‘A’ shares Sometimes the ‘A’ shares are the ordinary shares that carry fewer or no votes. However, in many companies ‘A’ shares carry more votes than the ‘B’ shares. The shares may also differ with regard to the size of the dividend.
Abandon The choice made by a holder of a warrant or option to allow it to expire without exercise.
Abnormal return (residual return) A return greater than the market return after adjusting for differences in risk.
Accounting rate of return, ARR. A measure of profitability based on accounting numbers. Profit divided by assets devoted to the activity (e.g. project, entire business) as a percentage.
Accounting standards A set of formal rules and conventions set by the accounting profession to calculate accounting numbers.
Accounts payable Short-term debts owed by a firm to its creditors for goods and services received. In the UK ‘creditors’ is often used.
Accounts receivable Customer debts to this company. In the UK ‘debtors’ is often used.
Accumulation (Acc) units Unit trust units that reinvest income (e.g. dividends) earned from a portfolio, on behalf of unit holders, in more units. Also applies to open-ended investment companies.
Acid test The ratio of current assets, less inventory (stock), to total current liabilities.
Acquisition (Takeover) Many people use these terms interchangeably with ‘merger’. However, some differentiate ‘takeover’ as meaning a purchase of one firm by another with the concomitant implication of financial and managerial domination. Usually applied to hostile (without target management approval) mergers.
Acquisition premium The additional amount an acquirer has to offer above the pre-bid share price in order to succeed in a takeover offer.
Actively managed fund The managers of the fund spend time and effort carefully selecting shares or other investments (the costs of this are passed on to investors) to try to outperform the market index.
Activist strategy Buying shares in a company and then pressing for changes in management policy which will result in a profit on the shares, e.g. raising dividends, selling off assets. Activists might press for changes in directors (often placing own people on the board) and for a sale of the company.
Actuary A person who makes a judgement on whether a fund has enough assets to deliver on its promises (e.g. to pensioners). The actuary is then able to suggest appropriate premium levels to raise or lower total assets.
Adjusted earnings per share Directors produce these profit per share numbers by excluding one-off costs, exceptional items and goodwill amortisation to show underlying profit-per-share trend (or just to make the managerial performance look better).
Administered prices Prices controlled by some authority (e.g. Government).
Administration An administrator, ‘administrative receiver’, takes over the running of a distressed company to help it survive and avoid liquidation. This follows the company’s failure to abide by loan agreements. Administrators often keep the business running as a going concern, but may conclude that they have no alternative to liquidation to release money for the creditors.
Admission document for the Alternative Investment Market This is required for a company to be admitted to trade on AIM in the first instance. It is similar to a prospectus.
Advisory service A type of service provided by a stockbroker in which the broker will offer advice prior to the investor’s purchase or sale. The decision on whether to carry out a transaction still rests with the investor, unlike with a discretionary service.
Affirmative covenants Loan agreement conditions that require positive action on the part of the borrower, e.g. a statement that a bond will pay regular coupons, or that information will be regularly distributed.
Agency Acting for or in the place of another with his/her/its authority.
Aggressive shares Shares having a beta value greater than 1.
AGM A limited company must hold in each calendar year an annual general meeting. This is an opportunity for shareholders to meet and talk with each other and with those who run the company on their behalf. The managers give an account of their stewardship. All shareholders are entitled to attend and vote. Election of directors may take place.
AIC, Association of Investment Companies. Trade body for the closed-ended investment company industry (e.g. investment trusts, venture capital trusts).
AIM The lightly regulated share market operated by the London Stock Exchange, focused particularly on smaller, less well-established companies.
Allocation of capital (or resources) The mechanism for selecting competing investment projects leading to the production of a mixture of goods and services by a society. This can be influenced by the forces of supply and demand, and by central authority direction. The term may also be used for the selection of securities (e.g. shares) by investors, or business units and activities by managers.
Allocational efficiency of markets Efficiency in the process of allocating society’s scarce resources between competing real investments.
Allotment In a new issue of shares, if more shares are demanded at the price than are available, they may be apportioned (allotted) between the applicants.
Allowance An amount of income or capital gain that is not taxed.
All-paper deal When a bidder offers to buy shares in a target the payment is entirely in the form of shares in the bidder.
Alpha (alpha coefficient α) A measure of market outperformance (underperformance) after allowing for beta. That portion of a share’s return that cannot be explained by its responsiveness to moves in the market as a whole. Sometimes called stock-specific return.
Alternative investment Outside of the mainstream (e.g. art, stamps, coins, wine, hedge funds, venture capital).
Alternative Investment Market (AIM) The lightly regulated share market operated by the London Stock Exchange, focused particularly on smaller, less well-established companies.
American Depositary Receipts (ADRs) Depositary receipts issued in the USA.
