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Financial Places
Financial Places


  • A-Day

    The introduction on 6 April 2006 of wide-ranging pension reforms designed to simplify and streamline the pension's

  • Abandoned option

    Where an option is neither sold nor exercised but allowed to lapse at expiry.

  • ABC paper

    Asset-backed commercial paper.

  • Above Par

    Selling for a price in excess of par value.

  • Absolute pricing model

    An asset valuation model that bases prices on economic fundamentals.

  • Acceptance

    A time draft on which the drawee has accepted an obligation to make payment.

  • Accepting house

    An organisation that accepts or guarantees bills of exchange and so finances trade deals and goods being shipped.

  • Accident insurance

    Insurance which pays benefits in the event of an accident. Items typically covered are medical expenses and loss of earnings.

  • Accident Year

    Loss payments and reserves on losses are allocated to the year in which the loss has occurred (accident year). Such losses are monitored in time intervals (e.g. monthly, quarterly, yearly) until all losses are finally settled. The losses allocated to a given accident year are measured against the earned premium income of the same period.

  • Accidental death insurance

    Insurance which pays a lump sum in the event of death of the insured.

  • Account Management Profile System (AMPS)

    A statement by a commodity broker to a client when a futures transaction is closed out, sometimes referred to as a purchase and sale statement (P&S)

  • Accounting reference date

    The date to which accounts are prepared for a company. When a company is incorporated, it will usually have an accounting reference date which is the last day of the month in which the anniversary of its incorporation falls.

  • Accounting Standards Board (ASB)

    UK body that sets accounting standards.

  • Accounts payable

    Amounts owed by an organisation or individual to another for goods or services it has received.

  • Accounts receivable

    Amounts due to an organisation or individual from another for goods or services it has supplied.

  • Accrual

    A term used in company accounts where income is due or a cost is incurred during an accounting period but has not been received or paid.

  • Accrual bond

    A type of CMO bond also called a Z bond. This bond is often the last one to mature. It pays no interest while the principal on earlier bonds are being paid. Because this bond accrues interest rather than pay it out, it is analogous to a zero-coupon bond.

  • Accrual instrument

    A money market instrument that accrues interest until it matures.

  • Accrual rate

    The rate of build-up of a pension in a scheme where the calculation is based on salary.

  • Accrued benefits

    Benefits earned by an employee in respect of his/her pension based on years of service with his/her employer.

  • Accrued Interest

    The amount of interest that has accumulated on a credit agreement, a bond or any other financial instrument.

  • Accrued-coupon bond

    A bond that, rather than paying coupons, accrues them to maturity.

  • Accumulated dividend

    Dividend that is due to holders of cumulative preference shares but which has not yet been paid.

  • Accumulation

    See Catastrophe Exposure and Cumulative Liability.

  • Accumulation and maintenance trust

    An accumulation and maintenance trust is one in which the beneficiaries will become entitled to the property or at least the income when they reach a certain age. This must not be more than age 25.

  • Accumulation fund

    A superannuation fund is where the benefits received by members result from investment earnings to their contributions made on their behalf by employers.

  • Accumulation index

    An index that measures movement in the value of a market, taking into consideration both price movement and income growth.

  • Accumulation units

    (UK) A type of investment structure where the income from the trust's investments is reinvested into the trust, instead of being paid out to the investors as dividends.

  • Accumulation/Distribution Indicator (ADI

    A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally 'accumulating' (buying) or 'distributing' (selling) a certain stock by identifying divergences between stock price and volume flow.

  • Acid ratio

    See 'acid test'.

  • Acid test

    A financial ratio similar to the current ratio, defined as current assets minus stocks divided by current liabilities.

  • Acquisition

    A term used to describe the takeover of a company by another.

  • Acquisition Cost

    The reinsurer's acquisition cost consists of reinsurance commission, reinsurance brokerage, reinsurance premium tax and other costs (such as fire brigade charges).

  • Across the board

    A market-wide directional movement or a market condition in which most stocks and sectors are moving in the same direction.

  • Act of God

    An act occasioned exclusively by forces of nature, uncontrolled and uninfluenced by the power of man and which is of such a character that it could not have been prevented or escaped from by any amount of foresight or prudence. E.g. lightning, tempest, perils of the sea, tornadoes, earthquakes.

  • Active fund

    A fund whose objective is to outperform the market average (index) by actively seeking out stocks that will provide superior total return.

  • Active management

    When an asset manager makes choices of investment looking to get the best return for his/her clients. This can be done through a bottom-down (investing in sectors) or top-up (stock selection) approach to portfolio management.

  • Active market

    A loose term denoting that there is a high degree of liquidity in a stock market.

  • Activities of daily living (ADL)

    An insurance term which refers to the basic things that people need to be able to do in order look after themselves - e.g. wash and feed themselves.

  • Actuals

    The physical commodity that underlies a futures contract or is traded in the physical.

  • Actuary

    A person trained and specialising in risk, statistics and finance.

  • Ad valorem duties

    Taxes which are charged as a percentage of the value of an asset.

  • Additional pension

    See 'State Second Pension'

  • Additional personal allowance

    (UK) An additional allowance single people can claim if they are single, separated or widowed and have young children living with them.

  • Additional rate tax

    (UK) A term that applies to trusts without an interest in possession (for example a discretionary trust) and defines the additional rate of tax on income.

  • Additional voluntary contributions (AVC)

    Additional payments to a tax-deferred savings account or an occupational pension scheme by an employee to boost his/her pension at retirement.

  • Adjustable Features

    Contract terms and conditions which vary according to the performance of contracts, e.g. Contingent Commissions such as sliding scale and profit commissions, variable rates, loss participations.

  • Adjustable rate mortgage (ARM)

    (US) A mortgage whose interest rate is can change over the term of the loan according to interest rates on US Treasury securities.

  • Adjustable-rate preferred stock

    Stock that pays dividend which is linked to floating interest rates.

  • Adjusted earnings

    If a company's earnings figures are distorted either positively or negatively by exceptional one-off occurrences in the year, its directors can choose to clarify the performance by releasing adjusted earnings.

  • Adjusted gross income

    (US) A person's income on which federal income tax is calculated.

  • Administration

    A company experiencing financial difficulties may be put into the charge of a court-appointed administrator. Going into administration means the company cannot be wound up without the court's permission.

  • Administrative receiver

    An insolvency practitioner appointed when a company goes into receivership.

  • Administrator

    An individual or organisation legally appointed by a court to settle the affairs of a deceased person who failed to make a will.

  • ADR (American depositary receipt)

    A negotiable certificate issued by a U.S. bank that represents ownership in the shares of a foreign company trading on US financial markets. ADRs are denominated in U.S. dollars and enable US investors to buy shares in foreign companies without undertaking cross-border transactions.

  • Advanced Premium

    See Deposit Premium.

  • Advisory broker

    A broker who not only deals in stocks and shares on behalf of his client, but also advises on what shares should be bought and sold for the portfolio.

  • Affarsvarlden index

    The Swedish equivalent of the Footsie index.

  • Affidavit

    A written statement signed on oath and witnessed by a commissioner for oaths, usually a qualified solicitor.

  • Affluenza

    An extreme form of materialism in which consumers overwork and accumulate high levels of debt to purchase more goods.

  • After hours deals

    Dealings made on a stock exchange after its official closure time. These deals are rolled over and included in the following day's transactions.

  • Age admitted

    A term used on occasions in life assurance policy documents, which indicates that the assured has proven his/her age by showing a birth certificate to the insurance company.

  • Age allowance

    An income tax personal allowance available to those aged over 65.

  • Agency security

    A security issued by a US federal agency or government sponsored enterprise.

  • Agent

    A person appointed by a principal to act on the latter's behalf in business.

  • Aggregate Excess of Loss Reinsurance

    See Stop Loss Reinsurance.

  • Agreement for Sale

    A document in which the purchaser agrees to buy a property and the seller agrees to sell it under agreed terms and conditions. Also called sales contract, binder or earnest money contract.

  • Agricultural property relief

    A deduction of either 50% or 100% which is made from the value of land in the UK, Channel Islands or Isle of Man when it is assessed for inheritance tax purposes.

  • Ajr

    Commission, fee or wages levied for services.

  • Al Ghunm bil Ghurm

    This provides the rationale and the principle of profit sharing in Shirkah arrangements. Earning profit is legitimized only by engaging in an economic venture, risk sharing and thereby contributing to the economy.

  • Al Rahn Al

    Arrangement where a valuable asset is placed as a collateral for a debt. The collateral is disposable in the event of a default. Pawn Broking.

  • Al Wadia

    Resale of goods at a discount to the original cost.

  • Al Wadiah

    Safe keeping.

  • Al- Rahn

    Pledge, Collateral; legally, Rahn means to pledge or lodge a real or corporeal property of material value, in accordance with the law, as security, for a debt or pecuniary obligation so as to make it possible for the creditor to recover the debt or some portion of the goods or property. In the pre-Islamic contracts, Rahn implied a type of earnest money which was lodged as a guarantee and material evidence or proof of a contract, especially when there was no scribe available to put it into writing. The institution of earnest money was not accepted in Islamic law and the common Islamic doctrine recognized Rahn only as a security for the

    payment of a debt.

  • Al-Kafalah (Suretyship)

    (responsibility, amenability or suretyship Lit.)

    In Islamic Finance it is a third party guarantor. Legally in Kafalah a third party becomes surety for the payment of a debt. It is a pledge given to a creditor that the debtor will pay the debt, fine etc. (See Suretyship)

  • Al-Rahn

    Pledge, Collateral; legally, Rahn means to pledge or lodge a real or corporeal property of material value, in accordance with the law, as security, for a debt or pecuniary obligation so as to make it possible for the creditor to recover the debt or some portion of the goods or property. In the pre-Islamic contracts, Rahn implied a type of earnest money which was lodged as a guarantee and material evidence or proof of a contract, especially when there was no scribe available to put it into writing. The institution of earnest money was not accepted in Islamic law and the common Islamic doctrine recognized Rahn only as a security for the payment of a debt.

  • Al-Sarf

    Basically, in pre-Islamic times it was exchange of gold for gold, silver for silver and gold for silver or vice versa. In Islamic law such exchange is regarded as "sale of price for price" (Bai al Thaman bil Thaman), and each price is consideration of the other. It also means sale of monetary value for monetary value -- currency exchange.

  • Al-Sarf

    In pre-Islamic times it was exchange of gold for gold, silver for silver and gold for silver or vice versa. In Islamic law such exchange is regarded as ‘sale of price for price’ (Bai al Thaman bil Thaman), and each price is consideration of the other. It also means sale of monetary value for monetary value – currency exchange.

  • Al-Wakala (see Wakala)

    Absolute power of attorney.

  • Al-‘Aariyah (Gratuitous loan of non-fungible objects)

    Al-‘Aariyah Means "trust", is associated with trustworthiness, faithfulness and honesty it is a loan of a particular piece of property, the substance of which is not consumed by its use, without anything taken in exchange, In other words, it is the gift of usufruct of a property or commodity that is not consumed on use. (Opposite term, see Qard)

  • Alimony

    Support paid to the dependent spouse after divorce.

  • All or none (AON)

    An order to a broker to buy or sell the entire amount of the order in one transaction or not deal at all. AON does not automatically cancel an order if it cannot be filled as designated, but could be executed without the AON requirement

  • All or nothing

    See: 'all or none'

  • All Ordinaries Price Index

    More recently called the S&P/All Ordinaries share price index; it is a share price index that measures the market prices of the major stocks listed on the Australian Stock Exchange (ASX).

  • All paper deal

    When one listed company bids for another company (listed or private) and the shareholders of the target company only get shares in the bidding company for their shares in the target company.

  • Allocated Loss Adjustment Expenses

    Loss adjustment expenses identified by a claim file in the insurer’s records, such as attorney’s fees for the investigation of and/or defence of the insured policyholder for the specific claim..

  • Allocated pension

    A retirement income arranged through a fund manager that allows an individual to draw a pension from a lump sum investment, which is earning a return.

  • Allocation notice

    A formal notification to the writer of an option from a clearing house that an option has been exercised by an option holder and that the writer is obliged to buy/sell the underlying instrument at the exercise price to meet his/her obligations.

  • Allotment

    A method of distributing securities to applicants for a new issue. If an issue is not oversubscribed, each applicant gets whatever they applied for. However in the other case some mechanism has to be used to decide how many shares each applicant gets.

  • Allotment notice/letter

    A confirming document from a company that newly issued shares have been allotted to an applicant.

  • Allowances

    (UK) Tax allowances are concessions by the Inland Revenue which can be used to reduce a person's taxable income.

