Securities Exam Glossary

Annual marketing and distribution fees charged by mutual funds, named after SEC rule 12b-1. Limited to 0.25% for no-load...

An employer-sponsored retirement plan allowing employees to make pre-tax or Roth (after-tax) salary deferrals, often wit...

A tax-advantaged education savings account (Section 529 Qualified Tuition Program) offering tax-free growth for qualifie...

An investor who meets SEC-defined tests (such as income, net worth or certain professional licenses), qualifying them to...

Interest that has accumulated on a bond from the last coupon payment date to the settlement date of a trade. The buyer p...

Compensation charged by investment advisers for providing investment advice and portfolio management services, typically...

An order condition requiring the order to be executed in its entirety or not at all. Unlike Fill or Kill (FOK) orders, A...

The excess return of an investment relative to the return predicted by CAPM for its level of systematic risk. Positive a...

Parallel tax calculation system designed to ensure high-income taxpayers pay a minimum level of tax by disallowing certa...

A negotiable security representing shares of a foreign company held by a U.S. depositary bank. ADRs trade in the U.S. (o...

Two exercise styles for options contracts: American options can be exercised anytime from purchase until expiration, whi...

Insurance contract providing periodic income payments, typically for retirement. Three main types: fixed annuities (guar...

Federal regulatory framework established by the Bank Secrecy Act (1970) and USA PATRIOT Act (2001) requiring financial i...

The strategy of dividing investments among different asset classes (stocks, bonds, cash) to balance risk and return base...

The strategic placement of different investment types across taxable and tax-advantaged accounts to minimize overall tax...

The process by which an option writer (seller) is required to fulfill their contractual obligation when the option holde...

The 1970 federal statute that is the foundation of American anti-money-laundering rules and requires financial instituti...

The duty to seek the most favorable terms reasonably available when executing client transactions, considering all quali...

A measure of a security's sensitivity to movements in the overall market (systematic risk). Beta of 1.0 means the securi...

The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to acc...

Shares of large, well-established companies with a long track record of stable earnings, strong balance sheets, and cons...

State securities laws designed to protect investors from fraudulent securities sales and schemes. Originated in Kansas (...

A company's accounting net worth (shareholders' equity) per common share, calculated as (total assets minus total liabil...

The investment threshold at which mutual fund sales charges (loads) decrease, encouraging larger investments through vol...

The requirement that investment advisers deliver Form ADV Part 2A (the "brochure") to clients before or at the time of e...

The recurring pattern of expansion and contraction in economic activity, consisting of four phases: expansion, peak, con...

A feature in bond indentures granting the issuer the right to redeem (call) bonds before maturity, typically when intere...

Tax on profit from selling capital assets, determined by holding period. Short-term capital gains (held 12 months or les...

A brokerage account requiring full payment for all securities purchases with no borrowing allowed. Regulation T requires...

Tax-advantaged methods for philanthropic giving that maximize charitable impact while minimizing tax liability. Common s...

Excessive trading in a client's account to generate commissions without regard to the client's investment objectives. Re...

An investment company that typically sells a fixed number of shares through an IPO, which then trade on exchanges at mar...

Economic indicators that move simultaneously with the overall economy, reflecting current economic conditions in real ti...

Options strategy combining a protective put (downside protection) with a covered call (upside limitation) on stock you a...

Per-transaction compensation paid to broker-dealers and agents based on each trade executed, creating potential conflict...

A marital property ownership system used in 9 U.S. states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Te...

A corporate bond that can be converted into a fixed number of shares of common stock at the bondholder's option. Feature...

Debt securities issued by corporations to raise capital, representing a loan from investors to the company. Corporate bo...

A statistical measure of how two securities move in relation to each other, expressed as a coefficient ranging from -1.0...

The original value of an asset for tax purposes, including purchase price plus commissions, fees, and reinvested dividen...

The annual interest rate that a bond issuer promises to pay bondholders, expressed as a percentage of the bond's par (fa...

A statistical measure of how two securities move together, indicating the direction of their relationship but not its st...

An options strategy where an investor owns 100 shares of stock and sells (writes) one call option against those shares t...

The Central Registration Depository (CRD) is the online registration and licensing system operated by FINRA in cooperati...

An assessment of a borrower's creditworthiness and ability to meet debt obligations, issued by independent rating agenci...

A report a financial institution files with FinCEN when a customer conducts a cash transaction of more than $10,000 in a...

