See: Technical Analysis

ADB (Adjusted Debit Balance)
Under Regulation T of the Federal Reserve Board, it is the formula that is used to determine the status of a margin account. An account's ADB is useful for ascertaining whether withdrawals of cash or securities are acceptable based on Special Miscellaneous Account (SMA) entries. The ADB is calculated by netting the balance owed to the brokerage firm with any balance in the SMA plus unrealized profits on short accounts.

See: Special Miscellaneous Account

Additional Bonds Test
A test that is required when additional bonds being issued will be secured by revenues or assets already pledged to existing bonds. The primary requisite is that debt service coverage on the initial bonds and the new bonds need be at a satisfactory level. If the specific financial requirements are not met, the bonds cannot be issued.

See: Debt Service; Open End Indenture

Adjusted Basis
The base price that is used to assess capital gains and losses when a security is sold. When net proceeds are used for tax purposes, the commissions are deducted at the time of sale. If any stock splits have occurred since the original purchase, the stock's price needs to be adjusted to obtain a correct adjusted basis.

See: Capital Gain

Adjusted Debit Balance (ADB)
Under Regulation T of the Federal Reserve Board, it is the formula that is used to determine the status of a margin account. An account's ADB is effectual in ascertaining whether withdrawals of cash or securities are acceptable based on Special Miscellaneous Account (SMA) entries. The ADB is calculated by netting the balance owed to the brokerage firm with any balance in the SMA plus unrealized profits on short accounts.

See: Regulation T; Special Miscellaneous Account

Adjustment Bond
When recapitalizing a corporation that faces bankruptcy, if the bondholders approve, adjustment bonds are issued in replacement of outstanding bonds. Bondholders usually will authorize the issuance of adjustment bonds as they are deemed a lesser evil than a corporate bankruptcy. An adjustment bond assures payment of interest only if earned by the corporation. This is one of the characteristics of an income bond.

See: Income Bond

Administrator
In regard to investments, an administrator is a court-appointed official empowered to supervise or conduct the court's decisions with respect to a decedent's estate until it is fully disbursed to all claimants. An administrator (or "administratix", if a woman) is appointed when anybody dies either without a will, without naming an executor, or if the named executor will not or cannot serve.

See: Executor

ADR (American Depository Receipt)
Receipt for shares of a foreign-based corporation held by a US banking institution. ADRs are created to facilitate transactions and transfers of ownership of foreign securities in the United States.

AE (Account Executive)
An employee of a brokerage firm who must pass specified tests and must be registered with the Financial Industry Regulatory Authority (FINRA) before he or she may solicit or accept orders from clients.

An account executive working for a full service brokerage firm generally provide their clients with advice, placement of orders and has the legal powers of an agent. In a discount brokerage firm, an account executive generally provides the client with customer service and handles the purchase and sale of securities on an unsolicited basis. Because account executives at discount brokerage firm usually do not provide advice for their clients, the commissions charged for the purchase and sale of securities are customarily much lower.

See: Broker; FINRA; Registered Representative

Affidavit Of Domicile
A document that states the residence of the decedent at the time of death. The form is executed by the legal representative of an estate and is required when transferring ownership of a security from a deceased person. The security's transfer agent requires the affidavit to be notarized and dated within 90 days.

See: Transfer Agent

Affiliated Person
Any persons who are officers, directors, or owns 10 % or greater of the voting shares, and in most cases, the aforementioned immediate family and confidants. These people are in a position to exercise control on the performance and conduct of a corporation. The terms "affiliated person" and "control person" or interchangeable.

See: Control Person; Rule 144

Aftermarket
A term used to reference the trading of a new issue or, the secondary market.

See: Effective Date; Secondary Market

Aftertax Basis
It is the basis for comparing the return of a tax-free bond to a corporate bond. The basis lets the investor know what tax-free yield is required in order to receive the equivalent or greater return of a corporate yield. In determining the after-tax basis, one needs to consider the investor's tax bracket.

See: Corporate Bond; Tax Exempt Security

Aftertax Real Rate Of Return
The amount of money that an investor can keep from an investment's income and capital gains after it has been adjusted for inflation.

Generally, investors look for an aftertax real rate of return that will equal if not surpass the rate of inflation.

See: Inflation; Rate Of Return

Agency
1: A transaction in which the broker-dealer acts as an agent for the account. An agent (broker) acts as an intermediary between a buyer and a seller and charges a commission for this service.

2: Government securities issued by entities other than the US Treasury such as the Federal Home Loan Bank.

See: Agency Transaction; Government Agency Securities

Agency Cross
A transaction whereby the same broker acts as agent for both sides (buy and sell) of the trade. As long as the broker first offers the securities publicly at a price higher than the bid, the practice is legal.

