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.
NAIC (National Association
Of Investment Clubs): Association that helps groups
of individuals to establish investment clubs. Members of investment
clubs pool their money and make group decisions on how to
invest those assets. The NAIC can be contacted by calling
(313) 543-0612 or by writing 1515 E. Eleven Mile Rd. Royal
Oak, Michigan 48067.
NAIS (National Association
of Investigative Specialists):
Naked Option:
Industry lingo for call or put options that are written and
not covered or have another position that will limit their
liability. In the case of call options, writers are naked
if they do not own either the underlying security, a security
convertible into the underlying security, or a long call at
a strike price equal to or lower than the strike price that
was written and that does not expire before the written call.
In the case of put options, writers are naked if they do not
either have a short position in the underlying security, a
bank guarantee letter, or do not own a long put with a strike
price equal to or higher than the strike price of the put
that was written and that does not expire before the put that
was written.
Naked Position:
A securities position that is not protected from market risk
in any manner. For instance, the position of person who writes
a call option without owning a long position in the underlying
security, or writing a put option without having a short position
in the underlying security.
Narrowing the Spread:
Closing the difference between a security's bid (highest price
anyone is willing to buy) and asked (lowest price anyone is
willing to sell) prices. When a stock's bid price, for example,
is $8 a share and the asked price is $8 5/8, the spread is
5/8 of a point. If a broker enters a bid to buy at $8 3/8,
the bid and ask are now $8 3/8 to $8 5/8, thus the spread
has been narrowed to 1/4 of a point.
Narrow Market:
Said of a securities market that is characterized by light
trading, and larger price fluctuations relative to volume
than would be the case if trading is active. A stock is said
to be in a narrow market when its price drops more than a
point between round lot trades without any obvious reason;
this infers a lack in investor interest and too few orders.
NASAA (North American
Securities Administrators Association, Inc.): An
association of securities commissioners from each of the 50
states, the District of Columbia, Puerto Rico, and several
of the Canadian provinces. This organization is an invaluable
resource to investigators.
NASD (National Association
Of Securities Dealers): A nonprofit membership organization
registered with the Securities and Exchange Commission (SEC)
under the provisions of the Securities Exchange Act of 1934.
Membership is limited and consists mostly of broker-dealers
and investment banking houses. Basic goals of the NASD are
to:
- Promote just and equitable
principles of trade for the protection of investors;
- Adopt, oversee, and enforce
rules of fair practice;
- Consult with government and
investors on matters of common concern;
- Conduct periodic examinations
and audits to ensure solvency and financial integrity among
members.
Under federal law, every securities
firm doing business with the US public is a member of NASD.
Roughly 5,500 brokerage firms, nearly 90,000 branch offices
and more than 650,000 registered securities representatives
come under its jurisdiction.
NASDAQ (National Association
Of Securities Dealers Automatic Quotations): A computerized
information network that provides brokers and dealers with
price quotations on securities traded over-the-counter. The
system has three levels. Level I displays a security's highest
bid and lowest offer in the system. Level II displays market
maker's quotes for securities in which they make a market.
Level III allows market makers to actually enter their quotes
into the system. NASDAQ is owned and operated by the NASD.
NASDAQ quotes are published in the financial pages of most
newspapers.
NASD Information Request
Form (NIRF): Allows members of the public to obtain
certain types of disciplinary and registration information
regarding member firms and associated persons.
National Association of Investment Clubs (NAIC):
Association that helps groups of individuals to establish
investment clubs. Members of investment clubs pool their money
and make group decisions on how to invest those assets. The
NAIC can be contacted by calling (313) 543-0612 or by writing
1515 E. Eleven Mile Rd. Royal Oak, Michigan 48067.
National Association Of Securities Dealers (NASD): A nonprofit
membership organization registered with the Securities and
Exchange Commission (SEC) under the provisions of the Securities
Exchange Act of 1934. Membership is limited and consists mostly
of broker-dealers and investment banking houses. Basic goals
of the NASD are to:
- Promote just and equitable
principles of trade for the protection of investors;
- Adopt, oversee, and enforce
rules of fair practice;
- Consult with government and
investors on matters of common concern;
- Conduct periodic examinations
and audits to ensure solvency and financial integrity among
members.
