This is a glossary of terms that are, for the most part, unique to the world of financial investigations, or terms that have a different meaning than that which is commonly understood when they are used in this context.

Face Amount Certificate: A debt instrument issued by a face amount certificate company, which is a type of investment company. Face amount certificates offer a predetermined rate of interest and may be purchased in lump-sums, or more commonly, in periodic installments. Certificate holders are entitled to redeem their certificates at maturity for the face amount, or they may redeem them prior to maturity for their surrender value.

Face Amount Certificate Company: One of three basic types of investment companies defined by the Investment Company Act of 1940. This kind of investment company issues debt certificates, called face amount certificates, at a predetermined rate of interest to investors. They may be purchased in lump-sums, or more commonly, in periodic installments. Certificate holders are entitled to redeem their certificates at maturity for the face amount, or they may redeem them prior to maturity for their surrender value.

Face Value: The value of a bond (or other debt instrument) that appears on the front, or face, of the certificate. Although a bond's price may change due to market conditions, the face value does not change. At maturity, the issuer redeems the bond at the face value amount. If the bonds are retired before maturity, the bondholder usually receives a slight premium over the face value. The face value is also the amount used to compute interest payments. For instance, a 10% bond with a face value of $1,000 pays $100 interest annually. Corporate bonds usually are issued with $1,000 face values, municipals with $5,000 face values, and federal government bonds with $10,000 face values. Other terms for face value include par value, nominal value and principal amount.

Fail Position: A position that is the result of a broker-dealer's failure to settle a transaction with another broker. Generally a broker has a fail when his client fails to either make payment or deliver securities in time to meet the settlement date of a trade. A fail position may be either a fail to deliver or a fail to receive.

Fail to Deliver: A situation that occurs when the broker-dealer on the sell side of a transaction does not deliver securities to the broker-dealer on the buy side by the settlement date of the transaction. Usually this occurs because the selling broker-dealer has not received the certificates from the selling customer. The buying broker-dealer will not pay for the securities until the fail to deliver is eliminated by delivery of the certificates.

Fail to Receive: A situation that occurs when the broker-dealer on the buy side of a transaction has not received securities from the broker-dealer on the sell side by the settlement date of the transaction. The buying broker-dealer will not pay for the securities until the fail to receive is eliminated by delivery of the certificates.

Fair Market Value: The price of an asset or service as determined by the buyer and seller of the asset or service, where both parties have sufficient information to make a rational decision.

Fallen Angel: A bond that was rated investment grade (AAA to BBB) at issuance, but has fallen below investment grade (BB or lower). Bonds rated below investment grade are called junk bonds.

Family of Funds: A group of mutual funds in which each fund has a different objective, yet all are managed by the same investment company. Usually shareholders of one fund can switch their money into one of the family's other funds, sometimes without incurring a charge. This makes it easier for investors to move their assets in response to changes in the market or in their needs. There may be tax consequences when money is transferred from one fund to another.

Family Holding Trust: A trust that is created specifically to hold the family's assets consisting of real and/or personal property.

Family Limited Partnership (FLP): A limited partnership created for family estate planning and some asset protection. It is family controlled by the general partners. A highly appreciated asset is transferred into the FLP to achieve a capital gains tax reduction. Usually, the parents are the general partners holding a 1 to 2 percent interest. The other family members are the limited partners holding the balance of the interest in the partnership.

Fannie Mae: Nickname for the Federal National Mortgage Association.

FAQS (Firm Access and Query System): NASD system that allows participating members computer access to their registration and examination data maintained in the Central Registration Depository. Members may use FAQS to schedule qualification examinations, and review their CRD accounting, balance and activity.

Farther Out; Farther In: Terms used to describe the length of option contracts relative to the present. For example, in February, an option expiring in May would be farther in than an option expiring in August. The August option, on the other hand, would be farther out.

Federal Agency Security: A debt instrument issued by an agency of the federal government such as the Federal National Mortgage Association. Although these securities generally have high credit ratings due to the fact that they are sponsored by the federal government, they are not backed by the full faith and credit of the U.S. government, unlike Treasury securities.

