Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | R | S | T | U | V | W | Y | Z

A

 

Account Day
    Also referred to as Settlement Date. This  refers to the date specified for the settlement of transactions between member  firms

Accrued Interest
  Interest accumulated on a bond since the last  coupon payment date

Admission to dealing
  The process of granting permission for the securities of a company to be listed and  traded on the Stock Exchange

Agency Orders
  Orders  that a broker or trader executes for the account of a customer

Allotment
  The  number of  shares allocated to an  applicant at the time of the Initial Public Offering (IPO) for those shares

American Option
  The right but not the obligation to buy  or  sell a specified  asset at a predetermined price during a  specified period of time

Amortization
  The gradual writing off of an asset over a  period of time, commonly applied to intangible assets such as goodwill,  improvements on leased premises, or expenses of a new bond issue

Arbitrage
  The  practice  of taking advantage of a  difference in price of an asset traded in two or more markets, by buying in one  and selling in another

Asset
  Property  and items of value owned by a person or business. The primary classifications  of assets are:

     
  • Current assets: cash and other liquid instruments, including accounts       receivable, that can be converted to cash within one year
  • Long term assets: plants, equipment, real estate and other capital       assets, net of depreciation
  • Prepaid and deferred assets: expenditures for future costs or expenses, such as       insurance, interest or rent, that are set up as assets to be amortized       over an applicable period
  • Intangible assets: assets with a determined value, but which may not be       scalable, such as goodwill, patents, copyrights, and brand name recognition

Authorized Capital
  The maximum amount  of capital that a company can legally issue . This number is specified in the articles of incorporation when a firm is incorporated, but can be changed later with shareholders' approval

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B

 

Bid
    The  highest declared price a buyer is willing to pay for a security at a particular  time

Bear
  Someone who believes that the price of  shares  will go down

Bear  Market
  A weak or falling market characterized by the  dominance of sellers

Bearer Security
   A  security which does not have the owner’s name recorded in the books of the  issuing company or on the certificate. Ownership of such securities is  transferable by handing over or delivery of the c ertificate and dividend or  interest payments are claimed by presenting the attached coupon to the issuer  or its agent

Beneficial Owner
  The true owner of  stock that has been registered in the name of another person or institution

Black  Knight
  A company which makes a hostile takeover bid for another company

Blue chip
  A large prestigious,  prosperous and stable corporation which has a solid record of earnings, growth  and dividend payments in both good and bad times and has strong long term  growth potential

Board Lot
  The standard trading  unit which has  been set  by the Exchange

Bond
  Bonds are debt  instruments issued by a government or company which represents a fixed sum of  money that was borrowed (principal) and on which the issuer (borrower) promises  to pay the holder (lender) a specified amount of interest (usually stated as a  percentage) for a specified period of time, and to repay the principal at  maturity. Bonds are usually issued with a face value of $1,000. Bonds are  issued in three forms:
  1. Coupon  Bonds
  2. Fully  Registered Bonds
  3. Registered  as to principal but not as to interest

Bonus
  An issue of shares by  companies to existing shareholders free of cost by capitalization of existing  reserves and profits earned in earlier years

Bull
  Someone who believes  that the price of shares will go up

Bull Market
  A strong or rising market characterized by  the dominance of buyers

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C

 

Call Option
    The right but not the obligation to purchase a specified  asset at a predetermined price during a  specified period of time

Capital
  The productive  resources of a company

Capital Market
  A  financial market in which Companies or Governments can raise funds. Securities  with a maturity greater than one year are traded in this market

Certificate
  Represents  ownership of shares in a company or a bond.  
  A stock certificate  generally contains the following information:

  •   the name,  address, and number of stocks of the  owner       
  •   the serial number of the stock and the type of stock
  •   the signatures of the officers of the company authorized to sign the  stock certificate
  •   the name of the registrar.

