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