Federal National Mortgage Association (FNMA): A government-sponsored corporation that purchases mortgages from lenders, repackages them and sells them. The agency, which is known as Fannie Mae, deals in both government-backed and conventional mortgages

Federal Reserve Board (FRB): The governing body of the Federal Reserve System. The Board is comprised of seven members appointed by the President and subject to confirmation by the Senate. In order to ensure members' independence from political influence, each member serves a 14-year term. The Board is responsible for setting monetary policy for the U.S. and has the authority to determine bank reserve requirements, set the discount rate, regulate the availability of credit, and control the purchase of securities on margin.

Federal Reserve System: A system established by the Federal Reserve Act of 1913 to manage the monetary and banking system within the U.S. The Federal Reserve System, also known as the Fed, is broken up into 12 regions and is governed by the Federal Reserve Board. National banks are stockholders of the Federal Reserve Bank in their region. The Fed is responsible for regulating the national money supply, setting bank reserve requirements, controlling the printing of currency and acting as a clearinghouse for the transfer of funds throughout the banking system. The Fed also establishes and enforces bank regulations.

Federation Internationale des Bourses de Valeurs (FIBV): The organization of the world's stock markets, headquartered in Paris. FIBV encourages cooperative policies designed to stimulate a free flow of capital across national boundaries. NASD became an associate member of FIBV in 1992.

Fictitious Credit: The credit balance in a margin account is known as a fictitious credit because it cannot be withdrawn by the customer since it is held as collateral to secure the broker's loan of funds and securities to the customer. A fictitious credit is comprised of the proceeds from short sales and the margin requirement, which is established by Regulation T of the Federal Reserve Board. A free credit balance, on the other hand, may be withdrawn at any time.

Fiduciary: Person, company, or association entrusted with the control of assets for the benefit of another, known as the beneficiary. Most states have laws governing the conduct of fiduciaries. Some states maintain a list of securities, known as the legal list, which are permissible investments for fiduciaries acting on behalf of their beneficiaries. Other states simply use the prudent man rule which requires that fiduciaries act as a prudent man or woman would with regard to how they invest on behalf of their beneficiary. In addition, the document appointing the fiduciary will establish parameters and guidelines for their activities with respect to the beneficiary's assets. Some examples of fiduciaries are executors of wills, administrators of estates, receivers in bankruptcy, trustees, and custodians for minors.

FIFO (First In, First Out): Method of accounting for the purchase and sale of securities for tax purposes whereby the first security purchased is assumed to be the first security sold. For instance, under FIFO, or first in, first out accounting, an investor who purchased 100 shares of XYZ in January and another 100 shares of XYZ in March, and then sold 100 shares of XYZ in November, would have sold the first 100 shares bought in January. In contrast, the LIFO method, or last in, first out would allocate the shares bought in March as the shares sold.

Fill: The execution of a client's order to buy or sell a security. An order is considered filled when the total number of shares is completely bought or sold. If less than the order's full amount is executed, it is known as a "partial fill."

Fill or Kill (FOK) Order: A limit order to buy or sell a security in which the client instructs the broker to execute the order immediately in its entirety. If the order cannot be executed, it is canceled. FOK orders are usually used when a client wants to transact a large quantity of a security--one that would cause a significant price change if a market order to buy or sell were entered.

Financial Market: Market for the exchange of capital and credit in the economy. Financial markets include the stock market, bond market, commodities market, and foreign exchange market. Financial markets may also be categorized as either money markets or capital markets. Money markets deal in short term debt instruments whereas capital markets trade in long term debt and equity instruments.

Financial Pyramid: An investment strategy which apportions an investor's assets based on four categories of risk. The largest portion of assets are invested in safe, liquid investments. The second largest portion of assets is allotted to low-risk investments with the objectives of income and long-term growth. Third are assets categorized as medium-risk, and fourth, the smallest portion of assets, is comprised of high-risk investments. This is a legitimate investment strategy unrelated to Pyramid Schemes.

Financial Statement: A record of the financial status of an individual, company or association. The financial statement includes a balance sheet, an income statement and may also include other financial analysis such as a cash flow statement.

Financial Supermarket: A company that offers a large variety of financial services. For instance, some financial supermarkets may offer banking services, securities brokerage, real estate brokerage, and insurance products--all under the same roof.

