Safety cushion
In a contingent immunization
strategy, the difference between the initially available immunization level and the safety-net return
.
Safety-net return
The minimum available return
that will trigger an immunization strategy
in a contingent immunization
strategy.
Sales charge
The fee charged by a mutual fund
when purchasing shares, usually payable as a commission
to marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It represents the difference, if any, between the share purchase price and the share net asset
value.
Samurai market
The foreign market
in Japan.
Savings deposits
Accounts that pay interest, typically at below-market interest
rates, that do not have a specific maturity; and that usually can be withdrawn upon demand.
Scalp
To trade
for small gains. It normally involves establishing and liquidating a position
quickly, usually within the same day. scenario analysis The use of horizon analysis to project bond
total returns under different reinvestment rates and future market yields.
Search costs
Costs associated with locating a counterparty to a trade, including explicit costs (such as advertising) and implicit costs (such as the value of time). Related:
information costs
SEC
The Securities and Exchange Commission
, the primary federal regulatory agency of the securities industry
.
Secondary market
The market where securities are traded after they are initially offered in the primary market
. Most trading is done in the secondary market
. The New York stock Exchange, as well as all other stock exchanges, the bond
markets, etc. , are secondary markets.
Securities & exchange commission
The SEC
is a federal agency that regulates the U.S.financial markets.
Securities analysts
Related:
financial analysts
Securitization
The process of creating a passthrough, such as the mortgage
pass-through security, by which the pooled assets become standard securities backed by those assets.
Security
This piece of paper proves ownership of stocks, bonds and other investments.
Security deposit (initial)
Synonymous with the term margin
. A cash amount of funds that must be deposited with the broker
for each contract
as a guarantee of fulfillment of the futures contract
. It is not considered as part payment or purchase. Related:
margin
Security deposit (maintenance
Related:
Maintenance margin
security
market line (SML). A description of the risk return
relationship for individual securities, expressed in a form similar to the capital market
line.
Sell hedge
Related:
short hedge
Sell limit order
Conditional trading order that indicates that a, security
may be sold at the designated price or higher. Related:
buy limit order
Selling short
If an investor
thinks the price of a stock is going down, the investor could borrow the stock from a broker
and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you borrow 1000 shares
of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares
of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short
.
Sell-side analyst
Also called a Wall Street analyst, a financial analyst
who works for a brokerage firm and whose recommendations are passed on to the brokerage firm's customers.
Semistrong form efficiency
A form of pricing efficiency
where the price of the security
fully reflects all public information (including, but not limited to, historical price and trading patterns). Compare weak form efficiency
and strong form efficiency
.
Serial bonds
Corporate bonds
arranged so that specified principal amounts become due on specified dates. Related:
term bonds
Series
Options: All option
contracts of the same class that also have the same unit of trade, expiration date, and exercise price
.
Stocks: shares
which have common characteristics, such as rights to ownership and voting, dividends, par value, etc. In the case of many foreign shares, one series
may be owned only by citizens of the country in which the stock is registered.
Settlement date
The date on which payment is made to settle a trade
. For stocks traded on US exchanges, settlement is currently 3 business days after the trade. For mutual funds, settlement usually occurs in the U.S.the day following the trade. In some regional markets, foreign shares
may require months to settle.
Settlement price
A figure determined by the closing range
which is used to calculate gains and losses in futures
market accounts. Settlement prices
are used to determine gains, losses, margin
calls, and invoice prices for deliveries. Related:
closing range
Settlement rate
The rate suggested in Financial Accounting Standard Board (FASB) 87 for discounting the obligations of a pension plan
. The rate at which the pension benefits could be effectively settled off the pension plan wished to terminate its pension obligation.
Share repurchase
Program by which a corporation buys back its own shares
in the open market. It is usually done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings
per share, it tends to elevate the market value of the remaining shares held by stockholders.
Shareholders' equity
This is a company's total assets minus total liabilities. A company's net worth is the same thing.
Shareholders' letter
A section of an annual report
where one can find jargon-free discussions by management of successful and failed strategies which provides guidance for the probing of the rest of the report.
Shares
Certificates or book entries representing ownership in a corporation or similar entity
Sharpe benchmark
A statistically created benchmark
that adjusts for a managers' index-like tendencies.
Sharpe Index
A measure of a portfolio's excess return
relative to the total variability of the portfolio
. Related:
treynor index
Short
One who has sold a contract
to establish a market position
and who has not yet closed out this position through an offsetting purchase; the opposite of a Long. Related:
Long
Short hedge
The sale of a futures
contract(s) to eliminate or lessen the possible decline in value ownership of an approximately equal amount of the actual financial instrument or physical commodity
. Related:
Long hedge
Short interest
This is the total number of shares
of a security
that investors have sold short
-- borrowed, then sold in the hope that the security will fall in value. An investor
then buys back the shares and pockets the difference as profit.
