Arbitrage pricing theory (APT): an equilibrium model of stock returns in which returns are specified to be a linear function of possibly many factors, in contrast to the Capital Asset Pricing Model (CAPM), in which returns are specified to be a linear function of one factor, the systematic (non-diversifiable) risk.

Arbitrage traders: traders who seek price discrepancies for equivalent goods in different markets.

Blind pool: a type of investment fund initiated on the Alberta Stock Exchange in which the fund manager does not have to specify in detail the intended usage of the funds. Such funds were initially sold for five cents a share, hence the term "nickel shares."

Bought deal: a method of bringing corporate securities to the primary market in which the security dealer "buys" the entire issue and then resells it, in contrast to an "underwritten" deal in which the issue is largely committed for resale prior to its issuance.

Business Judgment Rule: in the absence of bad faith or some other corrupt motive, directors are normally not liable to the corporation for mistakes of judgment, whether those mistakes are classified as mistakes of fact or mistakes of law. The rule has functioned as a barrier to prevent courts from exercising regulatory powers over the activities of corporate managers.

Churning: excessive buying and selling of securities in a client's account so as to generate commissions.

Coat tail provision: a mechanism by which minority or lesser-voting shareholders are permitted to share in gains from a takeover. If an offer for some pre-specified amount (typically 50 percent) of the majority holding is made, the offer must be extended to the other shareholders (they ride the coat tails, as it were).

Common stock: a financial asset which represents an ownership claim on the issuing company. Stocks are traded either on stock exchanges or on electronic markets called over-the-counter markets.

Convertible bond: a bond that can be converted by the holder into some other asset, usually into common stock.

Derivative securities: financial assets whose value "derives" from the value of some underlying security or commodity. Examples include options and futures contracts.

Fiduciary constraint: a regulation that limits the investment options of institutions in a fiduciary (or trust) position with their clients. An example is the limitation on foreign assets which can be held in a pension plan.

Filter rules: a technical analysis strategy in which stocks are bought or sold after they have moved up or down by some predetermined amount (the filter).

Golden parachute: an attractive severance package for executives, especially those displaced by a takeover.

GPT ("going private transaction"): a transaction which transforms a publicly traded firm to a firm which is privately owned.

Greenmail: the act of acquiring a threatening equity position in a firm and then selling the equity to the existing owners at a premium.

Hedge: a strategy to offset investment risk. An example is the owner of a common stock who purchases a put option as insurance against a decline in the stock price.

Intermediation: the process of acting as a go-between. In financial markets, intermediation is between the suppliers and users of capital.

Junk bonds: original issue bonds rated as speculative grade.

LBO ("leveraged buyout"): a going private transaction in which the funds for the purchase are largely obtained through the issuance of debt, often "junk bonds." The purchasing group frequently includes incumbent managers.

LMBO ("leveraged management buyout"): a going private transaction financed by debt and led by corporate insiders.

MBO ("management buyout"): a going private transaction in which the buyers are dominated by corporate insiders.

Merger: a type of takeover where the bidder negotiates an agreement with management of the target firm on the terms of the offer for the target and then submits the proposed agreement to a vote of the shareholders.

Notional value: the face value of the underlying instruments on which derivatives are traded. For example, with a swap, the notional value would be the principal on the underlying loan.

Over-the-counter (OTC) markets: electronic trading systems for common stocks (in contrast to the physical stock exchanges). The Canadian Dealer Network is the major Canadian OTC market.

Preferred stock: a type of security which ranks between bonds and common stocks in priority of claims on the company.

Private placement: a type of primary security issue in which the securities are placed with a small number of large, "sophisticated," typically institutional, investors, thus bypassing the need for detailed prospectus disclosure.

Program trading: a kind of arbitrage between stock markets and stock index futures or options markets. A computer is programmed to detect price discrepancies between two markets and to initiate trades when discrepancies are found.

Proxy contest: a type of takeover where a dissident group attempts through a vote of shareholders to obtain control of the board of directors.

Relationship investing: the close governance of corporations exercised by large institutional shareholders.

Rights and warrants: financial assets which provide their holders with the option to purchase a specified number of shares at a specified price within a specified time period. Note the similarity with call options. Rights (preemptive rights) are initially issued to current owners of the underlying common stock. Warrants are usually issued as a sweetener for a bond or preferred share issue. When warrants are issued with new common stock, the package is called a unit.

Soft dollar services: non-transaction services offered by stock brokers. Examples include investment advice, economic forecasts, and research reports.

Stock exchange: a physical central market for the issuance and trading of common stocks, in contrast to the over-the-counter market, which is an electronic marketplace.

Swap: a type of derivative security wherein two or more parties contract to swap payments on each other's obligations. Examples include interest rate swaps, where fixed interest rates are swapped for floating interest rates, and currency swaps, where one currency is swapped for another.

Technical analysis: a type of equity investing in which stock price movements are predicted from charts or patterns of past price movements.

Tender offer: a type of takeover where the bidder makes an offer directly to shareholders to buy some or all of the stock of the target firm. The tender offer is described as "friendly" if it is supported by target management and "hostile" if it is opposed by target management.

Tender offer premium: the amount by which a tender offer exceeds the pre-bid market price of the stock.

Toronto Index Participation Units (TIPs): artificial securities whose value depends on the price movements of the stocks comprising the TSE 35 Index.

Two-tier offer: a type of takeover where the bidder first makes an offer for control of the firm and then makes a "clean-up" offer for the remaining shares at lower price.

Underwriting: the process of bringing a new issue of securities to the market. In a traditional underwriting, the underwriter would form a syndicate of dealers who would pre-sell much of the issue prior to issuance. In a bought deal, the dealer buys the issue from the issuing company and then arranges buyers.

Venture capital: pools of investment money which typically are placed in the form of equity in start-up (usually risky) companies.