|
| |
-
-
- L
-
Fifth letter of a
NASDAQ stock symbol specifying that it is a class of stock such as third preferred class of warrants, foreign preferred, sixth class of preferred stock, or preferred when issued stock.
- L.B.O.
- See:
Leveraged buyout
- L.D.C.
- See:
Less developed countries
- L.I.B.O.R.
- See:
The London Interbank Offered Rate
- L.I.F.F.E.
- See:
London International Financial Futures Exchange
- L.I.F.O.
- See:
Last in first out
- L.O.C.
- See:
Letter of credit
- L.Y.O.N.
- See:
Liquid yield option note
- Ladder strategy
- A
bond
portfolio strategy in which the
portfolio is constructed to have approximately equal amounts invested in every maturity within a given
range.
- Lag
- Payment of a financial obligation later than is
expected or required, as in lead and lag. Also, the number of
periods that an independent
variable in a
regression model is "held back" in order to predict the dependent variable.
- Lag response of prepayments
- There is typically a lag of about three months between the time the
weighted average coupon of an
M.B.S. pool has crossed the threshold for refinancing and an acceleration in
prepayment speed is observed.
- Lambda
- The ratio of a change in the
option price to a small change in the option
volatility. It is the partial derivative of the
option price with respect to the option volatility.
- Last split
- After a
stock split, the number of
shares distributed for each share held and the date of the distribution.
- Last trading day
- The final day under an exchange's rules during which trading may take place in a particular
futures or
options contract. Contracts
outstanding at the end of the last trading day must be settled by
delivery of underlying physical commodities or financial
instruments, or by agreement for monetary settlement depending upon
futures contract specifications.
- Last-In-First-Out (L.I.F.O.)
- A method of valuing
inventory that uses the cost of the most recent item in inventory first. Related:
F.I.F.O.
- Law of large numbers
- The
mean of a random sample approaches the mean (expected value) of the population as the sample grows.
- Law of one price
- An economic rule stating that a given
security must have the same price regardless of the means by which one goes about creating that security. This implies that if the payoff of a security can be synthetically created by a package of other
securities, the price of the package and the price of the security whose payoff it replicates must be equal. If it is unequal, an
arbitrage opportunity would present itself.
- Layoff
- Used in the context of general equities. Eliminate all or part of a
position by finding customers or other
dealers to take them.
- Layup
- Used in the context of general equities. Easily
executed
trade or
order. See:
Lead pipe
- Lead
- Payment of a financial obligation earlier than is expected or required.
- Lead manager
- The commercial or
investment bank with the primary responsibility for organizing
syndicated bank credit or
bond
issued. The lead manager recruits additional lending or
underwriting banks, negotiates terms of the issue with the issuer, and assesses
market conditions.
- Lead pipe
- Used in the context of general equities. Cinch, virtually certain that
trade will take place. See:
Layup
- Lead underwriter
- The head of a
syndicate of financial firms that are sponsoring an
initial public offering of
securities or a seconday offering of
securities. Could also apply to
bond
issues.
- Leading economic indicators
- Economic series that tend to rise or fall in advance of the rest of the economy.
- Leading the market
- Used in the context of general equities.
Stock or group of stocks moving with the
market as a whole, but moving in advance of the general market.
- Leakage
- Release of information to some persons before official public announcement.
- LEAPS
- Long-term
equity
anticipation securities. Long-term
options.
- Lease
- A long-term rental agreement, and a form of secured long-term
debt.
- Lease rate
- The payment per period stated in a lease
contract.
- Leaves
- Used in the context of general equities. Remains to
buy or sell of a previously entered
order after a report of partial execution has been given. If I had told the
floor broker to buy 20M IBM @ $115, and he later bought 6M at this price, his report would be "You bought 6M IBM @ $115, leaves 14."
- Ledger cash
- A firm's cash balance as reported in its financial statements. Also called
book cash.
- Legal capital
- Value at which a company's
shares are recorded in its books.
- Legal bankruptcy
- A legal proceeding for
liquidating or reorganizing a business.
- Legal defeasance
- The deposit of
cash and permitted
securities, as specified in the
bond indenture, into an irrevocable trust sufficient to enable the
issuer to discharge fully its obligations under the bond indenture.
