Investment Adviser FAQ and Terms to Know

Frequently Asked Questions

Terms to Know

ADV: Average Daily Trading Volume

Y/Y: Year-over-Year

Algo: Algorithm (algorithmic trading)

Q/Q: Quarter-over-Quarter

AP: Authorized Participant

YTD: Year-to-Date

AT: Automated Trading

BPS: Basis Points

ATS: Alternative Trading System

PPS: Percentage Points

AUM: Assets Under Management

CAGR: Compound Annual Growth Rate

Best Ex: Best Execution

CEF: Closed-End Fund

CFTC: Commodity Futures Trading Commission

CLOB: Central Limit Order Book

FINRA: Financial Industry Regulatory Authority

D2C: Dealer-to-Client

SEC: Securities and Exchange Commission

D2D: Dealer-to-Dealer

SRO: Self-Regulatory Organization

Dark Pool: Private trading venues

NMS: National Market System

ECN: Electronic Communication Network Reg

NMS: Regulation National Market System

EMS: Equity Market Structure

SIP: Security Information Processor

ETF: Exchange-Traded Fund

ETP: Exchange-Traded Product

HFT: High-Frequency Trading

IDB: Inter-Dealer Broker

IIV: Intraday Indicative Value

IOI: Indication of Interest

IPO: Initial Public Offering

MF: Mutual Fund

MM: Market Maker

NAV: Net Asset Value

OEF: Open-End Fund

OTC: Over-the-Counter

PCF: Portfolio Composition File

PFOF: Payment For Order Flow

SI: Systematic Internaliser

Tick Size: Minimum price movement

UIT: Unit Investment Trust

Bid: An offer made to buy a security

Ask, Offer: The price a seller is willing to accept for a security

Spread: The difference between the bid and ask price prices for a security, an indicator of supply (ask) and demand (bid)

NBBO: National Best Bid and Offer

Locked Market: A market is locked if the bid price equals the ask price

Crossed Market: A bid is entered higher than the offer or an offer is entered lower than the bid

Opening Cross: To determine the opening price of a stock, accumulating all buy and sell interest a few minutes before the market open

Closing Cross: To determine the closing price of a stock, accumulating all buy and sell interest a few minutes before the market close

Order Types

AON: All or none; an order to buy or sell a stock that must be executed in its entirety, or not executed at all

Block: Trades with at least 10,000 shares in the order

Day: Order is good only for that trading day, else cancelled

FOK: Fill or kill; must be filled immediately and in its entirety or not at all

Limit: An order to buy or sell a security at a specific price or better

Market: An order to buy or sell a security immediately; guarantees execution but not the execution price Stop (or stop-loss) An order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price

Call: The right to buy the underlying security, on or before expiration

Put: The right to sell the underlying security, on or before expiration

Holder: The buyer of the contract

Writer: The seller of the contract

American: Option may be exercised on any trading day on or before expiration

European: Option may only be exercised on expiration

Exercise: To put into effect the right specified in a contract

Underlying: The instrument on which the options contract is based; the asset/security being bought or sold upon exercise notification

Expiration: The set date at which the options contract ends, or ceases to exist, or the last day it can be traded

Stock Price: The price at which the underlying stock is trading, fluctuates continuously

Strike Price: The set price at which the options contract is exercised, or acted upon

Premium: The price the option contract trades at, or the purchase price, which fluctuates constantly Time Decay Time value portion of option premium decreases as time passes; longer option’s life, greater probability option will move in the money

Intrinsic Value: The in-the-money portion of an option's premium

Time Value (Extrinsic value): Option premium (price) minus intrinsic value, given external factors (passage of time, volatility, interest rates, dividends)

In-the-Money: For a call option, when the stock price is greater than the strike price; reversed for put options

At-the Money: Stock price is identical to the strike price; the option has no intrinsic value

Out-of-the-Money: For a call option, when the stock price is less than the strike price; reversed for put options


Institutional: Organization, fewer protective regulations as assumed to be more knowledgeable and better able to protect themselves*

Retail: Individual, a non-professional investor

Accredited: Individual, income > $200K ($300K with spouse) in each of the prior 2 years or net worth >$1M, excluding primary residence

*Types of institutional investors: endowment funds, commercial banks, mutual funds, hedge funds, pension funds and insurance companies

Appendix: Terms to Know US Equity and Related Markets Page | 22

IPO: Initial Public Offering; private company raises capital buy offering its common stock to the public for the first time in the primary markets

