S&P 500 Standard and Poor’s index of 500 leading US shares.
Safe haven A more secure investment in time of trouble, such as major financial turmoil. UK or US government bonds and Treasury bills, for example, are usually regarded as safe havens.
Sale and leaseback Assets (e.g. land and buildings) are sold to another firm (e.g. bank, insurance company) with a simultaneous agreement for the vendor to lease the asset back for a stated period under specific terms.
Sales charge A charge to an investor when he/she buys securities to cover administration costs.
Samurai bonds A foreign bond, yen-denominated, issued by a non-Japanese entity in the Japanese domestic market.
Scaledown In a new issue, when a company floats on a stock exchange, if demand is greater than supply at the offer price the applicants receive fewer shares than they applied for, according to a prearranged formula.
Scheme of arrangement A relatively quick and cheap way of combining two companies is a scheme of arrangement, whereby the target managers and the acquiring managers agree to allow the target shareholders to vote on a merger. If three-quarters vote in favour, and the arrangement is sanctioned by a court, then the scheme is binding on all shareholders. All the target shareholders are then required to sell to the acquirer. Thus the acquirer can avoid having a rump minority hanging on to their shares.
Scrip dividends Shareholders are offered the alternative of additional shares rather than a cash dividend.
Scrip issue The issue of more shares to existing shareholders in proportion to their current holdings. Shareholders do not pay for these shares. Company reserves are converted into issued capital.
Scuttlebutt Obtaining knowledge about a company by talking to a wide range of people who have had dealings with the corporation: customers, suppliers, employees, ex-employees etc.
SEAQ (Stock Exchange Automated Quotation) System A computer screen-based quotation system for securities where market makers on the London Stock Exchange report bid–offer prices and trading volumes, and brokers can observe prices and trades.
Seasoned equity offerings (SEOs) Companies that have been on a stock exchange for some time selling new shares (e.g. via a rights issue).
Second-tier markets Financial centres often establish more lightly regulated share markets alongside their main highly regulated markets. This allows companies with say a short trading history or with a low free-float of shares to obtain a quotation for their shares. Also the on-going rules are less strict, e.g. few requirements to inform all investors in writing of a major move.
Secondary buy-out (sale) A company that has been backed by private equity finance is then sold to another private equity firm(s).
Secondary listing Those companies that choose to make the London Stock Exchange their secondary listing – their primary listing will usually be on another stock exchange.
Secondary market Securities already issued are traded between investors.
Secondary purchase A private equity-backed company is sold to another private equity fund.
Securities and Exchange Commission (SEC) The US federal body responsible for the regulation of securities markets (exchanges, brokers, investment advisers, etc.).
Securities house This may mean simply a sponsor (a financial institution assisting a commercial firm with processes such as an IPO or bond issue). However, the term is sometimes used more broadly for an institution concerned with buying and selling securities or acting as agent in the buying and selling of securities.
Securitisation Financial payments (e.g. a claim to a number of mortgage payments) which are not tradable can be repackaged into other securities (e.g. a bond) and then sold. These are called asset-backed securities (ABSs).
Security (1) A financial asset, e.g. a share or bond. (2) Asset pledged to be surrendered in the event of a loan default.
SEDOL, Stock Exchange Daily Official List. Seven-character identification codes are assigned to securities that trade on the London Stock Exchange Official List.
Seed Enterprise Investment Scheme (SEIS) Tax relief is available to investors in qualifying company shares (unquoted firms not focused on financial investment and property, with under 25 employees and gross assets under £200,000).
Seedcorn capital or money (seed capital or money) The financing of the development of a business concept. High risk; usually provided by venture capitalists, entrepreneurs or business angels.
Self-invested personal pension (SIPP) Similar to a standard personal pension scheme except that the investor can select the shares, etc., that the fund is invested into. There are tax advantages in investing through a SIPP.
Self-regulation Much of the regulation of financial services in the UK is carried out by self-regulatory organisations (i.e. industry participants regulate themselves within a light-touch legislated framework).
Self-select ISA The investor can decide which shares, gilts, etc., should be bought for an individual savings account.
Selling the rights nil paid In a rights issue existing shareholders are entitled to sell the rights to the new shares without the need to purchase the new shares.
Sell-side Organisations in the securities business that help to create and trade securities and also sell their services to buy-side institutions and individuals (examples of sell-side organisations are investment banks, analysts, brokers and securities firms).
Semi-strong efficiency Share prices fully reflect all the relevant, publicly available information.
Senior debt A debt which ranks above junior debt for payment.
Serious Fraud Office Investigates and prosecutes crimes of serious or complex fraud and corruption exceeding £1 million in the UK.
SETS (Stock Exchange Electronic Trading System) An electronic order book-based trading system for the London Stock Exchange. Brokers, investors, and some market makers input buy and sell orders directly into the system. Buyers and sellers are matched and the trade executed automatically. The SETS system is used for the largest most liquid UK shares.
SETSqx (Stock Exchange Electronic Trading System – quotes and crosses) A share trading system run by the London Stock Exchange with a focus on lightly traded shares, with few trades per day.
