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.
Raider: Individual
or corporation who purchases a controlling interest in a company's
stock. The raider's purpose is to gain control of the target
company and to instate new management. Accumulation of more
than 5% of the target company's outstanding shares must be
reported to the SEC, the exchange in which the target is listed,
and the target itself.
Rally: A marked
rise that follows a period of decline or sideways movement
in the general level of the market or in individual securities.
Random Walk:
A stock market theory that hypothesizes that past prices are
of no use in forecasting future price movements. The theory
maintains that prices move in a random pattern and that they
are no more predictable than the walking pattern of a wandering
person. This directly contradicts technical analysts' use
of charts to forecast stock prices.
Range: A security's,
or the general market's, highest and lowest price in which
it has traded over a specified time--usually a rolling 52
week time period. In newspaper stock listings, a security's
52 week high and low price range is published. Technical analysts
watch trading ranges carefully because they believe it is
of great importance when a security breaks out of its trading
range--high or low end.
Rate Of Return:
1) In common stock, the rate of return equals its dividend
yield--calculated by dividing the annual dividend by the original
purchase price. Rate of return may also refer to the total
return, which is capital appreciation plus the dividend. 2)
In fixed-income securities such as bonds and preferred stock,
the rate of return equals the current yield, which is the
coupon or dividend rate divided by the original purchase price.
Rating: The
evaluation of credit risk of securities by an established
rating service such as Moody's Investors Services, Standard
& Poor's Corporation, Fitch Investors Service or Value
Line Investment Survey.
Realized Profit (or Loss):
Any profit or loss attributable to a security's sale or the
transfer of title representing ownership of the security.
Real Rate Of Return:
An investment's return that is adjusted for inflation.
Recession: As reflected in the gross national product, a decline
in economic activity in at least two consecutive quarters.
Reclamation:
The procedure whereby certificates, already delivered to settle
a transaction, are returned because they are in non-deliverable
form. The party who is affected by the bad delivery may recover
any losses incurred.
Record Date:
The date on which a shareholder must officially own a stock's
shares in order to receive a company's declared dividend or,
among other things, to vote on company issues.
Redemption:
The repayment of the principal (par) amount of a debt security,
or a preferred stock, at or before its maturity. Mutual fund
shares are redeemed at net asset value when a shareholder
liquidates their shares.
Redemption Price:
1) In bonds and preferred stocks, it is the call price. 2)
In mutual funds, it is the net asset value.
Red Herring Prospectus:
Industry jargon for a preliminary prospectus issued by underwriters
or issuers to gauge interest in a prospective offering. It
receives its name from the warning, printed in red, that information
in the document is incomplete or subject to change before
the issue.
Regional Stock Exchanges:
National exchanges located around the United States that are
registered with the SEC. When referring to a regional exchange,
the NYSE is not included. Regional exchanges include Boston,
Cincinnati, Midwest (Chicago), Pacific, and Philadelphia.
These exchanges list regional issues and many issues that
are also listed with the NYSE.
Register: The
register of international business companies (IBCs) and exempt
companies maintained by the Registrar of a foreign country,
usually characterized as a “tax haven.”
Registered Company: A company
that has issued securities in compliance with the registration
requirements of the Securities Exchange Act of 1934.
Registered Options Principal (ROP):
A brokerage firm employee who supervises registered representatives
regarding their client's options account activities and their
solicitation of new options clients.
Registered Representative (RR):
A brokerage firm employee who acts as an account executive
for clients. In a full brokerage house, a registered representative
solicits clients' business and provides advice on when to
buy and sell securities. For this advice, the RR may receive
a percentage of the commission that is charged to the client
for making such transactions. In a discount firm, a RR facilitates
the execution of client orders. The RR does not solicit new
customers or give investment advice.
Registered Security: 1) Stocks
or bonds or other securities for which a registration statement
has been filed with the SEC. 2) A securities certificate that
is recorded in the name of the owner on the books of the issuer.
Ownership of the security can only be transferred when the
certificate is endorsed by the registered owner.
