ExpertGlossary

Safekeeping occurs when a broker-dealer holds securities for a client that are registered in the client's name.

The advantage from the client's perspective is that the securities are safe and the broker-dealer has them available to sell at the client's instruction.

The disadvantage from the broker-dealer's perspective is that securities held in a client's name are not fully negotiable or fungible, so they can't be used to settle trades, for example. Thus, it's a service for which many firms charge a fee.

Instead of being registered in their own names, clients' securities may be registered in the broker-dealer's name or in the name of a depository. That's known as being registered in street name or nominee name.

With this type of registration, the client's ownership rights are fully protected but the stock is fungible. The broker-dealer may use a limited portion of the holding to settle trades or for other purposes.

A salary reduction plan is a type of employer-sponsored retirement savings plan.

Typical examples are 401(k)s, 403(b)s, 457s, and SIMPLE IRAs.

A salary reduction plan allows you, as an employee, to contribute some of your current income to a retirement account in your name and to accumulate tax-deferred earnings on those contributions. In most plans, you contribute pretax income, which reduces your current income tax, and you pay tax at withdrawal at your regular rate.

With Roth salary reduction plans, you contribute after-tax income but qualify for tax-free withdrawals if you are older than 59 1/2 and your account has been open at least five years.

Your employer may match some or all of your contribution according to a formula that applies on an equal basis to all participating employees. All salary reduction plans have an annual contribution cap that's set by Congress and allow annual catch-up contributions for participants 50 and older.

In a sale-leaseback arrangement - also known as a leaseback - an owner sells his or her property, and then immediately leases it back from the buyer as part of the same transaction.

This way, the seller gets the profits from the sale while keeping possession and use of the property, while the buyer is assured immediate long-term income on the property.

Sale-leaseback transactions are most commonly used in commercial real estate, but can also apply to commercial vehicles and other types of property.

A sales charge is the fee you pay to buy shares of a load mutual fund or other investment purchased through a financial professional.

The charge is typically figured as a percentage of the amount you invest. As the size of your investment increases, the rate at which you pay the sales charge may decrease.

Each dollar amount at which there is a corresponding reduction in the charge is known as a breakpoint. For example, the rate may drop from 4.5% to 4.25% with an investment of $25,000.

The sales charge on a mutual fund may be imposed as a front-end load when you buy (also known as a Class A share), as a back-end load when you sell (also known as a Class B share), or as a level load each year you own the fund (also known as a Class C share).

A sales tax is a tax imposed by state and local governments on transactions that occur within their jurisdictions.

The taxing authority determines which transactions are subject to tax and the flat rate at which the tax is calculated. Some countries, though not the United States, impose a national sales tax often called a value added tax (VAT).

This corporation purchases student loans from various lenders, such as banks, and packages the loans as bonds or short-term or medium-term notes. After issue, these debt securities trade on the secondary market.

Sallie Mae guarantees repayment of the bonds and notes, and uses the money it raises through the sale of these securities to provide additional loan money for post-secondary school students. Sallie Mae also arranges financing for state student loan agencies. Its shares trade on the New York Stock Exchange (NYSE).

Named after its main Congressional sponsors, Senator Paul Sarbanes and Representative Michael Oxley, the Sarbanes-Oxley Act of 2002 introduced new financial practices and reporting requirements, including executive certification of financial reports, plus more stringent corporate governance procedures for publicly traded US companies and added protections for whistleblowers.

Also known as the Corporate and Auditing Accountability, Responsibility, and Transparency Act, or more colloquially as SarbOx or SOX, the law was passed in response to several high-profile corporate scandals involving accounting fraud and corruption in major US corporations.

The law also created the Public Company Accounting Oversight Board (PCAOB), a private-sector, nonprofit corporation that regulates and oversees public accounting firms.

The law has seen its share of controversy, with opponents arguing that the expense and effort involved in complying with the law reduce shareholder value, and proponents arguing that increased corporate responsibility and transparency far outweigh the costs of compliance.

A savings account is a deposit account in a bank or credit union that pays interest on your balance-though some institutions require that you have at least a minimum amount in the account to qualify for earnings.

You can deposit and withdraw from savings accounts as you wish, but you can't transfer money from the account directly to other people or organizations.

While savings accounts typically pay interest at a lower rate than other bank accounts, that may not always be the case. Savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund.

You're covered up to $100,000 in each of three different categories of account in a single bank, or up to $250,000 if an account is a self-directed retirement account (IRA). Different branches of the same bank count as one bank.

