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The Investment FAQ (part 6 of 20)

( Part1 - Part2 - Part3 - Part4 - Part5 - Part6 - Part7 - Part8 - Part9 - Part10 - Part11 - Part12 - Part13 - Part14 - Part15 - Part16 - Part17 - Part18 - Part19 - Part20 )
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Archive-name: investment-faq/general/part6
Version: $Id: part06,v 1.61 2003/03/17 02:44:30 lott Exp lott $
Compiler: Christopher Lott

See reader questions & answers on this topic! - Help others by sharing your knowledge
The Investment FAQ is a collection of frequently asked questions and
answers about investments and personal finance.  This is a plain-text
version of The Investment FAQ, part 6 of 20.  The web site
always has the latest version, including in-line links. Please browse

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Different terms and conditions apply to documents on The Investment
FAQ web site.

The Investment FAQ is copyright 2003 by Christopher Lott, and is
protected by copyright as a collective work and/or compilation, 
pursuant to U.S. copyright laws, international conventions, and other
copyright laws.  The contents of The Investment FAQ are intended for
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The plain-text version of The Investment FAQ may be copied, stored,
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Neither the compiler of nor contributors to The Investment FAQ make
any express or implied warranties (including, without limitation, any
warranty of merchantability or fitness for a particular purpose or
use) regarding the information supplied.  The Investment FAQ is
provided to the user "as is".  Neither the compiler nor contributors
warrant that The Investment FAQ will be error free. Neither the
compiler nor contributors will be liable to any user or anyone else
for any inaccuracy, error or omission, regardless of cause, in The
Investment FAQ or for any damages (whether direct or indirect,
consequential, punitive or exemplary) resulting therefrom.  

Rules, regulations, laws, conditions, rates, and such information
discussed in this FAQ all change quite rapidly.  Information given
here was current at the time of writing but is almost guaranteed to be
out of date by the time you read it.  Mention of a product does not
constitute an endorsement. Answers to questions sometimes rely on
information given in other answers.  Readers outside the USA can reach
US-800 telephone numbers, for a charge, using a service such as MCI's
Call USA.  All prices are listed in US dollars unless otherwise
Please send comments and new submissions to the compiler.

--------------------Check for updates------------------

Subject: Exchanges - Circuit Breakers, Curbs, and Other Trading

Last-Revised: 2 Aug 2002
Contributed-By: Chedley A.  Aouriri, Darin Okuyama, Chris Lott ( contact
me ), Charles Eglinton

A variety of mechanisms are in place on the U.S.  exchanges to restrict
program trading (i.e., to cut off the big boy's computer connections)
whenever the market moves up or down by more than a large number of
points in a trading day.  Most are triggered by moves down, although
some are triggered by moves up as well. 

The idea is that these curbs on trading, also known as collars, will
limit the daily damage by restricting activities that might lead towards
greater volatility and large price moves, and encouraging trading
activities that tend to stabilize prices.  Although these trading
restrictions are commonly known as circuit breakers, that term actually
refers to just one specific restriction. 

These changes were enacted in 1989 because program trading was blamed
for the fast crash of 1987.  Note that the NYSE defines a Program Trade
as a basket of 15 or more stocks from the Standard & Poor's 500 Index,
or a basket of stocks from the Standard & Poor's 500 Index valued at $1
million or more. 

Trading restrictions affect trading on the New York Stock Exchange
(NYSE) and the Chicago Mercantile Exchange (CME) where S&P 500 futures
contracts are traded.  When these restrictions are triggered, you may
hear the phrase "curbs in" if you listen to CNBC. 

Here's a table that summarizes the trading restrictions in place on the
NYSE and CME as of this writing.  The range is always checked in
reference to the previous close.  E.g., a move of up 200 and down 180
points would still be an up of 20 with respect to the previous close, so
the first restriction listed below would not be triggered.  Any curb
still in effect at the close of trading is removed after the close;
i.e., every trading day starts without curbs. 

Note that the "sidecar" rules were eliminated on Tuesday, February 16,

Restriction Triggered by
NYSE collar (Rule 80A) DJIA moves 2%
CME restriction 1 S&P500 futures contract moves 2.5%
CME restriction 2 S&P500 futures contract moves 5%
CME restriction 3 S&P500 futures contract moves 10%
NYSE circuit breaker nr.  1 DJIA moves 10%
NYSE circuit breaker nr.  2 DJIA moves 20%
NYSE Circuit breaker nr.  3 DJIA moves 30%

Now some details about each. 

