Campbell R. Harvey's Hypertextual Finance Glossary

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D: Fifth letter of a NASDAQ stock symbol specifying that it is a new issue, such as the result of a reverse split.
D.C.F.: See: Discounted Cash Flows
D.D.M.: See: Discounted Dividend Model
D.I.S.C.: See: Domestic International Sales Corporation
D.N.R. Order: See: "Do Not Reduce Order"
D.O.T.: See: Designated Order Turnaround System
D.R.P.: See: Dividend Reinvestment Plan
D.T.C.: See: Depository Transfer Check
D.T.C.: See: Depository Trust Company
Daily price limit: The maximum that many commodities, futures and options markets are allowed to rise or fall in a day. Exchanges usually impose a daily price limit on each contract.
Date of payment: Date dividend checks are mailed.
Date of record: Date on which holders of record in a firm's stock ledger are designated as the recipients of either dividends or stock rights.
Dates convention: Treating cash flows as being received on exact dates - date 0, date 1, and so forth - as opposed to the end-of-year convention.
Day around order: Used in the context of general equities. Day order that supersedes (cancels and replaces) the previous order by altering the size or price limit of that previous order.
Day order: Used in the context of general equities. Request from a customer to either buy or sell stock, which, if not cancelled or executed the day it is placed, automatically expires. All orders are day orders unless otherwise specified. Traders often make calls before the opening to check for renewals.
Days in receivables: Average collection period.
Days' sales in inventory ratio: The average number of days' worth of sales that is held in inventory.
Days' sales outstanding: Average collection period.
Day trading: Refers to establishing and liquidating the same position or positions within one day's trading.
De facto: Existing in actual fact although not by official recognition.
Dead cat bounce: A small upmove in a bear market.
Dealer: An entity that stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). Used in the context of general equities. Individual or firm acting as a principal in a securities transaction. Principals are market makers in securities, and thus trade for their own account and risk. Antithesis of broker. See: agency.
Dealer loan: Overnight, collateralized loan made to a dealer financing his position by borrowing from a money market bank.
Dealer market: A market where traders specializing in particular commodities buy and sell assets for their own accounts.
Dealer options: Over-the-counter options, such as those offered by government and mortgage-backed securities dealers.
Deal stock: Often used in risk arbitrage. Stock subject to merger or acquisition, either publicly announced or rumored.
Debenture bond: An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer not pledged specifically to secure other debt. Compare subordinated debenture bond, and collateral trust bonds.
Debit spread: Applies to derivative products. Difference in the value of two options, when the value of the one bought exceeds the value of the one sold. One buys a "debit spread". Antithesis of a credit spread.
Debt: Money borrowed.
Debt capacity: Ability to borrow. The amount a firm can borrow up to the point where the firm value no longer increases.
Debt displacement: The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be forced to cut back on borrowing.
Debt/equity ratio: Indicator of financial leverage. Compares assets provided by creditors to assets provided by shareholders. Determined by dividing long-term debt by common stockholder equity.
Debtholder: See: bondholder.
Debt instrument: An asset requiring fixed dollar payments, such as a government or corporate bond.
Debt leverage: The amplification of the return earned on equity when an investment or firm is financed partially with borrowed money.
Debt limitation: A bond covenant that restricts in some way the firm's ability to incur additional indebtedness.
Debt market: The market for trading debt instruments.
Debtor in possession: A firm that is continuing to operate under Chapter 11 bankruptcy process.
Debtor-in-possession financing: New debt obtained by a firm during the Chapter 11 bankruptcy process.
Debt ratio: Total debt divided by total assets.
Debt relief: Reducing the principal and/or interest payments on L.D.C. loans.
Debt securities: IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and other instruments.
Debt service: Interest payment plus repayments of principal to creditors, that is, retirement of debt.
Debt-service coverage ratio: Earnings before interest and income taxes plus one-third rental charges, divided by interest expense plus one-third rental charges plus the quantity of principal repayments divided by one minus the tax rate.
Debt service parity approach: An analysis wherein the alternatives under consideration will provide the firm with the exact same schedule of after-tax debt payments (including both interest and principal).
