Chinese Wall-this is the imaginary wall that separates the different departments of a brokerage firm. It is in place to prevent financial consultants from giving inside information to their clients. For example, let’s say that the investment banking side of a firm is working on a merger that involves XYZ stock. The Chinese wall prevents the sales side from knowing about this activity and keeps them from providing inside information about stock XYZ to their clients. Someone who gives inside information, is said to have been brought over the wall. Also consider the case involving the underwriting side of the firm and the analysts. While it is not considered inside information, you should be skeptical of an analyst's top picks if his firm has done underwriting for any of the companies.
Chop Shop-a fly by night brokerage that's here one day and gone the next. Also known as boiler room.
Churning-is excessive trading by someone who has discretionary control over an account. This is done to generate larger commissions. It usually results in high tax bills in addition to the very high trading costs for the client. Since this type of action is not in the best interests of the client; it is unethical and illegal.
Circuit breaker-this is a measure used by stock exchanges to halt trading in the event of an extreme selloff. This is meant to avert panic selling. The circuit breakers as of the 4th quarter of 2000 are:
Closed End fund-this is a mutual fund with a fixed number of shares than trades more like a stock rather than trading like a normal (open end) mutual fund. An open end fund will trade at its NAV. The shares of a closed end fund can trade at a premium or discount to the NAV of its portfolio of securities. Two closed end sites are Closed End Fund Center & Closed End Fund Investor.
Closing Price-the last price that a security trades at on a given day.
Commercial paper-short term debt that is issued by corporations and sold to investors. Widely held in money market funds.
Conduit IRA-this is an IRA that was funded with rollover money from a 401(k)(or similar plan). You should not make contributions to this type of account because you would be commingling assets. The funds in this account are eligible to be rolled over into a new 401(k) plan (in this example) as long as you do not commingle. If contributions are made to this account the IRS will not allow anything in the account to be rolled over into a 401(k) plan.
Convertible securities-an investment hybrid that pays interest like a bond or preferred stock but that is also exchangeable for a predetermined number of shares of common stock. These securities tend to have a greater upside potential than bonds but also have a degree of downside protection. You can compare terms and check prices at ConvertBond.com.
Cost Basis-original price of an asset that is used to determine capital gains.
Credit Report-you should get a copy of your credit report at least once a year to make sure that there are no mistakes on it. Contact all three of the major bureaus at:
Cusip Number-number identifying all stocks and registered bonds using the Committee on Uniform Securities Identification Procedures (CUSIP).
Updated 6/25/01
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