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Safekeeping occurs when a broker-dealer holds securities for a client that are registered in the client’s name. The advantage from the client’s perspective is that the securities are safe and the broker-dealer has them available to sell at the client’s instruction. The disadvantage from the broker-dealer’s perspective is that securities held in a client’s name are not fully negotiable or fungible, so they can’t be used to settle trades, for example. Thus, it’s a service for which many firms charge a fee.Instead of being registered in their own names, clients’ securities may be registered in the broker-dealer’s name or in the name of a depository. That’s known as being registered in street name or nominee name. With this type of registration, the client’s ownership rights are fully protected but the stock is fungible. The broker-dealer may use a limited portion of the holding to settle trades or for other purposes.

Salary reduction plan

A salary reduction plan is a type of employer-sponsored retirement savings plan. Typical examples are 401(k)s, 403(b)s, 457s, and SIMPLE IRAs. A salary reduction plan allows you, as an employee, to contribute some of your current income to a retirement account in your name and to accumulate tax-deferred earnings on those contributions. In most plans, you contribute pretax income, which reduces your current income tax, and you pay tax at withdrawal at your regular rate. With Roth salary reduction plans, you contribute after-tax income but qualify for tax-free withdrawals if you are older than 59 1/2 and your account has been open at least five years.Your employer may match some or all of your contribution according to a formula that applies on an equal basis to all participating employees. All salary reduction plans have an annual contribution cap that's set by Congress and allow annual catch-up contributions for participants 50 and older.


In a sale-leaseback arrangement — also known as a leaseback — an owner sells his or her property, and then immediately leases it back from the buyer as part of the same transaction. This way, the seller gets the profits from the sale while keeping possession and use of the property, while the buyer is assured immediate long-term income on the property.Sale-leaseback transactions are most commonly used in commercial real estate, but can also apply to commercial vehicles and other types of property.

Sales charge

A sales charge is the fee you pay to buy shares of a load mutual fund or other investment purchased through a financial professional. The charge is typically figured as a percentage of the amount you invest. As the size of your investment increases, the rate at which you pay the sales charge may decrease. Each dollar amount at which there is a corresponding reduction in the charge is known as a breakpoint. For example, the rate may drop from 4.5% to 4.25% with an investment of $25,000.The sales charge on a mutual fund may be imposed as a front-end load when you buy (also known as a Class A share), as a back-end load when you sell (also known as a Class B share), or as a level load each year you own the fund (also known as a Class C share).

Sales tax

A sales tax is a tax imposed by state and local governments on transactions that occur within their jurisdictions. The taxing authority determines which transactions are subject to tax and the flat rate at which the tax is calculated. Some countries, though not the United States, impose a national sales tax often called a value added tax (VAT).

Sallie Mae

This corporation purchases student loans from various lenders, such as banks, and packages the loans as bonds or short-term or medium-term notes. After issue, these debt securities trade on the secondary market.Sallie Mae guarantees repayment of the bonds and notes, and uses the money it raises through the sale of these securities to provide additional loan money for post-secondary school students. Sallie Mae also arranges financing for state student loan agencies. Its shares trade on the New York Stock Exchange (NYSE).

Sarbanes-Oxley Act of 2002

Named after its main Congressional sponsors, Senator Paul Sarbanes and Representative Michael Oxley, the Sarbanes-Oxley Act of 2002 introduced new financial practices and reporting requirements, including executive certification of financial reports, plus more stringent corporate governance procedures for publicly traded US companies and added protections for whistleblowers. Also known as the Corporate and Auditing Accountability, Responsibility, and Transparency Act, or more colloquially as SarbOx or SOX, the law was passed in response to several high-profile corporate scandals involving accounting fraud and corruption in major US corporations.The law also created the Public Company Accounting Oversight Board (PCAOB), a private-sector, nonprofit corporation that regulates and oversees public accounting firms.The law has seen its share of controversy, with opponents arguing that the expense and effort involved in complying with the law reduce shareholder value, and proponents arguing that increased corporate responsibility and transparency far outweigh the costs of compliance.

Savings account

A savings account is a deposit account in a bank or credit union that pays interest on your balance—though some institutions require that you have at least a minimum amount in the account to qualify for earnings. You can deposit and withdraw from savings accounts as you wish, but you can’t transfer money from the account directly to other people or organizations. While savings accounts typically pay interest at a lower rate than other bank accounts, that may not always be the case. Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund. You’re covered up to $100,000 in each of three different categories of account in a single bank, or up to $250,000 if an account is a self-directed retirement account (IRA). Different branches of the same bank count as one bank.

Savings bonds

The US government issues two types of savings bonds: Series EE and Series I.You buy electronic Series EE bonds through a Treasury Direct account for face value and paper Series EE for half their face value. You earn a fixed rate of interest for the 30-year term of these bonds, and they are guaranteed to double in value in 20 years. Series EE bonds issued before May 2005 earn interest at variable rates set twice a year.Series I bonds are sold at face value and earn a real rate of return that’s guaranteed to exceed the rate of inflation during the term of the bond. Existing Series HH bonds earn interest to maturity, but no new Series HH bonds are being issued.The biggest difference between savings bonds and US Treasury issues is that there’s no secondary market for savings bonds since they cannot be traded among investors. You buy them in your own name or as a gift for someone else and redeem them by turning them back to the government, usually through a bank or other financial intermediary.The interest on US savings bonds is exempt from state and local taxes and is federally tax deferred until the bonds are cashed in. At that point, the interest may be tax exempt if you use the bond proceeds to pay qualified higher education expenses, provided that your adjusted gross income (AGI) falls in the range set by federal guidelines and you meet the other conditions to qualify.


A screen is a set of criteria against which you measure stocks or other investments to find those that meet your criteria.For example, you might screen for stocks that meet a certain environmentally or socially responsible standard, or for those with current price-to-earnings ratios (P/E) less than the current market average.A socially responsible mutual fund describes the screens it uses to select investments in its prospectus.


Scrip is a certificate or receipt that represents something of value but has no intrinsic value. What's essential is that the issuer and the recipient must agree on the value that the scrip represents. For example, in the past, after a corporate stock split or spin-off, a company might issue scrip representing a fractional share of stock for each share you owned. On or before a specific date, you could combine the certificates and convert the value they represented into full shares. But most companies today make a cash payment for fractional shares based on the closing price of the stock on a specific date.


Scripophily is the practice of collecting antique stocks, bonds, and other securities. The most valuable documents are usually the most beautiful, or those that have some historical significance because of the role the issuing company played in the economy. Sometimes those with distinctive errors are also especially valuable.

Secondary market

When investors buy and sell securities through a brokerage account, the transactions occur on what's known as the secondary market. While the secondary market isn't a place, it includes all of the exchanges, trading rooms, and electronic networks where these transactions take place.The issuer — company or government — that sold the security initially receives no proceeds from these trades, as it does when the securities are sold for the first time.

