| Abandon:
|
|
Where an
option holder chooses not to exercise his option. |
| Absolute Risk: |
|
The volatility
of total returns. |
| Acceptance: |
|
Short-term debt
instrument, drawn on a bank for future
payments. |
| Accreting Loan: |
|
A loan where the
principal increase in stages as capital is
drawn down. |
| Accrued Interest:
|
|
Interest that has
been earned but not yet paid. |
| Actuary: |
|
A statistician
who calculates risk. Usually employed by an
insurance company. |
| A.D.R.: |
|
American Depositary
Receipts, see Depositary Receipts |
| A.I.M.: |
|
Alternative Investment
Market. For small young and growing
companies opened by the Stock Exchange in June 1995. |
| American Style: |
|
An option that
may be exercised into its underlying
instrument on any business day until expiry. |
| Amortising Loan:
|
|
A loan where the
principal reduces in stages as capital is repaid. |
| Arbitrage: |
|
The purchase or
sale of an instrument and the simultaneous taking of an equal
and opposite position in a related market, for profit. |
| Arbitrageur: |
|
A trader who takes
advantage of profitable opportunities arising out of pricing
anomalies. |
| At-Market: |
|
An order to buy/sell
at the current trading level. |
| At-The-Money: |
|
An option with
an exercise price at the current Option market level of the
underlying. For example, this
(ATM): could be ATMF - At the Money Forward. |
| Audit: |
|
Inspection of a
company's books by independent accountants. |
| Average Rate
Option: |
|
An option where
the settlement is based on the
difference between the Strike and the average price of the
"underlying" over a predetermined period. Also known
as
Asian options. |
| Backwardation: |
|
When the spot or near-term price of a commodity is higher than
the forward price. |
| Basis Point: |
|
One hundredth of
one percent (0.01%). |
| Basis Risk: |
|
When relationships
between products used to hedge each other
change or break down. |
| Bear Market: |
|
A falling market. |
| Best: |
|
The broker can
buy or sell at the "best" price available at his/her
discretion. |
| Bid: |
|
The wish to buy.
|
| Big-Bang: |
|
October 27th 1986,
the stock exchange's new regulations were
Introduced together with the automated price quotation system. |
| Black and Scholes: |
|
The original option
pricing model used by many market practitioners, written by
Black and Scholes in 1972, (see Scholes - Merton). |
| Blue Chip |
|
Large established
company - in China known as "Red Chips" |
| Bond: |
|
A borrower of funds
issues a bond stipulating the amount of
payments to a lender, it may be linked to a floating rate
(FRN) or a fixed interest rate. |
| Bond Rating: |
|
A rating given
to a bond as the likelihood that the borrower
will default on the interest and principal payments. |
| Broken date: |
|
A value date that
is not a regular forward date. |
| Broker: |
|
An individual
or a firm that acts as an intermediary, putting together willing
sellers and willing buyers for a fee (brokerage). |
| Bull Market: |
|
A rising market. |
| Call Option: |
|
An option that
gives the holder (buyer), the right but not the obligation
to buy the underlying instrument at a pre-agreed rate (strike
rate) on or before a specific future date. |
| Capitalisation
Issue: |
|
An issue where
funds from a company's reserves are converted
into shares and offered free of charge to the company's
shareholders. |
| CaR: |
|
Capital at Risk. |
| Cash Settlement: |
|
Where a product
is settled at expiry, based on the differential between the
fixed/guaranteed price and the underlying instrument. |
| C.C.P.: |
|
Central Counterparty
set up by the Stock Exchange, to remove
credit risk when buying/selling shares. |
| C.D.: |
|
Certificate of
Deposit: A tradable deposit issued by banks
and building societies. |
| C.F.D.: |
|
(equity) Contract
for Difference. A derivative product to trade the price differential
over an indefinite time period of a specified number of shares. |
| C.F.D. |
|
(oil) Contract
for Difference. A derivative product used to manage
the price risk between "dated Brent" and the first
front month. |
| C.L.S.: |
|
Continuous Linked
Settlement: a new way to settle FX and
Currency trades through CLS Bank and minimize Herstatt risk. |
| Continuous Linked
Settlement: |
|
a new way to settle
FX and
Currency trades through CLS Bank and minimize Herstatt risk. |
| C.M.O.: |
|
Collateralised
Mortgage Obligation: a debt security based
on a pool of mortgages. |
| Compound Option: |
|
An option on an
option. The holder (buyer) has an option to purchase another
option on a pre-set date at a pre-agreed premium. |
| Counterparty
Risk: |
|