- Legal investments
-
Investments that a regulated entity is permitted to make under the rules and regulations that govern its investing.
- Legitimate
- Used in the context of general equities. Real interest in
trading as compared to a
profile stance. See:
Natural
- Leg up
- Used in the context of general equities. (1)Having a portion of the
offsetting side of a
trade
in your pocket (spoken for) so your
capital
risk in the transaction is reduced. (having purchased 10,000 of a 50,000 buy
order leaves the
trader a "leg up" on 10M shares.); (2) having completed one side of a two-sided transaction, as in a
swap or
contingency order.
- Lend
- To provide money temporarily on the condition that it or its equivalent will be returned, often with an
interest fee.
- Lender
- Businesses that provide
loans to others.
- Less developed countries (L.D.C.s)
- Also known as emerging markets. Per capita
G.D.P. is below a
World Bank determined level.
- Lessee
- An entity that
leases an
asset from another entity.
- Lessor
- An entity that
leases an
asset to another entity.
- Letter of comment
- A communication to the firm from the
S.E.C. that suggests changes to its
registration statement.
- Letter of credit (L.O.C.)
- A form of guarantee of payment
issued by a bank used to guarantee the payment of
interest and repayment of
principal on
bond issues.
- Letter stock
- Privately placed
common stock,
so-called because the
S.E.C. requires a letter from the purchaser stating that the
stock is not intended for resale.
- Level
- Used in the context of general equities. Price parameter of an
indication.
- Level pay
- The characteristic of the scheduled
principal and
interest payments (P&I) due under a
mortgage such that total monthly payment of P&I is the same while characteristically the
principal payment component of the monthly payment becomes gradually greater while the monthly interest payment becomes less.
- Level-coupon bond
- Bond with a stream of
coupon payments that are the same throughout the life of the bond.
- Leverage
- Used in the context of general equities. For corporations, property of rising or falling at a proportionally greater amount than comparable investments. For example, an
option is said to have high leverage relative to the
underlying
stock because a price change in the stock may result in a relatively large increase or decrease in the value of the option. The use of
debt financing.
- Leverage clientele
- A group of
shareholders who, because of their personal
leverage, seek to invest in corporations that maintain a compatible degree of corporate leverage.
- Leverage ratios
- Measures of the relative contribution of
stockholders and
creditors, and of the firm's ability to pay financing charges. Value of firm's
debt to the total value of the firm.
- Leverage rebalancing
- Making transactions to adjust (rebalance) a firm's
leverage ratio back to its target.
- Leveraged beta
- The
beta of a
leveraged
required return; that is, the beta as adjusted for the degree of
leverage in the firm's
capital structure.
- Leveraged buyout (L.B.O.)
- A transaction used for taking a public corporation private financed through the use of
debt funds: bank
loans and
bonds. Because of the large amount of debt relative to
equity in the new corporation, the bonds are typically rated below
investment grade, properly referred to as
high-yield bonds or
junk bonds.
Investors can participate in an L.B.O. through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of
equity through an L.B.O. fund that specializes in such investments.
- Leveraged equity
-
Stock in a firm that relies on financial
leverage. Holders of leveraged equity face the benefits and costs of using
debt.
- Leveraged lease
- A
lease arrangement under which the
lessor borrows a large proportion of the funds needed to purchase the
asset and grants the
lender a
lien on the assets and a pledge of the lease payments to secure the borrowing.
- Leveraged portfolio
- A
portfolio that includes
risky assets purchased with funds borrowed.
- Leveraged recapitalization
- Often used in risk arbitrage. Popular form of
shark repellant whereby a public company takes on significant additional
debt with the purpose of either paying an extraordinary
dividend or repurchasing
shares, leaving the public
shareholders with a continuing interest in a more financially-leveraged company. See:
stub.
- Leveraged required return
- The
required return on an investment when the investment is financed partially by
debt.
- Liability
- A financial obligation, or the
cash outlay that must be made at a specific time to satisfy the
contractual terms of such an obligation.
-
Liability funding strategies
- Investment strategies that select
assets so that
cash flows will equal or exceed the client's obligations.