Registrar: The Registrar
of Companies is a governmental body controlling the formation
and renewal of companies created under their company act.
In the US securities industry, it is an agency, usually a
trust company or bank, who has the responsibility of keeping
a record of the owners of a corporation's securities and the
issuance of securities.
Reg D (Regulation D): 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.
Reg T (Regulation T): Federal
Reserve Board regulation that governs the extension of credit
to clients of broker-dealers. The rules specify the amount
and type of credit that may be extended or must be maintained
when clients purchase, carry, or trade eligible securities.
It defines eligible securities and establishes initial margin
requirements. Reg T does not cover the extension or maintenance
of credit by a broker-dealer for clients who purchase or trade
in exempt securities. Regulation T of the Federal Reserve
Board is commonly abbreviated as Reg T.
Regular Way Delivery (Settlement):
As of June 1995, the completion of securities transactions,
unless otherwise specified, on the third business day following
the transaction. Prior to June 1995, the industry standard
was five business days following the transaction. To effect
settlement, the securities sold are delivered to the buyer
and payment is made to the seller. Regular way delivery for
government securities and options is the next business day
following the transaction.
Regulation D (Reg D): 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.
Regulation T (Reg T): Federal
Reserve Board regulation that governs the extension of credit
to clients of broker-dealers. The rules specify the amount
and type of credit that may be extended or must be maintained
when clients purchase, carry, or trade eligible securities.
It defines eligible securities and establishes initial margin
requirements. Reg T does not cover the extension or maintenance
of credit by a broker-dealer for clients who purchase or trade
in exempt securities. Regulation T of the Federal Reserve
Board is commonly abbreviated as Reg T.
Reinvestment Privilege: Shareholders'
right that allows them to reinvest their dividends to purchase
additional shares in a mutual fund or a corporation, typically
without any additional fees.
REIT: Real estate investment
trusts, known as REITs, are entities that invest in different
kinds of real estate or real estate related assets, including
shopping centers, office buildings, hotels, and mortgages
secured by real estate. There are basically three types of
REITS:
• Equity REITS, the most common type
of REIT, invest in or own real estate and make money for
investors from the rents they collect;
• Mortgage REITS lend money to owners and developers
or invest in financial instruments secured by mortgages
on real estate; and
• Hybrid REITS are a combination of equity and mortgage
REITS.
The Internal Revenue Code lists the conditions
a company must meet to qualify as a REIT. For example, the
company must pay 95% of its taxable income to shareholders
every year. It must also invest at least 75% of its total
assets in real estate and generate 75% or more of its gross
income from investments in or mortgages on real property.
Relative Strength: In a rising
market, the rate at which a security's price rises in relation
to other securities. In a declining market, the rate at which
a security's price drops in relation to other securities.
Analysts contend that a security that holds its value in a
down market will be a solid performer on the upside and vice
versa.
Reorganization: 1) Financial
restructuring of a corporation in bankruptcy. 2) A department
within a brokerage firm that handles client's securities that
are merging, being taken over, etc. The department is usually
just called "Reorg".
Required Rate Of Return:
Return that an investor requires before they are willing to
earmark money for an investment that has a certain risk level.
The expected return must be greater than the required return
for the investment to be acceptable.
Research Department: A department
within a brokerage firm, or other institutional investing
organization, that analyzes securities and markets using both
fundamental analysis and technical analysis. The analyst makes
trading recommendations for firm accounts, institutions and
retail clients (provided by their broker). If followed by
many investors, an analyst's recommendations can have an impact
on security prices.
Resistance Level: The upper
limit of a security's trading range in which selling pressure
tends to cause the price of a stock to decline. For example,
if ABC's stock ranges between a low of $24 and a high of $36
per share, $24 is the support level and $36 is the resistance
level. When a security breaks through the resistance level,
technical analysts believe the security will reach new high
prices.
Restricted Stock: Stock that
is not registered under the Securities Exchange Act of 1933.
Restricted stock is either purchased through a company's stock
option plan, or a private placement. The investor is required
to sign a letter agreeing that the purchase is for investment
and not short term profit. The investor is required to hold
the stock for two years before it can be sold. Sale of restricted
stock is governed by SEC Rule 144.