Settlement The completion of a transaction, e.g. there is a transfer of ownership of a share from seller to buyer in return for a cash payment.
Settlement price The price calculated by a derivatives exchange at the end of each trading session as the closing price that will be used in determining profits and losses for the marking-to-market process for margin accounts.
Shadow banking Powerful non-banking organisations that move money and risk without involving banks, e.g. hedge funds, money market funds.
Share Companies divide the ownership of the company into ordinary shares. An owner of a share usually has the same rights to vote and receive dividends as another owner of a share. Also called equity. Shares other than ordinary shares may also be created which carry different rights e.g. preference shares.
Share buy-back The company buys back a proportion of its shares from shareholders.
Share certificate A document showing ownership of part of the share capital of a company.
Share exchange scheme Some unit trusts permit investors to purchase units with shares rather than cash.
Share market Institutions which facilitate the regulated sale and purchase of shares; includes the primary and secondary markets.
Share option scheme Employees are offered the right to buy shares in their company at a pre- agreed price some time in the future.
Share perks In addition to paying dividends to investors, some companies provide perks such as a reduced rate in hotels or on ferries owned by the company.
Share premium account A balance sheet entry representing the difference between the price received by a company when it sells shares and the par value of those shares.
Share repurchase The company buys back some of its own shares.
Share split (stock split) Shareholders receive additional shares from the company without payment. The nominal (par) value of each share is reduced in proportion to the increase in the number of shares, so the total book value of shares remains the same.
Shareholders’ funds (equity) The net assets of the business (after deduction of all short- and long-term liabilities and minority interests) shown in the balance sheet.
Sharpe’s ratio (Reward-to-variability ratio) A measure relating risk and return. The extent to which a portfolio’s (or share’s) return has been greater than a risk-free asset, divided by its standard deviation.
Shell company A company with a stock market quotation but with very little in the way of real economic activity. It may have cash but no production.
Short position In a derivative contract, the counterparty in a short position is the one that has agreed to deliver the underlying.
Short selling The selling of financial securities (e.g. shares) not yet owned (they are borrowed), in the anticipation of being able to buy at a later date at a lower price.
Short-term selectivity The buying or selling of a financial security based on the analysis of a corporation’s or an industry’s near-term business prospects.
Short-termism A charge levelled at the financial institutions in their expectations of the companies to which they provide finance. It is argued that long-term benefits are lost because of pressure for short-term performance.
Shorting The selling of financial securities (e.g. shares) not yet owned (they are borrowed), in the anticipation of being able to buy at a later date at a lower price.
Shorts Bonds (e.g. gilts) with less than seven years to maturity. Ultra-shorts are those with under 3 years to maturity.
Sight bank account (current account, cheque account) One where deposits can be withdrawn without notice.
Sigma A measure of dispersion of returns; same as standard deviation.
Signalling Some financial decisions are interpreted as signals from the managers to the financial markets (e.g. an increase in gearing, or a change in dividend policy).
Simple interest Interest is paid on the original principal: no interest is paid on the accumulated interest payments.
Simple yield on a fixed-interest security is the gross interest amount, divided by the current market price, expressed as a percentage.
Single premium bond An insurance plan with a small amount of life cover. The money contributed by the policyholder is invested to provide returns after a number of years.
Small claims court A fast and relatively informal way to deal with complaints and claims e.g. for financial loss.
Small firm effect (Size effect) The tendency of small firms to give abnormally high returns on the stock market as observed in some academic studies, but not in others.
Smoothing A collective investment fund manager, such as a with-profits fund manager, holds back profits from investors in good years so that they can continue with bonuses in poor years.
Social technology Tools of social organisation that allow for the better working of society. Examples include: laws on limited liability, corporate entities and financial market regulations; accepted norms of behaviour; widespread knowledge of the way in which processes work, such as stock market buying and selling.
Society of Lloyds (Lloyds) A medium-sized insurance business in London founded over two centuries ago. ‘Names’ supply the capital to back insurance policies. Names can now be limited liability companies rather than individuals with unlimited liability to pay up on an insurance policy.
Solvency The ability to pay debts as and when they become due.
South Sea Bubble A financial bubble in which the price of shares in the South Sea Company were pushed to ridiculously high levels on a surge of over-optimism in the early eighteenth century. See Bubble.
Sovereign debt Debt (e.g. bond) issued by a government.
Sovereign wealth fund (SWF) Run by governments on behalf of their people for the long term, investing, say oil income, in shares and other assets around the world.
Special dividend An exceptionally large dividend paid on a one-off basis.
Special-purpose vehicle or entity (SPV, SPE) Companies set these up as separate organisations (usually as limited companies) for a particular purpose. They are designed so that their accounts are not consolidated with the rest of the group.
Special resolution A company’s shareholders’ vote at a AGM or EGM with a majority of 75 per cent of those voting in favour for it to be carried. Normally special resolutions are reserved for important changes in the constitution of the company. Other matters are normally dealt with by way of ordinary resolution (50 per cent or more of the votes required).
Specific inflation The price changes in an individual good or service.