Secondary offering

The most common form of secondary offering occurs when an investor, usually a corporation, but sometimes an individual, sells a large block of stock or other securities it has been holding in its portfolio to the public. In a sale of this kind, all of the profits go to the seller rather than the company that issued the securities in the first place. The seller usually pays all of the commissions.Secondary offerings can also originate with the issuing companies themselves. In these cases, a company issues additional shares of its stock, over and above those sold in its initial public offering (IPO), or it reissues shares that were issued and have been bought up by the company over time. Reissued shares are known as Treasury stock.


A sector is a segment of the economy that shares distinctive characteristics, such as telecommunications or energy. Sectors tend to do better during certain parts of the economic cycle and worse in others. Sectors also respond to a variety of factors, including consumer sentiment.The performance of any single stock in a sector can be measured against the performance of the sector as a whole, showing where that stock ranks in relation to its peers.Sector indexes, some broad and some very narrow, track many of the major sectors of the economy.

Sector fund

Sector mutual funds, also called specialty or specialized funds, concentrate their investments in a single segment of an industry, such as biotechnology, natural resources, utilities, or regional banks, for example.Sector funds tend to be more volatile and erratic than more broadly diversified funds, and often dominate both the top and bottom of annual mutual fund performance charts. A sector that thrives in one economic climate may wither in another one.

Secular market

A secular market is one that moves in the same direction — up or down — for an extended period. Benchmark indexes continue to rise to new, higher levels during a secular bull market despite some short-term corrections. Similarly, during a secular bear market, index levels decline or remain flat despite short-term rallies.In addition, the average price-to-earnings ratio increases substantially during a secular bull market before reaching a top and falls during secular bear markets before hitting a bottom. Secular markets tend to move in cycles, or predictable though not regular patterns, so that a secular bull market is followed by a secular bear market, which is followed by a secular bull market, and so on. For example, the bull market of 1982 through 1999 followed the bear market of 1966-1981. The length of secular markets varies, from as few as 4 or 5 years to more than 20 years, though when one begins and ends becomes clear only in retrospect.

Secured bond

The issuer of a bond or other debt security may guarantee, or secure, the bond by pledging, or assigning, collateral to investors. If the issuer defaults, the investors may take possession of the collateral.A mortgage-backed bond is an example of a secured issue, since the underlying mortgages can be foreclosed and the properties sold to recover some or all of the amount of the bond. Holders of secured bonds are at the top of the pecking order if an issuer misses an interest payment or defaults on repayment of principal.

Secured credit card

A secured credit card is linked to a savings account you open with the bank or other financial institution offering the card. You deposit a sum of money in the account, and you can borrow up to that amount using your card. If you don’t repay what you borrowed, the lender can access your account to cover your debt.Secured credit cards look the same as other credit cards, so no merchant can identify a card as secured. But if you have trouble qualifying for credit, perhaps because you have no credit history or you’ve just started working, you can use a secured card as a first step toward establishing a record of using credit responsibly.

Secured loan

A secured loan is a loan that’s guaranteed with collateral, such as a home or car. If you default and fail to make payments on time, the lender can take possession of your collateral and sell it to recover the loan amount. In most cases, lenders charge a lower interest rate on a secured loan than on an unsecured loan of comparable size. An unsecured loan is guaranteed only by your promise to pay, not by collateral.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is an independent federal agency that oversees and regulates the securities industry in the United States and enforces securities laws. The SEC requires registration of all securities that meet the criteria it sets, and of all individuals and firms who sell those securities. It's also a rule making body, with a mandate to turn the law into rules that the investment industry can follow.Established by Congress in 1934, the SEC sets standards for disclosure by publicly traded corporations, and works to protect investors from misleading or fraudulent practices, including insider trading.It has four divisions: Corporate Finance, Market Regulation, Investment Management, and Enforcement.

Securities Investor Protection Corporation (SIPC)

The Securities Investor Protection Corporation (SIPC) is a nonprofit corporation created by Congress to insure investors against losses caused by the failure of a brokerage firm. Through SIPC, assets in your brokerage account are insured up to $500,000, including up to $100,000 in cash, but only against losses that result from the brokerage firm going bankrupt, not against market losses caused by trading decisions or other causes.All brokers and dealers must register with the Securities and Exchange Commission (SEC) are required to be SIPC members though they can lose their affiliation under certain circumstances. Clients of nonmember firms are not insured.


Securitization is the process of pooling various types of debt — mortgages, car loans, or credit card debt, for example — and packaging that debt as bonds, pass-through securities, or collateralized mortgage obligations (CMOs), which are sold to investors. The principal and interest on the debt underlying the security is paid to the investors on a regular basis, though the method varies based on the type of security. Debts backed by mortgages are known as mortgage-backed securities, while those backed by other types of loans are known as asset-backed securities.


Traditionally, a security was a physical document, such as stock or bond certificate, that represented your investment in that stock or bond. But with the advent of electronic recordkeeping, paper certificates have increasingly been replaced by electronic documentation.In current general usage, the term security refers to the stock, bond, or other investment product itself rather than to evidence of ownership.

Self-amortizing loan

A self-amortizing loan is one that’s paid off over a specific period of time as the borrower makes regular installment payments. Part of each payment covers some interest on the loan, and the rest is applied to the principal. When the last payment is made, both principal and interest have been paid in full.Self-amortizing loans can be bundled together and offered for sale as debt securities, such as those available through Ginnie Mae (GNMA). If you buy GNMA or similar bonds, you get back part of your principal as well as the interest you’ve earned each time you receive an interest payment. There is no lump-sum repayment of principal when the bond matures.

Self-directed retirement plan

If you participate in a salary reduction retirement plan, such as a 401(k) or a 403(b), you usually must select the investments into which your contribution goes from a menu of choices your plan offers. When that’s the case, your plan is self-directed, and the income you receive when you retire is determined in part by the investment choices you make. Individual retirement plans (IRAs) are also self-directed plans, as you choose the way that the assets in the plan are invested. In contrast, if you’re part of a defined benefit pension plan, your employer is responsible for making the investment decisions. If you own a fixed annuity, the insurance company makes the investment decisions.

Self-regulatory organization (SRO)

All securities and commodities exchanges in the United States are self-regulatory organizations (SROs), as is NASD. These bodies establish the standards under which their members conduct business, monitor the way that business is conducted, and enforce their own rules. For example, the New York Stock Exchange (NYSE) requires that client orders delivered to the floor of the exchange be filled before orders that originate with traders on the floor, who buy and sell for their own accounts.

Sell short

Selling short is a trading strategy that's designed to take advantage of an anticipated drop in a stock's market price.To sell short, you borrow shares through your broker, sell them, and use the money you receive from the sale as collateral on the loan until the stock price drops. If it does, you then buy back the shares at a lower price using the collateral, and return the borrowed shares to your broker plus interest and commission. If you realize a profit, it’s yours to keep. Suppose, for example, you sell short 100 shares of stock priced at $10 a share. When the price drops to $7.50, you buy 100 shares, return them back to your broker, and keep the $2.50-per-share profit minus commission. The risk is that if the share price rises instead of falls, you may have to buy back the shares at a higher price and suffer the loss.During the period of the short sale, the lender of the stock is no longer the registered owner because the stock was sold to the purchaser. If any dividends are paid during that period, or any other corporate actions occur, the short seller must make the lender whole by paying the amount that’s due. However, that income is taxed at the lender’s regular rate, not the lower rate that applies to qualifying dividend income.