Certificate of Deposit
  A certificate issued  by a bank representing a time deposit that restricts the holder from  withdrawing funds before maturity, although this can be done by incurring a  penalty

Churning
  The  excessive buying and selling of securities in your account by your broker, for  the purpose of generating commissions without regard to your investment  objectives

Clearinghouse
  An organization responsible for the  settlement of trades executed on a Stock Exchange and the delivery of the  respective securities

Closed end Investment Company
Also referred to as a  closed end fund. An investment management company, which sells shares in its  mutual fund to investors via an Initial Public Offering (IPO). A closed end  fund is not required to repurchase shares from investors and the value of its  shares is determined by trading on the Exchange which may be above or below the  Net Asset Value (NAV) of the fundCollateral

Collateral
  Securities  or other assets pledged by a borrower to secure a loan

Commercial Paper
  An unsecured short  term debt instrument issued by a corporation typically for the financing of  accounts receivable, inventories and meeting short term liabilities. Commercial  Paper is sold at a discount and maturities rarely range any longer than 270  days

Commission
  The fee charged by a  stockbroker for buying or selling securities on behalf of a client. Commission  rates on the local Exchange are determined by the brokerage firm

Common Shares
  Also called ordinary shares. They are  securities, which represent ownership in a corporation (company) and carry  voting privileges

Conglomerate
  A company which  directly or indirectly operates in a variety of industries, usually unrelated  to each other

Contingent  Order
  An order that is  queued into the market when a trade is executed at a trigger price set by an  investor

Contract Note
A note issued by a Broker to his client  stating  the number of shares or other  securities bought or sold, the date of the transaction, the consideration,  commission and transaction charges

Convertible
  A bond, debenture or  preferred share which may be exchanged for the common stock of the same  company, in accordance with the terms of the conversion privilege

Coupon  Payment
  Periodic interest payments made by the issuer of a debt security

Cum-Dividend
  A share is said to be  cum-dividend when the price includes the right to receive the dividend which is  to be paid on it, so the buyer takes the benefit of the dividend about to be  distributed by the company

Cum-Bonus
  A share is said to be  cum-bonus when  the price includes the  right to receive the bonus shares to be issued by the company

Cum-Right
A share is said to be  cum-right when the price of the shares include entitlement to rights to be  issued by the company

Cumulative Preference Shares
  A type of preference  share on which dividend accumulates if not paid. All arrears of preference  dividends have to be paid out before paying dividend on equity shares

Current Assets
  Cash or a near cash  items that can be converted into cash within one year or one operating cycle  whichever is longer

Current yield
  The annual income from  an investment expressed as a percentage of the investment's current value
              Current Yield = Annual  Cash Flows
                                         Market Price

Cyclical  Stock
  A stock that is particularly sensitive to swings in economic conditions and changes in the business cycle

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D

 

Dealer
    An individual executing transactions on the exchange as a principal  rather than as  an agent

Dealing  Date
  This is the day on which  a trade is executed

Debenture
  A certificate of indebtedness of a government  or company backed only by the general credit of the issuer and unsecured by  mortgage or lien on any specific assets

Derivative
  A derivative is a financial instrument or  contract, the value of which is based on an underlying asset. The value of the  derivative fluctuates based on the value of its underlying asset. A derivative  can be based on an asset such as equities, commodities, mortgages, loans or  bonds or on an index such as a stock price index, the consumer price index,  exchange rates or interest rates. Derivatives can be used for the following  purposes:

  • to  mitigate the risk associated with the change in the value of the underlying  asset, this is called Hedging
  • to  establish a position in the market in anticipation of future price movements,  this is called Speculation

The main types of  derivatives are futures, forwards, options and swaps

Depository
  An organization which  keeps electronic records of securities deposited by investors

Dilution
  A reduction in the  actual or potential earnings per share of a company caused by  issuing more shares, by giving options to  obtain additional shares or by the conversion of convertible securities

Dividend
  A distribution of earnings by a company to  its shareholders. Dividend payments can be made quarterly, semi-annually or  annually 

Dividend  Cover
  This is the ratio of  earnings per share over dividend per share

Dividend Yield
  This is the annual dividend per share divided  by the share price and is usually expressed as a percentage

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E

 

Equity
    When  used in reference to shares, equity is the ownership interest in a company but  when used in reference to a balance sheet, equity is the funds contributed by  the owners plus retained earnings or losses

Eurobond
  A bond issued in a currency other than the  national currency of the country in which it was issued

European Option
  The right but not the obligation to buy  or  sell a specified  asset at a predetermined price during a  specified period of time

Ex
  Means without. A  security trading Ex  excludes recently  declared dividends (XD), rights (XR) or bonus shares (XB)

Ex-bonus
  Without bonus shares. When a security is  trading ex-bonus the buyer will not receive the bonus shares that have been  offered by the companies to its existing shareholders

Ex-Dividend date
  When a security is trading Ex-Dividend the  buyer will not receive the dividend that has been declared by a company

Ex-Rights date
  When  a security is trading Ex- Rights the buyer will not receive rights to the new shares  that will be issued by the company

