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Financial Glossary
| a b c d e f g h i j k l m n o p q r s t u v w x y z
Compiled by Campbell R. Harvey, J. Paul Sticht Professor of International Business, Fuqua School of Business, Duke University. |
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L
Fifth letter of a Nasdaq stock symbol specifying that the issue is a class of stock such as third preferred class of warrants, foreign preferred, sixth class of preferred stock, or preferred when issued stock. LA The two-character ISO 3166 country code for LAO PEOPLE'S DEMOCRATIC REPUBLIC. LAK The ISO 4217 currency code for Laos New Kip. LB The two-character ISO 3166 country code for LEBANON. LBO See: Leveraged buyout LBP The ISO 4217 currency code for Lebanese Pound. LC The two-character ISO 3166 country code for SAINT LUCIA. LCL See: Less Than Container Load LDC See: Less developed countries LEAPS See: Long-Term Anticipation Securities LI The two-character ISO 3166 country code for LIECHTENSTEIN. LIBOR See: London Interbank Offered Rate LIFFE See: London International Financial Futures and Options Exchange LIFO See: Last in, first out LK The two-character ISO 3166 country code for SRI LANKA. LKR The ISO 4217 currency code for Sri Lankan Rupee. LDs See: Liquidated damages LOC See: Letter of credit LP See: Limited partner LR The two-character ISO 3166 country code for LIBERIA. LRD The ISO 4217 currency code for the Liberian Dollar. LS The two-character ISO 3166 country code for LESOTHO. LSL The ISO 4217 currency code for the Lesotho Loti. LT The two-character ISO 3166 country code for LITHUANIA. LTL The ISO 4217 currency code for the Lithuanian Litas. LTV See: Loan-to-value ratio LU The two-character ISO 3166 country code for LUXEMBOURG. LUF The ISO 4217 currency code for the Luxembourg Franc. LV The two-character ISO 3166 country code for LATVIA. LVL The ISO 4217 currency code for the Latvian Lats. LY The two-character ISO 3166 country code for LIBYAN ARAB JAMAHIRIYA. LYD The ISO 4217 currency code for the Libyan Dinar. LYON See: Liquid yield option note Ladder strategy A bondportfolio construction strategy that invests approximately equal amounts in every maturity within a given range. Lady Macbeth Strategy Strategy in which a third party poses as a white knight in a takeoverbid, and then joins forces with an unfriendly bidder. Laffer curve A curve conjecturing that economic output will increase if marginal tax rates are cut. Named after economist Arthur Laffer. Lag Payment of a financialobligation later than is expected or required, as in lead and lag. Also, the number of periods that an dependent variable in a regression model is "held back" in order to predict the dependent variable. Lag response of prepayments A delay of typically about three months between the time the weighted-average coupon of an MBSpool crosses the threshold for refinancing and observation of an acceleration in prepayment speed is observed. Lagging Strategy used by a firm to stall payments, normally in response to exchange rate projections. Lagging indicators Economic indicators that follow rather than precede the country's overall pace of economic activity. See also: Leading indicators and coincident indicators. Laisse-faire Doctrine that a government should not interfere with business and economic affairs. Lambda The ratio of a change in the option price to a small change in the optionvolatility. It is the partial derivative of the option price with respect to the option volatility. Land contract A method of real estatefinancing; a mortgage-holding seller finances a buyer by taking a down payment and subsequent payments in installments, but holds the title until the mortgage is fully repaid. Landlord A property owner who rents property to a tenant. Lapsed option An option that no longer has any value because it has reached its expiration date without being exercised. Large-cap A stock with a high level of capitalization, usually at least $5 billion market value. Lagging indicators Economic indicators that follow rather than precede the country's overall pace of economic activity. See also: Leading indicators and coincident indicators. Last in, first out (LIFO) An accounting method that fixes the cost of goods sold to the most recent purchases. Hence, if prices are generally rising, LIFO will lead to lower accounting profitability. Last sale The most recent trade performed in a security. Last split After a stock split, the number of sharesdistributed 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 ofunderlyingphysical commodities or financialinstruments, or by agreement for monetary settlement, depending futures contract specifications. Late charge A fee a creditgrantor charges a borrower for a late payment. Late tape A delay in the display of price changes on the tape of an exchange because of heavy trading. In severe instances the first digit of each price is intentionally deleted. Late trading Late trading of mutual fund shares occurs when investors placing trades after 4 PM receive the 4 PM price. These late traders can use the information revealed after 4 PM to guide their trades: buying funds when their current value is greater than their 4 PM value and selling the funds when the reverse is true. Doing so allows them to earn expected abnormal