B - Return to Index
b2b, B2B, b to b, B to B - Refer to Business-to-Business applications or commerce on the internet.
Baby Bonds - Are bonds which have denominations less than $1,000 per bond.
Back-End Load - Refers to charges which are imposed upon the redemption or liquidation of an investment position. Often these charges are on a sliding scale. Sometimes, these charges are viewed as early withdrawal penalties. They are called back-end because they occur at the end of the investment process.
Backing Away - Occurs when a market maker does not honor its requirement buy or sell the minimum amount of a security. Sometimes, this action can be suspected by the willful failure to answer telephones or to update computers.
Back Office - Is the area or function which relates to the processing, record keeping, and other operational aspects of transactions for financial firms. This compares to Front Office and Middle Office.
Back Spread or Backspread - Is a position where you buy more options relative to the number of sold options. This strategy typically is placed in the expectation of a dramatic move. Compare to Ratio Spread.
Backwardation - Is the market condition whereby the deferred or more forward delivery months are at a progressive discount to the spot or nearby month. This is also known as an inverted market. This is opposite to a contango or carrying charge market.
Bailout - Is an action taken by others to help a company, organization or country with its finances. It is an analogy to "bailing out" a sinking boat. There is considerable debate as to whether the process is a handout or subsidy versus a helping hand.
Balanced Funds - Are mutual funds that invest in both stocks and bonds. The stocks can be both common and preferred. A primary objective is to balance income and growth.
BAN or Bond Anticipation Note - Is a short term security issued by a municipality. The security will be paid or redeemed by funds from a new issue. It is a cash management tool.
Bank Guarantee Letter - Is a document by which an approved bank certifies that an put option writer or grantor has sufficient funds at the bank to cover the write. The funds are equal to the exercised value of the put. This value is equal to the strike price multiplied by the number of shares. It effectively reflects an outright purchase of the underlying security at the strike level.
Bank Market - Is the spot and forward markets for currencies. Here, there are known counterparties to the transactions.
Bankers Acceptances - Are money market instruments which are used to finance import or export transactions. These instruments are essentially checks and represents a bank's promise and ability to pay the face or principal amount on the stipulated maturity date. Maturities are generally less than 3 months. Bankers Acceptances are viewed as money market instruments.
Barrel - Is equal to 42 U.S. gallons. It serves as a volume standard for crude oil other petroleum products.
Barrier - Is the threshold for an option feature to become active or inactive depending on the specifications. It also refers to a variety of option which has a barrier feature.
Barter - Is a process between counterparties who exchange goods or services for other goods and services.
Generally, this activity is conducted as a cashless transaction.
Basis - Is the relationship between an actual or cash market with a futures instrument. The relationship is typically the simple difference between the cash market and the futures.
Basis Point - Is the value of an "01" or basis point for credit instruments. Here, it refers to one-hundred of a full percentage point in yield. Sometimes, it refers to a basis point in price. It can also refer to a basis point difference in a basis time series.
Basis Risk - Is the risk in the basis time series. This can be influenced by many variable although the total impact is less than the exposure for a naked position. When a hedge is placed, price risk is transformed into basis risk. Basis risk is substantially less than price or inventory risk in terms of dollars.
Bcf or BCF - Refers to Billion Cubic Feet.
B/D - Is a Broker/Dealer or securities firm.
Also, refers to Barrels per Day. This measures the flow of oil out of a field or production at a refinery or other facility.
Bear - Is a person such as an investor, speculator, or strategist who thinks that a stock, index, or market will decline in value. Compare to Bull.
Bear Spread - Is an option strategy which is structured to profit from price declines in the underlying market. These spreads can be done for credits or debits. They can be built with calls or puts. When these strategies are done one-for-one, then the purchase of the higher strike and the sale of the lower strike establishes the bullish characteristic. Here, the common strategies are vertical, diagonal, and weighted spreads.
Bearer Bond - Is a security which does not have the owner's name on the certificate. Interest and principal are paid to the person presenting the attached coupons to the agents for payment. This type of ownership compares to registered or book entry form.