Excessive Trading
  The  excessive buying and selling of securities in your account by your broker  without regard to your investment objectives

Exchange
  An organization that operates and regulates a  market where shares, bonds and other securities are traded

Exchange  Rate Risk
  The  risk that the value of assets and liabilities changes due to changes in  exchange rates. This can lead to a devaluation of assets or an increase in the  value of liabilities

Extraordinary  Item
  Unusual cost or revenue items generally listed  on the Income Statement which are not expected to occur again or to affect  future years' operations

Extrinsic Value
  This  is the amount by which the option’s price is greater than the intrinsic value  of the option

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F

 

Face Value
    The value stated on a  security certificate. Also known as nominal or par value, This value does not  change regardless of the market price for the security

Fail to deliver
  This occurs if a  selling broker is unable to settle a transaction by delivering the security  that was sold to the buying broker

Floor
  Popular name for the  area where transactions in securities are executed  at the Exchange

Forward Contract
  A contract for the  delivery of a specified asset at a future date at a predetermined price, the  terms of which are negotiated between both parties. Forward Contracts are  traded over the counter and are subject to the default risk of both parties

Fixed Asset
  A long term asset that  cannot be easily converted into cash

Futures Contract
  A standardized exchange  traded contract for the delivery of a specified asset, at a future date at a  predetermined price. Futures contracts are guaranteed by the clearinghouse of  the Exchange

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G

 

Gearing
    A ratio of a company’s  long term debt compared to its equity capital. Gearing ratios are used to  measure the extent to which a company is funded by debt

Gilt Edged Bond
  An investment grade  bond issued by the government,  with a government  guarantee or by a blue chip company  in  which there is  no doubt about the  ability of the issuer to make  regular  interest payments and to repay the principal at maturity

Good Delivery
  Delivery of securities  that are in proper form to allow for the transfer of ownership between the  buyer and the seller 

Goodwill
  The portion  of the book value of a business that is not  based on the physical assets and liabilities of the company. Goodwill is an  intangible asset of the company reflects such as a strong brand name, good  customer relations, high employee morale and other factors

Greenmail
  Money paid by a  company to repurchase its shares at a premium to current market prices from a  company that has launched a takeover attempt

Grey Knight
  A second, unsolicited  bidder that offers to buy the shares of a company that is the target of a  takeover. The grey knight attempts to benefit from any problems between the  target company and the first bidding company

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H

 

Hedge
    An investment made to  reduce the risk of adverse movements in the price of an asset   by taking an offsetting  position in a related security such as a  futures contract

Holding Company
  A company that owns enough   shares   in another company to have managerial and operational control over the  company

Hostile Takeover
  A takevoer attempt that is resisted by the board  and management of the target company

Hot Issue
  A security that is  expected to trade at a premium over the public offering price on the first day  of trading in the secondary market

Hot  Money
  Short term international movement of funds  motivated by favourable a interest rate  differential

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I

 

Insider
    An individual who is  in possession of non-public price, sensitive information about a public  company. These individuals include but are not limited to Board members, senior  management and their relatives

Insider Trading
  Trading in the shares of a public company based on non-public  price sensitive information about the company

Interim  Dividend
  A dividend payment made during the course of  a company's financial year

Issuer
  A company, trust or government agency authorized  to offer its own securities for sale

Intrinisic  value
  The difference between the market price and  the exercise price of an option
  The underlying value of a company separate  from its share price, and determined by quantitative factors (capital,  earnings, revenue) and qualitative factors (management, quality, intelectual  capital, past record)

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J

 

Junk  Bond
    High yield bond issued by companies that are rated  as below investment grade by credit rating agencies

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K

 

Killer  Bees
    Law firms, proxy solicitors and public  relations firms employed to help a company's management fight off an unfriendly  takeover by making them unattractive or difficult to acquire

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L

 

Lame Duck
    A member on the Stock Exchange who is unable to meet its financial and contractual obligations

Leveraged  Buyouts
  The acquisition of a company financed by  using the assets of the company as collateral to secure loans. The loan is  repaid using cash flow generated by the firm or by selling assets of the firm

Liabilities
  The outstanding debts  and financial obligations of a company. These debts can be either current and  due for payment within a year or long term and not due for payment  within a year

London Interbank Offered Rate (LlBOR)
  The rate at which  banks can borrow unsecured funds in the London interbank market for varying  periods of time. LIBOR, which is the most widely used benchmark for short term  interest rates, is fixed daily by the British Bankers Association and is an average  of interbank deposit rates

