Glossary

Dark liquidity pools are private alternative trading systems or platforms. Prices aren't published, and participants can make anonymous trades faster and at a lower cost than they can on a public exchange.

Most dark-pool transactions are between institutional investors, including mutual funds and hedge funds, which trade in large volumes. Their interest in anonymity is either because they want to protect the privacy of their investment choices or because they fear a major transaction could move the markets by triggering copycat trading.

Dark liquidity pools must register with the Securities and Exchange Commission (SEC) as either national securities exchanges or broker-dealers. The broker-dealers must follow the rules laid out in SEC Regulation ATS, which governs fair access and a requirement to publish prices for trades in certain securities under specific circumstances.

If you can convert an asset to cash easily and quickly, with little or no loss of value, the asset has liquidity. For example, you can typically redeem shares in a money market mutual fund at $1 a share.

Similarly, you can cash in a certificate of deposit (CD) for at least the amount you put into it, although you may forfeit some or all of the interest you had expected to earn if you liquidate before the end of the CD's term.

The term liquidity is sometimes used to describe investments you can buy or sell easily. For example, you could sell several hundred shares of a blue chip stock by simply calling your broker, something that might not be possible if you wanted to sell real estate or collectibles.

The difference between liquidating cash-equivalent investments and securities like stock and bonds, however, is that securities constantly fluctuate in value. So while you may be able to sell them readily, you might sell for less than you paid to buy them if you sold when the price was down.

An index, expressed on a scale from zero to ten, with seven or higher considered excellent. For insurers, this measures the company's ability to raise the necessary cash to meet policyholder obligations. This index includes a stress test which considers the consequences of a spike in claims or a run on policy surrenders. Sometimes a company may appear to have the necessary resources, but may be unable to sell its investments at the prices at which they are valued in the company's financial statements. For banks and savings and loans, this measures the institution's ability to raise the necessary cash to satisfy creditors and honor depositor withdrawals. It is based on an evaluation of teh company's short-term liquidity position, including its existing reliance on less table deposit sources.