American-style option (American option) An option which can be exercised by the purchaser at any time up to the expiry date.
Amortisation (1) The repayment of a debt by a series of instalments; (2) the balance sheet value of intangible assets that are gradually written off, such as goodwill.
Amortised the balance sheet value of intangible assets that are gradually written off, such as goodwill.
Analyst A researcher of companies’ prospects and predictor of their share price performance. Also analyses other securities.
Angel Wealthy individual prepared to invest about £10,000 to £250,000 in a start-up, early-stage or developing firm. They will often have managerial and/or technical experience to offer the management team as well as equity and debt finance. This is medium- to long-term investment in high-risk situations..
Annual bonus The bonus given by an insurance company to with-profits policy holders.
Annual Equivalent Rate (AER) The true annual interest rate charged by a lender, it takes full account of the timing of payments of interest and principal.
Annual exempt amount Under the capital gains tax rules of the UK Her Majesty’s Revenue and Customs permits this tax-free allowance. Those that have made a capital gain only pay tax on total realised gains above this amount.
Annual general meeting (AGM) A limited company must hold in each calendar year an annual general meeting. This is an opportunity for shareholders to meet and talk with each other and with those who run the company on their behalf. The managers give an account of their stewardship. All shareholders are entitled to attend and vote. Election of directors may take place.
Annual management charge (AMC) Collective (pooled) investment fund managers deduct a fee to pay for their time plus other costs of running the fund.
Annual percentage rate (APR) The true annual interest rate charged by a lender, it takes full account of the timing of payments of interest and principal.
Annual results Annual company accounts. This term is often used for the preliminary results.
Annuity (1) (General) An even stream of payments (same amount each time) over a given period of time with a fixed frequency of payments (usually annual). (2) (Insurance) In return for either regular payments or a lump sum payment, which is invested by the
receiving company, the insured or their spouse will receive regular income payments either for a set time or until death.
Annuity due An annuity where the cash flows occur at the start of each period rather than at the end – the first payment is due now, not in one year’s time.
Appropriable resource The resource which supplies value must be one that allows the company to capture the value rather than allow it to be captured by another organisation or individual(s).
Arbitrage The act of exploiting price differences on the same instrument or similar securities by simultaneously selling the overpriced security and buying the underpriced security.
Arbitration An arbitrator decides on a just settlement between a complainant and a financial services firm. The decision is binding on both parties.
Arrangement fee A fee for agreeing and setting up a financial transaction such as a bank loan.
Articles of association Internal rules governing a company. These can be unique to the company if true to company law.
Asset In the financial market, anything that can be traded as a security (e.g. share, option, commodity, bond).
Asset allocation An investment methodology which specifies the proportion of funds to be invested in different asset classes (e.g. property, shares, bonds).
Asset-backed securities (ABS) 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).
Asset backing The value of the assets held in the business – often measured on a per share basis.
Asset class Asset type (e.g. bonds, shares).
Asset liquidity The extent to which assets can be converted to cash quickly, at a low transaction cost and without lowering the price.
Asset lock-up In a hostile takeover situation, the target sells to a friendly firm those parts of the business most attractive to the bidder.
Asset 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).
Asset stripping Taking over a company and selling off all or some of the assets.
Asset transformers Intermediaries who, by creating a completely new security – the intermediate security – mobilise savings and encourage investment. The primary security is issued by the ultimate borrower to the intermediary, who offers intermediate securities to the primary investors.
Assets-available-for-sale In this category assets are revalued at each balance sheet date and any unrealised (not yet actually sold) gains or losses go through the balance sheet without raising or lowering profits for the period between two balance sheets.
Assets held for trading A category of balance sheet assets which are revalued at each balance sheet date even if not sold, mostly using fair value estimates. Any gain between balance sheet dates is recognised in earnings, i.e. profits are boosted.
Assets-held-to-maturity Assets such as many financial securities are put in a company’s balance sheet at amortised cost less impairment.
Associated company A company in which an investor (usually a holding company) holds a participating interest and exercises significant influence. ‘Interest’ includes shares, options and convertible securities. ‘Participating’ means the interest is held on a long-term basis and there is significant influence. Usually a 20 per cent or more holding of the shares is presumed to be participating.
Association of Investment Companies Trade body for the closed-ended investment company industry (e.g. investment trusts, venture capital trusts).
Asymmetric information Situation where one party in a negotiation or relationship is not in the same position as other parties, being ignorant of, or unable to observe, some information which is essential to the contracting and decision-making process.
At best A type of buy or sell instruction given by an investor to a broker. The trade is to be completed immediately at the best price available.
At-the-money option The current underlying price is equal to the option exercise price.
Attribute markets Subsections of London Stock Exchange’s Main Market consisting of firms with common characteristics – for example, technologically led as with techMARK.
