T+2, T+3 After a share transaction in the stock exchange investors pay for shares two working days later or three working days
Take-out Market expression of a bid made to a seller to ‘take-out’ his position – e.g. venture- capital-backed companies are bought allowing the venture capitalist to exit from the investment.
Takeover (acquisition) 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.
Takeover Panel The committee responsible for supervising compliance with the UK City Code on Takeovers and Mergers.
Tangible assets Those that have a physical presence.
Tariff Taxes imposed on imports.
Tax allowance An amount of income or capital gain that is not taxed.
Tax avoidance Steps taken to reduce tax that are permitted under the law.
Tax evasion Deliberately giving a false statement or omitting a relevant fact to escape legitimate tax. Illegal.
Tax haven A country or place with low rates of tax and less (or more flexible) regulations.
Taxable profit That element of profit subject to taxation. This frequently differs from reported profit.
techMARK The London Stock Exchange launched techMARK in 1999 as a subsection of the shares within the Main Market. It is a grouping of technology companies for which there are different rules on seeking a flotation from those which apply to the other companies on the Main Market (e.g. only one year’s accounts is required).
techMARK mediscience A group of London Stock Exchange Main Market companies focused on health care.
Technical analysis Investment analysis that relies on historic price charts (and/or trading volumes) to predict future movements.
Tender offer A public offer to purchase securities.
Term assurance Life assurance taken out for less than the whole life – the insured sum is paid only in the event of the insured person dying within the term.
Term loan A loan of a fixed amount for an agreed time and on specified terms, usually with regular periodic payments. Most frequently provided by banks.
Term structure of interest rates The pattern of interest rates on bonds with differing lengths of time to maturity but with the same risk. Strictly it is the zero-coupon implied interest rate for different lengths of time. See also Yield curve.
Terminal bonus A bonus paid on a with-profits policy at the end of the policy’s life.
Terminal value The forecast future value of sums of money compounded to the end of a common time horizon.
Theoretical ex-rights price (TERP) The theoretical share price after a rights issue on the assumption that the newly issued shares are taken up by the existing shareholders. TERP is lower than the market value of a share prior to the rights issue because shares under rights issue transactions are normally issued at a price below the prevailing market price. It can be calculated as the market value of the company’s shares prior to the rights issue plus the cash raised in the issue divided by the total number of shares after the new shares have been sold.
Tick The minimum price movement of a security or derivative contract.
TIDM code Three or four letter abbreviations given to a company share which are used by stockbrokers and on financial websites as shorthand for the company.
Time loans Loan with a specific maturity (US usage).
Time value That part of an option’s value that represents the value of the option expiring in the future rather than now. The longer the period to expiry, the greater the chance that the option will become in-the-money before the expiry date. The amount by which the option premium exceeds the intrinsic value.
Time value of money A pound received in the future is worth less than a pound received today the value of a sum of money depends on the date of its receipt.
Tipsters People who put forward a view on the wisdom of buying or selling a share – usually based on superficial knowledge.
Top-down Analysis of shares or other securities or the market as a whole, where the first step is to consider macroeconomic influences, leading to sector allocations (e.g. shares rather than bonds, then mining company shares) and finally individual security analysis.
Total shareholder return (TSR) or total return The total return earned on a share over a period of time: dividend per share plus capital gain, divided by initial share price.
Touch prices Are displayed on the London Stock Exchange’s SEAQ, SETS or SETSqx security trading system screens. It shows the best offered buy and sell prices for a security – these are collectively called the ‘touch’ or ‘yellow strip’ prices.
Tracker fund An investment fund which is intended to replicate the return of a market index. Also called an index fund or passive fund.
Tracking difference (performance difference) Measures the actual magnitude of the underperformance or outperformance of a market tracking collective investment fund such as an ETF. It is the annualised difference between a fund’s actual return and its benchmark return over a specific period of time.
Tracking error The extent to which the return on an index tracking fund differs from its benchmark over a period of time. This is often measured as the standard deviation of a fund’s absolute difference between the fund’s performance and that of its benchmark index a measure of volatility of difference.
Trade credit (payables) Where goods and services are delivered to a firm for use in its production and are currently still outstanding are not paid for immediately.
Trade debtors (receivables) Amounts owing by customers of a firm for goods and services delivered.
Trade execution The actual completion of the buying/selling of securities.
Trade sale A company buys another company in the same line of business.
Traded endowment policy (TEP) market A market in the buying and selling of with-profits endowment policies.
Traded option An option tradable on a market separate from the underlying.
Trading floor A place where traders in a market (or their representatives) can meet to agree transactions face to face. However, the term has been stretched so that investment banks own ‘trading floors’, which means merely that they have a big office with lots of desks and employees transacting with investors and other financial institutions. They communicate with these other parties through telephones and computers over great distances, without face-to-face dealing.
