DEA (Designated Examining Authority)
A self-regulatory body that has surveillance responsibility for specific broker-dealers. As some firms have memberships on several exchanges, and in the FINRA and MSRB, one regulator is designated to a firm.
See: MSRB; FINRA
An individual or firm in the securities business who acts as a principal rather than as an agent in a specific transaction. Principles buy and sell securities for their own account and risk.
A dealer's profit or loss is derived from the difference between the price he/she pays for the security and the price he/she receives when selling the security to a customer.
Because most individuals and firms act as both brokers and dealers, the term broker-dealer is commonly used.
A company's stock that rises or falls due to takeover rumors.
See: Garbatrage; In Play; Rumortrage; Takeover
An unsecured (without collateral) bond backed only by the integrity of the issuer (borrower). The parameters of the bond are set forth in an agreement called an indenture.
A stock issued under an agreement that provides for fixed payments at scheduled intervals. A debenture stock is more similar to a preferred stock than a debenture. In the case of a company's liquidation, it is treated as an equity. Investors will not receive payment until all debt is paid.
Money owed to a broker from the purchase of stock or bonds in a customer's margin account. This money is a loan extended by the broker to the margin customer and the customer pays interest on the debit balance in the account.
See: Margin; Margin Account
An option spread in which the premium of the bought option is greater than the premium of the one sold.
See: Credit Spread; Option Premium; Option Spread
1: Common name for bonds and other forms of paper evidencing the amount owed and whether it is payable on a specific date or on demand.
2: One party's legal obligation to pay another party in accordance with an expressed or implied agreement. The debt may or may not be secured.
A written agreement denoting that the issuer promises to reimburse a debt. Examples are Treasury Bills, Notes and Bonds, Banker's Acceptances, Commercial Paper and Certificate of Deposits.
See: Certificate Of Deposit; Commercial Paper; Treasury Bill; Treasury Bond; Treasury Note
The maximum amount of debt that a municipality is permitted to incur--also known as "debt ceiling."
A business or individual that borrowed money that needs to be reimbursed to the creditor.
The repayment of specific debt. There are two methods used to retire debt--sinking fund and serial. Sinking fund and serial bonds are not types of bonds, just methods of retiring them. The sinking fund method, in which money is set aside each year to retire debt, is most commonly used for corporate debt. Conversely, the serial method is more commonly used in the debt retirement of municipal bonds. When bonds are issued in serial form, parts of the issue, known as a "series," are retired in various time schedules, usually semiannually or annually.
Securities, such as Treasury Bills and Commercial Paper, that represent money borrowed by the issuer. This money must be repaid by the maturity date at a specified interest rate unless it was an original issue discount purchase.
See: Commercial Paper; Original Issue Discount; Treasury Bill
The yearly amount needed to make interest and current maturities of principal payments on a bond issue.
See: Ability To Pay
1: The ratio of a company's securities with fixed charges to the company's common stock equity. To calculate, divide the total amount of preferred stock and bonds by the amount of common stock equity.
2: In the case of liquidation, the ratio indicates the extent owner's equity can cover creditors' claims. It is calculated by dividing total liabilities by total shareholders' equity.
3: A ratio that is used to measure leverage. Leverage is the use of borrowed money to increase the return on owners' equity. To calculate, divide the total amount of long term debt by the total amount of shareholders' equity.
See: Shareholder's Equity
A specified date that the board of directors of a corporation declares and authorizes a dividend payment. At this time, the dividend becomes a corporate obligation.
An expense that can be subtracted from an individual's adjusted gross income to obtain their taxable income. The type of expense deductions allowed is determined by the Internal Revenue Service (IRS). Examples include state and local taxes, charitable contributions and mortgage interest paid.
Deep Discount Bond
A bond that trades substantially below its face value--usually more than 20% from its face value. The term is usually used in reference to zero coupon bonds. Although original issue discount bonds and deep discount bonds are similar, deep discount bonds are issued at a par value of $1,000. The value of a deep discount bond generally increases faster as interest rates fall and declines faster as rates rise.
See: Discount; Current Coupon Bond; Original Issue Discount
Deep In The Money
A call option whose exercise (strike) price is considerably below the underlying security's current market price--that is, the strike price is 5 or more points below the underlying security's current market price. In regard to a put option, the exercise price is well above the underlying security's current market price--that is, the strike price is 5 or more points above the underlying security's current market price.