- Liability swap
- An
interest rate swap used to alter the
cash flow characteristics of an institution's
liabilities so as to provide a better match with its
assets.
- Lien
- A security interest in one or more
assets that is granted to
lenders in connection with
secured debt financing.
- Lifted
- Refers to over-the-counter trading. Having an
offer taken in a
stock, followed by the market-maker raising his
offer price.
- Lifting a leg
- Closing out one side of a long-short
arbitrage before the other is closed.
- Limit order
- An
order to
buy a
stock at or below a specified price or to sell a stock at or above a specified price. For instance, you could tell a
broker "buy me 100
shares of XYZ Corp at $8 or less" or to "sell 100 shares of XYZ at $10 or better." The customer specifies a price and the order can be
executed only if the
market reaches or betters that price. A conditional
trading order designed to avoid the danger of adverse unexpected price changes.
- Limit order book
- A record of
unexecuted
limit orders that is maintained by the
specialist. These
orders are treated equally with other orders in terms of priority of
execution.
- Limit price
- See:
Maximum price fluctuation
-
Limitation on asset dispositions
- A
bond covenant that restricts in some way a firm's ability to sell major
assets.
- Limitation on conversion
- Mainly applies to convertible securities. Possible delay in convertibility. More frequently, the right to convert may be terminable prior to a
redemption date, preventing the holder from receiving a final
coupon or
dividend. This latter is known as the "screw you" clause. See
accrued interest
- Limitation on liens
- A
bond covenant that restricts in some way a firm's ability to grant
liens on its
assets.
-
Limitation on merger, consolidation, or sale
- A
bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.
-
Limitation on sale-and-leaseback
- A
bond covenant that restricts in some way a firm's ability to enter into
sale-and-leaseback transactions.
-
Limitation on subsidiary borrowing
- A
bond covenant that restricts in some way a firm's ability to borrow at the
subsidiary level.
- Limited liability
- Limitation of possible loss to what has already been invested.
-
Limited-liability instrument
- A
security, such as a
call option, in which the owner can only lose his initial investment.
- Limited partner
- A partner who has
limited legal liability for the obligations of the
partnership.
- Limited partnership
- A
partnership that includes one or more partners who have
limited liability.
- Limited price order
- Used in the context of general equities. See:
Limit order
-
Limited-tax general obligation bond
- A general obligation
bond that is limited as to revenue sources.
- Line of credit
- An informal arrangement between a bank and a customer establishing a maximum
loan balance that the bank will permit the borrower to maintain.
- Linear programming
- Technique for finding the maximum value of some equation subject to stated linear constraints.
- Linear regression
- A statistical technique for fitting a straight line to a set of data points.
- Lintner's observations
- John Lintner's work (1956) suggested that
dividend policy is related to a target level of dividends and to the speed of adjustment of change in dividends.
- Liquid asset
-
Asset that is easily and cheaply turned into
cash - notably cash itself and short-term
securities.
- Liquid yield option note (L.Y.O.N.)
-
Zero-coupon,
callable, putable,
convertible bond invented by Merrill Lynch & Co.
- Liquidating dividend
- Payment by a firm to its owners from
capital rather than from
earnings.
- Liquidation
- When a firm's business is terminated,
assets are sold, proceeds pay
creditors and any leftovers are distributed to
shareholders. Any transaction that
offsets or closes out a
long or
short position. Related:
buy in,
evening up,
offset
liquidity.
- Liquidation rights
- The rights of a firm's securityholders in the event the firm
liquidates.
- Liquidation value
- Net amount that could be realized by selling the
assets of a firm after paying the
debt.
- Liquidator
- Person appointed by an
unsecured creditor in the United Kingdom to oversee the sale of an
insolvent firm's
assets and the repayment of its
debts.
- Liquidity
- A
market is liquid when it has a high level of
trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to
buy and sell with relative ease. Antithesis of illiquid.
- Liquidity diversification
- Investing in a variety of
maturities to reduce the price
risk to which holding long
bonds exposes the
investor.
-
Liquidity preference hypothesis
- The argument that greater liquidity is valuable, all else equal. Also, the theory that the
forward rate exceeds expected future
interest rates.