Trading margin Operating profit as a percentage of sales.
Trading statements (trading updates) Issued by a company in the middle of each half year, consisting of a few paragraphs providing a brief description of the firm’s trading performance since the last formal report.
Traditional option An option available on any security but with an exercise price fixed as the market price on the day the option is bought. They are set up as special deals between option writers and buyers rather than being generally available on a regulated financial market (unlike trade options on ICE Futures Europe). All such options expire after three months and cannot be sold to a secondary investor.
Trail commission A commission that used to be paid to sales organisations such as independent financial advisers and fund supermarkets by funds, e.g. unit trusts. The amount was set as a percentage of the value held in the units each year.
Trailing PER Is share price divided by most recently reported annual earnings per share. If you want to know more see Price–earnings ratio.
Transactions Monitoring Unit (TMU) The part of the Financial Conduct Authority responsible for surveillance of UK markets, the collection of transaction reports from the industry and for monitoring firms’ compliance with the transaction reporting rules.
Treasury UK government department responsible for financial and economic policy.
Treasury bill A short-term money market instrument issued (sold) by the government, mainly in the UK and USA, usually to supply the government’s short-term financing needs.
Treasury bond Long-term (maturity greater than 10 years) government bond.
Treynor’s ratio or index (reward-to-volatility ratio) A measure relating return to risk. It is the return on a portfolio (or share) minus the risk-free rate of return, divided by beta.
TRRACK system A system to assist the analysis of a company’s extraordinary resources under the headings: tangible; relationships; reputation; attitude; capabilities; and knowledge.
Trust deed A document specifying the regulation of the management of assets on behalf of beneficiaries of the trust.
Trustees Those that are charged with the responsibility for ensuring compliance with the trust deed.
Tulipmania A seventeenth-century Dutch bubble in which the price of tulip bulbs was bid up because people expected to be able to sell to someone else at a higher price. See Bubble.
Turnarounds Companies that have been going through a bad time and (it is hoped) will soon revive.
Turnover (revenue or sales) (1) Money received or to be received by the company from goods and services sold during the period. (2) In portfolio management, the amount of trading relative to the value of the portfolio.
Two-day rolling settlement (T+2) After a share transaction in the stock exchange investors pay for shares two working days later.
UCITS, Undertaking for Collective Investment in Transferable Securities A series of EU regulations for collective funds regulated under European law. Once the funds are designated as UCITS-compliant they can be marketed freely across EU member states.
UKLA (United Kingdom Listing Authority) This organisation is part of the Financial Conduct Authority and rigorously enforces a set of demanding rules on companies joining the stock market and in subsequent years. It is mostly concerned with maintaining a list of all companies listed on the London Stock Exchange.
UK Shareholders’ Association (www.uksa.org.uk) represents small shareholders and lobbies companies, regulators and government on their behalf.
Ultimate borrowers Firms investing in real assets need finance, which ultimately comes from the primary investors.
Ultra-long gilts/bonds Those with a time to maturity greater than 50 years.
Ultra-short gilts/bonds Those with less than 3 years to maturity.
Umbrella structure for OEICs Open-ended investment companies may be created as a group of sub-funds each with a different investment objective.
Uncertainty Strictly (in economists’ terms), uncertainty is when there is more than one possible outcome to a course of action; the form of each possible outcome may or may not be known, but the probability of any one outcome is not known. However, the distinction between risk (the ability to assign probabilities) and uncertainty is often ignored.
Unconditionality (unconditional offer) In a merger, once unconditionality is declared, the acquirer becomes obliged to buy. Target shareholders who accepted the offer are no longer able to withdraw their acceptance.
Uncovered (naked) call option writing Writing a call option on an underlying when the writer does not own the underlying securities included in the option.
Underlying The asset (e.g. share or commodity) that is the subject of a derivative contract.
Underlying 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).
Underweighting Allocating the money in a fund to particular securities, sectors or countries less than in proportion to their representation in the relevant benchmark index.
Underwriters (1) These (usually large financial institutions) guarantee to buy the proportion of a new issue of securities (e.g. shares) not taken up by the market, in return for a fee paid at the time of the underwriting. (2) Assess insurance risk and set the amount and terms of the premium.
Undifferentiated product One that is much the same as that supplied by other companies.
Undiversifiable 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.
Uninformed investors Those who have no/little knowledge about financial securities and the fundamental evaluation of their worth.
Unintelligent speculation Buying and selling shares and other financial securities with a lack of proper knowledge and skill; risking more money than the stock picker can afford to lose; ignoring quantitative material; placing the emphasis on the rewards of speculation rather than on the individual’s capacity to speculate successfully.