Speculative grade Bonds with a credit rating below investment grade.
Speculators Those who take a position in financial instruments and other assets with a view to obtaining a profit on changes in their market price. They do not thoroughly understand the underlying business, buy only when there is a large margin of safety, nor expect only reasonable returns, as investors do.
Split-capital investment trusts These investment trusts simultaneously issue different types of shares. Income shares entitle the holder to receive all (or most) of the income from the portfolio. Capital shares entitle the owner to receive all (or most of) the rise in the capital value of the portfolio. Zero divided preference shares (Zeros) pay no income but do offer a predetermined return at the end of the trust’s life.
Sponsor An organisation (usually an investment bank or stockbroker) that lends its reputation to a new issue of securities, advises the client company (along with the issuing broker) and co-ordinates the new issue process. Also called an issuing house.
Sponsored membership of CREST Investors hold shares in their own accounts with CREST rather than in a broker’s nominee company or in certificated form.
Spot market A market for immediate transactions (e.g. spot forex market, spot interest market), as opposed to an agreement to make a transaction at some time in the future (e.g. forward, option, future).
Spread The difference between the price to buy and the price to sell a financial security. Market makers quote a bid–offer spread for shares. The lower price (bid) is the price an investor receives if selling to the market maker. The higher (offer) price is the price if the investor wishes to buy from the market maker.
Spread betting Laying a bet with a spread betting company that a particular outcome will occur in the future (e.g. that a share price will rise). You bet, say, £10 for every 1p rise.
Square mile A collective term for the financial institutions located in the financial district to the east of St Paul’s Cathedral in London (also called the City of London).
Stagging Buying shares in a new issue and then selling immediately the shares begin trading on the market.
Stakeholder A party with an interest (financial or otherwise) in an organisation, e.g. employees, customers, suppliers, the local community.
Stakeholder pension Similar to a standard personal pension except that there are low management charges, contributions can be small and the investor can move to another provider easily. Even non-taxpayers can claim back assumed tax paid on income.
Stamp duty A tax levied on share purchase on the Main Market of the London Stock Exchange (0.5 per cent of the new purchase value).
Standard & Poor’s A leading credit rating agency and financial information provider.
Standard & Poor’s 500 (S&P 500) An index of US shares.
Standard deviation A statistical measure of the dispersion around an average (a mean). A measure of volatility. The standard deviation is the square root of the variance. A fund’s or a share’s return can be expected to fall within one standard deviation of its average two- thirds of the time if the future is like the past.
Standard Listing This is a quality of listing on the Main Market of the London Stock Exchange for the issuance of equity shares, Global Depositary Receipts (GDRs), debt securities and securitised derivatives that are expected merely to comply with EU minimum requirements. A Standard Listing allows issuers to access the Main Market by meeting EU harmonised standards. Most UK Main Market companies subject themselves to higher standards under the Main Market’s Premium Listing rules (e.g. three years of accounts, shareholder approval required for a number of actions), thus providing greater reassurance to their investors.
Start-up capital Finance for young companies which have not yet sold their product commercially. High risk; usually provided by venture capitalists, entrepreneurs or business angels.
Start-up companies Companies with a limited or non-existent trading history.
Statement of cash flows Alternative title for cash flow statement.
Statement of changes in equity Includes the profit shown in the profit and loss account plus all other gains and losses that are not permitted in the profit and loss account such as surpluses or deficits on revaluation of fixed assets, currency translation gains and losses.
Statement of financial position The term for balance sheet under International Accounting Standards.
Statutory Established, regulated or imposed by or in conformity with laws passed by a legislative body (e.g. Parliament).
Sterling bonds Corporate bonds which pay interest and principal in pounds sterling.
Stock (1) Inventory of raw materials, work-in-progress and finished items. (2) US term for a share.
Stockbroker (1) A regulated professional who arranges the buying and selling of shares and other securities for investors. (2) (Corporate broker) Assists corporations in representing themselves to the financial markets, advises the company on market conditions and for fund raising. May match buyers and sellers of the client firm’s securities.
Stock exchange A market in which securities are bought and sold. In continental Europe the term bourse may be used.
Stock Exchange Automated Quotation (SEAQ) A computer screen-based quotation system for securities where market makers on the London Stock Exchange report bid–offer prices and trading volumes, and brokers can observe prices and trades.
Stock Exchange Electronic Trading System (SETS) An electronic order book-based trading system for the London Stock Exchange. Brokers, investors, and some market makers input buy and sell orders directly into the system. Buyers and sellers are matched and the trade executed automatically. The SETS system is used for the largest most liquid UK shares.
Stock futures Futures in a particular company’s shares. Also called single stock futures.
Stock market A market in which securities are bought and sold. In continental Europe the term bourse may be used.
Stock-market-linked bond Offered by insurance companies, banks, building societies and other investment firms, they provide a return linked to stock market indices. The investor commits to holding the bond for, say, five years and is guaranteed a minimum amount back and may also benefit from a rise in the stock market.
Stock split Shareholders receive additional shares from the company without payment. The nominal (par) value of each share is reduced in proportion to the increase in the number of shares, so the total book value of shares remains the same.
