D

Day Order:
An order to buy or sell a security valid only on the day the order is given.

Debenture:
A certificate of indebtedness of a government or company backed only by the general credit of the issuer
and unsecured by property or assets.

Debt:
Money borrowed from lenders for a variety of corporate or personal purposes. The borrower pays interest for the use of the money and is obligated to repay the principal amount on a set date.

Deemed Disposition:
Under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale. For example, there is a deemed disposition on death or emigration from Canada.

Default:
A bond is in default when the borrower has failed to live up to the obligations under the terms of the agreement. Examples of this are declining to pay interest or sinking fund payments or failure to redeem the bonds at maturity.

Defensive Stock:
Stock of a company with continuous dividend payments, which has demonstrated relatively stable earnings despite poor economic conditions.

Deferred Income Taxes:
Income tax that would otherwise be payable currently, but which is not paid immediately. This is because larger allowable deductions are made when calculating taxable income than when calculating net income in the financial statements. An acceptable practice, it is usually the result of timing differences and represents differences in accounting reporting guidelines and tax reporting guidelines.

Deferred Profit Sharing Plan (DPSP):
In a DPSP an employer makes cash contributions for an employee’s retirement plans out of business profits. The contributions and earnings accumulate tax-free until withdrawn.

Deficiency Letter:
A securities commission letter sent to a company that has submitted a preliminary prospectus on a planned new issue of the company’s securities. The letter poses any questions the commission wants answered, and outlines any recommendations for changes to the prospectus. When all points raised in the letter are resolved, the issue’s final prospectus may be filed.

Deficit:
A financial situation for an individual, company or government where expenses exceed income.

Delist:
The removal of a security’s listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.

Delivery:
Securities sellers must deliver the certificates on or before the third business day after the sale. Delayed delivery refers to a transaction in which there is a clear understanding that delivery of the securities involved will be delayed beyond this three day period.

Depletion:
Refers to the consumption of natural resources which are part of a company’s assets. Since oil, mining and gas companies deal in products that cannot be replenished, depletion reduces the company’s natural assets over a specified time period. The recording of depletion is a bookkeeping entry similar to depreciation and does not involve the expenditure of cash.

Depreciation:
Systematic charges made against earnings to write-off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose. It reduces the company’s fixed assets to zero over a specified time period.

Dilution:
Reducing the actual or potential earnings per share by issuing more shares or giving options to obtain more.
Direct or Indirect Holdings:
These are the holdings of an individual or company in other companies. For example, company A owns 500,000 shares of company B’s 1,000,000 outstanding shares. Company A therefore has a 50% direct interest in company B. Company B, in turn, owns 300,000 of company C’s outstanding 500,000 shares. Company B therefore has a 60% direct interest in company C. Company A (by virtue of its 50% direct interest in company B) has a 30% indirect interest in company C.
Director:
Person elected by voting common shareholders at the annual meeting to direct company policies.

Disaster Out Clause:
A clause in an underwriting agreement allowing the underwriter to cancel the agreement, should a law, event or major financial occurrence transpire that adversely affects financial markets in general or the issuer in particular.

Disclaimer Clause:
Securities commissions require that all prospectuses carry a disclaimer on the front page stating that the securities commission itself has in no way approved the merits of the securities being offered for sale.

Discount:
The amount by which a preferred share or bond sells below its par value.

Discounted:
When some anticipated event such as increased dividends or lower earnings has already been reflected in the market price of a stock, it is said to be “already discounted” by the market.

Discount Brokers:
Brokerage firms that offer lower commission rates than investment dealers, but do not offer the services that investment dealers do, such as advice, research and portfolio planning.

Discretionary Account:
A securities account where the client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades on behalf of that investor. These are opened up as a matter of convenience to clients who are unable to attend to their own accounts through illness or absence from the country.

Diversification:
Spreading investment to reduce risk by buying different securities from various companies, businesses, locations and governments.

Dividends:
An amount distributed out of a company’s profits to its shareholders in proportion to the number of shares they hold. A preferred dividend usually is for a fixed amount, while a common dividend may fluctuate with the profits of the company. A company is under no legal obligation to pay either preferred or common dividends.

