It is used in the securities industry as a qualifier to indicate accounts and securities purchased or sold under the provisions of the Act.

A gift to a minor is irrevocable. When a minor reachs majority, UGMA accounts become the child's property.

See: Custodian

UIT (Unit Investment Trust)
A trust, registered with the SEC under the Investment Company Act of 1940, in which a fixed portfolio of income-producing securities are purchased and held to maturity. This type of investment vehicle is commonly used with municipal bonds. Each unit usually costs $1,000 and is sold by brokers to investors for an average load of 4% which is included in the per share price. Investors receive an undivided interest of the portfolio's principal and income proportionate to the amount they invested. All unit investment trusts are redeemable securities and can be resold in the secondary market.

See: Investment Company; Investment Company Act Of 1940; Load; Municipal Bonds; Secondary Market; Unit Share Investment Trust

Ultra Vires Activities
Corporate activities that are not sanctioned by its charter and thus may lead to shareholder or third-party law suits.

See: Articles Of Incorporation; Corporate Charter

Unamortized Bond Discount
Difference between a bond's face value and the proceeds received from the bond's sale, less the amount written off to expense as reported on the profit and loss statement--that is, amortized. The amount still to be expensed at any point is the unamortized bond discount.

At the time of the bond's issuance, the corporation has two choices. It can immediately include the discounted amount plus costs associated with the bond's issuance--such as legal and registration costs. Or, the corporation may treat the total discount and expenses as a deferred charge. It will be reported as an asset and will be written off over the bond's life or by any other schedule the corporation finds expedient.

See: Amortization; Asset Face Value; Profit And Loss Statement; Write-Off

Uncollected Funds
Bank deposit consisting of checks that have not yet been affirmed by the bank on which a check was drawn.

See: Float

Uncovered Call Option
An uncovered call writer must deposit and maintain sufficient margin with his broker to assure that the stock can be purchased for delivery if and when he is assigned. The potential loss of uncovered call writing is unlimited. However, writing uncovered calls can be profitable during periods of declining or generally stable stock prices, but investors considering this strategy should recognize the significant risks involved.

See: Call Option; Call Premium; Covered Call Option; Long Position; Options; Option Writer; Put Option; Uncovered Option; Underlying Security

Uncovered Option
Industry lingo for call or put options that are written and not covered or have another position that will limit their liability.

See: Naked Option; Options; Short Position; Uncovered Call Option; Uncovered Put Option; Underlying Security; Writing Naked

Uncovered Put Option
A put writer is considered to be uncovered if he does not have a corresponding short stock position or has not deposited cash equal to the exercise value of the put. Like uncovered call writing, uncovered put writing has limited rewards (the premium received) and potentially substantial risk (if prices fall and you are assigned)

If the stock price declines below the strike price of the put and the put is exercised; you will be obligated to buy the stock at the strike price. Your cost will, of course, be offset at least partially by the premium you received for writing the option.

See: Bank Guarantee Letter; Covered Put Option; Option Premium; Options; Short Position; Uncovered Option

Underbanked
Term used when the initiating investment banker has trouble recruiting other firms to become underwriting group members for a new issue underwriting.

See: Investment Banker; New Issue; Underwrite; Underwriting Group

Underbooked
Period when brokers report proposed buyers limited indications of interest for a new issue of securities. It occurs during the preoffering registration period. The term "fully circled" is the opposite of underbooked.

See: Indications Of Interest; New Issue

Undercapitalization
Condition, caused by lack of capital, whereby a business cannot conduct its normal business.

See: Working Capital

Underlying Debt
Municipal bond lingo pertaining to debt of a government entity that exists within the jurisdiction of a larger government entity. The larger entity has partial responsibility for the debt. A city, for instance, is within the jurisdiction of its state. The state may share responsibility for the city's debt. From the state's standpoint, the debt of the city is underlying debt.

The term underlying debt should not be confused with overlapping debt, which is underlying debt whereby the debt exists within equally ranked entities.

See: Municipal Bond; Overlapping Debt

Underlying Security
In options, the security that needs to be delivered when call options or put options are exercised. When stock index options and stock index futures are exercised they are settled in cash because it is impossible to deliver stock indexes.

In securities, common stock that other securities issued by the same corporation are based upon. This stock has to be delivered when convertible bonds or preferred stocks are converted into common shares, incentive stock options are exercised and when warrants or rights are exercised.

See: Common Stock; Convertible Bond; Exercise; Futures; Incentive Stock Option; Index; Options; Preferred Stock; Subscription Right; Subscription Warrant

Undermargined Account
A brokerage customer's margin account that has dropped below margin requirements or minimum maintenance requirements. The customer will receive a margin call from the broker. The call will be for at least the amount that will bring the account up to minimum maintenance requirements.