When counterparties
are unwilling/unable to fulfill their
contractual obligations. |
| Covered Warrant: |
|
A warrant issued
by a party other than the originator or issuer of
the underlying asset. |
| Covered Writing:
|
|
Where an option
is sold against an existing position. |
| C.P. Commercial
Paper: |
|
an unsecured IOU
issued by large
companies and banks. |
| Coupon Rate: |
|
The fixed rate
of interest on a bond. |
| Credit Risk: |
|
The uncertainty
associated with the financial condition of a
company. |
| CREST: |
|
The paperless share
settlement system. CREST is operated by
CRESTCo and was introduced in 1996 |
| Cross Rate: |
|
The exchange rate
for one non US dollar currency against
another non US dollar currency, e.g. DEM/JPY. |
| Dated Brent: |
|
A physical oil
cargo becomes dated when it has been allocated
a loading date. |
| Day Trade: |
|
A position opened
and closed within the same
trading day. |
| Default: |
|
Failure to perform
on a foreign exchange transaction or, failure to pay an interest
obligation on a debt. |
| Default Risk:
|
|
The uncertainty that some or all of an
investment may not be
returned. |
| Depositary: |
|
Receipts Certificates
which represent ownership of a given number of a company's shares,
which can be listed and traded separately from the underlying
shares, e.g. ADR's and GDR's. |
| Dividend: |
|
The part of a company's
profits which is distributed to Shareholders, usually expressed
in pence per share. |
| Discount: |
|
The margin by which
the purchase price is cheaper than the
redemption price. |
| D.M.O.: |
|
Debt Management
Office. An executive agency of the treasury,
responsible for issuing Gilts to fund the Government's borrowing. |
| D.O.L.: |
|
Daily Official
List. The daily record setting out the prices of all
trades in securities conducted on the Exchange. |
| E.D.R.: |
|
Euro Depositary
Receipts. A certificate representing ownership
of the issuer's underlying shares. The EDR is denominated and
quoted in euros. |
| End/end: |
|
A transaction for
settlement on the last business day of a
month against the last business day of a future month. |
| Equity |
|
The risk-sharing
part of a company's capital, usually made up
of "ordinary shares". |
| E.T.F.: |
|
Exchange Traded
Funds. Known in the USA as Index Shares.
Stock Exchange quoted fund portfolios designed either as
index trackers (Index Funds) or as managed stock baskets
(Actively Managed Funds) |
| Eurobond: |
|
An interest bearing
security issued across national borders,
usually in a currency other than that of the issuer's home
country. |
| European Style: |
|
An option which
may only be exercised on the
expiry date (see American style). |
| Eurobond: |
|
International bond
denominated in a currency not native to
the country in which they are issued. |
| Exchange: |
|
Regulated exchanges
include, LIFFE, CME, IPE, etc. |
| Exchange Traded: |
|
A transaction where
a specific instrument is
bought or sold on a regulated exchange, e.g. futures |
| Exercise: |
|
The conversion of the option into the "underlying". |
| Exercise Price: |
|
The price at which
the option holder has the right
Strike Price: to Buy/Sell the underlying instrument. |
| Exotic Options:
|
|
New generation
of option derivatives, including,
Look-Backs, Barriers, Baskets, Ladders, etc. |
| Expiry: |
|
The date after
which an option can no longer be
exercised. |
| Expiration Date: |
|
The last date on
which an option can be exercised. |
| Fair Value: |
|
For Options, this
is calculated by an option pricing model such as that written
by Black & Scholes. For Futures, it is the level where the
contract should trade, taking into account cost of carry. |
| Fixed Interest: |
|
Securities which
attract a fixed rate of interest each year.
Securities |
| Floatation: |
|
When a company's
shares are issued on the Exchange for the
first time |
| Forward Foreign
Exchange: |
|
All foreign exchange
transactions with a maturity of over 2 business days from transaction
date, (see short dates) |
| FRN: |
|
Floating Rate Note,
a bond linked to LIBOR. |
| F.S.A.: |
|
Financial Services
Authority. Regulates the financial services
Industry under the Financial Services and Markets Act 2000.
Futures A futures contract is a contract to buy or sell a standardised
amount of an underlying instrument at a future date at a pre-determined
price. Trading is carried out on a recognized
exchange (LIFFE in the UK). |
| G.D.R.: |
|
Global Depositary
Receipt, see Depositary Receipts. |
| GEMMs: |
|
Gilt-edged market
makers. |
| Gilt: |
|
Gilt-edged securities
are debt instruments issued by the UK
Government. |
| Gross Redemption: |
|
See Yield to Maturity.
