The Finance Dictionary

Securities

Securities include negotiable financial instruments such as common shares, preferred shares, bonds, debentures, mutual funds, put and call options, warrants, etc.

Segregated funds

A type of mutual fund, sold by insurance brokers, which is guaranteed to return all or part of your initial investment. Segregated funds may be protected from creditors under certain circumstances. When a preferred beneficiary is designated, the funds are paid to the beneficiary upon death, avoiding probate.

Settlement date

The settlement date for securities transactions is the date on which payment is made to settle the trade. The settlement date for stocks and bonds is normally 3 days after the trade date, and for options and mutual funds it is normally the day after the trade date. The settlement date is the date on which possession of the security is transferred from the seller to the buyer. If you sell an investment at the end of the year, and the settlement date is after yearend, the sale is not recorded for tax purposes until after yearend.

Share

Shareholder

A shareholder owns stock (shares) in a corporation. The shareholders are the owners of a corporation.

Shareholders' equity

This consists of all amounts received when shares were issued (share capital), plus retained earnings, less treasury shares, and is shown on the balance sheet portion of a corporation's financial statements. Also equal to total assets less total liabilities.

Short

A person is "short" a security when they sell shares they do not own, by borrowing them from their brokerage company. This is called making a "short sale", or "selling short". This is normally done when the person believes that the price of the security is going to fall, so that they can cover the sale by buying back the stock later at a lower price. See also "long".

Small business corporation (SBC)

The Income Tax Act defines a small business corporation as a Canadian controlled private corporation (CCPC), in which all or substantially all of the fair market value of the assets are used principally in an active business carried on primarily in Canada. The assets may include shares or debt of one or more other small business corporations that are connected with the corporation.

Small business deduction

The small business deduction is a reduction in corporate taxes for Canadian controlled private corporations, or CCPCs. The reduced rate of tax is available on active business income up to the corporation's business limit for the year. The federal business limit for 2007 and 2008 is $400,000.

Eligibility for the small business deduction also depends on the amount of the corporation's taxable capital. For more information see the information on the small business deduction in the Canada Revenue Agency T2 Corporation Income Tax Guide.

Specified investment business

A specified investment business is one whose principal purpose is to derive income (interest, rent, dividends and royalties) from property, unless the business employs more than 5 full time employees. Income from property would include rental or leasing income from land or buildings, but would exclude income from renting or leasing moveable property such as machinery and equipment. A specified investment business is not eligible for the small business deduction.

Specified shareholder

A specified shareholder of a corporation is a person who, either alone or together with others with whom that person is not dealing at arm's length, owns 25% or more of the voting shares of the corporation, or owns shares of the capital stock of the corporation having a fair market value of 25% or more of the fair market value of the issued and outstanding shares of the corporation. See also personal services business.

Speculator

One who will take on additional risk in order to increase returns.

Spread

The difference between bid and ask prices.

Standby charge

The standby charge is an amount included in the income of an employee or shareholder when a company owned or leased automobile is available for the personal use of the employee or shareholder.

Stock

A certificate representing partial ownership (share) of a company (or a base for making soup). See also capital stock, common shares, and preferred shares.

Stock dividend

A dividend paid in the form of shares or partial shares of the paying corporation.

Stock exchange

A stock exchange is an organization which is in the business of providing securities trading services.

Stock index

Stock split

This is when a corporation issues additional shares to its shareholders. For instance, a 2 for 1 stock split would result in each shareholder holding twice the number of shares that they previously held. However, the market value per share would be only half of the previous market value per share.

Stop loss order

An instruction to a broker to sell a stock if it falls to a specified price.

Street name

A security registered in street name is registered in the name of the brokerage company, not the owner. This is how most shares are held when purchased through a brokerage company.

Strip bond

A strip bond is a bond that pays no interest. It is purchased at a discount from face value, and face value is paid upon maturity. See also coupon.

Structured products

A broad term including many financial products such as hedge funds, exchange traded funds, limited partnerships, and mutual funds, and are structured to achieve a certain objective.
Examples:

• principal protected notes (PPNs), which may guarantee the original invested amount, and they enable the investor to share in any gains in the financial vehicle to which they are attached, such as the TSX60, S&P500, Dow Jones, commodities, etc.
• tax-structured products for non-registered investment accounts, which provide the investor with income treated in a certain way for tax purposes, such as capital gains, dividends, return of capital.
• products structured for registered investment accounts, providing investment income that is not tax-efficient when earned in non-registered accounts, such as interest and foreign dividends.

More caution should be used if the structured product is sold without a prospectus.

Substantially all

Canada Revenue Agency (CRA) uses "90% or more" as their guideline to interpret the words "all or substantially all" in the Income Tax Act and the Excise Tax Act.

Surplus

Earned surplus is the same as retained earnings. See also contributed surplus.