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as Current Assets ÷ Curren...

A bond yield calculation measuring annual interest income as a percentage of the current market price. Current yield equ...

Rule 206(4)-2 under the Investment Advisers Act of 1940 and corresponding state regulations governing investment adviser...

A required part of every broker-dealer's anti-money-laundering compliance program, mandated by the USA PATRIOT Act, that...

The second prong of FINRA Rule 2111's three-part suitability test, requiring a member firm or associated person to have ...

A securities order that automatically expires at the end of the trading day if not executed. This is the default time-in...

State registration exemption for out-of-state investment advisers who have no place of business in the state and 5 or fe...

A financial leverage metric calculated as total debt divided by total shareholders' equity (D/E = Total Debt ÷ Sharehold...

The risk that a bond issuer will fail to make required interest payments or repay principal at maturity. Default risk is...

A sustained decrease in the general price level of goods and services over time, resulting in a negative inflation rate ...

A bond trading below its par value (typically $1,000), occurring when market interest rates rise above the bond's coupon...

The interest rate the Federal Reserve charges commercial banks and other depository institutions for short-term loans bo...

An account where a broker-dealer, registered representative, investment adviser, or IAR has the client's authority to ma...

The practice of spreading investments across different securities, sectors, or asset classes to reduce unsystematic risk...

A financial metric showing the percentage of earnings paid to shareholders as dividends, calculated as Dividends per Sha...

The annual dividend income expressed as a percentage of the current stock price, calculated as (Annual Dividend per Shar...

An investment strategy of investing a fixed dollar amount at regular intervals (weekly, monthly, quarterly) regardless o...

A measure of a bond's price sensitivity to interest rate changes, expressed in years. Macaulay duration measures the wei...

The portion of a company's net income, after subtracting preferred dividends, allocated to each outstanding share of com...

The process of arranging wealth transfer strategies to minimize taxes and ensure assets pass to intended beneficiaries. ...

A pooled investment security that trades on an exchange like a stock throughout the trading day. ETFs typically track an...

The act by which an option holder (buyer) invokes their right to buy (for calls) or sell (for puts) the underlying secur...

The annual fee charged by a mutual fund or ETF, expressed as a percentage of average net assets. Includes management fee...

Securities exempt from state registration requirements under the National Securities Markets Improvement Act (NSMIA) of ...

The target interest rate range set by the Federal Open Market Committee (FOMC) for overnight lending of reserve balances...

A financial statement showing the Federal Reserve's assets (primarily Treasury securities and mortgage-backed securities...

A legal obligation to act in another party's best interest with utmost good faith. Investment advisers and IARs must put...

An order that must be executed immediately and in its entirety, or cancelled completely. No partial fills are allowed. F...

A bureau of the United States Department of the Treasury that administers the Bank Secrecy Act and receives anti-money-l...

A self-regulatory organization (SRO) that regulates broker-dealers and their registered representatives through examinat...

Government decisions about taxation and spending used to influence economic conditions. Controlled by Congress and the P...

The uniform registration form used by investment advisers to register with the SEC or state regulators. Part 1 contains ...

Form U4 (Uniform Application for Securities Industry Registration or Transfer) is the form a sponsoring firm files to re...

The prohibited practice of trading in a security ahead of a client's order to profit from the anticipated price movement...

The value of a current investment at a specified date in the future, assuming a certain rate of return: FV = PV x (1 + r...

Government National Mortgage Association, a government-owned corporation within the U.S. Department of Housing and Urban...

Time-in-force instruction that keeps an order active until executed or explicitly cancelled by the investor. GTC orders ...

Federal privacy and data-security law requiring financial institutions to explain their information-sharing practices an...

The total monetary value of all goods and services produced within a country's borders during a specific period, typical...

A stock of a company expected to grow earnings at an above-average rate compared to the market, typically reinvesting pr...

Length of time an investment is owned, determining tax treatment of capital gains. More than 12 months qualifies for lon...

Terms describing the intrinsic value status of an option relative to the underlying asset's current market price. A call...

A sustained increase in the general price level of goods and services over time, reducing the purchasing power of money....

Trading securities based on material, non-public information (MNPI) in breach of a duty of trust or confidence owed to t...

Large organizations that invest on behalf of members or clients, including banks, insurance companies, investment compan...

The risk that a bond's market value will decline when interest rates rise, reflecting the inverse relationship between b...

