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Glossary

A
Glossary Items beginning with A
Accrued Interest
The amount of interest accumulated but not paid between the most recent interest payment and the value date of a transaction.
ADR
American Depository Receipt in order to encourage US investors to buy overseas company shares the shares are lodged with an American Bank, which then issues a receipt for the shares, denominated in US $.
AGM
The annual meeting where shareholders formally approve the director’s actions on their behalf during the past financial year and adopt the Annual Report and Accounts. It is also the meeting at which directors may retire and are formally appointed.
AIM
The Alternative Investment Market is the official Stock Exchange for dealing in shares of usually smaller companies.
Allotment Letters
Sent out in a rights issue and inform the shareholder that they have the right to buy new shares at the specified price.
Ask Price
The price at which an investor will buy shares, also referred to as Offer Price
B
Glossary Items beginning with B
Basis Point
A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.
Bear
An investor who expects the prices of shares, and consequently the value of the Stock Market itself to fall.
Benchmark Bond
A bond used for comparative purposes, usually a Gilt, in order to compare with non gilts having similar features, but also to compare subsequent issues by the same issuer.
Bid Price
The price in the market that a seller of stock will expect to receive. Lower price in the Bid Offer spread.
Blue Chip
The largest companies trade in the stock exchange. The constituents of the FTSE 100 index of largest companies. The most highly valued and reputable companies on the stock exchange.
Bonds
A bond is defined as a negotiable debt instrument of a fixed principal amount issued by a borrower for a specific time, making regular payment of interest/coupon to the holder until it is redeemed at maturity, when the principal amount is repaid.
Bull
A person who expects the price of shares and consequently the value of the Stock Market itself to rise.
C
Glossary Items beginning with C
Capital Growth
Where the price of your shares rise in value. Put simply, selling them would result in you having more capital than you had when you originally purchased them.
Capitalisation Issue
Also referred to as Scrip,bonus or cap issues, company issues new shares to its shareholders but does not require any payment. The main use of bonus issues is to dilute the price of the share in the market place by spreading it over a larger number of securities.
Company
The separate legal entity in which an investor is able to acquire a share stake, representing his part ownership of a business.
Contract Note
A confirming note, containing details of a stock exchange deal The contract note shows: the date and time of deal, the title of the security, the number bought/sold, the price paid/received, the total value of the deal, the stamp duty (if a purchase of shares), and the amount of commission charged by the broker.
Covered Warrant
A covered warrant is a derivative issued by a financial institution. It gives the holder the right, but not the obligation, to buy(call) or sell(put) an underlying asset which could be a share or bond or index at a specified strike price during or at the end of a specified period.
Current Yield
The annual interest rate paid by a bond, expressed as a percentage of its current market price.
Clean Price
A description of a bond price which does not include accrued interest.
Convertible Bond
These are issued by corporations with a stock exchange listing. The bond has a fixed maturity date and carries a lower coupon than a straight bond. Holders have the option to convert into the equity at the fixed price and exchange rate over a specific period.
Credit Ratings Agency
An agency that rates the creditworthiness of companies. The information used is obtained from public sources such as annual accounts. Examples of agencies are Standard and Poor’s, Moody and Fitch etc.
Cum dividend
Literally ‘with dividend’ An investor buying a stock cum dividend is entitled to receive the dividend, or interest, that has been declared, or is due but which has not yet been paid.
D
Glossary Items beginning with D
Dirty Price
A description of a price which includes accrued interest.
Debenture
This is a loan which is usually secured, for example a mortgage. Debenture holders have the right to receive their interest payment before any dividend is payable to shareholders and most importantly, even if the company makes a loss it will still have to pay its interest charges.
Dividend
A company that is making a profit often keeps a portion of its earnings to reinvest in the future of the business. The remaining profits will normally be given back to the owners of the company, its shareholders, as a dividend payment. The dividend is often paid in two or more instalments over the year. The initial payments are called ‘interim dividend’ and the remainder, paid as the ‘final’ dividend.
Dividend Yield
The annual dividend income per share received from a company divided by its current share price.
Dividend Cover
This is the measure of a firm’s ability to pay future dividends. It is calculated by dividing the net profit available to ordinary shareholders divided by the dividend If it pays a larger divided than years earnings it will have to draw on past reserves and is said to be paying an uncovered dividend.
E
Glossary Items beginning with E
Earnings
The profit earned by the company during the financial period, which is available to pay dividends. Usually expressed on a per share basis as Earnings per Share (EPS) and used as the key element of the Price Earnings Ratio(or PER or P/E ratio) in judging comparative values.
Earnings Per Share (EPS)
Earnings attributable to ordinary shareholders divided by the number of ordinary shares.
Extraordinary General Meeting (EGM)
A meeting of shareholders to discuss and approve special matters proposed by the directors, such as approval of a take-over, or major acquisition.