  • ALM

    Asset-liability management.

  • Alpha

    The expected return of a stock or a portfolio if the market rate of return is zero.

  • Alpha shares

    (UK) A term previously given to the most actively traded shares on the London Stock Exchange along with beta, gamma and delta shares. This classification was replaced by the normal market size classification in January 1991.

  • Alpha transport

    Use of a self-financing market neutral strategy to generate alpha in one market while investing in another.

  • Alternative investment

    Investment in items other than stocks, bonds or other securities. For example, wine, art and antiques.

  • Alternative Investment Market (AIM)

    Formed in 1995 (AIM) is a trading platform for small, young and growing companies from all over the world operated by the London Stock Exchange.

  • Alternative option

    See: 'rainbow option'

  • Amana/Amanah

    Reliability or trustworthiness. Important value of Islamic society in mutual dealings. It also refers to deposits in trust. A person may hold property in trust for another, sometimes by implication of a contract.

  • American (-style) option

    An option which can be exercised at any time until expiry (unlike European style options which can only be exercised at expiry).

  • American Association of Individual Investors (AAII)

    An association based in Chicago whose purpose is to provide information about stocks, mutual funds and bonds to individual investors.

  • American depositary receipt (ADR)

    See ADR.

  • American exercise

    A provision which allows an option any time prior to expiration.

  • American Express

    An international company whose services include travel and financial products.

  • American option

    An option that can be exercised anytime during the contract, as opposed to the European option which can only be exercised at maturity. The majority of exchange-traded options are American.

  • American Stock Exchange (AMEX)

    A stock exchange located in Manhattan where stocks of small to medium sized companies are traded.

  • American-style exercise

    See 'American-style option'.

  • American-style warrant

    A warrant which can be exercised at any time until final expiry.

  • Amortisation

    (UK) The accounting process whereby payment of an interest bearing liability done over time through regular instalments that include both principal capital and interest.

  • Amortized Amounts

    Amounts such as taxes, fees, charges for service contracts and any prior credit that are included and paid as part of the base monthly payment.

  • Amount Due at Signing or Delivery

    The amount due before the purchaser takes the delivery of the vehicle/vessel which may include security deposit, title registration fees and other charges.

  • Amount Financed

    The amount of a contract (after down payment or trade-in) including all amounts that are financed by a creditor and that are not part of the finance charge. This may include insurance premiums, warranty charges, lender and other fees.

  • Analyst

    A professional working for a fund manager or broker whose job is to analyse key industry sectors (e.g. retail, oil, pharmaceuticals) and determine the prospects for the companies operating in them.

  • Annual accounts

    The financial summary of the state of affairs of a company over the course of a year. It includes a profit and loss account, a balance sheet and a statement of cash flows

  • Annual Aggregate Deductible

    A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.

  • Annual bonus

    See 'reversionary bonus'.

  • Annual compounding

    Compounding based on annual crediting of interest.

  • Annual equivalent rate (AER)

    It is a notional rate that's generally quoted on interest paid on savings and investments.

  • Annual Exclusion

    The value in cash or other assets that may be given as a gift to a recipient each year without incurring a gift tax.

  • Annual exemption

    Each taxpaying individual in the UK is entitled to an annual exemption on capital gains for the current tax year.

  • Annual general meeting (AGM)

    A yearly meeting between directors of a company, where shareholders are invited to attend. Subjects normally discussed include audited accounts, election or re-election of directors and dividend payments to shareholders. The equivalent US term is 'Annual Meeting'.

  • Annual Meeting

    A yearly meeting between directors of a company, where shareholders are invited to attend. Subjects normally discussed include audited accounts, election or re-election of directors and dividend payments to shareholders. The equivalent US term is 'Annual Meeting'.

  • Annual percentage rate (APR)

    Yearly interest rate charged on loans or other debits.

  • Annual rate of return

    Return over a period of one year.

  • Annual report

    A report on the operations of a company (including financial statements) prepared once a year for shareholders and presented at its Annual General Meeting for approval.

  • Annual return

    The total annual return on an investment which includes dividend payments and capital gains/losses, excluding transaction costs and taxes.

  • Annualise

    A mathematical process where the rate of return on an investment for periods other than a full year are converted into annual terms.

  • Annualised volatility

    A quoting convention for volatility. Resulting volatilities are referred to as annualised volatilities—as opposed to annual volatilities—to alert people to the fact that this is just a quoting convention.

  • Annuitant

    A person in receipt of an annuity.

  • Annuitize

    The commencement of regular payments from capital which has accumulated in an annuity.

  • Annuity

    A financial arrangement whereby, by investing a lump sum, the beneficiary receives periodic payments during a period of time. They are often used in the provision of retirement incomes.

  • Annuity certain

    See 'annuity'.

  • Annuity deferral

    Investors can now choose to defer (up to the age of 75) the purchase of an annuity with their pension fund and take an income directly from the fund.

  • Annuity starting date

    The date on which annuity benefit payments start to be paid to an annuitant.

  • Antithetic variates

    A technique of variance reduction for the Monte Carlo method.

  • Antitrust laws

    Laws designed to combat monopolies ("trusts") and other devices to suppress competition.

  • Appraisal

    The process through which the monetary value of property that is part of an estate can be established.

  • Appreciation

    The value that an asset gains over a period of time, as opposed to depreciation.

  • Appropriate personal pension plan

    A pension plan in which employer and employee pay full rate National Insurance contributions equivalent to the employee contracting into S2P. This rate will be greater than the rate paid by contracting out of S2P. The difference between these rates, the contracted-out rebate, is paid by the Government into a scheme known as an appropriate personal pension plan which buys pension benefits at retirement age known as protected rights.

  • Approved delivery facility

    Any bank, stockyard, warehouse, depository or other facility that is authorised by an exchange for the delivery of commodities tendered on futures contracts.

  • Approved investment trust

    An investment trust that satisfies certain conditions set by the tax authorities and accordingly is exempt from tax on capital gains made on profits from sales of investments within its portfolio.

  • Approved list

    A list of investments in which a financial institution such as a mutual fund is authorised to invest.

  • AR process

    Autoregressive process.

  • Arbitrage

    The practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices.

  • Arbitrage CDO

    A CDO sponsored for the purpose of adding value by repackaging collateral.

  • Arbitrage condition

    Any relationship that must prevail between certain prices if they are to be arbitrage-free.

  • Arbitrage-free model

    A type of financial engineering model that generates prices that entail no arbitrage opportunities.

  • Arbitrage-free pricing

    The approach to pricing instruments that underlies essentially all of financial engineering in complete markets.

  • Arbitrageur

    A person or organisation that engages in arbitrage.

  • Arbitration Clause

    A clause providing an alternative dispute resolution process to resolve differences between the insurer and the insured without litigation.

  • Arbun

    Non refundable deposit or a down payment maid by a purchaser who conserves the right to confirm or cancel a sale

  • ARCH

    Autoregressive conditional heteroskedasticity

  • Arithmetic mean

    The arithmetic mean (or simply the mean) of a list of numbers is the sum of all the members of the list divided by the number of items in the list. Also called Average.

  • Arithmetic random walk

    It is a simple type of discrete stochastic process whose increments form a white noise. Since a white noise has zero mean, a random walk is a martingale, a stochastic process equivalent to 'fair gamble'.

  • Arithmetic random walk with drift

    An arithmetic random walk with a constant drift.

  • Arithmetic return

    Simple return.

  • ARMA process

    autoregressive moving-average process.

  • Arms index

    The Arms Index is an indicator that uses advancing and declining stocks and their volume to measure intra-day market supply and demand and can be applied over short or longer time periods. It is calculated by dividing the Advance/Decline Ratio by the Upside/Downside Ratio. Also known as Trading Index (TRIN).

  • Arrearage

    An amount on a loan, cumulative preferred stock or any credit instrument that is overdue.

  • ARS

    Auction rate security.

  • Arthur Andersen conviction

    In 2002, accounting firm Arthur Andersen was convicted on a single charge related to its auditing of Enron.

  • Articles of incorporation

    The Articles of Incorporation (sometimes also referred to as the Certificate of Incorporation or the Corporate Charter) are the primary rules governing the management of a corporation, and are filed with a state or other regulatory agency.

  • Asia Pacific Advisory Committee (APAC)

    Advises on matters involving international capital markets.

  • Asian option

    An Asian option is an option where the payoff is not determined by the underlying price at maturity but by the average underlying price over some pre-set period of time.

  • ASIC

    Short for the Australian Securities and Investments Commission, an independent Australian government body that acts as Australia's corporate regulator. ASIC's role is to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors.

  • Ask

    The lowest price at which a dealer or market maker will sell a security.

  • Ask price

    The price at which an asset holder is willing to sell.

  • Askins, David

    The price at which an asset holder is willing to sell.

  • Askins, David

    Manager of the Granite Fund, a hedge fund that failed in 1994.

  • Asset

    Economic resources owned by an individual or entity.

  • Asset allocation

    The process of choosing between assets classes (e.g. shares, bonds, property and commodities) or individual company stocks when constructing a portfolio.

  • Asset backing

    The value of a company's assets divided by the number of shares on issue.

  • Asset play

    An investment strategy that seeks to identify companies whose net assets per share are worth significantly more than the current share price.

  • Asset sensitive

    If a portfolio has assets which reprice before than its liabilities, it is said to be asset sensitive. This is because near term changes in earnings are going to be driven by interest rate resets on those assets.

  • Asset stripping

    The practice of acquiring a company then selling parts of it, in the hope that the cash realised from these sales will match the entire acquisition cost.

  • Asset swap

    An exchange of two assets, for example the exchange of a fixed asset, such as a Treasury Bond, to a floating asset such as an index fund.

  • Asset turnover

    The ratio of annual sales divided by net assets employed in the business.

  • Asset value model

    A type of default model.

  • Asset-backed commercial paper

    Commercial paper secured by receivables or other assets.

  • Asset-backed security

    An asset-backed security is a type of bond or note that is based on pools of assets.

  • Asset-based lending

    Lending secured by assets.

  • Asset-liability management

    Techniques for protecting a firm's solvency in the context of its liabilities.

  • Asset-liability risk

    Risk which is calculated taking into consideration the firms assets against its liabilities and risk exposures. Asset-liability risk is a leveraged form of risk. The capital of most financial institutions is small relative to the firm's assets or liabilities, so small percentage changes in assets or liabilities can translate into large percentage changes in capital.

  • Asset-or-nothing binary

    An asset-or-nothing binary pays the value of the underlier (at expiration) if it expires in the money. It pays nothing otherwise.

  • Assignee

    A person to whom an asset or right is assigned.

  • Assignment (assign)

    The transfer of ownership of an item from one person to another.

  • Assignment form/notice

    See 'allocation notice'.

  • Assignor

    A person who assigns an asset or right to another party.

  • Association of Investment Trust Companies (AITC)

    An association formed in 1932 to represent the interests of investment trust companies.

  • Association of Private Client Investment Managers and Stockbrokers (APCIMS)

    An association of firms across the UK and Ireland, which deal in stocks and shares for private investors.

  • Association of Unit Trusts and Investment Funds (AUTIF)

    It is the trade body representing the UK unit trust and investment funds (mutual funds) industry.

  • Assurance

    In the UK the term 'assurance' tends to be used where insurance is taken out against a risk which will inevitably occur. The common example of assurance is life assurance; as death is a risk certain to happen.

  • Assured

    In the UK the assured is a person who has entered into a life assurance contract (policyholder). The person on whose life the policy is taken out is known as the life assured.

  • ASX

    Australian Stock Exchange

  • At best

    In contrast when a client places a 'limit' order he actually dictates the price at which he is willing to buy or sell, and the broker can only make a deal within the limit given.

  • At par

    Selling for a price equal to par value. A bond's price may be above or below par due to changes in interest rates or change in the bond's credit quality.

  • At quote

    The instruction a client gives a broker to obtain a quote on the price for a particular share.

  • At the market

    A term used to describe an order where the broker is told by a client to buy or sell a stock at the best obtainable price for the current market.

  • At the money

    This describes an option whose exercise price is equal to the current price of the asset underlying the option.

  • At-the-money

    A condition in which the price of an option is equal to (or nearly equal to) the market price of the underlying security.

  • ATM card

    A plastic card enabling the holder to access an automated teller machine to obtain cash and statements.

  • Attachment Point

    The value or amount at which excess reinsurance (or insurance) protection comes into effect.

  • Auction rate security

    A floating-rate municipal security.

  • Audit

    The official examination of a company's accounts by an independent qualified accountant.