Stock symbols (codes, tickers, EPIC, TIDM) Three or four letter abbreviations given to a company share which are used by stockbrokers and on financial websites as shorthand for the company.
Stock transfer form A form used to transfer ownership of shares without the use of a broker or a stock exchange.
Stocks and shares There is some lack of clarity as to the distinction between stocks and shares. Shares are equities in companies. Stocks are financial instruments that pay interest (e.g. bonds). However, in the USA shares are also called ‘common stocks’ and the shareholders are sometimes referred to as the stockholders. So when some people use the term ‘stocks’ they could be referring to either bonds or shares.
Stop-loss orders An order from an investor to a broker to sell if the share price breaches a lower threshold – used to limit possible losses. Stop-loss orders may also be used in derivative markets to prevent losses exceeding set limits with either a long or a short position.
Straight bond One with a regular fixed rate of interest and without the right of conversion (to, say, shares) or any other unusual rights.
Straight-line depreciation A fixed asset (non-current asset) is depreciated by the same amount each year over its useful life.
Strategic analysis The analysis of industries, products and markets served by the firm and the company’s competitive position within the industry.
Strategy Selecting which product or market areas to enter/exit and how to ensure a good competitive position in those markets/products.
Strike bid In a book-building exercise a potential institutional investor states that it will buy a given number of shares within the initial price range.
Strike price (1) In an offer for sale by a tender it is the price which is chosen to sell the required quantity of shares given the offers made. (2) The price paid by the holder of an option when/if the option is exercised.
Strips (Separate Trading of Registered Interest and Principal of Securities) bonds Bonds which can be broken down into their constituent parts, e.g. individual coupons, and these are then traded separately.
Strong form efficiency All relevant information, including that which is privately held, is reflected in the security (e.g. share) price.
Structured investment product Offered by insurance companies and other financial service companies, these collective investment vehicles invest most of the investor’s cash in bonds. Some is used to buy derivatives to allow the provider to offer the investor a stock-market-linked return (e.g. 100 per cent return of capital plus 55 per cent of the rise in the FTSE 100 index over five years). Examples include guaranteed equity bonds and precipice bonds.
Style An investment style is an approach or strategy to selecting shares for purchase (e.g. high- dividend yields, small companies).
Subordinated debt (Junior debt) A debt which ranks below another liability in order of priority for payment of interest or principal. Senior debt ranks above junior debt for payment.
Sub-prime mortgage A mortgage designed for people with a low credit score, charged at an interest rate above that for prime borrowers.
Subscription rights A right to subscribe for some shares.
Subsidiary A company is a subsidiary of another company if the parent company holds the majority of the voting rights (more than 50 per cent), or has a minority of the shares but has the right to appoint or remove directors which together hold a majority of the voting rights at meetings of the board on all, or substantially all, matters or it has the right to exercise a dominant influence.
Substitute Products or services that perform the same function (at least in approximate terms).
Sucker’s rally A rise in prices during a period of overall market decline. The temporary rise draws in investors fooled into believing that the downward drift has ended.
Summary financial statement Companies often send small investors a summary of the financial statements rather than the full report and accounts. This suits many investors and saves the company some money. However, an investor is entitled to receive the full annual report and accounts. It may be necessary to make a request for this or look at it online.
Super equivalent obligations The London Stock Exchange uses this term to indicate that the shares with its premium listing are meeting a higher standard of behavior and regulation as required by the UK Listing Authority (e.g. compliance with the UK Corporate Governance Code, The Model Code for Directors Dealings and asking shareholder approval for many actions) rather than those required merely by EU rules.
Supernormal returns A rate of return above the normal rate.
Surrender value The amount payable to an insurance policyholder (e.g. with-profits policy) when it is cancelled.
Swap An exchange of cash payment obligations. An interest rate swap is where one company arranges with a counterparty to exchange interest rate payments. In a currency swap the two parties exchange interest obligations (receipts) for an agreed period between two different currencies.
Swaption or swap-option An option to have a swap at a later date.
Sweep facility Automatic transfer of funds from one bank/savings/investment account to another, usually to maximise interest received.
Swinging single price When there are large numbers of buyers or sellers of shares in an open ended investment company the fund may incur high costs to buy/sell the underlying securities. To balance the interests of the old and new shareholders the new/leaving members may be charged an adjusted price for their shares which includes the transaction cost.
Switching cost The cost of changing supplier.
Syndicated loan A loan made by more than one bank to one borrower.
Synergy A combined entity (e.g. two companies merging) will have a value greater than the sum of the parts.
Synthetic replication The use of derivatives to replicate an index of underlying securities, e.g. for shares in the FTSE 100 index or gold, rather than buying the underlying physical security/commodity.
Systematic (undiversifiable or market or residual) risk That element of return variability from an asset which cannot be eliminated through diversification. Measured by beta. It comprises the risk factors common to all firms.
Systemic risk The risk of failure within the financial system causing a domino-type effect bringing down large parts of the system e.g. in 2008 the collapse of Lehman Brothers triggered the failure of many other financial institutions.
