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.

UGMA (Uniform Gift To Minors Act): Law adopted by most US states, with few changes, that sets up rules for the distribution and administration of assets in the name of a child. The Act requires a custodian of the assets--usually one parent but may be an independent trustee. (It can only be one person.) It is used in the securities industry as a qualifier to indicate accounts and securities purchased or sold under the provisions of the Act. A gift to a minor is irrevocable. When a minor reaches majority, UGMA accounts become the child's property.

UIT (Unit Investment Trust): A trust, registered with the SEC under the Investment Company Act of 1940, in which a fixed portfolio of income-producing securities are purchased and held to maturity. This type of investment vehicle is commonly used with municipal bonds. Each unit usually costs $1,000 and is sold by brokers to investors for an average load of 4% which is included in the per share price. Investors receive an undivided interest of the portfolio's principal and income proportionate to the amount they invested. All unit investment trusts are redeemable securities and can be resold in the secondary market.

Ultra Vires Activities: Corporate activities that are not sanctioned by its charter and thus may lead to shareholder or third-party law suits.

Unamortized Bond Discount: Difference between a bond's face value and the proceeds received from the bond's sale, less the amount written off to expense as reported on the profit and loss statement--that is, amortized. The amount still to be expensed at any point is the unamortized bond discount. At the time of the bond's issuance, the corporation has two choices. It can immediately include the discounted amount plus costs associated with the bond's issuance--such as legal and registration costs. Or, the corporation may treat the total discount and expenses as a deferred charge. It will be reported as an asset and will be written off over the bond's life or by any other schedule the corporation finds expedient.

Unauthorized Transactions: Trades a broker makes in an account without permission or authorization. Note that if the value of a margin account falls below the firm's requirements, the broker may be able to sell securities, even without notice, to collect the money borrowed.

Uncollected Funds: Bank deposit consisting of checks that have not yet been affirmed by the bank on which a check was drawn.

Uncovered Call Option: An uncovered call writer must deposit and maintain sufficient margin with his broker to assure that the stock can be purchased for delivery if and when he is assigned. The potential loss of uncovered call writing is unlimited. However, writing uncovered calls can be profitable during periods of declining or generally stable stock prices, but investors considering this strategy should recognize the significant risks involved.

Uncovered Option: Industry lingo for call or put options that are written and not covered or have another position that will limit their liability.

Uncovered Put Option: A put writer is considered to be uncovered if he does not have a corresponding short stock position or has not deposited cash equal to the exercise value of the put. Like uncovered call writing, uncovered put writing has limited rewards (the premium received) and potentially substantial risk (if prices fall and you are assigned) If the stock price declines below the strike price of the put and the put is exercised; you will be obligated to buy the stock at the strike price. Your cost will, of course, be offset at least partially by the premium you received for writing the option.

Underbanked: Term used when the initiating investment banker has trouble recruiting other firms to become underwriting group members for a new issue underwriting.
Underbooked: Period when brokers report proposed buyers limited indications of interest for a new issue of securities. It occurs during the preoffering registration period. The term "fully circled" is the opposite of underbooked.

Undercapitalization: Condition, caused by lack of capital, whereby a business cannot conduct its normal business.

Underlying Debt: Municipal bond lingo pertaining to debt of a government entity that exists within the jurisdiction of a larger government entity. The larger entity has partial responsibility for the debt. A city, for instance, is within the jurisdiction of its state. The state may share responsibility for the city's debt. From the state's standpoint, the debt of the city is underlying debt. The term underlying debt should not be confused with overlapping debt, which is underlying debt whereby the debt exists within equally ranked entities.

Underlying Security: In options, the security that needs to be delivered when call options or put options are exercised. When stock index options and stock index futures are exercised they are settled in cash because it is impossible to deliver stock indexes. In securities, common stock that other securities issued by the same corporation are based upon. This stock has to be delivered when convertible bonds or preferred stocks are converted into common shares, incentive stock options are exercised and when warrants or rights are exercised.

Undermargined Account: A brokerage customer's margin account that has dropped below margin requirements or minimum maintenance requirements. The customer will receive a margin call from the broker. The call will be for at least the amount that will bring the account up to minimum maintenance requirements.

Undervalued: A security that is selling beneath its liquidation value or when analysts believe its price is below what it merits. Amongst other reasons, a stock may be undervalued because the corporation has an inconsistent earnings' history or because the corporation is not well known. Fundamental analysts try to identify undervalued corporate stocks to invest in before they become fully valued. Undervalued companies are often takeover targets because acquiring companies can buy the assets inexpensively.

