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ABS
Asset-backed security - for example, a Mortgage Bond.
ACCEPTING
Signing a Bill of Exchange signifying an agreement to pay. Subsequent or alternative signature by a bank virtually guarantees payment.
ACCOUNT
For equity settlements, exchanges may have an account period, for example two weeks, one month, etc. with payment due on 'account' or 'settlement' day. The alternative is a rolling settlement system.
ACCRUED INTEREST
The interest accrued so far on a bond and payable by the purchaser. Quoted separately from the 'clean price'.
ADR
American Depositary Receipt - the form in which foreign shares can be traded in the US without a formal listing.
AIM
Alternative Investment Market - a new market for smaller companies' shares set up in the UK in June 1995.
ALPHA FACTOR
The element in a share price that reflects its individual performance as opposed to the market (which is the Beta Factor q.v.).
ANNUAL YIELD
See Flat Yield.
APACS
Controlling cheque clearing, BACS and CHAPS in the UK.
ARBITRAGE
Taking advantage of an anomaly in prices or rates in different markets - e.g. buying in one and simultaneously selling in the other.
ARBITRAGEURS
Those looking for arbitrage opportunities. Applied especially in the US to those trying to exploit takeover possibilities.
ARTICLE 65
Article of the Japanese Financial Code - prevented commercial banks from engaging in some investment banking activities (and vice-versa); now dismantled.
ASK RATE
See Offer Rate.
ASSETS
The side of the bank's balance sheet dealing with lending.
ASSURANCE
The business of life insurance and pensions.
ATM
Automated Teller Machine.
BACK OFFICE
Accounting and settlement procedures.
BACKWARDATION
When one market maker's offer price is less than another's bid - a clear opportunity for arbitrage!
BACS
Bankers Automated Clearing Services (UK).
BANK BILL
A Bill of Exchange accepted by a bank on the central bank's 'eligible' list. The central bank itself would rediscount a bill of this type. Also called an 'eligible' bill.
BARGAIN
Any Stock Exchange transaction.
BASIS POINT
One-hundredth of 1 per cent.
BEAR
A pessimist, selling securities in the belief of a falling market, hence a 'bear market'.
BEARER BOND
A bond payable to whoever is in possession - that is, no central register.
BED AND BREAKFAST
Selling shares one day and buying them back the next - at the end of the tax year to maximise CGT allowance or claim losses against profits.
BETA FACTOR
The effect of overall market movements on a share price (see Alpha Factor).
BID RATE
Rate of interest offered for interbank deposits. Generally, the dealer's buying price for equities, bonds, foreign exchange, etc.
BIG BANG
Deregulation of the UK Stock Exchange, 27 October 1986.
BILL OF EXCHANGE
A signed promise to pay by a receiver of goods or services and kept by the supplier. May be sold at a discount.
BIS
Bank for International Settlements (Basel). The central bankers' central bank.
BLUE CHIP
The most highly regarded shares. (Metaphor is from gambling casinos!)
BOBL
Short name for the short term German government bond contract on EUREX.
BOND
A certificate issued by a borrower as receipt for a loan longer than 12 months, indicating a rate of interest and date of repayment.
BOND STRIPPING
See Coupon Stripping.
BOND WASHING
Selling a bond prior to the ex dividend date to take a capital gain instead of receiving income.
BONOS
Bonos del Estado - Spanish government bonds.
BONUS ISSUE
A free issue of shares to existing holders.
BRADY BOND
Bonds issued as part of South American country debt reduction under a scheme devised by Nicholas Brady.
BRETTON WOODS
Meetings at Bretton Woods (US) in 1944 set up the World Bank, IMF and foreign exchange system for the period following the Second World War.
BROKER
An agent for buying/selling securities or intermediary for a loan or sale of foreign exchange.
BTAN
Bons du Trésor à Intérêt Annuel. French Government two and five year notes.
BTF
Bons du Trésor à Taux Fixe. French Government Treasury bills.
BTP
Italian Government bond (Buoni del Tesoro Poliennali)
BULL
An optimist, buying securities in the belief of a rising market, hence a 'bull market'.
BULLDOGS
Sterling bonds issued in the UK by foreign organisations.
BULLET REPAYMENT
The whole of a bond or bank loan is repaid at maturity (instead of staged payments in the last few years).
BUND
Short name for the medium-term German Government bond contract on EUREX.
BUNDESBANK
The German central bank.
BUY/SELL AGREEMENT
Like stock borrowing/lending (q.v.) or a repo except that the seller gives up all beneficial rights in the stock.
CABLE
Shorthand for dollar/sterling rate.