FIPS (Fixed Income Pricing System): A system designed by NASD to centralize quotations and trade reporting for high-yield and other debt securities. FIPS will soon be replaced by a new system TRACE -- Trade Reporting and Compliance Engine.

Firm Access and Query System (FAQS): NASD system that allows participating members computer access to their registration and examination data maintained in the Central Registration Depository. Members may use FAQS to schedule qualification examinations, and review their CRD accounting, balance and activity.

Firm Commitment: A type of underwriting whereby the underwriter agrees to purchase the entire issue from the issuer, regardless of his ability to sell the securities to the public. Any unsold shares cannot be returned to the issuer. Also called a "Firm Commitment Underwriting."

Firm Commitment Underwriting: A type of underwriting whereby the underwriter agrees to purchase the entire issue from the issuer, regardless of his ability to sell the securities to the public. Any unsold shares cannot be returned to the issuer.

Firm Order: 1) An order to buy or sell for the proprietary account of the broker-dealer, or firm. 2) An order to buy or sell which is not conditional.

Firm Quote: A quote by a market maker for a security which requires the market maker to purchase or sell a round lot of the security at the quoted bid or offer. This is in contrast to a nominal or subject quote which may require further negotiation or review and must be identified as such.

First Call Date: First date on which part or all of a bond may be redeemed, or called, by the issuer, at a pre-specified price. The first call date is specified in the bond's indenture. Bond brokers generally will quote callable bonds by giving both the yield to maturity and the yield to call.

First-In First-Out (FIFO): Method of accounting for the purchase and sale of securities for tax purposes whereby the first security purchased is assumed to be the first security sold. For instance, under first in, first out accounting, or FIFO, an investor who purchased 100 shares of XYZ in January and another 100 shares of XYZ in March, and then sold 100 shares of XYZ in November, would have sold the first 100 shares bought in January. In contrast, the LIFO method, or last in, first out would allocate the shares bought in March as the shares sold.

First Preferred Stock: A class of preferred stock that has preferential claim over other classes of preferred stock and common stock with regard to claims on dividends and assets.

Fitch's Rating Service: A rating agency for municipal and corporate bonds, preferred stock, commercial paper, and other debt instruments.

Fixed Annuity: An investment contract sold by an insurance company which makes fixed payments to the annuitant for a pre-specified period of time, usually for life. In contrast, a variable annuity makes payments which are directly related to the performance of the vehicles in which the annuity has invested.

Fixed Assets: Assets owned by a corporation which are not generally intended for sale in the normal course of the business. These assets represent tangible property and are highly illiquid. Buildings, machinery, equipment, furniture and fixtures are examples of fixed assets.

Fixed Income Investment: A security that pays a fixed rate of return, such as a bond or preferred stock. Fixed income investments offer protection against market risk, but do not protect holders against the risk of inflation.

Fixed Income Pricing System (FIPS): A system designed by NASD to centralize quotations and trade reporting for high-yield and other debt securities. FIPS will soon be replaced by a new system TRACE -- Trade Reporting and Compliance Engine.

Flat: A bond term that means it is trading without accrued interest. Bonds which are in default of interest or principal are traded flat. This means that accrued interest will be received by the buyer if and when it is paid, but no accrued interest will be paid to the seller.

Flat Market: A market distinguished by horizontal price movement that is usually the result of low activity.

Flight Capital: Money that flows offshore and likely never returns. Flight is exacerbated by a lack of confidence as government grows without bounds.

Flight to Quality: The movement of capital by investors to the safest possible investment. Flights to quality usually occur when the market is declining or a specific situation occurs within the marketplace that unsettles investors. Money market investors, for example, may only buy government securities if a major bank fails.

Float: The number of shares of a security currently outstanding and available for trading by the public.

Floor: The area of an exchange where securities are bought and sold.

Floor Broker: A member of an exchange who may or may not be employed by a member firm and executes orders on the floor of the exchange. The floor broker executes orders for customers and is therefore acting as agent. In contrast, the floor trader is buying and selling for his own account and is acting as principal.

Floor Trader: A member of an exchange who trades on the floor of the exchange for his own account. In contrast, the floor broker is buying and selling for the accounts of customers and is acting as agent.