  • Auditor

    A person appointed by a company to perform an audit. In the UK auditors are Chartered Accountants.

  • Auditor's report

    The report produced by a firm of Chartered Accountants which is part of a company's annual Report and Accounts. Auditors are required to certify that the accounts produced by their client companies have been prepared in accordance with normal accounting services

  • Authorised capital

    The maximum number of shares that a company is permitted to issue under its constitution.

  • Authorised share capital/authorised stock

    The total number of shares a company is authorised to issue by reference to its memorandum and articles of incorporation.

  • Authority

    The concept in technical analysis that a trend in a share price is more meaningful if the number of shares traded (the 'volume') is high. A trend with low volume has less authority.

  • Auto-debit

    The process of automatically transferring monthly payments from an existing account to pay for a credit agreement, i.e.. loan or credit card.

  • Autocorrelation

    A correlation between a component of a stochastic process and itself lagged a certain period of time.

  • Automated pit trading

    The automated trading system used by LIFFE, usually for after hours trading.

  • Automated teller machine (ATM)

    Also known as cash dispenser.

  • Automatic Capacity

    Capacity provided by treaty reinsurance.

  • Automatic trade

    A term used by the London Stock Exchange to denote a trade generated by the system through automatic execution.

  • Autoregressive conditional heteroskedasticity

    A category of models for conditionally heteroskedastic processes.

  • Autoregressive moving-average process

    A type of stochastic process.

  • Autoregressive process

    A type of stochastic process.

  • Average Directional Movement (ADX)

    It helps to determine if there is a price trend.

  • Average Market Capitalization

    The average capitalization of all stocks in the portfolio. Capitalization or market value of an entire company is calculated by multiplying the number of shares outstanding by the per-share price.

  • Average Maturity

    Stated or dollar-weighted average time remaining until maturity on a fixed-income securities portfolio.

  • Average option

    An average rate option (or average price option) is a cash-settled option whose payoff is based on the difference between the average value of the underlier during the life of the option and a fixed strike.

  • Average P/E Ratio

    P/E is short for the ratio of a company's share price to its per-share earnings.

  • Average price

    A term used by the London Stock Exchange to denote that a transaction was effected at a price based over a given period.

  • Average price option

    A term used by the London Stock Exchange to denote that a transaction was effected at a price based over a given period.

  • Average rate option

    A form of Asian option whose payoff is linked to the average underlier value over a specified period.

  • Average strike option

    A form of Asian option whose strike equals the average underlier value over a specified period.

  • Average true range bands

    Support/resistance lines that mark off an issue’s average true price range, which is determined by taking an exponential average of the difference between the higher of today’s high and yesterday’s close, and the lower of today’s low and yesterday’s close.

  • Averaging

    Method of accumulating assets by investing a fixed amount in securities at set intervals. Investors buy more shares when the price is low and fewer shares when the price is high.

  • AW Jones & Co.

    An early hedge fund formed in 1949.

  • Awkaf/Awqaf

    A religious foundation set up to assist the poor and needy.

  • BA Bankers acceptance

    A bankers acceptance is a short-term discount instrument that usually arises in the course of international trade.

  • Baby bond

    Bonds with a denomination of less than a $1,000 par value. Baby bonds are a source of funds to corporations that lack access to large institutional markets and bring the bond market within reach of small investors.

  • Back end load

    A sales charge or commission paid when an individual sells an investment, such as a mutual fund or an annuity.

  • Back end load

    A charge imposed when investors redeem (sell) shares in mutual funds.

  • Back office

    Administrative operations that support the trading of stocks and other securities.

  • Back spread

    A delta-neutral spread composed of more long options than short options on the same underlying instrument.

  • Back taxes

    (US) Taxes that have not been paid on the due date or were underreported either by accident or by intention on a past tax return.

  • Back testing

    A system that uses a large historical price database to evaluate a trading system's profitability.

  • Back to back inheritance tax plan

    The combination of a life assurance policy and an annuity on the same life.

  • Back to back loan

    (UK) A situation where an investment organisation subsequently arranges with a foreign associate bank to lend the equivalent amount of foreign currency to the investment organisation.

  • Back-to-Back Cover

    When the reinsurance and insurance contract have the same terms and conditions.

  • Backfill

    Practice of adjusting historical values of an index to reflect past performance of an asset which has just been added to the index.

  • Backwardation

    It is the situation where, and the amount by which, the price of a commodity for future delivery is lower than the spot price, or a far future delivery price lower than a nearer future delivery.

  • Bai al Dayn

    Debt financing: the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Bai al-Dayn is a short-term facility with a maturity of not more than a year. Only documents evidencing debts arising from bona fide commercial transactions can be traded.

  • Bai al Salam

    Advance payment for goods which are to be delivered later. Normally, no sale can be effected unless the goods are in existence at the time of the bargain. But this type of sale forms an exception to the general rule provided the goods are defined and the date of delivery is fixed. One of the conditions of this type of contract is advance payment; the parties cannot reserve their option of rescinding it but the option of revoking it on account of a defect in the subject matter is allowed. It is usually applied in the agricultural sector where the bank advances money for various inputs to receive a share in the crop, which the bank sells in the market.

  • Bai Bithaman Ajil

    Contract which refers to the sale of goods on a deferred payment basis. Equipment or goods requested by the client are bought by the bank which subsequently sells the goods to the client an agreed price which includes the bank's mark-up (profit). The client may be allowed to settle payment by instalments within a pre-agreed period, or in a lump sum. Similar to a Murabaha contract, but with payment on a deferred basis.

  • Bai Muajjal (Deferred Payment Contract)

    A contract involving the sale of goods on a deferred payment basis. The bank or provider of capital buys the goods (assets) on behalf of the business owner. The bank then sells the goods to the client at an agreed price, which will include a mark-up since the bank needs to make a profit. The business owner can pay the total balance at an agreed future date or pay by installments over a pre-agreed period. This is similar to a Murabaha contract since it is also a credit sale.

  • Bai′bil Wafa

    Sale with a right in the seller, having the effect of a condition, to repurchase (redeem) the property by refunding the purchase price. According to majority of Fuqaha it is not permissible.

  • Bai′Salam

    A contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. According to normal rules of the Shariah, no sale can be effected unless the goods are in existence at the time of the bargain, but Salam sale forms an exception given by the Holy

    Prophet (SAW) himself to the general rule provided the goods are defined and the date of delivery is fixed. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver or currencies because these are regarded as monetary values exchange of which is covered under rules of Bai al Sarf, i.e. mutual exchange is hand to hand without delay. Barring this, Bai′Salam covers almost everything

    which is capable of being definitely described as to quantity, quality and workmanship.

  • Bailouts

    A common name for the IMF-coordinated emergency rescue loans to economies in crisis.

  • Baitul Mal


  • Bai‘ Muajjal

    (A credit sale Lit.)

    In Islamic Finance, a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the seller earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. He has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

  • Balance of payments (BOP)

    A record of all the payments that flow between any individual country and all other countries. It is used to summarise all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers.

  • Balance of trade (BOT)

    The difference between a country's exports and imports over a given period of time.

  • Balance sheet

    A financial statement which shows the types and composition of a company's assets, liabilities and shareholders' equity at a point in time.

  • Balance sheet CDO

    A CDO (collateralized debt obligations) issued for the purpose of moving assets off the sponsor's balance sheet. Therefore the sponsoring organization that holds loans or debt can remove from its balance sheet.

  • Balanced fund

    A superannuation fund that diversifies its holdings over a range of asset classes such as shares, bonds, property and cash.

  • Balanced mutual fund

    (US) A mutual fund which invests in a balance of common stock, bonds and preferred stock with an objective of income provision and some capital appreciation with low risk.

  • Balloon

    (US) The final payment on a loan which is significantly larger than those preceding it.

  • Baltic Exchange

    A self-regulated London exchange serving world wide interests. It is the world's premier maritime market for ship chartering and sale and purchase.

  • Bancassurance

    The selling of insurance and banking products through the same channel, most commonly through bank branches selling insurance.

  • Band earnings

    (UK) Pay between the lower earnings limit and upper earnings limit which is used to determine National Insurance Contributions.

  • Bank credit

    (US) The maximum credit an individual may secure from his/her bank.

  • Bank for International Settlements (BIS)

    The Bank for International Settlements (or BIS) is an international organisation of central banks based in Basel (Switzerland) which exists to foster cooperation among central banks and other agencies in pursuit of monetary and financial stability.

  • Bank giro credit

    (UK) A system in which a paper slip/document instructs a bank branch to credit a sum of money to a specified account at that branch.

  • Bank insurance fund

    (US) A fund held by a section of the Federal Deposit Insurance Corporation as deposit insurance for banks excluding thrifts.

  • Bank line

    A moral, rather than a contractual commitment by a bank to provide a loan to a borrower up to a stated total amount over a stated period, typically one year.

  • Bank of England (BoE)

    The central bank of the United Kingdom, similar to the Federal reserve in the United States and the Bundesbank in Germany.

  • Bank run

    A crisis which prompts investors to believe that the bank might fail therefore causing massive deposit withdrawals.

  • Bank statement

    A document, issued by a bank to its customers, listing details of debit and credit transactions over a given period.

  • Banker's acceptance

    A short-term credit investment created by a non-financial firm and guaranteed by a bank as to payment. Acceptances are traded at discounts from face value in the secondary market.

  • Banker's draft

    It is a cheque drawn on the bank (or building society) itself against either a cash deposit or funds taken directly from a person's bank account.

  • Banker's reference

    A reference sought from a bank by a company or individual regarding the creditworthiness of another company or individual in order to assess whether or not credit trading terms should be offered.

  • Bankers Automated Clearing Services (BACS)

    (UK) BACS is an APACS clearing company which provides an automated clearing service for payments originated by Settlement Members or those they sponsor.

  • Banking Act of 1933

    The United States Glass-Steagal Act that separated commercial and investment banking and formed the FDIC.

  • Bankruptcy

    When an individual is incapable of settling his/her debts and has been served a bankruptcy order by a court.

  • Bar chart

    A chart with rectangular bars of lengths proportional to that value that they represent. Bar charts are used for comparing two or more values. The bars can be horizontally or vertically oriented. Sometimes a stretched graphic is used instead of a solid bar.

  • Bare trust

    A trust which allows parents to give capital to a child and have the income from that capital treated as the child's rather than their own.

  • Bargain

    A term used on the London Stock Exchange to describe a share purchase or sale.

  • Bargain conditions apply

    A term used by the London Stock Exchange to denote that certain conditions were agreed between the two participants at the time of trading.

  • Bargain issue

    A term used by value investors to describe the issue of shares in a company at a price below the per share book value of the company.

  • Barings debacle

    In February 1995 Britain's oldest merchant bank failed due to unauthorized trading by a single individual at its Singapore office.

  • Barrier option

    Barrier option is a type of financial option where the option to exercise depends on the underlying crossing or reaching a given barrier level.

  • Barrier warrant

    A warrant with an additional 'barrier' clause in the terms. Usually the warrant expires when a barrier level is breached.

  • Barter

    An exchange of products or services between individuals without the involvement of money.

  • Base currency

    In foreign exchange markets, the base currency is the first currency in a currency pair.

  • Base Premium

    See Premium.

  • Base rate

    The interest rate that British banks charge to their best customers. Similar to the prime rate in the US.

  • Base rate tracker mortgage

    A mortgage in which the rate of interest paid by the borrower follows movements in the base rate.

  • Basel Accord (1996 Amendment)

    An amendment to the 1988 Basel Accord that added capital requirements for market risk.

  • Basel II

    An international accord which established a set of minimal capital requirement for banks, replacing the earlier 1988 Basel Accord.

  • Basel-IOSCO initiative

    An initiative to globally harmonise capital requirements for banks and securities firms. Because of the fundamental differences between banks and securities firms (see: regulatory capital), the initiative soon ran into trouble.

  • Basic pension

    See: 'State Pension'

  • Basic rate tax

    The main rate of income tax in the UK.

  • Basic state pension

    See: 'State pension'.

  • Basic sum assured

    A term used in conjunction with policies such as low cost endowment assurance and low start endowment assurance.

  • Basis

    The price difference between the spot price of an asset and the price for the derivatives (e.g., futures and options) relating to that asset.

  • Basis point

    Usually one hundredth of a percentage point used in quoting movements in interest rates of yields on securities.

  • Basis risk

    The risk linked to uncertain movements in the spread between a futures price and a spot price. Numerically, it is the amount by which the value of a derivative differs from the value for the asset underlying that derivative.

  • Basket warrant

    A warrant over a group of securities, often within a sector.

