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.
term for the valuation of securities used to calculate a broker/dealer's
net capital. The haircut will change depending on the class
of a security, its market risk, and the time to maturity.
The haircut may fluctuate from 0% to 30% (common for equity
securities) to 100% for fail positions (securities with past
due delivery) that have prospect of settlement.
Half Life: Point
in time when the principal on a mortgage backed security (issued
or guaranteed by the Government National Mortgage Association,
the Federal National Mortgage Association, or the Federal
Home Loan Mortgage Association) has been repaid. It is presumed
that the security has a half life of 12 years. However, depending
on interest rate trends, specific mortgage pools can have
longer or shorter half lives. If interest rates rise, homeowners
will hold onto their mortgages longer than predicted, and
half lives will rise. If interest rates fall, more homeowners
will refinance their mortgages. Thus, principal will be paid
off more quickly, and half lives will drop.
A common or preferred stock that has a $50 par value. The
usual standard is a $100 par value.
Hammering The Market:
Intense selling by investors who believe stock prices are
inflated. Also, speculators anticipating a market drop will
sell short, and are said to be hammering the market.
Customers' payments for services rendered by a brokerage firm.
For example, a customer's payment to a broker for a financial
plan produced for them. Conversely, with soft dollars, a broker
is compensated by commissions received if he places any of
the trades specified in that financial plan.
Head And Shoulders Pattern: A technical trading pattern used
to chart stock price trends. It resembles the head and shoulders
outline of a person. In a head and shoulders top formation,
the stock reaches one plateau (the left shoulder), then goes
higher (the top of the head), and then drops back to the plateau
again (the right shoulder). The head and shoulders top pattern
signifies the reversal of an upward trend--prices should be
falling. A head and shoulders bottom pattern signifies the
reversal of a downward trend--prices should be rising.
A market that has falling prices due to a larger supply of
offers to sell than bids to buy.
A disclaimer used in market letters, research reports, or
other printed materials relating to the evaluation of investments.
Its intent is to exonerate the writer from responsibility
for the information's accuracy.
Hedge Fund: "Hedge
fund" is a general, non-legal term that was originally
used to describe a type of private, unregistered investment
pool that employed sophisticated hedging and arbitrage techniques
to trade in the corporate equity markets. Hedge funds generally
rely on Sections 3(c)(1) and 3(c)(7) of the Investment Company
Act of 1940 to avoid registration and regulation as investment
companies as well as Section 4(2) and Rule 506 of Regulation
D of the Securities Act of 1933 to avoid having to register
with the SEC. To qualify, they represent that they only accept
financially sophisticated investors and do not publicly offer
It is the fact that they are private, and exempt from registration,
that makes them attractive to con artists. In many cases,
the principals fraudulently represent themselves to be dealing
exclusively with sophisticated investors and publicly advertise
as well – even legitimate hedge funds are subject to
the antifraud provisions of the federal securities laws. See
the David Mobley (Maricopa) case under Case Studies for a
classic example of a con artists “Hedge Fund”
use of almost opposite direction securities, instruments,
or futures contracts as a method of attempting to reduce market
risk. A perfect hedge is one that eliminates the prospects
of any future gains or losses. Investors frequently try to
hedge against inflation by purchasing assets (e.g., gold)
that will rise in value faster than inflation.
Capricious idea that stock prices move in the same direction
as women's dress hemlines. Short dresses and skirts are considered
bullish signs that stock prices will rise. Longer dresses
and skirts are considered bearish signs that stock prices
will decline. Notwithstanding that it is occasionally correct,
the hemline theory has endured more as wishful thinking than
serious market analysis.
Very speculative and high priced stock that moves up and down
sharply over a short time span.
High Grade Bond:
Bond rated "AAA" or "AA" by Moody's or
Standard & Poor's rating services.
High Net Worth (HNW) Person: An individual with more than
$1,000,000 in liquid assets to manage.
High Premium Convertible Debenture: A long term bond that
has a high premium common stock conversion feature and offers
a competitive interest rate. Premium refers to the difference
between the convertible bond's market value and the value
at which it is convertible into common stock. The "Kicker"
(convertibility to stock) is designed as an inflation hedge.