Flower Bond: A US Treasury bond that is accepted at face value to pay estate tax if the bonds were owned by the decedent at the time of death. Flower bonds are no longer issued and the last of them will mature in 1998. The bonds trade at a discount since they have a relatively low interest rate (3% to 4%).

FNMA (Federal National Mortgage Association): A government sponsored corporation that purchases mortgages from lenders, repackages them and then sells them. The agency, which is known as Fannie Mae, deals in both government-backed and conventional mortgages.

FOK (Fill or Kill) Order: A limit order to buy or sell a security in which the client instructs the broker to execute the order immediately in its entirety. If the order cannot be executed, it is canceled. FOK orders are usually used when a client wants to transact a large quantity of a security--one that would cause a significant price change if a market order to buy or sell were entered.

Footsie: A nickname for the "Financial Times' " FT-SE 100 Index (Financial Times-Stock Exchange 100 stock index). It is a market value-weighted index of 100 alpha stocks traded on the London Stock Exchange.

Forbes 500: A listing prepared annually by Forbes magazine of the largest U.S. publicly-owned corporations. Corporations are ranked by sales, assets, profits, and market value.

Forecasting: Predicting current and future market trends using existing data and facts. Analysts rely on technical and fundamental statistics to predict the directions of the economy, stock market and individual securities.

Foreign: May be utilized in a geographic, legal or tax sense. When used geographically, it is that which is situated outside of the U.S. or is characteristic of a country other than the U.S.

Foreign Investor in Real Property Tax Act of 1980 (FIRPTA): Under FIRPTA and the Economic Recovery Act of 1981, unless an exemption is granted by the IRS, upon the sale of real property owned by offshore (foreign) persons, the agency, attorney or escrow officer handling the transaction is required to withhold capital gains taxes at the closing of the sale transaction. Unless withheld and submitted to the IRS, the party handling the sale transaction is personally liable for the taxes.

Foreign Person: Any person, including a U.S. citizen, who resides outside the U.S. or is subject to the jurisdiction and laws of a country other than the U.S.

Foreign Personal Holding Company (FPHC): Different than a controlled foreign corporation. Discuss with your CPA.

Form 10 K: Public companies are required to file an annual report with the Securities and Exchange Commission detailing the preceding year's financial results and plans for the upcoming year. Its regulatory version is called "Form 10 K." The report contains financial information concerning a company's assets, liabilities, earnings, profits, and other year-end statistics. The annual report is also the most widely-read shareholder communication.

Form 20-F: A Securities and Exchange Commission 1934 Act registration statement and annual report form typically used by foreign issuers.

Form 6-K: The Securities and Exchange Commission form for non-U.S. issuers to make periodic reports.

Form ADV: Most investment advisers use Form ADV to register with either the SEC or the state securities agency in the state where they have their principal place of business, depending on the amount of assets they manage. Form ADV consists of two parts. Part I contains information about the adviser's education, business, and whether they've had problems with regulators or clients. Part II outlines the adviser's services, fees, and strategies. If you are investigating an investment adviser, carefully review both parts of the Form ADV. If the adviser manages less than $25 million in assets, you can get a copy of the adviser’s Form ADV from your state securities regulating authorities. If the adviser manages $25 million or more, you can get it from the SEC. See also IARD and CRD.

Form D: SEC Regulation D provides and exemption that makes it possible for some companies to avoid registering their securities and filing reports with the SEC, but they are still required to file a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters. To find out whether a company has filed a Form D, call the SEC’s Public Reference Branch at (202) 942-8090 or send an email to publicinfo@sec.gov. If the company has not filed a Form D, they might not be in compliance with the federal securities laws.

Form F-1: The Securities and Exchange Commission 1933 Act form registering the securities of a non-U.S. company to be issued as part of a public offering.

Form U-4: NASD uniform application for security industry registration or transfer.

Form U-5: NASD uniform termination notice for security industry registration.

Fortune 500: A listing prepared annually by Fortune magazine of the 500 largest U.S. industrial corporations, ranked by sales. Fortune also prepares a listing called the Fortune Service 500 for non-industrial corporations.
401(K) Plan: A plan whereby an employee may contribute pretax earnings to a qualified tax-deferred retirement plan--also called "cash or deferred arrangement" (CODA) or "salary reduction plan." Withdrawals for other than death, disability, termination of employment, or qualifying hardship prior to the age of 59 1/2 may be subject to a 10% penalty tax.