NYSE Collar (Rule 80A): Index arbitrage tick test
     Rule 80A provides that index arbitrage orders can only be executed
     on plus or minus ticks depending on which way the DJIA is.  In the
     parlance of the NYSE, the orders must be "stabilizing." This rule
     only effects S&P 500 stocks, and is also known as the "uptick
     downtick rule" because it restricts sells to upticks and buys to
     downticks.  In other words, when the market is down (last tick was
     down), sell orders can't be executed at lower prices.  In an up
     market (last tick was up), buy orders can't be executed for higher
     prices.  This collar is removed when the DJIA retraces its gain or
     loss to within approximately 1% of the previous close.  As of 3Q02,
     the collar is imposed at 180 points and removed when the DJIA
     retraces its position to within 90 points of the previous day's
CME Restrictions
     Trading in the S&P500 futures contract is halted just for a few
     minutes if the prices moves 2.5%, 5%, or 10% from the previous
     close.  Because restrictions on the NYSE effectively shut down
     trading in this futures contract, there is little need for
     additional restrictions on the CME. 
NYSE Circuit Breakers
     These restrictions are also known as "Rule 80B." The first version
     of this rule, adopted in 1988, set triggers at 250 DJIA points and
     400 DJIA points.  These restrictions are updated quarterly to
     reflect the heights to which the Dow Jones Industrial Average has
        * 10% decline (950 points for 3Q02)
          The first circuit breaker is triggered if the DJIA declines by
          approximately 10%.  The restrictions that are put into place
          -- if any -- depend on the time of day when the circuit
          breaker is triggered.  If the trigger occurs before 2pm
          Eastern time, trading is halted for 1 hour.  If the trigger
          occurs between 2 and 2:30pm Eastern, trading is halted for 30
          minutes.  If the trigger occurs after 2:30pm Eastern time, no
          restrictions are put into place.  (This restriction was first
          used during the afternoon of 27 Oct 97.) Note that there is no
          similar restriction to the downside; nothing is done if the
          Dow rallies 10%. 
        * 20% decline (1900 DJIA points for 3Q02)
          The second circuit breaker is triggered if the DJIA declines
          by approximately 20%.  The restrictions that are put into
          place again depend on the time of day when the circuit breaker
          is triggered.  If the trigger occurs before 1pm Eastern time,
          trading is halted for 2 hours.  If the trigger occurs between
          1 and 2pm Eastern, trading is halted for 1 hour.  If the
          trigger occurs after 2pm Eastern time, the NYSE ends trading
          for the day.  Again there is no similar restriction to the
          downside; nothing is done if the Dow rallies 20%. 
        * 30% decline (2850 DJIA points for 3Q02)
          The third circuit breaker is triggered if the DJIA declines by
          approximately 30%.  The restriction is very simple: the NYSE
          closes early that day.  And like the other cases, again no
          restrictions are imposed if the Dow rallies 30%. 

The circuit breakers cut off the automated program trading initiated by
the big brokerage houses.  The big boys have their computers directly
connected to the trading floor on the stock exchanges, and hence can
program their computers to place direct huge buy/sell orders that are
executed in a blink.  This automated connection allows them to short-cut
the individual investors who must go thru the brokers and the
specialists on the stock exchange. 

Statistical evidence suggests that about 2/3 of the Mar-Apr 1994 down
slide was caused by the program traders trying to lock in their profits
before all hell broke loose.  The volume of their trades and their very
action may have accelerated the slide.  The new game in town is how to
outfox the circuit breakers and buy or sell quickly before the 50-point
move triggers the halting of the automated trading and shuts off the

Here are sources with more information:
   * HL Camp & Company offers a concise summary of program trading
     collars including current numbers on their web site.
   * The Chicago Mercantile Exchange publishes their equity index price
   * The NYSE publishes press releases every quarter with the numbers
     for that quarter's circuit breakers.
   * The NYSE's glossary includes definitions of the term "Circuit

--------------------Check for updates------------------

Subject: Exchanges - Contact Information

Last-Revised: 13 Aug 1993
Contributed-By: Chris Lott ( contact me )

Here's how to contact the stock exchanges in North America. 
   * American Stock Exchange (AMEX), +1 212 306-1000,
   * ASE, +1 403 974-7400
   * Montreal Stock Exchange (MSE), +1 514 871-2424
   * NASDAQ/OTC, +1 202 728-8333/8039,
   * New York Stock Exchange (NYSE), +1 212 656-3000,
   * The Philadelphia Stock Exchange (PHLX),
   * Toronto Stock Exchange (TSE), +1 416 947-4700
   * Vancouver Stock Exchange (VSE), +1 604 689-3334/643-6500

If you wish to know the telephone number for a specific company that is
listed on a stock exchange, call the exchange and request to be
connected with their "listings" or "research" department. 

--------------------Check for updates------------------

Subject: Exchanges - Instinet

Last-Revised: 11 May 1994
Contributed-By: Jeffrey Benton (jeffwben at

Instinet is a professional stock trading system which is owned by
Reuters.  Institutions use the system to trade large blocks of shares
with each other without using the exchanges.  Commissions are slightly
negotiable but generally $1 per hundred shares.  Instinet also runs a
crossing network of the NYSE last sale at 6pm.  A "cross" is a trade in
which a buyer and seller interact directly with no assistance of a
market maker or specialist.  These buyer-seller pairs are commonly
matched up by a computer system such as Instinet. 

Visit their web site:

--------------------Check for updates------------------

Subject: Exchanges - Market Makers and Specialists

Last-Revised: 28 Jan 1994
Contributed-By: Jeffrey Benton (jeffwben at

Both Market Makers (MMs) and Specialists (specs) make market in stocks. 
MMs are part of the National Association of Securities Dealers market
(NASD), sometimes called Over The Counter (OTC), and specs work on the
New York Stock Exchange (NYSE).  These people serve a similar function
but MMs and specs have a number of differences.  See the articles in the
FAQ about the NASDAQ and the NYSE for a detailed discussion of these

--------------------Check for updates------------------

Subject: Exchanges - The NASDAQ

Last-Revised: 6 June 2000
Contributed-By: Bill Rini (bill at, Jeffrey Benton
(jeffwben at, Chris Lott ( contact me )

NASDAQ is an abbreviation for the National Association of Securities
Dealers Automated Quotation system.  It is also commonly, and
confusingly, called the OTC market. 