Under federal law, every securities
firm doing business with the US public is a member of NASD.
Roughly 5,500 brokerage firms, nearly 90,000 branch offices
and more than 650,000 registered securities representatives
come under its jurisdiction.
National Market System
(NMS): An informational system that is part of the
NASDAQ system. NMS displays actual transactions, last trade
and volume data.
National Quotation Bureau
Inc. (NQB): Daily service that provides its subscribers
bid and asked quotes from market makers in securities traded
over-the-counter. Stock quotes are published in Pink Sheets
and corporate bonds in Yellow Sheets.
NAV (Net Asset Value):
An open-ended mutual fund's per share market value. In mutual
funds, the net asset value is synonymous with "bid price"
and "redemption price". In no load funds, the NAV
is also the asked price. They are all one figure. In load
funds, the asked price is quoted after the sales charge is
added to the net asset value. Most funds compute the NAV after
the close of the exchanges each day. It is calculated by taking
the closing market value of all securities within the fund
plus all other assets (i.e., cash), subtracting all liabilities,
then dividing the result (total net assets) by the total number
of outstanding shares. The total number of outstanding shares
usually varies daily because of redemptions and purchases.
ND (Nothing Done):
In a day order, upon expiring at the end of the day, the status
given to the order if it has not been executed.
Nearest Month:
In options trading or commodity futures, the expiration month
that is closest to the current month. For an option that has
expiration dates available in September, December, March,
and June, for example, the nearest month would be December
if a trade was made in November. Nearest month contracts are
more heavily traded then "furthest month" contracts.
Negative Cash Flow:
Within an accounting period, a condition in which a business
spends more cash than it receives through earnings.
Negative Yield Curve:
On securities that are of similar quality, a condition in
which yields on short term securities are higher than the
yields on long term securities. Typically, short term interest
rates are lower than long term rates--those who invest their
money for longer periods are taking more risk.
Negotiable:
A security that can be sold--that is, the ownership is transferable
by delivery of a security.
Nest Egg: Assets
reserved for a person's retirement. A nest egg is accumulated
to assure the retiree with a secure standard of living for
the rest of their life. IRAs are considered part of a nest
egg.
Net: The gain or loss from the sale of a security--that is,
the difference between the cost to purchase and the sale proceeds.
Net Assets:
The difference between a company's total assets and liabilities.
Net Asset Value (NAV):
An open-ended mutual fund's per share market value. In mutual
funds, the net asset value is synonymous with "bid price"
and "redemption price". In no load funds, the NAV
is also the asked price. They are all one figure. In load
funds, the asked price is quoted after the sales charge is
added to the net asset value. Most funds compute the NAV after
the close of the exchanges each day. It is calculated by taking
the closing market value of all securities within the fund
plus all other assets (i.e., cash), subtracting all liabilities,
then dividing the result (total net assets) by the total number
of outstanding shares. The total number of outstanding shares
usually varies daily because of redemptions and purchases.
Net Capital Rule: The
Security and Exchange Commission requires that all broker/dealers
maintain no more than a 15 to 1 ratio between indebtedness
and liquid assets. Indebtedness includes money owed to the
firm, margin loans, and commitments to purchase securities.
Liquid assets include cash, and assets that are easily converted
to cash.
Net Change:
Difference between a security's last trading price from the
previous day to the next day. However, in the over-the-counter
market, the net change in a security is usually the difference
between bid prices from the previous day to the next day.
For example, XYZ's last trade yesterday was at $34. Today's
last trade was at $34 1/2. The net change is +1/2--that is,
XYZ's final price on that day was 50 cents higher than the
final price on the previous trading day.