CALL MONEY
Money lent by banks to other banks or discount houses which can be recalled as needed.
CALL OPTION
An option to buy a share/bond/index/interest rate contract later at a price agreed today.
CAP
An agreement with a counterparty which sets an upper limit to interest rates for the cap buyer for a stated time period.
CAPITAL ADEQUACY
The need to maintain adequate capital to cover counterparty risk and position risk.
CAPITAL MARKETS
The market for medium- and long-term securities.
CAPITAL RATIO
The ratio of a bank's primary capital to a weighted value of assets (for example cash = 0 weighting).
CAPITALISATION
Market capitalisation of a company is the number of shares multiplied by the current price.
CBOE
Chicago Board Options Exchange.
CBOT
Chicago Board of Trade.
CDS
Credit Default Swaps - selling credit risk for a premium.
CERTIFICATE OF DEPOSIT
Issued by banks to raise money - strong secondary market. (Also Eurocertificate of Deposit.)
CGT
Capital Gains Tax.
CHAPS
Clearing House Automated Payments System - for electronic clearing of payments the same day (UK). Used for sterling and euros.
CHINESE WALL
A theoretical barrier between different sections of a firm to avoid conflicts of interest or insider dealing.
CHIPS
Clearing House Interbank Payments - electronic bank clearing system in New York.
CLEAN PRICE
Price of a bond not including the accrued interest element.
CLEARING HOUSE
Central body guaranteeing contracts in a traded options/ futures market place.
CLOSING OUT
For futures market - taking the opposite contract, for example, having previously bought 100 tons of cocoa for June delivery, the buyer now sells 100 tons for the same delivery (or vice-versa).
CMBS
Commercial Mortgage-Backed Securities - a form of asset-backed security.
CME
Chicago Mercantile Exchange.
CMO
Collateralised Mortgage Oblications - like CMBS.
COLLAR
A combination of a cap and floor. Setting a band within which interest rates will apply, for example 10-12%, for a given period. Also used for currency rates.
COMMERCIAL BANKING
The 'classic' banking business of taking deposits and lending money, either retail or wholesale.
COMMERCIAL PAPER
A short-term security issued to raise money, usually by corporates. (Also Eurocommercial Paper.)
CONCERT PARTY
A group acting together (secretly) in a takeover situation, for example three people each buy 2.9% of shares to avoid no longer being able to hide behind nominee status.
CONNECT
A computer trading system at LIFFE.
CONSOLIDATION
Reorganising share holdings so that, for example, 10 shares at 10p nominal are replaced by one at £1 nominal.
CONVERTIBLE
A convertible bond may be converted later into equity, some other bond, or even a commodity, for example gold, as an alternative to redemption.
CORPORATE FINANCE
The department of a merchant/investment bank dealing with takeovers, mergers and strategic advice to companies.
COUNTERPARTY RISK
The risk involved if a counterparty fails to settle.
COUPON RATE
The annual rate of interest on a security noted on coupons issued with bearer bonds.
COUPON STRIPPING
Detaching the coupons from a bond and selling the coupons and the principal as individual zero coupon bonds.
COUPONS
Issued with bearer bonds to enable the holder to claim the interest.
COVER
The amount of dividend paid (net) divided into the amount of profit after tax available for distribution.
COVERED BONDS
A form of asset-backed security where an SPV (q.v.) is not used.
CREATION OF CREDIT
Banks' ability to lend money, facilitated by the use of notes and coin for a small percentage of transactions only.
CREDIT DERIVATIVES
A general market where credit risk is sold for a premium.
CREDIT RATINGS
For example AAA, issued by companies like Standard and Poor's and Moody's to rate the level of security of a bond or note issue.
CREST
The new UK paperless equity settlement system which started in mid 1996.
CROSS-RATES
Rates between two currencies neither of which is the dollar.
CUMULATIVE
Applied to a Preference Share - if dividend is missed it is still owed to the holder.
CUSTODIAN
An organisation which will store the original documentation for, say, bonds or equities and will look after settlement.
CYLINDER
Name used for a collar in currency markets.
DEBENTURE
In the UK, a bond secured on assets. In the US and Canada, a bond not secured on assets!
DELTA
A measure showing how the premium in an option will change as the asset price changes.
DERIVATIVES
Products whose price is derived from the price of an underlying asset - for example if ICI shares are the underlying asset, an option to buy or sell them at a given price is the derivative. Applied to options, futures, swaps etc.
DIRTY PRICES
Bond prices including the accrued interest element.
DISCOUNTING
Buying/selling a security at less than face value.
DISINTERMEDIATION
Direct market borrowing or lending by companies without going through a bank. A bank is traditionally the 'intermediary' between depositors and borrowers.