Audit committee A committee of company independent non-executive directors responsible for validating their company’s financial figures (e.g. by appointing effective external auditors).
Auditor An auditor determines whether a company’s financial statements are misleading and whether the accounts present a true and fair picture.
AUT (Authorised unit trust) One approved by the Financial Conduct Authority for sale in the UK.
Authorised but unissued ordinary share capital Shares that have not yet been sold by the company to investors. However, they have been created (authorised by shareholders) and may be sold or given to existing shareholders or sold to new shareholders.
Authorised corporate director (ACD) Manages and invests the funds in an open ended investment company.
Authorised participants At the heart of the creation of exchange traded funds are authorised participants (often market makers) who exchange a portfolio of underlying securities, e.g. shares of the FTSE 100 index, for ETF shares delivered by the ETF. The authorised participant can then sell the ETF shares in the market. Authorised participants can also sell ETF shares to the fund to receive the underlying securities.
Authorised share capital The maximum amount of share capital that a company can issue. The limit can be changed by a shareholder vote.
Authorised unit trust (AUT) One approved by the Financial Conduct Authority for sale in the UK.
Back office That part of a financial institution which deals with the settlement of contracts, accounting, regulatory matters and management information processes.
Bad debts Debts that are unlikely to be paid.
Balance sheet Summary of assets and liabilities, showing what a company owns, owes and is owed on a particular day in the past.
Ballot In a new issue of shares when a company floats on a stock exchange, if the demand is greater than supply, the shares are allocated to some applicants but not others, selected at random.
Bancassurance Companies offering both banking and insurance.
Bank covenant A solemn agreement.
Bank of England The central bank of the United Kingdom, responsible for monetary policy and the safety and soundness of banks, clearing houses and other financial institutions, as well as the financial system as a whole. It issues banknotes and coins, manages the national debt and exchange rate, and is lender of last resort.
Bankruptcy Commonly used to describe an individual or company that cannot meet its fixed commitments on borrowing which leads to legal action. However, technically, in the UK, individuals become bankrupt whereas companies become insolvent
and liquidated.
Bargain A term used interchangeably with the term ‘a contract to buy/sell shares’.
Barriers to entry The obstacles that a company entering a market for the first time has to overcome to do well in that market.
Base rate The reference rate of interest set by banks that forms the basis for interest rates on bank loans, overdrafts and deposit rates.
Basic earnings per share Includes deductions from profit of one-off exceptional items.
Basis point (bp) One-hundredth of 1 per cent, usually applied to interest rates.
Bear An investor who takes the view that prices are likely to fall.
Bear fund Designed to do well when shares are falling in price.
Bearer bond The ownership of a bond is not recorded on a register. Possession of the bond is sufficient to receive interest, etc.
Bed and breakfasting shares Selling shares to realise a gain below the annual threshold for capital gains tax. This is followed by a repurchase the next day.
Bed and ISA Selling shares (or funds) in an investment account and then purchasing identical shares in an ISA account. This can take advantage of annual capital gains tax allowances.
Bed and SIPP Selling shares (or funds) in an investment account and then purchasing identical shares in a self-invested personal pension. This action can take advantage of annual capital gains tax allowances.
Bed and spousing Selling shares to realise a gain below the annual threshold for capital gains tax. This is followed by a spouse (or civil partner) repurchasing the shares in the market.
Bells and whistles Additional features placed on derivatives or securities (such as bonds) that are designed to attract investors or reduce issue costs.
Benchmark index An index of shares or other securities that sets a standard for fund manager performance; for example, a fund manager controlling a portfolio of pharmaceutical shares would measure performance against a pharmaceutical index. This is calculated by an independent person to be representative of the sector.
Best execution A broker must carry out a transaction on behalf of a client at the best possible price available at the time.
Beta This measures the systematic risk of a financial security. It is a measure of sensitivity of a financial security’s return to market movements. In practice a proxy (e.g. the FTSE 100 index) is used for the market portfolio.
Bid–offer spread (‘Bid-ask spread’ in the USA) The difference between the market maker’s buy and sell prices.
Bid premium The additional amount an acquirer has to offer above the pre-bid share price in order to succeed in a takeover offer.
Bid price The price at which a market maker will buy shares or a dealer in other markets will buy a security or commodity.
Bid yield The yield to maturity on a bond given the market price at which the market makers will buy from investors.
Big Bang A term used for a collection of deregulatory and liberalising reforms to the running of share trading in the UK implemented in 1986.
Bill of exchange A document which sets out a commitment to pay a sum of money at a specified point in time (e.g. an importer commits itself to paying a supplier). Bills of exchange may be discounted – that is, sold before maturity for less than face value.
BIMBO Buy-in management buy-out: a combination of a management buy-out and a buy-in. Outside managers join forces with existing managers to take over a company, subsidiary o unit.