Unique risk Alternative term for unsystematic risk.
Unit-linked policies These insurance policies incorporate both life insurance and investment on behalf of the policyholder. The investor (policyholder) buys units in a similar way to the purchase of units in a unit trust.
Unit trust An investment organisation that attracts funds from individual investors by issuing units to invest in a range of securities (e.g. shares or bonds). It is open-ended, the number of units expanding to meet demand.
Unit valuation system A way of keeping track of the proportion of an investment club’s overall pot of investments belonging to each individual members after allowing for inflows and outflows to the fund over time.
United Kingdom Corporate Governance Code Following a number of scandals, guidelines of best practice in corporate governance were issued. These cover the powers and responsibilities of directors, shareholders and senior managers.
United Kingdom Listing Authority (UKLA) This organisation is part of the Financial Conduct Authority and rigorously enforces a set of demanding rules on companies joining the stock market and in subsequent years. It is mostly concerned with maintaining a list of all companies listed on the London Stock Exchange.
Unitised with-profits policy Similar to a standard with-profits policy, except that premiums paid by investors buy units of a fund and there is no basic sum assured. Bonuses are smoothed.
Universal banks Financial institutions involved in many different aspects of finance, including retail banking and wholesale banking.
Unlisted Shares and other securities not on the Official List approved by the UK Listing Authority. Shares on the Alternative Investment Market of the London Stock Exchange are described as unlisted.
Unquoted firms Those shares with a price not quoted on a recognised investment exchange (e.g. not on the Official List or AIM of the London Stock Exchange or NEX Exchange).
Unrealised gain (loss) One part of a deal has taken place, but the second has not. There is a ‘paper’ gain or loss.
Unsecured A financial claim with no collateral or any charge over the assets of the borrower.
Unsystematic (unique or diversifiable or specific) risk That element of an asset’s variability in returns that can be eliminated by holding a well-diversified portfolio.
Valuation risk (price risk) The possibility that, when a financial instrument matures or is sold in the market, the amount received is less than anticipated by the owner.
Value-based management A managerial approach in which the primary purpose is long-term shareholder wealth maximisation. The objective of the firm, its systems, strategy, processes, analytical techniques, performance measurements and culture have as their guiding objective long-term shareholder wealth maximisation.
Value chain The interlinking activities that take place within an organisation or between organisations in the process of converting inputs into its outputs. Identifying these activities and finding ways to perform them more efficiently is a way for companies to gain competitive advantage over their rivals.
Value drivers Crucial organisational capabilities, giving the firm competitive advantage.
Value investing The identification and holding of shares which are fundamentally undervalued by the market, given the prospects of the firm.
Vanilla bond One with a regular fixed rate of interest and without the right of conversion (to, say, shares) or any other unusual rights.
Variable costs Costs that rise or fall with company output and sales.
Variable-rate bond (loan) The interest rate payable varies with short-term rates (e.g. three- month LIBOR).
Variable-rate notes Notes (legal contracts for borrowing) in which the coupon fluctuates according to a benchmark interest rate charge (e.g. LIBOR).
Variance A measure of volatility around an average value: the square of the standard deviation.
Variation margin The amount of money paid after the payment of the initial margin required to secure an option or futures position, after it has been revalued by the exchange or clearing house on a daily basis by marking to market. Variation margin payments may be required daily to top the account up to the maintenance margin level.
Vendor placing Shares issued to a company to pay for assets, or issued to shareholders to pay for an entire company in a takeover, are placed with investors keen on holding the shares in return for cash. The vendors can then receive the cash.
Venture capital (VC) Finance provided to unquoted firms by specialised financial institutions. This may be backing for an entrepreneur, financing a start-up or developing business, or assisting a management buyout or buy-in. Usually it is provided by a mixture of equity, loans and mezzanine finance. It is used for medium-term to long-term investment in high- risk situations.
Venture capital trusts (VCTs) An investment vehicle introduced to the UK in 1995 to encourage investment in small and fast-growing companies. The VCT invests in a range of small businesses. The providers of finance to the VCT are given important tax breaks.
Vertical merger Where the two merging firms are from different stages of the production chain.
Virtual bid (indicative offer) When a proper merger/acquisition offer of one company for another has not been made but the potential acquirer has raised the possibility of making a bid for the target firm without any commitment.
Virtual portfolio Investors can create an imaginary portfolio on some websites and follow its progress.
Volatility The speed and magnitude of price change over time, measured by standard deviation or variance.
Volume The amount of a company’s shares traded on any given day, week or other period. Measured in number of shares or pound amount. It is taken to be an indicator of the level of investor interest in the company.