  • Basle committee

    Committee set up by the Bank of International Settlements which drew up international capital adequacy standards for banks.

  • Bear

    An investor who believes that a particular security or market is headed downward.

  • Bear call spread

    The purchase of a call with a high strike price against the sale of a call with a lower strike price.

  • Bear hug

    A takeover bid which is so generous to the shareholders of the target company that the directors decide to accept the terms rather than face the wrath of their own shareholders.

  • Bear market

    A pessimistic market characterised by falling prices (opposite of bullish market).

  • Bear put spread

    The purchase of a put with a high strike price against the sale of a put with a lower strike price in expectation of declining prices.

  • Bear trap

    A short-lived reversal of an upward trend, catching out bears and shorters who were hoping to profit from a fall in the share price.

  • Bearer bond

    A bond which does not record its owner's name. Possession of the bond certificate is therefore the only proof of ownership.

  • Bearer stocks/shares

    Stocks or shares which do not record owner's names and for which the companies do not keep a register of ownership. Possession of the certificate is therefore the only proof of ownership.

  • Bed and breakfast

    (UK) The practice of selling shares on one day and buying them back on the next.

  • Bells and whistles

    Special features added on to a derivatives instrument or securities issue with the intention of attracting investors or reducing issue costs.

  • Below par

    A price below the face value (or par value) of a security.

  • Benchmark

    An index measure which compares performance of securities.

  • Beneficial loan

    A loan made by an employer to an employee on which interest is either not charged or is less than the official rate. The difference between the interest charged and the official rate is taxable.

  • Beneficial owner

    The true owner of a security or property which may be registered in another name.

  • Beneficiary

    A natural person or other legal entity who receives money or other benefits from a benefactor.

  • Beneficiary

    A person who benefits from: 1) a trust set up on his/her behalf; 2) the proceeds of a will, or 3) the proceeds of a life insurance policy.

  • Benefit amount

    The amount that will be paid out by a policy.

  • Benefits in kind

    Benefits, excluding salaries, given to employees such as cars, medical insurance and gifts, which are taxed as income.

  • Bequest

    Property given as a gift under the terms of a will (See legacy).

  • Best advice

    A requirement by the Financial Services Authority that requires a financial adviser to provide the best advice to his/her clients, having first established a full understanding of the client's financial background.

  • Best execution

    The Stock Exchange rule that requires brokers to carry out a deal on behalf of a client at the best price available in the market.

  • Best's Rating

    The Best's rating system (developed by the rating agency A.M. Best Company) evaluates those factors that affect the overall performance of insurance companies to provide a weighted relative measure of a company's financial strength.

  • Best's Ratings

    Ratings of financial reliability given by Best's Rating Service to insurance companies.

  • Beta

    Measures a portfolio’s market risk. By definition, the beta of the market is 1.00. A portfolio with a beta of 1.10 is expected to perform 10% above market during “up” periods, and 10% below market during “down” periods.

  • Beta value

    A measurement of the movement of the price of a particular stock compared with the movement of the market as a whole during the same period.

  • Better-of-two option

    See: 'rainbow option'

  • Better-of-two option

    See: 'rainbow option'

  • Bid price

    The price that a prospective buyer is willing to pay for a security.

  • Bid price

    The price at which a market maker will buy a security.

  • Bid-ask spread

    The difference between the bid and ask price of a security.

  • Bid-offer spread

    (UK) The difference between the selling price and the purchase price for investments.

  • Bid-only warrant

    A bid-only warrant is a warrant which is 'sold-out' such that it may not be possible to buy any more.

  • Big Bang

    A reference to the major operational changes on the London Stock Exchange which took place on 27th October 1986.

  • Big Board

    Nickname for the New York Stock Exchange.

  • Big Four

    (UK) The four largest clearing banks: Lloyds TSB, Barclays, HSBC and Royal Bank of Scotland.

  • Big Four

    The five four accountancy firms: KPMG, PriceWaterhouseCoopers, Ernst & Young and Deloitte & Touche.

  • Bill of exchange (BE)

    An order in writing by one person to another to pay a specified sum to a specified person or bearer on a particular date.

  • Bill of sale

    A formal document for the transference of title to goods from the seller to buyer.

  • Billing cycle

    (US) The time between periodic billings for goods and services, typically one month.

  • Binary option

    This is a cash settled option that has a discontinuous payoff.

  • Binder

    1. US: term for temporary cover issued by an insurer or a reinsurer.2. GB: An authority by an underwriter to an agent to grant cover on the underwriter's behalf. See Cover Note.

  • Binding Agreement

    A reinsurance contract under which the reinsurer allows itself to be bound, within a specified grace period, on any risk that meets the criteria outlined in the contract.

  • BIS

    Bank for International Settlements.

  • Biweekly mortgage loan

    (US) A mortgage whereby the borrower makes a half monthly payment every two weeks instead of the usual 12 monthly payments.

  • Black (1976) option pricing formula

    A pricing formula for European options on commodities, forwards or futures.

  • Black economy

    A hidden segment of a country's economy that operates on barter and numerous unreported private cash transactions.

  • Black knight

    A company (or person) making an unwanted, hostile bid for another company.

  • Black Monday

    Monday 19th October 1987 - the day when the Dow Jones Industrial Average fell a record 508 points affecting markets around the world.

  • Black Tuesday

    Tuesday 29th October 1929 when stock prices on Wall Street crashed.

  • Black Wednesday

    Wednesday 16th 1992 - the day the pound was driven out of the Exchange Rate Mechanism.

  • Black-Scholes (1973) option pricing formula

    The original option pricing formula published by Black and Scholes in their landmark (1973) paper; it is used to price European options on non-dividend-paying stocks.

  • Black-Scholes option pricing model

    The original option pricing formula published by Black and Scholes in their landmark (1973) paper; it is used to price European options on non-dividend-paying stocks.

  • Black-Scholes Theory

    Another name for option pricing theory.

  • Blended Covers

    Prospective reinsurance that combines elements of both traditional and financial reinsurance to limit risk transfer.

  • Block

    A large holding or transaction of shares.

  • Block trade

    A large amount of securities being traded, typically at least 10000 shares of stock.

  • Blow off

    The volume of selling increasing rapidly and peaking abruptly.

  • Blue chip

    A company on the London Stock Exchange with a large market capitalisation, stable earnings, consistent dividend record, and reputation as a reliable investment.

  • Blue Chip Stocks

    High-quality stock of well-known companies with large market capitalisation, extended records of earnings and dividends, well-respected management, and prospects for continued strong performance.

  • Blue sky laws

    (US) Name of various state laws enacted to protect the public against securities fraud.

  • Boesky day

    November 14, 1986, the day it was announced that Ivan Boesky had pled guilty to insider trading and was cooperating with government investigators.

  • Boesky, Ivan

    An insider trader of the 1980s.

  • Bollinger bands

    Bollinger bands, named after their founder John Bollinger, measure the support for, and resistance to price changes of any particular stock.

  • Bona fide

    It means 'in good faith'. For example, a person entering in an insurance contract is required to disclose all pertinent information in good faith. Failure to do so could result in breach of contract, making it void. In contemporary English, "bona fides" is sometimes used as a synonym for credentials, background, or documentation of a person's identity.

  • Bond

    The generic name for a tradable loan security issued by governments and companies as a means of raising capital.

  • Bond anticipation note (BAN)

    (US) A short-term municipal or state note which is repaid from the proceeds of a forthcoming issue.

  • Bond discount

    The difference between a bond's face value and the lower market price.

  • Bond interest yield

    Yield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price.

  • Bond mutual fund

    A mutual fund which invests in bonds.

  • Bond rating

    A measure of the quality and safety of a bond, based on the issuer's financial condition.

  • Bond yield

    The interest investors can earn on a bond.

  • Bond-equivalent yield

    A calculation for converting semi-annual, quarterly, or monthly discount-bond or note yields into an annual yield.

  • Bonus

    (US) Money paid by life insurance companies to policyholders based on endowment policies and with-profit bonds.

  • Bonus issue

    See: 'scrip issue'.

  • Bonus shares

    Shares issued free by a company to its existing shareholders on a pro-rata entitlement basis.

  • Book

    A record maintained by a trading specialist of buy and sell orders for a given security.

  • Book entry bond

    A bond for which ownership records are maintained electronically in lieu of certificates.

  • Book transfer

    Transfer of title from seller to buyer without physical movement of product.

  • Book value

    The value of an asset or liability according to its balance sheet account balance.

  • Bookbuilding

    Indications from investors of the numbers of shares at different prices they would be willing to purchase.

  • Booking the basis

    A forward pricing sales arrangement in which the cash price is determined, either by the buyer or seller, within a specified time at a previously agreed-upon basis applied to the then-current futures price.

  • Books closing date.

    The date at which a company's share register is closed off to identify the shareholders and to calculate any entitlement to new issues and dividends.

  • Books of account

    The books in which the transactions of a business are recorded.

  • Bordereau (Plural: Bordereaux)

    A method of claim or premium reporting where the insurer simply receives an outline report showing summary information without individual customer details.

  • Borrower

    The individual who enters in a credit agreement with a financial institution.

  • Bottom fishing

    An approach to stock picking which focuses on the search for shares whose prices have dropped extremely low.

  • Bottom-up analysis

    Security analysis which focuses firstly on stocks of individual companies, secondly on industry performance and thirdly on the economy as whole.

  • Bought deal

    The purchase of new shares by an underwriter who subsequently attempts to resell to the market for a profit.

  • Bourse

    A French or continental European stock exchange.

  • Box spread

    A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price.

  • Brady bond

    A type of bond devised by the US Treasury secretary, Nicholas Brady, in 1989, and issued by a number of Latin American sovereign borrowers to reschedule their international debt.

  • Breadth

    The number of stocks participating in either a rally or a decline.

  • Break even

    The level of a company's sales at which neither a profit nor a loss is made.

  • Break up value

    The total value of all a company's separate operations if sold separately.

  • Breakout

    The point at which a price breaks out either above or below a stable established range or trendline. Once the price breaks above its resistance or below its support, its likely to continue in the same direction. Also referred to as a Trendline Violation.

  • Bretton Woods Agreement

    An agreement made in Bretton Woods, USA, in 1944 which established a post war fixed currency rate between countries and subsequently the International Monetary Fund (IMF). The fixed exchange rate was replaced in the early 1970s by a floating exchange rate.

  • Bridge loan (bridging loan)

    A short-term loan that is used until a person or company secures permanent financing or removes an existing obligation.

  • British government stock

    See: 'gilt-edged stock' (gilts).

  • Broad money

    The widest of various measures used to gauge the growth of a nations' money supply. It includes all holdings of notes and coin by the public, as well as borrowings by non-bank financial institutions and all holdings in cash management trusts.

  • Broad tape

    Term commonly applied to news wires carrying price and background information on securities and futures markets.

  • Broker

    An individual or institution that charges a fee or commission for executing buy and sell orders submitted by an investor.

  • Broker (Insurance)

    An intermediary who negotiates contracts of insurance/reinsurance between an insured and insurer/reinsured and reinsurer on behalf of the insured/reinsured.

  • Broker (Real Estate)

    A licensed real estate professional who receives a commission or fee for bringing buyer and seller together, often assisting in the negotiation of contracts between them.

  • Broker to broker

    A term used by the London Stock Exchange to denote that a transaction was between two member firms where neither firm is registered as a market maker in the security in question and neither is a designated fund manager.

  • Broker-dealer

    Any individual or firm in the business of buying and selling securities for itself and others.

  • Broker-dealer

    Any individual or firm in the business of buying and selling securities for itself and others.

  • Broker/Individual

    An individual that arranges for the sale/purchase of vehicles/vessels through other parties.

  • Brokerage

    An entity that arranges for the sale/purchase of vehicles/vessels through other parties.

  • Brokerage fee

    Commission or fees charged by a broker for conducting transactions on behalf of its clients.

  • Brownian motion

    A simple continuous stochastic process that is widely used in physics and finance for modelling random behaviour that evolves over time.

  • Bubble

    The phenomenon of rising share prices amid a mood of general euphoria, leading to a 'bursting' and a reversal of prices.

  • Bubble Act

    An 18th century English law that severely restricted the formation of new corporations.

  • Bucket shop

    Slang term for a disreputable brokerage firm.

  • Bucketing

    When, in an attempt to make a short-term profit, a broker confirms an order to a client without actually executing it.

  • Budget account

    A bank account set up to control a person's regular expenditure.

  • Budget deficit

    The gap between government spending and revenue.

  • Building Code

    Local regulations concerning the construction industry.