Short position
Occurs when a person sells stocks he or she does not yet own. Shares
must be borrowed, before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the transaction. Technique is used when an investor
believes the stock price is going down.
Short sale
Selling a security
that the seller does not own but is committed to repurchasing eventually. It is used to capitalize on an expected decline in the security's price.
Short selling
Establishing a market position
by selling a futures contract
.
Short squeeze
A situation in which a lack of supply tends to force prices
upward.
Short straddle
A straddle
in which one put
and one call
are sold.
Shortfall risk
The risk of falling short
of any investment target.
Short-term solvency ratios
Ratios used to judge the adequacy of liquid assets for meeting short-term obligations as they come due, including (1) the current ratio, (2) the acid-test ratio, (3) the inventory turnover
ratio, and (4) the accounts receivable turnover
ratio.
SIC
Abbreviation for Standard Industrial Classification. Each 4-digit code represents a unique business activity.
Simple linear regression
A regression analysis
between only two variables, one dependent and the other explanatory.
Simple linear trend model
An extrapolative statistical model that asserts that earnings
have a base level and grow at a constant amount each period.
Simple moving average
The mean, calculated at any time over a past period of fixed length.
Single-index model
Related:
market model
Single-premium deferred annuity
An insurance policy bought by the sponsor of a pension plan
for a single premium
. In return, the insurance company agrees to make lifelong payments to the employee (the policyholder) when that employee retires.
Sinking fund requirement
A condition included in some corporate bond
indentures that requires the issuer
to retire a specified portion of debt each year. Any principal due at maturity is called the balloon maturity
.
Slippage
The difference between estimated transaction costs and actual transaction costs. The difference is usually composed of revisions to price difference or spread
and commission
costs.
Small-firm effect
The tendency of small firms (in terms of total market capitalization) to outperform the stock market
(consisting of both large and small firms).
Specialist
On an exchange, the member firm that is designated as the market maker (or dealer
for a listed common stock. Only one specialist
can be designated for a given stock, but dealers may be specialists for several stocks. In contrast, there can be multiple market makers 'in the OTC market.
Speculator
One, who attempts to anticipate price changes and, through buying and selling contracts, aims to make profits. A speculator
does not use the market in connection with the production, processing, marketing or handling of a product.
Speed
Related:
prepayment speed
Spinoff
A company can create an independent company from an existing part of the company by selling or distributing new shares
in the so-called spinoff
.
Split
Sometimes, companies split their outstanding shares
into larger number of shares. If a company with 1 million shares did a two-for-one split, the company would have 2 million shares. An investor, for example, with 100 shares before the split would hold 200 shares after the split. The investor's percentage of equity
in the company remains the same.
Spot markets
Related:
cash markets
Spot month
The nearest delivery
month on a futures contract
.
Spot price
The current market price of the actual physical commodity
. Also called cash price.
Spot rate
The theoretical yield
on a zero-coupon Treasury security
.
Spot rate curve
The graphical depiction of -the relationship between the spot rates and maturity.
Spread
This is the gap between bid
and ask
prices
of a stock or other security
. Also, the simultaneous purchase and sale of separate futures
or options contracts for the same commodity
for delivery
in different months. Also known as a straddle
.
Spread
Spread income
Also called margin
income, the difference between income and cost. For a depository institution, the difference between the assets it invests in (loans and securities) and the cost of its funds (deposits and other sources).
Spread strategy
A strategy that involves a position
in one or more options so that the cost of buying an option
is funded entirely or in part by selling another option in the same underlying.
Standard deviation
The square root of the variance
. A measure of dispersion of a set of data from their mean.
Standardized value
Also called the normal deviate, the distance of one data point
from the mean, divided by the standard deviation
of the distribution.
Stated conversion price
At the time of issuance of a convertible security, the price the issuer
effectively grants the securityholder to purchase the common stock, equal to the par value
of the convertible security
divided by the conversion ratio
.
Statutory surplus
The surplus of an insurance company determined by the accounting treatment of both assets and liabilities as established by state statutes.
Steepening of the yield curve
A change in the yield curve
where the spread
between the yield
on a long-term and short-term Treasury has increased. Compare flattening of the yield curve
and butterfly shift
.
Step-up bond
A bond
that pays a lower coupon
rate for an initial period which then increases to a higher coupon rate. Related:
Deferred-interest bond, Payment-in-kind bond
Stochastic models
Liability-matching models that assume that the liability
payments and the asset
cash flows are uncertain. Related:
Deterministic models
Stock
Ownership of a corporation which is represented by shares
which represent a piece of the corporation's assets and earnings
.
Stock dividend
Payment of a corporate dividend
in the form of stock rather than cash. The stock dividend may be additional shares
in the company, or it may be shares in a subsidiary being spun off to shareholders. stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.
