Financial Terms related to Securities

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SECURITIES
Asset backed securities

• Is a security backed by notes or receivables against assets other than real estate.
Some examples are autos, credit cards, and royalties.

Book entry securities

• The Treasury and federal agencies are moving to a book-entry system in which
securities are not represented by engraved pieces of paper but are maintained in
computerized records at the Fed in the names of member banks, which, in turn,
keep records of the securities they own as well as those they are holding for
customers. In the case of other securities for which there is a book- entry system,
engraved securities do exist somewhere in quite a few cases. These securities do
not move from holder to holder but are usually kept in a central clearinghouse or by
another agent.
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• The Treasury and federal agencies are moving to a book-entry system in which
securities are not represented by engraved pieces of paper but are maintained in
computerized records at the Fed in the names of member banks, which in turn keep
records of the securities they own as well as those they are holding for customers. In
the case of other securities where a book-entry has developed, engraved securities
do exist somewhere in quite a few cases. These securities do not move from holder
to holder but are usually kept in a central clearinghouse or by another agent.

Contingent securities

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• Convertibles, warrants, and stock options. Their presence affects the reporting of a
firm's earnings per share (EPS).

Convertible securities hedge funds

• Generally look to purchase the bonds or preferred securities and sell common
shares against these long positions. The intent is to hedge interest or dividend
paying securities with low or no dividend common shares. In the event of a default
the bonds and other securities have priority to the common shares. Also, the bonds
or preferred stocks usually generate positive cash flows whereas the short positions
are generally not responsible for dividend payments. Therefore the fund should have
a positive cash flow and protected by relative seniority position in corporate
securities. These funds also use warrants and options as portfolio instruments.

Debt securities

• IOUs created through loan-type transactions commercial paper, bank CDs, bills,
bonds, and other instruments.

• IOUs created through loan-type transactions - commercial paper, bank CDs, bills,
bonds, and other instruments.

Discount securities

• Non-interest bearing money market instruments that are issued a discount and
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redeemed at maturity for full face value, e.g., U.S. Treasury Bills.

• Non-interest-bearing money market instruments that are issued at a discount and

redeemed at maturity for full face value; for example, U.S. Treasury bills.

• Non-interest-bearing money market instruments that are issued at a discount and

redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Distressed securities

• Refer to issues in bankruptcy or other severely impaired securities which have very

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low credit ratings.

Exempt securities

• Instruments exempt from the registration requirements of the Securities Act of 1933
or the margin requirements of the SEC Act of 1934. Such securities include
government bonds, agencies, munis, commercial paper, and private placements.

• Instruments exempt from the registration requirements of the Securities Act of 1933
or the margin requirements of the Securities and Exchange Act of 1934. Such
securities include governments, agencies, municipal securities, commercial paper,
and private placements.

• Are issues which are not bound by the filing provisions of the Securities Act of
1933. Exempt securities include treasury and municipal notes and bonds, bank
securities, and nonprofit organization securities.

Federal agency securities

• Securities issued by corporations and agencies created by the U.S. government,

such as the Federal Home Loan Bank Board and Ginnie Mae.

General securities registered representative license

• See Series 7.

Government securities
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• Negotiable U.S. Treasury securities.

Manufactured housing securities

• Abbreviated MHSs. Loans on manufactured homes -that is, factory-built or

prefabricated housing, including mobile homes.

Market premium convertible securities

• The amount by which the market value exceeds the straight or conversion value of
a convertible security.

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Marketable securities

• Short-term debt instruments, such as Government of Canada treasury bills,

commercial paper, and negotiable certificates of deposit issued by government,
business, and financial institutions, respectively.

Mortgage backed securities

• The pass-throughs issued by Ginnie Mae are referred to as Mortgage Backed

Securities.

• Securities backed by a pool of mortgage loans.

• Is a broad term which encompasses both generic and pool specific securities
predicated on real property. The term also refers to private label or agency
securities, pass-throughs, or derivatives such as Collateralized Mortgage
Obligations. It can refer to the Over the-Counter options on mortgage backed
securities as well. These mortgage backed securities are viewed as either plain
vanilla or exotic. Some of the more common issues are:

 Accrual or Accretion Bond,

 ARMs,

 Companion or Support,

 Constant Maturity Treasury (CMT),

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 Floaters,

 Gnomes,

 Gold,

 Inverse Floaters or Reverse Floaters,

 IO or Interest Only,

 IO-ette or IOette,

 Jump Bonds,

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 Jump Z,

 Mega,

 PAC PO,

 Pass Throughs,

 Planned Amortization Class,

 PO or Principal Only,

 Reverse TAC,

 Scheduled Bonds,

 Stripped Mortgage Backed Securities,

 Super Floater,

 Super PAC,

 Super PO,

 Support,

 Targeted Amortization Class,

 VADM
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 Z Bond, and

 Z PAC.

There are other types and the list is growing because of the unique nature of these
instruments.

Mortgage backed securities clearing corporation

• A wholly owned subsidiary of the Midwest Stock Exchange that operates a clearing
service for the comparison, netting, and margining of agency-guaranteed MBSs

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transacted for forward delivery.