- Liquidity premium
-
Forward rate minus expected future short-term
interest rate.
- Liquidity ratios
- Ratios that measure a firm's ability to meet its short-term financial obligations on time.
- Liquidity risk
- The
risk that arises from the difficulty of selling an
asset in a timely manner. It can be thought of as the difference between the "true value" of the asset and the likely price, less
commissions.
-
Liquidity theory of the term structure
- A biased
expectations theory that asserts that the implied forward rates will not be a pure estimate of the
market's expectations of future
interest rates because they embody a
liquidity
premium.
- Listed security
- Used for listed equity securities.
Stock or
bond that has been accepted for
trading by one of the organized and registered
securities
exchanges in the United States. Generally, the advantages of being "listed" are that exchanges provide: a) an orderly marketplace; b)
liquidity; c) fair price determination; d) accurate and continuous reporting on sales and
quotations; e) information on listed companies; and f) strict regulation for the protection of securityholders. Antithesis of
O.T.C. Security.
- Listed stocks
-
Stocks that are
traded on an
exchange.
- Load fund
- A
mutual fund with
shares sold at a price including a large
sales charge -- typically 4% to 8% of the net amount indicated. Some "no-load" funds have distribution fees permitted by article
12b-1 of the Investment Company
Act; these are typically 0. 25%. A "true no-load" fund has neither a sales charge nor
Freddie Mac (Federal Home Loan Mortgage Corporation) program, the aggregation that the fund purchaser receives some investment advice or other service worthy of the charge.
- Load-to-load
- Arrangement whereby the customer pays for the last
delivery when the next one is received.
- Loan
- If you borrow $1 million dollars, it is said that you have taken out a loan for $1 million dollars.
- Loan amortization schedule
- The schedule for repaying the
interest and
principal on a
loan.
- Loan syndication
- Group of banks sharing a
loan. See:
syndicate.
- Loan value
- The amount a policyholder may borrow against a
whole life insurance policy at the
interest rate specified in the policy.
- Local expectations theory
- A form of the
pure expectations theory which suggests that the
returns on
bonds of different
maturities will be the same over a short-term investment horizon.
- Lock
- Used in the context of general equities. Make a
market both ways (bid and offer) either on the bid,
offering, or an
in between price only. Locking on the offering is done to attract a seller, since the
trader is willing to pay (and
ask) the offering side when others only ask it. Locking on the bid side attracts buyers for similar reasons. Typically, sell side requires a
plus tick to comply with
short sale rules.
- Lockbox
- A collection and processing service provided to firms by banks, which collect payments from a dedicated postal box that the firm directs its customers to send payment to. The banks make several collections per day, process the payments immediately, and deposit the funds into the firm's bank account.
- Locked market
- A
market is locked if the
bid =
ask price. This can occur, for example, if the
market is brokered and brokerage is paid by one side only, the initiator of the transaction. Refers to
over-the-counter trading. Highly competitive market environment with inside bid and offering at the same price. Often occurs when an
O.T.C. dealer has not updated his market.
- Lock in
- Used in the context of general equities. Assures that an individual contracts all his or her business with a sole broker by providing superior services, such as accommodating block
buy and sell needs or preparing excellent research (soft dollar lock). This usually guarantees a certain volume of business.
- Lock-out
- With
P.A.C. bond
C.M.O. classes, the period before the P.A.C.
sinking fund becomes effective. With
multifamily loans, the period of time during which
prepayment is prohibited.
- Lock up option
- Often used in risk arbitrage. Privilege offered a
White Knight (friendly acquirer) by a
target company of buying
crown jewels or additional
equity. The aim is to discourage a hostile
takeover. See:
shark repellant
- Lock-up C.D.s
-
C.D.s that are
issued with the tacit understanding that the buyer will not
trade the certificate. Quite often, the issuing bank will insist that the certificate be safekept by it to ensure that the understanding is honored by the buyer.
-
Log-linear least-squares method
- A statistical technique for fitting a curve to a set of data points. One of the
variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data points.
- Lognormal distribution
- A
distribution where the logarithm of the
variable follows a
normal distribution. Lognormal distributions are used to describe
returns calculated over periods of a year or more.