Volume transformation Intermediaries gather small quantities of money from numerous savers and repackage these sums into larger bundles for investment in the business sector or elsewhere.
Voting by proxy If a shareholder is unable to attend an AGM or EGM to vote on important matters they may indicate their voting wishes on a proxy statement (enclosed with the annual report, say) and thus authorise a representative (usually the chairman) to vote at the meeting on their behalf in the way indicated by the investor on the proxy statement.
Wall Street Originally describing the location of the New York Stock Exchange and some financial institutions it is now a term used to mean securities trading and financial markets/services generally in the USA.
Warrant A financial instrument which gives the holder the right but not the obligation to purchase shares in the company from the company at a fixed price at some time in the future (during or at the end of a specific time period).
Weak-form efficiency Share prices (or other securities) fully reflect all information contained in past price movement. This precludes the possibility of studying past movements to successfully predict future movement sufficiently well to systematically outperform the stock market after adjustment for risk.
Wealth Management Association A trade association for investment managers and stockbrokers.
White knight A friendly company that makes a bid for a company which is welcomed by the directors of that target company. This is usually because the target is the subject of a hostile takeover bid from another company.
Whole-of-life policy Life assurance that pays out to beneficiaries when the insured dies (not limited to, say, the next 10 years).
Wholesale bank One that lends, arranges lending or supplies services on a large scale to corporations, other large organisations and within the interbank market. As opposed to retail banks dealing in relatively small sums for depositors and borrowers.
Wholesale financial markets Markets available only to those dealing in large quantities. Dominated by interbank transactions.
Winding up The process of ending a company, selling its assets, paying its creditors and distributing the remaining cash among shareholders.
Winner’s curse In winning a merger battle, the acquirer suffers a loss in value because it overpays.
With-profits bonds A long-term investment via a with-profits fund. See also With-profits policy.
With-profits policy A form of life insurance with a large element of saving so that if you survive a payout from the fund is received. The insurance companies use investors’ payments to invest in financial securities and guarantee investors a minimum return. They then add bonuses as the fund makes profits.
Withholding tax Taxation deducted from payments made such as interest on bonds before the recipient receives the payment.
Within the spread Service brokers are frequently able to obtain for clients (retail investors) better buy and sell prices than those shown on the stock exchanges’ screens from market makers or other traders. This could occur because of a change in market price or your broker is particularly diligent in getting a good deal.
Working capital The difference between current assets and current liabilities – net current assets or net current liabilities.
Write-down (Write-off) Companies change the recorded value of assets when they are no longer worth the previously stated value.
Writer of an option The seller of an option contract, granting the right but not the obligation to the purchaser.
Writing down allowance (WDA) (capital allowance) Reductions in taxable profit related to a firm’s capital expenditure (e.g. plant, machinery, vehicles). A portion of the value is a tax-deductible expense in the year.
Yankee A foreign bond US-denominated, issued by a non-US entity in the US market.
Yellow strip The yellow strip is displayed on the London Stock Exchange’s SEAQ, SETS or SETSqx security trading system screens. It shows the best offered buy and sell prices for a security – these are collectively called the ‘touch’ or ‘yellow strip’ prices.
Yield The income from a security as a proportion of its market price. The flat yield (current yield, interest yield, running yield, simple yield and income yield) on a fixed-interest security is the gross interest amount, divided by the current market price, expressed as a percentage. The redemption yield or yield to maturity of a bond is the discount rate such that the present value of all cash inflows from the bond (interest plus principal) is equal to the bond’s current market price.
Yield curve A graph showing the relationship between the length of time to the maturity of bonds of the same risk class and the interest rate. See also Term structure of interest rates.
Yield gap The difference between average dividend yields on quoted shares and the long-term gilt yield to maturity. It is sometimes used as an indicator of share market over- or under-valuation. In recent years we had a ‘reverse yield gap’ when the yield on a typical share was around 3–4 per cent and the yield on ten-year UK government bonds was under 2 percent. This is unusual, because normally the anticipated growth in dividends encourages a higher share price, thus lowering the dividend yield below the gilt yield.
Yield stock Shares offering a high current dividend yield because the share price is low due to the expectation of low growth in profits and dividends, or because of perceived high risk. Sometimes labelled ‘value shares’.
Yield to maturity Is the discount rate such that the present value of all cash inflows from the bond (interest plus principal) is equal to the bond’s current market price.
Zero coupon bond (or zero coupon preference share) A bond (preference share) that does not pay regular interest (dividend) but instead is issued at a discount (i.e. below par value) and is redeemable at par, thus offering a capital gain.
Zero dividend preference shares (Zeros) Issued by Split-capital investment trusts. Zero divided preference shares pay no income but do offer a predetermined return at the end of the trust’s life. If you want to know more see Split-capital investment trusts.