See: Agency; Agency Transaction

Agency Transaction
The brokerage firm's confirmation report to its clients that it executed an order in the capacity of a broker and charged a commission for the services rendered. The firm acted as an "agent" between the customer and the market maker. It is a requirement to show the commission charged separately on the confirmation report. The commission cannot be added into the execution price.

See: Agency

Aggressive Growth Fund
A mutual fund that buys shares in small or speculative growth companies to achieve maximum capital appreciation.

See: Speculation

Air Pocket Stock
A term used to exemplify a stock falling sharply as holders rush to sell and few buyers can be found, likened to an airplane hitting an air pocket.

Alligator Spread Order
An options spread order with very high commission costs. It is improbable that an investor will profit even if the market moves as anticipated.

See: Spread

All Or None (AON) Offering
All or none offerings give an issuer the right to cancel an entire issue if an underwriting is not completely subscribed. A corporation may select this type of offering because it may be uneconomical to complete the distribution unless the entire amount of capital needed can be financed. No purchases can be finalized until it is determined that the entire offering is sold.

See: Underwrite; Underwriter

All Or None (AON) Order
A type of order where the client wants the entire order executed or none of it. The purchase (or sale) order must be greater than one round lot (100 shares). An AON order can be either a "day" order or a "good til canceled" order.

Pershing Investment Manager Services on-line rules require an AON order to be a minimum of 100 shares for securities and a minimum of 2 contracts for options orders.

See: Day Order; Fill Or Kill Order; Good Til Canceled Order; Immediate Or Cancel Order; Orders

Allotment
A specific amount of securities assigned to all underwriters in an investment banking syndicate. The syndicate is formed to distribute a new issue.

See: Distributing Syndicate

Alpha
A coefficient measuring a security's price volatility caused by factors other than the stock market in its entirety. Alpha calculates the amount of return expected from an investment's intrinsic value, such as the rate of growth in earnings per share. For instance, an alpha of 1.35 infers that a security is projected to increase 35% in price when the security's "beta" is zero. A security, whose price is low in relation to its alpha, is considered undervalued.

Alternative Minimum Tax (AMT)
A tax aimed at preventing affluent investors from using tax shelters to evade other types of taxes such as income tax. Computation of the AMT takes into consideration tax preference items.

AMA (Asset Management Account)
An account at a brokerage firm or a bank that combines checkwriting, debit cards (or credit cards) and brokerage services such as buying and selling securities. AMAs are convenient because all financial transactions are listed on one monthly statement. AMAs are also called central asset accounts and are known by proprietary names such as PC CASH (Pershing Investment Manager Services) and Cash Management Account (Merrill Lynch).

American Depository Receipt (ADR)
Receipt for shares of a foreign-based corporation held by a US banking institution. ADRs are created to facilitate transactions and transfers of ownership of foreign securities in the United States.

American Stock Exchange (AMEX)
The second largest stock exchange in the US is located in the financial district of New York City at 86 Trinity Place. As a general rule, the securities traded on the AMEX are those of small to mid-size corporations. The AMEX also trades options of many NYSE securities and some OTC securities.

See: New York Stock Exchange; Over The Counter

American Stock Exchange Market Value Index
The AMEX computes an index to measure the aggregate market value changes in all common shares, ADRs and warrants listed on the exchange.

The index is computed by totaling the securities' market values, dividing it by the market value at the close from the previous day, and then multiply that figure by the previous closing index. The index represents a relative change in the total value of all shares.

See: Dow Jones Industrial Average; Standard & Poor's 500 Index

American Style Exercise
It is a privilege that allows holders of American Style options to exercise an option at any time during its life.

See: European Style Exercise

AMEX (American Stock Exchange)
The second largest stock exchange in the US is located in the financial district of New York City at 86 Trinity Place. As a general rule, the securities traded on the AMEX are those of small to mid-size corporations. The AMEX also trades options of many NYSE securities and some OTC securities.

See: New York Stock Exchange; Over The Counter

Amortization
1: An accounting procedure that gradually decreases the book value of an intangible asset through periodic charges to income. For fixed assets, the term used is depreciation, and for wasting assets, it is depletion. Both terms mean essentially the same thing as amortization. The purpose of amortization is to reflect resale or redemption value.

2: In a bond bought at a premium, it is a method of reducing a taxpayer's cost basis (vs. Accretion).

3: Amortization also applies to debt reduction through periodic payments of principal and interest sufficient to pay off a loan by maturity.

See: Accretion; Depreciation; Intangible Assets