Billions: Glossary

We don’t think it’s essential to be a financial or legal expert to enjoy Billions. It is a show more about characters and their interesting relationships than about the workings of Axe Capital or the US Attorney’s office. Having said that, we believe we are more likely to enjoy Billions once we understand exactly what’s going on… which brings us to this Billions glossary.

We have seen it mentioned on various social media that some are distracted by the fact they are finding the stock market jargon difficult to follow. Only natural for those of us who do not spend our days talking about longing and shorting and looking out for people ditching stock through back doors at lunch time.

Think of this page as a constant work in progress. We list terms that we think could be helpful, in alphabetical order, and we will keep adding to it!  If you hear a term (or terms) we haven’t added yet, let us know and we will be on it!

Without further ado:

13F  –  Also known as Information Required of Institutional Investment Managers Form, this is a quarterly filing with the  SEC required of all investment managers with over $100 million in their qualifying assets and shows what positions a fund has.

Lady Trader says when the 13Fs come out, it shows if funds have increased, decreased, sold or bought positions. Those filings can move stocks. If a fund took a new position in something like McDonalds (MCD), it could make the stock price go up, since the street will believe the fund is positive on the name. Same if the fund had a position in MCD and then sold it. The stock would do down.

Activist Investor – purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company. Then when does a company become a target for an activist investor? If it is mismanaged, has excessive costs, or could be run more profitably as a private company or has another problem that the investor believes s/he can fix and make the company more valuable.

Analyst – does the research. They analyse the data (relating to how stocks are doing) and then make recommendations to the Portfolio Manager.

Axe – next to being Bobby Axelrod’s nickname in Billions, Lady Trader hints that if you are called “axe” on a stock, that means you are the expert on that stock. It seems our Bobby has been aptly nicknamed, doesn’t it?

Bivens Action/Claim – It is a claim against federal officials, sued in their individual capacities, for a violation of a person’s constitutional rights. It comes from Supreme Court Justice Brennan’s opinion in Bivens vs Six Unknown Named Agents. In Season 2, Axe brings a Bivens Claim against Chuck citing violation of his Fourth Amendment rights.

Block Trade / Block Order – A block trade involves a significantly large number of shares or bonds being traded at an arranged price between parties, outside of the open markets, in order to lessen the impact of such a large trade hitting the tape.

Boutique Firm – A boutique is a small financial firm that provides specialized services for a particular segment of the market. Boutique firms are most common in the investment management or investment banking industries. These firms may specialize by industry, client asset size, banking transaction type or other factors to address a market not well-addressed by larger firms

Bucket Shop – A brokerage firm or hedge fund that makes trades on a client’s behalf and promises a certain price. The firm, however, waits until a different price arises and then makes the trade, keeping the difference as profit. If your firm is called a bucket shop, it’s not a compliment!

Buying a “Seat” – Seat refers to membership on a stock exchange, which enables a person to trade on the floor of the exchange, either as an agent for someone else, a floor broker, or for one’s own personal account, a floor trader. In the industry, owning a seat on an exchange was long considered a prestigious position, open only to a lucky and wealthy few. It was most commonly used to refer to membership on the New York Stock Exchange, in a structure that ceased to exist when it became a publicly traded company in 2005.

Central Bank -A central bank, or monetary authority, is a monopolized and often nationalized institution given privileged control over the production and distribution of money and credit. In modern economies, the central bank is responsible for the formulation of monetary policy and the regulation of member banks. The central bank of the United States is the Federal Reserve System, or “the Fed,” which Congress established with the 1913 Federal Reserve Act.

Cold Calling – Cold calling is the solicitation of potential customers who were not anticipating such an interaction. Cold calling is a technique whereby a salesperson contacts individuals who have not previously expressed an interest in the products or services that are being offered.

‘Covering’ is the term related to the short position. That is, when you short, you are selling the stock on the basis you expect it to fall in value and thus when you buy it back or ‘cover’ you expect to do so for less than you sold it and make a profit. However, if you get it wrong and the stock price rises, you must still cover the position and will make a loss.

Dead Cat Bounce – a temporary recovery in share price of a stock after a substantial fall, caused by speculators buying in order to cover their short positions.

Deleverage – A company’s attempt to decrease its financial leverage and the best way to do it is through paying off any existing debt on its balance sheet right away.