Binary bets Book makers (spread betting firms) accept bets from punters on financial movements. The spread quoted is calculated as a market movement in a chosen direction – up or down within a time frame, say one day, e.g. the quoted spread on the FTSE 100 is 60–61. If you make an ‘up’ bet (the FTSE will end the day higher) then you will win 100 – 61 = 39 times your stake. If the index falls you lose 60 times the stake.
Black Monday 19 October 1987, the date of a large fall in stock market prices. Also Monday 28 October 1929 in the USA.
Blue chip A company/share regarded as of the highest quality; regarded (often mistakenly) as safest.
Board of directors People elected by shareholders to run a company.
Boiler room scam Fraudsters telephone and email people to persuade them, through hard sell, to buy worthless or near-worthless shares. They base themselves in a country beyond the reach of the regulators and criminal authorities and ask people to transfer money to their bank accounts conveniently located in a place (country) where the police cannot easily track.
Bond A debt obligation with a long-term maturity (more than one year), usually issued by firms and governments.
Bond covenant A solemn agreement.
Bonus 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..
Book-building A book runner (lead manager) invites major institutional investors to suggest how many shares, bonds, etc. they would be interested in purchasing and at what price in a new issue or secondary issue of securities. This helps to establish the price and allocate the financial assets.
Book-to-market ratio (Book-equity to market-equity ratio) The ratio of a firm’s balance sheet net asset value to the total market value of its shares.
Book value Balance sheet value as in ‘net assets’. This can be expressed on a per share basis.
Bootstrapping game Companies increase earnings per share by acquiring other companies with lower price–earnings ratios than themselves. Share price can rise despite the absence of economic value gain.
Borrowing capacity Limits to total borrowing levels imposed by lenders, often determined by available collateral.
Bottom fishing Looking for value among shares that have fallen sharply.
Bottom line Profit attributable to the shareholders produced by a company over a period of time, e.g. one year.
Bottom up Analysis of shares or markets where priority is given to individual firm prospects rather than macroeconomic prospects and asset allocation.
Bought deal An investment bank (the ‘lead manager’, perhaps together with co-managers of the issue), buys an entire security issue (e.g. shares) from a client corporation raising finance. The investment bank usually intends to sell it on to institutional clients within hours.
Bourse Alternative name for a stock exchange. A French word, but used in other countries, particularly in Continental Europe.
Break-even analysis Analysing the level of sales at which a project, division or business produces a zero profit (accounting emphasis).
Break-out In chartism the point where a share breaks out of an established pattern.
Break-up value The total value of separate parts of the company if the parts are sold off to the highest bidder.
Broker/brokerage Assists in the buying and selling of financial securities by acting as a ‘go-between’, helping to reduce search, transaction and information costs – also see Corporate broker for a different type.
Broker-dealer An individual acting as agent for buyers and sellers, but who, at the same time, trades for his own account and may be a market maker.
Broking account An account with a stockbroker used by an investor to deposit and withdraw cash in the course of share and other security transactions.
Bubble An explosive upward movement in financial security or other asset prices not based on fundamentally rational factors, followed by a sharp decline (a crash).
Bubble stock Shares buoyed up by market optimism. Such optimism is not based on any rational standards of value.
Budget (national) Sets out government expenditure and revenue for the financial year. In the UK it is presented to Parliament by the Chancellor of the Exchequer.
Building society A UK financial institution, the primary role of which is the provision of mortgages. Building societies are non-profit-making mutual organisations. Funding is mostly through small deposits by individuals.
Bulge bracket A leading investment bank.
Bull An investor taking the view that prices will rise.
Bull market A market of rising prices.
Bulldog A foreign bond issued in the UK.
Bullet bond A bond where all the principal on a loan is repaid at maturity.
Bulletin board Financial websites often host these for each stock market quoted company, allowing investors to post discussion points for others to read and respond to.
Business angel (informal venture capitalist) Wealthy individual prepared to invest about £10,000 to £250,000 in a start-up, early-stage or developing firm. They will often have managerial and/or technical experience to offer the management team as well as equity and debt finance. This is medium- to long-term investment in high-risk situations.
Business review Required by all UK companies other than the small ones, the business review in the annual report provides an analysis of the development and performance of the business(es) during the year and an assessment of the position of the firm at the year-end in terms of strategy, risk, efficiency and progress.
Business risk The risk associated with the underlying operations of a business. The variability of the firm’s operating income before interest: this dispersion is caused purely by business-related factors and not by the debt burden.
Buy-and-hold investor Investor who tends to trade infrequently.
Buyers’ strike When there are many sellers of a financial security and buyers are difficult or impossible to find.
Buy-side Investors, and those who act or advise on their behalf (e.g. investment institutions), who purchase securities and the services offered by the sell-side institutions.