SPAC: Special Purpose Acquisition Company; blank check shell corporation designed to take companies public without going through the traditional IPO process

Bought Deal: underwriter purchases a company's entire IPO issue and resells it to the investing public; underwriter bears the entire risk of selling the stock issue

Best Effort Deal: Underwriter does not necessarily purchase IPO shares and only guarantees the issuer it will make a best effort attempt to sell the shares to investors at the best price possible; issuer can be stuck with unsold shares

Secondary (Follow-on): Issuance of shares to investors by a public company already listed on an exchange

Direct Listing (Direct placement, direct public offering): Existing private company shareholders sell their shares directly to the public without underwriters. Often used by startups or smaller companies as a lower cost alternative to a traditional IPO. Risks include, among others, no support/guarantee for the share sale and no stock price stabilization after the share listing.

Underwriting: Guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee in a financial transaction or deal

Underwriter Investment: bank administering the public issuance of securities; determines the initial offering price of the security, buys them from the issuer and sells them to investors.

Bookrunner: The main underwriter or lead manager in the deal, responsible for tracking interest in purchasing the IPO in order to help determine demand and price (can have a joint bookrunner)

Lead Left Bookrunner: Investment bank chosen by the issuer to lead the deal (identified on the offering document cover as the upper left hand bank listed)

Syndicate Investment: banks underwriting and selling all or part of an IPO Arranger The lead bank in the syndicate for a debt issuance deal

Pitch Sales: presentation by an investment bank to the issuer, marketing the firm’s services and products to win the mandate

Mandate: The issuing company selects the investment banks to underwrite its offering

Engagement Letter: Agreement between the issuer and underwriters clarifying: terms, fees, responsibilities, expense reimbursement, confidentiality, indemnity, etc.

Letter of Intent: Investment banks’ commitment to the issuer to underwrite the IPO

Underwriting Agreement: Issued after the securities are priced, underwriters become contractually bound to purchase the issue from the issuer at a specific price

Registration Statement: Split into the prospectus and private filings, or information for the SEC to review but not distributed to the public, it provides investors adequate information to perform their own due diligence prior to investing

The Prospectus: Public document issued to all investors listing: financial statements, management backgrounds, insider holdings, ongoing legal issues, IPO information and the ticker to be used once listed

Red Herring: Document An initial prospectus with company details, but not inclusive of the effective date of offering price

Roadshow Investment: bankers take issuing companies to meet institutional investors to interest them in buying the security they are bringing to market.

Non-Deal Roadshow: Research analysts and sales personnel take public companies to meet institutional investors to interest them in buying a stock or update existing investors on the status of the business and current trends.

Pricing: Underwriters and the issuer will determine the offer price, the price the shares will be sold to the public and the number of shares to be sold, based on demand gauged during the road show and market factors

Stabilization: Occurs for a short period of time after the IPO if order imbalances exist, i.e. the buy and sell orders do not match; underwriters will purchase shares at the offering price or below to move the stock price and rectify the imbalance

Quiet Period (Cooling off period): The SEC mandates a quiet period on research recommendations, lasting 10 days (formerly 25 days) after the IPO

Reg S-K: Regulation which prescribes reporting requirements for SEC filings for public companies

Reg S-X: Regulation which lays out the specific form and content of financial reports, specifically the financial statements of public companies

Form S-1: Registration statement for U.S. companies (described above)

Form F-1: Registration statement for foreign issuers of certain securities, for which no other specialized form exists or is authorized

Form 10-Q: Quarterly report on the financial condition and state of the business (discussion of risks, legal proceedings, etc.), mandated by the SEC

Form 10-K: More detailed annual version of the 10Q, mandated by the SEC

Form 8-K: Current report to announce major events shareholders should know about (changes to business & operations, financial statements, etc.)

Greenshoe: Allows underwriters to sell more shares than originally planned by the company and then buy them back at the original IPO price if the demand for the deal is higher than expected, i.e. an over-allotment option

Tombstone: An announcement that securities are available for sale. (Also a plaque awarded to celebrate the completion of a transaction or deal)

EGC: Emerging Growth Company

Terms to Know Source:

Authors SIFMA Research
Katie Kolchin, CFA, Director of Research
Justyna Podziemska
Ali Mostafa

From SIFMA Research Quarterly – 2Q21 Primary Market: US Equity Capital Formation Secondary Markets: US Cash Equities, ETFs and Multi-Listed Options July 2021 found at