Mortgage backed securities hedge funds

• Generally focus on being long the actual mortgage backed securities and short
some proxy such as TBAs (To Be Announced), futures, Treasuries or derivatives.
These funds typically purchase highly rated agency paper, CMOs, or REMICs and
finance the positions in the repo market. This financing can often result in gross
asset, principal or market values of $10 billion for an initial cash/equity position of $1
billion dollars. In some respects it is comparable to buying a house with borrowed
money. It is the borrowing which magnifies the performance. If the market quickly
jumps 10 percent higher, then the buyer doubled his investment. Here, it would be
10 percent of $10 billion or a $1billion profit against an initial capitalization of $1
billion. However, if the market declines by 10 percent, then the original investor is
out. If the market went down 25 percent, then the original investor is gone but the
lending institution (bank or brokerage firm) is on the-hook for $1.5 billion. Effectively,
this is what has been recently occurring in the financial industry. The lenders are
becoming defacto new investors, holding losing positions, because of defaults.

Mortgage pass through securities

• A securitized participation in the interest and principal cash flows from a specified
pool of mortgages. Principal and interest payments made on the mortgages are
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passed through to the holder of the security.

National association of securities dealers automated quotation system

• See NASDAQ.

National association of securities dealers, inc.

• See NASD.

Organized securities exchanges

• Tangible organizations that act as secondary markets in which outstanding

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securities are resold.

Pass through securities

• A pool of fixed-income securities backed by a package of assets (i.e. mortgages)

where the holder receives the principal and interest payments. Related: mortgage
pass-through security

Project loan securities

• Securities backed by a variety of FHA-insured loan types -primarily multi-family

apartment buildings, hospitals, and nursing homes.

Public securities administration

• Abbreviated PSA. The trade association for primary dealers in U.S. government
securities, including MBSs.

Registered general securities person

• See Account Executive. This person is Securities Series 7 licensed.

Registered securities principal

• Is a supervisor of Series 7 or specialty licensed brokers other than options. These

principals supervise and review employees in the Front Office, Middle Office, and
Back Office. For options supervision, see Compliance Registered Options Principal,
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Registered Options Principal, and Senior Registered Options Principal. A Registered

Securities Principal is Series 24 licensed.

Securities

• Investment instruments such as stocks or bonds issued by corporations,

governmental units, or other entities that offer investors ownership shares or creditor
relationships.

Securities act of 1933

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• Is the Federal Law which covers new issues of securities. It requires full-disclosure
of material information related to the offering. Some securities such as U.S.
Treasuries are exempt from the provisions.

Securities analysts

• Related: financial analysts

Securities and exchange commission

• A federal government agency comprised of five commissioners appointed by the

President and approved by the Senate. The SEC was established to protect the
individual investor from fraud and malpractice in the marketplace. The Commission
oversees and regulates the activities of registered investment advisers, stock and
bond markets, broker/dealers, and mutual funds.

• The federal regulatory body that governs the sale and listing of securities in the
United States. In Canada, securities regulation is a provincial responsibility.

• Abbreviated SEC. Commission created by Congress to regulate the securities

markets and protect investors. It is composed of five commissioners appointed by
the president of the United States and approved by the Senate. The SEC enforces,
among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934,
the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the
Investment Advisers Act of 1940. The statutes administered by the SEC are
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designed to promote full public disclosure and protect the investing public against
fraudulent and manipulative practices in the securities markets. Generally, most
issues of securities offered in interstate commerce or through the mails must be
registered with the SEC.

• The SEC is a federal agency that regulates the U.S. financial markets.

Securities and exchange commission sec

• Agency created by Congress to protect investors in securities transactions by

administering securities legislation.

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Securities exchange act of 1934

• Is the Federal Law which covers brokers and dealers (B/Ds) and secondary market
activities. This compares to the Securities Act of 1933 which focuses on new issues.

Securities exchanges

• The secondary marketplace that allows for the subsequent trading of financial
securities created in the primary market.

Securities investor protection corporation

• Abbreviated SIPC. A nonprofit membership corporation created by an act of

Congress to protect clients of brokerage firms that are forced into bankruptcy.
Membership is composed of all brokers and dealers registered under the Securities
Exchange Act of 1934, all members of national securities exchanges and most
NASD members. SIPC provides customers of these firms up to $500,000 coverage
for cash and securities held by the firms (although coverage of cash is limited to
$100,000).

Securities registration

• Is the compliance procedure whereby an individual is registered according to

function, supervisory level, and type of customer contact. Also, firms must be
registered with the appropriate regulatory bodies. See Account Executive and Series
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7. Securities Registration also refers to the process whereby the corporation or its
representative applies to the appropriate Federal or State Agency to have the
securities registered. This registration is not a sign of approval by the Agency but
rather a notification by the corporation to the agency of its intent to sell securities.

Stripped mortgage backed securities

• Are securities which are constructed from MBS pass-throughs. Essentially, these
securities strip the cash flow stream into a separate interest only (IO) and principal
only (PO) securities.

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Stripped mortgage backed securities smbss

• Securities that redistribute the cash flows from the underlying generic MBS
collateral into the principal and interest components of the MBS to enhance their use
in meeting special needs of investors.

Treasury securities

• Securities issued by the U.S. Department of the Treasury.