Take-out Market expression of a bid made to a seller to ‘take-out’ his position – e.g. venture- capital-backed companies are bought allowing the venture capitalist to exit from the investment.
Takeover (acquisition) 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.
Takeover Panel The committee responsible for supervising compliance with the UK City Code on Takeovers and Mergers.
Tangible assets Those that have a physical presence.
Tariff Taxes imposed on imports.
Tax allowance An amount of income or capital gain that is not taxed.
Tax avoidance Steps taken to reduce tax that are permitted under the law.
Tax evasion Deliberately giving a false statement or omitting a relevant fact to escape legitimate tax. Illegal.
Tax haven A country or place with low rates of tax and less (or more flexible) regulations.
Taxable profit That element of profit subject to taxation. This frequently differs from reported profit.
techMARK The London Stock Exchange launched techMARK in 1999 as a subsection of the shares within the Main Market. It is a grouping of technology companies for which there are different rules on seeking a flotation from those which apply to the other companies on the Main Market (e.g. only one year’s accounts is required).
techMARK mediscience A group of London Stock Exchange Main Market companies focused on health care.
Technical analysis Investment analysis that relies on historic price charts (and/or trading volumes) to predict future movements.
Tender offer A public offer to purchase securities.
Term assurance Life assurance taken out for less than the whole life – the insured sum is paid only in the event of the insured person dying within the term.
Term loan A loan of a fixed amount for an agreed time and on specified terms, usually with regular periodic payments. Most frequently provided by banks.
Term structure of interest rates The pattern of interest rates on bonds with differing lengths of time to maturity but with the same risk. Strictly it is the zero-coupon implied interest rate for different lengths of time. See also Yield curve.
Terminal bonus A bonus paid on a with-profits policy at the end of the policy’s life.
Terminal value The forecast future value of sums of money compounded to the end of a common time horizon.
Theoretical ex-rights price (TERP) The theoretical share price after a rights issue on the assumption that the newly issued shares are taken up by the existing shareholders. TERP is lower than the market value of a share prior to the rights issue because shares under rights issue transactions are normally issued at a price below the prevailing market price. It can be calculated as the market value of the company’s shares prior to the rights issue plus the cash raised in the issue divided by the total number of shares after the new shares have been sold.
Tick The minimum price movement of a security or derivative contract.
TIDM code Three or four letter abbreviations given to a company share which are used by stockbrokers and on financial websites as shorthand for the company.
Time loans Loan with a specific maturity (US usage).
Time value That part of an option’s value that represents the value of the option expiring in the future rather than now. The longer the period to expiry, the greater the chance that the option will become in-the-money before the expiry date. The amount by which the option premium exceeds the intrinsic value.
Time value of money A pound received in the future is worth less than a pound received today the value of a sum of money depends on the date of its receipt.
Tipsters People who put forward a view on the wisdom of buying or selling a share – usually based on superficial knowledge.
Top-down Analysis of shares or other securities or the market as a whole, where the first step is to consider macroeconomic influences, leading to sector allocations (e.g. shares rather than bonds, then mining company shares) and finally individual security analysis.
Total shareholder return (TSR) or total return The total return earned on a share over a period of time: dividend per share plus capital gain, divided by initial share price.
Touch prices Are displayed on the London Stock Exchange’s SEAQ, SETS or SETSqx security trading system screens. It shows the best offered buy and sell prices for a security – these are collectively called the ‘touch’ or ‘yellow strip’ prices.
Tracker fund An investment fund which is intended to replicate the return of a market index. Also called an index fund or passive fund.
Tracking difference (performance difference) Measures the actual magnitude of the underperformance or outperformance of a market tracking collective investment fund such as an ETF. It is the annualised difference between a fund’s actual return and its benchmark return over a specific period of time.
Tracking error The extent to which the return on an index tracking fund differs from its benchmark over a period of time. This is often measured as the standard deviation of a fund’s absolute difference between the fund’s performance and that of its benchmark index a measure of volatility of difference.
Trade credit (payables) Where goods and services are delivered to a firm for use in its production and are currently still outstanding are not paid for immediately.
Trade debtors (receivables) Amounts owing by customers of a firm for goods and services delivered.
Trade execution The actual completion of the buying/selling of securities.
Trade sale A company buys another company in the same line of business.
Traded endowment policy (TEP) market A market in the buying and selling of with-profits endowment policies.
Traded option An option tradable on a market separate from the underlying.
Trading floor A place where traders in a market (or their representatives) can meet to agree transactions face to face. However, the term has been stretched so that investment banks own ‘trading floors’, which means merely that they have a big office with lots of desks and employees transacting with investors and other financial institutions. They communicate with these other parties through telephones and computers over great distances, without face-to-face dealing.
