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:: A ::
Advisory
A level of service where a firm suggests which securities
the customer may wish to buy or sell.
After-Hours Trading
Stock trading when the major stock exchanges are closed.
Aftermarket
Public trading of a company’s shares after its IPO.
Alternative investment market - AIM
A market regulated by the London Stock Exchange, designed
for small, young and growing companies which are likely to
be higher risk and less liquid than those admitted to the
Official List.
Analyst
Someone typically working for a brokerage house, who
publishes buy/hold/sell recommendations and earnings
forecasts for a stock. Buy side analysts work for
institutional buyers, and sell side analysts work for
brokerages.
Annual exemption
Allowances given to individuals in respect of capital gains
tax and a separate allowance for inheritance tax (lifetime
transfers only).
Annual General Meeting
A general meeting of company shareholders which must be held
on annual basis. The main reason for such a meeting is to
give the shareholders an opportunity to approve the company
accounts.
Ask
The price offered by a market participant wishing to sell a
security or derivative
Average Daily Volume
Average number of shares traded per day over a specified
period.
Balance sheet
Part of the financial statements prepared by a company each
year which lists the assets and liabilities of a company at
the company's year-end.
:: B ::
Bargain
A general term used to describe any transaction in
securities on the LSE
Bear Market
A period when most stocks are declining in value.
Best execution
The process of obtaining the best possible price for a
customer
Bid
The price offered by a market participant wishing to buy a
security or derivative.
Block trade
A term used to describe very large trades. Block trades are
subject to publication delays.
Blue Chips
Large, stabile companies.
Bond
A medium to long-term debt security, with a maturity date of
at least one year from the date of its original issue.
Broker dealer
A member firm of the Stock Exchange which is not a market
maker and which may deal either as PRINCIPAL or AGENT.
Bull Market
A period when most stocks are increasing in value.
Business day
Any day, excluding weekends and bank holidays, when on
exchange trading and settlement is conducted. A business day
runs from midnight to midnight on any given day.
An option to buy 100 shares of a specified stock at a
predetermined price.
Capital gains tax
The tax charged on the taxable gains of a UK resident
individual for a fiscal year.
Cash flow statement
Part of the financial statements prepared by a company each
year which shows the cash received and paid by a company
during its period of account.
Choice price
A situation where the best bid price is equal to the best
offer price.
Commission
Fees paid to a broker to execute a stock or mutual fund
trade.
Commodities
Minerals such as gold or silver, food such as corn or wheat,
animal products, and the like.
Common Stock
Shares of a publicly held corporation, usually includes
voting rights. Common stock has lower priority in event of
liquidation than preferred shares.
Confirmation note
Written evidence which provides details of a particular
transaction.
Contracts for differences (CFDs)
Derivatives settled with a cash payment, rather than
delivery of the underlying asset. The payment is determined
by comparing two prices: the price at which the trade was
initially opened and the price at which it is closed out.
Convertible Bond
A bond that can be exchanged for shares of stock.
Corporation tax
The tax paid by UK resident companies on their worldwide
profits. It is also paid by companies resident overseas on
their profits arising in the UK.
CREST
The electronic settlement system, owned by CRESTCo, which is
used to provide book entry transfer for UK equities,
corporate loan stock and UK Government gilts. The system can
also settle German, Swiss and Irish stocks.
Current assets
The short-term assets of a company. They are held for
conversion into cash, usually within one year of the balance
sheet date.
:: D ::
Daily Official List - DOL
A daily publication, produced by the LSE, which includes
details of transactions conducted on the Exchange the
previous day
Dematerialised securities
Securities held in electronic form without the use of paper
certificates.
Dividends
Cash or stock paid to shareholders, usually on a quarterly
schedule.
Dividend Yield
Total of 12-month's dividends paid (historical or forecast)
divided by the latest share price.
:: E ::
Earnings per share
Measures the profit / earnings generated by each company
share in issue. Calculation: profit available to ordinary
shareholders divided by the number of ordinary shares in
issue.
Efficient portfolio
A portfolio which achieves the highest possible return for a
given level of risk.
Emerging Markets
Developing countries.
EPS
Earnings per share.
Escrow account
A holding account where, for example, shares can be held
suspended by a third party without transferring ownership of
the stock. In this situation the release of the shares would
occur on the satisfaction of certain criteria.
Ex-div date
The date on which the LSE declare listed securities ex-div.
After this date any transfers of the security take place
without the right to receive the dividend.
Ex-dividend
The period during which a buyer of a security will NOT be
entitled to the next dividend payment.
Execution
A trade completion.
Execution only
A level of service offered by a firm working in the
financial services industry which involves effecting client
instructions without giving any advice.
Extraordinary General Meeting
A general meeting of company shareholders other than the
Annual General Meeting. It may be called either by the
directors or on the request of the holders of 10% of the
voting share capital.
:: F ::
Fair Value
The true value of a stock based on criteria of the user’s
choosing. A stock is said to be overvalued when the share
price exceeds the fair value.
Financials
Financial statements including operating statement, balance
sheet, and statement of cash flows.
Financial Services Act 1986
The statutory legislation designed to regulate investment
business activities in the UK.