The US government issues two types of savings bonds: Series EE and Series I.

You buy electronic Series EE bonds through a Treasury Direct account for face value and paper Series EE for half their face value. You earn a fixed rate of interest for the 30-year term of these bonds, and they are guaranteed to double in value in 20 years. Series EE bonds issued before May 2005 earn interest at variable rates set twice a year.

Series I bonds are sold at face value and earn a real rate of return that's guaranteed to exceed the rate of inflation during the term of the bond. Existing Series HH bonds earn interest to maturity, but no new Series HH bonds are being issued.

The biggest difference between savings bonds and US Treasury issues is that there's no secondary market for savings bonds since they cannot be traded among investors. You buy them in your own name or as a gift for someone else and redeem them by turning them back to the government, usually through a bank or other financial intermediary.

The interest on US savings bonds is exempt from state and local taxes and is federally tax deferred until the bonds are cashed in. At that point, the interest may be tax exempt if you use the bond proceeds to pay qualified higher education expenses, provided that your adjusted gross income (AGI) falls in the range set by federal guidelines and you meet the other conditions to qualify.

A screen is a set of criteria against which you measure stocks or other investments to find those that meet your criteria.

For example, you might screen for stocks that meet a certain environmentally or socially responsible standard, or for those with current price-to-earnings ratios (P/E) less than the current market average.

A socially responsible mutual fund describes the screens it uses to select investments in its prospectus.

Scrip is a certificate or receipt that represents something of value but has no intrinsic value. What's essential is that the issuer and the recipient must agree on the value that the scrip represents.

For example, in the past, after a corporate stock split or spin-off, a company might issue scrip representing a fractional share of stock for each share you owned. On or before a specific date, you could combine the certificates and convert the value they represented into full shares.

But most companies today make a cash payment for fractional shares based on the closing price of the stock on a specific date.

Scripophily is the practice of collecting antique stocks, bonds, and other securities.

The most valuable documents are usually the most beautiful, or those that have some historical significance because of the role the issuing company played in the economy. Sometimes those with distinctive errors are also especially valuable.

When investors buy and sell securities through a brokerage account, the transactions occur on what's known as the secondary market.

While the secondary market isn't a place, it includes all of the exchanges, trading rooms, and electronic networks where these transactions take place.

The issuer - company or government - that sold the security initially receives no proceeds from these trades, as it does when the securities are sold for the first time.

The most common form of secondary offering occurs when an investor, usually a corporation, but sometimes an individual, sells a large block of stock or other securities it has been holding in its portfolio to the public.

In a sale of this kind, all of the profits go to the seller rather than the company that issued the securities in the first place. The seller usually pays all of the commissions.

Secondary offerings can also originate with the issuing companies themselves. In these cases, a company issues additional shares of its stock, over and above those sold in its initial public offering (IPO), or it reissues shares that were issued and have been bought up by the company over time. Reissued shares are known as Treasury stock.

A sector is a segment of the economy that shares distinctive characteristics, such as telecommunications or energy.

Sectors tend to do better during certain parts of the economic cycle and worse in others. Sectors also respond to a variety of factors, including consumer sentiment.

The performance of any single stock in a sector can be measured against the performance of the sector as a whole, showing where that stock ranks in relation to its peers.

Sector indexes, some broad and some very narrow, track many of the major sectors of the economy.

Sector mutual funds, also called specialty or specialized funds, concentrate their investments in a single segment of an industry, such as biotechnology, natural resources, utilities, or regional banks, for example.

Sector funds tend to be more volatile and erratic than more broadly diversified funds, and often dominate both the top and bottom of annual mutual fund performance charts. A sector that thrives in one economic climate may wither in another one.

A secular market is one that moves in the same direction - up or down - for an extended period.

Benchmark indexes continue to rise to new, higher levels during a secular bull market despite some short-term corrections. Similarly, during a secular bear market, index levels decline or remain flat despite short-term rallies.

In addition, the average price-to-earnings ratio increases substantially during a secular bull market before reaching a top and falls during secular bear markets before hitting a bottom.

Secular markets tend to move in cycles, or predictable though not regular patterns, so that a secular bull market is followed by a secular bear market, which is followed by a secular bull market, and so on.

For example, the bull market of 1982 through 1999 followed the bear market of 1966-1981. The length of secular markets varies, from as few as 4 or 5 years to more than 20 years, though when one begins and ends becomes clear only in retrospect.