Yield (GRY): |
| Hedge: |
|
A transaction that
reduces or mitigates risk. |
| Historical Volatility: |
|
An indication of
past volatility in the market place. |
| Holder: |
|
The buyer/owner
of an option. |
| Herstatt Risk: |
|
The failure to
settle one side of an FX trade by value date
Named after bank where this failure occurred in 1974.
Also see C.L.S. |
| Implied volatility: |
|
The volatility
implied by the market price of the option |
| Indication only: |
|
Quotations which
are not firm. |
| Index: |
|
A relative expression
of the weighted value of a group of
securities used as a performance indicator. |
| Insider Dealing: |
|
The purchase or
sale of securities (or other financial
instruments) by someone who possesses "inside" information,
likely to affect the price of the instrument in the market.
In the
UK such deals are a criminal offence. |
| In-the-Money
(ITM): |
|
An option with
an exercise price more advantageous than the current market
level of the underlying. |
| Intrinsic Value:
|
|
One of the components
of an option premium.
The amount by which an option is in-the-money. |
| Investment Trust: |
|
A collective investment
fund in the form of a listed company
which holds a portfolio of securities on behalf of its
shareholders. |
| ISDA: |
|
International Swaps
and Derivatives Association,
Many market participants use ISDA swap documentation. |
| Junk Bond: |
|
High risk, low rated speculative bonds. |
| L.C.H. : |
|
The London Clearing
House: A central counterparty set up
remove credit risk on exchange traded transactions. |
| LIBOR: |
|
The London Inter-Bank
Offered Rate. The inter-
bank rate used when one bank borrows from
another. It is also the benchmark used to price
many Capital Market and Derivative transactions. |
| LIBID: |
|
The London Inter-Bank
Bid Rate. The rate where one bank will
lend to another. |
| LIFFE: |
|
London International
Financial Futures Exchange. |
| Limit Order: |
|
An order given
at a certain price. |
| Liquid Market:
|
|
An active market
place where much selling and buying
occurs with minimal price concessions. |
| Liquidation: |
|
The closing of
an existing position. |
| Liquidity: |
|
The ease with which
an item can be traded on a market. |
| Listed Company: |
|
A company whose
securities have been admitted to the Daily
Official List (DOL). |
| Listing Particulars: |
|
A prospectus which
details what the Stock Exchange requires a
company to publish about itself and its securities before they
can be admitted to the main market. |
| Long: |
|
More purchases
than sales. |
| L.S.E.: |
|
London Stock Exchange. |
| Mandatory QuotePeriod: |
|
The time when market-makers
on the LSE's SEAQ and SEAQ International computers are obliged
to make firm two-way quotes for the securities in which they
are registered. |
| Mark-to-Market:
|
|
A process whereby
existing positions are revalued on a daily basis. |
| Market
Maker: |
|
An
authorized trader, obliged to make firm two-way quotes in financial
instruments during trading periods. |
| Mine: |
|
Where a dealer
takes the offer which has been quoted
by a counterparty. It must be qualified by the amount. |
| Mortgage Backed
Security: |
|
Debt security backed
by a pool of mortgages. |
| M.T.N.: |
|
Medium-term note.
An unsecured note issued in a euro-currency
with a maturity of three to six years. |
| Naked Option: |
|
An option position
taken without having the underlying. |
| New Issue: |
|
An issuer coming
to the market for the first time. |
| Nominated Advisor: |
|
Compulsory Exchange
approved advisor for AIM companies. |
| N.M.S.: |
|
Normal Market Size.
Calculated for each security, based on a
percentage of daily turnover. The percentage is set at 2.5%
and
intended to represent the normal institutional bargain. |
| Notice of Exercise: |
|
Notification by
telex, fax or phone which must be given irrevocably by the buyer
to the seller of the option prior or at the time of expiry.
|
| Offer: |
|
The wish to sell. |
| Offer for Sale |
|
A method of bringing
a company to the market. The public can
apply for shares directly at a fixed price. A prospectus giving
details of the sale must be published in a national newspaper. |
| Option: |
|
An agreement between
two parties that gives the Holder (buyer), the right but not
the obligation to buy or sell a specific instrument at a specified
price on or before a specific future date. On exercise the Seller
(writer) of the option must deliver, or take delivery of the
underlying instrument at the specified price.
|
| Orders: |
|
Firm order given
by a dealer to a counterparty to execute a transaction under
certain specified conditions, e.g., Limit order, stop loss order
etc. |
| Order Book: |
|
Otherwise known
as SETS (Stock Exchange Trading System).
