Securities Licensing Terms

Below is a comprehensive, exam-focused glossary terms seen on Securities Licensing exams.

• Accredited Investor

  Individual or entity meeting income/net-worth requirements under Regulation D.

• Accumulation Unit

  Measurement used in variable annuity contract value during accumulation phase.

• Active Management

  Attempt to outperform a benchmark through research and securities selection.

• Alpha

  Performance compared to risk-adjusted expectations.

• AML (Anti-Money Laundering)

  FINRA/Bank Secrecy Act rules requiring firms to detect and report suspicious activity.

• AMT (Alternative Minimum Tax)

  Parallel tax system affecting certain private-activity bond interest.

• Annual Report

  Audited yearly financial statements filed with shareholders.

• Annuity

  Insurance product providing income payments; variable annuities are securities.

• Back-End Load

  Sales charge assessed at redemption (CDSC).

• Balance Sheet

  Financial statement showing assets, liabilities, and equity.

• Bank Secrecy Act (BSA)

  Requires reporting of large cash transactions and suspicious activity.

• Basis Point

  1/100 of 1% (0.01%).

• Bear Market

  Decline in stock prices of 20% or more.

• Beta

  Measure of systematic risk relative to the market.

• Bid Price

  Price buyer is willing to pay.

• Blue Sky Laws

  State securities regulations governing registration and sales practices.

• Bond Indenture

  Legal contract specifying terms of a bond issue.

• Call Option

  Right to buy a security at a strike price.

• Callable Bond

  Bond issuer may redeem early.

• Capital Gain

  Profit from sale of a security.

• Capital Market

  Long-term financing market (stocks, bonds).

• Carrying Broker-Dealer

  Holds customer funds and securities.

• Churning

  Excessive trading to generate commissions; prohibited.

• Class A/B/C Shares

  Mutual fund share structures with different fees.

• Clearing Corporation

  Facilitates settlement of trades.

• Closed-End Fund

  Issues a fixed number of shares; trades on exchanges.

• Cold Calling

  Telemarketing subject to strict FINRA rules.

• Confirmation

  Written statement of trade details.

• Convertible Bond

  May be exchanged for issuer's common stock.

• Dealer

  Acts as principal, trading for its own account.

• Delivery vs. Payment (DVP)

  Settlement where payment is made upon delivery of securities.

• Depreciation

  Accounting method to allocate cost of fixed assets over time.

• Disclosure Document

  Required materials explaining risks and fees.

• Discount Bond

  Bond trading below par.

• Discretionary Account

  Registered representative chooses securities and timing of trades.

• Diversification

  Reducing risk by investing across sectors.

• Dividend

  Distribution of earnings to shareholders.

• EDGAR

  SEC database for corporate filings.

• Emergency Fund

  Liquid assets covering 3 - 6 months of living expenses.

• ETF (Exchange-Traded Fund)

  Trades like stock, tracks an index.

• ETN (Exchange-Traded Note)

  Unsecured debt security tied to a benchmark.

• ERISA

  Federal pension law governing retirement plans.

• Ex-Dividend Date

  First day a stock trades without dividend rights.

• Expiration Date

  Last day an options contract is valid.

• Face Amount

  Principal amount of a bond.

• Fiduciary

  Owes duty of loyalty and care; applies to IAs and trustees.

• FINRA

  Self-regulatory organization overseeing broker-dealers.

• Firm Quote

  Binding price the dealer must honor.

• Fixed Annuity

  Offers guaranteed payments; NOT a security.

• Forward Pricing

  Mutual funds priced at next NAV calculation.

• Free Riding

  Buying and selling without paying; prohibited.

• GDP (Gross Domestic Product)

  Total economic output.

• General Obligation (GO) Bond

  Municipal bond backed by taxing authority.

• Ginnie Mae (GNMA)

  Government mortgage-backed securities.

• Good Delivery

  Proper form of securities for transfer.

• Growth Stock

  Company with high earnings growth; lower dividends.

• Hedge

  Strategy to reduce risk, often using options.

• High-Yield Bond

  Junk bond with ratings below investment grade.

• Holding Period Return

  Total return over investment period.

• Hypothecation

  Pledging securities as collateral for a loan.

• IA (Investment Adviser)

  Firm or person providing advice for compensation.

• IA Representative (IAR)

  Individual supervised by an IA.

• Illiquid Investment

  Difficult to sell quickly (e.g., DPPs).

• Index Fund

  Passive mutual fund mirroring market index.

• Inflation Risk

  Purchasing power risk.

• Initial Margin Requirement

  Regulation T set at 50%.

• Inside Information

  Material nonpublic information; insider trading risk.

• Investment Company

  Mutual funds, ETFs, UITs, closed-end funds.