The NASDAQ market is an interdealer market represented by over 600
securities dealers trading more than 15,000 different issues.  These
dealers are called market makers (MMs).  Unlike the New York Stock
Exchange (NYSE), the NASDAQ market does not operate as an auction market
(see the FAQ article on the NYSE).  Instead, market makers are expected
to compete against each other to post the best quotes (best bid/ask

A NASDAQ level II quote shows all the bid offers, ask offers, size of
each offer (size of the market), and the market makers making the offers
in real time.  These quotes are available from the Nasdaq Quotation
Dissemination Service (NQDS).  The size of the market is simply the
number of shares the market maker is prepared to fill at that price. 
Since about 1985 the average person has had access to level II quotes by
way of the Small Order Execution System (SOES) of the NASDAQ. 
Non-professional users can get level II quotes for $50 per month.  In
May 2000, the Nasdaq announced a pilot program that would reduce this
fee to just $10 per month. 

SOES was implemented by NASDAQ in 1985.  Following the 1987 market
crash, all market makers were required to use SOES.  This system is
intended to help the small investor (hence the name) have his or her
transactions executed without allowing market makers to take advantage
of said small investor.  You may see mention of "SOES Bandits" which is
slang for people who day-trade stocks on the NASDAQ using the SOES.  A
SOES bandit tries to scalp profits on the spreads.  Visit
for more on that topic. 

A firm can become a market maker (MM) on NASDAQ by applying.  The
requirements are relatively small, including certain capital
requirements, electronic interfaces, and a willingness to make a
two-sided market.  You must be there every day.  If you don't post
continuous bids and offers every day you can be penalized and not
allowed to make a market for a month.  The best way to become a MM is to
go to work for a firm that is a MM.  MMs are regulated by the NASD which
is overseen by the SEC. 

The brokerage firm can handle customer orders either as a broker or as a
dealer/principal.  When the brokerage acts as a broker, it simply
arranges the trade between buyer and seller, and charges a commission
for its services.  When the brokerage acts as a dealer/principal, it's
either buying or selling from its own account (to or from the customer),
or acting as a market maker.  The customer is charged either a mark-up
or a mark-down, depending on whether they are buying or selling.  The
brokerage can never charge both a mark-up (or mark-down) and a
commission.  Whether acting as a broker or as a dealer/principal, the
brokerage is required to disclose its role in the transaction.  However
dealers/principals are not necessarily required to disclose the amount
of the mark-up or mark-down, although most do this automatically on the
confirmation as a matter of policy.  Despite its role in the
transaction, the firm must be able to display that it made every effort
to obtain the best posted price.  Whenever there is a question about the
execution price of a trade, it is usually best to ask the firm to
produce a Time and Sales report, which will allow the customer to
compare all execution prices with their own. 

In the OTC public almost always meets dealer which means it is nearly
impossible to buy on the bid or sell on the ask.  The dealers can buy on
the bid even though the public is bidding.  Despite the requirement of
making a market, in the case of MM's there is no one firm who has to
take the responsibility if trading is not fair or orderly.  During the
crash of 1987 the NYSE performed much better than NASDAQ.  This was in
spite of the fact that some stocks have 30+ MMs.  Many OTC firms simply
stopped making markets or answering phones until the dust settled. 

Academic research has shown that an auction market such as the NYSE
results in better trades (in tighter ranges, less volatility, less
difference in price between trades).  When you compare the multiple
market makers on the NASDAQ with the few specialists on the NYSE (see
the NYSE article), this is a counterintuitive result.  But it is true. 

In 1996 the NASDAQ was investigated for various practices.  It settled a
suit brought against it by the SEC and agreed to change key aspects of
how it does business.  Forbes ran a highly critical article entitled
"Fun and Games" on the NASDAQ.  This was once available on the web, but
has vanished. 

Related topics include price improvement, bid and ask, order routing,
and the 1996 settlement between the SEC and the NASDAQ.  Please see the
articles elsewhere in this FAQ about those topics. 

In 1998, a merger between the NASD and the AMEX resulted in the
Nasdaq-Amex Market Group. 

For more information, visit their home page:

--------------------Check for updates------------------

Subject: Exchanges - The New York Stock Exchange

Last-Revised: 4 June 1999
Contributed-By: Jeffrey Benton (jeffwben at, Chris Lott (
contact me )

The New York Stock Exchange (NYSE) is the largest agency auction market
in the United States.  Visit their home page:

The NYSE uses an agency auction market system which is designed to allow
the public to meet the public as much as possible.  The majority of
volume (approx 88%) occurs with no intervention from the dealer. 
Specialists (specs) make markets in stocks and work on the NYSE.  The
responsibility of a spec is to make a fair and orderly market in the
issues assigned to them.  They must yield to public orders which means
they may not trade for their own account when there are public bids and
offers.  The spec has an affirmative obligation to eliminate imbalances
of supply and demand when they occur.  The exchange has strict
guidelines for trading depth and continuity that must be observed. 
Specs are subject to fines and censures if they fail to perform this
function.  NYSE specs have large capital requirements and are overseen
by Market Surveillance at the NYSE.  Specs are required to make a
continuous market. 

Most academic literature shows NYSE stocks trade better (in tighter
ranges, less volatility, less difference in price between trades) when
compared with the OTC market (NASDAQ).  On the NYSE 93% of trades occur
at no change or 1/8 of a point difference.  It is counterintuitive that
one spec could make a better market than many market makers (see the
article about the NASDAQ).  However, the spec operates under an entirely
different system.  The NYSE system requires exposure of public orders to
the auction, the opportunity for price improvement, and to trade ahead
of the dealer.  The system on the NYSE is very different than NASDAQ and
has been shown to create a better market for the stocks listed there. 
This is why 90% of US stocks that are eligible for NYSE listing have

A specialist will maintain a narrow spread.  Since the NYSE does not
post bid/ask information, you need to check out the 1-minute tick to
figure out the spread.  In other words, you'll need access to a
professional's data feed before you can really see the size of the
spread.  But the structure of the market strongly encourages narrow
spreads, so investors shouldn't be overly concerned about this. 

