Glossary

A

  • AAA Rating

    A 'triple A' rating is the highest rating given to bonds by rating agencies and it indicates that it is considered to be a very safe investment.

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  • Abbreviated Accounts

    Abbreviated accounts contain less detail than normal accounts and are used by small businesses for their official records.

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  • Absolute Breadth Indicator (ABI)

    The ABI is a market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing, which is likely to cause significant changes in stock prices in the coming weeks.

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  • Absolute Return

    The profit that an asset makes over a certain period of time is its absolute return. This measure looks at the appreciation or depreciation (expressed as a percentage) that an asset - usually a stock or a mutal fund - achieves over a given period of time.

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  • Absorption

    In finance, absorption describes when a larger organisation takes control of a smaller one.

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  • Absorption Costing

    Absorption costing is a way of calculating the cost of a product, including the costs to manufacture the product itself and the wider costs of running the business.

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  • Accommodation Endorsement

    An accommodation endorsement is a written agreement from one entity to back the credit liability of another. This insurance is made without consideration, and adds strength to the creditworthiness of the insured entity. This would usually be made by a parent company to a subsidiary, and allows the subsidiary to take on the parent's credit standing. An accommodation endorsement is similar to a government guaranteeing a third party's debt with its full faith and credit.

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  • Accommodation Paper

    An accommodation paper is a negotiable instrument that provides a third-party promise of payment in the case that the original borrower does not live up to the terms of the original agreement. Accommodation papers are usually used to support one party's creditworthiness through endorsement by a second party with a better credit rating.

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  • Accommodation Trading

    Accommodation trading is when a trader accommodates another by entering into a non-competitive purchase or sale order. An accommodation trade is often executed when two traders are participating in illegal trading.

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  • Accommodative Monetary Policy

    An accommodative monetary policy describes central banks attempts to expand the overall money supply to boost the economy when growth is slowing. This is done to encourage more spending from consumers and businesses by making money less expensive to borrow by lowering the interest rate.

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  • Accounting Standards Board (ASB)

    The role of the ASB is to issue accounting standards in the UK. It took over the task of setting accounting standards from the Accounting Standards Committee (ASC) in 1990. The ASB is part of the Financial Reporting Council (FRC).

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  • Accumulative Swing Index (ASI)

    The ASI is an indicator used by traders to gauge a security's long-term trend by comparing bars containing its opening, closing, high and low prices throughout a specific period of time. When the ASI is positive, it suggests that the long-term trend will be higher, and when the ASI is negative, it suggests that the long-term trend will be lower.

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  • Active Bond

    Active bond is a term used to describe fixed-income securities that trade frequently on the floor of the New York Stock Exchange (NYSE).

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  • Active Investing

    Active investing involves ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions.

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  • Actuary

    An actuary is someone who calculates risks in order to advise insurance companies or pension funds.

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  • Algorithmic Trading

    An alligator spread is an unprofitable one that occurs as a result of large commissions charged on the transaction, regardless of favourable market movements. It is usually used in the options market to describe a collection of put and call options that may not be profitable.

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  • Alternative Investment Market (AIM)

    The AIM is part of the London Stock Exchange and is a stock marketforsmaller companies.

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  • Amortisation

    Amortisation is the reduction in value of assets to reflect their reduced worth over time. It means the same as depreciation but tends to be used for the write-off of intangible assets, such as goodwill, while either term is used for the write-off of fixed capital. Amortisation can also refer to the reduction of debt, either through periodic payments of principal and interest, or through use of a sinking fund.

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  • Angel Investor

    An angel investor is a wealthy individual who invests in a start up company using their own funds.

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  • Anglo-Saxon Capitalism

    Anglo-Saxon capitalism is the form of capitalism usually associated with the UK and the US, but also characterises the economies of such countries as Canada, Australia, New Zealand and Ireland. It traditionally has heightened free-market tendencies, characterised by less regulated financial and labour markets. It differs from its counterpart, continental capitalism, which is more state-controlled and focused on wealth redistribution. Most of the countries in continental Europe, including France, Italy and Germany possess a form of the continental economic model.

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  • Ankle Biter

    An ankle biter is the issue of a relatively modest amount of shares - typically with total market capitalisation of less than US$500 million.

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  • Anonymous Trading

    Anonymous trading is when bids and offers are visible on the market but the identities of the bidder and seller are not revealed.

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  • Any-and-All Bid

    An any-and-all bid is one made to purchase all stock being offered at a specific price.

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  • Appreciation

    Appreciation is an increase in the value of an asset over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time.

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  • Approved Publication Arrangements (APAs)

    APAs are a proposed market infrastructure mechanism for collecting and publishing market data; approval will be given by ESMA or a member state regulator on the basis of criteria yet to be defined. These will be similar to the UK's trade data monitor regime.

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  • Arbitrage

    Arbitrage means the simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

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  • Arm’s Length Market

    An arm's length market is one consisting of parties that have no relationship or contact with one another aside from the transaction at hand. In the United States, the majority of exchanges are considered to be arm's length, where buyers and sellers are matched according to the details of a transaction only. The two parties will often never know they were involved with each other.

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  • Ask Price

    The ask price is the price being sought for a security by the seller.

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  • Asset

    Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, office equipment, real estate and motor vehicles.

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  • Asset Allocation

    Asset allocation is the process of spreading or 'diversifying' investments across a range of asset classesand geographies to minimise the risk of them all failing at once and maximise the chances of getting higher returns.

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  • Asset Backed Security (ABS)

    An ABS isa security whose value and income payments are derived from andcollateralised(or 'backed') by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually. Pooling the assets into financial instruments allows them to be sold to general investors. This process is called securitisationand it enables the risk of investing in the underlying assets to be diversified because each security will represent a fraction of the total value of the diverse pool of underlying assets. The pools of underlying assets can include common payments from credit cards, car loans and mortgage loans, to esoteric cash flows from aircraft leases, royalty payments and movie revenues.

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  • Asset Class

    Bonds, equities, property and cash are all assetclasses and the way investments are spread between them is the asset allocation.

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  • Asset Management

    Asset management is the overseeing of investments so that they make as much profit as possible.

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  • Audit

    An audit is a formal examination of a company's accounts by an independent expert, called an auditor, who checks that they are consistent, show a true picture of the company's financial position and conform with the accounting principles governing the company's legal jurisdiction or listing base.

