Glossary

The AMEX is the second-largest floor-based stock exchange in the United States after the New York Stock Exchange (NYSE).

It operates an auction market in stocks (including overseas stocks), exchange traded funds, and derivatives, including options on many NYSE-traded and over-the-counter (OTC) stocks.

The CBOE, often pronounced "see-bo," is the largest options market in the world. Founded in 1973, the market specializes in trading options contracts on individual equities, indexes, and interest rates.

Over the years, the CBOE has been instrumental in developing a variety of new options-related financial products. One example is the FLEX option, which the CBOE introduced in 1993 to allow investors to add specific provisions to options contracts.

The market is also known for being on the cutting edge of advanced trading technologies, including electronic trading.

Traditionally, an exchange has been a physical location for trading securities. Trading is handled, at least in part, by an open outcry or dual auction system.

Two examples in the United States are the New York Stock Exchange (NYSE), which has the largest trading floor in the world, and the Chicago Board Options Exchange (CBOE).

However, the definition is evolving. Traditional exchanges handle an increasing number of trades electronically, off the floor. Nasdaq and other totally electronic securities markets, without trading floors, have exchange status.

As a result, the terms exchange and market are being used interchangeably to mean any environment in which listed products are traded.

The term exchange also refers to the act of moving assets from one fund to another in the same fund family or from one variable annuity subaccount to another offered through the same contract.

The exchange rate is the price at which the currency of one country can be converted to the currency of another. Although some exchange rates are fixed by agreement, most fluctuate or float from day to day.

Daily exchange rates are listed in the financial sections of newspapers and can also be found on financial websites.

Exchange traded funds (ETFs) resemble open-ended mutual funds but are listed on a stock exchange and trade like stock through a brokerage account.

You buy shares of the fund, which in turn owns a portfolio of stocks, bonds, commodities, or other investment products. You can use traditional stock trading techniques, such as buying long, selling short, and using stop orders, limit orders, and margin purchases.

The ETF doesn't redeem shares you wish to sell, as a mutual fund does. Rather, you sell in the secondary market at a price set by supply and demand. ETF prices change throughout the trading day rather than being set at the end of the trading day, as open-end mutual fund prices are.

Each ETF has a net asset value (NAV), which is determined by the total market capitalization of the securities or other products in the portfolio, plus dividends but minus expenses, divided by the number of shares issued by the fund.

The market price and the NAV are rarely the same, but the differences are typically small for the most widely traded conventional ETFs. That's due to a unique process that allows institutional investors to buy or redeem large blocks of shares at the NAV with in-kind baskets of the fund's securities or other products.

Most ETFs are linked to a market index, which determines the fund's portfolio. While the majority of the indexes are traditional, some are described as fundamental. In those indexes, components of the index are identified on the basis of selective criteria, such as their performance, rather than their market capitalization.

Exchange traded notes (ETNs) are debt securities issued by a financial institution, listed on a stock exchange, and traded in the secondary market.

Unlike regular bonds, there are no periodic interest payments, and your principal isn't protected. So you could lose some of or all the amount you invest.

You can sell your ETN in the secondary market at its current price or hold it until maturity, though that may be 30 years in the future.

The price in the secondary market is determined by supply and demand, the current performance of the index, and the credit rating of the ETN issuer. At maturity, the issuer pays a return linked to the performance of the market index, such as a commodity index, to which the ETN is linked, minus the issuer's annual fee.

Any type of financial instrument that is used to make payments between countries is considered foreign exchange. The list of instruments includes electronic transactions, paper currency, checks, and signed, written orders called bills of exchange.

Large-scale currency trading, with minimums of $1 million, is also considered foreign exchange and can be handled as spot price transactions, forward contract transactions, or swap contracts.

Spot transactions close at the market price within two days, and the others are set to close at an agreed-upon price and an agreed-upon date in the future.

Traditionally, futures contracts and options on those contracts have been bought and sold on a futures exchange, or trading floor, in a defined physical space.

In the United States, for example, there are futures exchanges in Chicago, Kansas City, Minneapolis, and New York.

As electronic trading of these products expands, however, buying and selling doesn't always occur on the floor of an exchange. So the term is also used to describe the activity of trading futures contacts.

This New York Stock Exchange Composite Index measures the performance of the common stocks listed on the NYSE, including those of companies head-quartered in the United States and in other countries.

The Index is market capitalization weighted, so that companies with the most shares and the highest prices have the greatest impact on the changing value of the Index.

The New York Stock Exchange (NYSE) is one of the two securities exchanges operated by the NYSE Group, Inc. It's the oldest securities exchange in the United States and the largest traditional exchange in the world.

Trading on the floor of the exchange is by double auction system, handled by floor brokers representing buyers and sellers, and by specialists -- one for each listed security.

NYSEArca, the other NYSE Group exchange, is an all-electronic market, where trading is direct and anonymous.

Stock exchanges in cities other than New York are called regional exchanges. They list both regional stocks, which may or may not be listed on the New York exchanges, as well as stocks that are listed in New York.

Because of the National Market System, securities listed on one exchange can be traded on any other exchange if the price there is better than the price on the exchange where the stock is listed.

The number of regional exchanges is shrinking, however, as the result of mergers and acquisitions by larger exchanges.

The Securities and Exchange Commission (SEC) is an independent federal agency that oversees and regulates the securities industry in the United States and enforces securities laws.

The SEC requires registration of all securities that meet the criteria it sets, and of all individuals and firms who sell those securities. It's also a rule making body, with a mandate to turn the law into rules that the investment industry can follow.

Established by Congress in 1934, the SEC sets standards for disclosure by publicly traded corporations, and works to protect investors from misleading or fraudulent practices, including insider trading.

It has four divisions: Corporate Finance, Market Regulation, Investment Management, and Enforcement.