Safe haven A more secure investment in time of trouble, such as major financial turmoil. UK or US government bonds and Treasury bills, for example, are usually regarded as safe havens.
Sale and leaseback Assets (e.g. land and buildings) are sold to another firm (e.g. bank, insurance company) with a simultaneous agreement for the vendor to lease the asset back for a stated period under specific terms.
Sales charge A charge to an investor when he/she buys securities to cover administration costs.
Samurai bonds A foreign bond, yen-denominated, issued by a non-Japanese entity in the Japanese domestic market.
Scaledown In a new issue, when a company floats on a stock exchange, if demand is greater than supply at the offer price the applicants receive fewer shares than they applied for, according to a prearranged formula.
Scheme of arrangement A relatively quick and cheap way of combining two companies is a scheme of arrangement, whereby the target managers and the acquiring managers agree to allow the target shareholders to vote on a merger. If three-quarters vote in favour, and the arrangement is sanctioned by a court, then the scheme is binding on all shareholders. All the target shareholders are then required to sell to the acquirer. Thus the acquirer can avoid having a rump minority hanging on to their shares.
Scrip dividends Shareholders are offered the alternative of additional shares rather than a cash dividend.
Scrip issue The issue of more shares to existing shareholders in proportion to their current holdings. Shareholders do not pay for these shares. Company reserves are converted into issued capital.
Scuttlebutt Obtaining knowledge about a company by talking to a wide range of people who have had dealings with the corporation: customers, suppliers, employees, ex-employees etc.
SEAQ (Stock Exchange Automated Quotation) System A computer screen-based quotation system for securities where market makers on the London Stock Exchange report bid–offer prices and trading volumes, and brokers can observe prices and trades.
Seasoned equity offerings (SEOs) Companies that have been on a stock exchange for some time selling new shares (e.g. via a rights issue).
Second-tier markets Financial centres often establish more lightly regulated share markets alongside their main highly regulated markets. This allows companies with say a short trading history or with a low free-float of shares to obtain a quotation for their shares. Also the on-going rules are less strict, e.g. few requirements to inform all investors in writing of a major move.
Secondary buy-out (sale) A company that has been backed by private equity finance is then sold to another private equity firm(s).
Secondary listing Those companies that choose to make the London Stock Exchange their secondary listing – their primary listing will usually be on another stock exchange.
Secondary market Securities already issued are traded between investors.
Secondary purchase A private equity-backed company is sold to another private equity fund.
Securities and Exchange Commission (SEC) The US federal body responsible for the regulation of securities markets (exchanges, brokers, investment advisers, etc.).
Securities house This may mean simply a sponsor (a financial institution assisting a commercial firm with processes such as an IPO or bond issue). However, the term is sometimes used more broadly for an institution concerned with buying and selling securities or acting as agent in the buying and selling of securities.
Securitisation Financial payments (e.g. a claim to a number of mortgage payments) which are not tradable can be repackaged into other securities (e.g. a bond) and then sold. These are called asset-backed securities (ABSs).
Security (1) A financial asset, e.g. a share or bond. (2) Asset pledged to be surrendered in the event of a loan default.
SEDOL, Stock Exchange Daily Official List. Seven-character identification codes are assigned to securities that trade on the London Stock Exchange Official List.
Seed Enterprise Investment Scheme (SEIS) Tax relief is available to investors in qualifying company shares (unquoted firms not focused on financial investment and property, with under 25 employees and gross assets under £200,000).
Seedcorn capital or money (seed capital or money) The financing of the development of a business concept. High risk; usually provided by venture capitalists, entrepreneurs or business angels.
Self-invested personal pension (SIPP) Similar to a standard personal pension scheme except that the investor can select the shares, etc., that the fund is invested into. There are tax advantages in investing through a SIPP.
Self-regulation Much of the regulation of financial services in the UK is carried out by self-regulatory organisations (i.e. industry participants regulate themselves within a light-touch legislated framework).
Self-select ISA The investor can decide which shares, gilts, etc., should be bought for an individual savings account.
Selling the rights nil paid In a rights issue existing shareholders are entitled to sell the rights to the new shares without the need to purchase the new shares.
Sell-side Organisations in the securities business that help to create and trade securities and also sell their services to buy-side institutions and individuals (examples of sell-side organisations are investment banks, analysts, brokers and securities firms).
Semi-strong efficiency Share prices fully reflect all the relevant, publicly available information.
Senior debt A debt which ranks above junior debt for payment.
Serious Fraud Office Investigates and prosecutes crimes of serious or complex fraud and corruption exceeding £1 million in the UK.
SETS (Stock Exchange Electronic Trading System) An electronic order book-based trading system for the London Stock Exchange. Brokers, investors, and some market makers input buy and sell orders directly into the system. Buyers and sellers are matched and the trade executed automatically. The SETS system is used for the largest most liquid UK shares.
SETSqx (Stock Exchange Electronic Trading System – quotes and crosses) A share trading system run by the London Stock Exchange with a focus on lightly traded shares, with few trades per day.