Fourth Market: Direct trading of large blocks of securities between institutional investors to avoid brokerage commissions. Quotes can be obtained through a service called Instinet, an acronym for Institutional Networks Corporation.

Fractional Share: Less than one full share of stock. An investor may have a fractional share as the result of a dividend reinvestment program. If the amount of the dividend is not sufficient to purchase a full share of stock, the investor will be credited with a fractional share until enough dividends are received to purchase a full share. For instance, if XYZ stock issues a $1.00 dividend and the stock is trading at $10.00, a customer with dividend reinvestment will be credited a fractional share of 1/10.

Fraudulent Conveyance: A transfer of an asset that violates the fraudulent conveyance statutes of the affected jurisdictions.

FRB (Federal Reserve Board): Acronym for the Federal Reserve Board, the governing body of the Federal Reserve System. The Federal Reserve Board is comprised of seven members appointed by the President and subject to confirmation by the Senate. In order to ensure members' independence from political influence, each member serves a 14-year term. The FRB is responsible for setting monetary policy for the U.S. and has the authority to determine bank reserve requirements, set the discount rate, regulate the availability of credit, and control the purchase of securities on margin.

Freeriding: 1) A situation that occurs when a member of an underwriting syndicate withholds a portion of a public offering of a new securities issue with the intent to sell it at a price higher than the initial offering price. This is a violation of securities regulations because the underwriter is not making a legitimate offering to the public. 2) A situation that occurs when a customer purchases a security, then sells the same security and uses the proceeds to pay for the purchase. This practice is prohibited by Federal Regulation T which requires that customers pay for securities within prespecified time frames. Firms are required to freeze or restrict customer accounts that engage in this practice for 90 days.

Front-End Load: A sales charge in connection with the purchase of an investment, which is applied at the time of purchase. Generally this term is associated with mutual funds, but may also apply to life insurance policies and limited partnerships.

Front Office: Term used to identify brokerage industry personnel who deal directly with the public, such as sales and trading personnel.

Front Running: A situation that occurs when a securities or commodities trader takes a position in a security in order to take advantage of a large upcoming transaction of which he is aware.
Frozen Account: A brokerage account in which the customer may only purchase securities up to the amount of cash in the account and only sell securities if the certificates are held in the account. Generally, an account is frozen for freeriding, which is a violation of Federal Regulation T. Frozen accounts may also be called restricted accounts.

Full Disclosure: Term which refers to the requirements established by the Securities and Exchange Commission regarding public divulgence of material facts by corporations.

Full Faith and Credit: Term used to describe a security for which a government entity pledges its full taxing and borrowing power, plus revenue other than taxes to support the payment of interest and repayment of principal. For instance, Treasury securities are backed by the full faith and credit of the U.S. government.

Full Service Broker: A broker that provides a variety of brokerage and financial services to clients, including offering advice on investment decisions. Generally full service brokers charge higher commissions than discount brokers who execute trades but do not give any investment advice.

Fully Valued: Price at which a corporation's fundamental earnings power is fully reflected in the security's market price. If the stock goes up from that price, it is considered to be overvalued. If the stock goes down, it is undervalued.

Fundamental Analysis: Research and examination of a corporation's financial statements and balance sheets to predict the future price movements of their securities. Among other indicators, fundamental analysts study past records of assets, earnings, sales, products, management and markets to predict future trends. By assessing a firm's prospects, fundamentalists can evaluate whether a security is overvalued or undervalued. In contrast to fundamental analysis, technical analysis does not consider a corporation's financial data. Technical analysts rely on price and volume movements of stocks.

Fundamentalist: A person who thinks that a corporation's security prices are determined by its future earnings and dividend abilities. Besides studying a corporation's financial data, they will also examine its industry and how the economy will affect the company's core business.

Futures Contract: A contract to buy or sell a prespecified amount of a commodity or financial instrument at a particular price on an agreed upon date in the future. Futures differ from options in that the holder of an option has a choice whether or not to exercise the option, but the parties involved in a futures contract are obligated to complete the transaction.

Futures Market: A commodity exchange where futures contracts are traded.

I welcome your comments, questions and suggestions.