DIVIDEND YIELD
The annual percentage return on a share price represented by the current dividend - usually gross.
DOCUMENTARY LETTER
A documentary letter of credit is the written undertaking
OF CREDIT
of a bank made at the request of a customer (for example an importer) to honour the demand for payment of a seller (for example an exporter) if terms and conditions are met.
DOUBLE
See Straddle.
DRAGON BOND
A Eurobond issued in Hong Kong or Singapore and targeted for primary distribution to Asian investors.
DTB
Former German Futures/Options Exchange (Deutsche Termin Börse), now EUREX (q.v.).
DURATION
A calculation used to measure the remaining risk in a bond.
EARNINGS YIELD
Earnings per share (after tax) expressed as a percentage of share price.
EASDAQ
European Association of Securities Dealers Automated Quotations - a pan-European trading system which started in late 1996.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
ECB
European Central Bank.
EDSP
Exchange Delivery Settlement Price - the price at which certain futures and options contracts expire.
EFT-POS
Electronic Funds Transfer at Point of Sale.
ELIGIBLE BILLS
Bills of Exchange eligible for sale to the central bank when acting as 'lender of last resort'.
EMS
European Monetary System - general agreement on monetary cooperation. Included official use of the ECU, 20% of central banks' reserves held in a European Monetary Cooperation Fund and exchange rates of member countries kept within a stated range, one to another (ERM). Set up in 1979. Replaced by EMU.
EMU
European Economic and Monetary Union - a single currency area set up for eleven European countries on 1 January, 1999. Greece joined later, and notes and coins were included from 1 January, 2002.
EOE
European Options Exchange (Amsterdam), now known as AEX and part of Euronext.
EONIA
Euro Overnight Indexed Average - average of overnight rates in the euro area.
EQUITY
General term for shares.
ERM
The interim exchange rate system for countries waiting to join EMU.
ESCB
The European System of Central Banks - the ECB plus the central banks of the EU, technically including those not in the euro area but who play no part in monetary policy decisions.
ESOPS
Employee Stock Ownership Plans (US).
ETF
Exchange Traded Funds - these are listed securities which mimic the behaviour of an index and can be traded just like an ordinary share.
EUREX
The futures/options exchange which combines Germany's
DTB
and Switzerland's SOFFEX.
EURIBOR
Interbank lending rate for the euro in the countries of the monetary union.
EURO
The name of the single currency in Europe's monetary union.
EURO LIBOR
Interbank lending rate for the euro in London.
EUROBOND
A bond issued in a market outside that of the domestic currency.
EUROCERTIFICATE OF
See Certificate of Deposit. DEPOSIT
EUROCOMMERCIAL PAPER
See Commercial Paper.
EUROCURRENCIES
Any currency held by banks, companies or individuals outside its country of origin.
EURONIA
Euro Overnight Indexed Average - average of overnight euro rates in the London Market.
EURONEXT
The merger of stock exchanges in Paris, Brussels, Amsterdam and Lisbon. Owner of LIFFE.
EURO.NM
The Association of junior stock markets for smaller companies started by Paris, Frankfurt, Brussels and Amsterdam but with others joining.
EURONOTE
Short-term security denominated in a Eurocurrency.
EUROSYSTEM
The ECB plus the central banks of the participating countries only, not including those not in the euro area.
EXERCISE PRICE
The price at which an option can be exercised. (Also called strike price.)
FACTORING
Buying trade debts on a regular basis to assist cash flow - usually done by subsidiaries of banks.
FALLEN ANGELS
Bonds which were investment grade but became noninvestment grade later.
FAST MARKET
When normal stock market rules are superseded due to chaotic conditions.
FCP
Fonds Communs de Placement. French 'closed ended' fund.
FEDWIRE
Electronic payments system between Federal Reserve banks in the US.
FLAT YIELD
The annual percentage return on a bond taking into account the buying price, for example if £100 nominal worth of an 8% bond is bought for £50, the yield is 16%. Also called 'annual', 'running' and 'interest' yield (see Redemption Yield).
FLOATING RATE
A loan with the interest rate varied at agreed intervals, linked to a base rate, for example LIBOR.
FLOOR
An agreement with a counterparty which sets a lower limit to interest rates for the floor buyer for a stated time period.
FOREIGN BONDS
Bonds in a domestic currency issued by non-residents.
FORFAITING
Buying export trade debts on a non-recourse basis to assist cash flow. The debts must be in the form of a Bill of Exchange or Promissory Note.
FORWARD CONTRACT
A contract to buy or sell a commodity or security for future delivery at a price agreed today.