Sell side

Brokerage firms and other financial services companies that buy and sell investments as agents for retail investors as well as for their own accounts are described as the sell side of Wall Street. Sell-side institutions employ analysts to research potential investments and make buy, hold, or sell recommendations that brokers make available to their clients to help guide their investment decisions.


A sell-off is a period of intense selling of securities and commodities triggered by declining prices. Sell-offs — sometimes called dumping — usually cause prices to plummet even more sharply.

Senior bond

Senior bonds offer slightly lower interest rates than subordinated or junior bonds because they are considered less risky. A senior bond has priority in interest payments, and if a bond issuer defaults, or runs into difficulty paying off debt, holders of senior bonds have a prior claim in receiving whatever monies are available.

Separate account

An insurance company’s separate account is established to hold the premiums you use to purchase funds included in variable annuity contracts the company offers. The separate account is distinct from the company’s general account, which holds the company’s assets as well as premiums for fixed annuities and fixed-income separate account funds.Assets in a company’s separate account are not vulnerable to the claims of creditors, as assets in the general account are. But they can be affected by the ups and downs of the marketplace. Any gain or loss in value results from the investment performance of the investments in the separate account funds you select.

Separate account fund

Each variable annuity contract offers a number of separate account funds. Each of those funds owns a collection of individual investments chosen by a professional manager who is striving to achieve a particular objective, such as long-term growth or regular income.You allocate your variable annuity premiums among different separate account funds offered in your contract to create a diversified portfolio of funds, sometimes called investment portfolios or subaccounts.If you’re comparing different contracts to decide which to purchase, among the factors to consider are the variety of funds each contract offers, the past performance of those funds, the experience of the professional manager, and the fees.In evaluating the past performance and other details of the funds a contract offers, or the funds you are using in the contract you selected, you can use the prospectus the annuity company provides for each separate account fund. You may be able to find independent research on the funds from firms such as Morningstar, Inc., Standard & Poor’s, and Lipper.

Series 6

The Series 6 is a licensing examination that you must pass to be entitled to sell mutual funds and variable annuities to investors.The examination, which is administered by NASD, is a 100-question multiple choice test that puts primary emphasis on knowledge of the products plus the securities and tax regulations that apply. Anyone taking the exam must be sponsored by either an NASD member firm or an industry self-regulatory organization (SRO).

Series 63

The Series 63 is a licensing examination that most states require for anyone who wants to sell securities within the state. Developed by the North American Securities Administrators Association (NASAA), the test covers state securities laws, known informally as Blue Sky laws, as reflected in the Uniform Securities Act as amended by NASAA. To sell securities anywhere in the United States, applicants must also pass the Series 6 (for a license to sell mutual funds and annuities) or Series 7 (for a license to sell all securities) administered by NASD.

Series 7

To be licensed to sell securities to individual investors, brokers must pass the Series 7 exam, also called the General Securities Registered Representative Examination. The six-hour test requires knowledge of specific securities, the concept of suitability, the securities markets, and various aspects of maintaining customer accounts, stocks, bonds, options, mutual funds, direct participation programs, and variable annuities, but not commodities or futures contracts. Anyone taking the exam must be sponsored by an NASD member firm or an industry self-regulatory organization (SRO).

Settlement agent

In some states, a settlement agent, or closing agent, handles the real estate transaction when you buy or sell a home. He or she oversees title searches, legal documents, fee payments, and other details of transferring property, acting on your behalf to ensure that the conditions of the contract have been met and appropriate real estate taxes have been paid. A settlement agent also represents you at the closing, so you don’t need to be present.

Settlement date

The settlement date is the date by which a securities transaction must be finalized. By that date the buyer must pay for the securities purchased in the transaction, and the seller must deliver those securities.For stocks, the settlement date is three business days after the trade date, or what's referred to as T+3. For options and government securities, the settlement date is one day, or T+1, after the trade date. In figuring long- and short-term capital gains on your tax return, you use the trade date — the date you buy or sell a security — rather than the settlement date as the date of record.


A share is a unit of ownership in a corporation or mutual fund, or an interest in a general or limited partnership. Though the word is sometimes used interchangeably with the word stock, you actually own shares of stock.

Share class

Some stocks and certain mutual funds subdivide their shares into classes or groups to designate their special characteristics. For example, the differences between Class A shares and Class B shares of stock may focus on voting rights, resale rights, or other provisions that enhance the power of certain shareholders. In fact, in the United States, most dual class shares involve one class that is publicly traded and another class that is privately held.In some overseas countries, Class A shares can be purchased by citizens only, while Class B shares can be purchased by noncitizens only.In the case of mutual funds, class designations indicate the way that sales charges, or loads, are levied. Class A shares have front-end loads, Class B shares have back-end loads, also called contingent deferred sales charges, and Class C shares have level loads.


If you own stock in a corporation, you are a shareholder of that corporation. You're considered a majority shareholder if you alone or in combination with other shareholders own more than half the company's outstanding shares, which allows you to control the outcome of a corporate vote. Otherwise, you are considered a minority shareholder.In practice, however, it is possible to gain control by owning less than 51% of the shares, especially if there are a large number of shareholders or you own shares that carry extra voting power.

Sharpe ratio

Using the Sharpe ratio is one way to compare the relationship of risk and reward in following different investment strategies, such as emphasizing growth or value investments, or in holding different combinations of investments. To figure the ratio, the risk-free return is subtracted from the average return of an investment portfolio over a period of time, and the result is divided by the standard deviation of the return. A strategy with a higher ratio is less risky than one with a lower ratio. This type of analysis, which is done using sophisticated computer programs, is named for William P. Sharpe, who won the Nobel Prize in economics in 1990.

Short interest

Short interest is the total number of shares of a particular stock that investors have sold short in anticipation of a decline in the share price and have not yet repurchased.Short interest is often considered an indicator of pessimism in the market and a sign that prices will decline. However, some analysts see short interest as a positive sign, pointing out that short sales have to be covered, and that the need to repurchase can trigger increased demand and therefore higher prices.

Short position

If you sell stock short and have not yet repurchased shares to replace the ones you borrowed, you are said to have a short position in that stock. Similarly, if you sell an options contract that commits you to meet the terms of the contract at some date in the future if the option is exercised, you have a short position in that contract.