• IRA (Individual Retirement Account)

  Tax-advantaged retirement account.

• Joint Account

  Account owned by two or more individuals.

• Joint Tenants with Right of Survivorship (JTWROS)

  Survivor gets full ownership.

• K-1

  Partnership tax form issued by DPPs and MLPs.

• LEAPS

  Long-term equity options (up to 3 years).

• Leverage

  Use of borrowed money to amplify returns or losses.

• Liquidity

  Ability to convert to cash quickly with minimal loss.

• Limit Order

  Buy/sell at a specific price or better.

• LOI (Letter of Intent)

  Mutual fund discount agreement if investor meets breakpoints.

• Margin Account

  Borrowing from broker to purchase securities.

• Market Maker

  Dealer providing liquidity by posting quotes.

• Market Order

  Immediate execution at best available price.

• Maturity Date

  When a bond repays principal.

• Modern Portfolio Theory (MPT)

  Diversification improves risk-adjusted returns.

• Money Market

  Short-term debt instruments (<1 year).

• Municipal Bond

  Issued by states or local governments.

• NAV (Net Asset Value)

  Mutual fund value per share.

• Negotiated Underwriting

  Issuer selects underwriter directly.

• No-Load Fund

  No sales charge; used in fee-based accounts.

• Nominal Yield

  Stated coupon rate of a bond.

• Offering Price

  Price at which securities are sold to public.

• Option

  Contract granting right to buy or sell an underlying asset.

• Option Premium

  Cost of an option.

• Over-the-Counter (OTC)

  Decentralized market of broker-dealers.

• Oversight of Sales Practices

  FINRA rules ensuring fair dealing.

• Par Value

  Bond face value, typically $1,000.

• Pass-Through Security

  Interest and principal passed to investors (MBS).

• Penny Stock

  Low-price security subject to special rules.

• POP (Public Offering Price)

  NAV plus any sales charge.

• Preferred Stock

  Equity with fixed dividends and priority over common stock.

• Prospectus

  Required disclosure document for new issues and mutual funds.

• Put Option

  Right to sell an asset.

• QIB (Qualified Institutional Buyer)

  Large institution under Rule 144A.

• Qualified Dividend

  Taxed at lower capital gains rate.

• Quotation

  Bid and ask price of security.

• REIT (Real Estate Investment Trust)

  Company owning income-producing real estate.

• Reg BI (Regulation Best Interest)

  Broker-dealers must act in customer's best interest.

• Reg D

  Private placement exemption.

• Reg T

  Federal margin rules.

• Redemption

  Mutual fund shares sold back to fund at NAV.

• Refunding

  Issuer replaces old bonds with new ones at lower rates.

• Retail Investor

  Individual, nonprofessional investor.

• Risk Tolerance

  Willingness to accept volatility or loss.

• Roth IRA

  Post-tax contributions; tax-free growth.

• S&P 500

  Major stock market index.

• SAR (Suspicious Activity Report)

  Filed for >$5,000 suspicious transactions.

• SEC (Securities and Exchange Commission)

  Federal regulator of securities markets.

• Settlement Date

  Transfer of ownership and payment (T+1 for stocks/munis).

• Short Sale

  Selling borrowed securities to profit from decline.

• SIPC

  Protects brokerage customers up to $500,000 ($250k cash).

• Spread

  Difference between bid and ask.

• Suitability

  Recommendation must be appropriate for customer profile.

• Tax-Equivalent Yield

  Municipal bond yield adjusted for tax bracket.

• Tax-Preferred Accounts

  IRAs, 401(k)s, 529s.

• Tender Offer

  Proposal to buy shares directly from shareholders.

• Time Horizon

  Investor's expected timeline for needing funds.

• Trade Confirmation

  Written notice of trade execution.

• Treasury Securities

  T-bills, notes, and bonds issued by U.S. Treasury.

• UIT (Unit Investment Trust)

  Fixed portfolio; redeemable units.

• Underwriting Spread

  Difference between price paid by underwriters and price sold to public.

• Unsuitable Recommendation

  Violates FINRA rules; major exam topic.

• Volatility

  Degree of price fluctuation.

• Variable Annuity

  Security with investment subaccounts; carries market risk.

• Vesting

  Ownership of employer retirement contributions over time.

• Wash Sale Rule

  No tax deduction when repurchasing same security within 30 days.

• WSP (Written Supervisory Procedures)

  Firm's compliance manual.

• Warrants

  Long-term right to purchase issuer's stock at specified price.

• Yield Curve

  Interest rate graph for different maturities.

• Yield to Maturity (YTM)

  Total return if bond held to maturity.

• Zero-Coupon Bond

  Sold at discount; pays no periodic interest.