Equity
A stock or any other security representing an ownership interest.
Eurobond
A bond issued and traded in the international market place.
Ex dividend
Literally without dividend, signifies the buyer of a security, ex dividend, is not entitled to the dividend or interest payment that has been declared or is due but which has not yet been paid.
Exercise
To implement the rights of an option, by buying (in the case of call options) or selling (in the case of put options) the underlying asset.
F
Glossary Items beginning with F
Final Results
The announcement and publication of the company’s financial results for its latest business period, or financial year, in the form of the Annual Report and Accounts.
Fixed Income Investment
An investment that pays a predetermined, regular rate of interest or dividend until it matures
Flat Yield
See Current yield.
FSA
Financial Services Authority. They are independent of the government; a body that regulates the financial markets in the UK.
FTSE
Financial Times Stock Exchange index, publisher of indices. FTSE100 is the index of the largest 100 companies in the UK by Market Capitalisation and is part of the range of indices.
Fund Manager
A professional investor, typically in an insurance company, pension fund investment or unit trust.
G
Glossary Items beginning with G
Gilts
Bonds issued and guaranteed by the UK government.
Gross yield
A yield which has been calculated assuming no taxes are paid on interest or capital gains.
Gross Redemption Yield
The GRY is a measure of the total return an investor receives on a bond, before taking into account the effects of tax.
H
Glossary Items beginning with H
Hedging
A process of risk management aimed at minimising losses resulting from market place movements.
I
Glossary Items beginning with I
Index Linked bonds
Bonds whose interest payments and or/maturity value are linked to an index. Most corporate and all gilt issues of this class are linked to the UK Retail Price Index, although other indices may be used.
Initial Public Offering
The first time a company sells stock to the public. An initial public offering is a type of a primary offering, which occurs whenever a company sells new stock and differs from a secondary offering which is the public sale of previously issued securities usually held by insiders.
Institutional Investor
Entity with large amounts to invest, such as Investment and Unit Trusts, Insurance companies, Pension Funds, Investment Banks and Endowment Funds. Institutional investors are covered by fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves. They account for the majority of overall volume traded and the value of shares held.
Interim
The Results covering part of the company’s financial year, usually the first six months and the dividend paid to shareholders for that period.
Investment Trusts
Companies quoted in the Stock Exchange whose business is managing a portfolio of shares in other UK and worldwide companies.
Investor Relations
A department within a public company that distributes information about the company and its financial performance to existing and potential shareholders.
J
Glossary Items beginning with J
Junk bond
A term commonly applied to high yield bonds, particularly those with credit ratings below investment grade.
L
Glossary Items beginning with L
LIBOR
London Interbank Offer Rate. The rate that banks in London charge each other for money over various fixed periods.
Lock in period
The time period after an IPO when insiders at the newly public company are restricted by the lead underwriter from selling their shares.
M
Glossary Items beginning with M
Market Capital
The total stock market value of the company’s shares, being the total number of shares issued to shareholders multiplied by the current share price.
Market Maker
The market middleman from whom you buy, or to whom you sell the shares in the company.
Market Price
The price at which the share can currently be traded in the market.
Maturity
The date when the principal amount of a bond becomes due. Also referred to as redemption date.
Merger
The arrangement by which two companies unite without one attaining direct control over the other.
Mid Price
The normal price quoted in the press for the company’s shares, being the mid point in the Bid and Offer spread.
Modified Duration
A measure of bond volatility which measures volatility to both maturity and coupon levels. It is described as the percentage change in the price of a bond to 1% change in the yield on that bond.
N
Glossary Items beginning with M
Net Redemption
The total return an investor receives on a bond, after taking into account the effects of tax.
Net Yield
A yield that have been calculated after taking account of income and or capital taxes at chosen rates.
Nominal
Face value of a security.
Nominee
A person, or company, in whose name the shares are held, but who holds them on behalf of the actual shareholder. A means of preserving anonymity of the actual shareholder and for institutional investors to centralise the administration or individual holdings of their private clients.
NPV
Nil par value, being a class of share that does not have a designated face value.
O
Glossary Items beginning with O
Offer Price
The price in the market which you can buy shares, the higher of the Bid/Offer spread.
Option
The right but not the obligation to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, index, or debt, at a specified price (the strike price) during a specified period of time.
Open offer
This is an offer of shares to existing shareholders in proportion to their existing holdings, which is not allotted on renounceable documents, this means that the shareholder cannot sell on the right to subscribe for the open offer shares, unlike a rights issue.
Ordinary share
The main class of share capital representing the owners interest in the company. Also referred to as equity shares, meaning that they have an equal right to share in the profits of the company.
Oversubscribed
Defines a deal in which investors apply for more shares that are available.
P
Glossary Items beginning with P
P/E Ratio
Ratio of company share price to its earnings, it allows investors to make comparison of different shares.