returns at the expense of the fund's long-term shareholders. Latent default A potential default that may have always been present but unidentified. Launder To move illegally acquired cash through financial systems so that it appears to be legally acquired. Law of large numbers The mean of a random sample approaches the mean (expected value) of the population as sample size increases. Law of one price An economic rule stating that a given security must have the same price no matter how the security is created. If the payoff of a security can be synthetically created by a package of other securities, the implication is that 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. Lay off In the context of general equities, this eliminates all or part of a position by finding customers or other dealers to take the position. Layup Used in the context of general equities. Easily executed trade or order. See: Lead pipe. Lead Payment of a financialobligation earlier than is expected or required. Lead arranger The senior tier of arranger Lead bank A senior bank involved in the negotiations for a project financing. Lead Manager Subordinate to an arranger. Lead pipe Used in the context of general equities. Virtually certain that trade will take place; lead pipe cinch. See: Layup. Lead regulator A leading self-regulatory organization that over sees compliance with a particular section of the law, such as the NYSE, ASE, or NASDAQ. Lead underwriter The head of a syndicate of financialfirms that are sponsoring an initial public offering of securities or a secondary offering of securities. Could also apply to bondissues. Leader A stock or group of stocks that is the first to move in a market upsurge or downturn. Leading Strategy used by a firm to accelerate payments, normally in response to exchange rate expectations. Leading economic indicators Economic series that tend to rise or fall in advance of the rest of the economy. Leading indicator A change in a measurable economic factor that is evident before the economy starts to follow a specific trend. Leading and lagging Refers to timing of cash flows within a corporation. Leading the market In the context of general equities, this is a stock or group of stocks moving with the market as a whole, but moving in advance of the general market. League tables A ranking of lenders and advisors according to the underwriting, final take, or number of project financeloans or advisory mandates. Leakage Release of information selectively or not before official public announcement. Lease A long-termrental agreement, and a form of securedlong-termdebt. Lease acquisition cost The legal fees and other expenses incurred when acquiring a lease. Leasehold An asset providing the right to use property under a lease agreement. Leasehold improvement An improvement made to leased property. Lease-purchase agreement An agreement that allows for portions of lease payments to be used to purchase the leased property. Lease rate The payment per period stated in a leasecontract. Lease term The life of a lease, including any renewal options. Leaseback A transaction that involves the sales of some property, and an agreement by the seller to lease the property back from the buyer after the sale. Leaves Used in the context of general equities. Remains to buy or sell of a previously entered order after a report of partialexecution has been given. If the floor broker to buy 20M IBM at $115, and he then buys 6M at this price, his report would be, "You bought 6M IBM at $115; leaves 14." Ledger cash A firm'scash balance as reported in its financial statements. Also called book cash. Leg A prolonged trend in stock market prices, such as a multiple-period bull market; or, an option that is one side of a spreadtransaction. See: Lifting a leg. Leg up Used in the context of general equities. (1)Have a portion of the offsetting side of a tradein your pocket (spoken for) so your capitalrisk in the transaction is reduced. (Purchase of 10,000 of a 50,000 buy order leaves the trader a "leg up".) (2) Complete one side of a two-sided transaction, as in a swap or contingency order. LEGAL A computerized database maintained by the NYSE to keep track of enforcement actions, audits, and complaints against member firms. This term is not an acronym but is referred to in capitals. Legal capital Value at which a company'sshares are recorded in its books. Legal bankruptcy A legal proceeding for liquidating or reorganizating 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 fully discharge its obligations under the bond indenture. Legal entity A person or organization that can legally enter into a contract, and may therefore be sued for failure to comply with the terms of the contract. Legal investments Investments that a regulated entity is permitted to make under the rules and regulations that govern its conduct. Legal list A list of high-quality debt and equitysecurities chosen by a state agency that are acceptable holdings for fiduciary institutions. Legal monopoly A government-regulatedfirm that is legally entitled to be the only companyoffering a particular service in a particular area. Legal opinion A statement, usually written by a specialized law firm, required for a new municipal bondissue stating that the issue is legally acceptable. Legal risk The risk