The discount rate at which an investment's net present value (NPV) equals zero, representing the investment's expected a...

Any person or firm that, for compensation, engages in the business of advising others about securities (the three-prong ...

An individual who provides investment advice or manages client accounts on behalf of a registered investment adviser (RI...

An investment objective is a client's primary financial goal for their investment account, representing what they want t...

A written document that establishes a client's investment objectives, risk tolerance, time horizon, constraints, strateg...

A risk-adjusted measure of excess return beyond what CAPM predicts, developed by Michael Jensen. Uses beta to adjust for...

A form of joint account ownership where each owner has equal ownership rights and the account automatically transfers to...

Tax rule preventing income shifting by taxing a child's unearned income above $2,700 (2026) at the parent's marginal tax...

The FINRA Rule 2090 duty of a broker-dealer to use reasonable diligence to know and retain the essential facts about eve...

An investment strategy involving the purchase of bonds or CDs with staggered maturity dates spread across different time...

Economic metrics that confirm trends and changes in the economy after they have already occurred, often months later. Ex...

A stock of a company with market capitalization generally above $10 billion, typically representing well-established cor...

Economic indicators that typically change direction before the overall economy, helping predict future economic activity...

A Letter of Intent (LOI) is a non-binding statement by a mutual fund investor pledging to invest enough additional money...

An order to buy or sell a security at a specified price or better. Buy limit orders execute at the limit price or lower;...

A client's requirement for quick access to cash on short notice for emergencies, anticipated expenses, or ongoing living...

A sales charge (commission) paid when buying or selling mutual fund shares, compensating brokers and distributors. Front...

Owning a security, or owning an option on it. Long stock and long calls profit when the price increases. For stocks, a l...

An options strategy involving the simultaneous purchase of a call option and a put option on the same underlying securit...

An options strategy involving the simultaneous purchase of an out-of-the-money call and an out-of-the-money put on the s...

Profits from selling capital assets held more than 12 months, taxed at preferential rates of 0%, 15%, or 20% depending o...

A brokerage account that allows investors to borrow money from their broker-dealer to purchase securities, with the purc...

The total market value of all outstanding shares of a company, calculated by multiplying the current share price by shar...

A broker-dealer firm that stands ready to buy and sell a particular security at publicly quoted prices, providing liquid...

An order to buy or sell a security immediately at the best available current price. Execution is virtually guaranteed, b...

The difference between the prevailing market price of a security and the price a dealer charges or pays a customer in a ...

A false or misleading statement or omission of fact that a reasonable investor would consider important in making an inv...

The date when a bond's principal (face value) is repaid to investors and interest payments cease. Bonds are classified b...

Equity securities of companies with market capitalizations below about $300 million, a common industry convention rather...

A publicly traded equity security of a company with a market capitalization between $2 billion and $10 billion. Mid-cap ...

A framework developed by Harry Markowitz for constructing portfolios that maximize expected return for a given level of ...

Actions by the Federal Reserve (central bank) to control money supply and interest rates to influence economic activity....

Debt securities issued by state and local governments to finance public projects, with interest typically exempt from fe...

An open-end investment company that pools money from many investors to purchase a portfolio of securities (diversified o...

The per-share value of a fund calculated by dividing total assets minus liabilities by shares outstanding. Mutual funds ...

The difference between the present value of an investment's future cash flows and its initial cost, both measured using ...

The association of state securities regulators that develops model rules, has amended model legislation such as the Unif...

Simplified state filing procedure under NSMIA for federal covered securities (primarily mutual funds, closed-end funds, ...

An OSJ is any office a FINRA member firm designates because specific supervisory activities happen there, such as final ...

The buying and selling of U.S. Treasury securities by the Federal Reserve (through the Federal Open Market Committee) to...

The price paid by the option buyer to the option seller for the rights granted by the option contract. The premium consi...

Derivative contracts giving the buyer the right, but not obligation, to buy (call) or sell (put) an underlying security ...

The face value of a bond, typically $1,000 for corporate bonds (municipal bonds typically have a $5,000 minimum denomina...

Equity securities trading below $5 per share that are not listed on a qualifying national securities exchange and do not...

Compensation based on capital gains or appreciation of client assets, generally prohibited for investment advisers, with...

A persistency bonus is additional compensation paid to an insurance agent or registered representative if a client maint...