Financial Services Authority
The principal regulator / watchdog of the financial services
industry in the UK.
Fiscal year
The period in which an individual is assessed on income and
capital gains tax. The period runs from 6 April to 5 April.
Tax rates are set in the Chancellor's budget according to
fiscal years.
Flipping
The practice of buying IPO shares at the issue price and
reselling them on the first day of trading.
Float
Shares outstanding less shares held by insiders. Insiders
cannot readily trade shares, so float is considered to be
the number of shares available for trading.
Forex
Foreign Currency Exchange Markets.
FT-SE 100 index
An index of the top 100 UK companies based on market
capitalisation.
FT-SE 250 index
An index of the next 250 (after the FT-SE 100) largest UK
companies based on market capitalisation.
FT-SE 350 index
An index combining the FT-SE 100 and the FT-SE 250. It is
therefore an index based on the top 350 UK companies by
market capitalisation.
:: G ::
Gross Profit
Profit a company makes on goods and services before
considering overhead expenses. Gross profit is sales minus
cost of sales.
Growth Stocks
Companies with consistent annual earnings and sales growth
of at least 15%.
:: I ::
Income tax
The tax charged on the taxable income of a UK resident
individual (or a trust) for a fiscal year. Different rates
of tax are applied to earned income (eg salary), savings (eg
interest) and dividends.
Index
A composite representing the value of a group of stocks.
Indirect customers
A customer who conducts his or her relationship with a
regulated firm through a third party, e.g. solicitor,
accountant.
Industry Group
Companies in related businesses.
Initial Public Offering (IPO)
First sale of stock to the public by a company.
Insiders
Officers, directors and anyone else owning more than 10% of
stock outstanding.
Intangibles
Soft assets such as patents, trademarks, etc.
Institutional Ownership
Shares owned by pension funds, mutual funds, banks, etc.
Individual savings accounts (ISAs)
A tax efficient way of investing. Assets held within an ISA
are not liable income or capital gains arising. ISAs may be
either Mini (consisting of separate components for cash,
insurance and stocks) or Maxi (involving a combination of
all three components). There are limits on the maximum
investment into the ISA each year, but no restrictions on
withdrawals.
Inflation
The average rate of increase in prices of goods and services
in the economy. Formally measured by RPI and RPIX.
Inheritance tax
A tax charged on the wealth of an individual when they die.
It is also charged on any gifts made in the seven years
prior to death.
Investment trust
A company with a fixed share capital whose shares are listed
on the London Stock Exchange; the company's share capital is
invested in the shares and bonds of other companies, thus
offering diversification to investors.
Issued share capital
The actual number of shares a company has issued to its
shareholders.
:: L ::
Large-Cap
Company with market capitalization greater than $5 billion.
LCH.Clearnet
An independent organisation, owned by its member firms, that
carries out the clearing process for the three London
derivative exchanges: Euronext.liffe, LME and IPE
Liquidity
A measure of the number of shares, or dollar value of shares
traded daily. Mutual funds and other institutional buyers
prefer high liquidity stocks so they can easily move in and
out of positions.
:: M ::
Market capitalisation
The total market value of a company. Total market value is
calculated by multiplying the number of shares in issue by
the market value of each share.
Market maker
An investment bank / financial institution responsible for
quoting firm two-way prices for securities so that a liquid
market is maintained
Mid-Cap
Company with market capitalization between $2 billion and $7
billion.
Momentum Stocks
Companies currently in favor by investors (price/sales
greater than 10, price/earnings greater than 35 or so).
Money-Center Bank
The largest banks such as Citigroup and Bank of America.
:: N ::
Nominal value
All shares have a nominal value (also known as 'face' or
'par' value). It represents the original value when the
company was constituted, and is the legal minimum a company
can receive when issuing shares.
Nominated advisor - Nomad
A regulated firm appointed by a company seeking a quotation
on AIM whose job it is to satisfy itself that the company is
appropriate for AIM and to confirm this in writing to the
London Stock Exchange.
Nominated broker
A regulated firm appointed by an AIM quoted company whose
job it is to match buyers of the company's shares with
sellers, or to act as market maker when orders cannot be
matched.
Nominee account
If a firm has responsibility for custody of a customer's
investments, agreement must be reached as to the name in
which those investments should be held. In order to reduce
the cost to the customer, this will often be the name of a
nominee company controlled by the firm.
:: O ::
Official List
The main market of the London Stock Exchange, on which the
shares of approximately 2,500 UK and international companies
are traded.
Ordinary shares
Otherwise called equity shares (or, in the US, common
stock). An ordinary share represents true ownership of a
company. Ordinary shareholders receive dividends reflecting
the success of the company, and are entitled to vote in
company general meetings.
Over-the-Counter-Market
Older name for stocks traded on NASDAQ. Also refers to
bulletin board and Pink Sheet stocks.
:: P ::
Personal Allowance
An allowance given every tax year which reduces an
individual's taxable income. Unused personal allowance is
lost.
Portfolio valuations
Used where the firm is acting as the customer's investment
manager; generally sent out on a six-monthly basis.