Delivering Alpha Conference – We see Bobby Axelrod as a speaker at this conference in the pilot. Delivering Alpha is an annual conference hosted by CNBC (please note that Andrew Ross Sorkin, one of the Billions executive producers is also a co-anchor on CNBC’s pre-market morning news program Squawk Box) and Institutional Investor and held in New York City. Here’s a brief description of what the conference is about from the conference website:

Delivering Alpha continues to be an incomparable who’s who of the investor community, with hedge fund titans and institutional investors offering candid views, along with illustrious political and economic commentators appearing in panel discussions moderated by top journalists from CNBC and II.”

Lady Trader says “a hedge-fund manager can make or break a stock with his comments” at this conference. That is very telling about Axe being a speaker at the conference and him being a real influence on the markets.

Deposition – out-of-court oral testimony of a witness that is put in writing for later use in court or for discovery purposes.

Devaluation -Devaluing a currency is decided by the government issuing the currency, and unlike depreciation, is not the result of non-governmental activities. One reason a country may devaluate its currency is to combat trade imbalances. Devaluation causes a country’s exports to become less expensive, making them more competitive in the global market. This, in turn, means that imports are more expensive, making domestic consumers less likely to purchase them, further strengthening domestic businesses.

While devaluating a currency can seem like an attractive option, it can have negative consequences. By making imports more expensive, for example, it protects domestic industries who may then become less efficient without the pressure of competition. Higher exports relative to imports can also increase aggregate demand, which can lead to inflation.

Exchange-Traded Fund (ETF) – an investment fund traded on stock exchanges much like stocks. ETFs usually track an index, such as stock index or bond index. They experience price changes throughout the day as they are bought and sold.

Event-Driven Strategy – Strategy adopted to take advantage of a merger or a restructuring that can result in a short run mis-pricing of a company’s stock.

Family Office – They serve as advisory firms for managing ultra-high net worth investors. Family offices are different from traditional wealth management shops that they cannot handle outside money but instead offer totally outsourced solutions to manage the financial and investment side of a affluent individual or family. For example, many family offices offer budgeting, insurance, charitable giving, family-owned businesses, wealth transfer and tax services.

We see in Billions Episode 2 Naming Rights that Steven Birch of Piedmont Capital settles with the US attorney’s office by voluntarily shuttering his hedge fund and turning it into a family office.

FCPA  ‘Foreign Corrupt Practices Act’ – A United States law passed in 1977 which prohibits U.S. firms and individuals from paying bribes to foreign officials in furtherance of a business deal and against the foreign official’s duties. The FCPA places no minimum amount for a punishment of a bribery payment. The Foreign Corrupt Practices Act also specifies required accounting transparency guidelines

Financial Leverage –  The use of debt to acquire additional assets. The more debt financing a company uses, the higher its financial leverage. A high degree of financial leverage means high interest payments, which negatively affect the company’s earnings per share.

Finder’s Fee (aka Referral Fee) – A commission paid to an intermediary of a transaction. The intermediary is rewarded for discovering and bringing the deal to interested parties.

Front Running – The unethical practice of a broker trading an equity in his personal account based on advanced knowledge of pending orders from the brokerage firm or from clients, allowing him to profit from the knowledge. It can also occur when a broker buys shares in his personal account ahead of a strong buy recommendation that the brokerage firm is going to make to its clients.

Hard to Borrow List – An inventory used by brokerages to indicate securities that are unavailable for borrowing for short sale transactions. A brokerage firm’s hard-to-borrow list provides an up-to-date catalog of securities that cannot be shorted. The security may be on the hard-to-borrow list because it is in short supply or because of its volatility. In order to enter a short sale, a brokerage client must first borrow the shares from the broker. To provide the shares, the broker can use its own inventory or borrow from the margin account of another client or from another brokerage firm

Hedge-Fund – “In the investment world, “I run a hedge fund” has the same meaning as “I’m a consultant” in the rest of the business world. In general, a hedge fund is a private partnership that operates with little to no regulation from the U.S. Securities and Exchange Commission (SEC).

A hedge fund uses a range of investment techniques and invests in a wide array of assets to generate a higher return for a given level of risk than what’s expected of normal investments. In many cases, hedge funds are managed to generate a consistent level of return, regardless of what the market does.

To understand what a hedge fund is, it helps to know what hedging is. Hedging means reducing risk, which is what many hedge funds are designed to do. Although risk is usually a function of return (the higher the risk, the higher the return), a hedge fund manager has ways to reduce risk without cutting into investment income.”