BVCA, British Private Equity and Venture Capital Association. The UK industry body and public policy advocate for the private equity and venture capital industry.
Abandon The choice made by a holder of a warrant or option to allow it to expire without exercise.
Abnormal return (residual return) A return greater than the market return after adjusting for differences in risk.
Accounting rate of return, ARR. A measure of profitability based on accounting numbers. Profit divided by assets devoted to the activity (e.g. project, entire business) as a percentage.
Accounting standards A set of formal rules and conventions set by the accounting profession to calculate accounting numbers.
Accounts payable Short-term debts owed by a firm to its creditors for goods and services received. In the UK ‘creditors’ is often used.
Accounts receivable Customer debts to this company. In the UK ‘debtors’ is often used.
Accumulation (Acc) units Unit trust units that reinvest income (e.g. dividends) earned from a portfolio, on behalf of unit holders, in more units. Also applies to open-ended investment companies.
Acid test The ratio of current assets, less inventory (stock), to total current liabilities.
Acquisition (Takeover) Many people use these terms interchangeably with ‘merger’. However, some differentiate ‘takeover’ as meaning a purchase of one firm by another with the concomitant implication of financial and managerial domination. Usually applied to hostile (without target management approval) mergers.
Acquisition premium The additional amount an acquirer has to offer above the pre-bid share price in order to succeed in a takeover offer.
Actively managed fund The managers of the fund spend time and effort carefully selecting shares or other investments (the costs of this are passed on to investors) to try to outperform the market index.
Activist strategy Buying shares in a company and then pressing for changes in management policy which will result in a profit on the shares, e.g. raising dividends, selling off assets. Activists might press for changes in directors (often placing own people on the board) and for a sale of the company.
Actuary A person who makes a judgement on whether a fund has enough assets to deliver on its promises (e.g. to pensioners). The actuary is then able to suggest appropriate premium levels to raise or lower total assets.
Adjusted earnings per share Directors produce these profit per share numbers by excluding one-off costs, exceptional items and goodwill amortisation to show underlying profit-per-share trend (or just to make the managerial performance look better).
Administered prices Prices controlled by some authority (e.g. Government).
Administration An administrator, ‘administrative receiver’, takes over the running of a distressed company to help it survive and avoid liquidation. This follows the company’s failure to abide by loan agreements. Administrators often keep the business running as a going concern, but may conclude that they have no alternative to liquidation to release money for the creditors.
Admission document for the Alternative Investment Market This is required for a company to be admitted to trade on AIM in the first instance. It is similar to a prospectus.
Advisory service A type of service provided by a stockbroker in which the broker will offer advice prior to the investor’s purchase or sale. The decision on whether to carry out a transaction still rests with the investor, unlike with a discretionary service.
Affirmative covenants Loan agreement conditions that require positive action on the part of the borrower, e.g. a statement that a bond will pay regular coupons, or that information will be regularly distributed.
Agency Acting for or in the place of another with his/her/its authority.
Aggressive shares Shares having a beta value greater than 1.
AGM A limited company must hold in each calendar year an annual general meeting. This is an opportunity for shareholders to meet and talk with each other and with those who run the company on their behalf. The managers give an account of their stewardship. All shareholders are entitled to attend and vote. Election of directors may take place.
AIC, Association of Investment Companies. Trade body for the closed-ended investment company industry (e.g. investment trusts, venture capital trusts).
AIM The lightly regulated share market operated by the London Stock Exchange, focused particularly on smaller, less well-established companies.
Allocation of capital (or resources) The mechanism for selecting competing investment projects leading to the production of a mixture of goods and services by a society. This can be influenced by the forces of supply and demand, and by central authority direction. The term may also be used for the selection of securities (e.g. shares) by investors, or business units and activities by managers.
Allocational efficiency of markets Efficiency in the process of allocating society’s scarce resources between competing real investments.
Allotment In a new issue of shares, if more shares are demanded at the price than are available, they may be apportioned (allotted) between the applicants.
Allowance An amount of income or capital gain that is not taxed.
All-paper deal When a bidder offers to buy shares in a target the payment is entirely in the form of shares in the bidder.
Alpha (alpha coefficient α) A measure of market outperformance (underperformance) after allowing for beta. That portion of a share’s return that cannot be explained by its responsiveness to moves in the market as a whole. Sometimes called stock-specific return.
Alternative investment Outside of the mainstream (e.g. art, stamps, coins, wine, hedge funds, venture capital).
Alternative Investment Market (AIM) The lightly regulated share market operated by the London Stock Exchange, focused particularly on smaller, less well-established companies.
American Depositary Receipts (ADRs) Depositary receipts issued in the USA.
American-style option (American option) An option which can be exercised by the purchaser at any time up to the expiry date.