Portfolio
A group of stocks, mutual funds, or other securities.
Post-Offering Shares
The number of shares that will be outstanding after an IPO.
Preferred Stock
Debt instruments. Preferred shareholders are paid ahead of
common stock holders in the event the corporation is
liquidated. Convertible preferred shares can be converted
into common stock according to predetermined conditions.
Price / Earnings ratio
Measures the relationship between the price of a share and
the profits earned by it. Calculation: market price per
share divided by the earnings per share.
Primary market
The market into which new shares (or bonds, or any other
type of securities) are issued for the first time.
Profit and loss account
Part of the financial statements prepared by a company each
year which shows all the income and expenditure relating to
a company's period of account.
:: R ::
Recognised Clearing House
An organisation, recognised by the Financial Services
Authority, which is responsible for the clearing and
settlement of security and derivative transactions. The FSA
recognises two clearing houses in the UK: CREST and
LCH.Clearnet.
Recognised Investment Exchange
An investment exchange (i.e. market place for the trading of
shares) which has been recognised by the Financial Services
Authority. In order to achieve recognised status, an
exchange must deliver high standards of investor protection
and maintain market integrity.
Registered securities
A security registered in the owner's name, e.g. ordinary
shares, debentures.
Risk Warning Notice
A warning notice - sent to and signed by all private
customers - when dealing in derivatives. The notice spells
out the risks involved in such transactions. The notice must
also be sent to (but not necessarily signed by) all private
customers dealing in non-readily realisable securities.
:: S ::
Secondary market
The market in which EXISTING securities are traded, in
contrast to the primary market where securities are issued
for the first time.
Share capital
The long-term finance raised by a company through the issue
of equity.
Shares outstanding
The total number of shares issued by a corporation.
Share premium
When a company issues shares, the price is often above the
nominal value, e.g. a £1 nominal value share may be issued
for £1.50. The excess over nominal value, in this case 50p,
is called the premium.
Short Sale
Selling stock you don’t own. You hope it drops in price so
you can buy it back later at a lower price. You must have a
margin account with your broker to sell short.
Short-term Investments
Stocks and other liquid securities.
Small Cap
Company with market capitalization less than $1 billion.
Spread
The difference between a market maker's bid and offer price.
Stamp duty
A UK tax payable on purchases of UK registered assets such
as real estate and certain securities. The principal
securities affected are UK registered and certficated
equities and certficated convertible loan stocks. Stamp Duty
is an ad valorem tax, it is chargeable on the agreed
purchase price. The equivalent tax for uncertficated
purchases is Stamp Duty Reserve Tax.
Stock splits
A stock split involves splitting the issued shares of a
company into shares with a smaller nominal value. It is a
method used by companies that believe their share prices are
too high, but do not want to make bonus issues and
capitalise reserves.
Subscribers
The first shareholders of a company.
:: T ::
Taper relief
An allowance given for capital gains tax for periods of
ownership after April 1998. Taper relief replaced indexation
allowance.
TESSA-only ISA
Prior to 5 April 1999, investors were could invest cash into
a 'Tax Exempt Special Savings Account' which was a bank or
building society savings account. The maximum investment was
£9,000 and the account had a life of five years. Upon
maturity, £9,000 can be transferred into a TESSA-only ISA
which will continue to enjoy tax-free benefits. Such a
transfer does not affect normal ISA subscription limits.
Theoretical ex-bonus price
The theoretical price of a company's shares following a
bonus issue
Tick
The minimum price movement, up or down, in the price of a
derivative or security.
Transaction report
A trade confirmation report which matches the details input
by buyer and seller. A matched bargain will then proceed to
settlement.
:: U ::
Undervalued
A stock trading below its fair value.
Underwriting
The process where (usually) a bank guarantees an issue of
securities by buying up shares not taken up by the normal
investor base.
:: V ::
Value Investor
One who looks for out of favor (value priced) stocks.
Value Stocks
Companies currently out of favor with investors. These
companies usually have low valuation ratios (price/earnings
less than the S&P 500, price/sales ratio less than 2,
price/book ratio less than 2).
Venture Capitalist
An investor involved in financing a company’s operations
before going public in exchange for an ownership percentage.
virt-x
virt-x provides an order-driven, screen-based electronic
market for securities trading in the UK. Members trade
directly with each other, with anonymous access to the order
book. Once a trade has been automatically executed, it is
guaranteed by a central counterparty, LCH.Clearnet.
Volume
Number of shares traded during a specified time, usually one
day.
:: W ::
Warrant
A financial instrument that grants the holder the right to
subscribe for new shares in a company at a pre-determined
price on a future date
Withholding tax
Tax deduced at source before receipt of income. Foreign
interest and dividends are usually paid after deduction of a
withholding tax in the country where the income arises; the
withholding tax will be allowed as a credit against the
investor's tax liability.
:: Y ::
Yield
Interest and dividends paid to mutual fund shareholders as a
percentage of share price (Net Asset Value). Also the
effective interest rate on a bond. For instance, if a bond
pays $1.00 interest annually, and is selling for $10.00, the
yield is (1.00/10.00) 10 percent.
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