certificate issued by a company, government or other organization giving proof that money has been invested in the stock, bonds, debt, options or other derivatives or instruments issued or sold by it. Securities are increasingly held in electronic rather than paper form.
All or a portion of an issue with stated maturities in consecutive years (as opposed to mandatory sinking fund redemption amounts).
Series EE bonds are safe low risk savings bonds issued by U.S. Treasury. Series EE bonds issued after April 2005 earn a fixed interest rate based on 10-year Treasury note market yields that is set each May 1 and November 1. Series EE bonds issued from May 1997 to April 2005 accrued interest according to a floating rate (90% of the average market yields on 5-year Treasury securities for the previous six months). The holder doesn’t receive the interest until the bonds are cashed in. If the bonds are redeemed less than five years from the time they are purchased, the holder must sacrifice three-month’ interest. The Treasury guarantees that Series EE bonds will mature at full face value in no more than 17 years. If you want to hold them longer, they will continue to accrue interest for 30 years.
Series I savings bonds have a built-in inflation adjustment. They are issued in the same denominations as Series EE bonds but pay interest according to an earning rate that is partly a fixed rate of return and partly adjusted for inflation. Interest, if any, is added to the bond monthly and is paid when the bond is redeemed. These bonds can now be issued electronically.
The collection and pooling of principal, interest and escrow payments on mortgage loans and mortgage pools; accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquency loan follow-up and loan analysis. The party providing the servicing receives a fee, the servicing fee, as compensation.
The amount retained by the mortgage servicer from monthly interest payments made on a mortgage loan.
The date for the delivery of bonds and payment of funds agreed to in a transaction.
A share is a unit of ownership in a corporation, or a mutual fund or an interest in a partnership. In the US, the term stock is often used instead of share, although an investor actually owns shares of stock.
A method of assessing whether returns are produced by intelligent investment decisions or by accepting too much risk. It measures the return of an investment compared with investments in government bonds, which are regarded as virtually risk free. The ratio is calculated by subtracting the rate of return on government securities from the rate of return on a portfolio and then dividing the difference by the standard deviation of the portfolio’s returns.
Borrowing and then selling securities that one does not own, in anticipation of a price decline. When prices fall, the short is “covered” by buying the securities back and returning them to the lender.
The buying back of a security or asset previously sold so as to close out a short position. Also known as bear covering. See also: Short, Short-Selling, and Short Squeeze
A short squeeze occurs when investors holding short positions find that the market has not fallen as they hoped but has risen just as they have to make good on their obligation to deliver securities or a physical commodity. The sudden increase in demand exceeds immediately available supplies. It leaves them at the mercy of those in possession of supplies and forces them to compete against each other to obtain them, driving prices sharply higher.
Generally, debt which matures in one year or less. However, certain securities that mature in up to three years may be considered short-term debt.
The ability of a company or other organization to meet its debts as they fall due; having assets that are in excess of liabilities.
A trade or transaction conducted for immediate settlement which in most markets is within two working days.
A market where trades are delivered and settled within two working days. The spot market is also called the cash market because trades are settled in cash at current market prices, as opposed to forward prices.
A bankruptcy-remote entity set up to insulate the issuer of ABS (the trust) from the sponsor, or originator, of the assets. Also called special-purpose corporation (SPC).
The word spread has several different meanings: 1) the difference in a price quotation between the bid, the price at which a dealer is prepared to buy, and the ask, the price at which a dealer will sell. A large spread usually means the market lacks liquidity. When that happens, dealers often cannot buy and sell quickly and so they widen the spread to avoid being caught on the wrong side of the market. 2) Spread can also be used to express the difference in yields between two fixed income securities of the same quality but different maturities, or of different quality but the same maturities. 3) It can also refer to the difference in yield between a bond and a reference government bond, which is regarded as relatively risk-free. 4) A futures spread is the difference in prices between delivery months in the same or different markets. 5) Spread can also refer to the difference between borrowing and lending rates by which a financial intermediary makes profits.
The difference between the yield on a fixed-income security and the yield on a Treasury security of comparable maturity. For example, the spread between a 10-year Treasury yielding 4.75% and a 10-year corporate yielding 5.25% is 50 basis points.
A state in which an economy experiences high inflation accompanied by stagnant economic activity, i.e. low growth and high unemployment.
Indicates the general obligation bond (G.O.) credit rating a rating agency may apply to a state. The rating on a specific municipal bond issue or issuer located with the state may differ from the state rating.
The breakup of a share into smaller units without affecting either the total share capital or reserves. The main effect is to reduce the unit price of each quoted share, making them easier to trade in small lots and more attractive to small investors. Opposite of a reverse stock split.
A company or individual, executing trades and/or providing investment advice to individual and institutional customers, but not acting as a principal.
The price at which the security underlying a call option can be bought or the price at which the security underlying a put option can be sold. Also known as the exercise price.
A futures contract based on a stock market index
Separate Trading of Registered Interest and Principal of Securities. The Treasury Department’s program under which eligible securities are authorized to be separated into principal and interest components, and transferred separately. These components are maintained in book-entry accounts and transferred in TRADES (Treasury/Reserve Automated Debt Entry System).
Many different types of products are “structured” to some extent. “Structuring” usually refers to any type of obligation that is not a straightforward secured or unsecured government or corporate obligation. Although these types of transactions are usually issued through special purpose vehicles, this is not always the case. For example, securitizations are one type of structured product. Another type of structured product refers to a packaging or repackaging of bonds together with various types of interest rate swaps and/or credit derivatives to change the interest and principal payment stream, in order to provide an investor with a particular risk profile that they want. In some cases, these products are also called “structured credit” if they involve products with some type of corporate or asset-related credit risks. Due to the complexity of structured products, they are rarely part of traditional retail investor portfolios or fund offerings.
A type of debt that places the investor in a lien position behind or subordinated to a company’s primary creditors. Bonds issued as subordinated debt will pay interest and principal but only after all interest that is due and payable has been paid on any and all senior debt.
A bond that backs the performance of another. In the ABS market, a surety bond is an insurance policy typically provided by a rated and regulated monoline insurance company to guarantee securities holders against default.
A transaction in which an investor sells one security and simultaneously buys another with the proceeds, usually for about the same price and frequently for tax purposes.
A group of underwriters formed for the purpose of participating jointly in the initial public offering of a new issue of municipal securities. The terms under which a “syndicate” is formed and operates are typically set forth in an “agreement among underwriters.” One or more underwriters will act as manager of the “syndicate” and one of the managers will act as lead manager and “run the books.” A “syndicate” is also often referred to as an “account” or “underwriting account.”