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  • Auditor

    An auditor isa specialist accountant from an external organisation that checks that an individual's or organisation's accounts are true and honest.

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  • Automated Clearing House (ACH)

    The ACH is an electronic funds-transfer system run by the National Automated Clearing House Association. This payment system deals with payroll, direct deposit, tax refunds, consumer bills, tax payments and many more payment services.

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B

  • Baby Bond

    A baby bond is one issued with a par value less than $1,000.

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  • Backdoor Listing

    Back door listing is a strategy of going public used by a company that fails to meet the criteria for listing on a stock exchange. To get onto the exchange, the company wanting to go public acquires an already listed company.

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  • Backspread

    A backspread is a type of options spread in which trader holds more long positions than short positions. The premium collected from the sale of the short options is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction he had hoped for. This spread can be created using either all call options or all put options.

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  • Bailout

    A bailout situation is one in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business's downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may or may not require reimbursement.

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  • Balance sheet

    A balance sheet is the statement of a company's assets and liabilities, recorded at a single point in time - normally at the end of a reporting period such as a financial year, half-year or quarter. Assets should be equal to, and therefore balance out, any and shareholders' equity.

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  • Balloon Payment

    A balloon payment refers to a final repayment on a loan that is much larger than previous regular repayments. Loans structured in this way are called balloon loans or partially amortised loans. A company can issue bonds in a similar way, setting higher coupon rates (balloon interest) for bonds with longer maturities (balloon maturities).

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  • Bank of Internet USA (BOFI)

    BOFI is a US-based nationwide savings bank operating primarily through the Internet to provide consumer and wholesale banking services, focusing on gathering retail deposits over the Internet, originating and purchasing mortgage loans, and purchasing mortgage-backed securities.

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  • Bank Reserve

    Bank reserves are the currency deposits that are not lent out to the bank's clients that are either held internally by the bank or deposited with the central bank.

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  • Bankmail

    Bankmail is an agreement made between a company planning a takeover and a bank, which prevents the bank from financing any other potential acquirer's bid.

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  • Bankruptcy

    Bankruptcy is a legal process involving a person or business that is unable to repay outstanding debts. It begins with a petition filed by the debtor (most common) or on behalf of creditors (less common), then all of the debtor's assets are measured and evaluated before being used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.

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  • Barometer Stock

    A barometer stock is a security whose price pattern is regarded as an indicator of the state of the overall market.

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  • Basel Accords

    The Basel Accords refer to the banking supervision Accords (recommendations on banking laws and regulations) Basel I and Basel II issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS maintains its secretariat at the Bank of International Settlements in Basel, Switzerland and the committee normally meets there.

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  • Basel Committee on Banking Supervision (BCBS)

    The BCBS was established in 1974 by the central bank governors of the Group of Ten countries (now G-20) and seeks to improve the supervisory guidelines that central banks or similar authorities impose on wholesale and retail banks. The committee makes banking policy guidelines for both member and non-member countries and helps authorities to implement its suggestions.

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  • BASEL I

    Basel I was the round of deliberations by central bankers from around the world that led to the 1988 publication of a set of minimal capital requirements for banks. This is also known as the 1988 Basel Accord  and is now widely viewed as outmoded. A more comprehensive set of guidelines, known as Basel II, are in the process of implementation by several countries.

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  • BASEL II

    Basel II is the second of the Basel Accords, which are the recommendations on banking laws and regulations that are issued by the Basel Committee on Banking Supervision (BCBS). The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

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  • Basing

    Basing is a period in which a stock price has very little or no trend. The resulting price pattern is a flat line.

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  • Basis

    A security's basis is the purchase price after commissions or other expenses. Also known as "cost basis" or "tax basis".

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  • Basis Rate Swap

    A basis rate swap is when two parties swap variable interest rates based on different money markets.

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  • Basis Risk

    Basis risk is the risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other. This imperfect correlation between the two investments creates the potential for excess gains or losses, thus adding risk to the position.

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  • Basket Option

    A basket option is one whose underlying asset is a basket of commodities, securities, or currencies.

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  • Batch Trading

    Batch trading is a method of transacting different security orders that involves the accumulation of orders and their simultaneous execution.

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  • Bear

    A bear is an investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices and are generally pessimistic about the state of a given market.

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  • Bear Call Spread

    A bear call spread is a type of options strategy used when a decline in the price of the underlying asset is expected. It is achieved by selling call options at a specific strike price while also buying the same number of calls, but at a higher strike price. The maximum profit to be gained using this strategy is equal to the difference between the price paid for the long option and the amount collected on the short option.

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  • Bear Hug

    A bear hug is an offer made by one company to buy the shares of another for a much higher per-share price than what that company is worth. A bear hug offer is usually made when there is doubt that the target company's management will want to sell.

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  • Bear Market

    A bear market is a market condition in which the prices of securities are falling. Although figures vary, in general, a downturn of 20% or more in multiple broad market indexes, over at least a two-month period, is considered a bear market.

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  • Bear Raid

    A bear raid is the illegal practice of attempting to push the price of a stock lower by taking large short positions and spreading unfavourable rumours about the target firm.

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  • Bearer Bond

    A bearer bond is one where the owner is considered to be the person who has it in their possession even though their name may not be recorded on an official list of owners.

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  • Beige Book

    The Beige Book is a report on the US economy released by the Federal Reserve Board every six weeks.

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  • Bellwether

    A bellwether stock is one considered as a key indicator of an overall trend in a particular market, business sector or economy.

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  • Benchmark

    A benchmark is a standard against which the performance of a financial instrument or market can be measured.

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  • Bespoke CDO

    A bespoke CDO is a type of collateralised debt obligation (CDO) that a dealer  creates for a specific group of investors. The CDO is structured according to the groups needs and then typically buys a single tranche  of the bespoke CDO. The remaining tranches are then held by the dealer, who will usually attempt to hedge  against losses.

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  • Best Execution

    Best execution is the responsibility that brokers  hold to provide the most advantageous or best price order execution for customers.

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  • Bid

    Bid has two definitions in financial terms. One is an offer made by a trader, dealer or investor to buy a security and the other is the price at which a market maker will buy a security.

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  • Bid Price

    The bid price is what a buyer will pay for a security.

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  • Bid Size

    The bid size is the number of shares a buyer is willing to purchase at the quoted bid price.