Debt swap: A set of transactions (also called a debt-equity swap) in which a firm buys a country's dollar bank debt at a discount and swaps this debt with the central bank for local currency that it can use to acquire local equity.
Decile rank: Performance over time, rated on a scale of 1-10. 1 indicates that a mutual fund's return was in the top 10% of funds being compared, while 3 means the return was in the top 30%. Objective Rank compares all funds in the same investment strategy category. All Rank compares all funds.
Decision tree: Method of representing alternative sequential decisions and the possible outcomes from these decisions.
Declaration date: The date on which a firm's directors meet and announce the date and amount of the next dividend.
Dedicated capital: Total par value (number of shares issued, multiplied by the par value of each share). Also called dedicated value.
Dedicating a portfolio: Related: cash flow matching.
Dedication strategy: Refers to multi-period cash flow matching.
Deductive reasoning: The use of general fact to provide accurate information about a specific situation.
Deed of trust: See: Indenture.
Deep-discount bond: A bond issued with a very low coupon or no coupon and selling at a price far below par value. When the bond has no coupon, it is called a zero coupon bond.
Default: Failure to make timely payment of interest or principal on a debt security or to otherwise comply with the provisions of a bond indenture.
Default premium: A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.
Default risk: Also referred to as credit risk (as gauged by commercial rating companies), the risk that an issuer of a bond may be unable to make timely principal and interest payments.
Defeasance: Practice whereby the borrower sets aside cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet.
Deferred-annuities: Tax-advantaged life insurance product. Deferred annuities offer deferral of taxes with the option of withdrawing one's funds in the form of life annuity.
Deferred call: A provision that prohibits the company from calling the bond before a certain date. During this period the bond is said to be call protected.
Deferred equity: A common term for convertible bonds because of their equity component and the expectation that the bond will ultimately be converted into shares of common stock.
Deferred futures: The most distant months of a futures contract. A bond that sells at a discount and does not pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-in-kind bond.
Deferred nominal life annuity: A monthly fixed-dollar payment beginning at retirement age. It is nominal because the payment is fixed in dollar amount at any particular time, up to and including retirement.
Deferred taxes: A non-cash expense that provides a source of free cash flow. Amount allocated during the period to cover tax liabilities that have not yet been paid.
Deficit: An excess of liabilities over assets, of losses over profits, or of expenditure over income.
Defined benefit plan: A pension plan in which the sponsor agrees to make specified dollar payments to qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor. Related: defined contribution plan
Defined contribution plan: A pension plan in which the sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
Delayed issuance pool: Refers to Mortgage Backed Securities (M.B.S.s) that at the time of issuance were collateralized by seasoned loans originated prior to the MBS pool issue date.
Delayed opening: Used for listed equity securities. Postponement of the start of trading in a stock until a gross imbalance in buy and sell orders is corrected. Such an imbalance is likely to follow on the heels of a significant event such as a takeover offer. See: suspended trading.
Delayed settlement/delivery: Used in the context of general equities. Transaction in which the contract is settled in excess of five full business days. Seller's option. See: dividend play, settlement.
Deliver: In a futures or forward contract , if you agree to sell in the future, you may have to deliver the commodity.
Deliverable instrument: The asset in a forward contract that will be delivered in the future at an agreed-upon price.
Delivery: The tender and receipt of an actual commodity or financial instrument in settlement of a futures contract.
Delivery date: The date that you must fulfill the obligations of a forward or futures contract.
Delivery notice: The written notice given by the seller of his intention to make delivery against an open, short futures position on a particular date. Related: notice day
Delivery options: The options available to the seller of an interest rate futures contract, including the quality option, the timing option, and the wild card option. Delivery options make the buyer uncertain of which Treasury bond will be delivered or when it will be delivered.
Delivery points: Those points designated by futures exchanges at which the financial instrument or commodity covered by a futures contract may be delivered in fulfillment of such contract .
Delivery price: The price fixed by the Clearinghouse at which deliveries on futures are invoiced; also the price at which the futures contract is settled when deliveries are made.
Delivery versus payment: A transaction in which the buyer's payment for securities is due at the time of delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be made by bank wire, check, or direct credit to an account.