Introduced on October 20th 1997, the electronic order book
automatically executes orders when the bid and offer prices
match. |
| Ordinary Share: |
|
The most common
form of share. Holders may receive dividends on the recommendation
of directors. Known in the USA as "common stock". |
| OTC or Over
the Counter: |
|
A bilateral transaction between a client
and a bank, negotiated privately between the parties. |
| Out-of-the-Money
Option(OTM ): |
|
An option with
an exercise price more disadvantageous than the current market
level of the underlying. An Out-of-the-Money option has time
value but no intrinsic value. |
| Outright: |
|
The purchase or
sale of a currency for delivery on any date other than spot.
|
| Overnight: |
|
Transaction for
settlement tomorrow, taken out today. |
| Par: |
|
Where the price
is the same at purchase and redemption. |
| Point/pip: |
|
The last decimal
place of the quotation. |
| Portfolio: |
|
A collection of
securities owned by an investor. |
| POTAM: |
|
Panel on Takeovers
and Mergers. UK regulatory body. |
| Preference Shares: |
|
Normally fixed
income shares, where holders have the right to
receive dividends before ordinary shareholders. In the event
of
liquidation preference shareholders rank above ordinary
shareholders. |
| Premium-options: |
|
The cost of the
option contract. It is made up of
two components, intrinsic value and time value. |
| Premium: |
|
The margin by which
the purchase price is more expensive than
the redemption rate. |
| P/E Ratio Price
/Earnings Ratio. |
|
A measure of investor
confidence, normally the higher the figure the higher the confidence.
Current share price divided by earnings per share. |
| Price Transparency: |
|
Where a transaction
is executed on the floor of an exchange,
and every participant has equal price. |
| Primary Market: |
|
The function of
a stock exchange in bringing securities to the
market for the first time. |
| Privatisation: |
|
Conversion
of a state-run company to public limited liability
status. |
| Private Company: |
|
A company which
is not a public company and cannot offer its
share to the public. |
| Put Option: |
|
An option that
gives the holder (buyer), the right but not the obligation to
sell the underlying instrument at a pre-agreed strike rate (exercise
rate) on or before a specific future date. |
| Registrar: |
|
An organization
responsible for maintaining a company's share
register. |
| Repo Sale and
repurchase agreement: |
|
Used by many Central
Banks as a method of managing liquidity in the money markets.
Banks trade repo's and reverse repo's in many products but mainly
bonds and equity. |
| R.I.E.: |
|
Recognised Investment
Exchange, meeting FSA requirement. |
| Rights Issue: |
|
An invitation to
existing shareholders to purchase additional
shares in the company. |
| Risk: |
|
The volatility
of expected outcomes. |
| R.N.S.: |
|
Regulatory News
Service. To ensure that price sensitive information from listed,
AIM and certain other bodies, is disseminated to all RNS subscribers
at the same time. |
| Rollercoaster
Loan: |
|
A loan with both
accreting and amortising elements.
(see Accreting and Amortising). |
| Scholes - Merton: |
|
The Nobel prize
winning revision of the Black-Scholes option
pricing model |
| SEAQ: |
|
The Stock Exchange
Automated Quotation system for UK securities. A continuously
updated computer database containing price quotations and trade
reports for UK securities. |
| SEATS plus: |
|
Supports the trading
of all AIM and listed UK equities whose
turnover is insufficient for market makers or SETS. |
| SETS: |
|
Stock
Exchange Trading Service. Otherwise known as the
Order Book. |
| S.F.A.: |
|
Securities and
Futures Authority. The Self Regulating
Organisation (SRO) responsible for regulating the conduct of
brokers and dealers in securities, options and futures. Now
included within the FSA. |
| Short: |
|
More sales than
purchases. |
| Short dates:
|
|
Foreign exchange
deals for a broken number of days up to
the one month date. |
| S.M.F.: |
|
The Securities
Masterfile provides up-to-date information on
securities traded on UK and International markets. |
| S.S.N. |
|
Stock Situation
Notices which contain extensive details of a
corporate action. |
| Sold short:
|
|
Someone who has
sold a commodity without previously
owning it. (Short sell) |
| Spot Foreign
Exchange: |
|
A transaction to
exchange one currency for another at a rate
agreed today (the Spot rate), for settlement in two business
days time. |
| Spot/next: |
|
Swap transaction
for settlement on the second
business day against the third business day after the
transaction date. |