FORWARD/FORWARD
1. An agreement to lend money at a future point in time for a given period of time, for example, in six months for six months. 2. A forward foreign exchange deal not dated today but at a later date.
FORWARD RATE
A rate agreed now for a future purchase or sale of a currency. Derived from the difference in interest rates in the two currencies.
FRA
Forward Rate Agreement. An agreement with a counterparty which agrees on a stated rate of interest to apply to a notional principal sum at a future time to last for a stated time - for example, in six months for six months.
FRN
Floating Rate Note. An issue where the interest is at floating rate.
FRONT OFFICE
Dealing room system to facilitate buying and selling.
FSA
Financial Services Authority - the new financial regulatory body in the UK.
FTSE
Financial Times Stock Exchange - indices such as FTSE 100.
FUNGIBLE
Exchangeable - for example, a contract of one futures exchange may be identical with another. Can be opened in one and closed in the other exchange (or vice-versa). Also used for further issues of bonds on exactly the same terms (and accrued interest) as those issued earlier.
FUTURES CONTRACT
Similar to Forward but not expected to go to delivery as the position will be closed out with the opposite contract.
G7, G10, etc.
Meetings of international Finance Ministers - 'Group of 7', 'Group of 10', etc.
GDR
Global Depositary Receipt - a form in which foreign shares can be traded outside their domestic markets.
GEARING
Carrying out financial transactions on the basis of a deposit or borrowed money. US term is 'leverage'.
GEARING RATIO
Ratio of equity and long-term debt.
GENERAL CLEARING
Part of APACS - the normal 3/4 day cheque clearing (UK).
GILTS
Term applied to UK and Irish Government bonds. From 'gilt-edged' or virtually guaranteed. In general use for UK Government stock from the 1930s onward.
GLASS-STEAGALL ACT
Passed in the US in 1933, prevented Commercial Banks from engaging in certain Investment Banking business (and vice-versa); now repealed.
GLOBAL BONDS
Designed to be sold in the eurobond market and the US market at the same time.
GLOBALISATION
The movement to integration of world markets regardless of national boundaries.
GREENSHOE OPTION
In the event of exceptional demand for a new issue, the issuer reserves the right to issue extra securities.
GREY MARKET
The market for sales of a security before the official market opens.
GROSS REDEMPTION YIELD
See Redemption Yield.
HAIRCUT
In a stock borrowing/lending agreement, the borrower passes collateral to a value in excess of the market value of the stock (to allow for the price rising). This excess is called a 'haircut'.
HEDGE FUND
An actively managed fund that seeks an absolute return, that is, a return whether markets go up or down.
HEDGING
A technique for limiting risk. For example, if a price movement would cause loss, a purchase is made of an options or futures contract giving the opposite result; if a rise in interest rates causes loss, a position is taken with interest rate options/futures so that a rise in interest rates will yield a profit.
HYBRID BONDS
Bonds that combine features of equity and debt - perpetual, non-cumulative and deeply subordinated.
IDB
Inter Dealer Broker - facilitates deals between market makers who can deal in confidence and anonymity.
IMF
International Monetary Fund. Set up in 1946 to help nations in balance of payments difficulties.
INDICES
Like the S&P 500, the CAC 40, DAX, FTSE 100, etc.
INELIGIBLE BANK BILL
Bills of Exchange accepted by a bank, but one not on the central bank's list (see Bank Bill).
INITIAL MARGIN
Initial deposit required by a Clearing House (as opposed to variation margin).
INSURANCE
If contrasted with assurance, this is business other than life insurance.
INTERBANK MARKET
Bank lending/borrowing one to another.
INTER DEALER BROKERS
See IDB.
INTEREST YIELD
See Flat Yield.
INTERNATIONALISATION
See Globalisation.
INTRINSIC VALUE
The amount by which a call option exercise price is below the market price (or a put option exercise price is above it), usually called 'in the money'.
INTRODUCTION
A method of obtaining a Stock Exchange quotation. No new shares are issued. Usually they are foreign shares seeking a listing on a domestic market.
INVESTMENT BANKING
Banking implying a high involvement with securities - new equity issues, rights issues, bond issues, investment management, etc. Also advice to either party for mergers and acquisitions.
INVESTMENT GRADE
A credit rating of BBB (Standard and Poor's), Baa (Moodys) or better - that is, a high quality bond.
INVESTMENT TRUST
A company whose whole business is running a wide portfolio of shares. A 'closed ended' fund.
IPMA
International Primary Markets Association (for Eurobond dealers).
IPO
Initial Public Offering - American term for Offer for Sale.
IRREDEEMABLE
Same as perpetual.
ISDA
International Securities and Derivatives Association.