A SIMPLE, also known as a SIMPLE IRA, is short for Savings Incentive Match Plans for Employees, an employer sponsored retirement savings plan that may be offered by companies with fewer than 100 employees. Employers must contribute to eligible employees’ accounts each year in one of two ways. They can make a contribution equal to 2% of salary for every employee, or match dollar-for-dollar each employee’s contribution to the plan, up to 3% of that employee’s annual salary.A SIMPLE may be set up by establishing an IRA in each employee’s name or as a 401(k). Congress sets an annual dollar limit on the tax-deferred amount an employee may contribute, based on the type of SIMPLE it is. Contribution ceilings for SIMPLE-IRAs are lower than for other employer sponsored plans.You may withdraw assets from a SIMPLE without penalty if you are 59 1/2 or older and retired. And you must begin taking minimum required distributions by April 1 of the year following the year you turn 70 1/2 unless you’re still working. Taxes are due on distributions at your regular tax rate. You may roll your assets over into another employer plan or an IRA if you leave your job for any reason or retire.Two key differences between SIMPLEs and other employer plans are that your account must be open at least two years before you can withdraw or move the money, and the federal tax penalty for early withdrawal is 25% of the amount you take, rather than 10%.

Simple interest

If you earn simple interest on money you deposit in a bank or use to purchase a certificate of deposit (CD), the interest is figured on the amount of your principal alone. For example, if you had $1,000 in an account that paid 5% simple interest for five years, you'd earn $50 a year ($1,000 x .05 = $50) and have $1,250 at the end of five years.In contrast, if you had been earning compound interest, you'd have $1,276.29 at the end of five years, since the interest you earned each year, as well as your principal, would have earned interest.

Simplified employee pension plan (SEP)

An SEP is a qualified retirement plan set up as an individual retirement annuity (IRA) in an employee's name. You can establish an SEP for yourself if you own a small business, or you may participate as an employee if you work for a company that sponsors such a plan. The federal government sets the requirements for participation, the maximum annual contribution limits, and the rules governing withdrawals.

Sinking fund

To ensure there’s money on hand to redeem a bond or preferred stock issue, a corporation may establish a separate custodial account, called a sinking fund, to which it adds money on a regular basis. Or, the corporation may be required to establish such a fund to fulfill the terms of its issue. The existence of the fund allows the corporation to present its investments as safer than those issued by a corporation without comparable assets. However, sinking fund assets may be used to call bonds before they mature, reducing the interest the bondholders expected to receive.

Slow market

A slow market is one with sluggish trading and static prices. In this environment, it may be difficult to find buyers willing to pay the price at which you’d like to sell your securities or other assets. So to reduce the risk of losing principal or limiting gains, you may decide not to sell in a slow market unless you have a pressing need for the money that your asset might produce. On the other hand, you might choose to buy in a slow market because lackluster trading volume might depress the prices of attractive investments.The term slow market is also used to describe an exchange or market where transactions take relatively longer to execute than they do in other trading environments.

Small order execution system (SOES)

The small order execution system automatically routes, executes, reports, and compares market and limit orders between 100 and 1,000 shares in Nasdaq securities at market makers' best displayed bid and offer prices.

Small-capitalization stock

Shares of relatively small publicly traded corporations with a total market capitalization of less than $2.3 billion are typically considered small-capitalization, or small-cap, stocks. That number is not used uniformly, however, and you may find small-cap defined as below $1.5 billion. Market capitalization is calculated by multiplying the market price per share by the number of outstanding shares.Small-cap stocks, which are tracked by the Russell 2000 Index, tend to be issued by young, potentially fast-growing companies. Over the long term — though not in every period — small-cap stocks as a group have produced stronger returns than any other investment category. Mutual funds that invest in this type of stock are known as small-cap funds.

Social Security

Social Security is a federal government program designed to provide income for qualifying retired people, their dependents, and disabled people who meet the Social Security test for disability. You qualify for retirement benefits if you have had at least the minimum required payroll tax withheld from your wages for 40 quarters, the equivalent of 10 years. The minimum for each quarter is set by Congress and increases slightly each year. You earn credits toward disability coverage in the same way.The amount you receive in Social Security retirement benefits, up to the annual cap, is determined by the payroll taxes you paid during your working life, which were matched by an equal tax paid by your employers. Some of your benefit may be subject to income tax if your income plus half your benefit is higher than the ceiling Congress sets.

Socially responsible fund

When socially responsible mutual funds, also known as green funds or conscience funds, select securities to meet their investment goals, the securities must also satisfy the fund's commitment to certain principles spelled out in the fund's prospectus.For example, a socially responsible fund might not buy shares of a manufacturing company that operates factories that fund managers consider sweatshops. Or the fund might not buy shares of a food company that sells out-of-date products in emerging markets. Since the priorities of these funds vary, you may need to do some investigating to find one that matches your values.

Soft dollars

Soft dollars are amounts that money managers, including mutual fund managers, pay out of their clients’ accounts to a brokerage firm to cover the cost of research the firm provides as well as transaction fees for executing trades. The alternative would be for the managers to purchase the research with their own money, or hard dollars, and pay for the transaction fees with their clients’ money.Using soft dollars isn’t a violation of the manager’s fiduciary duty, provided that the money pays for research that is consistent with SEC requirements and for actual transaction costs. In fact, it may make valuable research information available to both the managers and their clients.The practice is controversial, however, for a number of reasons, including whether soft dollar relationships conflict with the managers’ obligation to seek best execution of the trades they place.

Soft market

A soft market, also known as a buyer's market, is one in which there is inactive trading in an individual stock or the market as a whole at current prices. As a result, a large sell order can easily push the price of the stock or the market down. If investors move in to buy at this lower level, the market is sometimes said to be firming up. Another way to describe a soft market is as one with more supply than demand.

Sole proprietor

A sole proprietor is the owner and operator of a business that isn’t registered as either a corporation or a limited liability company. As a sole proprietor, you are personally liable for all of your business’s debts and report any business profits or losses on your individual tax return.

Special situation

An undervalued stock that one or more analysts expects to increase in price in the very near future because of an anticipated — and welcome — change within the company is known as a special situation. That change could be the introduction of a major new product, a corporate restructuring, or anything else that has the potential to increase earnings. In some cases, the fact that a stock is identified as a special situation creates a flurry of investor interest and actually helps drive the price up even before the change has had time to take effect. A stock that is extremely volatile over the short term because of important recent news about the company, such as a takeover or spin-off, is also described as a special situation.


A specialist or specialist unit is a member of a securities exchange responsible for maintaining a fair and orderly market in a specific security or securities on the exchange floor. Specialists execute market orders given to them by other members of the exchange known as floor brokers or sent to their post through an electronic routing system.Typically, a specialist acts both as agent and principal. As agent, the specialist handles limit orders for floor brokers in exchange for a portion of their commission. Those orders are maintained in an electronic record known as the limit order book, or specialist’s book, until the stock is trading at the acceptable price. As principal, the specialist buys for his or her own account to help maintain a stable market in a security.For example, if the spread, or difference, between the bid and ask, or the highest price offered by a buyer and the lowest price asked by a seller, gets too wide, and trading in the security hits a lull, the specialist might buy, sell, or sell short shares to narrow the spread and stimulate trading.But because of restrictions the exchange puts on trading, a specialist is not permitted to buy a security when there is an unexecuted order for the same security at the same price in the limit order book.