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Delta: Also called the hedge ratio, the ratio of the change in price of a call option to the change in price of the underlying stock. Applies to derivative products. Measure of the relationship between an option price and the underlying futures contract or stock price. For a call option, a delta of 0.50 means a half-point rise in premium for every dollar that the stock goes up. As options near expiration, in-the-money call option contracts approach a delta of 1.0, while in the money put options approach a delta of -1. See: hedge ratio, neutral hedge.
Delta hedge: A dynamic hedging strategy using options with continuous adjustment of the number of options used, as a function of the delta of the option.
Delta neutral: The value of the portfolio is not affected by changes in the value of the asset on which the options are written.
Demand deposits: Checking accounts that pay no interest and can be withdrawn upon demand.
Demand line of credit: A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
Demand master notes: Short-term securities that are repayable immediately upon the holder's demand.
Demand shock: An event that affects the demand for goods and services in the economy.
Dependent: Acceptance of a capital budgeting project contingent on the acceptance of another project.
Depository preferred: Mainly applies to convertible securities. Device enabling an issuer to circumvent an arbitrary corporate limit on the number of preferred shares issuable.
Depository transfer check (D.T.C.): Check made out directly by a local bank to a particular firm or person.
Depository Trust Company (D.T.C.): D.T.C. is a user-owned securities depository which accepts deposits of eligible securities for custody, executes book-entry deliveries and records book-entry pledges of securities in its custody, and provides for withdrawals of securities from its custody. Used in the context of general equities. Central securities repository where stock and bond certificates are exchanged. Most of these exchanges now take place electronically, and few paper certificates actually change hands. The D.T.C. is a member of the Federal Reserve System and is owned by most of the brokerage houses on Wall Street and the N.Y.S.E.
Depreciate: To allocate the purchase cost of an asset over its life.
Depreciation: A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long term assets over the useful life of the assets.
Depreciation tax shield: The value of the tax write-off on depreciation of plant and equipment.
Derivative instruments: Contracts such as options and futures whose price is derived from the price of the underlying financial asset.
Derivative markets: Markets for derivative instruments.
Derivative security: A financial security, such as an option, or future, whose value is derived in part from the value and characteristics of another security, the underlying order.
Designated order turnaround system (D.O.T.): Computerized order entry system which, for example, allows for orders to buy or sell large baskets of stock to be transmitted immediately to the specialist on the exchange, where execution will occur quickly, depending on the basket size. Also used for odd lot transactions to occur at the prices and quantities available. See: A.O.S.
Detachable warrant: A warrant entitles the holder to buy a given number of shares of stock at a stipulated price. A detachable warrant is one that may be sold separately from the package it may have originally been issued with (usually a bond).
Deterministic models: Liability-matching models that assume that the liability payments and the asset cash flows are known with certainty. Related: Compare stochastic models
Detrend: To remove the general drift, tendency or bent of a set of statistical data as related to time. Often accomplished by regressing a variable or a time index and perhaps time-squared and capturing the residuals.
Deutsche Börse AG (DBAG): Deutsche Börse AG (DBAG) is the operating company for the German cash and derivatives markets. It has four subsidiaries: Deutsche Börse Clearing AG, Deutsche Börse Systems AG, Frankfurter Wertpapierbörse (FWB) and the derivatives market Eurex Deutschland (formerly the Deutsche Terminbörse DTB).
DM: Deutsche (German) marks.
Deutsche Terminbörse (DTB): Formerly the German financial futures and options market. Merged with the Swiss Options and Financial Futures Exchange (SOFFEX) in 1998 to form EUREX, the European derivatives exchange.
Devaluation: A decrease in the spot price of the currency. Often initiated by a government announcement.
Difference from S&P: A mutual fund's return minus the change in the Standard & Poors 500 Index for the same time period. A notation of -5.00 means the fund return was 5 percentage points less than the gain in the S&P, while 0.00 means that the fund and the S&P had the same return.
Differential disclosure: The practice of reporting conflicting or markedly different information in official corporate statements including annual and quarterly reports and the 10-Ks and 10-Qs.
Differential swap: Swap between two L.I.B.O.R. rates of interest, e.g. yen L.I.B.O.R. for dollar L.I.B.O.R. Payments are in one currency.
Diffusion process: A conception of the way a stock's price changes that assumes that the price takes on all intermediate values.