ISLAMIC BANKING/BONDS
Issues made to conform to 'Sharia' - Islamic law.
ISMA
International Securities Market Association.
ISSUING
Offering a security to the market in the first instance.
JOINT STOCK
Having shareholders.
JUNK BONDS
Specifically bonds with ratings of BB (Standard and Poor's), Ba (Moodys) or less. Generally high risk, high yield bonds.
KANGAROO BOND
An Australian dollar bond issued in Australia by a nonresident.
LBO
Leveraged buyout - that is, financed by heavy borrowing.
LCE
London Commodity Exchange - cocoa, coffee, sugar etc., now part of Euronext.liffe.
LDC
Less Developed Countries.
LEAD MANAGER
Bank(s) taking a key role in a syndicated loan or issue of securities like Eurobonds.
LETTER OF CREDIT
A document drawn by the importer's bank outlining the terms on which the exporter will be paid.
LEVERAGE
American term for gearing or 'making a small amount of capital go a long way'!
LIABILITIES
The side of a bank's balance sheet dealing with borrowing - that is, deposits, formal loans from others. Also share capital.
LIBID
London Interbank Bid Rate. Rate paid by one bank to another for a deposit.
LIBOR
London Interbank Offered Rate. Rate charged by one bank to another for lending money.
LIFFE
London International Financial Futures and Options Exchange - now part of Euronext.
LIMEAN
Average of the LIBOR and LIBID rates.
LIQUIDITY RATIO
Usually a percentage relationship between a bank's liquid assets and its eligible liabilities.
LLOYD'S
The Corporation of Lloyd's provides insurance through pooling the resources of individual members (the 'Names') operating in syndicates.
LLOYD'S BROKER
Lloyd's will only deal with a 'Lloyd's Broker'.
LLOYDS REGISTER
Shipping classification society dating back to 1776.
LME
London Metal Exchange - deals in six non-ferrous metals.
LOCALS
Traders dealing for themselves as speculators.
LONDON CLEARING HOUSE
The main clearing house for exchange traded derivatives in London.
LONG
To be 'long' in shares, bonds or foreign exchange is to own more than have been sold.
LORO
Alternative term for 'Vostro'. M&A Mergers and Acquisitions.
MANAGING AGENTS
Run and administer Lloyd's syndicates on behalf of the names.
MARGIN
The deposit required by a Clearing House.
MARKET MAKER
The dealers in stocks and shares as principals - that is, taking the risk in their own name.
MARK TO MARKET
Valuing securities or derivatives transactions at the current market price.
MATADOR BOND
Peseta bonds issued in Spain by non-residents.
MATIF
French Futures Exchange (Marché à Terme International de France) - now part of Euronext.
MEDIUM-TERM NOTES
A flexible facility to issue notes of varying maturity, varying currency and either fixed or floating - all within one set of legal documentation.
MEFF
Spanish Futures and Options Exchange in Madrid and Barcelona (Mercado de Futuros Financieros).
MEMBERS' AGENTS
Advise members on Lloyd's syndicates regarding tax, spread of risk, etc.
MERCHANT BANKS UK
term for Investment Banks.
MEZZANINE
Just as a mezzanine floor is a floor in between two others, so mezzanine debt is subordinated debt lying between equity and senior debt.
MIDDLE OFFICE
A general term for risk management systems.
MLA
Mandatory Liquid Asset - the charge for a sterling loan in the UK to cover non-interest bearing deposits at the Bank of England.
MLR
Minimum lending rate - the rate at which the Bank of England will lend to the banks. Only published as an 'official' rate in emergencies, for example January 1985 during the fierce run on sterling, October 1990 when the UK joined the ERM and the ERM crisis in September 1992. Now referred to as the 'repo' rate.
MOF
Multiple Option Facility. A revolving facility from a syndicate of banks permitting the raising of finance with various options - bank loan, banker's acceptance or commercial paper.
MONEP
French Options Exchange (Marché des Options Négociables de Paris).
MONEY AT CALL
An interbank short-term loan which may be recalled at any time.
MONEY BROKER
Intermediary putting borrowers in touch with lenders for a small commission.
MONEY MARKET
The market for money instruments with a maturity of less than one year.
MUTUAL
A bank or insurance company not a public company but owned by the members.
MUTUAL FUNDS
General name for pooled funds, such as investment trusts and unit trusts.
NASDAQ
North American Securities Dealers Automated Quotations - computerised dealing system for US 'over the counter' (OTC) trade outside recognised exchanges.
NATIONAL DEBT
The total of outstanding debt of the central government especially bonds and national savings.