Settlement The completion of a transaction, e.g. there is a transfer of ownership of a share from seller to buyer in return for a cash payment.
Settlement price The price calculated by a derivatives exchange at the end of each trading session as the closing price that will be used in determining profits and losses for the marking-to-market process for margin accounts.
Shadow banking Powerful non-banking organisations that move money and risk without involving banks, e.g. hedge funds, money market funds.
Share Companies divide the ownership of the company into ordinary shares. An owner of a share usually has the same rights to vote and receive dividends as another owner of a share. Also called equity. Shares other than ordinary shares may also be created which carry different rights e.g. preference shares.
Share buy-back The company buys back a proportion of its shares from shareholders.
Share certificate A document showing ownership of part of the share capital of a company.
Share exchange scheme Some unit trusts permit investors to purchase units with shares rather than cash.
Share market Institutions which facilitate the regulated sale and purchase of shares; includes the primary and secondary markets.
Share option scheme Employees are offered the right to buy shares in their company at a pre- agreed price some time in the future.
Share perks In addition to paying dividends to investors, some companies provide perks such as a reduced rate in hotels or on ferries owned by the company.
Share premium account A balance sheet entry representing the difference between the price received by a company when it sells shares and the par value of those shares.
Share repurchase The company buys back some of its own shares.
Share split (stock split) Shareholders receive additional shares from the company without payment. The nominal (par) value of each share is reduced in proportion to the increase in the number of shares, so the total book value of shares remains the same.
Shareholders’ funds (equity) The net assets of the business (after deduction of all short- and long-term liabilities and minority interests) shown in the balance sheet.
Sharpe’s ratio (Reward-to-variability ratio) A measure relating risk and return. The extent to which a portfolio’s (or share’s) return has been greater than a risk-free asset, divided by its standard deviation.
Shell company A company with a stock market quotation but with very little in the way of real economic activity. It may have cash but no production.
Short position In a derivative contract, the counterparty in a short position is the one that has agreed to deliver the underlying.
Short selling The selling of financial securities (e.g. shares) not yet owned (they are borrowed), in the anticipation of being able to buy at a later date at a lower price.
Short-term selectivity The buying or selling of a financial security based on the analysis of a corporation’s or an industry’s near-term business prospects.
Short-termism A charge levelled at the financial institutions in their expectations of the companies to which they provide finance. It is argued that long-term benefits are lost because of pressure for short-term performance.
Shorting The selling of financial securities (e.g. shares) not yet owned (they are borrowed), in the anticipation of being able to buy at a later date at a lower price.
Shorts Bonds (e.g. gilts) with less than seven years to maturity. Ultra-shorts are those with under 3 years to maturity.
Sight bank account (current account, cheque account) One where deposits can be withdrawn without notice.
Sigma A measure of dispersion of returns; same as standard deviation.
Signalling Some financial decisions are interpreted as signals from the managers to the financial markets (e.g. an increase in gearing, or a change in dividend policy).
Simple interest Interest is paid on the original principal: no interest is paid on the accumulated interest payments.
Simple yield on a fixed-interest security is the gross interest amount, divided by the current market price, expressed as a percentage.
Single premium bond An insurance plan with a small amount of life cover. The money contributed by the policyholder is invested to provide returns after a number of years.
Small claims court A fast and relatively informal way to deal with complaints and claims e.g. for financial loss.
Small firm effect (Size effect) The tendency of small firms to give abnormally high returns on the stock market as observed in some academic studies, but not in others.
Smoothing A collective investment fund manager, such as a with-profits fund manager, holds back profits from investors in good years so that they can continue with bonuses in poor years.
Social technology Tools of social organisation that allow for the better working of society. Examples include: laws on limited liability, corporate entities and financial market regulations; accepted norms of behaviour; widespread knowledge of the way in which processes work, such as stock market buying and selling.
Society of Lloyds (Lloyds) A medium-sized insurance business in London founded over two centuries ago. ‘Names’ supply the capital to back insurance policies. Names can now be limited liability companies rather than individuals with unlimited liability to pay up on an insurance policy.
Solvency The ability to pay debts as and when they become due.
South Sea Bubble A financial bubble in which the price of shares in the South Sea Company were pushed to ridiculously high levels on a surge of over-optimism in the early eighteenth century. See Bubble.
Sovereign debt Debt (e.g. bond) issued by a government.
Sovereign wealth fund (SWF) Run by governments on behalf of their people for the long term, investing, say oil income, in shares and other assets around the world.
Special dividend An exceptionally large dividend paid on a one-off basis.
Special-purpose vehicle or entity (SPV, SPE) Companies set these up as separate organisations (usually as limited companies) for a particular purpose. They are designed so that their accounts are not consolidated with the rest of the group.
Special resolution A company’s shareholders’ vote at a AGM or EGM with a majority of 75 per cent of those voting in favour for it to be carried. Normally special resolutions are reserved for important changes in the constitution of the company. Other matters are normally dealt with by way of ordinary resolution (50 per cent or more of the votes required).
Specific inflation The price changes in an individual good or service.
Speculative grade Bonds with a credit rating below investment grade.
