Investment and Finance

The U.S. stock and options markets are the only major markets still trading in fractions. The conversion to decimal pricing is intended to make the U.S. markets more compatible with other related markets. This conversion will make the U.S. markets more competitive with foreign markets, which already price, quote and trade in decimals.

No mixed pricing will be allowed for a single stock or option. During the phase-in period, a select group of stocks and options will be priced in decimals, while all others will be priced in fractions. Once the phase-in is fully implemented, pricing, quoting and trading will only be done in decimals. An exception to this rule is the exercise price for options. They will remain in fractions during the phase-in period. Option premiums will be expressed decimally in dollars and cents.

The following websites are available for more information about Decimalization: The New York Stock Exchange at www.NYSE.com, the American Stock Exchange at www.AMEX.com, the Securities Industry Association at www.SIA.com, and the National Association of Securities Dealers at www.NASD.com.

In the stock market "margin" refers to buying of stock or other investments on credit. The use of margin permits you to leverage the assets in your portfolio to increase the amount of securities you may own. This in turn increases the potential return on your investments in a bullish rising market. The use of margin also increases investment Risk since in a declining market the potential loss is similarly magnified by this leverage. Investors trading on margin must be prepared to deposit additional cash or securities to meet margin calls should the prices of stocks held in their accounts decrease. If the taxpayer is unable to make the deposit, the brokerage house has the right to sell the collateral securities and charge any market loss to the taxpayers account. You should make sure you do not over extend yourself when using margin to buy stocks. The use of margin also results in additional costs to you since interest is charged on your margin balance.

The two basic types of orders that you can place to buy or sell a stock are known as Market Orders and Limit Orders. A Market Order must be executed at the prevailing market price when the order reaches the market, even if the market price has moved significantly since the order was placed. The price you receive depends on market conditions at the specific time of execution. A Limit Order is an order in which you set a maximum price you are willing to pay to buy a security, or the minimum price you are willing to receive to sell a security. By placing a limit Order, you can take precautions that your order will not be executed above the limit for a buy order or below the limit for a sell order. By doing so, you take the risk that the order will not be executed at all if the order cannot be executed within the limit. Market orders provide an execution at the current market price. During volatile trading conditions, Market Orders carry the risk that the execution price you actually obtain may be substantially different from the quoted price at the time your order is placed.

CATS (Certificates of Accrual on Treasury Securities)are Issues from the U.S. Treasury sold at a deep discount from their face value. They are called Zero Coupon securities because they require no interest payments during their lifetime, but they return the full face value at maturity. They cannot be called away.

A Debenture is an unsecured debt offering by a corporation, promising only the general assets as protection for creditors.

The Face value is sometimes referred to as Par value. The Face Value or Face of a preferred stock is the redemption value appearing on the face of the certificate, unless that value is otherwise specified by the issuing corporation.