See: Margin Account; Margin Call; Margin Requirement; Minimum Maintenance Requirement

Undervalued
A security that is selling beneath its liquidation value or when analysts believe its price is below what it merits. Amongst other reasons, a stock may be undervalued because the corporation has an inconsistent earnings' history or because the corporation is not well known. Fundamental analysts try to identify undervalued corporate stocks to invest in before they become fully valued. Undervalued companies are often takeover targets because acquiring companies can buy the assets inexpensively.

See: Acquisition; Corporation; Fully Valued; Fundamental Analysis; Liquidation; Takeover

Underwrite
A process whereby investment bankers (underwriters) buy a new issue of securities from the issuing corporation or government entity and resell them to the public. The underwriter makes a profit from the underwriting spread--the difference between the price paid to the issuer and the public offering price.

Underwriters usually form an underwriting group--also called "purchase group" or a "syndicate" to limit risk, assure successful distribution of the issue, and to obtain capital to buy the issue. The syndicate works under an underwriting agreement--referred to as a syndicate contract or a purchase group contract.

The lead underwriter, also known as "managing underwriter", "syndicate manager", is usually the originating investment banker--the firm that worked with the issuer to plan the issue and prepare the registration materials to be filed with the SEC. The manager, as agent for the group, signs the underwriting agreement with the issuer. The agreement sets forth the conditions of the arrangement and the responsibilities of both parties. The manager may select a selling group, consisting of the underwriters and dealers, to aid in distribution of the issue.

Customarily, "underwrite" is properly used only in a firm commitment underwriting where the securities are purchased outright from the issuer.

Other investment banking arrangements to which the term is applied are Best Effort, All Or None, and Standby Commitments; in each of these, the risks are shared between the issuer and the investment banker.

There are two basic methods by which underwriters are chosen by issuers and underwriting spreads are determined: Negotiated Underwriting and Competitive Bid underwriting. Generally, the negotiated method is used in corporate equity issues and corporate debt issues. The competitive bidding method is used by municipalities and public utilities.

See: All Or None Offering; Competitive Bid; Firm Commitment; Initial Public Offering; Investment Banker; New Issue; Public Offering; Public Offering Price; Underwriter; Underwriting Agreement; Underwriting Group; Underwriting Spread; Undivided Account

Underwriter
In regard to securities, investment bankers who handle the offering of a new issue of securities. They buy all the securities from the issuer and distribute them to investors. They make a profit on the underwriting spread. The investment banker may be acting alone or as a member of an underwriting group or syndicate.

As the word relates to insurance, a company that takes on the cost risk of death, fire, theft, illness, etc., in exchange for payments, called premiums.

See: Investment Banker; Underwrite

Underwriting Agreement
An agreement established between the managing underwriter, as agent for the underwriting group, and the corporation issuing new securities--also termed the "purchase agreement" or "purchase contract". It sets the conditions of the arrangement and the responsibilities of both parties. Details include: the underwriter's promise to purchase the issue; the issue's public offering price; the underwriting spread; the settlement date and; the issuer's net proceeds.

See: Firm Commitment; Public Offering Price; Underwrite; Underwriter; Underwriting Group; Underwriting Spread

Underwriting Group
Group of investment bankers formed by the originating investment banker in a new issue of securities. The group operates under an agreement among underwriters. It agrees to purchase securities from the issuing corporation at the agreed upon price and to resell them at the stated public offering price--the difference being the underwriting spread. The purpose of the underwriting group is to limit risk and assure successful distribution of the issue. Most underwriting groups operate under a "divided syndicate" contract, meaning that a member's liability is limited to their participation.

See: Distributing Syndicate; Firm Commitment; Investment Banker; New Issue; Public Offering Price; Underwrite; Underwriting Agreement

Underwriting Spread
Difference between the amount paid to an issuer in a primary distribution and the public offering price. The spread amount varies and is contingent on the issue's size, the issuer's financial strength, the type of security (stock, bonds, etc.), the status of the security (senior, junior, etc.), and the type of commitment made by the underwriters. The spread may range from a fraction of 1% for a bond issue to 25% for an initial public offering of a small company. The spread is divided between the managing underwriter, the selling group, and the participating underwriters.

See: Gross Spread; Initial Public Offering; Spread; Underwrite

Undigested Securities
Newly issued securities that remain unsold because there is not enough public demand at the issue's offering price.

See: Offering Price; Underwrite

Undivided Account
A form of a new issue syndicate, also known as an Eastern Account, where a member is liable for any unsold securities equal to the percentage of its participation. This is regardless of the amount the member has sold (even if the amount sold is greater than their percentage of participation).