Par
One hundred percent of the principal amount of a debt instrument.
PLUS
A recognised investment exchange.
Preference Shares
Shares that have preference over ordinary shares (equities) in respect of dividends.
Premium
The difference between the offer price and opening or current price during a new issue of shares through an IPO or rights issue.
Primary Market
A market that issues new securities on an exchange.
Private company
A company whose shares are not traded on the open market.
Prospectus
The document issued at the time of the initial issue of shares to the public which explains all aspects of a companys business, including financial results, growth strategy and risk factors.
PTM
Panel of Takeovers and Mergers a non statutory body responsible for overseeing the conduct of public companies during a takeover and/or merger offer. To cover the costs of running the Panel the Stock Exchange obliges firms to charge a levy of £1 on security trades over £10000.
R
Glossary Items beginning with R
Redemption
Repayment of a debt security or preference share at or before maturity.
Reverse Takeover
A technique used by a private company to go public without resorting to an IPO.
Rights issue
A means of raising new capital whereby existing shareholders agree to buy to buy new shares at agreed price, which will normally be at a discount to the current market price.
Redemption Yield
A measure which facilitates comparison of bonds with different coupons and/or redemption dates. Technically it is that rate of interest at which the total discount values of all future payments equate to the current market value, thus it takes into account both interest income and any capital gain or loss to the anticipated maturity date. When a security has split redemption dates or a call feature, it is conventional to calculate the yield to the worst case .ie to the first date if the bond is trading above the redemption value and to the final date if below.
Running Yield
See Current yield.
S
Glossary Items beginning with S
Secondary Market
Facility in which investors can convert their shares for cash by offering a place for buyers and sellers to meet.
Settlement Date
The day on which the securities must be delivered and paid for to settle a transaction. Standard settlement for trading on LSE order book is t+3.
SETS
Stock Exchange Electronic Trading Service, order driven trading system.
SETSqx
LSE trading service for less liquid securities, works on a combination of market maker quotes and periodic auctions.
Share
Representing one unit of ownership in company.
Share Certificate
The document that records the shareholders’ stake in the company. An indication of ownership to be returned on the sale of the holding.
Shareholder
A person, institution or company who owns shares in a company or mutual fund. For company shareholders along with the ownership come a right to dividends and the right to vote on certain company matters, including board of directors.
Shell
A company with no real assets or operations.
Sinking Fund
An obligation of the issuer to redeem annually a given amount of stock, by drawing, unless previously purchased in the market or cancelled.
Spread
The difference between the bid and offer price(bid and offer Spread).
Stock Exchange
A market on which shares or other securities are bought and sold.
Stockholder
Taking the traditional definition, stockholders are lenders and are accounted among the company’s creditors. Interest on stocks must be paid ahead of any dividend to shareholders. Share or equity capital is money permanently supplied in exchange for a stake in the ownership of the business.
STRIP
Separately Traded Registered Interest and Principal Securities.The result of stripping a coupon-bearing bond. A coupon strip entitles the holder to the benefits of one or more future coupons, whereas a principal strip entitles the holder to the benefits of the redemption value of the original bond.
T
Glossary Items beginning with T
Takeover
When one company approaches another company, making an offer to the latter’s shareholders, seeking to acquire their shares in sufficient quantities to take control. If the company that is being taken over is listed on the Stock Exchange, a strict protocol of rules and regulations exist to protect the interest of shareholders. A time limit is set for acceptance of the offer. If the company making the offer gains control of 90% or more of the shares, it has a legal right to acquire the remaining 10% of the shares at the offer price. A takeover bid may be hostile, rejected by the board with the company making the offer going direct to shareholders.
U
Glossary Items beginning with U
Unit Trusts
Open ended investment funds where the money is invested in a greater variety of stocks. Each investor owns a number of unites, the value of the fund depends on the value of the assets owned by the trust.
Unsecure Loan Stock
A bond which is not secured by a charge on assets. In practice this term is usually used only for domestic bonds.
V
Glossary Items beginning with V
Vesting Period
The periods of time before shares are owned unconditionally by an employee in an employee stock option plan. If his/her employment terminates before this period ends, the company can buy back the shares at their original price.
W
Glossary Items beginning with W
Warrants
A security that is tradable, and allows the holder the right to subscribe for shares. Client must sign a warrants risk notice before trading. This explains the potential risks of trading in warrants.
Withholding Tax
A tax which is deducted by an issuer on its paying out dividends and interest.
Y
Glossary Items beginning with Y
Yield Curve
A graphical representation of the structure of interest rates, plotting the yield, offered by binds, against maturity.
Z
Glossary Items beginning with Z
Zero coupon Bond
A non interest bearing redeemable security, issued at a discount to its redemption value. The investor is able to hold the bond to maturity and roll up the projected annual return in the form of capital.