Hedge-Fund Manager – A hedge fund manager can look for ways to get rid of some risks while taking on others with an expected good return. For example, a fund manager can take stock market risk out of the fund’s portfolio by selling stock index futures. Or (s)he can increase her return from a relatively low-risk investment by borrowing money, known as leveraging. Keep in mind, however, that risk remains, no matter the hedge fund strategy.

The challenge for the hedge fund manager is to eliminate some risk while gaining return on investments — not a simple task, which is why hedge fund managers get paid handsomely if they succeed.”

High Frequency Trading (HFT) – High-frequency trading (HFT) is a program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. It uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds are more profitable than traders with slower execution speeds.

Holding Company – Lady Trader gives us this one: “A holding company does not produce its own goods or services; rather it owns other companies’ outstanding stock. It exists to own shares of other companies to form a corporate group. Holding companies allow the reduction of risk for the owners and allow the ownership and control a number of different companies. A modern day example for a holding company is Warren Buffet’s Berkshire Hathaway.”

Insider Trading – Lady Trader says: “Insider trading is when you buy (or short) a stock with information that is not known to the public. Example: if a CFO (Chief Financial Officer) tells me privately that their company had a very good quarter, but the quarter hasn’t ended, and I buy the stock at $20. When the company reports good earnings the stock goes up to $30, I made $10 per share. That’s a very clear cut insider trading case.

A good example comes from Billions pilot where Axe talks to his analysts Butch and “Dollar” Bill who want to long and short Superior Auto stocks, respectively: Bill gave $$ to a worker at Superior to get info no one else has (and seen they have lots of inventory). That’s insider trading for Bill, but not for Axe – he didn’t know where the information came from; he’s just taking the recommendation from his analyst.

Initial Public Offering (IPO) – Shares of a company are sold to the general public on a securities exchange for the first time.

Leverage up x times – That means you can trade x times what your account is actually worth. For example, if you have $1 million in cash in an account, you can trade $2 million worth of positions if leveraged up 2 times.

Leverage Build Up – The accumulation of additional debt to enter a position that has the potential for large returns. From the perspective of portfolio management, leverage build up involves partaking in excessive leveraged positions for the opportunity to magnify returns.

Limited Liability Company (LLC) – A business structure that operates like a traditional partnership. The company distributes income to the partners (who report it on their individual income tax returns) but also protects them from personal liability for the business’s debts, as with the corporate business form. In general, unless the business owner establishes a separate corporation, the owner and partners (if any) assume complete liability for all debts of the business. Under the LLC rules, however, an individual isn’t responsible for the firm’s debt, provided he or she didn’t secure them personally, as with a second mortgage, a personal credit card or by putting personal assets on the line.

Lock-Up Period –   A lock-up period is a window of time when investors of a hedge fund or another closely held investment vehicle are not allowed to redeem or sell shares. The lock-up period helps portfolio managers avoid liquidity problems while capital is put to work in sometimes illiquid investments.

The initial public offering (IPO) lock-up is a common lock-up period in the equities market used for newly issued public shares, typically lasting anywhere from 90 to 180 days after the first day of trading, so fund managers can keep a lower amount of cash on hand

Long or ‘long position’ – is where you expect the value of stock to rise. You buy this stock and own it.

Municipal Bond/ Muni-Bond – A security issued by a state, municipality or county to finance its capital expenses, e.g. including the construction of highways, bridges or schools. These bonds are exempt from federal taxes and from most state and local taxes, making them especially attractive to people in high income tax brackets. Remember Axe tells Taylor this is the kind of giving he likes 😀

Non-compete agreement – is an agreement between an employee and employer where the employee agrees not to use information s/he learned during this particular employment in future business efforts for a period of time set in the agreement. Very common on Wall Street. Investopedia says employers typically insist their employees sign such agreements “because of the possibility of an employee, upon termination or resignation, working for a competitor or starting a business, and gaining competitive advantage by abusing confidential information about their former employer’s trade secrets or sensitive information such as customer/client lists, business practices, upcoming products and marketing plans.”

Non-solicitation agreement – Lady Trader tells us such agreements typically state you agree not to try and take clients or employees for your own benefit, or a competitor’s benefit, after leaving the company. A non-solicitation agreement could be part of a larger document, an employment contract or a non-compete agreement. However, a firm that wants to protect only its client list might choose to use a standalone non-solicitation agreement.

