E - Return to Index

e - Is the base of natural logarithms or 2.71828.

EAFE or MSCI EAFE - Refers to Morgan Stanley's Europe, Australasia, Far East index. It reflects a widely followed list of stocks from 20 countries.

Early Exercise - Is the exercise of an option by its owner prior to the expiration date.

Earnest Money - Is a deposit made towards the purchase of real property. In some locales it is viewed synonymously with the Binder. Other places consider it as an additional deposit towards the purchase. Here, the amount can be quite large. Often it would accompany a signed sales contract prior to the closing or settlement.

Eastern Account - Refers to an undivided underwriting account. This compares to the Western Account.

EBIT - Refers to Earnings before Interest and Taxes.

EBITDA - Refers to earnings before interest, taxes, depreciation and amortization.

ECDs or ECDS - Are Equity Linked Certificates of Deposit.

ECNs or ECNS - Are Electronic Communications Networks. These platforms, islands or mechanisms serve trading, investing, and risk management purposes.

ECU - Is the European Currency Unit.

ED - Refers to the Eurodollar Futures and Options on Futures contracts.

Effective Date - Is the day that a new issue begins trading in the secondary market. This marks the transition from the initial issuance or Primary Market to the Aftermarket or Secondary Market.

Effective Duration - Measures the percentage change in price for a 1 percentage point or 100 basis point change in interest rates.

Effective Strike Price - Is the adjusted level of the option contract exercise price. A key adjustment is for time value either paid or received.

EFP - See Exchange for Physicals.

EFT - Refers to Electronic Funds Transfer.

EGARCH - Is Exponential Generalized Autoregressive Conditional Heteroskedasticity (GARCH).

Elasticity - Refers to the economic concept of the ability or comparative ease to adjust supply or demand within a changing economy.

Electronic Trading - Is the process whereby customers or their representatives can directly enter orders and receive reports and statements via the internet. It can also include trading with terminals over dedicated telephone lines.

Embedded Option - Is an option whose characteristics are implied but not explicitly specified. One notable example is the option granted a mortgagor (home owner) by the lender. The mortgagor has the right to prepay the mortgage at any time but is not required to do so in any specified manner.

EMCC - Is the Emerging Market Clearing Corporation.

Emerging Markets - Is a term which broadly categorizes countries in the midst of developing their financial markets and economic infrastructures. This development is viewed in terms of freer, more liquid markets, which facilitate trade. Privitization of former state owned or administered businesses is a key factor in this process.

Emerging Markets Funds - Are investment vehicles, either open-end or closed-end, which invest in countries whose economies are becoming more capitalistic. Often this emergence is from socialistic, communistic or other tightly controlled economic systems.

There are also Hedge Funds which participate in emerging markets.

Emerging Markets Hedge Funds - Narrow their investment horizon to issues in markets which are not as mature or liquid as the previous group. However, these less developed markets are believed to offer greater risk adjusted rates of return. A general perspective is akin to "getting in on the ground floor."

EMF or MSCI EMF - Refers to Morgan Stanley's Emerging Markets Free index. it reflects stocks in 26 emerging market countries.

EMU - Is the European Monetary Union.

Equipment Trust Certificate - Is a security which is collateralized by specific equipment, often capital in nature. The title is held in trust until the obligation is satisfied. However, the borrower is permitted to use the item provided there are no defaults precluding usage.

This security operates in a manner similar to a mortgage or hypothecation agreement.

Equitize a Margin Call - Is an event whereby a previously unsatisfied margin call is eliminated by an effective transfer of ownership. In 1998, Long Term Capital Management transfered a portion of ownership to its creditors. In some respects, it was a debt for equity swap.

The immediate benefit to the previous creditors is that the regulatory capital requirement is not impaired by a default. It also extends the horizon for position liquidation.

Equity Hedge Funds - Try to long position themselves in stronger or outperform issues while selling short weaker or poorer prospect securities. Variations of this are: trading large cap issues versus small caps; using derivatives for enhanced returns; specializing in program trading; or using leverage to magnify returns.

Equity Run - Is a statement generated every day which lists a customer's positions, equity, margin requirements, and prior day's activity. Point balances, cash balances, and value of marginable securities are other aspects which can be included.

ERISA - Is the Employee Retirement Income Security Act. It was enacted into law in 1974.