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  • Bifurcation

    Bifurcation is a term used in finance that refers to a splitting of something, usually a security, into two separate pieces.

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  • Bilateral Contract

    A bilateral contract is one between two parties.

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  • Bilateral Credit Limit

    A bilateral credit limit is one set by two institutions for use with one another, usually within a large clearing system that operates by netting amounts due to and due from institutions by other members on a daily basis.

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  • Black Economy

    The black economy is the segment of a country's economic activity that is derived from sources that fall outside of its rules and regulations regarding commerce. The activities can be either legal or illegal depending on what goods and/or services are involved.

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  • Bond

    A bond is a formal contract to repay borrowed money with interest at fixed intervals.

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  • Bond Ladder

    A bond ladder is a strategy for managing fixed-income investments  in which the investor builds a ladder by dividing investment funds evenly among bonds  or Certificates of Deposits that mature  at regular intervals, such as every six months, once a year or every two years.

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  • Book Entry

    Book entry is a system of tracking ownership of securities where no certificate is given to investors. In the case of book-entry-only (BEO) issues, although investors do not receive certificates a custodian holds one or more global certificates.

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  • Bottom Fisher

    A bottom fisher is an investor who looks for bargains among stocks whose prices have recently dropped dramatically as he believes that the price drop is temporary or is an overreaction to recent bad news and a recovery will soon follow.

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  • British Bankers’ Association (BBA)

    The BBA is a professional association of banks in the UK that collects and distributes information about the banking industry and represents it views.

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  • Broker

    A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.

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  • Broker Crossing

    Broker crossings are a type of order where the buying and selling broker are the same.

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  • Broker-Dealer

    A broker-dealer is a person or firm in the business of buying and selling securities operating as both a broker and a dealer, depending on the transaction.

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  • Buy Side

    Buy side refers to the investing institutions that buy large portions of securities  for money management purposes. The buy side is the opposite of the sell side.

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  • Buy, Strip and Flip

    Buy, strip and flip is a colloquial term for when a private equity firm buys out a target firm and then sells it in an Initial Public Offering (IPO) within a relatively short period of time. Along the way, the private equity firm may take out loans to make special dividends or carry out other actions to improve its own financial situation.

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C

  • Capital

    Capital refers to financial assets or the financial value of assets, such as cash, factories, offices, machinery and equipment, owned by a business or individual.

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  • Capital Requirements Directive (CRD)

    The CRD came into force on 1 January 2007. It introduced a supervisory framework in the EU designed to ensure the financial soundness of credit institutions (banks, building societies and certain investment firms) and reflects the Basel II rules on capital measurement and capital standards.

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  • Capitulation

    Capitulation is when investors  give up any previous gains in stock price by selling equities quickly in an effort to get out of the market and into investments that pose less risk. True capitulation involves extremely high volumes of sales and sharp declines in prices. It usually is indicated by panic selling.

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  • Central Counterparty Clearing House (CCP)

    The CCP is an organisation that helps facilitate trading in European derivatives and equities markets. These clearing houses are often operated by the major banks with the prime responsibility of providing efficiency and stability to the financial markets that they operate in. There are two main processes that are carried out by CCPs: clearing and settlement of market transactions. Clearing relates to identifying the obligations of both parties on either side of a transaction. Settlement occurs when the final transfer of securities and funds occur.

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  • Central Securities Depository (CSD)

    A CSD is an organisation that holds securities (either certificated or uncertificated) to enable book entry  transfer of them. In general, each country will have only one CSD, although there are some that split equities, fixed-income and funds into separate CSDs.

     

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  • Certificate of Deposit (CD)

    A CD is a savings certificate entitling the bearer to receive interest. It has a maturity date, a specified fixed interest rate and can be issued in any denomination. The term of a CD generally ranges from one month to five years.

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  • Clearing and Settlement Advisory and Monitoring Expert group (the “CESAME” group)

    The CESAME group was created by the European Commission in 2004 to advise on and assist with the integration of EU securities clearing and settlement systems to facilitate easier cross-border trading. It was replaced in 2008 by CESAME II.

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  • Collateral

    Collateral is a form of security to the lender in case the borrower fails to pay back the loan. For example, if you get a mortgage, your collateral would be your house.

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  • Collateralised Debt Obligation (CDO)

    A CDO is a security backed by a pool of bonds, loans and other assets. CDOs do not specialise in one type of debt but are often non-mortgage loans or bonds representing different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as ' tranches' or 'slices'. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays.

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  • Collective Investment Schemes

    A collective investment scheme is an arrangement that enables a number of investors to 'pool' their assets and have them professionally managed by an independent manager.

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  • Commercial Paper (CP)

    A CP is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates and is payable in full on maturity.

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  • Committee of European Securities Regulators (CESR)

    CESR is the independent Committee of European Securities Regulators. The role of the Committee is to:

    • improve co-ordination among securities regulators by developing effective processes that improve the management of the Single Market for financial services;
    • act as an advisory group to assist the EU Commission, particularly in preparation of draft implementation measures of EU framework directives for securities; and
    • ensure more consistent and timely implementation of community legislation in the EU Member States.

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  • Commodity

    A commodity is a good for which the demand is the same no matter who produces it. Traditional examples of commodities include tea, gold, rice, coal and natural gas but the definition has expanded to include financial products such as foreign currencies and indexes.

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  • Common Shares

    Common shares are a form of corporate equity ownership. They are called 'common' to distinguish them from preferred shares. In the event of bankruptcy, common shareholders receive their funds after preferred shareholders, bond holders, creditors, etc. Common shareholders usually have voting rights within the organisation, though not always, and influence through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. There is no fixed dividend paid out to common shareholders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock. Additional benefits from common shares include earning dividends and capital appreciation.

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  • Competent Authority (CA)

    A CA is an organisation that has been legally delegated to perform a designated regulatory function.

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  • Consolidation

    Consolidation is the combining of separate entities (e.g. companies, processes, regulations) into a single one.

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  • Contagion

    Contagion is the likelihood that significant economic changes in one country will spread to other countries. It can refer to the spread of either economic booms or crises throughout a geographic region or specific market.

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  • Corporate Governance

    Corporate governance is the set of processes, customs, policies and laws affecting the way a company is directed, administered or controlled, and its management of stakeholder relationships.

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  • Corporation

    A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses, for example a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts.