Underwrite: A process whereby investment bankers (underwriters) buy a new issue of securities from the issuing corporation or government entity and resell them to the public. The underwriter makes a profit from the underwriting spread--the difference between the price paid to the issuer and the public offering price. Underwriters usually form an underwriting group--also called "purchase group" or a "syndicate" to limit risk, assure successful distribution of the issue, and to obtain capital to buy the issue. The syndicate works under an underwriting agreement--referred to as a syndicate contract or a purchase group contract.
The lead underwriter, also known as "managing underwriter", "syndicate manager", is usually the originating investment banker--the firm that worked with the issuer to plan the issue and prepare the registration materials to be filed with the SEC. The manager, as agent for the group, signs the underwriting agreement with the issuer. The agreement sets forth the conditions of the arrangement and the responsibilities of both parties. The manager may select a selling group, consisting of the underwriters and dealers, to aid in distribution of the issue.

Customarily, "underwrite" is properly used only in a firm commitment underwriting where the securities are purchased outright from the issuer. Other investment banking arrangements to which the term is applied are Best Effort, All Or None, and Standby Commitments; in each of these, the risks are shared between the issuer and the investment banker.

There are two basic methods by which underwriters are chosen by issuers and underwriting spreads are determined: Negotiated Underwriting and Competitive Bid underwriting. Generally, the negotiated method is used in corporate equity issues and corporate debt issues. The competitive bidding method is used by municipalities and public utilities.

Underwriter: In regard to securities, investment bankers who handle the offering of a new issue of securities. They buy all the securities from the issuer and distribute them to investors. They make a profit on the underwriting spread. The investment banker may be acting alone or as a member of an underwriting group or syndicate. As the word relates to insurance, a company that takes on the cost risk of death, fire, theft, illness, etc., in exchange for payments, called premiums.

Underwriting Agreement: An agreement established between the managing underwriter, as agent for the underwriting group, and the corporation issuing new securities--also termed the "purchase agreement" or "purchase contract". It sets the conditions of the arrangement and the responsibilities of both parties. Details include: the underwriter's promise to purchase the issue; the issue's public offering price; the underwriting spread; the settlement date and; the issuer's net proceeds.

Underwriting Group: Group of investment bankers formed by the originating investment banker in a new issue of securities. The group operates under an agreement among underwriters. It agrees to purchase securities from the issuing corporation at the agreed upon price and to resell them at the stated public offering price--the difference being the underwriting spread. The purpose of the underwriting group is to limit risk and assure successful distribution of the issue. Most underwriting groups operate under a "divided syndicate" contract, meaning that a member's liability is limited to their participation.

Underwriting Spread: Difference between the amount paid to an issuer in a primary distribution and the public offering price. The spread amount varies and is contingent on the issue's size, the issuer's financial strength, the type of security (stock, bonds, etc.), the status of the security (senior, junior, etc.), and the type of commitment made by the underwriters. The spread may range from a fraction of 1% for a bond issue to 25% for an initial public offering of a small company. The spread is divided between the managing underwriter, the selling group, and the participating underwriters.

Undigested Securities: Newly issued securities that remain unsold because there is not enough public demand at the issue's offering price.

Undivided Account: A form of a new issue syndicate, also known as an Eastern Account, where a member is liable for any unsold securities equal to the percentage of its participation. This is regardless of the amount the member has sold (even if the amount sold is greater than their percentage of participation).

Unencumbered: Property free and clear of all creditors' claims. Securities, for example, bought with cash instead of on margin are unencumbered.

Unfunded Pension Liabilities: A retirement fund in which money is owed to it by an employer.

Uniform Gift To Minors Act (UGMA): Law adopted by most US states, with few changes, that sets up rules for the distribution and administration of assets in the name of a child. The Act requires a custodian of the assets--usually one parent but may be an independent trustee. (It can only be one person.) It is used in the securities industry as a qualifier to indicate accounts and securities purchased or sold under the provisions of the Act. A gift to a minor is irrevocable. When a minor reaches majority, UGMA accounts become the child's property.

Uniform Partnership Act (UPA): One of the uniform type of laws adopted by some states or used as a baseline for other states.

Uniform Practice Code (UPC): Rules and procedures established by the National Association of Securities Dealers (NASD) to regulate operational details of executing, clearing, and settling over the counter transactions in non-exempt securities. Also, within the 13 districts of the NASD, the Uniform Practice Committees settle disputes at the local level and interpret the Uniform Practice Code.

Uniform Securities Agent State Law Examination: Test that is taken by all registered representative candidates in many US states--also known as "Blue Sky Examination". Before taking this exam, all registered representatives must pass the General Securities Representative Examination (Series 7).