  • Building Societies Investor Protection Scheme

    (UK) A scheme set up to give limited protection to people with share and/or deposit accounts in authorised building societies which fail.

  • Building society

    Mutual non-profit-making institutions set up to lend money to their members for house purchase. In recent years some of the UK's largest building societies have demutualised and turned themselves into profit-making banks, with their profits being distributed to shareholders rather than their customers.

  • Buildings insurance

    Insurance which covers the policyholder against certain building losses or damages which may occur.

  • Bull

    Someone who believes that prices in markets are going to rise.

  • Bull/Bear

    Terms frequently used to describe the outlook for short-and long-term market performance: Bull refers to the belief that stock prices are likely to rise; Bear refers to the expectation that prices will fall.

  • Bulldog

    A foreign bond issued in the United Kingdom.

  • Bulldog bond

    A bond issued in sterling by a foreign institution or government.

  • Bullet

    A bond with a single maturity date and no opportunities for early redemption.

  • Bullion

    Gold or silver in the form of ingots for bulk use.

  • Bullion coins

    Coins made from gold or silver.

  • Bullish market

    An optimistic market characterised by rising prices (opposite of bearish market).

  • Burn rate

    The rate at which a company is spending its cash reserves.

  • Burning Cost

    Ratio of excess losses in comparison to premium income.

  • Business cycle

    It refers to recurring cycle of expansion, boom, bust, recession and trough.

  • Business Expansion Scheme

    (UK) A tax-efficient investment vehicle, designed to provide venture capital funds for small businesses. Replaced by the Enterprise Investment Scheme in 1994.

  • Business property relief

    A deduction made from the value of business property when it is assessed for inheritance tax purposes.

  • Business risk

    Degree of uncertainty of realising expected future returns for the business resulting from factors other than financial leverage.

  • Butterfly

    Traders use the butterfly strategy when they feel a particular stock will remain neutral during a certain period. By entering into a butterfly trade, the trader is betting that the underlying stock price will remain close to where it is currently.

  • Butterfly spread

    An options spread that combines a long strangle with a short straddle.

  • Buttonwood Agreement

    (US) A 1792 trade agreement among the original 24 brokers in New York. The agreement was named for a Buttonwood tree that served as their informal meeting place on Wall Street.

  • Buy back

    The purchase by a listed company of its own shares.

  • Buy on rumour, sell on the fact

    An axiom whose underlying message is that stock market prices rise when there are positive rumours about a company, but often fail to sustain high levels when the facts become known.

  • Buy-back cover

    Specific cover for perils/risks which are excluded from reinsurance contracts.

  • Buy-write

    Purchase of stock and simultaneous writing of call options against stock position.

  • Buy-write

    Purchase of stock and simultaneous writing of call options against stock position.

  • Buyers Guide

    (UK) A document, relevant to life assurance, personal pension and unit trust products, which is given to prospective clients and provides information on the advice given, product's and commission's details.

  • Buying price

    The price at which units in a unit trust are bought by investors.

  • Bylaws

    Purchase of stock and simultaneous writing of call options against stock position.

  • Cabinet bid (CAB)

    A facility enabling holders of deep out-of-the-money options to close their positions at a nominal 1/$1 per contract or 1 cent per option.

  • CAC 40

    The main index of the French stock market introduced in 1988 with a base value of 1,000 and made up of France's largest 40 companies by market capitalisation.

  • CAD

    Europe's 1993 Capital Adequacy Directive.

  • CAD II

    Europe's 1993 Capital Adequacy Directive.

  • CAD II

    Update to CAD (1998).


    European regulation implementing the Basel II Accord.

  • Cadbury Committee

    The Cadbury Code is the unofficial name for the first Code of Best Practice on corporate governance, published in 1992.

  • Cafeteria employee benefit plan

    (US) A plan enabling employees to choose from a variety of benefits according to their personal circumstances.

  • Calendar effect

    A theory which states that certain days of the week, weeks of the month, and months of the year are more likely to produce rise or fall in share prices than others.

  • Calendar spread

    An options or futures spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months.

  • Calendar Year

    According to the Gregorian calendar, the calendar year begins on January 1 and ends on December 31. For individual and corporate taxation purposes, a calendar year will generally comprise all of the year's financial information used to calculate income tax payable.

  • Call

    An option to purchase an asset.

  • Call date

    (US) The date on which a bond may be redeemed by the issuer before maturity.

  • Call feature

    See: 'Call provision'

  • Call option

    An option that gives the holder the right but not the obligation to purchase an asset for a pre-determined price (the exercise price) at or before the expiration date of the option.

  • Call option

    An option which gives the holder the right but not the obligation to purchase a stated quantity of the underlying instrument at a specified price or before a given date.

  • Call payment

    A payment made by investors for new shares. The term would apply to payments made when a company first floats on the stock exchange and also when it has a rights issue.

  • Call premium

    The difference between a bond's call price and par value.

  • Call price

    The price at which a bond is callable.

  • Call price

    (US) The price at which a bond or preferred stock can be redeemed by the issuer. The call price will usually be greater than the par value to compensate the holder for loss of income and ownership.

  • Call provision

    Feature of some bond indentures allowing the issuing company to redeem bonds prior to maturity by paying holders a premium above face value.

  • Call spread

    The simultaneous purchase (sale) of a call at one exercise price and sale (purchase) of another call at a higher exercise price.

  • Call warrant

    Warrants which give their owner the right to buy an underlying instrument and which would normally be used by an investor who thought the price of the underlying asset was due to rise.

  • Callable bond

    A bond which allows the issuer to repurchase the bond for a specified price on certain dates prior to the bond's maturity.

  • Callable preferred stock

    Preferred stock that can be called by the issuer.

  • Cancel

    Voiding a buy or sell order.

  • Cancel former order (CFO)

    Type of order given to a broker.

  • Cancellation

    The act of terminating a contract earlier than the scheduled contract expiration. See Termination.

  • Cancellation period

    In financial services, the period after signing a contract during which customers are entitled to cancel their purchase.

  • Cancellation price

    (UK) The lowest possible bid price of units in a unit trust under FSA regulations which is usually lower than the quoted bid price.

  • Cap

    A type of derivative instrument that offers protection against rising interest rates.

  • Capacity

    The measure of an insurer's/reinsurer's financial ability to accept risk as well as the maximum amount of business it can write.

  • Capacity to contract

    Legal authority to enter into a contract.

  • Capital

    The overall assets of an individual or company minus liabilities.

  • Capital account

    The section of a country’s balance of payments statement with the total of all international purchases and sales of assets including foreign direct investment, portfolio investment, bank loans, other securities and foreign currency holdings.

  • Capital account liberalization

    The process used by countries to remove restrictions on the flow of foreign capital in to and out of their territories.

  • Capital adequacy

    A measure of the financial strength of a bank or securities firm, usually expressed as a ratio of its capital to its assets.

  • Capital allocation

    Formal allocation of capital charges to a firm's business transactions.

  • Capital allowance

    (UK) A tax allowance for businesses which takes account of depreciation of certain types of business assets such as plant and machinery.

  • Capital asset pricing model

    A model describing the relationship between expected risk and expected return for financial assets.

  • Capital asset pricing model

    It is used in finance to determine a theoretically appropriate required rate of return (and therefore the price if expected cash flows can be estimated) of an asset.

  • Capital assets

    Assets purchased as a long-term investment to generate profit.

  • Capital charge

    Capital required to support a given business transaction.

  • Capital controls

    Measures to control foreign exchange transactions to manage capital flows.

  • Capital employed

    The value of all the assets employed in a business, including equity and preference capital, fixed and current assets, and gross borrowings.

  • Capital expenditure

    A company's expenditure to acquire capital assets.

  • Capital flows

    The movement of foreign exchange, such as loans, loan repayment, bonds and foreign investment, from one country to another.

  • Capital Fulcrum Point (CFP)

    It measures the annual percentage growth rate required from the underlying instrument for investors to do equally well in terms of capital appreciation from its associated warrant.

  • Capital gains

    The amount gained through the sale of an asset.

  • Capital gains tax

    Tax payable by the individual taxpayer at rate equivalent to the taxpayer’s highest rate of income tax on gains arising from the sale of securities or other chargeable assets.

  • Capital growth

    The appreciation of the market value of an asset.

  • Capital growth

    The increase in value of an asset or an investment.

  • Capital market line

    A line describing the optimal relationship between risk and reward for an investment portfolio.

  • Capital movement

    It covers the difference between the capital which the country has invested in other countries, and the capital invested by other countries in it. Also known as capital account.

  • Capital ratio

    The ratio of a firm's capital to its assets.

  • Capital shares

    Shares which entitle the holder to receive the capital appreciation from a split capital investment trust.

  • Capital structure

    (US) The components which form a company's capital such as ordinary shares, preference shares, debentures and loan stock.

  • Capital structure arbitrage

    Any trading strategy that seeks to profit from inconsistencies in the relative pricing of a firm's debt and equity.

  • Capital transfer tax (CTT)

    A UK tax on gifts made by an individual, whether made during their life or after death. Replaced by inheritance tax in 1986.

  • Capitalisation

    It refers to a company's share price multiplied by the total number of shares issued by the company.

  • Capitalisation issue

    See 'scrip issue'.

  • Caplet

    One of a series of options that comprise an interest rate cap.

  • CAPM

    Capital Asset Pricing Model.

  • Capped rate mortgage

    A mortgage which guarantees the interest rate charged will not rise above a certain level.

  • Captive Finance Company

    A finance company related to a particular manufacturer or distributor.

  • Captive Insurer

    An insurance company which is wholly-owned by one or more entities (parent organisations); the purpose of a captive is to insure the risks of its parent organisations.

  • Captive Reinsurer

    A reinsurance company, which is owned by a corporation or association and provides reinsurance capacity for insurance policies taken out by the corporation or the association's members.

  • Car benefit

    (UK) Where a company provides an employee with a company car which is also used privately.

  • Carat

    A measurement unit which defines the purity of gold.

  • Card reader replacement (CRR)

    Wireless device used to report trades and quotes to the market data system.

  • Carpetbagger

    Someone who becomes an account holder with a building society in the hope that they will benefit from a windfall handout when the building society demutualises.

  • Carry back

    A term applicable to personal pensions regarding tax rules which allow contributions made in the current tax year to be treated as though they were paid in the preceding tax year.

  • Carry forward

    A term applicable to personal pensions regarding tax rules which allow an individual to make contributions, additional to the current tax year, for the six previous years if maximum contributions have not been made.

  • Carrying broker

    A member of a commodity exchange through whom another broker or customer elects to clear all or part of his trades.

  • Carrying charges

    Portion of the finance charge in bank loans covering the lender's costs in booking the loan and collecting payments plus a portion of bad debt expense; or broker's charge to customers for a margin account financing securities purchased on credit.

  • Cartwheel

    An options spread that is long (short) a ratio call spread and short (long) a ratio put spread.

  • Carveout

    A carve-out occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering.

  • Cash and carry

    An arbitrage transaction applied on a futures market where the cash or spot price of for example, a commodity is less than the futures contract price.

  • Cash and equivalents

    The value of assets that can be converted into cash immediately.

  • Cash card

    See 'ATM card'.

  • Cash CDO

    Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product.

  • Cash Equivalents

    Assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper.

  • Cash extraction

    A defensive strategy using warrants to replace the exposure to assets at a lower price, thereby releasing cash.

  • Cash flow

    The amount of money which flows in and out of a business.

  • Cash flow CDO

    A CDO whose payments to investors depend on the adequacy of collateral cash flow.

  • Cash flow matching

    Structuring a fixed income portfolio so that each day's net cash flow is zero.

  • Cash flow risk

    Risk due to uncertainty in future cash flows.

  • Cash fund

    A collective investment scheme which relies on currency trading for its profits.

  • Cash instrument

    An instrument whose value, unlike that of a derivative instrument, is determined directly by the markets.

  • Cash loan

    A small, short term loan which is to be repaid by next payday.

  • Cash management T-bill

    A Treasury bill issued with a non-standard maturity.

  • Cash market

    An expression used to describe the market in the underlying instrument (for example, shares, indices, commodities, etc.) on which a futures or options contract is based.

  • Cash price

    The price for cash settlement transactions.

  • Cash settlement

    settlement on the trade date or a derivative instrument as cash settlement if it settles for a cash payment in lieu of physical delivery of an underlier.

  • Cash surrender value

    (US) The value of funds returnable to the insured upon the surrender of a cash value life insurance policy.

  • Cash trade

    A security transaction in which settlement with payment and security delivery are to occur on the same day as the trade date.