Benchmark - Is the standard to measure, monitor, price or evaluate a security or derivative. The treasury market is the benchmark for the corporate, mortgage backed, international and emerging credit markets. Here, securities are priced in terms of yield pickup relative to a comparable treasury. This comparability is often in terms of maturity though duration or average life become more meaningful for securities which have option characteristics.
Pricing - Is a sophisticated pricing algorithm and methodology. It sifts and compares live actual prices when available. If live market prices are not available, then it jumps to a dynamic, sequential and hierarchical pricing module which generates fair price estimates for evaluation and trading purposes.
Bet - Is slang for a market position.
Beta - Is a quantitative measure of a security, basket, or funds behavior relative to the market or benchmark. This relationship typically represents the historic price movement of a specific security against the movement in the S&P 500. A beta of 1.35 would indicate that the security move 1.35 times the movement in the S&P or 35% greater variability. The S&P 500 is considered having a beta of 1.00. Betas less than 1.00 are considered less variable than the market, betas greater than 1.00 are considered more variable than the market and negative betas are considered as inversely related to the market.
BEO - Is Book-Entry-Only.
BEY - See Bond Equivalent Yield.
Bid - Is the price that a buyer is willing to pay.
Bid Form - Is a document submitted by an underwriter for a competitive municipal security bid.
Big Board - Refers to the New York Stock Exchange.
Binary Option - Is an option that has two outcomes. Generally, it is structured to pay a predetermined fixed amount when in the money or pay nothing when out of the money.
Binder - Refers to the small but important amount of funds which accompany an offer to purchase real estate. This offer is usually written as an agreement to contract for the property. Each state and locality have varying laws about this action. It can be very binding.
BIS - Is the Bank for International Settlements.
BITS - Is the Banking Industry Technology Secretariat.
Black Box - Is software that is used for proprietary trading or analytical purposes. The key rules and core algorithms are not revealed to the users.
Black Option Model - Is the Black-Scholes option model modified by Fischer Black for the futures markets.
Black-Scholes Option Model - Is the seminal work about options pricing models. It was developed by Fisher Black and Myron Scholes. It initially focused on securities prices. Subsequently, it was refined by Fisher Black for the futures markets. Most options models depart from this seed.
This important work was published by Fischer Black and Myron Scholes in the May-June 1973 edition of The Journal of Political Economy. It laid the foundation for the quantitative analysis and practical calculation of puts and calls. The model indicated that options would eliminate risk from stock portfolios subject to some assumptions. The lognormal model stated that option values could be determined by using the current stock price, time left to expiration, the strike or exercise price, the variance of the stock's rate of return (standard deviation applied) and the risk-free rate of interest.
Blended Trade - Is the combination of two or more bonds or tranches executed as a single position. Often this is done to offset the individual, lopsided risks in two very different instruments. By doing such a trade, an investor or portfolio manager is trying to create a more stable investment.
Blind Pool - Is a limited partnership financing vehicle. The exact assets to be invested in are not specified or known.
bln or BLN - Refers to a billion. Some use b or B to refer to a billion as well.
Blotter - Is a trading record which is prepared for each business day. Often this is the primary data entry for a dealer or proprietary trader. Orders are recorded in a chronological sequence. When customer orders are involved, the price, quantity, instrument and customer identification are recorded. Also, time stamping of the order is required. This time stamping typically occurs on the order ticket. Often tickets and blotters are interchangeable.
BLS - Is the Bureau of Labor Statistics.
Blue List - Is the daily report which lists interdealer quotes for municipal bonds.
Boiler Shop or Boiler Room - Refers to an organization which uses high pressure and/or deceptive sales practices to obtain customer orders.
Boiler Shop or Boiler Room Tactics - Refers to high pressure sales pitches or presentations. Often these brokers or firms relentlessly pursue customers until they get an order. It is not pure persistence.
Bond Arbitrage Hedge Funds - Try to capture interest rate differentials or spreads due to mispricing or better financing than general market participants can attain. Sometimes, there can be a yield pickup due to convergence between two instruments, a pricing discrepancy due to inefficient evaluations of senior and junior credit risks, or relative value differences.