Trading margin Operating profit as a percentage of sales.
Trading statements (trading updates) Issued by a company in the middle of each half year, consisting of a few paragraphs providing a brief description of the firm’s trading performance since the last formal report.
Traditional option An option available on any security but with an exercise price fixed as the market price on the day the option is bought. They are set up as special deals between option writers and buyers rather than being generally available on a regulated financial market (unlike trade options on ICE Futures Europe). All such options expire after three months and cannot be sold to a secondary investor.
Trail commission A commission that used to be paid to sales organisations such as independent financial advisers and fund supermarkets by funds, e.g. unit trusts. The amount was set as a percentage of the value held in the units each year.
Trailing PER Is share price divided by most recently reported annual earnings per share. If you want to know more see Price–earnings ratio.
Transactions Monitoring Unit (TMU) The part of the Financial Conduct Authority responsible for surveillance of UK markets, the collection of transaction reports from the industry and for monitoring firms’ compliance with the transaction reporting rules.
Treasury UK government department responsible for financial and economic policy.
Treasury bill A short-term money market instrument issued (sold) by the government, mainly in the UK and USA, usually to supply the government’s short-term financing needs.
Treasury bond Long-term (maturity greater than 10 years) government bond.
Treynor’s ratio or index (reward-to-volatility ratio) A measure relating return to risk. It is the return on a portfolio (or share) minus the risk-free rate of return, divided by beta.
TRRACK system A system to assist the analysis of a company’s extraordinary resources under the headings: tangible; relationships; reputation; attitude; capabilities; and knowledge.
Trust deed A document specifying the regulation of the management of assets on behalf of beneficiaries of the trust.
Trustees Those that are charged with the responsibility for ensuring compliance with the trust deed.
Tulipmania A seventeenth-century Dutch bubble in which the price of tulip bulbs was bid up because people expected to be able to sell to someone else at a higher price. See Bubble.
Turnarounds Companies that have been going through a bad time and (it is hoped) will soon revive.
Turnover (revenue or sales) (1) Money received or to be received by the company from goods and services sold during the period. (2) In portfolio management, the amount of trading relative to the value of the portfolio.
Two-day rolling settlement (T+2) After a share transaction in the stock exchange investors pay for shares two working days later.
UCITS, Undertaking for Collective Investment in Transferable Securities A series of EU regulations for collective funds regulated under European law. Once the funds are designated as UCITS-compliant they can be marketed freely across EU member states.
UKLA (United Kingdom Listing Authority) This organisation is part of the Financial Conduct Authority and rigorously enforces a set of demanding rules on companies joining the stock market and in subsequent years. It is mostly concerned with maintaining a list of all companies listed on the London Stock Exchange.
UK Shareholders’ Association (www.uksa.org.uk) represents small shareholders and lobbies companies, regulators and government on their behalf.
Ultimate borrowers Firms investing in real assets need finance, which ultimately comes from the primary investors.
Ultra-long gilts/bonds Those with a time to maturity greater than 50 years.
Ultra-short gilts/bonds Those with less than 3 years to maturity.
Umbrella structure for OEICs Open-ended investment companies may be created as a group of sub-funds each with a different investment objective.
Uncertainty Strictly (in economists’ terms), uncertainty is when there is more than one possible outcome to a course of action; the form of each possible outcome may or may not be known, but the probability of any one outcome is not known. However, the distinction between risk (the ability to assign probabilities) and uncertainty is often ignored.
Unconditionality (unconditional offer) In a merger, once unconditionality is declared, the acquirer becomes obliged to buy. Target shareholders who accepted the offer are no longer able to withdraw their acceptance.
Uncovered (naked) call option writing Writing a call option on an underlying when the writer does not own the underlying securities included in the option.
Underlying The asset (e.g. share or commodity) that is the subject of a derivative contract.
Underlying 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).
Underweighting Allocating the money in a fund to particular securities, sectors or countries less than in proportion to their representation in the relevant benchmark index.
Underwriters (1) These (usually large financial institutions) guarantee to buy the proportion of a new issue of securities (e.g. shares) not taken up by the market, in return for a fee paid at the time of the underwriting. (2) Assess insurance risk and set the amount and terms of the premium.
Undifferentiated product One that is much the same as that supplied by other companies.
Undiversifiable 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.
Uninformed investors Those who have no/little knowledge about financial securities and the fundamental evaluation of their worth.
Unintelligent speculation Buying and selling shares and other financial securities with a lack of proper knowledge and skill; risking more money than the stock picker can afford to lose; ignoring quantitative material; placing the emphasis on the rewards of speculation rather than on the individual’s capacity to speculate successfully.