Dividend Yield:
A stock’s annual percentage return from its dividend income. It’s calculated by dividing the stock’s total dividends for the year by the current stock price. If a stock paid annual dividends of $1 and has a market price of $10, its dividend yield is $1 divided by $10 X 100 = 10%. It does not count capital gains that result if you sell the stock for more than you paid.

Dollar Cost Averaging:
Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time, thereby averaging the cost paid per share.

Dow Jones Industrial Average (DJIA):
An average made up of 30 blue chip stocks that trade daily on the New York Stock Exchange. The DJIA is used as an overall indicator of market performance although criticism is periodically raised over how it is calculated, as well as the fact that so few companies are included so that it may not be a truly representative indicator of market activity.

Dow Jones Transportation Average:
Similar to the Dow Jones Industrial Average, this average is made up of 20 transportation stocks that trade daily on the New York Stock Exchange.

Dow Theory:
A theory of market analysis based upon the performance of the Dow Jones Industrial and Transportation Averages. The theory is that the market is in a basic upward trend if one of these averages advances above a previous important high, accompanied or followed by a similar advance in the other. When both averages dip below previous important lows, this is regarded as confirmation of a basic downward trend.

Draft Prospectus:
A prospectus prepared for internal use and discussion by the company issuing securities and the underwriters. It is not for outside distribution and shows only basic data on the company with little final detail about the terms of the planned underwriting. It is not a legal document and does not have to be drawn up strictly to securities commission standards. It is an earlier version of a preliminary prospectus and cannot be used in offering the security.

E

Earnings or Income Statement:
A financial statement which shows a company’s revenues and expenditures resulting in either a profit or a loss during a financial period.

Earnings Per Common Share:
The portion of after-tax profits of a company attributable to a single common share.

Equipment Trust Certificate:
A security, more common in the U.S. than in Canada, that is generally issued by a railroad or airline to pay for new moveable equipment. It is secured by a first lien on the equipment.

Equities:
The stock, or ownership of shareholders in a company.

Equity Earnings:
A company’s share of an unconsolidated subsidiary’s earnings. The equity accounting method is used when a company owns 20% to 50% of a subsidiary.

Escrowed or Pooled Shares:
Outstanding shares of a company which, while entitled to vote and receive dividends, may not be bought or sold unless special approval is obtained. This technique is commonly used by mining and oil companies when treasury shares (authorized but unissued shares) are issued for new properties. Shares can be released from escrow (freed to be bought and sold) only with the permission of applicable authorities such as the stock exchange and/or the provincial securities commission.

Estate Planning:
The process of planning the transfer of all personal assets at death to chosen beneficiaries.

Ex Dividend:
This means “without dividend.” If a share quoted ex dividend is purchased, the investor is not entitled to an upcoming already-declared dividend. The seller receives this dividend.

Ex Rights:
This means “without rights.” Buyers of shares quoted ex rights are not entitled to forthcoming rights.

Exchange Fund Account:
A special federal government account operated by the Bank of Canada to intervene in the world’s foreign exchange markets and affect Canada’s foreign exchange rate. Direct intervention to change the direction of exchange rate fluctuations is infrequent, and public economic policies are more significant in changing supply and demand for foreign exchange, and therefore the exchange rate.

Exempt List:
Large professional buyers of securities, mostly financial institutions, that are offered a portion of a new issue by one member of the banking group, on behalf of the whole syndicate.

Exempt Market:
An unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus is not required to raise money privately from these private investors (largely institutions, but also individual investors) and registration of the issue with a securities commission is not needed.

Exempt Purchaser:
A category of institutional investors to which the sale of a new issue of securities does not require the issuer to file a prospectus with the applicable securities commission.

Exercise:
The action taken by the holder of a call option if he or she wishes to purchase the underlying security, or by the holder of a put option if he or she wishes to sell the underlying security. Also refers to the action taken by a rights or warrant holder.

Exercise 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 strike price.

Expiration Date:
The date when put and call options and rights and warrants expire, as well as other privileges or conversion features.

Extendible Bond or Debenture:
A bond or debenture issued with a specific maturity date, but granting the holder the option to extend the maturity date by a specified number of years.