When buying a deep-in-the-money call option, the premium is high because the holder has the right to purchase the stock at an exercise price that is substantially below the underlying security's current market price.
See: Call Option; Deep Out Of The Money; Exercise; In The Money; Options; Out Of The Money; Put Option; Strike Price; Underlying Security
Deep Out Of The Money
A call option whose exercise (strike) price is considerably above the underlying security's current market price--that is, the strike price is 5 or more points above the underlying security's current market price. In regard to a put option, the exercise price is well below the underlying security's current market price--that is, the strike price is 5 or more points below the underlying security's current market price.
When buying a deep-out-of-the-money option, the premium is small because the option may never be profitable.
See: Call Option; Deep In The Money; Exercise; In The Money; Options; Out Of The Money; Put Option; Strike Price; Underlying Security
The failure of a debtor to make timely payments of principal and/or interest. If the debtor defaults, the bondholders may make claims against the issuer's assets to get back their principal.
A process whereby a corporation gets rid of old, low-rate debt without paying it back before maturity--another term for "advance refunded bonds."
The corporation uses newly purchased bonds that have a lower face value and pay higher interest or have a higher market value. In doing this, the corporation's balance sheet becomes more debt free and earnings will increase by the amount that the old debt's face value exceeds the cost of the new debt.
Another type of defeasance occurs when a corporation solicits a brokerage firm to buy the outstanding bonds of the old corporate debt issue. The brokerage firm will then exchange the old debt issue for a new corporate stock issue equal to the market value of the old debt. The broker will then sell the stock at a profit.
Securities that are steadier than the average stock or bond and provide the investor a safe return on their money. Because of the corporation's business (e.g. utility and food industries), its securities are relatively resistant to general economic changes. Thus, when the stock market is weak, defensive securities are apt to decline less than the overall market.
Deferral of Taxes
The deferment of making tax payments from this year to a later year. For example, money in an Individual Retirement Account (IRA) grows tax deferred until the money is withdrawn from the account.
An account, such as an Individual Retirement Account or Profit Sharing Plan, that delays taxes until a later date.
See: Annuity; Individual Retirement Account; Profit Sharing Retirement Plan
An annuity in which its contract provides that payments to the annuitant are delayed until certain thresholds have been attained (e.g., when the annuitant attains a certain age)--also called a "deferred payment annuity."
Deferred Interest Bond
A bond, such as a zero coupon bond, that pays interest and repays principal in one lump sum at maturity.
See: Current Coupon Bond; Zero Coupon Security
Deferred Sales Charge
See: Back-End Load
A written notice sent by the Securities and Exchange Commission (SEC) to the issuer of an anticipated new issue. The notice states that there are omissions of material fact in the registration statement and/or that the preliminary prospectus needs revision. If immediate action is not taken by the issuer, the registration period may need to be extended.
The amount by which expenditures exceed the amount budgeted or the amount by which liabilities exceed income and assets. Deficits can be corrected by borrowing money or by selling assets.
See: Asset; Liability
The borrowing of money by government agencies to procure revenue shortages. Deficit financing may stimulate the economy for a while, but usually ends up being an economic hindrance by pushing up interest rates.
See: Deficit Spending
Deficit Net Worth
The amount that liabilities exceed assets and capital stock--also referred to as "negative net worth."
See: Capital Stock
A shortage that is financed by government borrowing. This shortage occurs when the amount of government expenditures exceeds government revenues.
See: Deficit Financing
Defined Benefit Pension Plan
A retirement plan that stipulates that each participant will receive a set payment after a predetermined number of years of service. It does not pay taxes on investments within the plan. Contributions to the plan may be by employer only, employee only or both.
See: 401(K) Plan; IRA
A persistent price decline of goods and services--the inverse to inflation. Deflation usually occurs during a recession and is characterized by supply exceeding demand, and while there is increased buying power, the amount of currency in circulation is greatly reduced. Marked deflation generally affects production and employment negatively. Deflation should not be confused with disinflation, which is a result of a slow down in the rate that prices increase.
See: Disinflation; Inflation
Statistical factor used to adjust the difference between real value and inflation affected value.