Unique risk Alternative term for unsystematic risk.
Unit-linked policies These insurance policies incorporate both life insurance and investment on behalf of the policyholder. The investor (policyholder) buys units in a similar way to the purchase of units in a unit trust.
Unit trust An investment organisation that attracts funds from individual investors by issuing units to invest in a range of securities (e.g. shares or bonds). It is open-ended, the number of units expanding to meet demand.
Unit valuation system A way of keeping track of the proportion of an investment club’s overall pot of investments belonging to each individual members after allowing for inflows and outflows to the fund over time.
United Kingdom Corporate Governance Code Following a number of scandals, guidelines of best practice in corporate governance were issued. These cover the powers and responsibilities of directors, shareholders and senior managers.
United Kingdom Listing Authority (UKLA) This organisation is part of the Financial Conduct Authority and rigorously enforces a set of demanding rules on companies joining the stock market and in subsequent years. It is mostly concerned with maintaining a list of all companies listed on the London Stock Exchange.
Unitised with-profits policy Similar to a standard with-profits policy, except that premiums paid by investors buy units of a fund and there is no basic sum assured. Bonuses are smoothed.
Universal banks Financial institutions involved in many different aspects of finance, including retail banking and wholesale banking.
Unlisted Shares and other securities not on the Official List approved by the UK Listing Authority. Shares on the Alternative Investment Market of the London Stock Exchange are described as unlisted.
Unquoted firms Those shares with a price not quoted on a recognised investment exchange (e.g. not on the Official List or AIM of the London Stock Exchange or NEX Exchange).
Unrealised gain (loss) One part of a deal has taken place, but the second has not. There is a ‘paper’ gain or loss.
Unsecured A financial claim with no collateral or any charge over the assets of the borrower.
Unsystematic (unique or diversifiable or specific) risk That element of an asset’s variability in returns that can be eliminated by holding a well-diversified portfolio.
Valuation risk (price risk) The possibility that, when a financial instrument matures or is sold in the market, the amount received is less than anticipated by the owner.
Value-based management A managerial approach in which the primary purpose is long-term shareholder wealth maximisation. The objective of the firm, its systems, strategy, processes, analytical techniques, performance measurements and culture have as their guiding objective long-term shareholder wealth maximisation.
Value chain The interlinking activities that take place within an organisation or between organisations in the process of converting inputs into its outputs. Identifying these activities and finding ways to perform them more efficiently is a way for companies to gain competitive advantage over their rivals.
Value drivers Crucial organisational capabilities, giving the firm competitive advantage.
Value investing The identification and holding of shares which are fundamentally undervalued by the market, given the prospects of the firm.
Vanilla bond One with a regular fixed rate of interest and without the right of conversion (to, say, shares) or any other unusual rights.
Variable costs Costs that rise or fall with company output and sales.
Variable-rate bond (loan) The interest rate payable varies with short-term rates (e.g. three- month LIBOR).
Variable-rate notes Notes (legal contracts for borrowing) in which the coupon fluctuates according to a benchmark interest rate charge (e.g. LIBOR).
Variance A measure of volatility around an average value: the square of the standard deviation.
Variation margin The amount of money paid after the payment of the initial margin required to secure an option or futures position, after it has been revalued by the exchange or clearing house on a daily basis by marking to market. Variation margin payments may be required daily to top the account up to the maintenance margin level.
Vendor placing Shares issued to a company to pay for assets, or issued to shareholders to pay for an entire company in a takeover, are placed with investors keen on holding the shares in return for cash. The vendors can then receive the cash.
Venture capital (VC) Finance provided to unquoted firms by specialised financial institutions. This may be backing for an entrepreneur, financing a start-up or developing business, or assisting a management buyout or buy-in. Usually it is provided by a mixture of equity, loans and mezzanine finance. It is used for medium-term to long-term investment in high- risk situations.
Venture capital trusts (VCTs) An investment vehicle introduced to the UK in 1995 to encourage investment in small and fast-growing companies. The VCT invests in a range of small businesses. The providers of finance to the VCT are given important tax breaks.
Vertical merger Where the two merging firms are from different stages of the production chain.
Virtual bid (indicative offer) When a proper merger/acquisition offer of one company for another has not been made but the potential acquirer has raised the possibility of making a bid for the target firm without any commitment.
Virtual portfolio Investors can create an imaginary portfolio on some websites and follow its progress.
Volatility The speed and magnitude of price change over time, measured by standard deviation or variance.
Volume The amount of a company’s shares traded on any given day, week or other period. Measured in number of shares or pound amount. It is taken to be an indicator of the level of investor interest in the company.
Volume transformation Intermediaries gather small quantities of money from numerous savers and repackage these sums into larger bundles for investment in the business sector or elsewhere.