Amortisation (1) The repayment of a debt by a series of instalments; (2) the balance sheet value of intangible assets that are gradually written off, such as goodwill.
Amortised the balance sheet value of intangible assets that are gradually written off, such as goodwill.
Analyst A researcher of companies’ prospects and predictor of their share price performance. Also analyses other securities.
Angel Wealthy individual prepared to invest about £10,000 to £250,000 in a start-up, early-stage or developing firm. They will often have managerial and/or technical experience to offer the management team as well as equity and debt finance. This is medium- to long-term investment in high-risk situations..
Annual bonus The bonus given by an insurance company to with-profits policy holders.
Annual Equivalent Rate (AER) The true annual interest rate charged by a lender, it takes full account of the timing of payments of interest and principal.
Annual exempt amount Under the capital gains tax rules of the UK Her Majesty’s Revenue and Customs permits this tax-free allowance. Those that have made a capital gain only pay tax on total realised gains above this amount.
Annual general meeting (AGM) A limited company must hold in each calendar year an annual general meeting. This is an opportunity for shareholders to meet and talk with each other and with those who run the company on their behalf. The managers give an account of their stewardship. All shareholders are entitled to attend and vote. Election of directors may take place.
Annual management charge (AMC) Collective (pooled) investment fund managers deduct a fee to pay for their time plus other costs of running the fund.
Annual percentage rate (APR) The true annual interest rate charged by a lender, it takes full account of the timing of payments of interest and principal.
Annual results Annual company accounts. This term is often used for the preliminary results.
Annuity (1) (General) An even stream of payments (same amount each time) over a given period of time with a fixed frequency of payments (usually annual). (2) (Insurance) In return for either regular payments or a lump sum payment, which is invested by the
receiving company, the insured or their spouse will receive regular income payments either for a set time or until death.
Annuity due An annuity where the cash flows occur at the start of each period rather than at the end – the first payment is due now, not in one year’s time.
Appropriable resource The resource which supplies value must be one that allows the company to capture the value rather than allow it to be captured by another organisation or individual(s).
Arbitrage The act of exploiting price differences on the same instrument or similar securities by simultaneously selling the overpriced security and buying the underpriced security.
Arbitration An arbitrator decides on a just settlement between a complainant and a financial services firm. The decision is binding on both parties.
Arrangement fee A fee for agreeing and setting up a financial transaction such as a bank loan.
Articles of association Internal rules governing a company. These can be unique to the company if true to company law.
Asset In the financial market, anything that can be traded as a security (e.g. share, option, commodity, bond).
Asset allocation An investment methodology which specifies the proportion of funds to be invested in different asset classes (e.g. property, shares, bonds).
Asset-backed securities (ABS) 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).
Asset backing The value of the assets held in the business – often measured on a per share basis.
Asset class Asset type (e.g. bonds, shares).
Asset liquidity The extent to which assets can be converted to cash quickly, at a low transaction cost and without lowering the price.
Asset lock-up In a hostile takeover situation, the target sells to a friendly firm those parts of the business most attractive to the bidder.
Asset 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).
Asset stripping Taking over a company and selling off all or some of the assets.
Asset transformers Intermediaries who, by creating a completely new security – the intermediate security – mobilise savings and encourage investment. The primary security is issued by the ultimate borrower to the intermediary, who offers intermediate securities to the primary investors.
Assets-available-for-sale In this category assets are revalued at each balance sheet date and any unrealised (not yet actually sold) gains or losses go through the balance sheet without raising or lowering profits for the period between two balance sheets.
Assets held for trading A category of balance sheet assets which are revalued at each balance sheet date even if not sold, mostly using fair value estimates. Any gain between balance sheet dates is recognised in earnings, i.e. profits are boosted.
Assets-held-to-maturity Assets such as many financial securities are put in a company’s balance sheet at amortised cost less impairment.
Associated company A company in which an investor (usually a holding company) holds a participating interest and exercises significant influence. ‘Interest’ includes shares, options and convertible securities. ‘Participating’ means the interest is held on a long-term basis and there is significant influence. Usually a 20 per cent or more holding of the shares is presumed to be participating.
Association of Investment Companies Trade body for the closed-ended investment company industry (e.g. investment trusts, venture capital trusts).
Asymmetric information Situation where one party in a negotiation or relationship is not in the same position as other parties, being ignorant of, or unable to observe, some information which is essential to the contracting and decision-making process.
At best A type of buy or sell instruction given by an investor to a broker. The trade is to be completed immediately at the best price available.
At-the-money option The current underlying price is equal to the option exercise price.
Attribute markets Subsections of London Stock Exchange’s Main Market consisting of firms with common characteristics – for example, technologically led as with techMARK.
Audit committee A committee of company independent non-executive directors responsible for validating their company’s financial figures (e.g. by appointing effective external auditors).