NIL PAID
A new issue of shares following a rights issue on which payment has not yet been made. Rights can be sold 'nil paid'.
NMS
'Normal Market Size'. This is the classification concept which replaced the three classes alpha, beta and gamma. It is based on a percentage (currently 21/2%) of an average day's trading. There are 12 bands and they are used to decide the minimum quote size and the maximum size for immediate publication of trades (UK).
NOSTRO
'Our' - the overseas currency account of a bank with a foreign bank or subsidiary.
OATS
Obligations Assimilable de Trésor. French Government bonds.
OFEX
An over-the-counter stock market in the UK.
OFF-BALANCE SHEET RISKS
Risks for bankers other than activities which end up as an asset on the balance sheet. For example, standby loans, standby letters of credit, derivatives generally.
OFFER FOR SALE
A method of bringing a company to the market. May be at a fixed price or by tender. OFFER RATE Rate of interest charged for interbank lending of money. Generally, the dealer's selling price for equities, bonds, foreign exchange, etc. Also called 'Ask' Rate or Price.
OPEN OUTCRY
Face to face trading.
OPEN YEAR
When an accounting year cannot be closed due to uncertainty about claims (the Lloyd's market).
OPTION DATED
A forward rate (foreign exchange), but the date is more
FORWARD RATE
flexible.
OPTIONS
The right but not the obligation to buy/sell equities, bonds, foreign exchange or interest rate contracts by a future date at a price agreed now. 'Traded options' means the options themselves can be bought and sold.
OTC
Over the counter market. Dealing outside a trading exchange, for example a currency option purchased from a bank.
OVERFUNDING
The issue of government bonds or Treasury bills not for immediate government borrowing needs but as an instrument of monetary control.
PAC-MAN DEFENCE
In a takeover situation, when the company which is the subject of a bid turns round and tries to take over the bidder!
PAR
The nominal value of a security, for example $1000 for US Treasury bonds or £100 for UK government bonds.
P/E RATIO
Ratio of share price to earnings after tax.
PERPETUAL
A security without time limit for redemption.
PITS
Trading areas in options, futures and commodity exchanges.
PLACING
A method of bringing a company to the market. The shares are placed with institutional investors and some private investors, that is, not 'offered for sale' generally.
PLAZA AGREEMENT
An example of international cooperation. Following a meeting in October 1975 at the Plaza Hotel, New York, international finance ministers agreed to take measures to reduce the exchange rate for the dollar.
POISON PILL
A device to frustrate a hostile takeover bid (US).
POSITION RISK
The risk involved in holding any financial market position (equities, bonds, currencies, options, futures, etc.) should the relevant rates/prices change.
PREFERENCE SHARES
Dividend is paid as a fixed percentage. They have preference over ordinary shareholders for dividend payment and in case of liquidation. Usually non-voting. (Preferred stock in the US.)
PRIMARY MARKET
Markets where securities are sold when first issued.
PRIVATE BANKING
Specialist banking services for high net worth individuals.
PRIVATE EQUITY
Raising money for venture capital for early stage companies or for management buyouts.
PRIVATE PLACING
When securities are not offered for open sale but 'placed' with institutional investors.
PROGRAM TRADING
Bulk sales or purchases of securities triggered by computer programs.
PROMISSORY NOTE
A signed promise to pay a sum of money.
PSBR
Public Sector Borrowing Requirement - excess of public sector spending over revenue.
PSDR
Public Sector Debt Repayment - excess of public sector revenue over spending.
PUT OPTION
An option to sell a share/bond/index/interest rate contract later at a price agreed today.
REDEEMABLE
Applied to a preference share or bond - may be redeemed by the issuer on terms stated at the outset.
REDEMPTION
Final payment to holders of bonds.
REDEMPTION YIELD
The gross redemption yield takes into account the gain or loss to redemption as well as the flat yield (also called yield to maturity).
REINSURANCE
Laying off the original risk with others.
RELIT
Règlement Livraison de Titres. French Stock Exchange settlement system.
REPO
Sale and Repurchase Agreement. Securities are sold but must be repurchased later.
RETAIL MONEY
High street deposits/borrowings.
REVERSE REPO
When the repo deal is initiated by the buyer of the securities.
REVERSE TAKEOVER
The acquisition by an unquoted company of a company whose shares are quoted and is often larger than the new owner. The new company takes over the quotation and imposes its own name. A way of getting a stock market listing.
REVOLVING CREDIT
A commitment to lend on a recurring basis on predefined terms.
RIGHTS ISSUE
An offer of shares for cash to existing shareholders in proportion to their existing holdings.
ROLLING OVER
Renewal of a bank loan with alteration of interest rate as per the agreed formula, for example LIBOR + 1%.