There are 1366 NYSE members (i.e., seats).  Approximately 450 are
specialists working for 38 specialists firms.  As of 11/93 there were
2283 common and 597 preferred stocks listed on the NYSE.  Each
individual spec handles approximately 6 issues.  The very big stocks
will have a spec devoted solely to them. 

Every listed stock has one firm assigned to it on the floor.  Most
stocks are also listed on regional exchanges in LA, SF, Chi., Phil., and
Bos.  All NYSE trading (approx 80% of total volume) will occur at that
post on the floor of the specialist assigned to it.  To become a NYSE
spec the normal route is to go to work for a specialist firm as a clerk
and eventually to become a broker. 

The New York Stock Exchange imposes fairly stringent restrictions on the
companies that wish to list their shares on the exchange.  Some of the
guides used by the NYSE for an original listing of a domestic company
are national interest in the company and a minimum of 1.1 million shares
publicly held among not fewer than 2,000 round-lot stockholders.  The
publicly held common shares should have a minimum aggregate market value
of $18 million.  The company should have net income in the latest year
of over $2.5 million before federal income tax and $2 million in each of
the preceding two years.  The NYSE also requires that domestic listed
companies meet certain criteria with respect to outside directors, audit
committee composition, voting rights and related party transactions.  A
company also pays significant initial and annual fees to be listed on
the NYSE.  Initial fees are $36,800 plus a charge per million shares
issued.  Annual fees are also based on the number of shares issued,
subject to a minimum of $16,170 and a maximum of $500,000.  For example,
a company that issues 4 million shares of common stock would pay over
$81,000 to be listed and over $16,000 annually to remain listed.  For
all the gory details, visit this NYSE page:

--------------------Check for updates------------------

Subject: Exchanges - Members and Seats on AMEX

Last-Revised: 2 Aug 1999
Contributed-By: Jon Feins (proclm at, J.  Bouvrie (fnux

Most exchanges allow you to buy seats (become a member) without being a
registered securities dealer.  You would not, however, be allowed to use
the seat to transact business on that exchange.  You would be allowed to
lease out the seat and would thus own the seat as an investment. 

Here's the disclaimer right up front: I have been negotiating seat
leases for investors for the last 5 years.  My expertise is mainly on
the American Stock Exchange (AMEX) and New York Stock Exchange (NYSE). 
I spent 5 years on the floor of the NYSE and NYFE before going to the
AMEX for 3 years as a floor broker/trader. 

Anyone can purchase a seat on a major stock exchange as an investment
and lease it to either a floor trader, specialist, or floor broker. 
Most people do not realize that they can do this without any background
and without taking a test.  You do not even have to be a registered rep. 
or registered with the SEC.  The return is between 12%-20% of the
current seat prices depending on the supply and demand at the time the
lease is negotiated. 

The AMEX currently has a very high demand for leases.  The last leases I
negotiated were at a variable rate of 1 5/8%/month (19.5% per year) of
the average seat sales as posted by the exchange in their monthly
bulletin.  AMEX seats are currently quoted $565,000/bid -
$690,000/offer.  The last contracted sale was for $660,000 on 15 July
1999.  You can call the AMEX's 24 hour market line 877-AMEXSEAT to hear
the latest quote.  Amex seats can be put in an IRA or a Keogh Plan
making the investment even more appealing. 

In late 1996, the AMEX approved a rule allowing individuals to own more
than one seat.  Since then seats have been slowly going up.  Call the
AMEX market line (212-306-2243) for the current price. 

There are only 661 regular seats and 203 Option Principal Memberships
(OPM) on the AMEX.  Every Specialist and Floor Broker needs a regular
membership to do business.  A Trader can use either an OPM or a regular
seat.  If a trader wants to trade listed AMEX stocks (s)he needs to use
a regular seat. 

When applying for an AMEX membership you need to fill out an application
which consists of:
  1. Information about the person applying for membership. 
  2. Authorization form for orally bidding for or offering the
  3. Personal financial statement. 
  4. Completed U-4 for for background check along with a fingerprint
  5. Acknowledgement of non-eligibility of gratuity fund form. 

After completing the paperwork a non-refundable application fee of $500
must be submitted to the exchange.  About a week after processing your
application you will be able to buy/bid for a seat.  Other costs
involved with the purchase of a seat on the AMEX include a one time
transfer fee of $2,500 (If/when you sell the seat the buyer of your seat
has to pay this transfer fee).  When the seat is leased out a transfer
fee of $1,500 is paid by the lessee.  Your total costs are:
  1. Purchase price of the seat. 
  2. $500 application fee. 
  3. One-time $2,500 transfer fee. 
  4. $24.50 Finger print processing fee. 

When you sell the seat there are no costs, and the exchange will send
you a check for the full selling price which they collect from the buyer
of your seat. 

In the deals that I broker, once an investor has purchased the seat I
find a lessee.  All my leases require a letter of indemnity from the
clearing house of the lessee.  A clearing house (Merrill Lynch, Paine
Webber, Bear Stearns etc...) is used by the lessee to clear the trades
they execute.  Whether the lessee is a trader, specialist or a floor
broker they must use a clearing house who charges them commissions for
each of their trades and is liable for their losses.  If a person who is
worth $100,000 dollars loses $500,000 dollars the clearing house is
liable for the losses of the other $400,000.  The letter of indemnity
from the clearing house states that they do not view the seat as
collateral.  In addition to this letter of indemnity, I only lease to
people who are employed by a well-capitalized firm which also signs the
lease as a guarantor.  My leases have attorney reviewed modifications
which further protect the interests of the owner of the seat.  Just like
a person who rents a house needs to be careful of who they lease to, so
does the lessor of a seat. 