Office of Professional Responsibility (OPR) – The office is responsible for investigating allegations of misconduct concerning the exercise of department attorneys’ use of their authority to investigate, litigate or provide legal advice, as well as allegations of misconduct concerning law enforcement personnel related to allegations of attorney misconduct within the jurisdiction of OPR. The OPR directly reports to the Attorney General.

Option – An option represents a contract sold by one party to another. The contract offers the buyer the right, but not the obligation, to buy (call option) or sell (put option) a some financial asset at a price agreed upon by the two parties, the strike price, during a certain period of time or on a specific date (exercise date). If you buy a “call” on a stock, it gives you the right to buy it at a certain price (a 40 call Microsoft allows you to buy the stock at 40. So if you buy a 40 call on Microsoft, and you think the stock is going to 50, you get the stock at a very good price. A 35 “put” allows you to sell it at that price. If you buy a 35 put and think the stock is going to 30, you get a good price to sell it.

Portfolio – a group of stocks, bonds and other financial investments.

Portfolio Manager – The person or persons responsible for the management of the portfolio day-to-day.

Position – “The amount of a security either owned (which constitutes a long position) or borrowed (which constitutes a short position) by an individual or by a dealer (a person or firm in the business of buying and selling securities for their own account, whether through a broker or otherwise.)”

Prime Brokerage – Services provided by brokerages to special clients. The services provided under prime brokerage are securities lending (the act of lending a stock with the borrower required to put up a collateral), leveraged trade executions, and cash management. In particular, when hedge-funds shorts a stock, they have the loan executed through their prime brokerages. Most of the biggest broker firms like Goldman Sachs, Paine Webber, and Morgan Stanley Dean Witter provide prime brokerage services.

Proffer Session – Meetings between prosecutors and individuals who are the focus of an ongoing investigation. They are commonplace in criminal investigations. While it carries the potential to reduce or resolve a client’s criminal exposure, it also presents a great deal of risk.

Proxy Time – A company has an annual shareholder meeting. At the meeting shareholders vote for different things: board members, CEO compensation, dividend, etc. It’s called proxy time because there are companies that urge shareholders to vote a certain way. They send out questionnaires to the thousands of shareholders. When the shareholders send it back, they are giving the company their proxy in how to vote.

Quant Fund – An investment fund that selects securities based on quantitative analysis. In a quant fund, the managers build computer-based models to determine whether an investment is attractive. In a pure “quant shop” the final decision to buy or sell is made by the model; however, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model. Axe Capital is more of a Fundamental shop. They research companies and make trading decisions based on the fundamentals of a company (potential revenue and earnings growth, management, etc.) . Lady Trader trades both a quant strategy and a fundamental strategy.

Revenue Sharing – Lady Trader tells us a firm sometimes will seed a small fund with capital. Depending on the strategy and what else the firm provides for the seed company (office space, marketing, etc) they agree on how to divide up the profits.” We see Axe in Episode 10 offering a take it or leave it revenue sharing agreement to Carly, Channing and Hlasa and they accept. Axe wants (along with everything else he asked for) 40% of any profits those 3 make. Since they will have to split that 3 ways, it’s 20% each from them.

Risk Management – Essentially, risk management occurs any time an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given his investment objectives and risk tolerance.

Road Show – A road show is a presentation by an issuer of securities to potential buyers. The management of a company issuing securities or doing an initial public offering (IPO) travels around the country to give presentations to analysts, fund managers and potential investors. The road show is intended to generate excitement and interest in the issue or IPO, and is often critical to the success of the offering.
Runner –  After a customer places an order to the broker’s order taker, the runner will pass the instructions to the pit trader and wait for confirmation. Once the trade is executed, the runner will return to the order taker, confirming the order has been filled. They are responsible for passing on the customer’s order to the broker in a timely fashion and thus keep the link between the customer and the floor trader.

SEC (Securities and Exchange Commission) “The mission of the Securities and Exchange Commission (SEC) is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.  Unlike the banking world, where deposits are almost always guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees. The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.

The SEC oversees the key participants in this securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds.  Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.”

The SEC also has authority to bring civil actions against individuals or companies alleged to have committed any violation of the securities law such as accounting fraud, provision of false information or insider trading. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses that include a criminal violation.

Remember Ari Spyros from the SEC in the pilot episode. He is the one that brings Chuck’s office information about three firms linked to Bobby Axelrod being potentially involved in insider trading.

Short or ‘short position’ is where you expect the value of stock to fall. You borrow this stock rather than own it. You then sell it. However, you must later buy the stock back.