- Lombard rate
- Mainly applies to international equities.
Interest rate used by the German Bundesbank to form an upper limit to the day-to-day money rate, since no bank will pay higher rates in the money
market than it has to pay for very short-term recourse to Lombard credit.
-
The London Interbank Offered Rate (L.I.B.O.R.)
- The rate of
interest that major international banks in London charge each other for borrowings. Many
variable interest rates in the U.S. are based on spreads off of L.I.B.O.R. There are many different L.I.B.O.R.
tenors.
-
London International Financial Futures Exchange (L.I.F.F.E.)
- A London
exchange where
Eurodollar
futures as well as
futures-style options are traded. By contrast with the
bid rate L.I.B.I.D. quoted by banks seeking such deposits.
- Long
- One who has bought a
contract(s) to establish a
market
position and who has not yet closed out this position through an
offsetting sale; the opposite of
short.
- Long bonds
-
Bonds with a long
current maturity. The "long bond" is the 30-year U.S.
Treasury bond.
- Long coupons
- (1)
Bonds or
notes with a long
current maturity. (2) A bond on which one of the
coupon periods, usually the first, is longer than the other periods or the standard period.
- Long hedge
- The purchase of a
futures contract(s) in anticipation of actual purchases in the
cash market. Used by processors or exporters as protection against an advance in the cash price. Related:
hedge,
short hedge
- Long position
- An options
position where a
person has executed one or more option
trades where the net result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the number of contracts sold). For equities, it occurs when an individual owns
securities. An owner of 1,000
shares of
stock is said to be "Long the stock." Related:
Short position
- Long run
- A period of time in which all costs are
variable; greater than one year.
- Long straddle
- A
straddle in which a
long position is taken in both a
put and
call option.
- Long-term
- In accounting information, one year or greater.
- Long-term assets
- Value of property, equipment and other
capital
assets minus
the
depreciation. This is an
entry in the bookkeeping records of a company, usually on a "cost"
basis and thus does not necessarily reflect the market value of the
assets.
- Long-term debt
- An obligation having a
maturity of more than one year from the date it was
issued. Also called
funded debt.
-
Long-term debt/capitalization
- Indicator of financial
leverage. Shows long-term debt as a proportion of the
capital available. Determined by dividing long-term debt by the sum of long-term debt,
preferred stock and common
stockholder equity.
- Long-term debt ratio
- The ratio of long-term debt to total
capitalization.
- Long-term financial plan
- Financial plan covering two or more years of future operations.
- Long-term liabilities
- Amount owed for
leases,
bond repayment and other items due after 1 year.
-
Long-term debt to equity ratio
- A
capitalization ratio comparing
long-term debt to shareholders'
equity.
- Look
- Used for listed equity securities. See:
Picture
- Look-thru
- A method for calculating U.S. taxes owed on income from controlled foreign corporations that was introduced by the
Tax Reform Act of 1986.
- Lookback option
- An
option that allows the buyer to choose as the option
strike price any price of the
underlying asset that has occurred during the life of the option. If a
call, the buyer will choose the minimal price, whereas if a
put, the buyer will choose the maximum price. This option will always be in the money.
- Looking for
- Used in the context of general equities. Describing a
buy interest in which a
dealer is asked to
offer
stock, often involving a
capital commitment. Antithesis of
in touch with.
- Lots
- Used in the context of general equities.
Blocks or portions of
trades that encompass the specific activity done in a
stock at a certain time, often implying
execution at the same price (i.e., "I traded 40m in two lots of 10 and four lots of 5 ").
- Low
- Used in the context of general equities. Specific low limit required by a seller in the execution of his
order ("I'll sell 50 with an eighth low "); implies a
not-held limit order. Antithesis of
top.
- Low-coupon bond refunding
- Refunding of a low
coupon
bond with a new, higher coupon bond.
- Low price
- This is the day's lowest price of a
security that has changed hands between a buyer and a seller.
-
Low price-earnings ratio effect
- The tendency of
portfolios of stocks with a low price-earnings ratio to outperform portfolios consisting of stocks with a high
price-earnings ratio.
|
|