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  • Counter-Cyclical Stock

    Counter-Cyclical stock is one in which the underlying company belongs to an industry (or niche ) with financial performance that is negatively correlated to the overall state of the economy. As a result, the stock's price will also tend to move in a direction that is opposite to the general economic trend, meaning appreciation occurs during times of recession and depreciations in value occur in times of economic growth.

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  • Counterparty

    The counterparty is the other participant in a financial transaction. Every transaction must have a counterparty to be processed, i.e. every buyer of an asset must be paired up with a seller that is willing to sell and vice versa.

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  • Crash

    A crash describes the rapid collapse of the value of financial markets.

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  • Credit

     In finance, credit has a number of meanings:

    • any sum of money advanced as a loan, or available for loan; 
    • money received in an account - a positive accounting entry; 
    • a balance in an account-holder's favour is a credit balance;  and 
    • the opposite of debit

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  • Credit Easing

    Credit easing is the practice in which central banks purchase private sector assets with a view to adding liquidity to a troubled market to ease the flow of credit and lending in the economy.

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  • Credit Rating

    A credit rating is an evaluation of a bond, organisation or individual's relative safety from an investment standpoint. It assesses the issuer's ability to repay the principal and make interest payments.

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  • Credit Rating Agency

    A credit rating agency is an organisation that carries out assessments on bonds, organisations or individuals to assess their ability to repay the principal and make interest payments.

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  • Credit Spread

    A credit spread is an options strategy in which a high premium option is sold and a low premium option is bought on the same underlying security.

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  • Crisis Management

    Crisis Management describes the methods used by an organisation to deal with any threats to the business.

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  • Crossing

    Crossing describes when a broker receives both a buy and sell order for the same stock at the same price, and subsequently makes a simultaneous trade between two separate customers.

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  • Currency

    Currency is a country's accepted form of money, including coins and paper notes, which is issued by the government and circulated within an economy.

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  • Custody

    Custody is the safe storing of securities certificates and other assets of a fund, company or individual. The institution offering this service is called a custodian.

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D

  • Daisy Chain

    A daisy chain refers to the practice of a group of investors who buy and sell a security to each other to artificially inflate its price so that they can sell it at a profit.

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  • Dark Pool Liquidity

    Dark pool liquidity is a slang term that refers to the trading volume created from institutional orders that are not available to the public. The bulk of dark pool liquidity is represented by block trades facilitated away from the central exchanges. Also referred to as the "upstairs market", "dark liquidity", or just "dark pool."

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  • Dark Trading

    Dark trading is a colloquial term for buying and selling stocks in a way that does not significantly affect the stock market. Primarily, this means trading within pools set up by investment banks, which allow even a large volume of trading to occur without affecting the market. Dark trading is thought to comprise at least 10% market share, and has negative connotations.

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  • Dealer

    A debenture is a type of debt that is not secured by any physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital.

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  • Debit

     In finance terms, debit has a number of meanings:

    • a withdrawal of funds from an account; 
    • a negative accounting entry; 
    • a balance not in the account-holder's favour is a debit balance; and
    • the opposite of credit.

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  • Debt-Equity Ratio

    The amount of a company's debt in relation to the amount of share capital it has.

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  • Deflation

    Deflation is a general decline in prices, often caused by a reduction in the supply of credit or by a decrease in government, personal or investment spending. The opposite of inflation, deflation can lead to increased unemployment as there is a lower level of demand in the economy, which in turn leads to economic depression.

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  • Depositary Receipt

    A depositary receipt is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. The depositary receipt trades on a local stock exchange.

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  • Depreciation

    Depreciation is a reduction in the value of an asset over time. This is the opposite of appreciation, which is an increase over time.

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  • Depression

    A depression is a severe and prolonged recession characterised by a lack of economic productivity, high unemployment and falling price levels.

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  • Derivative

    A derivative is a security whose price is dependent upon (or derived from) one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

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  • Direct Market Access (DMA)

    DMA refers to electronic facilities that allow buy side firms to access liquidity for securities they may wish to buy or sell.

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  • Disclosure

    Disclosure is the act of releasing all relevant information pertaining to a company that may influence an investment decision.

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  • Disinflation

    Disinflation is when the rate of price inflation slows down. It is used to describe periods when the inflation rate has reduced marginally over the short term. Although used to describe periods of slowing inflation, disinflation should not be confused with deflation.

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  • Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

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  • Double Taxation

    Double taxation refers to income taxes that are paid twice on the same source of earned income. It occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders who receive them, even though the earnings that provided the cash to pay the dividends were already taxed at the corporate level.

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  • Dual-Class Ownership

    Dual-class ownership is a type of share division in which companies issue shares that have different rights. In a dual class ownership structure, the company can issue two classes of shares: Class A and Class B. These classes may have different voting rights but they represent the same underlying ownership in the company.

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  • Due Diligence

    Due diligence is an investigation or audit of a potential investment that serves to confirm all material facts in regards to a sale. It also refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

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  • Duration

    Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates that is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.

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E

  • Economy

    An economy describes the economic system of a country or other area, i.e. the labour, capital and land resources and economic agents that participate in the production, exchange, distribution and consumption of goods and services in the area.

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  • Equity

    In finance, equity means ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.

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  • European Banking Authority (EBA)

    The EBA is a part of the proposed EU institutional framework for financial supervision following the financial crisis. The proposal recommends creating European Supervisory Authorities (ESAs) by transforming existing European supervisory committees into the EBA, the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA). It is thought that combining the advantages of an overarching European framework with the expertise of local supervisory bodies that understand the organisations operating in their region will ensure effective financial supervision.

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  • European Economic Area (EEA)

    The EEA was established on 1 January 1994 following an agreement between the member states of the European Free Trade Association (EFTA) and the European Community, later the European Union (EU), to allow Iceland, Liechtenstein and Norway to participate in Europe's single market without having to join the EU. In exchange, they are obliged to adopt certain EU internal market legislation.

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  • European Financial Reporting Advisory Group (EFRAG)

    EFRAG was set up in 2001 to assist the European Commission in the endorsement of International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), by providing advice on the technical quality of IFRS. EFRAG is a private sector body set up by the European organisations prominent in European capital markets.

