Definition of Pairoff

Pairoff

A buy-back to offset and effectively liquidate a prior sale of securities.

Absolute priority

Rule in bankruptcy proceedings whereby senior creditors are required to be paid in full
before junior creditors receive any payment.

Asset-backed security

A security that is collateralized by loans, leases, receivables, or installment contracts
on personal property, not real estate.

Back fee

The fee paid on the extension date if the buyer wishes to continue the option.

Back office

Brokerage house clerical operations that support, but do not include, the trading of stocks and
other securities. Includes all written confirmation and settlement of trades, record keeping and regulatory
compliance.
back-end loan fund
A mutual fund that charges investors a fee to sell (redeem) shares, often ranging from
4% to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a
designated time, such as one year. The commission decreases the longer the investor holds the shares. The
formal name for the back-end load is the contingent deferred sales charge, or CDSC.

Back-to-back financing

An intercompany loan channeled through a bank.

Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed upon maturity.

Back-up

1) When bond yields and prices fall, the market is said to back-up.
2) When an investor swaps out of one security into another of shorter current maturity he is said to back up.

Backwardation

A market condition in which futures prices are lower in the distant delivery months than in
the nearest delivery month. This situation may occur in when the costs of storing the product until eventual
delivery are effectively subtracted from the price today. The opposite of contango.

Best-efforts sale

A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).

Book-entry securities

The Treasury and federal agencies are moving to a book-entry system in which securities are not represented by engraved pieces of paper but are maintained in computerized records at the
Fed in the names of member banks, which in turn keep records of the securities they own as well as those they
are holding for customers. In the case of other securities where a book-entry has developed, engraved
securities do exist somewhere in quite a few cases. These securities do not move from holder to holder but are
usually kept in a central clearinghouse or by another agent.

Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Buy

To purchase an asset; taking a long position.

Buy in

To cover, offset or close out a short position. Related: evening up, liquidation.

Buy limit order

A conditional trading order that indicates a security may be purchased only at the designated
price or lower.
Related: Sell limit order.

Buy on close

To buy at the end of the trading session at a price within the closing range.

Buy on margin

A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.

Buy on opening

To buy at the beginning of a trading session at a price within the opening range.

Buy-and-hold strategy

A passive investment strategy with no active buying and selling of stocks from the
time the portfolio is created until the end of the investment horizon.

Buydowns

Mortgages in which monthly payments consist of principal and interest, with portions of these
payments during the early period of the loan being provided by a third party to reduce the borrower's monthly
payments.

Buying the index

Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
same return.

Buyout

Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is
done with borrowed money.

Buy-back

Another term for a repo.

Buy-side analyst

A financial analyst employed by a non-brokerage firm, typically one of the larger money
management firms that purchase securities on their own accounts.

Closing sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

Days' sales outstanding

Average collection period.

Debt securities

IOUs created through loan-type transactions - commercial paper, bank CDs, bills, bonds, and
other instruments.

Discount securities

Non-interest-bearing money market instruments that are issued at a discount and
redeemed at maturity for full face value, e.g. U.S. Treasury bills.

Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Exempt securities

Instruments exempt from the registration requirements of the securities Act of 1933 or the
margin requirements of the SEC Act of 1934. Such securities include government bonds, agencies, munis,
commercial paper, and private placements.

Federal agency securities

securities issued by corporations and agencies created by the U.S. government,
such as the Federal Home Loan Bank Board and Ginnie Mae.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Forward sale

A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.

Government securities

Negotiable U.S. Treasury securities.

Installment sale

The sale of an asset in exchange for a specified series of payments (the installments).

Leveraged buyout (LBO)

A transaction used for taking a public corporation private financed through the use
of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new
corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or
junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the
bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in
such investments.

Limitation on merger, consolidation, or sale

A bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.

Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.

Lookback option

An option that allows the buyer to choose as the option strike price any price of the
underlying asset that has occurred during the life of the option. If a call, the buyer will choose the minimal
price, whereas if a put, the buyer will choose the maximum price. This option will always be in the money.

Management buyout (MBO)

Leveraged buyout whereby the acquiring group is led by the firm's management.

Manufactured housing securities (MHSs)

Loans on manufactured homes - that is, factory-built or
prefabricated housing, including mobile homes.

Mortgage-Backed Securities Clearing Corporation

A wholly owned subsidiary of the Midwest Stock
Exchange that operates a clearing service for the comparison, netting, and margining of agency-guaranteed
MBSs transacted for forward delivery.