Bond Equivalent Yield - Is the procedure which relates discounted rates such as treasury bills and eurodollars to a bond standard. It is typical for discounted paper to be computed on the basis of a 360-day year whereas bonds are usually based on a 365 day year. If this equivalency is not done then the quoted short-term rates for discounted instruments may be understated.
Bond Funds - Are mutual funds that invest in credit instruments. There can be distinctions, such as, treasury, international, sovereign, mortgage backed, investment grade corporate and high yield or junk bonds.
Book - Is a term which has several meanings. It can refer to a broker's client list; it may refer to the size and variety of a trader's or trading desk's positions; it may also refer to the process of recording a trade or transaction.
Compare to Books.
Book Entry - Is the process or the name given to securities whose ownership and transfer occurs on a computer system. For treasuries and agencies this system is maintained by the Federal Reserve.
Book Runner - Refers to the lead or managing underwriter who "runs" or maintains the books for the transaction. Often, this underwriter is given total credit for the size of the deal in some metrics. Here, the total value of the deal would be credited to that underwriter as if they solely did the deal. Of course, other parties would receive their renumeration.
Book Transfer - Is the conveyance or change in ownership without a physical delivery.
Books - Refer to the accounting records or the Official Books and Records of an organization, person, or financial institution.
Compare to Book.
Bootstrapping - Is the technique the initiate a sample or process. It can use a piece of data to generate or infer other data. These other data are not necessarily observations.
Borrow - Is the term which indicates a credit relationship. In securities it can refer to borrowing funds or borrowing securities. When borrowing funds it is for margin for financing purposes. When borrowing securities, it is for short selling or hedging purposes.
Bottom line - Is a term that has several meanings which depend on usage and context.
Often, it refers to the net profitability (profits or losses) of a business.
It may refer to an answer, point of a long commentary, or a conclusion.
Box - Has two primary meanings. It can refer to an options strategy or an operations term. For the later, it is the safe, cabinet, or other physical depository for securities which is located in the back office.
When box refers to an to an options strategy it is the placement of both a bull and a bear spread. One spread is comprised of puts and the other is comprised of calls. Both spreads have the same expiration. It is an arbitrage technique which self-liquidates at expiration. Boxes can be executed as either debit or credit strategies.
Breakeven Point - Is the level whereby an investor neither profits or loses. It is often used in options and other derivatives trading. Aside from transaction costs such as commissions, fees or spreads, there is usually a premium involved. For example, the breakeven point for a purchase call would be the strike price plus the premium to establish the effective breakeven strike price or breakeven level. In the case of a purchased put, it would be the strike price of the put adjusted by the paid premium. The market has to move down through the strike price by an amount equal to the premium paid. This effectively means that the breakeven level is lower than the contract's exercise price.
Breakout - Is the departure from a trading range. It can be on the upside or the downside.
Bridge Bank - Is an organization which is created to serve as a vehicle to transport damaged loans or securities from an ailing financial institution. Often these nonperforming securities are package into securities or portfolios, which may be, acquired by turn-around specialists or vulture funds at significantly discounted prices. This activity can help improve the creditworthiness of the impaired financial institution because loans or securities in default are no longer held by that institution. This frees up regulatory capital for other purposes and removes impediments for complying with various regulatory bodies and banking laws. It should be noted that from a banking, brokerage or insurance perspective, illiquid or defaulted loans and securities have substantially higher regulatory capital haircuts relative to most other liquid securities. See Special Purpose Vehicle.
Bridge Loan - Is a type of temporary financing which is extended until permanent financing is secured. At that time, funds from the new permanent financing are used to pay off the bridge loan.
Sometimes, investment banks have arranged, if not granted, bridge loans in order to participate in a syndicate mandated to raise longterm or permanent financing.
Broker - Is the party who acts as an agent for his customer. The broker receives a commission as compensation. This person is also known as an AE, AP, IE, RR, or registered customer support person. Brokers are required to be licensed according to product lines and states when required.
BTAN or BTANs - Are coupon treasury bills offered by the French Government. The maturities range between 2 to 5 years. The fixed interest is paid annually. These securities are issued on a fungible basis.