The annual rate at which a fund or portfolio buys and sells holdings, expressed as a percentage. Calculated as the lesse...

A hybrid equity security that combines characteristics of both stocks and bonds. Typically pays fixed dividends (like bo...

A bond trading above its par value (above $1,000 for corporate bonds), which occurs when current market interest rates f...

Today's value of a sum to be received in the future, calculated by discounting the future amount back to the present usi...

A valuation metric comparing a stock's market price per share to its book value per share, calculated as Market Price ÷ ...

A valuation metric calculated as current stock price divided by earnings per share (EPS). High P/E ratios may indicate g...

The interest rate commercial banks charge their most creditworthy corporate customers, serving as a benchmark for consum...

A transaction in which an investment adviser trades securities with a client from the adviser's own account, acting as a...

An offering of unregistered securities to a limited group of investors that is exempt from SEC registration requirements...

The SEC-required formal disclosure document for a securities offering, mandated by the Securities Act of 1933. It contai...

An options strategy combining long stock ownership with purchasing put options on the same stock, creating downside prot...

The Public Offering Price (POP) is the price at which a mutual fund sells its shares to investors. For shares sold with ...

An investor classification that allows performance-based compensation under Investment Advisers Act Rule 205-3. Requires...

A default investment option in employer-sponsored retirement plans (such as 401(k) plans and ERISA-covered 403(b) plans)...

Dividends from U.S. corporations and qualified foreign corporations that meet IRS holding period requirements (for commo...

An investor classification under the Investment Company Act used primarily for private funds that rely on the qualified-...

A monetary policy tool in which the Federal Reserve buys large amounts of longer-term securities (mainly Treasuries and ...

The third prong of FINRA Rule 2111 suitability obligations, requiring the broker-dealer to have a reasonable basis to be...

A liquidity ratio that measures a company's ability to pay short-term obligations using only its most liquid assets, cal...

A statistical measure indicating the percentage of a portfolio's movements that can be explained by movements in a bench...

The first prong of FINRA Rule 2111's three-part suitability test (Rule 2111 does not apply to recommendations subject to...

The percentage deviation from target strategic asset allocation that triggers portfolio rebalancing. For example, if str...

A significant decline in economic activity spread across the economy, lasting more than a few months. Technically define...

Compensation paid to third parties (solicitors or promoters) for referring clients to an investment adviser. Under the S...

A state securities registration method under the Uniform Securities Act for securities simultaneously registered with th...

A state securities registration method under the Uniform Securities Act (also called registration by notification) with ...

The most complete state securities registration method under the Uniform Securities Act, required when a security is not...

SEC regulation providing exemptions from securities registration requirements for private placement offerings. Primary r...

Real Estate Investment Trust. A company that owns, operates, or finances income-producing real estate. Must distribute a...

Mandatory annual withdrawals from tax-deferred retirement accounts that must begin at age 73 for anyone who reaches age ...

The minimum return an investor demands to justify taking on an investment's risk. In time value of money and valuation c...

The percentage of customer deposits that commercial banks must hold in reserve (as vault cash or deposits at Federal Res...

A profitability ratio measuring how efficiently a company generates profits from shareholder equity, calculated as Net I...

A mutual fund privilege, offered at the fund's option, that counts the value of shares an investor already owns, measure...

The ability and willingness to withstand investment losses and volatility, comprising two components: (1) risk capacity,...

A standardized assessment tool used during account opening to evaluate a client's risk tolerance, measuring both financi...

The process of transferring funds from a Traditional IRA, SEP IRA, SIMPLE IRA (after its 2-year initial participation pe...

An individual retirement account funded with after-tax contributions, offering tax-free qualified withdrawals in retirem...

An SEC safe harbor that governs the resale of restricted securities (acquired in unregistered transactions such as priva...

An active investment strategy that shifts portfolio allocations among different economic sectors based on business cycle...

The primary federal regulator of securities markets, investment advisers, and securities offerings established by the Se...

The date when securities trades finalize, ownership transfers, and payment is due. Regular-way settlement is T+1 (one bu...

Mutual fund share classes (typically A, B, and C) carry different sales-charge structures and ongoing expenses while rep...

A measure of risk-adjusted return calculated as (portfolio return - risk-free rate) / standard deviation. Higher ratios ...

An investment position where an investor sells borrowed securities (short stock), expecting the price to decline, or sel...