Mortgage-backed securities

securities backed by a pool of mortgage loans.

Mutual offset

A system, such as the arrangement between the CME and SIMEX, which allows trading
positions established on one exchange to be offset or transferred on another exchange.

Negotiated sale

Situation in which the terms of an offering are determined by negotiation between the issuer
and the underwriter rather than through competitive bidding by underwriting groups.

Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected
spot price.

Offset

Elimination of a long or short position by making an opposite transaction. Related: liquidation.

Opening sale

A transaction in which the seller's intention is to create or increase a short position in a given
series of options.

Pass-through securities

A pool of fixed-income securities backed by a package of assets (i.e. mortgages)
where the holder receives the principal and interest payments. Related: mortgage pass-through security

Payback

The length of time it takes to recover the initial cost of a project, without regard to the time value of money.

Plowback rate

Related: retention rate.

Price/sales ratio (PS Ratio)

Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.

Project loan securities

securities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.

Protective put buying strategy

A strategy that involves buying a put option on the underlying security that is
held in a portfolio. Related: Hedge option strategies

Public Securities Administration (PSA)

The trade association for primary dealers in U.S. government
securities, including MBSs.

Purchase and sale

A method of securities distribution in which the securities firm purchases the securities
from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.

Sale and lease-back

sale of an existing asset to a financial institution that then leases it back to the user.
Related: lease.

Sales charge

The fee charged by a mutual fund when purchasing shares, usually payable as a commission to
marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It
represents the difference, if any, between the share purchase price and the share net asset value.

Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.

Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.

Securities & Exchange Commission

The SEC is a federal agency that regulates the U.S.financial markets.

Securities analysts

Related:financial analysts

Short sale

Selling a security that the seller does not own but is committed to repurchasing eventually. It is
used to capitalize on an expected decline in the security's price.

Stripped mortgage-backed securities (SMBSs)

securities that redistribute the cash flows from the
underlying generic MBS collateral into the principal and interest components of the MBS to enhance their use
in meeting special needs of investors.

Substitute sale

A method for hedging price risk that utilizes debt-market instruments, such as interest rate
futures, or that involves selling borrowed securities as the primary assets.

Swap buy-back

The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Swap sale

Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate
swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Terms of sale

Conditions on which a firm proposes to sell its goods services for cash or credit.

Treasury securities

securities issued by the U.S. Department of the Treasury.

Wholesale mortgage banking

The purchasing of loans originated by others, with the servicing rights
released to the buyer.

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

NUMBER OF DAYS SALES IN RECEIVABLES

(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.

RATIO OF NET INCOME TO NET SALES

A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(Net income) / (Net sales)

RATIO OF NET SALES TO NET INCOME

A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(Net sales) / (Net income)

Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.

Feedback

The retrospective process of measuring performance, comparing it with plan and taking corrective action.

Payback

A method of investment appraisal that calculates the number of years taken for the cash flows from an investment to cover the initial capital outlay.

Priority-based budget

A budget that allocates funds in line with strategies.

Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.

Sales

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.

Sales discounts

A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.

Sales journal

A journal used to record the transactions that result in a credit to sales.

Sales returns

A contra account that offsets revenue. It represents the amount of sales made that were later returned.

return on sales

This ratio equals net income divided by sales revenue.

Securities and Exchange Commission (SEC)

The federal agency that
oversees the issuance of and trading in securities of public businesses.
The SEC has broad powers and can suspend the trading in securities of a
business. The SEC also has primary jurisdiction in making accounting
and financial reporting rules, but over the years it has largely deferred to
the private sector for the development of generally accepted accounting
principles (GAAP).

Payback Period

The number of years necessary for the net cash flows of an
investment to equal the initial cash outlay

backflush costing

a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
few allocations, uses standard costs, and has minimal variances
from standard

charge-back system

a system using transfer prices; see transfer
price

make-or-buy decision

a decision that compares the cost of
internally manufacturing a component of a final product
(or providing a service function) with the cost of purchasing
it from outside suppliers (outsourcing) or from another
division of the company at a specified transfer price

payback period

the time it takes an investor to recoup an
original investment through cash flows from a project

sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company

sales value at split-off allocation

a method of assigning joint cost to joint products that uses the relative sales values of the products at the split-off point as the proration basis; use of this method requires that all joint products
are salable at the split-off point

Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.

Gross sales

The total sales recorded prior to sales discounts and returns.

Leveraged buyout

The purchase of one business entity by another, largely using borrowed
funds. The borrowings are typically paid off through the future cash flow of
the purchased entity.

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