| Spread: |
|
The difference
between buying and selling rates. |
| Square: |
|
Purchases and sales
of an asset are equal. |
| Stockbroker:
|
|
An Exchange member
firm which provides advice and dealing
services to the public and which can deal on its own account. |
| Stop Loss order:
|
|
Becomes an order
at best after a certain rate has been reached or passed or dealt,
depending upon the specified conditions previously agreed between
the parties. |
| Strike Price/Exercise
Price: |
|
The price at which
the option holder has the right
to Buy-or-Sell the underlying instrument. |
| Swap: |
|
A derivative risk
management tool. |
| Swaption: |
|
An option into
a predetermined swap transaction Options can be "payers"
or "receivers" on the swap which itself can be American
or European. |
| TechMARK: |
|
Launched November
1999. this market groups together technology companies from
across the main market. It has its own indices, the FTSE techMARK
100 and FTSE techMARK Allshare. |
| Technical Analysis:
|
|
A graphical analysis
of historical price trends, used to predict likely future trends
in the market. Also known as "charts". |
| Theoretical
Value: |
|
The Fair value
of a futures or option contract, (see Fair Value). |
| Time Value: |
|
The amount (if
any), by which the premium of an option exceeds the intrinsic
value. |
| Tom/next: |
|
A transaction for
settlement on the next business day after tomorrow. |
| Touch: |
|
The best buying
and selling prices available from a market
makers on SEAQ and SEAQ International in a given security at
any one time. |
| Traded Option: |
|
An option contract
bought or sold on a regulated exchange. |
| Treasury Bond: |
|
Bond issued by
the US Treasury - longer than 10 years. |
| Treasury Bill: |
|
Short-term security
issued by the US Treasury. |
| Trillion: |
|
One thousand billion
(12 zeroes). |
| UKLA: |
|
United Kingdom
Listing Authority. A capacity assumed by the
FSA from the LSE, as the competent authority for listing in
the
UK. |
| UK Treasury
Bill: |
|
Short-term security
issued by the UK Treasury. |
| Underlying: |
|
An asset, future,
interest rate, FX rate or index
upon which a derivative transaction is based. |
| Underwriting: |
|
An
arrangement by which a company is guaranteed that an
issue will raise a given amount of cash. Underwriters undertake
to subscribe for any of the issue not taken up. They charge
commission for this service. |
| Unit Trust: |
|
A collective investment
in the form of a trust which holds a
portfolio of securities on behalf of the investors who hold
units
in the trust. Known in the USA as Mutual Funds. |
| U.S.F.: |
|
Universal Stock
Futures. Quoted on LIFFE, single share futures
contracts covering a range of different shares from a number
of
countries and sectors. |
| VaR: |
|
Value at risk:
a statistical measure used for risk management. |
| Volatility: |
|
One of the major
components of the option pricing model, based on the degree
of "scatter" of the underlying price when compared
to the "mean average exchange rate". |
|
Value today: |
|
Same day value. |
| Value tomorrow: |
|
Value the next working day or business
day. |
| VWAP: |
|
Volume Weighted Average Price, which is
calculated by dividing the value of trades by the volume over
a given period.
A closing 10 minute VWAP is used to calculate set closing
prices on the order book. |
| Warrant: |
|
An option which
can be listed on an exchange, generally longer than one year.
Many capital market issues have warrants embedded in them. |
| Writer: |
|
The Seller of an
option. |
| Yard: |
|
One thousand million
(billion). |
| Yellow Strip: |
|
The yellow band
on a SEAQ screen which displays the highest
bid and the lowest offered price that competing market makers
are offering in a security. It is known colloquially as the
"touch"
or "yellow strip" price. |
| Yield |
|
The return earned
on an investment taking into account the
annual income and its present capital value. There are a
number of different types of yield, and in some cases different
methods of calculating each type. |
| Yield Curve: |
|
A curve showing
interest rates at a particular point in time for
securities with the same risk but different maturity dates. |
| Yield to Maturity: |
|
The annualised
rate of return if a bond is held to maturity,
often known as Gross Redemption Yield (GRY).
Your risk: Quoted rates are subject to change at the risk of
the receiver. |
| Yours: |
|
Opposite to mine. The dealer gives at
the bid
which has been quoted by the counterparty. It
must be qualified by the amount. |
|
Zero Coupon Bond: |
|
Bonds
that are sold at a deep discount and pay no interest. |
|
|
|