Digits deleted: Used in the context of general equities. Designation on securities exchange tape meaning that because the tape has been delayed, some digits have been dropped (i.e., 26 1/2 becomes 6 1/2).
Dilution: Diminution in the proportion of income to which each share is entitled.
Dilution protection: Mainly applies to convertible securities. Standard provision whereby the conversion ratio is changed accordingly in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value.
Dilutive effect: Result of a transaction that decreases earnings per common share (E.P.S.).
Dip: Used in the context of general equities. Slight drop in securities prices after a sustained uptrend. Analysts often advise investors to buy on dips, meaning buy when a price is momentarily weak. See: correction, break, crash.
Directed brokerage: Used in the context of general equities. Specific brokerage house requested (by an account) to be used in executing an order. See: give up.
Direct estimate method: A method of cash budgeting based on detailed estimates of cash receipts and cash disbursements category by category.
Direct lease: Lease in which the lessor purchases new equipment from the manufacturer and leases it to the lessee.
Directorship: Used in the context of general equities. Stock status whereby a trader may not maintain positions in the security, due to an investment bank employee serving as a director on the corporation's board of directors done to avoid conflicts of interest; signified by a flashing "D" on Quotron. Contrast to restricted.
Direct paper: Commercial paper sold directly by the issuer to investors.
Direct placement: Selling a new issue not by offering it for sale publicly, but by placing it with one of several institutional investors.
Direct quote: For foreign exchange, the number of U.S. dollars needed to buy one unit of a foreign currency.
Direct search market: Buyers and sellers seek each other directly and transact directly.
Direct stock-purchase programs: Investors purchase securities directly from the issuer.
Dirty float: A system of floating exchange rates in which the government occasionally intervenes to change the direction of the value of the country's currency.
Dirty price: Bond price including accrued interest, i.e., the price paid by the bond buyer.
Disbursement float: A decrease in book cash but no immediate change in bank cash, generated by checks written by the firm.
Disclaimer of opinion: An auditor's statement disclaiming any opinion regarding the company's financial condition.
Discount: Used in the context of general equities.
Convertible: difference between gross parity and a given convertible price. Most often invoked when a redemption is expected before the next coupon payment, making it liable for accrued interest for which he may never be compensated. Antithesis of premium.
General: information that has already been taken into account and is built into a stock or market.
Straight equity: price lower than that of the last sale or inside market.
Discount bond: Debt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond.
Discounted in/by market: Used in the context of general equities. In/by the market. Unannounced information that is widely accepted/anticipated, and hence is already taken into account in the pricing of the security/ market (i.e., Poor earnings).
Discounted basis: Selling something on a discounted basis is to sell below maturity value, so that the difference makes up all or part of the interest.
Discounted cash flow (D.C.F.): Future cash flows multiplied by discount factors to obtain present values.
Discounted dividend model (D.D.M.): A formula to estimate the intrinsic value of a firm by figuring the present value of all expected future dividends.
Discounted payback period rule: An investment decision rule in which the cash flows are discounted at an interest rate and the payback rule is applied on these discounted cash flows.
Discount factor: Present value of $1 received at a stated future date.
Discounting: Calculating the present value of a future amount. The process is opposite to compounding.
Discount period: The period during which a customer can deduct the discount from the net amount of the bill when making payment.
Discount rate: The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings.
Discount securities: Non-interest-bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, e.g. U.S. Treasury bills.
Discount window: Facility provided by the Fed enabling member banks to borrow reserves against collateral in the form of governments or other acceptable paper.
Discrete compounding: Compounding the time value of money for discrete time intervals.
Discrete random variable: A random variable that can take only a certain specified set of discrete possible values - for example, the positive integers 1, 2, 3, . . .
Discrete variable: Variable like 1,2,3. Bond ratings are examples of discrete classifications.
Discretionary account: Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.
Discretionary cash flow: Cash flow that is available after the funding of all positive net present value (N.P.V.) capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on.
Discriminant analysis: A statistical process that links the probability of default to a specified set of financial ratios.
Disintermediation: Withdrawal of funds from a financial institution in order to invest them directly.
Distributed: After a Treasury auction, there will be many new issues in dealer's hands. As those issues are sold, they are said to be distributed.