Specialist’s display book

A display book was traditionally a written chronological record of all limit, stop, and short sale orders that had been placed with a specialist for an individual security on behalf of specific clients plus an inventory of the specialist’s own holdings in the security.The New York Stock Exchange (NYSE) Display Book® is an electronic extension of that recordkeeping. It’s part of an integrated telecommunications system that not only displays orders but executes and reports transactions, handles trade comparison, and links to a number of other functions.


When you make a financial commitment because you believe something will happen in the market where you’re trading that will provide a profit, you are acting as a speculator. For example, you might invest in a bankrupt company because you expect that it will emerge from bankruptcy and its stock price will rise at some point in the future. Or, you might purchase futures contracts or buy or sell options because you think the contracts might increase in value. In contrast, hedgers buy futures and options to protect their financial interests. For example, a baker who buys a wheat futures contract in order to protect the cost of producing bread is hedging the risk that wheat prices will rise. She’s willing to spend a certain amount to protect against a potentially larger loss.

Spending plan

A spending plan can help you manage your money more effectively, live within your income limits, reduce your reliance on consumer credit, and save for the things you want.You create a spending plan, or budget, by dividing up your income so that it covers your regular expenses — both essential and nonessential. It’s a good idea to include some income for your emergency fund — typically about three months of income — and ideally some for your investment account. As a starting point, some people use what they spent the previous year to figure out their spending plan for the next year. You may want to check the Bureau of Labor Statistics website ( for the average nationwide expenditures for housing, food, and other costs. But you may have to modify that information to reflect local costs and your own situation.


In a spin-off, a company sets up one of its existing subsidiaries or divisions as a separate company. Shareholders of the parent company receive stock in the new company based on an evaluation established for the new entity. in addition, they continue to hold stock in the parent company.The motives for spin-offs vary. A company may want to refocus its core businesses, shedding those that it sees as unrelated. Or it may want to set up a company to capitalize on investor interest. In other cases, a corporation may face regulatory hurdles in expanding its business and spin off a unit to be in compliance. And sometimes, a group of employees will assume control of the new entity through a buyout, an employee stock ownership plan (ESOP), or as the result of negotiation.

Split-funded annuity

A split-funded annuity lets you begin receiving income from a portion of your principal immediately, while the rest of the money goes into a deferred annuity.The advantage of split-funding is that you have the benefit of some income right away for immediate needs or wants, while the balance compounds tax deferred, allowing you to build your retirement assets.One goal of a split-funded annuity is providing a larger future income when you begin to draw on the deferred portion than you would receive if you annuitized the entire principal now.


Some market analysts maintain that the increased volatility in stock markets may be the result of an illegal practice known as spoofing, or phantom bids. To spoof, traders who own shares of a certain stock place an anonymous buy order for a large number of shares of the stock through an electronic communications network (ECN). Then they cancel, or withdraw, the order seconds later. As soon as the order is placed, however, the price jumps. That’s because investors following the market closely enter their own orders to buy what seems to be a hot stock and drive up the price.When the price rises, the spoofer sells shares at the higher price, and gets out of the market in that stock. Investors who bought what they thought was a hot stock may be left with a substantial loss if the price quickly drops back to its prespoof price. Spoofing is a variant of the scam known as pump and dump.

Spot market

Commodities and foreign currencies are traded for immediate delivery and payment on the spot market, also known as a cash market. The term refers to the fact that the current market price is paid in cash on the spot, or within a short period of time. A cash sale, whether arranged in person, over the telephone, or electronically, is the opposite of a forward contract, where delivery and settlement are set for a date in the future. The same is true for a futures contract, which is an agreement to trade a commodity today for a set price at delivery on a specific date in the future.

Spot price

The spot, or cash, price is the price of commodities and foreign currencies that are being sold for immediate delivery with payment in cash.


In the most general sense, a spread is the difference between two similar measures. In the stock market, for example, the spread is the difference between the highest price offered and the lowest price asked.With fixed-income securities, such as bonds, the spread is the difference between the yields on securities having the same investment grade but different maturity dates. For example, if the yield on a long-term Treasury bond is 6%, and the yield on a Treasury bill is 4%, the spread is 2%.The spread may also be the difference in yields on securities that have the same maturity date but are of different investment quality. For example, there is a 3% spread between a high-yield bond paying 9% and a Treasury bond paying 6% that both come due on the same date. The term also refers to the price difference between two different derivatives of the same class. For instance, there is typically a spread between the price of the October wheat futures contract and the January wheat futures contract. Part of that spread is known as the cost of carry. However, the spread widens and narrows, caused by changes in the market — in this case the wheat market.

Standard & Poor's (S&P)

Standard & Poor's (S&P) is an investment services company that rates bonds, stock, commercial paper, and insurance companies. It also compiles influential stock market indexes and publishes reports, guides, and handbooks on financial topics. The S&P 500 Index is one of the key measures of large-company stock market performance and is also the benchmark for a large number of large-company stock index funds.

Standard & Poor's Depositary Receipt (SPDR)

When you buy SPDRs — pronounced spiders — you're buying shares in a unit investment trust (UIT) that owns a portfolio of stocks included in Standard & Poor's 500-stock Index (S&P 500). A share is priced at about 1/10 the value of the S&P 500.Like an index mutual fund that tracks the S&P 500, SPDRs provide a way to diversify your investment portfolio without having to own shares in all the S&P 500 companies yourself. However, while the net asset value (NAV) of an index fund is set only once a day, at the end of trading, the price of SPDRs, which are listed on the American Stock Exchange (AMEX), changes throughout the day, reflecting the constant changes in the index. SPDRs, which are part of a category of investments known as exchange traded funds, can be sold short or bought on margin as stocks can.Each quarter you receive a distribution based on the dividends paid on the stocks in the underlying portfolio, after trust expenses are deducted. If you choose, you can reinvest those distributions to buy additional shares.

Standard & Poor's/BARRA Growth and Value Indexes

Some investors favor growth stocks while others favor value stocks. Since 1992, results of those investment styles, which tend to produce different returns over time, have been tracked separately by the Standard & Poor's/BARRA Growth and Value Indexes.To create the indexes, about half the 1,500 companies tracked in the S&P equity indexes are assigned to the value index and about half to the growth index, based on book-to-price ratio, or the book value of a stock divided by its market capitalization.The value index includes companies with higher book-to-price ratios, and the growth index includes companies with lower ratios. Both indexes are rebalanced and adjusted on a regular schedule to reflect changes in the stocks' market capitalizations and in the underlying S&P indexes.

Standard & Poor’s 500 Index (S&P 500)

The benchmark Standard & Poor’s 500 Index, widely referred to as the S&P 500, tracks the performance of 500 widely held large-cap US stocks in the industrial, transportation, utility, and financial sectors. In calculating the changing value of this capitalization-weighted index, also called a market value index, stocks with the greatest number of floating shares trading at the highest share prices are weighted more heavily than stocks with lower market value. This can mean that a relatively few stocks have a major impact on the movement of the index at any point in time. The stocks included in the index, their relative weightings, and the number of stocks from each of the sectors vary from time to time, at S&P’s discretion.