associated with the impact of a defect in the documentation on cash flow or debt service. Legal transfer A stocktransaction that requires special documentation in addition to standard stock or bond power to be legally valid. Legislative risk The risk that new or changed legislation will have a large positive or negative effect on an investment. Legitimate Used in the context of general equities. Real interest in trading as compared to a profile stance. See: Natural. Lehman Brothers Adjustable-Rate Mortgage Index A benchmarkindex that includes all agency-guaranteedsecurities with coupons that periodically adjust based on a spread over a published index. Lehman Brothers Aggregate Bond Index A benchmarkindex made up of the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstandingpar value of at least $100 million. Lehman Brothers California Municipal Bond Index A benchmarkindex that includes investment-grade, tax-exempt, and fixed-rate bonds issued in California. All securities have long-termmaturities (greater than two years) and are selected from issues larger than $50 million. Lehman Brothers Corporate Bond Index A benchmarkindex that includes all publiclyissued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, investment-grade corporate debt. Lehman Brothers Government Bond Index A benchmarkindex made up of the Treasury Bond Index and the Agency Bond Index as well as the 1-3 Year Government Index and the 20+ Year Treasury Index. Lehman Brothers Government/Corporate Bond Index A benchmarkindex made up of the Lehman Brothers® Government and Corporate Bond indexes, including U.S. government Treasury and agency securities as well as corporate and Yankee bonds. Lehman Brothers Mortgage-Backed Securities Index A benchmarkindex that includes 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association (FNMA). Lehman Brothers Municipal Bond Index A benchmarkindex that includes investment-grade, tax-exempt, and fixed-rate bonds with long-termmaturities (greater than two years) selected from issues larger than $50 million. Lehman Brothers New York Municipal Bond Index A benchmarkindex that includes investment-grade, tax-exempt, and fixed-rate bonds issued in the state of New York. All securities have long-termmaturities (greater than two years) and are selected from issues larger than $50 million. Lemon An investment with poor results. Lemons problem Named after 2001 Nobel Laureate George Akerlof's 1970 paper "The Market for Lemons". His original example had to do with used cars. Why does the seller want to get rid of the car? It might be a lemon. The buyer and seller have asymmetric information. Hence, the buyer will demand a deep discount on the car because of the possibility it is a lemon. Lend To provide money temporarily on the condition that it or its equivalent will be returned, often with an interest fee. Lendable funds The pool of funds available to borrows; typically categorized by currency and maturity. Lender Businesses that provide loans to others. Lender of last resort Traditionally the Federal Reserve Bank in the US, which assists banks that face large withdrawals of funds and in so doing stabilizes the banking system. Lender liability lawsuits Legal action of debtor against creditors that alleges unfair enforcement of loancovenants or violation of implied terms of a loan agreement. Lending agreement A contract regarding funds transferred between a lender and a borrower. Lending at a premium A loan from one broker to another of securities to cover a customer's short position, with a borrowing fee included. A fee is unusual since securities are normally lent freely between brokers. Lending at a rate Interest paid to a customer on the credit balance received from a short sale. Lending securities Securitiesborrowed from a broker'sinventory, from another customer's margin account, or from another broker, when a customer is required to deliver on a short sale. Leptokurtosis The condition of a probability density curve to have fatter tails and a higher peak at the mean than the normal distribution. Less-developed countries (LDCs) Also known as emerging markets. Countries who's per capita GDP is below a World Bank-determined level. Less Than Container Load Shipments of less than container load size (<$50,000). Lessee An entity that leases an asset from another entity. Lessor An entity that leases an asset to another entity. Letter of Administration A certificateissued by the Court evidencing the appointment of the Administrator of an Estate. Letter of comment A communication to the firm from the SEC that suggests changes to its registration statement. Letter of credit (LOC) A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues. Letter of Guarantee A letter from a bank to a brokerage firm which states that a customer (who has written a call option) does indeed own the underlying stock and the bank will guaranteedelivery if the call is assigned. Thus the call can be considered covered. Not all brokerage firms accept letters of guarantee. Also: letter issued to Option Clearing Corporation by member firms covering a guarantee of any trades made by one of its customers, (a trader or broker on the exchange floor). Letter of intent An assurance by a mutual fundshareholder that a certain amount of money will be invested monthly, in