ERM - Refers to Enterprise Risk Management. See Risk Management and Analysis Software.

Error - Is a mistake in terms of quantity, type of order, side of market (purchase or sale), security, or other condition of a trade.

Error Account - Is the destination for the temporary placement of a trade which was involved in an error transaction. Firms will either take immediate market action to correct the error, or sometimes will keep the position there as they work it out. See Work Out.

Escrow - Is a fund held by a third-party custodian.

ESOP - Is the Employee Stock Ownership Plan. It is similar to a profit sharing plan but, here, only the stock of the employer is purchased with the contributions.

EURO or EURO Currency Unit - Refers to the new medium of exchange or unified currency which went into effect on January 1, 1999 for financial transactions in member European countries. It will replace those national currencies and coinages on January 1, 2002.

For more information, see the following:
Barkley's Euro Currency Converter and Exchange Rates Calculator

European Style - Is a variety of option which can only be exercised on the last or expiration day.

Event - Is the occurrence of some critical action, catalyst or new information.

Ex - Is derived from Latin and refers to "without" or "not included." This compares to Cum.

Ex-Dividend - Refers to a transaction which the new purchaser of a stock is not entitled to the recently declared dividend. This occurs because the new purchaser did not own the security on the record date.

Ex-Pit - Refers to a transaction outside the pit or ring. This is permissible for bona fide hedging purposes or to allow for a smooth transfer of accounts between brokerage firms. This type of transaction is under less scrutiny than ordinary transactions because there is no public offering of the positions.

Ex-Rights - Refers to a transaction which the new purchaser of a stock is not entitled to participate in the recently declared rights offering. The mechanics are similar to ex-dividend conditions. Here, the exclusion point in time is known as the ex-rights date.

Exchange for Physicals - Is an ex-pit transaction whereby physical commodities or actual financial instruments are exchanged for futures contracts. This flexible technique is permitted for bona fide hedging transactions. This procedure allows for grades, quantities, locations, and delivery dates which are different than those stipulated for good delivery under the standard contract rules.

Exempt Securities - Are issues which are not bound by the filing provisions of the Securities Act of 1933. Exempt securities include treasury and municipal notes and bonds, bank securities, and nonprofit organization securities.

Exercise - Is the action taken by the holder of an option or convertible security to convert his derivative position into the underlying security, commodity or futures. In the case of the option the exercise of a call would give the owner of the call the underlying instrument or cash settlement adjustment. In the case of a convertible bond, the owner of the bond terminates that contractual relationship in exchange for shares in the corporation. The owner of the option is the only one that exercises. However, there are mandatory exercises for expiring options that are in-the-money by more than the stipulated threshold amount. Also, there may be built-in event options that take priority over the owner of the securities right to exercise. Nevertheless, this nesting of options still defers to rules that establish which party holds, which options.

Exercise Price - Is the predetermined level at which an optionís underlying instrument is priced upon its exercise. The exercise price is also called the strike price.

Expectations - Is the composite of market sentiment or the forward looking aspect of what traders anticipate to happen within their trading horizons.

Expected Basis - Is the forward looking aspect of a basis relationship. It compares to historic, current or implied basis statistics.

Expected Excess Return - Is equal to the nonmarket or alpha return plus the beta-adjusted market or systematic return. Since beta relates an asset's return to the market, then the alpha distinguishes it from the market. Algebraically, this is presented by the expression for a straight line or excess return equals a (alpha) + b (beta)X (market return).

Expected Value - Is viewed as an anticipated, theoretical or fair value for an instrument.

Expected Volatility - Is the forward looking aspect of volatility or variability. It compares to historic and current or implied volatility.

Expiration - Is the date stipulated for the cessation of the life of an option. It is also the formal acknowledgment of the optionís termination.

Expiry - Is the expiration date of a derivative.

Explicit Option - Is an option whose strike and expiration are clearly stated. There is a direct payment for this specific option contract. In the case of an implied option, the price adjustment is reflected in the instrument such as a mortgage.

Extending - Is a term to indicate an increase in the duration of mortgage backed and related securities. Generally, it is a consequence of slower-than-expected prepayments.

Extra Dividend - Is a payment declared or paid by a corporation in addition to its ordinary dividend policy. It can reflect a distribution of profits which are considered extraordinary.

Extrinsic Value - Is the time value component of an option premium.

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