Standard deviation

Standard deviation is a statistical measurement of how far a variable quantity, such as the price of a stock, moves above or below its average value. The wider the range, which means the greater the standard deviation, the riskier an investment is considered to be.Some analysts use standard deviation to predict how a particular investment or portfolio will perform. They calculate the range of the investment's possible future performances based on a history of past performance, and then estimate the probability of meeting each performance level within that range.


While any new company could be considered a start-up, the description is usually applied to aggressive young companies that are actively courting private financing from venture capitalists, including wealthy individuals and private equity partnerships. In many cases, the startups plan to use the cash infusion to prepare for an initial public offering (IPO).

State guaranty funds

State guaranty funds, which are offered in every state, protect contract owners against the insolvency of an insurance company that has issued insurance contracts, including annuity contracts. However, each state’s laws set different limits on benefits and coverage. The guaranty funds are backed by an association of insurance companies, not the state or federal government. But all insurance companies in the state must belong and contribute to the fund in order to be licensed to sell their products. However, if you buy your contract from a highly rated company, its financial strength and reputation stand behind your contract.Rating services such as Standard & Poor's, Moody's, A.M. Best, and Fitch rank insurance companies on their overall financial condition, which underlies their ability to meet their obligations. You can request these reports from the insurance company. They are also available in public libraries, on the Internet, and from your financial adviser.

Statutory voting

When shareholders vote for candidates nominated to serve on a company's board of directors, they usually cast their ballots using statutory voting. Under this system, each shareholder gets one vote for each share of stock he or she owns, and may cast that number of votes for or against each candidate.For example, if you owned 100 shares, and there were three candidates, you could cast 100 votes for each of them. That means the shareholders owning greater numbers of shares have greater influence on the outcome of the election.In cumulative voting, on the other hand, a shareholder may cast the total number of his or her votes — one vote for every share of stock multiplied by the number of candidates for the board — for or against a single nominee, divide them between two nominees, cast an equal number of shares for each candidate, or any other combination.For example, if you owned 100 shares, and there were three candidates, you could cast 300 votes for one of them and ignore the others. With this system, people owning a smaller number of shares can concentrate on one or two candidates. That means they may have a better chance of influencing the makeup of the board.

Step-up in basis

When you inherit assets, such as securities or property, they are stepped-up in basis. That means the assets are valued at the amount they are worth when your benefactor dies, or as of the date on which his or her estate is valued, and not on the date the assets were purchased. That new valuation becomes your cost basis.For example, if your father bought 200 shares of stock for $40 a share in 1965, and you inherited them in 2000 when they were selling for $95 a share, they would have been valued at $95 a share. If you had sold them for $95 a share, your cost basis would have been $95, not the $40 your father paid for them originally. You would not have had a capital gain and would have owed no tax on the amount you received in the sale.In contrast, if your father had given you the same stocks as a gift where there is no step-up, your basis would have been $40 a share. So if you sold at $95 a share, you would have had a taxable capital gain of $55 a share (minus commissions).

Stochastic modeling

Stochastic modeling is a statistical process that uses probability and random variables to predict a range of probable investment performances. The mathematical principles behind stochastic modeling are complex, so it's not something you can do on your own. But based on information you provide about your age, investments, and risk tolerance, financial analysts may use stochastic modeling to help you evaluate the probability that your current investment portfolio will allow you to meet your financial goals. Appropriately enough, the term stochastic comes from the Greek word meaning "skillful in aiming."


Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation's earnings and assets. Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stock provides no voting rights but usually guarantees a dividend payment.In the past, shareholders received a paper stock certificate — called a security — verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.

Stock certificate

A stock certificate is a paper document that represents ownership in a corporation. In the past, when you bought stock, you got a certificate that listed your name as owner, and showed the number of shares and other relevant information. When you sold the stock, you endorsed the certificate and sent it to your broker.Stock certificates have been phased out, however, and replaced by electronic records. That means you don't have to safeguard the certificates, and can sell shares by giving an order over the phone or online. The chief objection that's been raised to the new system is largely nostalgic and aesthetic, since the certificates, with their finely engraved borders and images, are distinctive and often beautiful.

Stock market

A stock market may be a physical place, sometimes known as a stock exchange, where brokers gather to buy and sell stocks and other securities. The term is also used more broadly to include electronic trading that takes place over computer and telephone lines. In fact, in many markets around the world, all stock trading is handled electronically.

Stock option

A stock option, or equity option, is a contract that gives its buyer the right to buy or sell a specific stock at a preset price during a certain time period. The exact terms are spelled out in the contract. The same contract obligates the seller, also known as the writer, to meet its terms to buy or sell the stock if the option is exercised. If an option isn't exercised within the set period, it expires. The buyer pays the seller a premium for the privilege of having the right to exercise, and the seller keeps that premium whether or not the option is exercised. The buyer has the right to sell the contract at any point before expiration, and might choose to sell if the sale provides a profit. The seller has the right to buy an offsetting contract at any time before expiration, ending the obligation to meet the contract’s terms.Stock options are also a form of employee compensation that gives employees — often corporate executives — the right to buy shares in the company at a specific price known as the strike price. If the stock price rises, and an employee has a substantial number of options, the rewards can be extremely handsome. However, if the stock price falls, the options can be worthless. Often, there are time limits governing when employees can exercise their options and when they can sell the stock. These options, unlike equity options, can’t be traded among investors.

Stock split

When a company wants to make its shares more attractive and affordable to a greater number of investors, it may authorize a stock split to create more shares selling at a lower price. A 2-for-1 stock split, for example, doubles the number of outstanding shares and halves the price. If you own 100 shares of a stock selling at $50 a share, for a total value of $5,000, and the company's directors authorize a 2-for-1 split, you would own 200 shares priced at $25, with the same total value of $5,000. Announcements of stock splits, or anticipated stock splits, often generate a great deal of interest. Buyers may simply want to take advantage of the lower share price, or they may believe that the split stock will increase in value, moving back toward its presplit price.While 2-for-1 splits are the most common, stocks can be also be split 3-to-1, 10-to-1, or in any other combination. In addition, a company can reverse the process and consolidate shares to reduce their number by authorizing a reverse stock split.

Stop order

You can issue a stop order, which instructs your broker to buy or sell a security once it trades at a certain price, called the stop price. Stop orders are entered below the current price if you are selling and above the current price if you are buying. Once the stop price is reached, your order becomes a market order and is executed.For example, if you owned a stock currently trading at $35 a share that you feared might drop in price, you could issue a stop order to sell if the price dropped to $30 a share to protect yourself against a larger loss. The risk is that if the price drops very quickly, and other orders have been placed before yours, the stock could actually end up selling for less than $30. You can give a stop order as a day order or as a good 'til canceled (GTC) order. You might use a buy stop order if you have sold stock short anticipating a downward movement of market price of the security. If, instead, the price rises to the stop price, the order will be executed, limiting your loss. However, there is a risk with this type of order if the market price of the stock rises very rapidly. Other orders entered ahead of yours will be executed first, and you might buy at a price considerably higher than the stop limit, increasing your loss.