Auditor An auditor determines whether a company’s financial statements are misleading and whether the accounts present a true and fair picture.
AUT (Authorised unit trust) One approved by the Financial Conduct Authority for sale in the UK.
Authorised but unissued ordinary share capital Shares that have not yet been sold by the company to investors. However, they have been created (authorised by shareholders) and may be sold or given to existing shareholders or sold to new shareholders.
Authorised corporate director (ACD) Manages and invests the funds in an open ended investment company.
Authorised participants At the heart of the creation of exchange traded funds are authorised participants (often market makers) who exchange a portfolio of underlying securities, e.g. shares of the FTSE 100 index, for ETF shares delivered by the ETF. The authorised participant can then sell the ETF shares in the market. Authorised participants can also sell ETF shares to the fund to receive the underlying securities.
Authorised share capital The maximum amount of share capital that a company can issue. The limit can be changed by a shareholder vote.
Authorised unit trust (AUT) One approved by the Financial Conduct Authority for sale in the UK.
Back office That part of a financial institution which deals with the settlement of contracts, accounting, regulatory matters and management information processes.
Bad debts Debts that are unlikely to be paid.
Balance sheet Summary of assets and liabilities, showing what a company owns, owes and is owed on a particular day in the past.
Ballot In a new issue of shares when a company floats on a stock exchange, if the demand is greater than supply, the shares are allocated to some applicants but not others, selected at random.
Bancassurance Companies offering both banking and insurance.
Bank covenant A solemn agreement.
Bank of England The central bank of the United Kingdom, responsible for monetary policy and the safety and soundness of banks, clearing houses and other financial institutions, as well as the financial system as a whole. It issues banknotes and coins, manages the national debt and exchange rate, and is lender of last resort.
Bankruptcy Commonly used to describe an individual or company that cannot meet its fixed commitments on borrowing which leads to legal action. However, technically, in the UK, individuals become bankrupt whereas companies become insolvent
and liquidated.
Bargain A term used interchangeably with the term ‘a contract to buy/sell shares’.
Barriers to entry The obstacles that a company entering a market for the first time has to overcome to do well in that market.
Base rate The reference rate of interest set by banks that forms the basis for interest rates on bank loans, overdrafts and deposit rates.
Basic earnings per share Includes deductions from profit of one-off exceptional items.
Basis point (bp) One-hundredth of 1 per cent, usually applied to interest rates.
Bear An investor who takes the view that prices are likely to fall.
Bear fund Designed to do well when shares are falling in price.
Bearer bond The ownership of a bond is not recorded on a register. Possession of the bond is sufficient to receive interest, etc.
Bed and breakfasting shares Selling shares to realise a gain below the annual threshold for capital gains tax. This is followed by a repurchase the next day.
Bed and ISA Selling shares (or funds) in an investment account and then purchasing identical shares in an ISA account. This can take advantage of annual capital gains tax allowances.
Bed and SIPP Selling shares (or funds) in an investment account and then purchasing identical shares in a self-invested personal pension. This action can take advantage of annual capital gains tax allowances.
Bed and spousing Selling shares to realise a gain below the annual threshold for capital gains tax. This is followed by a spouse (or civil partner) repurchasing the shares in the market.
Bells and whistles Additional features placed on derivatives or securities (such as bonds) that are designed to attract investors or reduce issue costs.
Benchmark index An index of shares or other securities that sets a standard for fund manager performance; for example, a fund manager controlling a portfolio of pharmaceutical shares would measure performance against a pharmaceutical index. This is calculated by an independent person to be representative of the sector.
Best execution A broker must carry out a transaction on behalf of a client at the best possible price available at the time.
Beta This measures the systematic risk of a financial security. It is a measure of sensitivity of a financial security’s return to market movements. In practice a proxy (e.g. the FTSE 100 index) is used for the market portfolio.
Bid–offer spread (‘Bid-ask spread’ in the USA) The difference between the market maker’s buy and sell prices.
Bid premium The additional amount an acquirer has to offer above the pre-bid share price in order to succeed in a takeover offer.
Bid price The price at which a market maker will buy shares or a dealer in other markets will buy a security or commodity.
Bid yield The yield to maturity on a bond given the market price at which the market makers will buy from investors.
Big Bang A term used for a collection of deregulatory and liberalising reforms to the running of share trading in the UK implemented in 1986.
Bill of exchange A document which sets out a commitment to pay a sum of money at a specified point in time (e.g. an importer commits itself to paying a supplier). Bills of exchange may be discounted – that is, sold before maturity for less than face value.
BIMBO Buy-in management buy-out: a combination of a management buy-out and a buy-in. Outside managers join forces with existing managers to take over a company, subsidiary o unit.
