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Fedwire® Securities Service Glossary

Glossary of Securities Terms
Fedwire Securities Service Term Definition
Accrual Bond or Class Usually part of a multi-class CMO or REMIC in which interest accrues at a compounded rate and is paid out only upon payment in full of the other classes of bonds. Also known as an accretion bond or Z-bond.
Adjustable Rate A variable interest rate, as opposed to a fixed interest rate, that fluctuates according to the average interest rate on a specified security or market index.
Book-Entry An electronic system of accountability, custody, transfer and settlement of securities. Book-entry systems allow rapid and accurate transfers of securities with simultaneous cash settlement.
Callable A security is callable if the security issuer, under terms designated prior to the sale, reserves the right to "call" or redeem the security prior to its maturity.
Call Notice An announcement, or notification, from an issuer of Fedwire Services-eligible securities that a security will be retired, or called, either in part or in full prior to its maturity date. View more information on Call Notices.
Class Code A universal four-character code identifying the type of security issued, e.g., NOTE, FHLB. Also known as alphanumeric.
Collateralized Mortgage Obligation (CMO) Debt obligations secured by pools of mortgage loans or by mortgage-backed securities. Most CMOs are multi-class pass-through bonds that pay in class order, e.g., class one must be paid in full before class two begins paying principal. Holders of each class of CMOs receive semi-annual interest payments on the unpaid principal balance at the rate applicable to their class of bonds. The final class is usually an accrual class that pays no principal or interest until all prior classes are paid in full.
Cost of Funds Index (COFI) The weighted average cost of funds is derived from interest paid on savings accounts. Federal Home Loan Bank advances and other borrowed money adjusted for variation in the number of days in each month.
Coupon Under Book-Entry (CUBE) Treasury coupons (interest payments) that have been stripped or separated from the principal portion of physical Treasury securities and were converted into book-entry form during the Treasury's one-time conversion effort during 1987. These paper coupons had been separated before stripped securities were officially available in book-entry form through the Treasury.
CUSIP Number A unique nine-character alphanumeric code often used with the standard security description to identify report and transfer a specific securities issue. The CUSIP root is the first five or six digits of the number. The remaining numbers identify the specific issue of the security. CUSIP (Committee on Uniform Security Identification Procedures) is part of the American Bankers Association.
Dealer An individual or firm that purchases and sells securities for its own account and its customers.
Debenture An unsecured debt instrument backed only by the general credit standing and earning capacity of the issuer.
Discount The difference between the value of a security at maturity and the amount originally paid (if less than par) for the security.
Discount Note An unsecured general obligation, typically with a maturity of less than one year, which is sold at a discount and has no stated interest rate.
Fail Tracking An automated process that takes place when the actual settlement date of a transaction is beyond the contract date. An adjustment is made when one or more beneficiary dates fall between the contract date and the settlement date. The adjustment results in the payment of funds from the message originator to the message receiver through the Federal Reserve Banks' National Settlement Service (NSS).
Federal Reserve Banks The Federal Reserve System, the nation's central bank, is comprised of 12 regional Federal Reserve Banks and 25 branches. These banks fulfill many roles for the government and the financial community, including the electronic transfer of book-entry securities.
Fedwire Services Participant Any entity that maintains a securities account with a Federal Reserve Bank in the entity's name. Subject to the Federal Reserve Banks' and the Board of Governors' risk reduction policies, where applicable, entities authorized by law, regulation, policy or agreement to be Participants may include:
  • Depository institutions;
  • Agencies and branches of foreign banks;
  • Member banks of the Federal Reserve System;
  • The Treasury and any entity specifically authorized by federal statute to use the Federal Reserve Banks as fiscal agents or depositories;
  • Entities designated by the Secretary of the Treasury;
  • Foreign central banks, foreign monetary authorities, foreign governments and certain international organizations; and
  • Any other entities authorized by a Federal Reserve Bank to use the Fedwire Securities Service
Fixed Rate A set interest rate, as opposed to an adjustable interest rate, that is determined when a security is issued and does not change throughout the life of the obligation.
Floating Rate See "Adjustable Rate."
Interim Accounting An automated tracking process for principal and interest when the beneficiary date occurs on a date different from the record date (i.e., zero-day delay bonds). Interim accounting processing occurs when the settlement date falls between the record date and the beneficiary date (accrual end date). The adjustment results in the payment of funds through the NSS.
London Interbank Offered Rate (LIBOR) The rate of interest that banks in Europe are willing to lend funds in U.S. dollars. Sometimes used as a floating or adjustable rate link.
Maturity Date The date a security ceases to earn interest that is the same day that the principal amount of the obligation is due in full.
Non-Redemption Period The time period prior to the first callable date.
Par Value Face amount or 100 percent of the principal amount of a security at original issue.
Pass-Through Security The servicer of a pool of mortgages collects the borrower's monthly payments and, after deducting a fee, remits or passes them through to the security holders or investors. The pass-through is the most common structure for mortgage-backed securities.
Principal The amount of debt remaining on a loan. On the date a loan is originated, or issued, the total amount equals the initial principal balance.
Redemption Payment of a security on the maturity date stated by the issuer.
Real Estate Mortgage Investment Conduits (REMIC) A multi-class mortgage pass-through security very similar to a CMO. REMIC certificates represent beneficial ownership interests in pools of mortgage loans or mortgage-backed securities. Most REMICs are multi-class pass-through bonds that pay in class order, e.g., class one must be paid in full before class two begins paying principal. The final class is usually an accrual class which pays no principal or interest until all prior classes are paid in full.
Repo Tracking An automated process for tracking principal and interest as well as for recording "Repo-In" and "Repo-Out" balances of each Fedwire Services participant. Using field tags, participants identify securities transfer messages involving repurchase agreements. This allows the Federal Reserve Banks to record and maintain two balances – Repo Out (total par value of repo collateral delivered) and Repo In (total par value of repo collateral received) – for each participant. On the record date, an adjustment occurs based upon a participant's repo balances. An adjustment results in the payment of funds from the holder of a Repo In balance to the holder of a Repo Out balance through the NSS.
Residual The cash flow available from the underlying collateral in excess of the required debt service and operating expenses.
Secondary Market Any transaction involved with buying, selling or packaging a security after it has been originated occurs in the secondary market.
Standard Security Description A unique identifying description often used in conjunction with the CUSIP number to identify, report and transfer a specific securities issue. The description includes the class code and may include other information such as the interest rate or date of maturity.
Stripped Security A book-entry security where each interest payment has been separated (stripped) from the principal. The interest payments and principal are then sold independently as new and separate securities usually with different CUSIP numbers.
Transfers The electronic movement of an agreed par amount of book-entry securities over the Fedwire Securities Service by debit to the designated securities account of the sender and by credit to the designated securities account of the receiver. If the Fedwire Services participant is both a sender and a receiver, the participant can receive a debit to one securities account and credit to another securities account.
Yield The rate of return an investor earns on an investment over a specified period of time.
Zero Coupon A security that is sold at a discount, usually with a maturity of more than one year. (Similar to a Discount Note.)

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