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ILC Glossary of Financial Terms

S

From Scrip to Syndicate

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  1. Secondary Market
  2. Securitization
  3. Serial Bond or Debenture
  4. Shares or Stocks
  5. Speculator
  6. Stock Consolidation
  7. Stock Split
  8. Strike Price
  9. Surplus
Scrip:

A certificate exchangeable for cash before a specified date, after which it may have no value. Usually issued for fractions of shares in connection with a stock dividend or split or in a reorganization of a company. For example, a one-for-three stock dividend would result in many shareholders being entitled to a fraction of a share (1/3 or 2/3) for which scrip would be issued instead of an actual stock certificate.

Seat:

The traditional term for membership on a stock exchange. An investment dealer would buy a seat on the exchange and one employee would be designated as the seat holder.

SEC:

The Securities and Exchange Commission, a federal body established by the United States Congress as a national U.S. regulatory authority. In Canada there is no national regulatory authority because securities legislation is provincially administered.

Secondary Distribution or Secondary Offering:

The redistribution of a block of stock after it has been initially sold by the issuing company. Usually a large block of shares is involved (e.g. from the settlement of an estate) and these are offered to the public at a fixed price, set in relationship to the stock's market price.

Secondary Market:

Secondary markets are the stock exchanges and the over-the-counter market. Securities are first issued as a primary offering to the public. When the securities are traded from that first holder to another, the issues trade in these secondary markets.

Securities:

Transferable certificates of ownership of investment products such as notes, bonds, stocks, futures contracts and options.

Securities Administrator:

A general term referring to the provincial regulatory authority (e.g. securities commission) responsible for administering provincial securities acts.

Securities Advisor:

A person or firm registered with applicable securities commissions to generally advise the public on securities, often through publications.

Securities Commission:

Each province has a securities commission or administrator which oversees the provincial securities act. This act is a set of laws and regulations which set down the rules under which securities may be issued and traded.

Securitization:

1. The development of markets for a variety of debt instruments that permit the ultimate borrower to bypass the banks and other deposit-taking institutions and to borrow directly from lenders. 2. In a narrow sense it also refers to the process of converting loans of various sorts into marketable securities by packaging the loans into pools and then selling shares of ownership in the pool itself.

Self-Regulatory Organizations (SROs):

Many important rules governing securities industry practices and standards in Canada are set by the self-regulatory organizations, which include the Vancouver, Alberta and Toronto Stock Exchanges, the Montreal Exchange and the Investment Dealers Association of Canada. Many of the regulatory and compliance functions have been delegated to the SROs by the provincial securities administrators.

Selling Group:

Investment dealers who assist a banking group in marketing a new issue of securities in order to obtain wide distribution. These dealers do not assume financial responsibility for the underwriting of the issue as the banking group does.

Senior Bond Issue:

A corporate bond issue which has priority over other bonds as to its claim on the company's assets and earnings. An example is a first mortgage bond.

Senior Debt:

A senior debt issue ranks before other issues in terms of claims on assets in the event of a company break-up. For example, senior bonds rank before junior bonds, which rank before senior debentures, which rank before junior debentures, etc.

Serial Bond or Debenture:

A bond or debenture issue in which a predetermined amount of the principal becomes due and payable each year.

Settlement Date:

The date on which a security buyer must pay for his or her purchase, or a seller must deliver the securities he or she has sold. In Canada, investors have three days to pay for a purchase or, if selling, three days to turn in the securities certificate if it is in their possession.

Shareholder or Stockholder:

Someone who owns preferred or common shares of a company.

Shareholders' Equity:

Ownership interest of common and preferred stockholders in a company. It is also the difference between the assets and liabilities of a company, which is sometimes called net worth, or just "equity."

Shareholder of Record:

A shareholder whose name is registered in the records of a company whose shares he or she holds. Dividend payments and rights issues are announced as being payable to shareholders of record.

Shares or Stocks:

These two terms are used interchangeably. Certificates representing ownership in a corporation and the appropriate claim on the corporation's earnings and assets.

Short Selling:

The sale of a security which the seller does not own. This is a speculative practice done in the belief that the price of a stock is going to fall and the seller will then be able to cover the sale by buying the security back at a lower price. The profit would be the difference between the initial selling price and the subsequent purchase price. It is illegal for a seller not to declare a short sale at the time of placing the order.

Short-term Bond :

A bond or debenture maturing within three years

Short-term Debt:

Company borrowings repayable within one year that appear in the current liabilities section of the company's balance sheet. The most common short-term debt items are bank advances or loans, notes payable, debentures and bonds due within one year.

Sinking Fund:

A fund set up by a company to retire, over a period of time, the major part of a preferred share issue, or a debt issue prior to maturity. The fund helps to "pay off" the debt issue over the term of the issue and can be compared to principal payments made by a mortgage holder. Even though the issue is outstanding until maturity, the small incremental payments made under a sinking fund can make the maturity of the bond issue less onerous on the company. Instead of having to re-fund the entire issue, there may only be a small outstanding balance. A sinking fund security is attractive to investors as there is more assurance that the debt will be repaid on maturity.