Net Investment Income
Per Share: In a particular accounting period, the
amount of income received by an investment company from dividends
and interest (minus any management fees and administrative
expenses) divided by the number of outstanding shares. Short
term trading profits are treated as dividend income. Net investment
income is paid shareholders as a dividend.
Net Realized Capital
Gains Per Share: Net amount (capital gains minus
capital losses) that an investment company realized on the
sale of securities divided by the number of outstanding shares.
An investment company will usually distribute any net gains
at least annually. These distributions are treated as long
term capital gains to shareholders, regardless of the length
of time they have held the investment company shares.
Net Worth: Dollar
amount by which assets exceed liabilities. An individual's
net worth equals the total value of all possessions (house,
stocks, bonds, etc.) minus all outstanding debts (mortgage,
credit cards, etc.). For a corporation, net worth is also
known as "net assets".
New Issue: A
security being offered to the public for the first time. New
issues may be initial public offerings by private companies
going public or additional securities of corporations already
public. The distribution of new issues are governed by Securities
and Exchange Commission rules.
New York Futures Exchange
(NYFE): A subsidiary of the New York Stock Exchange
that concentrates on the trading of financial futures contracts.
New York Stock Exchange
(NYSE): The oldest and largest stock exchange in
the United States--also known as the "Big Board"
and "The Exchange". The exchange is a not-for-profit
corporation consisting of 1,366 individual members. It is
governed by a Board of Directors that is made up of 10 public
representatives, 10 exchange members, and a full-time paid
chairman and president. The NYSE does not buy, sell, own or
set the prices of securities traded there. The NYSE has operating
divisions that are concerned with market operations, member
firm regulation and surveillance, finance and office services,
product development and planning, and customer relations.
The NYSE imposes requirements on corporations who wish to
have their securities listed on the exchange.
NH (Not Held):
A market order to buy or sell that allows a floor broker discretion
as to the time and price in executing the best possible trade.
NH means the customer will not hold the floor broker responsible
if a better execution might have been possible. This type
of order qualification is principally used for large block
orders.
Nikkei Stock Average:
Index of 225 leading stocks traded on the Tokyo Stock Exchange.
The Nikkei is similar to the Dow Jones Industrial Average.
Both are composed of representative blue chip corporations
(called "first-section" companies in Japan) and
are price-weighted indexes--the movement of each stock is
weighted equally regardless of its market capitalization.
The Nikkei Stock Average is the most widely quoted Japanese
stock index.
NIRF (NASD Information
Request Form): Allows members of the public to obtain
certain types of disciplinary and registration information
regarding member firms and associated persons.
NL (No Load):
Abbreviation used in newspaper listings of mutual funds to
indicate a no-load fund.
NMS (National Market
System): An informational system that is part of
the NASDAQ system. NMS displays actual transactions, last
trade and volume data.
Noise: Market
activity caused by program trades and other circumstances
that are not reflective of general opinion.
No Load Mutual Fund:
A mutual fund that allows shares to be purchased
without a sales charge to imposed on its investors.
Nominal Quotation:
Bid and asked prices given by a market maker as valuation
of a security, but not for trading purposes. Security rules
require that nominal quotations be specifically identified
as such.
Nominee: Person
or firm, such as a brokerage house, whose name is inscribed
on a security certificate if it is different from that of
the beneficial owner. The purpose is to expedite transfers
of title when the security is sold. The beneficial owner is
the true shareholder and he retains all rights of ownership.
Non-Callable: A
bond that cannot be redeemed before its maturity by the issuer.
Call provisions in a bond's indenture agreement specify whether
the bond is callable or non-callable. Because so many bonds
issues are callable, bond yields are often quoted to the first
date at which the bonds could be called instead of maturity.
Non-Cumulative Preferred
Stock: Preferred stock on which unpaid dividends
do not accrue. Omitted dividends, for the most part, will
never be paid. This contrasts with cumulative preferred stock
in which omitted dividends accumulate until paid to shareholders.