--------------------Check for updates------------------

Subject: Exchanges - Ticker Tape Terminology

Last-Revised: 19 Sep 1999
Contributed-By: Keith Brewster, Norbert Schlenker, Richard Sauers
(rsauers at, Art Kamlet (artkamlet at

Every stock traded on the world's stock exchanges is identified by a
short symbol.  For example, the symbol for AT&T is just T.  These
symbols date from the days when stock trades were reported on a ticker
tape.  Ticker symbols are still used today as brief, unambiguous
identifiers for stocks.  Similar abbreviations are used for stock
options and many other securities. 

Ticker symbols get reused on different exchanges, so you'll sometimes
see a qualification ahead of the ticker symbol.  For example, the symbol
"C:A" refers to a company traded on one of the Canadian exchanges
(Toronto, to be exact) with the symbol A.  The stock quote services on
the web usually understand this notation.  It's probably no surprise
that the North American-centric services pretty much assume that
anything unqualified is traded on a U.S.  exchange; I've found that they
do not accept something like "NYSE:T" even though they perhaps should. 

A few stock ticker symbols include a suffix, which seems to
differentiate among a company's various classes of common stock.  Somem
of the quote services allow you to enter the ticker and suffix all run
together, while others require you to enter a dot between the ticker and
the suffix.  For an example, try AKO, classes A and B. 

Now that you understand a bit about the ticker symbol, there's some more
explanation required to understand what appears on the "ticker tape"
such as those shown on CNN or CNBC. 
Ticker tape says:           Translation (but see below):
        NIKE68 1/2            100 shares sold at 68 1/2
     10sNIKE68 1/2           1000 shares sold at   "
 10.000sNIKE68 1/2          10000 shares sold at   "
The extra zeroes for the big trades are to make them stand out.  All
trades on CNN and CNBC are delayed by 15 minutes.  CNBC once advertised
a "ticker guide pamphlet, free for the asking", back when they merged
with FNN.  It also has explanations for the futures they show.  You can
also see an explanation on the web at this URL:

However, the first translation is not necessarily correct.  CNBC has a
dynamic maximum size for transactions that are displayed this way. 
Depending on how busy things are at any particular time, the maximum
varies from 100 to 5000 shares.  You can figure out the current maximum
by watching carefully for about five minutes.  If the smallest number of
shares you see in the second format is "10s" for any traded security,
then the first form can mean anything from 100 to 900 shares.  If the
smallest you see is "50s" (which is pretty common), the first form means
anything between 100 and 4900 shares. 

Note that at busy times, a broker's ticker drops the volume figure and
then everything but the last dollar digit (e.g.  on a busy day, a trade
of 25,000 IBM at 68 3/4 shows only as "IBM 8 3/4" on a broker's ticker). 
That never happens on CNBC, so I don't know how they can keep up with
all trades without "forgetting" a few. 

NASDAQ uses a "fifth letter" identifier in its ticker symbols.  Four
letter symbols, and five letter symbols in instances of multiple issues
listed by the same company, are listed in newspapers and carried on the
ticker screen by CNBC and CNN.  These symbols are required to retrieve
quotes from quote servers. 

Here's the complete list of the NASDAQ fifth-letter identifiers with
brief descriptions:

Symbol Meaning
A Class A
B Class B
C exempt from NASDAQ listing qualifications for limited period
D new issue
E delinquent in required SEC filings
F foreign
G First convertible bond
H Second convertible bond (same company)
I Third convertible bond (same company)
J Voting
K Nonvoting
L misc situations, including second class units, third class warrants,
or sixth class preferred stock
M Fourth class preferred (same company)
N Third class preferred (same company)
O Second class preferred (same company)
P First class preferred (same company)
Q in bankruptcy proceedings
R Rights
S Shares of beneficial interest
T with warrants or rights
U Units
V When issued and when distributed
W Warrants
X mutual fund
Y American Depositary Receipts
Z misc situations, including second class of warrants, fifth class
preferred stock or any unit, receipt or certificate representing a
limited partnership interest. 

--------------------Check for updates------------------

Subject: Financial Planning - Basics

Last-Revised: 22 Oct 1997
Contributed-By: James E.  Mallett (jmallett at

One complaint I often hear is that an individual would like to invest
but they do not have any money.  Financial planning may help many people
to overcome this lack of ability to save for investment.  With proper
planning perhaps you will be able to establish goals and save money to
meet these goals.  While you can start this personal financial planning
yourself, you may soon discover that it will pay you to find a Certified
Financial Planner to help in the process. 

This article gives a short primer on how to start personal financial
planning for yourself. 

To begin the financial planning process, you need specific financial
goals.  By specific goals, I mean to establish a date to meet the goal
and a savings plan that meets your goals.  At first these goals may seem
unobtainable but continuing the planning process will enable you to
evaluate these goals and modify as necessary. 

Next you need to track your expenses and income until you can develop a
yearly statement (cash/flow statement).  To see where you are currently,
list the value of all your assets and what you owe.  Subtract your debts
from your assets and you have your current net worth (balance sheet). 
You should update these statements yearly. 

Once you have established your income and expenses you can develop a
budget.  Your aim in establishing a budget is to attempt to increase
your income and/or reduce your expenditures so that you have savings to
meet your initial goals.  If on the first try you are short of funds, do
not despair. 