  • Cash value life insurance

    (US) A life insurance policy which pays a benefit on the death of the insured but which also provides a savings element where benefits are payable before death.

  • Cash-flow-at-risk

    A category of cash-flow risk measures.

  • Cash-or-nothing binary

    A type of binary option. It pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security.

  • Cash-settled warrant

    Warrants which are not exercised in exchange for a physical asset, but for a cash amount equal to their intrinsic value.

  • Cash-to-cash cycle

    A financial ratio which shows how long a company can finance its own stock. It measures the number of days between the initial cash outflow (when the company pays its suppliers) to the time it receives cash from customers.

  • Cashback

    A sales incentive, commonly used on mortgages, which gives customers a cash sum as soon as the deal is signed.

  • Casualty

    Term for a type of insurance that is primarily concerned with losses caused by injuries to persons as well as potential legal liability imposed upon the insured as a result of such injuries.

  • Casualty insurance

    Insurance which gives protection to a business or homeowner against property loss, damage and injury to a third party.

  • Cat mark

    See: 'Cat standard'

  • Cat standard

    A set of voluntary standards drawn up by the Treasury which companies can choose to adopt for their ISAs.

  • Catastrophe Exposure

    The amount of potential loss an insurance company is exposed to in a single catastrophic event, such as an earthquake or a hurricane, in a certain period of time.

  • Cauchy distribution

    It is a continuous probability distribution with the same general shape as a normal distribution except that it has much thicker tails.

  • Caveat emptor

    It implies that a buyer must ensure that goods about to be purchased are free from defects and that he/she bears the risk.

  • CBO

    Collateralized bond obligation.

  • CD

    Collateralized bond obligation.

  • CDO

    Collateralized debt obligation.

  • Cedant

    The insurance company protected by pro-rata reinsurance.

  • Cede

    The process of distributing the sum insured of a risk between reinsurer and reinsured under pro-rata reinsurance contracts. All premiums and losses relating to that risk are distributed in the same proportion.

  • Ceding Commission

    The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits.

  • Central bank

    The national governing bank of a country, responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy as well as the regulation and supervision of the private banking sector.

  • Central limit theorem

    A theorem that explains why the normal distribution plays such an important role in probability theory.

  • Central register

    (UK) A computerised database of investment firms authorised by the Financial Services Authority (FSA).

  • Central Warrants Trading Service (CWTS)

    It is the automatic execution order book system on the London Stock Exchange.

  • Certificate of deduction of tax

    (UK) A certificate issued by a building society or bank to its customers with interest bearing accounts, in which gross interest, tax deducted and net interest are itemised.

  • Certificate of deposit (CD)

    A certificate, issued by a bank to a depositor, indicating a sum of money has been deposited for a specified term and on which interest is paid.

  • Cession

    The portion of the sum insured of a risk ceded to a reinsurer by the cedant.

  • Cession Limit

    Restricts the amount of the aggregate sum insured that can be ceded to a pro-rata reinsurance contract.

  • CFaR

    Cash-flow-at-risk, the cash flow equivalent of Value-at-Risk (VaR). CFaR-based systems determine the maximum shortfall of cash the firm is willing to tolerate.

  • CFTC

    Commodity Futures Trading Commission.

  • CGT

    Capital gains tax, which is usually paid the profit arising from the sale of an asset.

  • Chapter 11

    In the US, a company can file for protection under Chapter 11 of the country's bankruptcy laws. The company continues to operate under existing management while working with its creditors to reorganise the business.

  • Chargeable event

    (UK) A transaction which leads to a chargeable gain and which promotes the issuing of a chargeable event certificate.

  • Chargeable event certificate

    (UK specific) A certificate issued on the occurrence of a chargeable event. Details listed include the amount of the gain, number of years over which the gain has occurred, the date the transaction took place and that the certificate should be sent to the Tax Office to establish if a higher rate tax liability exists.

  • Chargeable gain

    (UK) The amount chargeable to capital gains tax (CGT) from gains made on the disposal of an asset. In the case of stocks and shares, the investor's gain is the difference between the proceeds of selling the shares and the amount he/she paid for them adjusted for indexation.

  • Charitable trust

    A trust registered with the appropriate authority and which enjoys income tax advantages.

  • Charities Aid Foundation

    A central clearing house for Britain's charities. Allows supporters to make tax-efficient donations to many different charities via a single chequebook or credit card.

  • Charter abuse

    An archaic practice of devoting a corporation to some purpose other than that specified in its charter.

  • Chartist

    An investor who plots information about share prices and trading volumes on a chart, looking for patterns.

  • Chattels

    A term used in wills which refers to the personal possessions of the person who makes the will.

  • Cheque account

    An account with a bank (or building society) which allows payments by cheque.

  • Cheque card

    A card issued by a bank (or building society), which guarantees the payment of a cheque to the recipient up to a certain value.

  • Cheque clearing

    A system which enables cheques to be transmitted between banks in order to transfer funds.


    Clearing House Electronic Sub register System, which computerizes all ASX transactions and settlements.

  • Chi-squared distribution

    A continuous probability distribution related to the normal distribution.

  • Chicago Board of Trade (CBOT)

    The world's largest exchange, which trades both financial and commodity futures, with US Treasury bond futures being the most frequently traded instrument.

  • Chicago Mercantile Exchange (MERC)

    The Chicago Mercantile Exchange (or Merc) was called the Chicago Butter and Egg Board until 1919 and is The world's second-largest exchange for futures and options on futures and the largest in the U.S.

  • Chief risk officer

    Head of risk management.

  • Child deferred endowment

    (UK) An endowment assurance on the life of a child, which can be taken as cash at maturity or converted to a full endowment or whole life assurance.

  • Child Trust Fund (CTF)

    After 1st September 2002, children born in the UK received a £250 voucher, which is invested and cannot be accessed until they turn 18.

  • Children's bonus bond

    See 'baby bond'.

  • Chinese wall

    An internal division between two departments of a bank or other financial institution whose aim is to avoid conflicts of interest.

  • Cholesky algorithm

    A standard algorithm for calculating a positive definite matrix's Cholesky matrix.

  • Chooser option

    A derivative that converts to a vanilla put or a vanilla call at the holder's choice.

  • Churning

    An unjustified practice employed by some brokers or fund manager to increase their commissions by excessively trading in a client's account.

  • Circuit breaker

    A defensive regulation which some stock exchanges have to limit the damage of a sharp fall in prices; for example circuit breakers allow the exchange to suspend trading when prices fall sharply.

  • Citizens advice bureau (CAB)

    (UK) An organisation which gives free advice on an extensive range of civil, legal and consumer matters.

  • Citron, Robert

    Treasurer of Orange County, California whose speculative activities lead to the county's bankruptcy in 1994.

  • City Code

    The rules which govern the management and timing of takeover bids involving companies listed on the London Stock Exchange, written and enforced by the Panel on Takeover and Mergers.

  • Claim

    A demand by the insured/reinsured for an indemnity which is covered under the policy/contract.

  • Claim Against an Estate

    Refers to a charge against an estate to settle an outstanding obligation, such as bills unpaid at the time of estate owner death.

  • Claims adjuster

    Independent agent or employee of an insurance company who negotiates and settles claims.

  • Claims-Made Reinsurance

    A liability reinsurance contract covering all claims first advised by insureds to the insurer during the term of the reinsurance contract, regardless of when the insured’s loss occurred.

  • Clash Cover

    A liability non-proportional contract in which the reinsured's retention is higher than the limits on any one reinsured policy. Therefore, the contract is only exposed when two or more liability policies are involved in the same occurrence with an amount greater than the clash cover retention.

  • Class

    All listed options of a particular type (i.e., call or put) on a particular underlying instrument, e.g., all Barclays call options.

  • Class 1, 2, 3 and 4 National Insurance Contributions

    (UK) See: 'National Insurance contributions'

  • Class of Business

    Line of business.

  • Clean Cut

    A method of accounting in pro-rata reinsurance whereby the right of the reinsurer to receive premiums or his liability to pay losses is treated as ceasing upon cancellation of the contract.

  • Clean price

    A bond price quoted without accrued interest.

  • Clearing

    The process of moving payments between accounts from different banks or branches.

  • Clearing house

    A clearing house is an independent financial services company appointed by an exchange that provides clearing and settlement services for financial transactions.

  • Clearing house automated payment system (Chaps)

    A computerised payment system for clearing cheques in the UK.

  • Clearing house interbank payment system (Chips)

    A computerised payment system for clearing cheques in New York.

  • Client agreement

    A document issued by an adviser/broker to a client outlining the basis of the relationship and the services for which the adviser/broker is authorised.

  • Cliquet option

    See: 'ratchet option'.

  • CLO

    Collateralized loan obligation.

  • Close company

    A company in which the directors control more than half the voting shares, or where such control is exercised by five or fewer people and their associates.

  • Close market

    A securities market in which the difference between bid and offer prices is narrow and which reflects high volume trading in a 'liquid' stock.

  • Close out

    A futures transaction where an equal and opposite trade closes an open position. This leaves a trader with what is known as a zero net position.

  • Closed end fund

    A collective fund which has a fixed number of issued shares traded on a stock exchange, which will rise and fall in value according to supply and demand like ordinary company shares. In the UK, this is equivalent to an investment trust.

  • Closed form expression

    Closed-form solution.

  • Closed form VaR

    Linear VaR.

  • Closed period

    The two-month period before a company announces its results in which directors are not allowed to deal in its shares.

  • Closed-form solution

    A formula that can be evaluated in a finite number of standard operations.

  • Closely held corporation

    (US) It refers to a corporation with only a small number of shareholders.

  • Closeout netting

    The netting of obligations on derivative instruments that are terminated early.

  • Closing

    Ending a transaction.

  • Closing Agent/Attorney

    A closing agent or attorney assures that all documentation related to the sale of a house has been completed properly.

  • Closing Costs

    All of the costs to the buyer and seller which are associated with the purchase, sale, or refinancing of a property.

  • Closing price

    The closing price is the last price for a tradable instrument at the time the market closes.

  • Closing purchase

    The purchase of an option, by a writer, which has the same terms as an option which has previously been sold.

  • Closing range

    A futures expression which refers to a range of closely allied prices at which transactions were conducted at the close of a trading day.

  • Closing sale

    The sale of an option, by a holder, identical to the option which is held.

  • Closing Statements

    A financial disclosure which includes an account of all funds received and expected at the closing, such as deposits for taxes and mortgage insurance.

  • CLS

    Continuous Linked Settlement.

  • CLS Bank International

    The bank that settles foreign exchange trades under Continuous Linked Settlement.

  • CMO

    Collateralized Mortgage Obligation

  • Co-Applicant

    A person who jointly applies for a loan with someone else.

  • Co-Reinsurance

    The reinsured retains net and unprotected a share of a reinsurance layer or program.

  • Co-Signer

    An individual, business, entity, or trust that becomes a contractual borrower by signing the loan documents and promissory note with the primary borrower.

  • Codicil

    An addition or other change to an existing will.

  • Codicil

    A document on which changes or additions are made to an existing signed will.

  • COFI

    Cost of Funds Index.

  • Cold calling

    An approach by a salesperson to a prospect (prospective buyer) either by telephone or in person where no previous contact has been made.

  • Collar

    A collar is an investment strategy that uses options to limit the possible range of positive or negative returns on an investment in an underlying asset to a specific range.

  • Collateral

    Assets held to secure an obligation.

  • Collateral arrangement

    An agreement between two parties for the ongoing collateralization of a repo, securities lending, derivative or other transaction.

  • Collateralized bond obligation

    A securitized interest in a portfolio of bonds.

  • Collateralized debt obligation

    A securitized interest in a portfolio of bonds, loans or other debt.

  • Collateralized mortgage obligation

    A type of mortgage-backed security.

  • Collecting branch

    A banking term which refers to the branch which accepts cheques to be credited to its customers' accounts and subsequently obtains the proceeds from the issuing banks, usually by a clearing arrangement.

  • Combination

    It is a straddle using options with different exercise prices, where both the call and put options used are out of the money.

  • Combined Lines

    Insurance policies providing multiple property, casualty or liability cover.

  • Combined Ratio

    A measure of profitability used by an insurance company to indicate how well it is performing in its daily operations.


    Formerly an abbreviation for the Commodity Exchange in New York and now a division of the New York Mercantile Exchange after its merger with NYMEX. It is the main US market for metals futures and options trading in copper, gold and silver.

  • Commercial bank

    A bank that deals with deposits and loans from corporations or large businesses.

  • Commercial bank

    (UK) A retail bank which provides services to companies and individuals in the form of current, deposit and loan accounts as well as other financial services.

