Absorption rate
The rate at which available space is leased. Absorption is equal to the amount occupied at the end of a year minus the amount occupied at the beginning of a year.
Accreted value
The current value of a zero coupon municipal bond, taking into account interest that has been accumulated and automatically reinvested in the bond.
Accrued interest
Interest earned between the most recent interest payment and the present date but not yet paid to the lender or investor. The accumulated coupon interest paid to the seller of a bond by the buyer (unless the bond is in default). The buyer of a fixed-income security must pay the seller of the security to compensate the seller for holding the security between the last coupon payment date and settlement date. The accrued interest, added to the instrument's dollar price, constitutes the net amount, net proceeds or invoice amount.
Active tranche
A REMIC tranche that is currently paying principal payments to investors.
An actual physical commodity someone is buying or selling; e.g., soybeans, corn, gold, silver, Treasury bonds, etc. Also referred to as "cash commodity".
Add-on method
A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.
Adjustable rate class
A REMIC class with an interest rate that changes periodically over the life of the class. See "floating rate class" and "inverse floating-rate class"
Adjustable Rate Mortgage (ARM)
A mortgage loan on which interest rates are adjusted at regular intervals according to predetermined criteria. An ARM's interest rate is tied to an objective, published specified index.
Adjusted futures price
The cash-price equivalent reflected in the current futures price. This is calculated by taking the futures price times the conversion factor for the particular financial instrument (e.g., bond or note) being delivered.
Advance refunding
A financing structure under which new bonds are issued to repay an outstanding bond issue prior to its first call date. Proceeds of the new issue are generally invested in government securities, which are placed in escrow. Interest and principal repayments on these securities are then used to repay the old issue, usually on the first call date.
Advances
Payments made by the servicer when the borrower fails to make a payment.
Aftermarket
Also called "secondary market". A market in which an investor purchases a security either over the counter or on an exchange after the initial public offering.
A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as "versus cash".
Agency
An individual or company charging commission for their service of acting as an intermediary pairing up buyers and sellers.
Agency bonds
Agency bonds include securities issued by U.S. Government entities [federal agencies] or privately owned entities sponsored by the government [federally sponsored agencies]. These agencies were created to help important sectors of the economy reduce their borrowing costs. Students and homeowners are some of the people who benefit from these agencies. Proceeds from the offering are lent to a bank and the bank then lends the money to the individual seeking financing [i.e., student or homeowner]. Federally sponsored agency securities are not backed by the U.S. Government, but the fact that the agency is sponsored by the government creates the assumption that the federal government would not let the agency go into default. Examples of federally sponsored agencies include Federal Farm Credit Banks [FFCB], Federal National Mortgage Association [FNMA or "Fannie Mae"], Federal Home Loan Banks [FHLB], Federal Home Loan Mortgage Corporation [FHLMC or "Freddie Mac"] and Student Loan Marketing Association [SLMA or "Sallie Mae"]
Agency trade
A trade in which the broker/dealer acts as an agent, meaning that the broker/dealer will disclose any markup/markdown in the transaction. Agents are not owners of nor do they have control of the securities.
Alternative Minimum Tax (AMT)
An income tax levied to make certain that taxpayers with a large number of deductions, credits, and exemptions do not escape all tax liabilities. Municipal bonds that have been deemed non-essential to the public as a whole (usually airport or housing revenue bonds) may be subject to taxation if certain tax considerations are met by the investor. These certain tax considerations vary for each investor. Please check with your tax advisor to determine if you are subject to the AMT.
American-style call feature
The call option may be exercised on any business day after an initial lockout period. This type of call feature is also referred to as a continuous call.
American Council of Life Insurance (ACLI)
An insurance company trade group. U.S. life insurance companies hold 85% of mortgages reported by companies who report loan information.
Amortization
The process of incrementally reducing a debt through periodic installment payments of principal and interest rather than in a lump sum. This also applies to reducing the premium paid for a bond by applying part of the interest payments to premium reduction.
Amortize
To repay a mortgage or security through a series of periodic payments that cover both principal and interest.
Anchor
The tenant that serves as the dominant draw to a commercial property. E.g., The largest tenant in a shopping center.
APY
The effective annual rate of return taking into account the effects of compounding interest.
Arbitrage
The simultaneous purchase and sale of similar commodities in different markets to take advantage of a price discrepancy.
Arbitration
The procedure of settling disputes between members, or between members and customers.
Ask price (offering)
The price the marketer is selling the security for. Also called asked price, asking price, or offering price.
Asset-backed securities (ABS)
Pass-through securities that represent interests in non-mortgage financial assets.
Assign
To make an option seller perform his obligation to assume a short futures position (as a seller of a call option) or a long futures position (as a seller of a put option).
Associated person (AP)
An individual who solicits orders, customers, or customer funds (or who supervises persons performing such duties) on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Adviser, or a Commodity Pool Operator.
At-the-money option
An option with a strike price that is equal, or approximately equal, to the current market price of the underlying futures contract.
Auction
Sealed-bid public sale of Treasury securities; method of determining the rate or yield.
Average life
Weighted average time to principal repayment for a mortgage pass-through, UIT, or CMO security. On a security where principal is subject to prepayment, the average time to receipt of each dollar of principal, weighted by the amount of each principal prepayment, based on prepayment assumptions. (Also "weighted-average life" or WAL)
Away from me
When a market maker does not initiate the quotation, trade, or market in a security.
Away from the market
An order in which the limit bid is below the market value of the security or the limit offer is above the market value.