Try looking at your taxes to see if they can be reduced.  Consult a tax
attorney if necessary.  Analyze your debt to see if it can be
consolidated into a lower interest rate loan.  Perhaps a home equity
loan might fit the bill.  Next review your consumption patterns.  Are
your financial goals worth driving an older automobile; are you shopping
for the best prices; and what current expenses that you have are

By getting your finances in order, you will gain funds to save and
invest toward your goals.  If you do not have sufficient funds to meet
your goals, modify them.  Look for opportunities in the future to
reestablish these goals.  Seek the aid of financial professionals,
educate yourself with personal finance books and magazines. 

Here are a few resources on financial planning. 
   * James E.  Mallett's site about financial planning:
   * The International Association for Financial Planning offers a sales
     pitch and some information on their site:

--------------------Check for updates------------------

Subject: Financial Planning - Choosing a Financial Planner

Last-Revised: 20 Apr 1998
Contributed-By: James E.  Mallett (jmallett at

Virtually anyone with moderate wealth or a decent income could benefit
from the services of a financial planner.  By a financial planner, I
mean someone with the expertise to produce a comprehensive financial
plan for an individual household.  This plan should cover the
household's financial goals, budget, insurance and risk review, asset
allocation, retirement plan, and a review of an estate plan.  Such
detailed planning is unlikely to be meet by brokers and agents
interested in commissions on financial products they sell. 

A financial planner has a broad knowledge of areas such as tax planning,
investments, and estate law but is unlikely to be the financial
professional you require in these individual areas.  Rather the
financial planner can help coordinate your financial planning with your
accountant, insurance agent, investment professional, and estate lawyer. 
The broad expertise that a professional financial planner possesses will
help insure that your financial goals are met and that all areas of your
financial life are reviewed. 

Hiring a planner will help you avoid expensive financial mistakes that
could seriously damage your financial health.  It would not be difficult
for most financial planners to find serious gaps in most household
finances, gaps that are easily worth the cost of the planner's services. 
Even individuals with expert knowledge in one finance field such as
investments can overlook areas such as insurance or estate planning. 
Few people have the time, desire, or expertise to do a complete
financial plan for themselves. 

Saying that most would benefit from using a financial planner is not to
imply that there are not wide differences in abilities and costs among
planners.  Few areas will pay richer rewards for the public than gaining
basic knowledge in personal finance.  If one is not careful, fees and
commissions could negate much, if not all, of the benefit of using a
financial planner.  This article lists a few issues to consider when
choosing a financial planner. 

The first step in looking for a financial planner is to limit your
search to someone who is certified in financial planning.  Two
certifying associations that I would recommend are the Certified
Financial Planner and the Personal Financial Specialist (given to
qualifying Certified Public Accountants).  The second step is to seek
out recommendations from people that you respect for names of financial
planners and interview these planners.  Your aim is to find someone who
meets your needs and who will look after your interests.  A problem that
exists in selecting financial professionals is that what is in your best
interest may fall a distant second to what is in their interest of
making a profit. 

The third question you need to ask is how does the financial planner
receive compensation and what will this compensation cost you annually. 
In calculating the costs, one must consider fees, commissions,
transaction costs, and (if any) what are the annual fees of the
financial products that they recommend (such as mutual fund management
fees).  It is quite possible that after adding sales loads and
management fees, the after-expense return that you receive from equities
will not justify the risk.  Recent high market returns have served to
mask the fleecing of many American investors. 

Financial planners fall into two broad types: fee-only financial
planners and commission and/or fee-based financial planners.  While some
give the nod automatically to fee-only financial planners, it will
depend on your particular circumstances as to which one will be best for

If you only need a comprehensive financial plan and you are willing to
invest your funds yourself, than a fee-only financial planner who
charges by the hour may be your best choice.  If you want the financial
planner to manage your money, than many fee-only financial planners have
moved to an asset-based fee, normally 0.5% to 1.5%, of your assets.  Two
factors should be kept in mind.  One is that this fee is charged
annually.  Second, most financial planners put your funds to work in a
mutual fund and that means you continue to pay the mutual fund another
management fee annually.  Since evidence and theory suggest that none of
these efforts will result in outperforming an index mutual fund, one
might wonder why not go directly there and save about 2% in management
fees.  Plus, on average, you will have a mutual fund that will
outperform most professionals. 

With commission-based financial planners, individuals run the risk that
the commissions charged on the financial products that they recommend
will add greatly to the cost of the financial planning.  The risk of
conflict of interest arises when the planner receives greater
compensation based on what financial products that they recommend.  It
may be possible, however, for some individuals that the free or
reduced-cost financial plan would not be offset by the higher
commissions.  For example, the one-time load on the mutual fund might be
cheaper than paying the annual 1.5% fee to a fee-based financial
planner.  You must compare all of these costs when deciding which
financial planner is the best for you. 

Given this information on financial planners, it is clear that knowledge
on the consumer's part is very important.  While many households will
spend a great deal of time shopping for an automobile, the decision of
whom to trust with their wealth too is often made without much thought. 
As a result Americans spend many billions more on financial services
than what is really needed. 

For more insights from James E.  Mallett about financial planning,
please visit his site:

For a list of 10 questions you should ask before hiring a financial
planner, visit this government site:

--------------------Check for updates------------------

Subject: Financial Planning - Compensation and Conflicts of Interest

Last-Revised: 19 Apr 2000
Contributed-By: Ed Zollars (ezollar at

This article discusses the primary ways that financial planners are paid
for their services, and illustrates the biases and conflicts of interest
that invariably are present in each compensation scheme. 