exchange for lower sales charges. In mergers, a preliminary merger agreement between companies after significant negotiations. Letter stock Privately placed common stock, so-called because the SEC requires a letter from the purchase stating that the stock is not intended for resale. Letter of Testamentary A certificateissued by the court evidencing the appointment of an executor of estate. Letter of Transmittal A document used by security holder to accompany certificates surrendered in an exchange or other corporate action. Level Used in the context of general equities. Price measure of an indication. Level-coupon bond Bond with a stream of coupon payments that remain the same throughout the life of the bond. Level debt service A municipal charter provision that debt payments must be relatively equal from year to year so that required revenue projections are easier. Level load A mutual fund that charges a permanent sales charge, usually at some fixed percentage. See: Front-end loads and back-end loads. Level pay Scheduling principal and interest payments (P&I) due under a mortgage so that total monthly payment of P&I is the same. Different from the typical mortgage for which the principal payment component of the monthly payment becomes gradually greater while the monthly interest component shrinks. Level term insurance A life insurance policy with a fixed face value and increasing premiums. Leverage The use of debt financing, or property of rising or falling at a proportionally greater amount than comparable investments. For example, an option is said to have high leverage compared to the underlyingstock because a given price change in the stock may result in a greater increase or decrease in the value of the option. Also, commonly known as Gearing in Europe. 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 value of stockholders, capitalization, and creditors obligations, and of the firm's ability to pay financing charges. Value of firm's debt to the total value of the firm (debt plus stockholder capitalization). Leverage rebalancing Making transactions to adjust (rebalance) a firm'sleverage ratio to a target ratio. Leveraged beta The beta of a leveragedrequired return; that is, the beta as adjusted for the degree of leverage in the firm'scapital structure. Leveraged buyout (LBO) A transaction used to take a publiccorporation private that is financed through debt such as 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 LBO 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 LBO fund that specializes in such investments. Leveraged company A company that has debt in its capital structure. Leveraged equity Stock in a firm that relies on financialleverage. Holders of leveraged equity experience the benefits and costs of using debt. Leveraged investment company An investment company or mutual fund entitled to borrowcapital for its operations. Also, an investment company that issues both income shares and capital shares. Leveraged lease A lease arrangement under which the lessorborrows a large proportion of the funds needed to purchase the asset. The lender has a lien on the assets and a pledge of the lease payments to secure the borrowing. Leveraged portfolio A portfolio that includes risky assetspurchased with funds borrowed. Leveraged recapitalization Often used in risk arbitrage. A publiccompany 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. Popular form of shark repellent See: Stub. Leveraged required return The required return on an investment when the investment is financed partially by debt. Leveraged stock Stocksfinanced with credit, such as that purchased on a margin account. Levered portfolio Investment at least partially financed by borrowing. Liability A financialobligation, or the cashoutlay that must be made at a specific time to satisfy the contractualterms of such an obligation. Liability funding strategies Investment strategy that select assets so that cash flows will equal or exceed the client's obligations. Liability insurance Insurance guarding against damage or loss that the policyholder, may cause another person in the form of bodily injury or property damage. 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. License agreement A contract by which a domestic company (the licensor) allows a foreign company (the licensee) to market its products in a foreign country in return for royalties, fees, or other forms of compensation. Licensing Arrangement in which a local firm in the host country produces goods in accordance with another firm's (the licensing firm's>) specifications; as the goods are sold, the local firm can retain part of the earnings. Lien A security interest in one or more assets that lendershold in exchange for secured debtfinancing. Life annuity An annuity that pays a fixed amount for the lifetime of the annuitant. Life cycle The lifetime of a product or business, from its creation to its demise or transformation. Life expectancy The length of time that an average person is expected to live, which is used by insurance companies use to make projections of benefit payouts. Life insurance An insurance policy that pays a monetary benefit to the insured person's survivors after death. Life insurance in force The dollar amount of life insurance that a company has issued, measured as the sum