  • Commercial mortgage

    A mortgage on a non-residential building occupied by a business.

  • Commercial paper

    (US) A short-term note issued by banks and corporations with a range of maturities from 30 to 270 days.

  • Commercial paper

    Short-term promissory notes issued primarily by corporations.

  • Commission

    An agent's fee for negotiating a deal or contract.

  • Commission house

    Another term used to describe brokerage firms.

  • Commitment

    An agreement between the lender and the borrower to loan money at a future date subject to terms and conditions.

  • Commodity

    Generic term that covers a wide range of items that can be traded, including metals (such as gold, and silver) and agricultural goods (such as wool and wheat).

  • Commodity Credit Corporation (CCC)

    (US) A US government-owned corporation established in 1933 which supports prices through purchases of excess crops.

  • Commodity Exchange Act

    US legislation passed in 1974 forming the Commodity Futures Trading Commission.

  • Commodity Futures Modernization Act

    US legislation passed in 2000 clarifying that OTC derivatives markets were to remain largely unregulated.

  • Commodity Futures Trading Commission (CFTC)

    (US) Created by the US Congress in 1974 to regulate exchange trading in futures.

  • Commodity Trading Advisor (CTA)

    (US) An individual or firm who directly or indirectly advises others about buying or selling futures or futures options.

  • Common Account

    Reinsurance contract that protects the reinsured and the reinsurer.

  • Common stock

    Non-preferred stock.

  • Common stock

    The US equivalent of 'ordinary share'.

  • Common stock fund

    (US) A mutual fund which invests solely in common stocks of companies.

  • Commutation

    The process of settling current outstanding and expected future obligations under a reinsurance contract.

  • Commutation Clause

    A clause of a reinsurance contract that confirms complete discharge of all future obligations for reinsurance losses incurred by payment of a lump sum.

  • Companion bond

    A bond that takes most of the prepayment in a PAC CMO structure.

  • Company

    A legal entity regulated under the Corporations Law.

  • Company Announcements Office (CAO)

    The department in the London Stock Exchange which is responsible for the Regulatory News Service (RNS).

  • Company doctor

    A business person who specialises in turning round failing companies.

  • Company pension scheme

    See 'occupational pension scheme'.

  • Company representative (tied agent)

    (UK) A financial services sales representative who is authorised to give financial advice only on life assurance, pensions and unit trusts offered by his own company.

  • Compensating balance

    (US) The balance required to be kept on deposit at a bank by a borrower when taking out a loan. Should the borrower fail to repay the loan either in full or in part, this balance would be forfeited.

  • Complex number

    A number of the form a + bi, where a and b are real, and i is the imaginary number.

  • Compliance

    The act of complying with rules and regulations.

  • Compound annual growth rate (CAGR)

    The average rate at which a particular financial parameter compounds up over a period of years.

  • Compound interest

    Interest calculated on both the principal and the interest previously accrued.

  • Compound option

    An option on an option. The right, but not the obligation to buy or sell the right, but not the obligation to buy (long call) or sell (long put) an underlying asset

  • Compound reversionary bonus

    (UK) A with-profits life assurance bonus, normally added annually to the policy, which is based on the profits of the life company's investments.

  • Comprehensive insurance

    A term used to describe an insurance policy in which a wide range of risks are covered. The name is used mainly in motor insurance.

  • Compulsory liquidation

    Liquidation of a company brought about by a court order, usually as the result of a petition by an unpaid creditor.

  • Compulsory purchase annuity (CPA)

    See 'annuity'.

  • Conditional heteroskedasticity

    A condition where a stochastic process has non-constant conditional second moments.

  • Conditional prepayment rate (CPR)

    A metric of annual prepayment for mortgage-backed securities.

  • Conditionality

    Conditions which must be met before creditors disburse any loans.

  • Condominium

    A form of property ownership whereby the purchaser receives title to a particular unit and a proportionate interest in certain common areas.

  • Condor spread

    Also referred to as a flat-top butterfly, it's an options strategy involving four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike.

  • Confederation of British Industry (CBI)

    (UK) An independent non-profit making, non party political organisation which represents the interests companies in the UK.

  • Conglomerate

    A company which owns a number of other companies with widely diversified activities.

  • Consensus forecast

    Aggregated forecasts drawn from a number of different brokers about the likely future earnings of a company.

  • Consideration

    Something of value given by one party to another in return for entering into a contract. To be enforceable under UK law, contracts require that each party has given consideration to the other, however small. Hence the reason for contracts entered into 'for consideration of £1'.

  • Consolidated Quote System (CQS)

    (US specific) A US system which collects and disseminates, electronically, current bid and asked quotations along with volume, from and to all market centers trading listed stocks.

  • Consolidated Tape

    A US high-speed system that continuously provides the last sale price and volume of any securities transaction in listed stocks to the public. All trades in NYSE-listed securities, regardless of the market centre on which such trades occur, are reported to and disseminated on the ticker system.

  • Consolidated Tape Association (CTA)

    (US specific) Oversees the operations of the US 'consolidated tape', which it developed, under a formal 'CTA Plan' filed with the Securities and Exchange Commission. CTA is an independent, industry-wide organisation.

  • Consolidated Trade System (CTS)

    (US specific) Receives and disseminates, electronically, listed stock last-sale prices in all markets in which they trade. CTS is under the operational guidance of the Consolidated Tape Association (CTA).

  • Consolidation

    A period where the market trades in a broad sideways pattern within a trend. Consolidations usually follow a strong market gain or fall and occur as buyers and sellers begin digesting the recent price move.

  • Consolidation

    The process by which a company changes the structure of its share capital by reducing the number of shares on the market therefore increasing the each share.

  • Consols

    See: 'irredeemable securities'

  • Consortium bank

    A bank jointly owned by a number of other banks.

  • Constant dollar plan

    (US) A plan which enables investors to accumulate shares in a mutual fund by purchasing them on a regular basis with a fixed dollar amount. In the UK, the same principles apply to savings plans for unit trusts, and the process is called 'pound cost averaging'.

  • Constitution

    The document that sets the rules by which a company will operate.

  • Consumer durables

    A product such as an automobile or appliance whose life expectancy is at least three years.

  • Consumer price index (CPI)

    An index which tracks the prices of a variety of goods purchased by an average consumer, including food, clothing, utilities and medical care.

  • Consumer Report

    Information provided by a credit-reporting agency on a consumer's credit worthiness, and his/her eligibility for credit, insurance or employment.

  • Contango

    The situation where the futures price is above the expected future spot price. Consequently, the price will decline to the spot price before the delivery date.

  • Contango

    A situation in futures trading where the future delivery price is greater than the cash or nearby price.

  • Contents insurance

    (UK) Insurance policy that covers the home contents against damage, destruction and loss.

  • Contest of a Will

    Legal proceedings to prevent or alter distribution of estate assets as described in a will.

  • Contingency

    A condition that must be met before a contract is binding.

  • Contingency Cover

    Insurance cover for relatively remote possibilities.

  • Contingency order

    An order to execute a transaction in one security that depends on the price of another security.

  • Contingent assurance

    (UK) Life assurance where payment of the sum assured depends on conditions other than the death of the life assured.

  • Contingent Commission

    Commission which is determined by the result of a pro-rata contract, e.g. Profit Commission, Sliding Scale Commission.

  • Contingent liabilities

    Contingent liabilities are potential obligations that will materialize only if certain events occur in the future, such as lawsuits, disputed claims, cases under appeal, possible tax assessments and contract disputes.

  • Contingent premium option

    An option through which the premium is deferred and only paid if the option expires in-the-money.

  • Contingent voting

    Voting by preferred stockholders during a suspension of dividend payments.

  • Continuous Contract

    A reinsurance contract that remains in effect until both parties mutually agree to terminate it or one of the parties sends the other a notice of cancellation.

  • Continuous Linked Settlement

    A settlement system for foreign exchange trades.

  • Continuous process

    A stochastic process that has a term associated with every real number.

  • Continuous-time

    Refers to continuous stochastic processes.

  • Contra

    An entry made into an account or statement to nullify a previous entry.

  • Contra trade

    A term used by the London Stock Exchange to denote that a trade was reported for a transaction previously automatically executed through the order book.

  • Contract formation

    Process to set up a legally binding contract.

  • Contract frustration

    Invalidation of a contract by unforeseen circumstances.

  • Contract month

    The specified month to which a futures or options contract refers.

  • Contract note

    A note containing details of a stock exchange deal, which is sent by a broker to a client.

  • Contract of insurance

    A contract between an insurer and the insured.

  • Contract of Sale

    A contract between the purchaser and the seller of a property.

  • Contract size

    The minimum amount of a commodity or financial instrument which can be traded in a futures or option market.

  • Contractarian theory of the firm

    The contracts theory of the firm.

  • Contracted out mixed benefit scheme (COMBS)

    An occupational pension scheme which has separate defined benefit and money purchase sections and which contracts out on both bases.

  • Contracted out money purchase scheme (COMPS)

    An occupational pension scheme that is contracted out on a money purchase basis i.e. where the employer pays minimum payments towards protected rights.

  • Contracted-out salary related scheme (COSRS)

    An occupational pension scheme that is contracted out on a salary related basis i.e. by providing benefits which are broadly equivalent to or better than a minimum standard.

  • Contracting out

    (UK) A term which refers to contracting out of S2P (State Second Pension). A person can contract out by joining an employer's pension scheme which itself is contracted out or through an appropriate personal pension plan.

  • Contractors' All Risks

    Insurance contract which covers works and damage to property on a site and third party liability.

  • Contracts for difference (CFD)

    CFDs are a derivative product designed for active traders who want to have extra leverage in their share trading. Instead of paying for purchases in full, they deposit a 'margin' with their broker which goes up and down in line with the rise and fall of their portfolio.

  • Contracts theory of the firm

    A theory that defines a firm as a collections of contracts-contracts between shareholders, board members, managers, employees, suppliers and customers. Under this theory, shareholders' stock represents a contract under which they provide capital to board members and receive dividends in return.

  • Contrarian

    Investors who think they can make money on the stock market by doing exactly the opposite of what the majority of investors are doing.

  • Contributions waiver benefit

    See: 'waiver of premium'

  • Control variates

    A technique of variance reduction for the Monte Carlo method.

  • Conventional Loan

    Any kind of lender agreement that is not backed in full by the Federal Housing Administration or guaranteed by the Veterans Administration.

  • Convergence

    The movement of a futures price towards that of the underlying instrument as the contract date approaches.

  • Conversion

    The process of converting convertible loan stock into ordinary shares.

  • Conversion arbitrage

    A risk-free transaction in which an investor purchases a put and sales a call for shares of stock already held. The put and call should have identical exercise prices and expiration dates.

  • Conversion terms

    The terms which apply when convertible loan stock are converted into ordinary or preference shares.

  • Conversion-forcing call

    A call of a convertible security by the issuer to force the holder to either accept cash or convert the security.

  • Convertible arbitrage

    A market neutral trading strategy that exploits relative mispricing of a firm's convertible bonds.

  • Convertible bond

    Convertibles are bonds issued by companies which can be converted into ordinary shares or preference shares at a given price at a future date.

  • Convertible notes

    Securities that, at the discretion of the holder, are convertible into the ordinary shares of a company at a set price/ratio at specified time in the future.

  • Convertible preferred stock

    Preferred stock that can be exchanged for (converted into) shares of common stock.

  • Convertible term insurance

    (US) Term life insurance which can be converted into cash value insurance. In the UK, the equivalent convertible term assurance, which can be converted into endowment assurance.

  • Convexity

    A factor sensitivities indicating a fixed income portfolio's second order (quadratic) sensitivity to the parallel shifts in the spot cure.

  • Conveyancing

    (UK) The legal transfer of real property from one owner to another.

  • Cooling off period

    (UK) The period during which a new policyholder can cancel an insurance/assurance policy.

  • Coppock Indicator

    A technical analysis indicator named after Edwin Coppock, an economist who was asked by the American Episcopalian Church to identify cheap buying opportunities for long-term investors.

  • Cornish-Fisher expansion

    A formula for approximating quintiles of a random variable based only on its first few cumulants.

  • Corporate bond

    Corporate bonds are issued by companies to raise capital. They are an alternative to issuing new shares on the stock market and are a form of debt finance.

  • Corporate governance movement

    A number of initiatives to reform the governance of corporations.

  • Corporate risk management

    Practices that serve to optimise corporate risk.

  • Corporate warrant

    Warrants issued directly by companies or investment trusts, exercisable into their own shares.

  • Corporation

    1) A group of people, such as a guild or city, with a legal collective identity. 2) A joint-stock, limited liability corporation.