Hourly rate
     When a financial planner is paid an hourly rate, he or she may have
     a bias towards selling the client more advice than is needed,
     and/or selling additional hourly services to the client.  However,
     the actual financial product sold to the client, or even if any is
     sold at all, is a matter of indifference.  A practical problem is
     that this advice, if done properly (thorough investigation by
     adviser into the entire background of the client) is going to be
     very expensive because it needs to be customized to the client. 
     Thus, we see very little of this type of advice except for
     specialized areas (like taxation, business law, etc.). 
Flat rate
     If a financial planner is paid a flat rate, he or she may have a
     bias towards giving the client canned advice in order to gain
     efficiencies.  That can lead to not tailoring the advice to the
     specific situation because that adds (uncompensated) time to the
     engagement.  Additionally, there's a bias towards selling
     additional services not included in the initial package.  Again,
     generally indifference as to whether a sale is closed on an actual
     investment, or which investment actually gets chosen.  The
     advantage to the client is that he or she knows the cost going in. 
Percent of assets under management paid annually
     If a financial planner receives each year a percentage of assets
     under management, he or she may have a bias towards keeping as much
     under management as possible, thus leading to some bias against
     using funds for other purposes (including paying down debt).  This
     structure may also encourage the advising of riskier ventures,
     since they present the adviser with the potential for higher
     compensation.  Obviously, the client does have to put some assets
     under management (so there is a bias to do something), but the
     particular investments are a matter of indifference. 
Commissions on sales
     When a planner receives a commission on any product sold to the
     client, this can lead to a bias towards closing the sale on a
     product that will pay the adviser a commission and discouraging the
     acquisition of products that won't pay this adviser a commission. 
     Since advice is offered as a method to encourage the client to get
     moving towards a buy, these advisers tend to be rather thorough in
     raising issues that relate to their products (finding needs).  Will
     tend to have a bias to be less thorough in raising issues for which
     the solution doesn't involve their product (so in estate planning
     there will be lots of talk about ILITs or CRUTs, but little talk
     about FLPs, AB trusts, etc.).  A practical advantage is that
     because the client can simply walk away, this can be the least
     expensive way to get a good quick general education on the subject
     at hand.  Also, many investments sold by commissioned salespeople
     spread the fee over a number of years, so it becomes a payment on
     the installment plan that may allow some people to receive advice
     they need. 

Note that any competent professional will actively control for any bias
introduced by the compensation mechanism.  Therefore, none of the issues
raised here represent an insurmountable flaw of a particular method of
compensation.  Too often this sort of analysis can degnerate into a
mudslinging contest that suggests there is only one right way to handle
every situation, which is simply not the case. 

In the end, a client of a financial planner should ask/recognize the
ways by which the planner gets paid, and use that information to note
any bias that might be present in the advice given. 

--------------------Check for updates------------------

Subject: Financial Planning - Estate Planning Checkup

Last-Revised: 20 June 1999
Contributed-By: Nolo Press

This article is copyright © Nolo Press 1999 and was reprinted with
specific permission.  For more great, free information about legal
matters, visit their website:

Lots of Americans haven't made even a simple will, to say nothing of a
more comprehensive plan to avoid probate or save on estate taxes.  And
even those who have thought about what should happen to their property
when they eventually shuffle off to Nirvana haven't updated their plan
in many years.  We're not going to nag, but we are going to chime in
with a few suggestions as to what your estate plan should look like.  Oh
yes, in case you're new to this area, estate planning is simply a fancy
term for the process of arranging for what will happen to your property
(estate) if a particularly large and lethal brick falls on your head. 

Depending on your age, health, wealth and innate level of cautiousness,
you may not need to do much at all in the way of estate planning.  And
even if you do decide you need a will or a trust, you probably won't
need a lawyer.  Especially if you aren't dripping with Picassos or fat
investment accounts, it is easy and safe to prepare most basic estate
planning documents yourself.  Just learn what you're doing by using a
good self-help book or piece of software. 

We've arranged our tips by some broad categories of family situation and
age.  As they say, check all that apply.  But keep in mind that age is
an imprecise proxy for life expectancy, which is affected by all sorts
of other factors--heavy smoking while participating in extreme sports
and driving a motorcycle, for example.  It's up to you to add or
subtract a few years, based on your health and lifestyle. 