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  • European Insurance and Occupational Pensions Authority (EIOPA)

    The EIOPA is a part of the proposed EU institutional framework for financial supervision following the financial crisis. The proposal recommends creating European Supervisory Authorities (ESAs) by transforming existing European supervisory committees into the European Banking Authority (EBA), the EIOPA, and the European Securities and Markets Authority (ESMA). It is thought that combining the advantages of an overarching European framework with the expertise of local supervisory bodies that understand the organisations operating in their region, will ensure effective financial supervision.

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  • European Securities & Markets Authority (ESMA)

    ESMA is a part of the proposed EU institutional framework for financial supervision following the financial crisis. The proposal recommends creating European Supervisory Authorities (ESAs) by transforming existing European supervisory committees into the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and ESMA. It is thought that combining the advantages of an overarching European framework with the expertise of local supervisory bodies that understand the organisations operating in their region, will ensure effective financial supervision.

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  • European Supervisory Authority (ESA)

    ESAs are part of the proposed EU institutional framework for financial supervision following the financial crisis. The proposal recommends creating ESAs by transforming existing European supervisory committees into the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA). It is thought that combining the advantages of an overarching European framework with the expertise of local supervisory bodies that understand the organisations operating in their region, will ensure effective financial supervision.

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  • European Union (EU)

    The European Union (EU) is an economic and political union of 27 member states, which are countries located in Europe.

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  • European Union Commission

    The Commission represents the general interest of the EU and drives the institutional system. Its four main roles are to:

    • propose legislation to Parliament and the Council; 
    • administer and implement Community policies; 
    • enforce Community law (jointly with the Court of Justice); and 
    • negotiate international agreements, mainly those relating to trade and cooperation.

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  • Eurozone

    The Eurozone (officially known as the Euro area) is an economic and monetary union of 16 European Union member states that have adopted the euro currency as their sole legal tender.

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  • Exchange-Traded Funds (ETF)

    An ETF, also known as an exchange-traded product (ETP), is an investment  fund that is traded on stock exchanges. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE.

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  • Execution

    The completion of a buy or sell order for a security. The execution of an order happens when it is completely filled, not when it is placed by the investor. When the investor places the trade, it goes to a broker, who then determines the best way for it to be executed.

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F

  • Financial Accounting Standards Board (FASB)

    The FASB is a seven-member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States. FASB standards, known as generally accepted accounting principles (GAAP), govern the preparation of corporate financial reports and are recognised as authoritative by the Securities and Exchange Commission (SEC).

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  • Financial Distress

    Financial Distress is the situation where a company cannot meet its financial obligations to its creditors. The chance of financial distress increases when a firm has high fixed costs, illiquid assets, or revenues that are sensitive to economic downturns.

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  • Financial Instrument

    A financial instrument is any financial asset that is tradable.

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  • Financial Reporting Council (FRC)

    The Financial Reporting Council is the UK's independent regulator responsible for promoting high quality corporate governance and reporting.

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  • Financial Services Action Plan (FSAP)

    The EU's FSAP is the overarching framework for financial management that incorporates the ( Markets in Financial Instruments Directive MiFID).

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  • Financial Services Authority (FSA)

    The Financial Services Authority (FSA) is an independent non-governmental department that regulates the financial services industry in the UK.

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  • Financial Stability Board (FSB)

    The FSB has been established to coordinate the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

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  • Free Trade

    Free trade is a system of that allows traders to act without interference from government. Under a free trade policy prices are a reflection of true supply and demand. This differs from other forms of trade policy where the allocation of goods and services amongst trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are the result of protectionist trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.

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  • Futures Contract

    A Futures Contract is an agreement, usually made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument in the future at a pre-determined price.

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  • Futures Exchange

    Traditionally, Futures Exchange referred to a central marketplace where futures contracts  and options on futures contracts are traded. More recently, with the growth in electronic trading, it now used to describe the activity of futures trading.

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G

  • G-20

    The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialised and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin in December 1999.

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  • Generally Accepted Accounting Principles (GAAP)

    GAAP are the common set of accounting principles, standards and procedures that US companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

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  • Giovannini Barriers

    The 2001 Giovannini Report, by the Giovannini Group, identified 15 barriers that prevent efficient EU cross-border clearing and settlement, which it divided into three categories:

    • national differences in technical requirements and market practice; 
    • differences in tax procedures; and 
    • legal certainty.

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  • Giovannini Group

    The Giovannini Group is a group of financial experts that advises the European Commission on market issues. Chaired by Alberto Giovannini, CEO of Unifortune Asset Management SGR, the group has focused its work on identifying inefficiencies in EU financial markets and proposing practical solutions to improve market integration.

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  • Gross Domestic Product (GDP)

    GDP is the monetary value of all the finished goods and services produced within a country's borders on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

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  • Growth

    Growth means the amount that an investment value increases.

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H

  • Hedge Fund

    A Hedge Fund is an aggressively managed portfolio of investments that uses advanced investment strategies with the goal of generating high returns. They are usually set up as private investment partnerships for a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors  keep their money in the fund for at least one year.

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  • Hedging

    Hedging is making an investment to reduce the risk of adverse price movements in an asset. An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations. Investors use this strategy when they are unsure of what the market will do.

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  • High-Frequency Trading

    High-Frequency Trading is a program trading platform that uses powerful computers to transact a large number of orders at very fast speeds, using complex algorithms to analyse multiple markets and execute orders based on market conditions.

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I

  • Illiquid

    Illiquid describes a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.

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  • Index

    An index is a statistical measurement of changes in economies or securities markets. In financial markets, an index is an imaginary portfolio of securities that represent a particular market or a portion of it. The Standard & Poor's 500 is one of the world's best known indexes, and is the most commonly used benchmark for stock markets.

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  • Indications of Interest (IoIs)

    IoIs are a tool by which brokers seek to match the investment aims of their clients. They allow brokers to inject their own capital into the market on a discretionary basis to compliment the services offered by the stock exchanges.

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  • Inflation

    Inflation is the rate at which the general level of prices for goods and services rises.

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  • Insider Trading

    Insider trading is the trading of a corporation's stock or other securities by individuals with access to non-public information about the company. In most countries, trading by corporate insiders (such as key employees, directors and large shareholders) may be legal, if it is done in a way that does not take advantage of non-public information. However, the term is frequently used to refer to illegal practice when an insider trades using non-public information obtained during the performance of their duties at the corporation, or where the non-public information was misappropriated from the company.

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  • Insolvency

    Insolvency is when an individual or organisation can no longer meet its financial obligations with its lender or lenders as debts become due. Insolvency can lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts.