Speculators Those who take a position in financial instruments and other assets with a view to obtaining a profit on changes in their market price. They do not thoroughly understand the underlying business, buy only when there is a large margin of safety, nor expect only reasonable returns, as investors do.
Split-capital investment trusts These investment trusts simultaneously issue different types of shares. Income shares entitle the holder to receive all (or most) of the income from the portfolio. Capital shares entitle the owner to receive all (or most of) the rise in the capital value of the portfolio. Zero divided preference shares (Zeros) pay no income but do offer a predetermined return at the end of the trust’s life.
Sponsor An organisation (usually an investment bank or stockbroker) that lends its reputation to a new issue of securities, advises the client company (along with the issuing broker) and co-ordinates the new issue process. Also called an issuing house.
Sponsored membership of CREST Investors hold shares in their own accounts with CREST rather than in a broker’s nominee company or in certificated form.
Spot market A market for immediate transactions (e.g. spot forex market, spot interest market), as opposed to an agreement to make a transaction at some time in the future (e.g. forward, option, future).
Spread The difference between the price to buy and the price to sell a financial security. Market makers quote a bid–offer spread for shares. The lower price (bid) is the price an investor receives if selling to the market maker. The higher (offer) price is the price if the investor wishes to buy from the market maker.
Spread betting Laying a bet with a spread betting company that a particular outcome will occur in the future (e.g. that a share price will rise). You bet, say, £10 for every 1p rise.
Square mile A collective term for the financial institutions located in the financial district to the east of St Paul’s Cathedral in London (also called the City of London).
Stagging Buying shares in a new issue and then selling immediately the shares begin trading on the market.
Stakeholder A party with an interest (financial or otherwise) in an organisation, e.g. employees, customers, suppliers, the local community.
Stakeholder pension Similar to a standard personal pension except that there are low management charges, contributions can be small and the investor can move to another provider easily. Even non-taxpayers can claim back assumed tax paid on income.
Stamp duty A tax levied on share purchase on the Main Market of the London Stock Exchange (0.5 per cent of the new purchase value).
Standard & Poor’s A leading credit rating agency and financial information provider.
Standard & Poor’s 500 (S&P 500) An index of US shares.
Standard deviation A statistical measure of the dispersion around an average (a mean). A measure of volatility. The standard deviation is the square root of the variance. A fund’s or a share’s return can be expected to fall within one standard deviation of its average two- thirds of the time if the future is like the past.
Standard Listing This is a quality of listing on the Main Market of the London Stock Exchange for the issuance of equity shares, Global Depositary Receipts (GDRs), debt securities and securitised derivatives that are expected merely to comply with EU minimum requirements. A Standard Listing allows issuers to access the Main Market by meeting EU harmonised standards. Most UK Main Market companies subject themselves to higher standards under the Main Market’s Premium Listing rules (e.g. three years of accounts, shareholder approval required for a number of actions), thus providing greater reassurance to their investors.
Start-up capital Finance for young companies which have not yet sold their product commercially. High risk; usually provided by venture capitalists, entrepreneurs or business angels.
Start-up companies Companies with a limited or non-existent trading history.
Statement of cash flows Alternative title for cash flow statement.
Statement of changes in equity Includes the profit shown in the profit and loss account plus all other gains and losses that are not permitted in the profit and loss account such as surpluses or deficits on revaluation of fixed assets, currency translation gains and losses.
Statement of financial position The term for balance sheet under International Accounting Standards.
Statutory Established, regulated or imposed by or in conformity with laws passed by a legislative body (e.g. Parliament).
Sterling bonds Corporate bonds which pay interest and principal in pounds sterling.
Stock (1) Inventory of raw materials, work-in-progress and finished items. (2) US term for a share.
Stockbroker (1) A regulated professional who arranges the buying and selling of shares and other securities for investors. (2) (Corporate broker) Assists corporations in representing themselves to the financial markets, advises the company on market conditions and for fund raising. May match buyers and sellers of the client firm’s securities.
Stock exchange A market in which securities are bought and sold. In continental Europe the term bourse may be used.
Stock Exchange Automated Quotation (SEAQ) A computer screen-based quotation system for securities where market makers on the London Stock Exchange report bid–offer prices and trading volumes, and brokers can observe prices and trades.
Stock Exchange Electronic Trading System (SETS) An electronic order book-based trading system for the London Stock Exchange. Brokers, investors, and some market makers input buy and sell orders directly into the system. Buyers and sellers are matched and the trade executed automatically. The SETS system is used for the largest most liquid UK shares.
Stock futures Futures in a particular company’s shares. Also called single stock futures.
Stock market A market in which securities are bought and sold. In continental Europe the term bourse may be used.
Stock-market-linked bond Offered by insurance companies, banks, building societies and other investment firms, they provide a return linked to stock market indices. The investor commits to holding the bond for, say, five years and is guaranteed a minimum amount back and may also benefit from a rise in the stock market.
Stock split Shareholders receive additional shares from the company without payment. The nominal (par) value of each share is reduced in proportion to the increase in the number of shares, so the total book value of shares remains the same.