of policy face values and dividends paid. Life insurance policy The contract that sets out the terms of life insurance coverage. Lifetime reverse mortgage A type of mortgage in which a homeowner borrows against the value a home, while retaining title, and making no payments while residing in the home. When the owner ceases living in the house, the property is sold, and the loan repaid. Lift An increase in securities prices, as shown by some economic indicator. Lifted Refers to over-the-counter trading. Having an offer taken in a stock, followed by the market maker raising the offer price. Lifting a leg Closing out one side of a long-short arbitrage before the other is closed. Lighten up Selling some part of a stock or bondposition in a portfolio to realize capital gains or to losses or increase cashassets. Lima Stock Exchange Peru's major securities market. Limit See Trading Limit. Limit Cycles An attractor for non-linear dynamic systems which has periodic cycles or orbits in phase space. An example is an undamped pendulum which will have a closed circle orbit equal to the amplitude of the pendulum's swing. See: Attractor, Phase Space. Limit on close order An order to buy or sell stock at the closing price only if the price is at a predetermined level or better. 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 "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 tradingorder designed to avoid the danger of adverse unexpected price changes. Limit order book A record of unexecutedlimit orders maintained by the specialist. These orders are treated equally with other orders in terms of priority of execution. Limit order information system The electronic system supplying information about securitiestraded on participating exchanges so that the best securities prices can be found. Limit price See: Maximum price fluctuation Limit up, limit down The maximum price change allowed for a commodityfuturescontract per trading day. Limitation on asset dispositions A bond covenant that restricts in some way a firm's ability to sell major assets. Limitation on conversion Applies mainly 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. 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-leasebacktransactions, financing techniques that could affect creditor thinness. Limitation on subsidiary borrowing A bond covenant that restricts in some way a firm's ability to borrow at the level of firm subsidiary. Limited company A form of business commonly used in the U.K. comparable to incorporation in the U.S. Limited discretion Permission by a client that allows a broker to make certain stock and optiontrades without first consulting the client about the trade. Limited flexibility exchange rate system The International Monetary Fund's name for an exchange rate system with a managed float. Limited liability Limitation of loss to what has already been invested. Limited-liability instrument A security, such as a call option, in which the owner can lose only the 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 payment policy Life insurance providing full life protection but requiring premiums for only part of the customer's lifetime. Limited recourse A term describing a type of loan in which the lender has limited or no claim against the parent company if the collateral is insufficient to repay the debt. See:Nonrecourse. Limited risk The risk inherent in optionscontracts, which is much lower than that of a futures contract, which has unlimited risk. The maximum loss in buying a call option, for example, is the premium paid for the option. Limited price order Used in the context of general equities. See: Limit order. Limited-tax general obligation bond A general obligationbond of a government backed by specified or constrained revenue sources. Limited warranty A warranty with certain conditions and limitations on the parts covered, type of damage covered, and/or time period for which the agreement is good. Line of credit An informal loan arrangement between a bank and a customer allowing the customer to borrow up to a prespecified amount. 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. Linking method Method for calculating rates of return that multiplies one plus the interim rate of return. Lintner's observations John Lintner's work (1956) suggests that dividend policy is related both a target level, and to the speed of adjustment of change in dividends. Lipper Mutual Fund Industry Average The average level of performance for all mutual funds, as reported by Lipper Analytical Services. Liquid Easily traded or converted to cash. Liquid asset Asset that is easily and cheaply turned into cash-notably, cash itself and short-termsecurities. Liquid market A market allowing the buying or selling of large quantities of an asset at any time and at low transactionscosts. Liquid yield option note (LYON) Zero-coupon, callable, putable, convertible bond developed by Merrill Lynch & Co. Liquidated damages The amount payable for delays and sub-standard performance under a construction, equipment supply, or Operations & Maintenance contract. Liquidating dividend Payment by a firm to its owners from capital rather than from earnings. Liquidation Occurs when a firm's business is terminated. Assets are sold, proceeds are used to 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 by assignment Sale or realization of a debtorfirm'sassets voluntarily agreed to by its creditors who estimate that the firm's liquidation value exceeds its going-concern value. 