You're 25 and Single
     What are you doing reading about estate planning? You're supposed
     to be surfing the Net or dancing until dawn.  But you might as well
     keep reading; this won't take long. 
     At your age, there's not much point in putting a lot of energy into
     estate planning.  Unless your lifestyle is unusually risky or you
     have a serious illness, you're very unlikely to die for a long,
     long time. 
     If you're an uncommonly rich 25-year-old, though, write a will. 
     (Bricks can fall on anyone.) That way you can leave your
     possessions to any recipient you choose--your boyfriend, your
     favorite cause, the nephew who thinks you're totally cool.  If you
     don't write a will, whatever wealth you leave behind will probably
     go to your parents.  Think about it. 
You're Paired Up, But Not Married
     If you've got a life partner but no marriage certificate, a will is
     almost a must-have document.  Without a will, state law will
     dictate where your property goes after your death, and no state
     gives anything to an unmarried partner.  Instead, your closest
     relatives would inherit everything. 
     Other options to make sure that your partner isn't left out in the
     cold after your death is to own big-ticket items, such as houses
     and cars, together in "joint tenancy" with right of survivorship. 
     Then, when one of you dies, the survivor will automatically own
     100% of the property. 
You Have Young Children
     Having children complicates life--but then, you already know that. 
     Estate planning is no exception.  Here's what to think about. 
     First, write a will.  Nothing fancy--just a document that leaves
     your property to whomever you choose and names a guardian for your
     children.  The guardian will take over if both you and the other
     parent are unavailable.  That's an unlikely situation, but one
     that's worth addressing just in case.  If you fail to name a
     guardian, a court will appoint someone--possibly one of your
     The other big reason to write a will is that if you don't, some of
     your property may go not to your spouse, but directly to your
     children.  When given a choice, most people prefer that the money
     go to their spouse, who will use it for the kids.  The problem with
     the children inheriting directly is that the surviving parent may
     need to get court permission to handle the money--a waste of time
     and money in most families. 
     Second, think about buying life insurance so the other parent will
     be able to replace your earnings if that damn brick chooses you. 
     Term life insurance is relatively cheap, especially if you're young
     and don't smoke.  You can shop for the best bargain by consulting
     free services that compare the rates of lots of companies.  Look
     for their ads in personal finance magazines. 
You're Middle-Aged and Know the Names of at Least Three Mutual Funds
     If you've made it to a comfortable time in life--you've accumulated
     some material wealth and enough wisdom to let you know that other
     things matter, too--you will probably want to take some time to
     reflect on what you will eventually leave behind. 
     But given that you may well live another 30 or 40 years, there is
     no need to obsess about it.  Chances are your conclusions will be
     different in ten or 20 years, and your estate plan will change
     To save your family the cost (and hassles) of probate court
     proceedings after your death, think about creating a revocable
     living trust.  It's hardly more trouble than writing a will, and
     lets everything go directly to your heirs after your death, without
     taking a circuitous and expensive detour through probate court. 
     While you're alive, the trust has no effect, and you can revoke it
     or change its terms at any time.  But after your death, the person
     you chose to be your "successor trustee" takes control of trust
     property and transfers it according to the directions you left in
     the trust document.  It's quick and simple. 
     There are other, even easier ways to avoid probate: you can turn
     any bank account into a "payable-on-death" account simply by
     signing a form (the bank will supply it) and naming someone to
     inherit whatever funds are in the account at your death.  You can
     do the same thing, in 29 states, with securities.  (Ask your broker
     if your state has adopted a law called the Uniform
     Transfer-on-Death Securities Registration Act.)
     If you have enough property to worry about federal estate taxes,
     think about a tax-avoidance trust as well.  Currently, estates
     worth more than $650,000 are taxed; that amount will increase to $1
     million by 2006.  Most estates are never subject to tax, but if
     estate tax does take a bite, it can be a big one.  Tax rates now
     start at 37% and rise to 55% for estates worth more than $3
     One way to reduce estate tax is to give away property before your
     death.  After all, if you don't own it, it can't be taxed.  But in
     2002, gifts larger than $11,000 per year per recipient are subject
     to gift tax, which applies at the same rates as does estate tax. 
     Still, an annual gifting plan can reduce the size of even a big
     estate, especially if you have a covey of kids and grandkids. 
     Gifts to your spouse (as long as he or she is a U.S.  citizen),
     gifts that directly pay tuition or medical bills, or gifts to a
     tax-exempt organization are exempt from gift tax. 
     Another way to cut taxes is to create certain kinds of trusts.  The
     most common, the AB trust, is one that couples use.  Each spouse
     leaves property to their children--with the crucial condition that
     the surviving spouse has the right to use the income that property
     produces for as long as he or she lives.  In some circumstances,
     the surviving spouse may even be able to spend principal.  By 2006,
     an AB trust will shield up to $2 million from estate tax. 
     Charitable trusts, which involve making a gift to a charity and
     getting some payments back, can also save on both estate and income
     tax.  There are many other varieties of trusts; learn about them on
     your own, and then have an experienced estate planning lawyer draw
     up the documents you decide on. 
You're Elderly or Ill
     Now is the time to take concrete steps to establish an estate plan
     pronto.  It's also a good idea to think about what could happen
     before your death, if you become seriously ill and unable to handle
     your own affairs. 
     First, the basics: Consider a probate-avoidance living trust and,
     if you're concerned about estate taxes, a tax-saving trust.  (These
     devices are discussed just above.) Write a will, or update an old
     Then, although no one wants to do it, take a minute to think about
     the possibility that at some time, you might become incapacitated
     and unable to handle day-to-day financial matters or make
     healthcare decisions.  If you don't do anything to prepare for this
     unpleasant possibility, a judge may have to appoint someone to make
     these decisions for you.  No one wants a court's intervention in
     such personal matters, but someone must have legal authority to act
     on your behalf. 
     You can choose that person yourself, and give him or her legal
     authority to act for you, by creating documents called durable
     powers of attorney.  You'll need one for your financial matters and
     one for healthcare.  (Some states allow the two to be combined, but
     it's usually not a good idea.  They're used in completely different
     situations.) You choose someone you trust to act for you (called
     your attorney-in-fact) and spell out his or her authority.  If you
     wish, you can even state that the document won't have any effect
     unless and until you become incapacitated.  Once signed and
     notarized, it's legally valid, and your mind can be at ease. 

--------------------Check for updates------------------

Compilation Copyright (c) 2003 by Christopher Lott.

User Contributions:

Gerri Pisciotta
My employer accidentally advised the company handling the 401k investment that I had been terminated, when in fact I had not. As a result, withdrawals discontinued from my pay and I missed a couple years of contributions. Since I never withdrew from the plan, is my employer liable for making up these contributions? If I made a lump sum catchup contribution,could they do the same?
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Truly lots of awesome tips!
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