~~~Finance Terminology~~~

Options Backdating

Setting the date of an employee stock option to an earlier time than when the option was actually granted. This can allow for a more favorable strike price. Backdating the option is not illegal, but the improper disclosure of the activity to the Securities and Exchange Commission is considered illegal.

Variable Annuity

An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio.

Pension fund

Pooled-contributions from pension plans set up by employers, unions, or other organizations to provide for the employees' or members' retirement benefits. Pension funds are the largest investment blocks in most countries and dominate the stock markets where they invest. When managed by professional fund managers, they constitute the institutional investor category with insurance companies and investment trusts. Commonly, pension funds are exempt from capital gains tax and the earnings on their investment portfolios are either tax deferred or tax exempt.

Discovery

Pre-trial disclosure process during which several legal devices can be employed by any litigating party to obtain relevant non-privileged information from the opposing or non-opposing party/parties. These devices include depositions, examinations of witnesses, inspection of documents, and interrogatories. If any party is unwilling to cooperate, the court may subpoena the party or the documents, or (after failure to make discovery) dismiss the action or enters a summary judgment.

Cost Estimate

An approximation of the probable cost of a product, program, or project, computed on the basis of available information.</p> <p>Four common types of cost estimates are: (1) Planning estimate: a rough approximation of cost within a reasonable range of values, prepared for information purposes only. Also called ball park estimate. (2) Budget estimate: an approximation based on well-defined (but preliminary) cost data and established ground rules. (3) Firm estimate: a figure based on cost data sound enough for entering into a binding contract. (4) Not-to-exceed /Not-less-than estimate: the maximum or minimum amount required to accomplish a given task, based on a firm cost estimate.

Roy's Safety-First Criterion – SFRatio

An approach to investment decisions that sets a minimum required return for a given level of risk. The Roy's safety-first criterion allows portfolios to be compared based on the probability that their returns will fall below this minimum desired threshold. It is calculated by subtracting the minimum desired return from the expected return of the portfolio and dividing the result by the standard deviation of portfolio returns. The optimal portfolio will be the one that minimizes the probability that the portfolio's return will fall below a threshold level.

The safety-first ratio is calculated as:

= E(r) - Threshold Return
... Standard Deviation

 

Markets in Financial Instruments Directive

MFID. A set of guidelines created by the European Union that created common regulations across the various investment services in each member state. MFID authorizes member states to regulate their own financial firms, requires that firms offer sufficient transaction transparency, and requires that firms offer the best trade execution for clients..