Limit Offer
  An order to buy or  sell a specified number of shares at a specified price

Liquidity Ratio
  This ratio measures the ability of a company  to liquidate assets to satisfy their short term liabilities. A high ratio indicates  a relatively liquid firm

Listing Agreement
An agreement  signed  by companies listed on a Stock  Exchange, outlining the responsibilities of the company whose shares are being  traded

Listed Company/ Listed Security
  A public company whose shares are available  for trading on the Stock Exchange

Long Position
   The purchase of a security or an options  contract

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M

 

Margin
    The   advance payment of a portion of the value of a stock to be purchased by  an investor when using credit from a broker

Market Maker
  A member firm that provides bids and offers  for certain securities and buys or sells from their own accounts at publicly  quoted prices. Market makers act to maintain liquidity in the securities that  they make markets in

Market Price
  The last reported sale price for an exchange  traded security or the current bid and ask prices of an over the counter security.  Also called Market Value

Material  News
  Information about a  company that can reasonably be expected to affect the price of the shares of that  company once it goes public

Maturity Date
  The date on which a borrower repays the  principal amount of the obligation and makes the last interest payment to the  lender

Member
  A registered participant on the Stock  Exchange authorized to deal in securities on behalf of its clients or on its own  behalf

Merger
  The non-hostile and  voluntary combination of two or more companies

Money  Market
  The market for short  term  debt instruments with a maturity of  one year or less. Money Market securities are generally safe with relatively  low interest rates and include but is not limited to treasury bills, commercial  paper and repurchase agreements

Mutual Funds/ Unit Trusts
  An investment vehicle  which pools funds collected from investors and purchases various types of  securities such as shares, bonds or money market securities based on a stated  investment objective. Investors purchase shares in the fund which can then  either be traded on an Exchange (Closed-end fund) or redeemed by the fund  (Open-end fund)

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N

 

Naked Options
    An option   written by a seller that doesn’t have a position in the underlying  security

Narrowing the Spread
  Action taken by a  broker or dealer to narrow the spread between bids and offers by bidding higher  or offering lower than the previous bid or offer. Also called closing the  market or price improvement

Net Capital Rule
  A rule defining the  amount of capital required to be maintained by  member firms of the Stock Exchange

New Issue
  Shares or bonds of a company offered to the  public for the first time, via an Initial Public Offering

Non-cumulative Preferred Shares
  Unpaid dividends that do not accrue

Non-Cyclical  Stock
  A stock that is not sensitive to swings in  economic conditions and changes in the business cycle

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O

 

Odd  Lot
    Volume less  than the standard unit of trading established  by the Exchange

Offer  Letter
  A publication that is  prepared by the company disclosing basic information about an issue of  securities to be offered in the primary market

Offer Price
  Price at which securities are offered to the  public

Open Order
  An order to buy or sell a security that  remains in effect until it is either cancelled by the client or executed

Option
  The   right but not the obligation to buy or   sell a specified  asset at a predetermined  price during a specified period of time

Ordinary Shares
  Shares that represent a unit of  ownership  in a company. Also called  Common Shares

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P

 

Pari  Passu
    A term used to describe new issues of  securities which have the same rights as similar securities already issued

Penny Stocks
  Low priced, highly speculative companies with  limited liquidity

Poison  Pill
  Strategies employed by  the Board of Directors of a target company to discourage a hostile takeover by  making its shares unattractive to the acquirer or by making a takeover  expensive

Preferred Stock/ Preference Shares
  A security  representing a unit of ownership in a company. Preferred stockholders enjoy  priority over the common stockholders with respect to the payment of dividends  and the distribution of assets in the event of dissolution of the company. Preferred  stockholders generally do not have a right to vote at the company’s General  Meetings

Premium
  The amount by which  the purchase price for a security exceeds the face or par value for the  security

Price  Earnings Ratio
  This is the market price of an ordinary share  divided by the earnings per share. The P/E ratio is sometimes referred to as  the "multiple", because it shows how much investors are willing to  pay per dollar of earnings

Primary Market
  The market for the new issue of a security

Program Trading
  Automatic,  computerized trading by institutional investors for large blocks of securities.  Orders are signaled by the investors' or brokers' computers directly into the Stock  Exchange's computers for execution