BTU or BTUs - Refer to British Thermal Units. It measures the heating quality of different fuels against a common standard. This unit provides for comparative analyses.
Buba - Is the Bundesbank.
Bucket Shop - Refers to an organization which solicits customer orders but does not execute them immediately for the benefit of the customer. Rather it holds these orders, and tries to improve its own trading basis or advantage to the detriment of the client.
Bucketing or to Bucket Trades - Refers to several illegal activities. Most common is the holding of customer orders by a broker who does not report an immediate execution to the client. In this case the broker would try to take advantage of a known buy (or sell) and do an intermediate trade for himself.
For example, a customer gives a market order to buy and the broker executes an immediate transaction. However, the market advances and then the broker sells the instrument at which time he fills the customer order. The client then missed the benefit of the lower price.
Sometimes, the term is used for the action of inappropriately using a client's funds for unauthorized trading.
Buckets - Refer to categories for securities or derivatives. Some buckets refer to maturity classifications, such as, 3, 6, 12 month buckets. There are many other designations as well. The term can also refer to duration adjusted groups, option adjusted groups, and other predefined categories which represent a dominant, common feature.
Bull - Is a person such as an investor, speculator, or strategist who thinks that a stock, index, or market will appreciate in value. Compare to Bear.
Bull Spread - Is an option strategy which is structured to profit from price increases in the underlying market. These spreads can be done for credits or debits. They can be built with calls or puts. When these strategies are done one-for-one, then the purchase of the lower strike and the sale of the higher strike establish the bullish characteristic. Here, the common strategies are vertical, diagonal, and weighted spreads.
Bullet - Is a type of credit security which repays the entire principal on the maturity date. Prior to the maturity or prepayment of the bond, interest payments are to be made in accordance with the payment schedule.
Treasury and Corporate bonds pay off in lump sum principal amounts whereas many mortgages pay off on an amortization basis.
Bundle - Refers to copper cathodes which are strapped together.
Bundles - Are variations of strip trades whereby a trader or risk manager can place a series of calendar month contracts in one transaction. Packs can be bought or sold. They are quoted in quarter basis points from the previous settlement price. These transactions expedite credit market positions and swap hedges and adjustments. One can also trade bundles on a forward basis comparable to other money and credit market instruments.
Burnout - Is a phenomenon in the mortgage market. It represents the tendency of pools to become less sensitive to interest rate declines with the passage of time. While there may have been a surge in prepayments due to declining interest rates, the remaining mortgages do not prepay as quickly as the previous ones in the pools. It is implied that these remaining mortgages are less vulnerable to further accelerated prepayment risks.
Butterfly Option Spread - Is an options strategy which uses three strike prices for the same instrument and same expiration date. It can consist of the sale of two at-the-money options (puts or calls) and the purchase of one (put or call) at a higher strike price and the purchase of one (put or call) at a lower strike price.
Butterfly Trade - Is the sale of two units of a futures contract and the purchase of two units of a futures contract. Here, the contracts are positioned across three different delivery months. One pattern would be buy 1 March, Sell 2 April, and Buy 1 May. This strategy is also used in the credit markets.
Buy-In - Occurs when a seller or short seller fails to deliver the securities required to satisfy a transaction's terms. The net financial impact of this transaction is charged to the account of the seller.
Buy on Close - Is an order to make a purchase on the close. It can be a market or limit order.
Buy on Opening - Is an order to make a purchase on the opening. It can be a market or limit order.
Buyer's Market - Refers to a situation when a purchaser has greater flexibility and influence in receiving concessions. Often the choices are more plentiful and the prices lower than previously transacted.
Buying Power - Refers to the amount of securities that can be purchased in a margin account.
Buy-side or Buyside - Refers to financial organizations which tend to be natural buyers of securities, such as, mutual funds, insurance companies, and money managers.
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Copyright © 1998-2003 Barkley International Inc. All Rights Reserved. - Page created Tuesday, May 19, 1998 by Oasis Management®. Last Modified on Monday, February 19, 2018.