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  • International Accounting Standards (IAS)

    IAS are an older set of standards stating how particular types of transactions and other events should be reflected in financial statements. In the past, they were issued by the Board of the International Accounting Standards Committee (IASC) but since 2001 the new set of standards has been known as the 'international financial reporting standards' (IFRS)  and are issued by the International Accounting Standards Board (IASB).

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  • International Accounting Standards Board (IASB)

    The IASB is an independent standard-setting body whose members are responsible for the development and publication of international financial reporting standards (IFRS).

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  • International Financial Reporting Standards (IFRS)

    IFRS are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board (IASB).

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  • International Monetary Fund (IMF)

    The IMF is an organisation that is financed mostly by industrialised countries to provide funds (often with strict policy conditions) to countries with debt or balance of payments difficulties.

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  • International Organization of Securities Commissions (IOSCO)

    IOSCO is a global cooperative of securities regulatory agencies that aims to establish and maintain worldwide standards for efficient, orderly and fair markets.

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  • International Swaps and Derivatives Association (ISDA)

    The ISDA is an association created by the private negotiated derivatives market that represents participating parties and helps to improve the market by identifying and reducing risks.

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  • Investment

    An investment is the purchase of an asset with the hope that it will generate income or grow in value in the future and be sold at a higher price.

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  • Investor

    An investor is a person or organisation that purchases income-producing assets.

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  • Invisible Trade

    Invisible trade describes business transactions that involve the transfer of non-tangible goods and/or services, such as customer service, intellectual property and patents. The items involved in invisible trade are associated with a value and can be exchanged for tangible goods.

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  • Issuance

    Issuance is the sale of new securities to raise funds. The price at which the securities are sold is the issue price, and the entity that sells them (and in the case of bonds is responsible for meeting interest and principal payments) is the issuer.

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  • Issuer

    An issuer is legal entity that develops, registers and sells securities for the purpose of financing its operations. Issuers may be domestic or foreign governments, corporations or investment trusts. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions. The most common types of securities issued are common and preferred stocks, bonds, promissory notes, debentures and derivatives.

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J

  • Joint Money Laundering Steering Group (JMLSG)

    The JMLSG is made up of the leading UK Trade Associations in the Financial Services Industry. Its aim is to share good practice in countering money laundering and give practical assistance in interpreting the UK Money Laundering Regulations. This is primarily achieved by the publication of industry guidance.

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K

  • Know Your Client (KYC

    KYC is the due diligence that financial institutions and other regulated companies must perform to understand their clients' risk  tolerance, investment knowledge and financial position.

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L

  • Lenders

    Lenders are organisations that provide financial products (such as mortgages, personal loans and credit cards) on condition that the amount borrowed is repaid with interest.

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  • Leverage

    Leverage describes the amount of debt a company has in proportion to its equity capital.

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  • Leveraged Finance

    Leveraged finance refers to the use of debt to supplement investments. Companies usually leverage to increase returns to stock, as this practice can maximise gains (and losses). Deleveraging is the action of reducing borrowings.

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  • Liability

    Liability refers to a company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

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  • Limit Order

    A limit order is an instruction to a broker to buy a certain amount of a security at or below a specified price, or to sell it at or above a specified price (called the limit price).

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  • Liquidation

    Liquidation is when a business is terminated or bankrupt, its assets are sold and the proceeds used to repay creditors. Any leftovers are then distributed to shareholders.

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  • Liquidity

    Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting its price. Liquidity is characterised by a high level of trading activity. Assets that can by easily bought or sold are known as liquid assets.

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  • Long Position

    A long position is one where a security such as a stock, commodity or currency is bought with the expectation that it will rise in value over time.

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M

  • Market Abuse Directive (MAD)

    The MAD prohibits abusive behaviour such as insider trading and market manipulation. It increases the means for regulators to fight against market abuse and provides for greater cooperation in international investigations.

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  • Market Manipulation

    Market manipulation is deliberate interference in order to create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.

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  • Markets in Financial Instruments Directive (MiFID)

    The MiFID is a directive that aims to integrate the EU's financial markets, increase the amount of cross-border investment orders and implement new measures, such as pre- and post-trade transparency requirements and capital requirements that firms must hold. The directive officially took effect on November 1st 2007.

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  • Maturity

    Maturity is the date that a borrower must pay back money borrowed through a bond or other security.

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  • Monopoly

    A monopoly is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service. A monopoly is characterised by an absence of competition, which often results in high prices and inferior products.

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  • Multilateral Trading Facility (MTF)

    A MTF is a trading system that facilitates the exchange of financial instruments between multiple parties by allowing eligible contract participants to gather and transfer a variety of securities, especially those that may not have an official market. Traders usually submit orders electronically and a software solution is used to match buyers with sellers.

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  • Mutual Fund

    A mutual fund is an investment vehicle made up of a pool of funds collected from many investors and invested in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money mangers who invest the fund's capital to try and produce capital gains and income for the fund's investors.

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N

  • NASDAQ

    The NASDAQ is a computerised system that facilitates trading and provides price quotations on more than 5,000 of the more actively traded over-the-counter  stocks. Created in 1971, the NASDAQ was the world's first electronic stock market.

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O

  • Option

    An option is a financial product that represents a contract sold by one party (the option writer) to another party (the option holder). The contract offers the option holder the right to buy or sell a security, or other financial asset, at an agreed-upon price during a certain time period or on a specific date.

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  • Over-the-Counter (OTC)

    The phrase "over-the-counter" refers to stocks that trade via a dealer network as opposed to on a centralised exchange. It also refers to debt securities and other financial instruments such as derivatives that are traded through a dealer network.

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P

  • Panic Selling

    Panic Selling is the wide-scale selling of a particular investment that causes a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.

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  • Portfolio

    A portfolio is a group of financial assets such as stocks and bonds. Portfolios are held directly by investors and/or managed by financial professionals.

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  • Position

    In finance a position is the amount of a security either owned (which constitutes a long position) or borrowed (which constitutes a short position) by an individual or by a dealer. It refers to trades that an investor currently holds open.

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  • Position Limit

    The position limit is the maximum number of listed option contracts on a single security that can be held by an investor or group of investors acting jointly.

