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Flashcards in Equity Securities Deck (102)
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Regular way settlement for equities

T + 2


The first day that a buyer buys stock without a dividend

Ex-dividend date


The date on which a corporation pays a dividend to shareholders of record

Payable date


The last day a buyer can buy stock and receive the dividend

Business day before the ex-date


When issuers must notify the exchange prior to the stock's record date

10 business days prior (the declaration date)


When the ex-dividend date happens relative to the record date for regular way trades

1 business day before record date


Security with the most junior claim in a corporate liquidation

Common stock


Fixed rate equity security that responds to market conditions like a bond

Preferred stock


Share value of a penny stock

Less than $5 per share


adjustable-rate preferred stock

A type of preferred stock where the stated dividend rate will fluctuate based on an underlying benchmark, such as the rate on T-bills. Because the dividend will adjust based on current interest rates, the share price tends to remain extremely stable.


American depositary receipts (ADRs)

Negotiable certificates that represent ownership in the shares of foreign companies and help facilitate their trading in the US.


American depositary shares (ADS)

The individual shares of foreign corporations represented by ADRs.


authorized stock

The total number of shares of common stock that a corporation is allowed to issue according to its corporate charter.


beneficial owner

The actual owner, who retains all rights of ownership, even if the account has another legal owner in name. When securities are held in street name, the broker-dealer acts as the nominal owner, with the investor still being the beneficial owner.



A measure of the volatility of a stock or portfolio compared to the overall market. A security that has a beta of 1.0 will track the market, a beta of more than 1.0 indicates the price will be more volatile than the market, and a beta of between 0 and 1.0 indicates that the security will be less volatile than the market.


blue chip stock

Shares of large, stable companies that have a long history of steady earnings and dividends. Because of their size, they offer modest growth potential, but generally pay a consistent dividend. Examples include Coca-Cola, General Electric, and IBM.


business risk

The risk that one specific company�s value will lower, be it due to poor management decisions or product recalls. An investor can protect against this risk by owning a diversified portfolio.


callable preferred stock

A type of preferred stock that can be repurchased by the company at its discretion. The company is most likely to exercise this call feature when interest rates are falling in order to issue new stock with a lower dividend. Because of the call risk faced by the investor, callable preferred generally pays a higher dividend than non-callable preferred stock from the same issuer.


capital appreciation

The increase in the value of a securities position, such as one involving a stock or bond.


cash dividend

The most common type of dividend payment. Cash profits are distributed to shareholders if declared by the company�s board of directors. Cash dividends are taxable at receipt by the investor.


cash settlement

A settlement cycle where both payment and legal ownership change hands on the same day the trade is executed. Cash settlement contrasts with regular way settlement, in which there�s a delay between the trade date and settlement date.


common stock

The most widely held equity security, representing ownership stake in a company. Rights of common stockholders include the ability to vote on corporate matters, to receive dividends if declared by the company�s board, and limited liability. Investors typically purchase common stock for capital appreciation and dividends.


convertible preferred stock

A type of preferred stock where holders have the option to exchange their preferred shares for shares of the issuer�s common stock. Because of this benefit for the investor, convertible preferred pays a lower dividend than nonconvertible preferred from the same issuer.


cumulative preferred stock

A type of preferred stock that requires the company to pay any previously skipped dividend payments to these investors before any dividends can be paid to a common stockholder.


cumulative voting

A voting structure in which each shareholder can pool all of his votes together and allocate them as he chooses.


declaration date

The date on which a company�s board of directors declares 1) that a dividend will be paid, 2) when it will be paid (the payable date), and 3) the date an investor must be on the company�s books by to receive the dividend (record date). This announcement must be made at least 10 business days before the record date.



The reduction in ownership interest of a corporation due to the issuance of additional shares. Pre-emptive rights give investors the opportunity to avoid dilution and maintain their proportionate ownership if the company issues additional shares.



A distribution of a company�s profits that is paid to shareholders if declared by the board of directors. Dividends can be paid in cash, company stock, stock of a subsidiary, and company product.


dividends in arrears

Missed dividend payments.


equity security

A type of security that represents ownership. The most common examples include common stock and preferred stock.