Unissued Stock: Shares of stock that are authorized in the corporate charter but not yet issued. Unissued shares are issued on the direction of the corporation's board of directors. However, shares needed for rights, warrants, convertible securities and unexercised employee stock options must be reserved and cannot be issued. Unissued shares cannot pay dividends nor can it be voted. These shares are not the same as treasury stocks, which are issued shares but no longer outstanding.

Unit: 1) Number of shares, bonds, or commodities that is considered the normal unit of trading on an exchange. 2) More than one class of securities traded together as one security. A corporation, for example, might issue a security that consists of one common share and one warrant that sells as a unit.

Unit Investment Trust (UIT): A trust, registered with the SEC under the Investment Company Act of 1940, in which a fixed portfolio of income-producing securities are purchased and held to maturity. This type of investment vehicle is commonly used with municipal bonds. Each unit usually costs $1,000 and is sold by brokers to investors for an average load of 4%. Investors receive an undivided interest of the portfolio's principal and income proportionate to the amount they invested. All unit investment trusts are redeemable securities and can be resold in the secondary market.

Unit of Trading: Number of shares, bonds, or commodities that is considered the normal unit of trading on an exchange. For stocks, it is usually a round lot (100 shares). For corporate bonds, it is usually $1,000 or $5,0000 par value. Commodities do not have a set unit--it varies depending upon the actual commodity.

Unit Share Investment Trust (USIT): A unit investment trust that includes one unit of prime and one unit of score.

Universal Life Insurance: Type of life insurance that combines the low cost coverage of term life insurance with a tax-deferred savings account that invests in money-markets. Without incurring additional sales charges, this type of policy allows the holder to increase or decrease coverage or to shift a specific amount of premiums into the savings account.

Unleveraged Program: Limited partnership who borrows 50% or less of the purchase price to finance the purchase of property. Investors who wish to maximize income usually prefer unleveraged partnerships because interest expense and other income deductions are minimal.

Unlimited Tax Bond: Municipal bond backed by the pledge to levy taxes until the bond is repaid.

Unlisted Stock: A security not listed on a stock exchange and is traded in the over the counter market.

Unlisted Trading: Trading securities on a particular exchange as a service to its members even though the security is not listed on that exchange. Exchanges that want to trade unlisted securities must file an application with the SEC and make required information accessible to investors. The NYSE does not permit unlisted trading.

Unloading: Selling a security when its price is falling to prevent further losses.

Unpaid Dividend: Dividend declared by a corporation's board of directors that has not been paid yet. It will remain unpaid until the dividend's payment date is reached.

Unrealized Profit (Or Loss): Profit or loss that is not realized--also known as a "paper profit or loss". It does not become a realized profit or loss until the security in which there is a gain or loss is actually sold.

Unsecured Debt: Debt that is not backed by pledged collateral.

UPC (Uniform Practice Code): Rules and procedures established by the National Association of Securities Dealers (NASD) to regulate operational details of executing, clearing, and settling over the counter transactions in non-exempt securities. Also, within the 13 districts of the NASD, the Uniform Practice Committees settle disputes at the local level and interpret the Uniform Practice Code.

Upset Price: Minimum price in an auction that a seller will accept bids.

Upside Potential: The amount that an analyst or an investor expects a security to move upward. This assessment may be derived from either technical analysis or fundamental analysis.

Upstairs Market: Brokerage transactions executed at the broker-dealer firm without using an exchange. SEC and exchange rules exist to ensure that these types of trades are not executed at less favorable prices then the customer could receive in the prevailing general market.

Uptick: Security transaction executed at a price higher than the preceding transaction in the same security--also called a "plus tick". For each security in which its last price is higher than the preceding transaction, a plus sign is displayed next to its price at the trading post on the floor of the NYSE. Short sales can only be executed on up-ticks or zero plus ticks.

Uptick Rule: Rule established by the Securities and Exchange Commission (SEC) that selling short can only be done on an up-tick or a zero plus tick.

Up-Trend: An upward movement of a specific security or the market as a whole.

US Government Securities: Government obligations owed and issued by the US government. They are as distinguished from government sponsored agency issues. Examples are Treasury bills, notes, and bonds and savings bonds.

USIT (Unit Share Investment Trust): A unit investment trust that includes one unit of prime and one unit of score.

Utility Revenue Bond: Municipal bonds that are issued to finance construction of public utility services such as water and sewer systems. Once the projects are in operation, its revenues are used to repay the bonds.

UW (Underwriter): In regard to securities, investment bankers who handle the offering of a new issue of securities. They buy all the securities from the issuer and distribute them to investors. They make a profit on the underwriting spread. The investment banker may be acting alone or as a member of an underwriting group or syndicate. As the word relates to insurance, a company that takes on the cost risk of death, fire, theft, illness, etc., in exchange for payments, called premiums.

I welcome your comments, questions and suggestions.