Prospectus
  A document published by an institution  offering its shares to the public. The prospectus provides detailed information  about the firm, its objectives, the nature of its business, past and projected  financial statements, the offer price of the shares and in the case of bonds,  the coupon rate and the terms of repayment

Proxy
  An individual who votes for and on behalf of  a shareholder at a company meeting

Proxy  Battle
  A battle between a company and some of its  own shareholders whereby a  a group of  shareholders solicit proxies in order to force a shareholder resolution

Put Option
  The right but not the obligation to sell a specified  asset at a predetermined price during a  specified period of time

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R

 

Rally
    An increase in the price of a security or in  the overall market following a period of declining  prices

Random Walk Theory
  The theory that  a stock's historical price movement is not a  guide  to future price movements because of  the random movement of share prices

Record Date
  The date on which the records of a company  are closed to determine the stockholders entitled to receive declared dividends,  rights, bonus shares, notice of meetings and proxies

Redemption Price
  The price at which an issuing company redeems  a bond before its maturity date

Registered  Bond
  A bond that is registered in the name of the  owner on the books of the issuing company

Repurchase Agreement (Repo)
  A transaction whereby  the seller of an asset agrees to buy back the asset at a specified date and  price

Rights Issue
  The issue of new shares to existing  shareholders in proportion to those already held at a price which is generally  below the market price of the existing shares

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S

 

Secondary Market
    The market for trading  previously issued securities

Securities Firm
  An organization that specializes in dealing  in securities and the provision of brokerage services

Short Sale
  The sale of borrowed securities by an  investor with the intention to purchase the borrowed shares at a later date at  a lower price and return those shares to the lender

Settlement Date
  The  date specified for the settlement of transactions between member firms

Short  Position
  The sale of borrowed security or an options  contract

Sleeping  Beauty
  A desirable company, often with considerable  cash on its balance sheet, that is vulnerable to a takeover attempt by another  company but has not been approached by an acquiring company

Speculation
  Assumption of above  average short term risk in anticipation of above average returns in the future  due to anticipated price changes

Stagflation
  The combination of  sluggish economic growth, relatively high unemployment and high inflation

Stop Loss Order (or) Stop Order
  An order to buy or sell  a security at the market price, triggered by a trade that has been executed at  the stop price set by the investor

Swap
   An  agreement for the exchange of a series of payments over a specified time period  and defined by predetermined terms

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T

 

Tender Offer
    A public offer to buy shares from existing  shareholders of a company. A tender offer can be made by a company buying its  own shares or by a company attempting an acquisition

Transfer  Agent
  An agent designated by the listed company to keep  a record of its shareholders, their addresses, the number of shares owned and  to record the transfer of any of its shares

Transfer Forms
  A form used to record the valid transfer of a  security

Transferor
  The seller or party giving up ownership of a security

Transferee
  The buyer or party acquiring ownership of a  security

Treasury Shares
  Previously issued shares that were  repurchased by the issuing company or shares that were authorized but never  issued

Trust Deed
  Formal agreement through which a trustor  vests the ownership rights (title) for one or more assets to one or more  trustees for conservation and protection on behalf of one or more beneficiaries  of the trust

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U

 

Underlying
    The specified asset  which must be delivered in completion of an  option or future contract

Underwriter
  An organization which purchases newly issued  securities from the issuing company  and  tries to resell these securities to the market at a profit

Unit Trust
  See  mutual fund

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V

 

Vanilla  Issue
    A security such as a bond or option which has  standard terms and conditions usually accepted as being conventional for the  particular security

Volatility
  A measure of the price  movement of a security during a specified period

Volume
  The total number of shares traded in a  security or for the entire market for a specified period of time

Voting Rights
  The entitlement of a shareholder to exercise  a vote at the general meeting of a company

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W

 

Warrant
    A tradable instrument giving the holder the  right to buy from the issuer a fixed income security or stock at a specified  price after some period of time

White Knight
  A friendly bidder, sought  out by the management of the target firm to acquire its shares and avoid a hostile  takeover by a black knight

Window Dressing
  A maneuver employed  by companies, banks, mutual funds etc.  at the end of the accounting period to make  their performance look better than it actually was for that period

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Y

 

Yankee Bond
    A dollar denominated bond issued by a foreign  entity

Yellow Knight
  A company that made a  hostile takeover attempt but ends up discussing a merger with the target  company

Yield
  The return earned on an investment

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Z

 

Zero Coupon Bond
    A bond that pays no interest but is sold at a discount to its face value  with the holder receiving the face value when the bond matures

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