Retail House: A brokerage
firm that provides services to individual clients as opposed
to institutions.
Retail Investor: An investor
who buys and sells securities for their own behalf--not for
an organization. Retail investors typically trade in much
smaller quantities than institutional investors.
Retained Earnings: Net profits
that have been reinvested back to the business after dividends
are paid to stockholders--also called "earned surplus".
Retained earnings are customarily an important component of
stockholders' equity.
Retirement: In the securities
industry, the term refers to the repayment of a debt obligation
or the cancellation of securities that have been redeemed.
Return: Realized profit on
capital investments or securities stated as an annual percentage
rate.
Return On Equity (ROE): An
amount, stated as a percentage, that informs common shareholders
how effectively the funds invested are being utilized during
a specific period. Trends can be found if current and prior
periods are compared and if compared with industry composites,
it shows whether or not the company is keeping up with its
competitors. The rate is calculated by dividing net earnings
by average stockholders' equity.
Revenue Reconciliation Act of 1995:
Proposed changes to the Internal Revenue Code affecting foreign
trust reporting, among other changes.
Reversal: As charted by technical
analysts, a sustained change in direction of stock or commodity
markets. This may either be a change from a rising market
to a declining market or vice versa.
Reverse Split: Procedure
whereby a corporation reduces the number of outstanding shares.
The total market value of the shares remains the same after
the reverse split, however, a share is worth more. A company,
for example, executes a 1 for 2 split. An investor owning
1000 shares will deliver them to the issuer and they will
receive half as many new shares--but the shares will have
double the value of the original shares. Thus, the investor
now has 500 shares with a value of $8, instead of 1000 at
$4--that is, the investor shares are worth the same amount
as before the split. Reverse splits may be used by corporations
whose shares are selling at very low market prices. They believe
that if the security's price is raised, it will attract more
investors.
Revocable Trust: A trust
in which any of its provisions can be changed, or the trust
itself can be canceled at any time by the grantor. The grantor
receives income from the assets. This contrasts with an irrevocable
trust in which the trust cannot be amended or canceled and
the assets are not subject to estate taxes.
Right: A certificate that
evidences a shareholder's privilege to buy additional shares
of new securities in proportion to the number of shares already
owned. A company, when raising more funds by issuing new securities,
may issue rights to its shareholders to give them the chance
to buy additional shares before the general public. Because
rights usually allow the stockholder to buy below the current
market price, they ordinarily have a value of their own and
are actively traded. Most rights are valid for a relatively
short period. Failure to exercise or sell rights may result
in monetary loss.
Rising Bottoms: A chart pattern
that shows a rising trend in the low prices of a security.
This signifies that the security's support levels are increasing.
If rising bottoms are combined with ascending tops, a technical
analyst would call the pattern bullish.
Risk: A measurable possibility
of losing capital (or not gaining value). The chance that
invested capital will drop in value can be caused by many
factors including, inflation, interest rates, default, politics,
liquidity, call provisions, etc.
Risk Averse: Said of an investor
who, given the same return and different risk alternatives,
will choose the security with the least amount of risk.
Risk/Reward Ratio: The greater
the investment risk--the greater the expected return. The
ratio places an investor's desire for capital preservation
at one end of the scale and a desire to maximize returns at
the other end.
Road Show: A series of meetings
with potential investors in key cities, designed and performed
by a company and its investment banker as the company prepares
to go public.
ROE (Return On Equity): An
amount, stated as a percentage, that informs common shareholders
how effectively the funds invested are being utilized during
a specific period. Trends can be found if current and prior
periods are compared and if compared with industry composites,
it shows whether or not the company is keeping up with its
competitors. The rate is calculated by dividing net earnings
by average stockholders' equity.
Roll Down: A process whereby
one option position is closed and a new one with a lower exercise
price is established.
Roll Forward: A process whereby
one option position is closed and a new one with a later expiration
date is established. If the new position also involves a lower
exercise price, it is called a "roll-down and forward".