Stock symbols (codes, tickers, EPIC, TIDM) Three or four letter abbreviations given to a company share which are used by stockbrokers and on financial websites as shorthand for the company.
Stock transfer form A form used to transfer ownership of shares without the use of a broker or a stock exchange.
Stocks and shares There is some lack of clarity as to the distinction between stocks and shares. Shares are equities in companies. Stocks are financial instruments that pay interest (e.g. bonds). However, in the USA shares are also called ‘common stocks’ and the shareholders are sometimes referred to as the stockholders. So when some people use the term ‘stocks’ they could be referring to either bonds or shares.
Stop-loss orders An order from an investor to a broker to sell if the share price breaches a lower threshold – used to limit possible losses. Stop-loss orders may also be used in derivative markets to prevent losses exceeding set limits with either a long or a short position.
Straight bond One with a regular fixed rate of interest and without the right of conversion (to, say, shares) or any other unusual rights.
Straight-line depreciation A fixed asset (non-current asset) is depreciated by the same amount each year over its useful life.
Strategic analysis The analysis of industries, products and markets served by the firm and the company’s competitive position within the industry.
Strategy Selecting which product or market areas to enter/exit and how to ensure a good competitive position in those markets/products.
Strike bid In a book-building exercise a potential institutional investor states that it will buy a given number of shares within the initial price range.
Strike price (1) In an offer for sale by a tender it is the price which is chosen to sell the required quantity of shares given the offers made. (2) The price paid by the holder of an option when/if the option is exercised.
Strips (Separate Trading of Registered Interest and Principal of Securities) bonds Bonds which can be broken down into their constituent parts, e.g. individual coupons, and these are then traded separately.
Strong form efficiency All relevant information, including that which is privately held, is reflected in the security (e.g. share) price.
Structured investment product Offered by insurance companies and other financial service companies, these collective investment vehicles invest most of the investor’s cash in bonds. Some is used to buy derivatives to allow the provider to offer the investor a stock-market-linked return (e.g. 100 per cent return of capital plus 55 per cent of the rise in the FTSE 100 index over five years). Examples include guaranteed equity bonds and precipice bonds.
Style An investment style is an approach or strategy to selecting shares for purchase (e.g. high- dividend yields, small companies).
Subordinated debt (Junior debt) A debt which ranks below another liability in order of priority for payment of interest or principal. Senior debt ranks above junior debt for payment.
Sub-prime mortgage A mortgage designed for people with a low credit score, charged at an interest rate above that for prime borrowers.
Subscription rights A right to subscribe for some shares.
Subsidiary A company is a subsidiary of another company if the parent company holds the majority of the voting rights (more than 50 per cent), or has a minority of the shares but has the right to appoint or remove directors which together hold a majority of the voting rights at meetings of the board on all, or substantially all, matters or it has the right to exercise a dominant influence.
Substitute Products or services that perform the same function (at least in approximate terms).
Sucker’s rally A rise in prices during a period of overall market decline. The temporary rise draws in investors fooled into believing that the downward drift has ended.
Summary financial statement Companies often send small investors a summary of the financial statements rather than the full report and accounts. This suits many investors and saves the company some money. However, an investor is entitled to receive the full annual report and accounts. It may be necessary to make a request for this or look at it online.
Super equivalent obligations The London Stock Exchange uses this term to indicate that the shares with its premium listing are meeting a higher standard of behavior and regulation as required by the UK Listing Authority (e.g. compliance with the UK Corporate Governance Code, The Model Code for Directors Dealings and asking shareholder approval for many actions) rather than those required merely by EU rules.
Supernormal returns A rate of return above the normal rate.
Surrender value The amount payable to an insurance policyholder (e.g. with-profits policy) when it is cancelled.
Swap An exchange of cash payment obligations. An interest rate swap is where one company arranges with a counterparty to exchange interest rate payments. In a currency swap the two parties exchange interest obligations (receipts) for an agreed period between two different currencies.
Swaption or swap-option An option to have a swap at a later date.
Sweep facility Automatic transfer of funds from one bank/savings/investment account to another, usually to maximise interest received.
Swinging single price When there are large numbers of buyers or sellers of shares in an open ended investment company the fund may incur high costs to buy/sell the underlying securities. To balance the interests of the old and new shareholders the new/leaving members may be charged an adjusted price for their shares which includes the transaction cost.
Switching cost The cost of changing supplier.
Syndicated loan A loan made by more than one bank to one borrower.
Synergy A combined entity (e.g. two companies merging) will have a value greater than the sum of the parts.
Synthetic replication The use of derivatives to replicate an index of underlying securities, e.g. for shares in the FTSE 100 index or gold, rather than buying the underlying physical security/commodity.
Systematic (undiversifiable or market or residual) risk That element of return variability from an asset which cannot be eliminated through diversification. Measured by beta. It comprises the risk factors common to all firms.
Systemic risk The risk of failure within the financial system causing a domino-type effect bringing down large parts of the system e.g. in 2008 the collapse of Lehman Brothers triggered the failure of many other financial institutions.