Voting by proxy If a shareholder is unable to attend an AGM or EGM to vote on important matters they may indicate their voting wishes on a proxy statement (enclosed with the annual report, say) and thus authorise a representative (usually the chairman) to vote at the meeting on their behalf in the way indicated by the investor on the proxy statement.
Wall Street Originally describing the location of the New York Stock Exchange and some financial institutions it is now a term used to mean securities trading and financial markets/services generally in the USA.
Warrant A financial instrument which gives the holder the right but not the obligation to purchase shares in the company from the company at a fixed price at some time in the future (during or at the end of a specific time period).
Weak-form efficiency Share prices (or other securities) fully reflect all information contained in past price movement. This precludes the possibility of studying past movements to successfully predict future movement sufficiently well to systematically outperform the stock market after adjustment for risk.
Wealth Management Association A trade association for investment managers and stockbrokers.
White knight A friendly company that makes a bid for a company which is welcomed by the directors of that target company. This is usually because the target is the subject of a hostile takeover bid from another company.
Whole-of-life policy Life assurance that pays out to beneficiaries when the insured dies (not limited to, say, the next 10 years).
Wholesale bank One that lends, arranges lending or supplies services on a large scale to corporations, other large organisations and within the interbank market. As opposed to retail banks dealing in relatively small sums for depositors and borrowers.
Wholesale financial markets Markets available only to those dealing in large quantities. Dominated by interbank transactions.
Winding up The process of ending a company, selling its assets, paying its creditors and distributing the remaining cash among shareholders.
Winner’s curse In winning a merger battle, the acquirer suffers a loss in value because it overpays.
With-profits bonds A long-term investment via a with-profits fund. See also With-profits policy.
With-profits policy A form of life insurance with a large element of saving so that if you survive a payout from the fund is received. The insurance companies use investors’ payments to invest in financial securities and guarantee investors a minimum return. They then add bonuses as the fund makes profits.
Withholding tax Taxation deducted from payments made such as interest on bonds before the recipient receives the payment.
Within the spread Service brokers are frequently able to obtain for clients (retail investors) better buy and sell prices than those shown on the stock exchanges’ screens from market makers or other traders. This could occur because of a change in market price or your broker is particularly diligent in getting a good deal.
Working capital The difference between current assets and current liabilities – net current assets or net current liabilities.
Write-down (Write-off) Companies change the recorded value of assets when they are no longer worth the previously stated value.
Writer of an option The seller of an option contract, granting the right but not the obligation to the purchaser.
Writing down allowance (WDA) (capital allowance) Reductions in taxable profit related to a firm’s capital expenditure (e.g. plant, machinery, vehicles). A portion of the value is a tax-deductible expense in the year.
Yankee A foreign bond US-denominated, issued by a non-US entity in the US market.
Yellow strip The yellow strip is displayed on the London Stock Exchange’s SEAQ, SETS or SETSqx security trading system screens. It shows the best offered buy and sell prices for a security – these are collectively called the ‘touch’ or ‘yellow strip’ prices.
Yield The income from a security as a proportion of its market price. The flat yield (current yield, interest yield, running yield, simple yield and income yield) on a fixed-interest security is the gross interest amount, divided by the current market price, expressed as a percentage. The redemption yield or yield to maturity of a bond is the discount rate such that the present value of all cash inflows from the bond (interest plus principal) is equal to the bond’s current market price.
Yield curve A graph showing the relationship between the length of time to the maturity of bonds of the same risk class and the interest rate. See also Term structure of interest rates.
Yield gap The difference between average dividend yields on quoted shares and the long-term gilt yield to maturity. It is sometimes used as an indicator of share market over- or under-valuation. In recent years we had a ‘reverse yield gap’ when the yield on a typical share was around 3–4 per cent and the yield on ten-year UK government bonds was under 2 percent. This is unusual, because normally the anticipated growth in dividends encourages a higher share price, thus lowering the dividend yield below the gilt yield.
Yield stock Shares offering a high current dividend yield because the share price is low due to the expectation of low growth in profits and dividends, or because of perceived high risk. Sometimes labelled ‘value shares’.
Yield to maturity Is the discount rate such that the present value of all cash inflows from the bond (interest plus principal) is equal to the bond’s current market price.
Zero coupon bond (or zero coupon preference share) A bond (preference share) that does not pay regular interest (dividend) but instead is issued at a discount (i.e. below par value) and is redeemable at par, thus offering a capital gain.
Zero dividend preference shares (Zeros) Issued by Split-capital investment trusts. Zero divided preference shares pay no income but do offer a predetermined return at the end of the trust’s life. If you want to know more see Split-capital investment trusts.