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 insolventfirm'sassets and the repayment of its debts. Liquidity 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 illiquidity. Liquidity diversification Investing in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor. Liquidity Fund A California company that buysreal estatelimited partnershipinterests at 25% to 35% lower than the current value of the real estate assets. 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 rateminus expected future short-terminterest rate. Liquidity ratios Ratios that measure a firm's ability to meet its short-termfinancialobligations on time, such as the ratio of current assets to current liabilities. 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 liquiditypremium. Lisbon Stock Exchange (LSE) Stock exchangetrading stocks, bonds, and unit trusts. The BVL general index is the exchange's official index. Listed firm A company whose stocktrades on a stock exchange, and conforms to listing requirements. Listed option An option that has been accepted for trading on an exchange. Listed security 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: (1) an orderly marketplace; (2) liquidity; (3) fair price determination; (4) accurate and continuous reporting on sales and quotations; (5) information on listed companies; and (6) strict regulation for the protection of securityholders. Antithesis of OTC Security. Listed stocks Stocks that are traded on an exchange. Listing In the context of real estate, written agreement between a property owner and a real estate broker that gives the broker permission to find a buyer or tenant for some property. See: Listing broker. Listing broker In the context of equity, when a stock is traded in exchange it is said to be listed. A licensed real estatebroker who completes a listing of a property for sale. Listing requirements Requirements, including minimum sharesoutstanding, market value, and income, that are laid down by an exchange for any stock to be listed for trading. Living benefits Life insurance benefits from which the insured can draw cash while still living, usually in the case of some high-cost illness. Living trust A trust that an individual establishes during the individual's lifetime, enabling the person to control the assets contributed to the trust. Also known as an inter vivos trust. Living will A document specifying the kind of medical care a person wants-or does not want-in the event of terminal illness or incapacity. Lloyds of London A marketplace in London for underwriting syndicates. Load The sales fee charged to an investor when shares are purchased in a load fund or annuity. See: Back-end load; front-end load; level load. Load fund A mutual fund that sells shares with a sales charge-typically 4% to 8% of the net amount indicated. Some no-load funds also levy 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 a distribution fee. Load-to-load Arrangement whereby the customer pays for the last delivery when the next one is received. Load spread option A method of allocating the annualsales charge on load funds, often through percentage deductions from a customer's periodic fixed payments. Loan Temporary borrowing of a sum of money. If you borrow $1 million you have taken out a loan for $1 million. Loan amortization schedule The timetable for repaying the interest and principal on a loan. Loan commitment Assurance by a lender to make money available to a borrower on specific terms in return for a fee. Loan crowd Historical term. In the 1920's and 1930's, it refers to the group of member firms that lend or borrowsecurities needed to cover the positions of customers who have sold shortsecurities. The crowd could be found around the loan post. Loan Preference Principle The theory that a coveredloan is less expensive when its cost is calculated in one currency, it will also be less expensive in all other currencies. Loan syndication Group of banks sharing a loan. See: Syndicate. Loan value The maximum percentage of the value of securities that a broker can lend to a margin account customer, as dictated by the Federal Reserve Board in Regulation T. Loan-to-value ratio (LTV) The ratio of moneyborrowed on a property to the property's fair market value. Loaned flat Securities lent interest-free between brokers to cover customers' short salepositions. Local A futuresexchange member who tradessecurities for his or her own account. Local expectations hypothesis (LEH) Theory that bonds similar in all aspects except maturity will have the same holding-periodrate of return. Local expectations theory A form of the pure expectations theory that suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon. Local taxes Property, sewer, school, or other community paid to a locality. Local taxes are usually deductible for federal income tax purposes. Location-specific advantages Advantages (natural and created) that are available only or primarily in a particular place. Locational arbitrage Attempt to exploit discrepancies in exchange rates between banks. Lock Used in the context of general equities. Make a market both