Distributions: Payments from fund or corporate cash flow. May include dividends from earnings, capital gains from sale of portfolio holdings and return of capital. Fund distributions can be made by check or by investing in additional shares. Funds are required to distribute capital gains (if any) to shareholders at least once per year. Some corporations offer Dividend Reinvestment Plans (D.R.P.).
Divergence: When two or more averages or indices fail to show confirming trends.
Diversifiable risk: Related: unsystematic risk.
Diversification: Dividing investment funds among a variety of securities with different risk, reward, and correlation statistics so as to minimize unsystematic risk.
Dividend: A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.
Dividend clawback: With respect to a project financing, an arrangement under which the sponsors of a project agree to contribute as equity any prior dividends received from the project to the extent necessary to cover any cash deficiencies.
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Dividend clientele: A group of shareholders who prefer that the firm follow a particular dividend policy. For example, such a preference is often based on comparable tax situations.
Dividend Discount Model (D.D.M.): A model for valuing the common stock of a company, based on the present value of the expected future dividends.
Dividend growth model: A model wherein dividends are assumed to be growing at a constant rate in perpetuity. The value of the stock equals next year's dividends divided by the difference between the required rate of return and the assumed constant growth rate in dividends.
Dividend limitation: A bond covenant that restricts in some way the firm's ability to pay cash dividends.
Dividend payout ratio: Percentage of earnings paid out as dividends.
Dividend policy: An established guide for the firm to determine the amount of money it will pay as dividends.
Dividend rate: The fixed or floating rate paid on preferred stock based on par value.
Dividend Reinvestment Plan (D.R.P.): Automatic reinvestment of shareholder dividends in more shares of a company's stock, often without commissions. Some plans provide for the purchase of additional shares at a discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the long term using dollar cost averaging. The D.R.P. is usually administered by the company without charges to the holder.
Dividend rights: A shareholders' rights to receive per-share dividends identical to those other shareholders receive.
Dividends per share: Dividend paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.
Dividend trade roll/play: Used for listed equity securities. Method of buying and selling stocks around their ex-dividend dates so as to collect the dividend (which is 80% tax-exempt) offset by a fully-taxable capital loss. Predicated on the 80% (as of tax reform law of 1986) tax-exempt status that some corporations receive on dividend income. Japanese insurance companies are also large players due to a national regulation that allows policy distribution of income, excluding capital gains only.
Dividend yield (Funds): Indicated yield represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not redemption charges.
Dividend yield (Stocks): Indicated yield represents annual dividends divided by current stock price.
Doctrine of sovereign immunity: Doctrine that says a nation may not be tried in the courts of another country without its consent.
Documented discount notes: Commercial paper backed by normal bank lines plus a letter of credit from a bank stating that it will pay off the paper at maturity if the borrower defaults. Such paper is also referred to as L.O.C. paper.
Dollar bonds: Municipal revenue bonds for which quotes are given in dollar prices. Not to be confused with "U.S. Dollar" bonds, a common term of reference in the Eurobond market.
Dollar duration: The product of modified duration and the initial price.
Dollar price of a bond: Percentage of face value at which a bond is quoted.
Dollar return: The return realized on a portfolio for any evaluation period, including (1) the change in market value of the portfolio and (2) any distributions made from the portfolio during that period.
Dollar roll: Similar to the reverse repurchase agreement - a simultaneous agreement to sell a security held in a portfolio with purchase of a similar security at a future date at an agreed-upon price.
Dollar safety margin: The dollar equivalent of the safety cushion for a portfolio in a contingent immunization strategy.
Dollar-weighted rate of return: Also called the internal rate of return, the interest rate that will make the present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio.
Domestic International Sales Corporation (DISC): A U.S. corporation that receives a tax incentive for export activities.
Domestic market: Part of a nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation. Compare external market and foreign market.
"Do Not Reduce Order" (D.N.R. Order): Used in the context of general equities. Limit order to buy, order to sell, or a stop limit order to sell which is not to be reduced by the amount of an ordinary cash dividend on the ex-dividend date. A "Do not reduce order" applies only to ordinary cash dividends, and not stock dividends or rights.
Don't know (DK, Dked): "Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party.