Highs: In daily
trading, stocks that have reached new high prices for the
current 52 week time period. To identify stock market trends,
technical analysts observe the ratio between new highs and
Companies whose business is in high technology fields such
as biotechnology, computers and robotics. High-tech companies
that are successful may have above average earnings growth
and volatile stock prices.
High Yield Bond:
Bond that has ratings of BB or lower and pays higher yields
to offset its greater risk.
Historical Trading Range:
Price range that a security has traded since going public.
Technical analysts perceive the top of a historical range
as the resistance level and the bottom as the support level.
It is deemed as significant if a security breaks above the
resistance level or below the support level. Analysts usually
interpret this to mean that the security will reach new highs
or lows and thus, its historical trading range expands.
Yield provided by a mutual fund, typically a money market
fund, over a specific time period.
Hit the Bid:
Seller's acceptance of the highest price offered for a stock.
For example, if a stock's ask price is $24 1/4 and the current
bid price is $24, sellers will hit the bid if they accept
$24 a share.
HNW (High Net Worth)
Person: An individual with more than $1,000,000 in
liquid assets to manage.
owner of a security.
Holder of Record:
Owner of a company's securities that is recorded on the books
of the issuing company or its transfer agent as of a specific
date--called the "record date." For example, dividend
and stock splits always specify whether they are payable to
holders as of the record date.
Length of time an asset is held by its owner. It determines
whether a gain or loss is considered short term or long term.
Home Run: Large
gains obtained by an investor in a short time period. For
example, an investor who aims to hit a home run may look for
possible takeover candidates as most takeover bids result
in sudden price rises. Such investing strategies are intrinsically
more risky than the strategy of holding for the long term.
State or federal bankruptcy laws that protect one's residence
from confiscation by a judgment creditor or loss in a personal
Horizontal Price Movement:
A security's price movement within a narrow range over extended
time periods--also called "sideways price movement."
Options strategy--also known as a "calendar spread"--that
includes buying and selling the same number of options contracts
with the same exercise price, but with maturity dates that
are different. The investor hopes to profit by price moves
in the underlying security.
Hot Issue: A
new security issue that trades at an immediate premium above
its fixed public offering price. In other words, the secondary
market price on the initial sale date is above the new issue's
offering price. It is caused by great public demand for more
shares than are available.
Hot Money: Investment
funds seeking high yields that are short term. Borrowers enticing
hot money should be ready to lose it when another borrower
offers a higher rate.
Hot Stock: 1)
Newly issued stock that rapidly rises in price. 2) Stock that
has been stolen.
House: 1) Firm
or individual, as a broker-dealer, engaged in the securities
business and/or investment banking and related services. 2)
Nickname for the London Stock Exchange.
Account that is managed by a brokerage firm's main office
or by an executive of the firm and not one that is normally
handled by a salesperson in the territory. Normally, salespeople
do not receive commissions from house accounts, even though
the accounts may be in their region.
Brokerage firm notification that a client's margin account
equity is below the firm's maintenance level. Once the equity
declines below that point, the client must deposit additional
funds or securities. If the client fails to deliver the required
margin, securities in the account will be liquidated to cover
the call. Normally, house call limits are higher than the
limits set by the National Association of Securities Dealers
(NASD) and the exchanges with jurisdiction over these rules.
House Maintenance Requirement:
Brokerage house rules that are internally set in
regard to a client's margin account. The required equity level
should be maintained by client. Normally, house call requirements
are higher than those set by the National Association of Securities
Dealers (NASD) and the exchanges with jurisdiction over these
Securities industry term for an individual brokerage firm's
internal rules, policies and procedures regarding the opening
and management of clients' accounts and the clients' activities
in such accounts.
Hulbert Rating: Ratings of different investment advisory newsletters
that are published by "Hulbert Financial Digest."
The "Digest" ranks the performance of the newsletters
by totaling the profits and losses that would have been incurred
if one followed the individual newsletter's recommendations.
Hung Up: Term
describes the position of an investor whose security's value
has declined below the purchase price.
Annuity offered by an insurance company that permits investors
to combine the benefits of both fixed and variable annuities--also
called "combination annuity." The amount placed
in the fixed portion will provide a specified rate of return
while the variable portion offers a chance for higher returns
(and risks) through the investment in securities.
HYIP (High Yield Investment
Pledging of securities to a brokerage firm as collateral for
margin loans made to purchase securities or to cover short
questions and suggestions.