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  • Post-Trade Processing

    After a trade completes it goes through post-trade processing, where the buyer and the seller compare trade details, approve the transaction, change records of ownership and arrange for the transfer of securities and cash. Post-Trade processing is especially important in markets that are not standardised, such as the over-the-counter market.

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  • Post-Trade Transparency

    Post-trade transparency is the obligation to supply information (buy and sell prices of shares submitted to the market and their respective trading volumes) once a trade completes.

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  • Preferred Shares

    Preferred shares are a class of ownership in a corporation that have a higher claim on the assets and earnings than common shares. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders and they usually don't have voting rights.

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  • Pre-Trade Transparency

    Pre-trade transparency is the obligation to supply information (buy and sell prices of shares submitted to the market and their respective trading volumes) before a trade occurs.

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  • Price Discovery

    Price discovery is the process of determining market prices through the interactions of buyers and sellers in a free marketplace.

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  • Prime Brokerage

    Prime Brokerage (also known as prime services ) includes trade clearing and settlement; the provision of securities and cash on loan; operational support, global custody and asset servicing, backed up by efficient reporting to enable the client to track positions daily or in real time. Additional prime services include capital introduction, risk management and consulting services.

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  • Program Trading

    Program trading is computerised trading used primarily by institutional investors, typically for large-volume trades. Orders from the trader's computer are entered directly into the market's system and executed automatically.

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  • Promissory Note

    A promissory note is a paper acknowledging a debt and promising payment.

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  • Prudential Regulations

    Prudential regulations aim to protect depositors by determining:

    • how much money banks and building societies hold;
    • what they can do with it;
    • how they should be structured; and
    • what financial products they can sell.

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Q

  • Quanto Option

    A quanto option is one that pays out in a different currency to the one in which the underlying asset is denominated.

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  • Quoted

    Quoted describes a company whose shares are bought and sold on a stock exchange.

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R

  • Recession

    A recession is a significant decline in economic activity that lasts longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).

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  • Regulated Markets (RMs)

    A regulated market is one where the provision of goods and/or services is regulated by a government appointed body. The regulations usually cover the terms and conditions of supplying the goods and services, particularly the price that can be charged. It is common for RMs to control natural monopolies such as telecommunications, water, gas and electricity supply.

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  • Regulator

    A regulator is a person or organisation chosen by the government to be responsible for making sure that an industry or system works legally and fairly.

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  • Reserves

    Reserves are liquidassets held by a bank, company or government in order to meet expected future payments and/or emergency needs. In the case of a bank, its reserves are cash and other liquid deposits held either in its vaults or with the central bank. In companies reserves are normally built up from retained earnings (i.e. profits not paid out as dividends  to shareholders). In the case of governments, official reserves comprise foreign currency, gold and IMF special drawing rights.

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  • Return

    A return is the gain or loss that a security makes during a particular period. A return consists of the income and the capital gains on an investment and is usually quoted as a percentage.

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  • Risk

    Risk is the chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment.

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  • Risk Management

    Risk management establishes the risks of an investment and then manages them appropriately to help meet investment objectives. An example of risk management is when a bank performs a credit check on an individual before issuing them a personal line of credit.

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  • Round-Trip Trading

    Round-trip trading is an action that attempts to inflate transaction volumes through the continuous and frequent purchase and sale of a particular security, commodity or asset. It can refer to the practice of a business selling an unused asset to another company while agreeing to buy back the same asset for about the same price.

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S

  • Secondary Markets

    A secondary market is one where investors  purchase securities or assets from other investors rather than from issuing companies. In any secondary market trade, the cash proceeds go to an investor rather than to the underlying company/entity directly.

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  • Securities and Exchange Commission (SEC)

    The SEC is a government commission created by the US Congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors corporate takeovers in the US. The SEC is composed of five commissioners appointed by the US President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets.

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  • Securitisation

    Securitisation is a process in which pools of loans or debt obligations are repackaged as securities, assessed and 'tranched' according to their risk profile before being sold on to investors as a financial product.

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  • Security

    An instrument representing ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives).

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  • Sell Side

    Sell side refers to the retail brokers that sell securities and make recommendations for brokerage firms' customers. The sell side is the opposite of the buy side.

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  • Settlement

    Settlement is the process in which securities, or interests in securities, are delivered, usually against payment, to fulfil contractual obligations.

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  • Shadow Banking System

    The shadow banking system describes the financial intermediaries that are involved in the creation of credit but not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions.

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  • Shareholders

    Any person, company or other institution that owns at least one share in a company.

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  • Shares

    Shares are a unit of ownership interest in a corporation or financial asset. The two main types of shares are common shares and preferred shares.

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  • Short Position

    A short position is the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. For example, an investor borrows shares from a broker and sells them on the open market so is said to have a short position in the stock. The investor must eventually return the borrowed stock by buying it back from the open market. If the stock falls in price, the investor buys it for less than he or she sold it, thus making a profit but if it has risen, he makes a loss. In relation to options, it is the sale (or 'writing') of an options contract.

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  • Short Selling

    Short selling describes the practice of investors borrowing stocks to sell them in the hope that they can buy them back at a lower price and profit from the difference.

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  • Single Market

    The single market (sometimes called the internal market) describes the EU project to create free trade within the EU and transform Europe into a single economy.

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  • Sinking Fund

    A sinking fund is money set aside by a company on a regular basis for a specific purpose, normally to repay a future debt. For example, bond agreements may specify that borrowers pay money regularly into a sinking fund to ensure money will be available when it is time to redeem the bond.

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  • Spread

    Spread refers to the difference between the bid and the ask price of a security or asset.

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  • Stakeholder

    A stakeholder is a person, group or organisation that affects, or can be affected by, an organisation's actions.

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  • Stock

    Stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. It is also known as shares.

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  • Stock Exchange

    A Stock Exchange is an organised marketplace where securities trading is conducted by professional stockbrokers.

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  • Stock Market

    The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

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  • Stockbroker

    A stockbroker is an individual agent, or a firm acting as an agent, that charges a fee or commission for executing buy and sell orders submitted by an investor. Also known just as a broker.

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  • Stop Limit Order

    A stop limit order is an order to buy or sell a certain amount of a particular security at a specified price or better, but only once a specified price has been reached.

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  • Stop Order

    A stop order is an order to buy or sell a certain amount of a particular security if a specified price (the stop price) is reached or passed.