Stop price

When you give an order to buy or sell a stock or other security once it has reached a certain price, the price you name is known as the stop price. When you ask your broker to buy, your stop price is higher than the current market price. When you're selling, the stop price is lower than the current price.In either case, once the stop price has been reached, your broker will execute the order even if a flurry of trading drives the stock's price up or down quickly. That might mean you end up paying more than the stop price if you're buying or get less than the stop price if you're selling.

Stop-limit order

A stop-limit is a combination order that instructs your broker to buy or sell a stock once its price hits a certain target, known as the stop price, but not to pay more for the stock, or sell it for less, than a specific amount, known as the limit price. For example, if you give an order to buy at "40 stop 43 limit," you might end up spending anywhere from $40 to $43 a share to buy a stock, but not more than $43. A stop-limit order can protect you from a rapid run-up in price — such as those that may occur with an initial public offering (IPO) — but you also run the risk that your order won't be executed because the stock's price leapfrogs your limit.


A straddle is hedging strategy that involves buying or selling a put and a call option on the same underlying instrument at the same strike price and with the same expiration date. If you buy a straddle, you expect the price of the underlying to move significantly, but you’re not sure whether it will go up or down. If you sell a straddle, you hope that the underlying price remains stable at the strike price. Your risk in buying a straddle is limited to the premium you pay. As a seller, your risk is much higher because if the price of the underlying security moves significantly, you may be assigned at exercise to purchase or sell the underlying security at a potential loss. Similarly, if you choose to buy offsetting contracts when the prices move, it may cost you more than the premium you collected.

Straight life

A straight life insurance policy is a type of permanent insurance that provides a guaranteed death benefit and has fixed premiums. This traditional life insurance is sometimes also known as whole life insurance or cash value insurance.With a straight life policy, a portion of your premium pays for the insurance and the rest accumulates tax deferred in a cash value account. You may be able to borrow against the cash value, but any amount that you haven’t repaid when you die reduces the death benefit.If you end the policy, you get the cash surrender value back, which is the cash value minus fees and expenses. However, ending the policy means you no longer have life insurance and no death benefit will be paid at your death.


A strangle is hedging strategy in which you buy or sell a put and a call option on the same underlying instrument with the same expiration date but at different strike prices that are equally out-of-the-money.That is, the strike price for a put is above the current market price of the stock, stock index, or other product, and the strike price for a call is below the market price. If you buy a strangle, you hope for a large price move in one direction or another that would allow you to sell one of the contracts at a significant profit. If you sell a strangle, you hope there’s no significant price move in either direction so that the contracts expire out-of-the-money and you keep the premium you received.

Street name

Street name is a way to identify stock that is registered in a broker-dealer’s name rather than in the name of the actual, or beneficial, owner. Stock registered in street name is also said to be held in nominee name. The advantage of having your stocks registered in street name is that the shares are secure and at the same time can be traded more easily. That's because you don't have to sign and deliver the stock certificates before a sale can be completed. There’s an advantage from the broker-dealer’s perspective as well, since stocks held in street name can be used to complete a trade or in other transactions, subject to regulatory limits.

Strike price

The strike price, also called the exercise price, is the price at which you as an options holder can buy or sell the stock or other financial instrument underlying the options contract if you choose to exercise before expiration. While the strike price is set by the exchange on which the option trades, and changes only if there’s a stock split, merger, or some other corporate action that affects the underlying instrument, the market price of the underlying instrument rises and falls during the life of the contract. As a result, the underlying instrument might reach a price that would put the strike price in-the-money and make exercising the option at the strike price, or selling the option in the marketplace financially advantageous, or it might not. If not, you let the option expire.


STRIPS, an acronym for separate trading of registered interest and principal of securities, are special issues of US Treasury zero-coupon bonds. They're created and sold by brokerage firms, not by the government.The bonds are prestripped, which means that the issue is separated into the principal and a series of individual interest payments, and each of those parts is offered separately as a zero-coupon security.

Structured product

Financial institutions create investment products, known generically as structured products, that trade on a stock exchange and link the return on an investor’s principal to the performance of an underlying security, such as a stock or basket of stocks or to a derivative, such as a stock index.For example, the return on debt securities known as structured notes is determined by the performance of a stock index such as the Standard & Poor’s 500 (S&P 500) rather than the market interest rate. The objective is to provide the potential for higher returns than are available through a conventional investment.Each product has a distinctive name, often expressed as an acronym, and its terms and conditions vary somewhat from those offered by its competitors. For example, in some cases the principal is protected and in others it isn’t. But some features are characteristic of these complex investments — their value always involves an underlying financial instrument and they require investors to commit a minimum investment amount for a specific term, such as three years.

Stub stock

When a company has a negative net worth as a result of being bought out or going bankrupt, it may convert some of the bonds it has issued into shares of common stock. Perhaps because each share is worth only a portion of the original bond’s value, this new stock is known as stub stock.The issuing company’s financial instability makes stub stock a volatile investment. But if the company regains its strength, stub stock can increase dramatically in value.


The separate account funds to which you allocate your variable annuity premiums are sometimes called subaccounts. Each subaccount is managed by an investment specialist, or team of specialists, who make buy and sell decisions based on the subaccount’s objective and their analysts' research. If you’re comparing different contracts to decide which to purchase, among the factors to consider are the variety of subaccounts each contract offers, the past performance of those subaccounts, the experience of the professional manager, and the fees.In evaluating the past performance and other details of the subaccounts a contract offers, or those you select in the contract you choose, you can use the prospectus the annuity company provides for each subaccount. You may also be able to find independent research from firms such as Morningstar, Inc., Standard & Poor's, and Lipper. However, past performance is not indicative of future results.


Each asset class — stock, bonds, and cash equivalents, for example — is made up of a number of different groups of investments called subclasses. Each member of a subclass shares distinctive qualities with other members of the subclass. For example, some of the subclasses of the asset class bonds are US Treasury bonds, mortgage-backed agency bonds, corporate bonds, and high-yield bonds. Similarly, some of the subclasses of stock are large-, medium-, and small-company stock, blue chip stock, growth stock, value stock, and income stock. Because different subclasses of an asset class perform differently, carry different risks, and may go up and down in value at different times, you may be able to increase your return and offset certain risks by diversifying your portfolio by holding individual securities within a variety of subclasses within each asset class.

Subordinated debt

Subordinated debt generally refers to debt securities that have a secondary or lesser claim to the issuer’s assets than more senior debt, should the issuer default on its obligations. In fact, there are also levels of subordinated debt, with senior subordinated debt having a higher claim to repayment than junior subordinated debt.