ways (bid andoffer) either on the bid, offering, or an in-between price only. Locking on the offering occurs 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, the sell side requires a plus tick to comply with short sale rules. Lock in To ensure that an individual transacts 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 PAC bond CMO classes, the period before the PAC sinking fund becomes effective. With multifamily loans, the period of time during which prepayment is prohibited. Lock-up CDs CDs that are issued with the tacit understanding that the buyer will not trade the certificate. Quite often, the issuing bank will insist that it hold the certificate for safekeeping by it to ensure that the buyer holds the understanding. Lockup option Often used in risk arbitrage. Privilege offered a white knight (friendly acquirer) by a target company to buycrown jewels or additional equity. The aim is to discourage a hostile takeover. See: Shark repellent. Lockbox A collection and processing service provided to firms by banks, which collect payments from a dedicated postal box to which 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 in When an investor is unable to take advantage of preferential tax treatment because of time remaining on a required holding period. Also, a commoditiesposition in which the market has a limit up or limit down day and investors are unable to move in to or out of the market. Locked market A market is locked if the bid price equals the ask price. This can occur, for example, if the market is brokered and one side pays brokerage only, in over-the-counter trading the initiator of the transactions. Highly competitive market environment with inside bid and offering at the same price. Often occurs when an OTC dealer has not updated the market. 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 Pattern of frequency of occurrence in which 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 Applies mainly to international equities. Interest rate the German Bundesbank uses as 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. London Commodity Exchange (LCE) Merged with the London International Financial Futures and Options Exchange in 1996. London Interbank Bid Rate (LIBID) The bid rate that a Euromarket bank is willing to pay to attract a deposit from another Euromarket bank in London. Related: LIBOR. London Interbank Offered Rate A short-terminterest rate often quoted as a 1,3,6-month rate for U.S.dollars. London International Financial Futures and Options Exchange (LIFFE) A leading market for trading options and futures on euro money marketderivatives. London Metal Exchange (LME) A market for trading base metals, where tradedoptions contracts are available against the underlyingfutures contract. London Stock Exchange (LSE) The U.K.'s six regional exchanges joined together in 1973 to form the stock exchange of Great Britain and Ireland, later named the LSE. The FTSE 100 index (known as the footsie) is its dominant index. Long One who has bought a contract to establish a marketposition and who has not yet closed out this position through an offsettingsale; the opposite of short. Long bonds Bonds with a long current maturity. The "long bond" is the 30-year US 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-term forward contracts Contracts that state exchange rate at which a specified amount of a particular currency can be exchanged at a future date (more than one year from today). Long hedge The purchase of a futures contract 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 leg The part of an option spread in which an agreement to buy the underlying security is made. Long market value The market value of a security, excluding options, as of the close of the last business day. Long position Owning or holding options (i.e., the number of contracts bought exceeds the number of contracts sold). For equities, a long position 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 position in an option Purchase of an options. Long run A period of time in which all costs are variable; longer than one year. Long straddle Taking a long position in both a put and a call option. Long-term Three or more years. In the context of accounting, more than 1 year. Long-term assets Value of property, equipment, and other capital assetsminus the depreciation. This is an entry in the bookkeeping records of a company. It is usually established on a "cost" basis, and thus does not necessarily reflect the market value of the assets. Long-term capital gain A profit on the sale of a security or mutual fundshare that has been held for more than one year. 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 financialleverage. 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's equity. Long-term debt-to-equity ratio A capitalization ratio comparing long-term debt to shareholders' equity. Long-term debt ratio The ratio of long-ter debt to total capitalization. Long-Term Anticipation Securities (LEAPS) Long-term options. Long-term financial plan Financial plan covering two or more years of future operations. Long-term financing Liabilities repayable in more than one year plus equity. Long-term gain A profit on the sale of a capital assets held longer than 12 months, and eligible for long-termcapital gains tax treatment. |