ROLLING SETTLEMENT
For example 'five working days' - that is deal on Tuesday, settle next Tuesday; deal Wednesday, settle next Wednesday, instead of all deals within a given 'account' being settled on a given day.
ROOM
The 'Room' is the area at Lloyd's where brokers meet underwriters.
RULE 144A
A rule of the US Securities and Exchange Commission (SEC) by which securities issued abroad can only be sold initially to qualified institutional investors.
RUNNING YIELD
See Flat Yield.
SAMURAI BONDS
A yen bond issued in Japan by non-residents.
SCRIP DIVIDEND
Offer of shares instead of a dividend (optional).
SCRIP ISSUE
Same as bonus issue.
SEAQ
Stock Exchange Automated Quotations - the system that came in with 'Big Bang' (UK). SEATS Stock Exchange Alternative Trading System. A dealing system for smaller companies' shares (UK).
SEC
US body controlling regulation of the market (Securities and Exchange Commission).
SECONDARY MARKETS
The buying and selling of a security after its primary issue.
SECURITISATION
The borrowing of money through issue of securities on international markets (in particular) instead of through a bank loan. Also, converting an existing loan into securities, for example mortgage bonds (see ABS).
SEIGNORAGE
The special profit central banks make from printing banknotes whose nominal value is well in excess of their cost to the bank.
SERIES
All options of the same class, exercise price and expiry dates.
SETS
Stock Exchange Electronic Trading System - the new UK order driven system implemented in October 1997.
SETTLEMENT DAY
When the money for a given trade is due to be paid (and the securities handed over).
SHARES
Shares are shareholdings in companies with reward by way of dividend - usually called equities.
SHARIA
Islamic law.
SHATZE
German short-term Treasury issues.
SHELL COMPANY
A company with few assets, profits nil or in decline, and a very low share price.
SHORT
To be 'short' in shares, bonds or foreign exchange is to have sold more than have been bought.
SICAV
Société d'Investissement de Capital Variable. French 'open ended' mutual fund.
SIGHT BILL
A Bill of Exchange payable on acceptance.
SOFFEX
Former Swiss Options and Futures Exchange, now EUREX (q.v.).
SOFT COMMODITIES
Sugar, coffee, cocoa, etc. - as opposed to metals.
SONIA
Sterling Overnight Indexed Average - average of overnight rates.
SPLIT
Existing shares are reorganised ('split') into more shares, for example two shares @ 25p are exchanged for each one @ 50p (nominal values).
SPOT
Today's rate for settlement in two days.
SPREAD
Difference between a bid and offer rate. More generally between one rate and another. SPV Special Purpose Vehicle - used for asset-backed securities (q.v.).
STAG
One who applies for a new issue in the hope of selling for a premium - no real interest in the share.
STOCK BORROWING/
Equity and bond traders may temporarily borrow or LENDING lend stock in exchange for collateral - especially useful for a short position. Although called 'borrowing/lending', the stock is legally sold in UK law but not necessarily elsewhere.
STOCK EXCHANGE
Someone prepared to act as a broker in matching the BORROWING/LENDING stock borrower and lender (UK). INTERMEDIARY
STOCK INDEX ARBITRAGE
Arbitrage between the options, futures and market price of an index at contract closure.
STOCKS
Fixed interest securities, for example bonds, debentures, preference shares.
STRADDLE
A traded option strategy - simultaneous purchase/sale of both call and put options for the same share, exercise price and expiry date.
STRIKE PRICE
See Exercise Price (alternative term).
STRIPPED BONDS
See Coupon Stripping.
STRIPS
Stripped government bonds in the US - 'Separate Trading of Registered Interest and Principal of Securities'.
STRUCTURED FINANCE
Applied to pools of asset-backed securities which are tranched according to risk and sold off in parcels.
SUBORDINATED DEBT
A bond that, in the event of liquidation, can claim only after other senior debts have been met.
SUKUK
A bond issued to conform to Islamic law.
SUPERDOT
Automated execution system on the New York Stock Exchange.
SWAPS
Exchange of debt obligations between two parties, either exchange of currencies or fixed to floating rate (and viceversa) and sometimes both. The latter applies to a notional principal sum and the agreement lasts for a stated time period.
SWAPNOTES
A contract offered at Euronext.liffe. Actually, a bond contract but the cash flows of the bond are discounted by the swaps yield curve.
SWAPS YIELD CURVE
The swaps yield curve is based on the appropriate interest rates for top quality non-government borrowers.
SWAPTION
An option to have a swap at a future point in time.
SWIFT
The banks' international message switching system - Society for World Wide Interbank Financial Telecommunication.