Binary bets Book makers (spread betting firms) accept bets from punters on financial movements. The spread quoted is calculated as a market movement in a chosen direction – up or down within a time frame, say one day, e.g. the quoted spread on the FTSE 100 is 60–61. If you make an ‘up’ bet (the FTSE will end the day higher) then you will win 100 – 61 = 39 times your stake. If the index falls you lose 60 times the stake.
Black Monday 19 October 1987, the date of a large fall in stock market prices. Also Monday 28 October 1929 in the USA.
Blue chip A company/share regarded as of the highest quality; regarded (often mistakenly) as safest.
Board of directors People elected by shareholders to run a company.
Boiler room scam Fraudsters telephone and email people to persuade them, through hard sell, to buy worthless or near-worthless shares. They base themselves in a country beyond the reach of the regulators and criminal authorities and ask people to transfer money to their bank accounts conveniently located in a place (country) where the police cannot easily track.
Bond A debt obligation with a long-term maturity (more than one year), usually issued by firms and governments.
Bond covenant A solemn agreement.
Bonus 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..
Book-building A book runner (lead manager) invites major institutional investors to suggest how many shares, bonds, etc. they would be interested in purchasing and at what price in a new issue or secondary issue of securities. This helps to establish the price and allocate the financial assets.
Book-to-market ratio (Book-equity to market-equity ratio) The ratio of a firm’s balance sheet net asset value to the total market value of its shares.
Book value Balance sheet value as in ‘net assets’. This can be expressed on a per share basis.
Bootstrapping game Companies increase earnings per share by acquiring other companies with lower price–earnings ratios than themselves. Share price can rise despite the absence of economic value gain.
Borrowing capacity Limits to total borrowing levels imposed by lenders, often determined by available collateral.
Bottom fishing Looking for value among shares that have fallen sharply.
Bottom line Profit attributable to the shareholders produced by a company over a period of time, e.g. one year.
Bottom up Analysis of shares or markets where priority is given to individual firm prospects rather than macroeconomic prospects and asset allocation.
Bought deal An investment bank (the ‘lead manager’, perhaps together with co-managers of the issue), buys an entire security issue (e.g. shares) from a client corporation raising finance. The investment bank usually intends to sell it on to institutional clients within hours.
Bourse Alternative name for a stock exchange. A French word, but used in other countries, particularly in Continental Europe.
Break-even analysis Analysing the level of sales at which a project, division or business produces a zero profit (accounting emphasis).
Break-out In chartism the point where a share breaks out of an established pattern.
Break-up value The total value of separate parts of the company if the parts are sold off to the highest bidder.
Broker/brokerage Assists in the buying and selling of financial securities by acting as a ‘go-between’, helping to reduce search, transaction and information costs – also see Corporate broker for a different type.
Broker-dealer An individual acting as agent for buyers and sellers, but who, at the same time, trades for his own account and may be a market maker.
Broking account An account with a stockbroker used by an investor to deposit and withdraw cash in the course of share and other security transactions.
Bubble An explosive upward movement in financial security or other asset prices not based on fundamentally rational factors, followed by a sharp decline (a crash).
Bubble stock Shares buoyed up by market optimism. Such optimism is not based on any rational standards of value.
Budget (national) Sets out government expenditure and revenue for the financial year. In the UK it is presented to Parliament by the Chancellor of the Exchequer.
Building society A UK financial institution, the primary role of which is the provision of mortgages. Building societies are non-profit-making mutual organisations. Funding is mostly through small deposits by individuals.
Bulge bracket A leading investment bank.
Bull An investor taking the view that prices will rise.
Bull market A market of rising prices.
Bulldog A foreign bond issued in the UK.
Bullet bond A bond where all the principal on a loan is repaid at maturity.
Bulletin board Financial websites often host these for each stock market quoted company, allowing investors to post discussion points for others to read and respond to.
Business angel (informal venture capitalist) Wealthy individual prepared to invest about £10,000 to £250,000 in a start-up, early-stage or developing firm. They will often have managerial and/or technical experience to offer the management team as well as equity and debt finance. This is medium- to long-term investment in high-risk situations.
Business review Required by all UK companies other than the small ones, the business review in the annual report provides an analysis of the development and performance of the business(es) during the year and an assessment of the position of the firm at the year-end in terms of strategy, risk, efficiency and progress.
Business risk The risk associated with the underlying operations of a business. The variability of the firm’s operating income before interest: this dispersion is caused purely by business-related factors and not by the debt burden.
Buy-and-hold investor Investor who tends to trade infrequently.
Buyers’ strike When there are many sellers of a financial security and buyers are difficult or impossible to find.
Buy-side Investors, and those who act or advise on their behalf (e.g. investment institutions), who purchase securities and the services offered by the sell-side institutions.
BVCA, British Private Equity and Venture Capital Association. The UK industry body and public policy advocate for the private equity and venture capital industry.