Subscription price

The subscription price is the discounted price at which a current shareholder can buy additional shares of company stock before these newly available shares are offered for sale to the general public. In some cases the shareholder can buy the new shares without incurring a brokerage fee.

Subscription right

If a corporation’s charter has a preemptive rights clause, before the company offers a new issue of securities to the public, it must offer existing shareholders the opportunity to buy new shares of stock in proportion to the number they already own. That obligation is known as a subscription right, or a rights offering, and allows you to maintain the same percentage of ownership you had before the new issue. Usually you receive one right for every share you already own, although the number of rights you need to buy a share depends on the number of outstanding shares in relation to the number in the proposed new issue. Rights are transferable, and may be traded on the secondary market. For example, if you don’t wish to purchase additional shares, you may choose to sell your rights. Or, if you need additional rights to make a purchase, you may buy them. Rights have expiration dates, so you typically must act promptly to take advantage of the offer.

Substitute check

Substitute checks are digital copies of the fronts and backs of paper checks that provide the same legal protections and obligations as the originals, including serving as proof of payment. Each check is formatted on a separate piece of paper a little larger than the original with the words “This is a legal copy of your check” appearing next to the image.Using digital copies, which can be transmitted electronically, allows banks to process payments faster and more efficiently than they could when paper checks had to be routed through the check clearing system. Most banks destroy original checks once they’ve archived the substitutes, which means that you probably no longer receive cancelled checks with your bank statement. Your bank may send you substitute checks but is more likely to provide either a line item statement or an image statement that has photocopies of the fronts and backs of cancelled checks grouped on a page. These are not substitute checks, although they can often be used as proof of payment. If you need an actual copy of a substitute check, you can request it from your bank. However, there may be a fee.

Suitability rules

Self regulatory organizations (SROs), such as NASD, securities exchanges, and individual brokerage firms require that stockbrokers ensure that the investments they buy for you are suitable for you. This means, for example, that the investments are appropriate for your age, financial situation, investment objectives, and tolerance for risk. Brokerage firms require investors opening accounts to provide enough information about their financial picture to enable the broker to know what investments would be suitable.

Surrender fee

A surrender fee is the penalty you owe if you withdraw money from an annuity or mutual fund within a certain time period after purchase. The period is set by the seller.In the case of a mutual fund, it's designed to prevent in-and-out trading in a fund, which might require the fund manager to liquidate holdings in order to redeem your shares. In the case of an annuities contract, there's the additional motive of covering the sales charge paid to the investment professional who sold you the product.

Survivorship life

Survivorship life insurance, also known as a second-to-die policy, is permanent insurance that covers the lives of two people and pays the death benefit only after the death of the second person. Survivorship life may be appropriate for married couples with substantial wealth if estate taxes might be due after the death of the second person. The death benefit would be available to cover the amount due at the federal or state level, protecting some or all of the assets from having to be sold to cover these tax bills.However, the premiums on survivorship life policies are often higher than the cost of other types of permanent insurance.

Suspended trading

Suspended trading means that an exchange has temporarily stopped trading in a particular stock or other security. Trading is typically halted either because an important piece of information about the issuing company is about to be released or because there’s a serious imbalance between buy and sell orders, often triggered by speculation. In the case of an expected announcement, the affected company generally notifies the exchange that the news is imminent. The suspension, or trading halt, provides time for the marketplace to absorb the announcement, good or bad, and helps reduce volatility in the stock price. Examples of news that could cause a suspension are a poorer than expected earnings report, a major innovation or discovery, a merger, or significant legal problems. The Securities and Exchange Commission (SEC) can also suspend trading in the stock of a company it suspects of misleading or illegal activity.


When you swap or exchange securities, you sell one security and buy a comparable one almost simultaneously. Swapping enables you to change the maturity or the quality of the holdings in your portfolio. You can also use swaps to realize a capital loss for tax purposes by selling securities that have gone down in value since you purchased them.More complex swaps, including interest rate swaps and currency swaps, are used by corporations doing business in more than one country to protect themselves against sudden, dramatic shifts in currency exchange rates or interest rates.

Sweep account

A brokerage firm or bank may automatically transfer — or sweep — a client’s uninvested or surplus funds into a designated account. For instance, at the end of each business day, a bank might sweep a business client’s surplus cash from a checking account into a high-yield money market or savings account, where the money earns interest over night. The next morning, the bank would make these funds again available to the customer. Individuals are more likely to have sweep arrangements with their brokerage firm to handle investment earnings.


When a group of investment banks works together to underwrite and distribute a new security issue, they are acting as a syndicate. Syndicates are temporary, forming to purchase the securities from the issuer and dissolving once the issue is distributed.However, new syndicates, involving some or all of the same banks, form on a regular basis to underwrite each new issue. You may also hear these underwriting syndicates called purchase groups, underwriting groups, or distributing syndicates.In other financial contexts, syndicate may refer to any group of financial institutions that works together on a particular project. Syndicate also describes a group of investors who make a joint investment in a company.

Synthetic investment

A synthetic investment simulates the return of an actual investment, but the return is actually created by using a combination of financial instruments, such as options contracts or an equity index and debt securities, rather than a single conventional investment. For example, an investment firm might create a synthetic index that seeks to outperform a particular index by purchasing options contracts rather than the equities the actual index owns, and using the money it saves to buy cash equivalents or other debt securities to enhance its return on the derivatives. Options spreads, structured products, and certain investments in real estate and guaranteed investment contracts can be described as synthetic products. While they are artificial, they can play a legitimate role in an individual or institutional investor’s portfolio as a way to reduce risk, increase diversification, enjoy a stronger return, or meet needs that conventional investments don’t satisfy. However, synthetic investments may carry added fees and add more complexity than you are comfortable dealing with.

Systematic risk

Systematic risk, also called market risk, is risk that’s characteristic of an entire market, a specific asset class, or a portfolio invested in that asset class. It’s the opposite of the risk posed by individual securities in a class or portfolio, also known as nonsystematic risk. The predictable impact that rising interest rates have on the prices of previously issued bonds is one example of systematic risk.

Systematic withdrawal

Systematic withdrawal is a method of receiving income in regular installments from your mutual fund accounts, retirement plans, or annuity contracts. Generally, you decide how much you want to receive in each payment, and the schedule on which you want to receive the income. Those payments continue until you stop them or you run out of money. Unlike the alternatives, such as a pension annuity, systematic withdrawal gives you the flexibility to stop payments at any time, adjust the amount you receive, or choose a different way to access your money. And by withdrawing the same amount on a regular schedule, you limit the risk of taking a large lump sum at a time when your account value has dropped because of a market decline.The chief drawback of this withdrawal method is that there’s no guarantee of lifetime income, so it’s possible to deplete your account more quickly than the rate at which it’s growing. That could mean running out of money.After you reach 70 1/2, you can use systematic withdrawals as a way to ensure you take out the minimum required distribution (MRD) from qualified retirement accounts and IRAs to avoid the risk of incurring IRS penalties.

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