Double auction market: Used for listed equity securities. Systems by which securities are bought and sold through brokers on the securities exchanges, as distinguished from the O.T.C. market, where trades are negotiated. Unlike the conventional auction with one auctioneer and many buyers, here we have many sellers and many buyers.
Double-declining-balance depreciation: Method of accelerated depreciation.
Double dip: Used for listed equity securities. Dividend roll in which the "dividend capturer" already owns the stock cum dividend and is enriching his current yield through a second, or double dose of dividend.
Double-dip lease: A cross-border lease in which the disparate rules of the lessor's and lessee's countries let both parties be treated as the owner of the leased equipment for tax purposes.
Double-tax agreement: Agreement between two countries that taxes paid abroad can be offset against domestic taxes levied on foreign dividends.
Doubling option: A sinking fund provision that may allow repurchase of twice the required number of bonds at the sinking fund call price.
Dow Jones Industrial Average: This is the best known U.S. index of stocks. It contains 30 stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies and commodities. The Dow is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials.
Dow Theory: Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.
Down-and-in option: Barrier option that comes into existence if asset price hits a barrier.
Down-and-out option: Barrier option that expires if asset price hits a barrier.
Downgrade: A classic negative change in ratings for a stock, or other rated security.
Downtick: Move down in a particular stock. On U.S. stock exchanges you cannot sell the stock short on a downtick.
Draft: An unconventional order in writing - signed by a person, usually the exporter, and addressed to the importer - ordering the importer or the importer's agent to pay, on demand (sight draft) or at a fixed future date (time draft), the amount specified on its face.
Draw a call: Used in the context of general equities. Provoking a customer indication/inquiry/order by setting an attractive market or doing large portions of the volume in a stock.
Drop: Refers to over-the-counter trading. Remove from O.T.C. trading list; hence, no longer making a market in a security.
Drop, the: With the dollar roll transaction the difference between the sale price of a mortgage-backed pass-through, and its re-purchase price on a future date at a predetermined price.
Drop lock: An arrangement whereby the interest rate on a floating rate note or preferred stock becomes fixed if it falls to a specified level.
Dual listing: Used for listed equity securities. Listing of a security on more than one exchange, thus increasing the competition for bid and offer prices, the liquidity of the securities, and the number of hours when the stock can be traded (if listed both on the east and west coasts.) See: listed security.
Dual-currency issues: Eurobonds that pay coupon interest in one currency but pay the principal in a different currency.
Dual syndicate equity offering: An international equity placement where the offering is split into two tranches - domestic and foreign - and each tranche is handled by a separate lead manager.
Due bill: An instrument evidencing the obligation of a seller to deliver securities sold to the buyer. Occasionally used in the bill market.
Due dilengence: In the process of an acquisition, the acquiring firm is often allowed to see the target firm's internal books. The acquiring firm does an internal audit. Offers are often made contingent upon the resolution of the due dilengence process.
Dumping: Used in the context of general equities. Offering large amounts of stock with little or no concern for price or market effect.
Duplicative portfolio: Mainly applies to derivative products. Basket of stocks that imitates the price movement of another set of securities (e.g., S&P 500 index).
Dupont system of financial control: Highlights the fact that return on assets (R.O.A.) can be expressed in terms of the profit margin and asset turnover.
Duration: A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
Dutch auction: Auction in which the lowest price necessary to sell the entire offering becomes the price at which all securities offered are sold. This technique has been used in Treasury auctions. Often used in risk arbitrage. Auction system in which the price of an item (stock) is gradually lowered until it meets a responsive bid (government T-bills) or offer (corporate repurchase) and is sold. In a corporate repurchase, a range of prices is set by the company within which shareholders are invited to tender their shares. The tender offer is open for a specific period of time (i.e., 20 days), and the quantity of stock to be purchased is stated as well, subject to proration if more shares are tendered than can be legally purchased under the stated terms (often an additional amount equal to 20% of outstanding shares can be purchased). The price paid is that at which the amount stated to be purchased can be sold. Compare to double auction system.
Dynamic asset allocation: An asset allocation strategy in which the asset mix is quantitatively shifted in response to -changing market conditions, as in a portfolio insurance strategy, for example.
Dynamic hedging: A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.

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