Profits from selling capital assets held for one year or less, taxed at ordinary income rates (10%-37% depending on tax ...

A nonprofit membership corporation, created by the Securities Investor Protection Act of 1970 (SIPA), that returns cash ...

A stock of a publicly traded company with a market capitalization between $300 million and $2 billion. Small-cap stocks ...

An arrangement where investment advisers use client brokerage commissions to obtain research and brokerage services from...

A third party (now termed "promoter" under the SEC's 2020 Marketing Rule) who provides testimonials or endorsements for ...

A measure of risk-adjusted return that penalizes only downside deviation (volatility below a target return) rather than ...

A rare and challenging economic condition characterized by the simultaneous occurrence of stagnant economic growth (or r...

A statistical measure of the dispersion of returns for a security or portfolio. Indicates total risk (both systematic an...

Tax rule that resets cost basis of inherited assets to fair market value at date of death, eliminating capital gains tax...

A two-stage order combining stop and limit order characteristics. When the stop price is reached, the order becomes a li...

An order that becomes a market order once a specified stop price is reached. Buy stop orders are placed above the curren...

The long-term target mix of asset classes (stocks, bonds, cash) in a portfolio based on the client's risk tolerance, tim...

The predetermined price at which an option holder can buy (call) or sell (put) the underlying security if they exercise ...

The obligation to recommend securities appropriate for a client's age, other investments, financial situation, investmen...

A surrender charge (also called a Contingent Deferred Sales Charge or CDSC) is a back-end fee applied when an investor w...

A confidential report a financial institution files with FinCEN when it detects transactions that look like money launde...

Systematic risk (market risk) affects the entire market and cannot be eliminated through diversification, measured by be...

A short-term, active investment strategy that makes temporary deviations from the strategic (baseline) asset allocation ...

A tax strategy of selling securities at a loss to offset capital gains and reduce tax liability. Realized losses can off...

Investment earnings (interest, dividends, capital gains) that grow without current taxation until withdrawn. Common exam...

Investment strategies designed to minimize tax drag on portfolio returns through asset location, tax-loss harvesting, ho...

Investment income or gains that are never subject to federal (and sometimes state or local) income tax. Common examples ...

A form of joint ownership where each owner holds a fractional, undivided interest in the account. Ownership percentages ...

The length of time until a client needs to access invested funds. Longer time horizons (typically 10+ years) allow for m...

The standard deviation of the difference between a portfolio's returns and its benchmark's returns, measuring how consis...

The process of completing a securities transaction by matching buyers with sellers and finalizing the trade at a specifi...

The total number of shares or contracts traded in a security or market during a specific period (typically measured dail...

An individual retirement account funded with pre-tax or after-tax contributions, offering tax-deferred growth with contr...

An account registration allowing securities to transfer directly to a named beneficiary upon the account owner's death, ...

Debt obligations issued by the U.S. Department of the Treasury and backed by the full faith and credit of the U.S. gover...

A measure of risk-adjusted return calculated as (portfolio return - risk-free rate) / beta. Higher ratios indicate bette...

An account held in the name of a trust and managed by a trustee who has a fiduciary duty to manage assets for the benefi...

Custodial accounts allowing irrevocable gifts to minors without establishing a trust. UGMA (Uniform Gifts to Minors Act)...

The percentage of the labor force that is unemployed: people without a job who are available for work and made a specifi...

Model state securities law drafted by the National Conference of Commissioners on Uniform State Laws (and later amended ...

An investment company that purchases a fixed portfolio of securities and holds them unchanged until termination. Registe...

Stocks trading below their intrinsic value based on fundamental analysis, typically characterized by low price-to-earnin...

A variable annuity (VA) is a tax-deferred investment contract issued by an insurance company in which premiums are inves...

IRS rule disallowing capital loss deductions when a substantially identical security is repurchased within 30 days befor...

A company's blended cost of capital across all its funding sources, weighted by each source's share of the capital struc...

A bundled fee arrangement where investment advisory, brokerage, and custodial services are provided for a single all-inc...

A graph plotting the yields of bonds of equal credit quality across different maturities, most commonly drawn with U.S. ...

The difference between yields of two bonds, typically measured in basis points (1 bp = 0.01%). Yield spreads measure rel...

The total annual return an investor would receive if a bond is held until maturity, expressed as an annualized percentag...

A bond that makes no periodic interest payments (zero coupon) and is instead sold at a deep discount to its face value, ...