SYNDICATE
Managers, underwriters and selling agents of a bond or bank loan.
SYNDICATES
Organisation of the names at Lloyd's. Each of the syndicates has their own professional underwriter.
TAP STOCK
In general, in bond markets further issues of a previously issued bond.
TARGET
Trans-European Automated Real Time Gross Settlement Express Transfer - the official interbank euro payment system for the euro area.
TECHNICAL ANALYSIS
Forecasting movements of securities or foreign exchange values by follwing charts based on moving averages.
TENDER
A bank loan or new security is offered to dealers who must compete for the business. If settled on a striking price basis, all pay the same price. If offered on a bid price basis, all pay the price they bid.
TICKS
Smallest price movement of a contract, for example 0.01 or 1/32.
TIME VALUE
That part of an option premium which is not the intrinsic value.
TOMBSTONE
Formal notice in the press of a syndicated loan, bond issue, commercial paper programme etc.
TOPIC
Teletext Output of Price Information by Computer. The standardised display of SEAQ information (UK).
TOUCH PRICES
The highest bid price and lowest offer price for a particular stock or share.
TRADE BILL
A Bill of Exchange not endorsed by a bank and not eligible for rediscount at the central bank.
TRADE DATE
The date a trade is agreed, as opposed to settled.
TRADED OPTIONS
An option to buy or sell a share/currency/index/interest rate contract later at a price agreed today. This is a standardised market and the options can themselves be sold.
TRANCHE
Further (large) issue of an existing bond to meet the needs of the market.
TRANCHETTE
Further (small) issue of an existing bond to meet the needs of the market.
TREASURY BILL
Issued by governments to raise money. Typically, three months, six months, 12 months.
UNDERWRITE
When a group of financial concerns agree to subscribe for a proportion of a new issue to ensure its full subscription. The other use of the term is in insurance.
UNDERWRITER
Anyone offering insurance cover for a premium.
UNIT TRUST
A portfolio of holdings in various companies, divided into units which are bought and sold directly. An 'open ended' fund, for example, the French SICAVs.
UNIVERSAL BANK
A term for a bank that is equally engaged in commercial and investment banking, for example Deutsche Bank, UBS, etc.
VAR
Value at Risk analysis - sophisticated algorithms used to evaluate the risk in a bank's positions.
VARIATION MARGIN
Further amounts of deposit (debit or credit) calculated by a Clearing House.
VENDOR PLACING
In a takeover bid, where shares are offered instead of cash, if the victim's sharenholders would prefer cash, institutions are found which will buy the shares.
VENTURE CAPITAL
Capital provided for high risks which would not normally attract conventional finance.
VOSTRO
'Your' - the domestic currency account of a foreign bank with a domestic bank.
VOLATILITY
An important term in options, used to describe the volatility of an asset's price movements - this will affect the premium.
VRN
Variable Rate Note. A floating rate note where the margin above LIBOR is not fixed but reset at intervals.
WARRANT
A certificate attached to a bond or security giving the holder the right to buy equity/bonds later at a set price. May be issued on its own without attachment, for example gilts warrants, currency warrants, CAC 40 warrants, Eurotunnel warrants, etc.
WHEN ISSUED
Grey market trading in government bonds prior to the regular auctions.
WHITE KNIGHT
In a takeover situation, a more acceptable bidder may be sought - the White Knight.
WHITE SQUIRE
Alternatively, key blocks of shares are bought by friendly contacts - the White Squire.
WHOLESALE MONEY
The borrowing and lending of large sums of money - usually between banks, large companies and the institutions.
WORKED PRINCIPAL
A term used in London's SETS system, when a stock AGREEMENT exchange member agrees to dispose of a large block of shares for an institution by buying/selling them in smaller parcels.
WORLD BANK
The International Bank for Reconstruction and Development. Set up in 1945.
WRITING AN OPTION
Selling the option. A margin is paid to the Clearing House.
XD
'Ex Dividend'. If a share or bond is marked 'XD', this means that the purchaser is not entitled to the forthcoming dividend/interest payment as the cut-off point has passed.
XR
'Ex Rights'. In rights issues, if a share is marked 'XR', this means that the purchaser is not entitled to the rights as the cut-off point has passed.
YANKEE BOND
A dollar bond issued in the US by non-residents.
YARD
Foreign exchange term for 1000 million.
YIELD
See Flat Yield.
YIELD CURVE
A graph showing the relationship between short-term and long-term yields for a given security or type of borrowing. Upward-sloping = positive yield curve; downward-sloping = negative yield curve.
ZERO COUPON BOND
A bond issued without interest payments but at a deep discount.