Speculator:

A speculator is one who is prepared to accept calculated risks in the marketplace for attractive potential returns. A speculator's objective is usually short to medium term capital gain, whereas regular income and safety of principal are the prime goals of the conservative investor.

Spread:

1. The gap between the bid and ask prices in the quotation for a security. 2. The term can also be applied to certain strategies for options and commodities where the investor is trading on the differences in prices between two related securities.

Statement of Changes in Financial Position:

A financial statement which provides information as to how a company generated and spent its cash during the year. It links the company's balance sheets for two successive years and provides a summary of the incoming and outgoing movement of a company's funds for the period. It explains changes in working capital (current assets less current liabilities) from one year to the next.

Statement of Material Facts:

A document presenting the relevant facts about a company and compiled in connection with an underwriting or secondary distribution of its shares. It is used only when the shares underwritten or distributed are listed on a recognized stock exchange and takes the place of a prospectus in such cases.

Stockholder or Shareholder:

Someone who owns preferred or common shares of a company.

Stock Consolidation:

The opposite of a stock split. A number of existing shares are combined into a smaller number of shares, ie. turning every three shares into one.

Stock Dividend:

Dividends paid to shareholders in shares of stock rather than cash.

Stock Exchange or Stock Market:

An organized marketplace where buyers and sellers are brought together to buy and sell stocks and must follow certain rules, regulations and guidelines.

Stock Index:

An indicator used to measure and report value changes in a specific group of stocks. For example, the TSX Composite Index Index measures 300 stocks with the greatest market capitalization of all the companies listed on the Toronto Stock Exchange.

Stock Savings Plan:

Some provinces, such as Quebec, Nova Scotia, Saskatchewan and Newfoundland offer stock savings plans which allow individuals in those provinces a deduction or tax credit for provincial income tax purposes. The credit or deduction is a percentage figure based on the value of investment in certain prescribed vehicles.

Stock Split:

Division of a company's outstanding common shares into a larger number of common shares. A three-for-one split by a company with one million shares outstanding would result in three million shares outstanding. Each holder of 100 shares before the three-for-one split would have 300 shares after the split, but his or her proportionate equity in the company would remain the same - each unit would just be smaller.

Stocks or Shares:

These two terms are used interchangeably. Certificates representing ownership in a corporation and the appropriate claim on the corporation's earnings and assets.

Stock Symbol:

An unique three or four letter symbol assigned to a security trading on a stock exchange. For example, Hollinger Inc. is listed as HLG on the Toronto Stock Exchange.

Stop Loss and Stop Buy Orders:

Orders for certain securities when the price of a stock rises or falls to a specified price. A stop loss order is an order to sell when the price of the stock declines to, or below, a stated price. The purpose of this is to reduce the amount of loss that might occur. A stop buy order is an order to buy a stock when the price rises to a certain level. This is given by a person who has sold a security short and is an attempt to reduce loss or protect a profit should the price rise unexpectedly.

Street Certificate or "Street Name":

Most people who own securities today do not physically have possession of the stock or bond certificates. Their securities are kept on their behalf by their investment dealer, which is called keeping securities in "street name." All interest payments and dividends are passed onto the client by crediting their account with the dealer.

Strike Price:

The price at which the underlying stock of a call option can be purchased, or the price at which the underlying stock of a put option can be sold. Also referred to as the exercise price.

Strip Bonds or Zero Coupon Bonds:

Usually high quality federal or provincial government bonds originally issued in bearer form, where some or all of the interest coupons have been detached. The bond principal and any remaining coupons trade separately from the strip of detached coupons, both at substantial discounts from par.

Stripped Debentures:

Debentures which have been separated from other securities, such as warrants, which were originally issued together as a unit.

Subject Bid, Subject Offer:

A bid or offer made for a security that indicates the buyer's interest, in the case of a bid, or the seller's interest, in the case of an offer, but does not commit the buyer or seller to the purchase or sale of the security at that price or time.

Subsidiary:

A company which is controlled by another company, usually by owning the majority of the first company's shares.

Surplus:

Contributed surplus is a balance sheet figure which originates from sources other than earnings, such as the initial sale of stock above par value. Earned surplus, or retained earnings, is the amount of accumulated earnings retained in the business after the payment of all expenses and dividends.

Surtax:

An additional income tax over and above the regular income tax amount. Usually used as a temporary measure to raise funds for short-term needs.

Sweetener:

A feature included in the terms of a new issue of debt or preferred shares to make the issue more attractive to initial investors. Examples of sweeteners include warrants, or convertible, extendible or retractable features.

Switching:

Selling one security and buying another.

Syndicate:

A group of investment dealers who underwrite and distribute a new issue of securities or a large block of an outstanding issue.

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  • The Investor Learning Centre of Canada (ILC) is a not-for-profit organization dedicated to providing independent investment information to Canadians. It was established in 1996 by the Canadian Securities Institute, the national educator for the securities industry. The ILC offers books, seminars, resource centres and Internet services across Canada.
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