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  • Structured Investment Vehicle (SIV)

    An SIV is a pool of investmentassets that attempts to profit from credit spreads between short-term debt and long-term structured finance products, such as asset-backed securities (ABS). They are funded by the issuance of commercial papers that are continuously renewed or rolled over; the proceeds are then invested in longer maturity assets that have less liquidity but pay higher yields. The SIV makes profits on the spread between incoming cash flows (principal and interest payments on ABS) and the high-rated commercial paper that it issues. SIVs often employ great amounts of leverage to generate returns. They are also known as 'conduits'.

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  • Structured Note

    A structured note is a debt obligation that contains an embedded derivative that adjusts the security's  risk / return profile. The return performance of a structured note will track that of the underlying debt obligation and the derivative embedded within it.

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  • Systematic Internalisers (SI)

    A systematic internaliser (SI) is an investment firm that executes client orders internally on its own account outside a regulated market or a Multilateral Trading Facility (MTF).

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  • Systemic Risk

    Systemic risk is the risk of an adverse change in the financial system as a whole, which would affect all markets and asset classes.

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  • Systemically Important Financial Institutions (SIFIs)

    A firm is considered systemically important if its failure would have significant spillover effects that, if left unchecked, could destabilise the financial system and negatively impact the real economy.

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T

  • Term

    A term is the lifespan assigned to an asset or a liability, over which the value of the asset/liability is expected to either grow or shrink, depending on its nature. In the case of debt, it is the time it takes for all payments to be made by the borrower and received by the lender. In the case of an equity  investment, it is the time that elapses between the purchase of the equity and its sale.

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  • Tier 1 Capital

    Tier 1 capital is core capital, which includes equity capital and disclosed reserves, and is a term used to describe the capital adequacy of a bank.

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  • Tier 2 Capital

    Tier 2 capital is secondary bank capital, which includes undisclosed reserves, general loss reserves and subordinated debt, and is a term used to describe the capital adequacy of a bank.

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  • Tier 3 Capital

    Tier 3 capital is tertiary capital held by banks to meet part of their market risks and it includes a greater variety of debt than tier 1 and tier 2 capitals. Tier 3 capital debts may include a greater number of subordinated issues, undisclosed reserves and general loss reserves compared to tier 2 capital.

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  • Top-Down Investing

    Top-down investing is an investment approach that involves looking at the "big picture" in the economy and financial world and then breaking those components down into finer details. After looking at the big picture conditions around the world, the different industrial sectors are analysed in order to select those that are forecasted to outperform the market. From this point, the stocks of specific companies are further analysed and those that are believed to be successful are chosen as investments.

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  • Trade

    In financial markets, trading is the buying and selling of securities.

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  • Trade Data Monitor (TDM)

    A TDM is a trade publication arrangement that has been confirmed as enabling a firm to meet the trade publication guidelines issued by the Financial Services Authority in the UK.

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  • Trader

    A trader is an individual who engages in the transfer of financial assets in any financial market, either for themselves, or on behalf of someone else.

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  • Trading Platform

    A trading platform is a software application through which investors and traders can open, close and manage market positions.

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  • Trading Venue

     There are three types of venue where trading of financial instruments may take place:

    • Regulated Markets (RMs)
    • Multilateral Trading Facilities (MTFs)
    • Systematic Internalisers (SIs)

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  • Tranche

    Tranche is the French word for "slice" and in finance a tranche is a slice (portion) of a deal or structured finance instrument. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities.

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  • Tranching

    Tranching is the reallocation of pools of assets into one or more senior or subordinated classes of risk.

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  • Transaction

    A transaction is an agreement between a buyer and a seller for the exchange of goods or services for payment.

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  • Transparency

    Transparency is the extent to which investors have ready access to financial information about a company such as price levels, market depth and audited financial reports.

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U

  • Undertakings for Collective Investment in Transferable Securities (UCITS)

    UCITS are a set of European Union (EU) directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. In practice many EU member nations have imposed additional regulatory requirements that have impeded free operation with the effect of protecting local asset managers.

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  • Underwriting

    Underwriting is the process by which investment bankers raise capital from investors on behalf of corporations and governments that are issuing securities.

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V

  • Venture Capital

    Venture Capital is money provided by investors  to startup firms and small businesses with perceived long-term growth potential. It is a very important source of funding for startups and is usually a high risk for the investor, but can potentially provide above-average returns.

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  • Volatility Arbitrage

    Volatility arbitrage describes trading strategies that attempt to exploit differences between the forecasted future volatility of an asset and the implied volatility of options based on that asset. Because options pricing is determined by the volatility of the underlying asset, if the forecasted and implied volatilities differ, there will be a discrepancy between the expected price of the option and its actual market price.

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W

  • Waiver

    A waiver is the voluntary action of a person or party to remove their rights or obligations in an agreement. The waiver can either be in written form or some form of action. A waiver essentially removes a real or potential liability for the other party in the agreement.

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  • Weekend Effect

    The weekend effect is a phenomenon in financial markets in which stockreturns on Mondays are often significantly lower than those of the immediately preceding Friday. Some theories that explain the effect attribute the tendency for companies to release bad news on Friday after the markets close to depressed stock prices on Monday. Others state that the weekend effect might be linked to short selling, which would affect stock with high short interest positions.

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  • Withholding Tax

    Withholding tax is a tax levied on income (interest and dividends ) from securities owned by a non-resident.

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X

  • XBRL (Extensible Business Reporting Language)

    XBRL is the standard that was developed to improve the way in which financial data is communicated and make it easier to compile and share. XBRL is a type of XML (extensible markup language), which is a specification that is used for organising and defining data. It uses tags to identify each piece of financial data, which then allows it to be used programmatically by an XBRL-compatible programme.

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  • X-Efficiency

    X-efficiency describes an organisation’s ability to achieve the best results in the most economic way in relation to the number of employees, machines, etc. it has.

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Y

  • Yield

    Yield is the income return on an investment. It refers to the interest (or dividends) received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

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  • Yield Basis

    Yield basis is a method of quoting the price of a fixed-income security as a yield  percentage, rather than as a monetary amount. This allows bonds with varying characteristics to be easily compared.

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  • Yield Burning

    Yield burning describes the illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.

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Z

  • Zero-Rated Coupon

    A zero-rated coupon is a type of bond that pays no interest but is issued at a substantial discount to face value. The yield is the capital gain realised by investors when the bond is redeemed at full value.

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