Stock exchanges
Formal organizations, approved and regulated by the Securities and Exchange Commission
(SEC), that are made up of members that use the facilities to exchange certain common stocks. The two major national stock exchanges
are the New York Stock Exchange
(NYSE) and the American Stock Exchange
(ASE or AMEX). Five regional stock exchanges include the Midwest, Pacific, Philadelphia, Boston, and Cincinnati. The Arizona stock exchange is an after hours electronic marketplace where anonymous participants trade
stocks via personal computers.
Stockholder equity
Balance sheet item that includes the book value of ownership in the corporation. It includes capital stock; paid in surplus and related earnings.
Stock index option
An option
in which the underlying is a common stock index.
Stock market
Also called the equity
market, the market for trading equities.
Stock option
An option
in which the underlying is the common stock of a corporation.
Stock replacement strategy
A strategy for enhancing a portfolio's return, employed when the futures contract
is expensive based on its theoretical price, involving a swap between the futures, treasury bills
portfolio
and a stock portfolio
.
Stock ticker
This is a lettered symbol assigned to securities and mutual funds that trade
on U.S.financial exchanges.
Stop (-loss) order
An order to sell a stock when the price falls to a specified level.
Stop order (or stop)
An order to buy or sell at the market when a definite price is reached, either above (on a buy) or below (on a sell) the price that prevailed when the order was given.
Stop-limit order
A stop order
that designates a price limit. In contrast to the stop order, which becomes a market order
once the stop is reached, the stop-limit order
becomes a limit order
once the stop is reached.
Straddle
Purchase or sale of an equal number of puts and calls with the same terms at the same time. Related:
spread
Straight value
Also called investment value, the value of a convertible security
without the con-version option
.
Stratified equity indexing
A method of constructing a replicating portfolio
in which the stocks in the index are classified into stratum, and each stratum is represented in the portfolio.
Stratified sampling approach to indexing
An approach in which the index is divided into cells, each representing a different characteristic of the index, such as duration
or maturity.
Stratified sampling bond indexing
A method of bond
indexing
that divides the index into cells, each cell representing a different characteristic, and that buys bonds to match those characteristics.
Strike index
For a stock index option, the index value at which the buyer of the option
can buy or sell the underlying stock index. The strike index
is converted to a dollar value by multiplying by the option's contract
multiple. Related:
strike price
Strike price
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option
holder upon exercise
of the option contract
.
Strong form efficiency
Pricing efficiency, where the price of a, security
reflects all information, whether or not it is publicly available. Related:
Weak form efficiency, semistrong form efficiency
Structured portfolio strategy
A strategy in which a portfolio
is designed to achieve the performance of some predetermined liabilities that must be paid out in the future.
Structured settlement
An agreement in settlement of a lawsuit involving specific payments made over a period of time. Property and casualty insurance companies often buy life insurance products to pay the costs of such settlements.
Subject to opinion
An auditor's opinion reflecting acceptance of a company's financial statements subject to pervasive uncertainty that cannot be adequately measured, such as information relating to the value of inventories, reserves for losses, or other matters subject to judgment.
Subordinated debenture bond
An unsecured bond
that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings
. Related:
Debenture bond, mortgage bond
, collateral trust bonds
Subperiod return
The return
of a portfolio
over a shorter period of time than the evaluation period
.
Substitution swap
A swap in which a money manager
exchanges one bond
for another bond that is similar in terms of coupon, maturity, and credit quality, but offers a higher yield
.
Surplus management
Related:
asset
management
Swap assignment
Related:
swap sale
Swap buy-back
The sale of an interest rate swap
by one counterparty to the other, effectively ending the swap.
Swap option
Related:
Quality option
Swap reversal
An interest rate swap
designed to end a counterparty's role in another interest
rate swap, accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.
Swap sale
Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate swap
by substituting a new counterparty whose credit is acceptable to the other original counterparty.
Swaptions
Options on interest
rate swaps. The buyer of a swaption has the right to enter into an interest rate swap
agreement by some specified date in the ' future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer
. The writer
of the swaption becomes the counterparty to the swap if the buyer exercises.
Switching
Liquidating an existing position
and simultaneously reinstating a position in another futures contract
of the same type
. symmetric cash matching An extension of cash flow matching
that allows for the short-term borrowing of funds to satisfy a liability
prior to the liability due date, resulting in a reduction in the cost of funding liabilities.
Synchronous data
Data available at the same time. In testing option-pricing models, the price of the option
and of the underlying should be synchronous, representing the same moment in the market.
Systematic risk
Also called undiversifiable risk
or market risk, the minimum level of risk that can be obtained for a portfolio
by means of diversification across a large number of randomly chosen assets. Related:
unsystematic risk
Glossary Sources:
Glossary of Financial Terms
Investor's Galleria - Products & Services for Investors
Futures and Options Glossary
Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University
Financial Glossary
Data Broadcasting Corporation
WashingtonPost.com Business Staff
Copyright The Washington Post
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