If it involves a higher exercised price, it is called a "roll-up
and forward."
Roll Up: A process whereby one option position is closed and
a new one with a higher exercise price is established.
ROP (Registered Options Principal):
A brokerage firm employee who supervises registered representatives
regarding their client's options account activities and their
solicitation of new options clients.
Round Lot: A standard unit
of trading, or a multiple thereof, on a securities exchange.
Generally, the unit of trading is 100 shares for stock and
$1,000 or $5000 par value for bonds. In some inactive stocks,
the unit of trading is 10 shares.
RR (Registered Representative):
A brokerage firm employee who acts as an account executive
for clients. In a full brokerage house, a registered representative
solicits clients' business and provides advice on when to
buy and sell securities. For this advice, the RR may receive
a percentage of the commission that is charged to the client
for making such transactions. In a discount firm, a RR facilitates
the execution of client orders. The RR does not solicit new
customers or give investment advice.
Rule 10b-21: Securities and
Exchange Commission rule that prohibits covering a short position
in a security with stock purchased out of a new offering of
the security, if the short position was established between
the filing of the registration statement and the beginning
of the distribution of the offering.
Rule 10b-6: Securities and
Exchange Commission rule that prohibits persons engaged in
a distribution of securities from bidding for or purchasing
those or similar securities until they have completed their
participation in the distribution.
Rule 10b-6a: Securities and
Exchange Commission rule that permits broker/dealers engaged
in the distribution of a security to engage in "passive"
market making transactions in the security being distributed
without being in violation of the provisions of SEC Rule 10b-6.
Rule 13d: The Securities
and Exchange Commission rule requiring disclosures by anyone
acquiring a beneficial ownership of 5 percent or more in any
equity security registered with the SEC.
Rule 144: Rule that stipulates
the conditions in which an unregistered security may be sold
by a broker. Specific documentation must be completed by the
owner and presented to a broker before a sell order can be
placed. Moreover, a letter security may not be sold for at
least two years from the date of purchase. Thereupon, during
any three month period, the following amounts may be sold:
- If the corporation's securities are unlisted,
1% of the outstanding shares;
- If the corporation's securities are listed,
the greater of 1% of the amount outstanding or the average
trading volume within the past four weeks.
Rule 15c3-1: Securities and
Exchange Commission rule that requires broker/dealers maintain
sufficient liquid assets to satisfy its net capital requirement.
Rule 15c3-3: Securities and
Exchange Commission rule that ensures that the broker/dealer
has possession or control of customers' securities, and properly
segregates these securities from securities the firm owns.
The rule also requires that the broker/dealer deposits customers'
funds in a Special Reserve Bank Account.
Rule 17a-3: Securities and
Exchange Commission rule that specifies the books and records
related to the securities business that brokers and dealers
have to make and keep current.
Rule 17a-4: Securities and
Exchange Commission rule that specifies the time period that
broker/dealers must preserve Rule 17a-3 records and other
documents pertaining to the business.
Rule 19b-4: Securities and
Exchange Commission rule that provides procedures that self-regulatory
organizations (SRO’s) follow to propose rule changes
to the SEC.
Rules Of Fair Practice: NASD
rules that relate to a broker-dealer's conduct of business.
In short, the basic rules are to:
- Promote just and equitable principles of
trade for the protection of investors;
- Prevent fraud and manipulative practices;
- Consult with government and investors
on matters of common concern and;
- Prevent excessive commissions and charges.
Rumortrage: A traders' term
to describe the buying and selling of securities based on
the rumor of a takeover.
Running Ahead: Situation that occurs when a broker places
an order to buy or sell a security for their own account before
placing a comparable order for a client. A broker, for example,
places an order to buy XYZ when the firm's analyst makes a
positive recommendation. Afterwards, the broker informs the
client of the recommendation and places a buy order. By buying
before the client, the broker is attempting to obtain a better
price than the client's.
Runoff: The printing of closing
prices on the ticker tape after the market has already closed.
A runoff usually occurs in very heavy trading in which the
tape has fallen behind.
I welcome
your comments,
questions and suggestions.
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