Short Squeeze – Suppose there is a certain stock thought not to be doing well. So, people choose to short it. A real-life example is GameStop a video game retailer whose plunge was a triumph for short sellers of its stocks. But sometimes the company may have some good news and the stock may rise in price which means the short sellers now have to cover at a higher price and lose money. Say you buy it at $10 and the price goes up to $100. You need to cover $90 per share and if you have a lot of shares, you are a little bit screwed. This is short squeeze. Bobby says in the pilot that, Steven Birch from Piedmont Capital squeezed him on the HMOs last year. You can read about Herbalife short squeeze aka “mother of all the short squeezes” here.

Socially Responsible Investing (SRI) – From Wiki: “Also  known as sustainable, socially conscious, “green” or ethical investing, it is any investment strategy which seeks to consider both financial return and social good. In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. Some avoid businesses involved in alcohol, tobacco, fast food, gambling, pornography, weapons, contraception/abortifacients/abortion, fossil fuel production, and/or the military.

Stock Index – a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). Investors and financial managers use the stock index to describe the market and to compare the return on specific investments.

“Strong Buy” – When an analyst puts a “strong buy” or “outperform” “strong buy” on a stock, they believe the stock will outperform the market significantly. It means it’s one of their top recommendations. The price target indicates where the analyst thinks the stock will trade in the next 12-18 months. Any upgrade of a stock, that has a short position, even if not many people buy the analyst reason’s, would automatically get squeezed.

For example, when Chuck Sr and his friends block buy Cross Co shares in Episode 4 Short Squeeze, they also have an analyst upgrade the stock to a “strong buy” with a $90 price target.That alone would move a stock. And this was Chuck Sr’s “short squeeze” play against Axe.

Trade by Appointment – there is not a lot of market volume on the stock.

Trader – carries out trades (buying or selling) as instructed by the Portfolio Manager.

Trading Halt – A trading halt is a temporary suspension in the trading of a particular security on one or more exchanges, usually in anticipation of a news announcement or to correct an order imbalance. A trading halt may also be imposed for purely regulatory reasons. During a trading halt, open orders may be canceled and options may be exercised.

Two and Twenty – A standard compensation structure that refers to how hedge fund managers charge their investors a flat 2% of total asset value as a management fee and an additional 20% of any profits earned. 2/20 is more of a standard in the industry. We have seen in Billions that Axe Capital is a Three and Thirty company and only companies that consistently give double-digit returns to their investors can charge these very high fees.

Unloading Position: This means getting out of your position — selling the stock if you have been longing and covering the stock if you have been shorting

Upgrading/downgrading of stock by Analyst –  An analyst on the Sell Side (they sell their reports on companies to Asset Managers and to Buy Siders, like I was) will change his/her rating on a stock when they think something fundamentally has changed in the stock. For example an analyst may have a Buy recommendation on stock X, but he/she thinks that people who are cord-cutting their cable will have a negative effect on stock Y (owned by Stock X) and the revenue they bring in. An analyst may put out a report downgrading the stock to Neutral (don’t buy, but don’t sell), or Sell or Underperform since the fundamental story on Stock X has changed, and the analyst believes growth will be harder for X.

Window Dressing – Window dressing is a strategy used by mutual fund and other portfolio managers near the year or quarter end to improve the appearance of a fund’s performance before presenting it to clients or shareholders. To window dress, the fund manager sells stocks with large losses and purchases high-flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.

War Chest – Reserves of cash set aside by a company to be used typically for acquisitions of other companies or businesses. But it can also be used as a buffer against adverse events during uncertain times. In Billions Episode 6 The Deal, Axe tells Wags to liquidate 2% of the fund to make their war chest.

Zero Cost Collar –  Investors looking to secure a return will sell a cap and buy a floor, whereas borrowers will sell a floor and buy a cap. For investors, the cost of the cap is offset by the income received from the floor.

An example of a zero cost option collar is the purchase of a put option (defined above in option) and the sale of a call option (defined above in option)  with a lower strike price (defined above in option). The sale of the call will cap the return if the underlying falls in price, but it will also offset the purchase of the put. Obviously, upside risk is still unlimited.

Taylor helps Mafee to save $10 million for Axe Capital using zero cost collar in Season 2 Episode 1: Risk Management. If you want to understand what happens in that scene in further detail please see Lady Trader’s financial recap of the episode here.