Non-Public Information:
In the securities industry, non-public information most often
refers to corporate information that will have a material
effect on its stock price when it is released to the public.
The information can be either negative or positive. An example
of non-public information is an earnings report about to be
released that is substantially worse than what most analysts
anticipated. It is illegal for insiders to make transactions
based on non-public information as they would have an unfair
advantage over the rest of the public.
Non-Qualified Plan:
A retirement plan or an annuity in which contributions are
made with after-tax dollars. The contributions are not tax
deductible because the plan or annuity is not an IRS approved
pension plan. However, just as with a Qualified Plan, earnings
accumulate tax deferred until withdrawn.
Non-Recurring Charge:
A one-time write-off or expense--also called "extraordinary
charge". These charges are required to be displayed in
a corporation's financial statement. An example of a non-recurring
charge would be a division that was closed down and written-off.
Non-grantor Trust: Usually
an APT created by a NRA person on behalf of the U.S. beneficiaries.
Nonvoting Stock: Corporate
securities in which shareholders of such securities have no
voting powers--that is, they may not vote on the election
of directors or on any corporate resolutions.
Normal Trading Unit (NTU):
Standard minimum size of a trading unit for a particular security--more
commonly referred to as a "round lot". Stocks typically
have a normal trading unit of 100 shares. However, inactive
stocks may have normal trading units equal to 10 shares. Any
amount of shares less than a round lot is called an "odd
lot".
North American Securities Administrators
Association, Inc. (NASAA): An association of securities
commissioners from each of the 50 states, the District of
Columbia, Puerto Rico, and several of the Canadian provinces.
This organization is an invaluable resource to investigators.
Not Held (NH): A market order
to buy or sell that allows a floor broker discretion as to
the time and price in executing the best possible trade. NH
means the customer will not hold the floor broker responsible
if a better execution might have been possible. This type
of order qualification is principally used for large block
orders.
Nothing Done (ND): In a day
order, upon expiring at the end of the day, the status given
to the order if it has not been executed.
Notice of Sale: Advertisement
used by a municipal issuer to announce its plan to sell a
new issue and to solicit investment bankers to enter bids
for the issue.
Not Rated (NR): Indication
used by various rating services to show that a security or
a company has not been rated. The abbreviation "NR"
is placed next to the security's or company's name.
Novation: 1) The substitution
of an older debt or obligation with a newer one. 2) An agreement
to substitute one party to a contract with a new party. The
new party has both the rights and obligations required by
the original party. To make the transfer effective, consent
of all parties is required.
NQB (National Quotation Bureau):
Daily service that provides its subscribers bid and asked
quotes from market makers in securities traded over-the-counter.
Stock quotes are published in Pink Sheets and corporate bonds
in Yellow Sheets.
NR (Not Rated): Abbreviation
used by various rating services to indicate that a security
or a company has not been rated.
NRA: Nonresident alien. A
person as defined under the Internal Revenue Code (IRC) as
not being a US person.
NTU (Normal Trading Unit):
Standard minimum size of a trading unit for a particular security--more
commonly referred to as a "round lot". Stocks typically
have a normal trading unit of 100 shares. However, inactive
stocks may have normal trading units equal to 10 shares. Any
amount of shares less than a round lot is called an "odd
lot".
NYFE (New York Futures Exchange):
A subsidiary of the New York Stock Exchange that concentrates
on the trading of financial futures contracts.
NYSE (New York Stock Exchange):
The oldest and largest stock exchange in the United States--also
known as the "Big Board" and "The Exchange".
The exchange is a not-for-profit corporation consisting of
1,366 individual members. It is governed by a Board of Directors
that is made up of 10 public representatives, 10 exchange
members, and a full-time paid chairman and president. The
NYSE does not buy, sell, own or set the prices of securities
traded there. The NYSE has operating divisions that are concerned
with market operations, member firm regulation and surveillance,
finance and office services, product development and planning,
and customer relations. The NYSE imposes requirements on corporations
who wish to have their securities listed on the exchange.
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