Extra:
Short for “extra dividend.” A dividend in the form of either stock or cash in addition to the regular common dividend the company usually pays to shareholders. Also referred to as a special dividend.

F

Face Value:
The value of a bond or debenture that appears on the face of the certificate. Face value is the amount the issuer promises to pay at maturity. Face value is no indication of market value. For example, a low grade bond may have a face value of $1000 but can trade at a market price of $130.

Fails:
Short for failed deliveries. It is the failure to deliver a security on the settlement date, or the date agreed upon when the trade was done.

Fair Market Value:
The value of an asset, under the assumption it is sold to a willing purchaser by a willing seller, under normal conditions.

Fee-Based Accounts:
Client accounts in which the investment dealer does not charge commissions, but charges a fee based on the value of the investor’s account instead.

Fill-or-Kill:
A client order that stipulates that as soon as a portion of the order which can be traded immediately is completed, any remaining portion of the order not filled is cancelled.

Final Prospectus:
The prospectus which supersedes the preliminary prospectus and is accepted for filing by the applicable provincial securities commissions. The final prospectus shows all required information pertinent to a new issue and a copy must be given to each buyer of the new issue.

Finance or Acceptance Company Paper:
Short-term negotiable debt securities similar to commercial paper, but issued by finance companies.

Financial Instruments:
The term used for debt instruments, which are loans with an agreement to pay back funds with interest, or equity securities, which are shares or stock in a company.

Financial Intermediary:
An institution such as a bank, life insurance company, credit union or mutual fund company which receives cash and invests it on behalf of the suppliers of the cash.

Firm Bid – Firm Offer:
A firm bid is an undertaking to buy a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the seller. A firm offer is an undertaking to sell a specified amount of securities at a specified price for a specified period of time, unless released from this obligation by the buyer.

First-In-First-Out (FIFO):
A method of valuing inventory which assumes that the first items bought are also the first items used or sold.

Fiscal Agent:
An investment dealer appointed by a corporation or government to advise in financial matters and to manage the underwriting of its securities.

Fiscal Policy:
The policy pursued by the federal government to direct the economy through taxation and the level and allocation of government spending.

Fiscal Year:
A company’s accounting year. Due to the nature of particular businesses, some companies do not use the calendar year for their bookkeeping. A typical example is the department store which finds December 31st too early a date to close its books after the holiday rush and has a January 31st fiscal year-end instead.

Fixed Asset:
A tangible long-term asset such as land, buildings or machinery, held for use rather than for processing or resale. Fixed assets are found on a company’s balance sheet.

Fixed Charge:
A company’s expenses, such as debt interest, which it must pay and which are deducted from income before income taxes are calculated.

Fixed Income Securities:
Securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares.

Flat:
When the quoted market price of a bond or debenture is only the total cost of the bond or debenture, instead of the cost of the debt instrument plus accrued interest. Bonds and debentures in default of interest trade flat.

Floor Traders:
Employees of a member of a stock exchange who execute buy and sell orders on the floor (trading area) of the exchange for their firm and its clients.

Flow-Through Shares:
Tax deductions and credits, normally available only to a corporation, are given to the owners of the corporation’s flow-through shares. Canadian exploration and mining companies are able to issue such shares at a premium because investors are considered to be funding exploration and development costs and are therefore entitled to deduct these expenses from all other income.

Formula Investing:
These are investment strategies. One formula involves shifting funds from common shares to preferred shares or bonds as the stock market rises above a predetermined point – and returning funds to common shares as the stock market declines.

Fully Diluted Earnings Per Share:
Earnings per common share calculated on the assumption that all convertible securities are converted into common shares, such as convertible preferred shares, convertible debentures, stock options (under employee stock-option plans) and warrants.

Fundamental Analysis:
An analysis of securities based on the fundamental facts about a company, such as sales, earnings and dividend prospects. This is in contrast to technical analysis.

Funded Debt:
All outstanding bonds, debentures, notes and similar debt instruments of a company payable after one year.

Futures Contract:
An agreement to buy or sell a commodity sometime in the future.