  • Corporation tax

    (UK) Tax payable by a company on its profits.

  • Correction

    A downward movement in the price of an individual stock, bond, commodity, index or the stock market as a whole.

  • Correlation

    A parameter, related to covariance, that indicates the tendency for two random variables to "move together" of "co-vary."

  • Correlation matrix

    A symmetric matrix indicating all the correlations of a random vector.

  • Corridor warrant

    A warrant designed to pay out a fixed amount for as long as an underlying asset price trades within a specified range or 'corridor'.

  • Cost basis

    The cost price of an asset used to establish capital gains tax liability.

  • Cost of Funds Index (COFI)

    A regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans.

  • Cost, insurance, freight

    A method for settling physical commodity trades. When a price is quoted CIF, it means that the selling price includes the cost of the goods, the freight or transport costs and also the cost of marine insurance.

  • Costless collar

    A collar whose strike prices are set so that the net cost of the collar is zero.

  • Council tax

    (UK) A local taxation system based on property value. There are eight bands of property values and the tax incurred by each dwelling increases in increments from band A to band H.

  • Country-specific risk

    The risk of holding shares, bonds or other securities whose value are closely linked to particular country.

  • Coupon

    An interest payment made by a bond.

  • Coupon bond

    A bond that pays coupons.

  • Coupon clipping date

    The date on which a coupon is to be clipped from a bearer bond.

  • Coupon date

    The date on which a coupon is paid.

  • Coupon leverage

    Refers to the inclusion of a multiple in the formula for calculating the coupon rate on an inverse floating-rate CMO.

  • Coupon payments

    These represent an obligation of the issuer of a bond to pay interest on the bond at regular periods (usually every six months).

  • Coupon rate

    A bond's interest payments per dollar of par value.

  • Coupon strip

    A Treasury strip formed from a coupon of a Treasury security.

  • Court of protection

    (UK) An office of the Supreme Court whose function is to manage and administer the property and affairs of people who, through mental disorder, are incapable of managing their own financial affairs.

  • Covariance

    A parameter that indicates the tendency for two random variables to "move together" of "co-vary."

  • Covariance matrix

    A symmetric matrix indicating all the covariances and variances of a random vector.

  • Covariance stationarity

    A property of some stochastic processes

  • Covenant

    A formal agreement made in a deed.

  • Cover

    The details of insurance provided by an insurance company to a policyholder.

  • Cover note

    A document confirming that recently-purchased insurance is in force.

  • Covered combination

    A strategy that allows an investor to receive premium income in exchange for agreeing to double his stock position in the event of a downward price move.

  • Covered straddle

    An option strategy consisting of writing a call and a put with the same strike price and expiration against stocks that the holder owns.

  • Covered writing

    In the case of call writing, covered means having a holding of shares at least equal to that implied by the short call option position, and in the case of put writing, covered means having a cash sum sufficient to take up the underlying security if if assigned on the short put position.

  • CP rate

    An average commercial paper rate reported by the Federal Reserve.

  • CPR

    Conditional prepayment rate.

  • Crack spread

    A spread between crude and refined oil prices.

  • Crash of 1929

    One of the most devastating stock market crashes in American history.

  • Credit

    In the trading terms, credit is the value of goods which one company will supply to another before payment is necessary.

  • Credit analysis

    Any process for assessing the credit quality of a counterparty.

  • Credit analyst

    A professional who performs credit analysis.

  • Credit Bureau Inquiry

    An item on a consumer report that identifies creditors who have requested a consumer report on the applicant.

  • Credit card

    A payment card which allows the owner to obtain goods and services without the requirement to pay cash and on credit terms.

  • Credit clearing

    A system for the distribution of bank giro credits and other credits between banks to enable funds to be transferred into specified accounts.

  • Credit control

    Methods used by lenders to ensure their customers settle their accounts within the agreed time period.

  • Credit crunch

    A credit crunch (also known as a credit squeeze or crisis) is a reduction in the general availability of credit or a sudden tightening of the conditions required to obtain a loan from the banks.

  • Credit default swap

    A swap designed to transfer the credit exposure of fixed income products between parties. Credit default swaps are amongst the most widely traded credit derivative products.

  • Credit derivative

    A financial instrument used to mitigate risk. It is a contract between two parties allowing the use of a derivative instrument to transfer credit risk from one party to another.

  • Credit enhancement

    Any methodology that reduces the credit risk of a transaction with a counterparty.

  • Credit exposure

    The potential for loss in the event of a default.

  • Credit insurance

    A form of insurance designed to protect against default by a debtor.

  • Credit linked note

    A type of credit derivative.

  • Credit note

    A note issued to a person or company when goods are returned by them, cancelling the original invoice.

  • Credit quality

    It takes into consideration both the likelihood of a counterparty defaulting as well as possible recovery rates in the event of a default.

  • Credit rating

    A credit rating assesses the credit worthiness of an individual, corporation or a country.

  • Credit reference agency

    An agency that holds information on consumers' credit rating.

  • Credit Report

    A report requested by a lender on the credit standing of a prospective borrower.

  • Credit risk

    Risk due to uncertainty in a counterparty's ability to meet its obligations.

  • Credit scoring

    It assesses the credit worthiness of an individual.

  • Credit spread

    The difference between the yield on the debt securities of a particular corporate or sovereign borrower (or a class of borrowers with a specified credit rating) and the yield of similar maturity Treasury debt securities.

  • Credit spread

    A spread strategy that increases the account's cash balance when it is established. A bull spread with puts and a bear spread with calls are examples of credit spreads.

  • Credit union

    A mutual association formed by people with a common affiliation such as employees, a union or a religious group in which pooled saving are made.

  • Creditor days

    A ratio used to work out how many days on average it takes a company to pay its creditors.

  • Creditors

    People or companies who are owed money by debtors.


    An electronic system of settlement for the equities market in the UK and Ireland which was set up in 1996 to replace the Stock Exchange's Talisman system.

  • Critical illness cover

    Insurance which covers the insured against specified critical illnesses such as cancer, heart attack and multiple sclerosis etc.

  • Cross correlation

    A correlation between one component of a stochastic process and another lagged by a certain period of time.

  • Cross holdings

    Where one company holds shares in another company.

  • Cross trade

    A term used by the London Stock Exchange to denote that a trade was effected as an agency cross or a riskless principle trade between two member firms at the same price and on the same terms.

  • Cross-currency derivative

    A Monte Carlo estimator implemented without variance reduction.

  • Cubic spline

    A real function constructed by piecing together cubic polynomials on consecutive intervals.

  • Cubic spline interpolation

    Any of several methods of interpolating with cubic splines.

  • Cum dividend

    When a share is said to be 'cum dividend', it means that it is offered for sale with an entitlement to the next dividend payment attached.

  • Cum rights

    When a company announces a rights issue, existing shareholders get the right to buy new shares usually at a discount to the current share price.

  • Cumulant

    A parameter of a random variable similar to a moment.

  • Cumulative Exposure

    The liability potential for multiple policies issued over multiple years by a single company to a single insured being held to apply to continuing injury or damage.

  • Cumulative Liability

    It is the total of the limits of liability of all reinsurance policies that a reinsurer has outstanding on a single risk.

  • Cumulative preference shares

    (UK) When a company fails to pay a dividend, holders of cumulative preference shares are entitled to receive the missed payment when a dividend is next declared.

  • Cumulative preferred stock

    (US) Preferred stock whose dividends may be postponed but not cancelled.

  • Curing

    The process whereby a delinquent borrower is brought back to "current" status

  • Currency code

    Any three letter code used to designate a particular currency.

  • Currency conversion

    A term used by the London Stock Exchange to denote that a trade was executed in one currency but converted for trade reporting.

  • Currency loan

    A term used when money is borrowed in a foreign currency.

  • Currency risk

    Losses an investor can incur on an overseas investment as a result of adverse shifts in exchange rates.

  • Currency swap

    A swap in which two loans in different currencies are exchanged.

  • Currency transactions tax

    Tax imposed on foreign exchange transactions to reduce volatility and volume of flows.

  • Current account

    The section of a country’s balance of payments statement which totals international transactions for import and export payments, interest on debts, profits from foreign direct investment and aid grants.

  • Current Balance

    Balance on statement which does not include accrued interest between the last and next payment due.

  • Current cost accounting

    A system designed to adjust accounting for changes in prices that affect a company's assets.

  • Current income

    (US) Interest, dividend or other income payments received regularly from an investment source.

  • Current liabilities

    Debts owed by a company which are due for settlement within 12 months.

  • Current ratio

    The ratio of a company's current assets to current liabilities.

  • Current yield

    It is the ratio of the annual interest payment and the bond's current price

  • Curvature

    A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock.


    The trademark for a system that uniquely identifies securities trading in the United States.

  • Custodial fees

    Fees charged by an institution that holds securities on behalf of an investor.

  • Custodian

    An institution that holds securities for investors.

  • Custodian bank

    Bank that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client.

  • Custody

    The safekeeping of securities and related services.

  • Customs and Excise

    See: Her Majesty's Customs and Excise'

  • Cut-Through Clause

    The cut-through clause is a provision in a reinsurance agreement which clarifies that, should the primary insurer becomes insolvent, the reinsurer is still liable for its stated share of the loss but that payment will be made directly to the insured and not to the insurer as is normally done.

  • Cyclical

    Cyclical stocks are those companies who earnings tend to ebb and flow according to economic trends.

  • Cyclical Stocks

    Stocks whose earnings fluctuate according to the business cycle.

  • Cylinder

    A term used to describe a transaction, involving two derivatives, where there is no initial cost bourne by the investor when entering into the position.

  • Daily change

    The daily change in the price of a share or other security, i.e. the difference between the most recent price of a security and the previous day's closing price.

  • Daily high

    The highest price reached by a given security or index during a given day.

  • Daily Interest

    Interest that is accrued on a daily basis.

  • Daily low

    The lowest price reached by a given security or index during a given day.

  • Daily Official List (DOL)

    The daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange.

  • Daiwa Bank debacle

    A scandal in 1995 when a trader of T-bonds lost $1.1 billion.

  • Daman

    A Contract of guarantee, security or collateral; or the Responsibility of entrepreneur/manager of a business; one of two basic relationships toward property, entailing bearing the risk of its loss; compare Amanah.

  • Date of record

    (US) The date by which a shareholder must own shares in order to qualify for a dividend.

  • Dated security

    A fixed interest security which has a specified date for repayment (redemption date).

  • Dawn raid

    The practice of buying shares at the beginning of a trading day in the hope that the rest of the market will be slow to react to the buying spree and that the price will therefore not rise until after the raid is complete.

  • Day order

    An order placed with a broker to purchase or sell stock, a commodity or financial instrument at specified price limits.

  • Day trader

    A trader who buys and sells financial instruments within the same trading day such that all positions will usually be closed before the market close of the trading day.

  • Day trading

    The purchase and sale, or sale and purchase, of a security on the same day. Day traders aim to make small profits on a large number of 'intra-day' transactions.

  • Dayn or Debt

    Comes into existence as a result of any other contract or credit transaction. It is incurred either by way of rent or sale or purchase or in any other way which leaves it as a debt to another. Duyun (debts) ought to be returned without any profit since they are advanced to help the needy and meet their demands and, therefore, the lender should not impose on the borrower more than what he had given on credit.

  • Days of grace

    Additional days which may be allowed by a company to a debtor over and above the due date for payment. For example, a life insurance company may allow days of grace for a policy to be kept in force after the date the premium is due for payment.

  • Dead cat bounce

    A phrase used by traders to describe the phenomenon of any stock to rally before dropping to new lows.

  • Dead cross

    When the short moving average price of a stock falls below a longer moving average.

  • Deal

    A transaction on a stock exchange by a broker or institution etc.

  • Deal risk

    Risk of a planned merger or acquisition failing.

  • Dealer paper

    Commercial paper that is distributed through the agency of a commercial paper dealer. This is in contrast directly placed paper, that is distributed directly by the issuer to investors.

  • Dealing cost

    The cost of trading in an asset or security which will vary according to the broker and the tax jurisdiction in which the trade is carried out.

  • Death and superannuation benefit

    (UK) An income tax allowance which can be claimed if certain payments are being made to friendly societies on combined sickness and life insurance policies.

  • Death benefit

    (UK) The amount payable by a life insurance company to the beneficiaries on the death of the insured.

  • Death duties

    (UK) Tax payable on a deceased person's estate.

  • Death Taxes

    A term used to refer to inheritance taxes against property or assets upon the death of the owner.

  • Debenture

    An unsecured corporate bond.

  • Debit card

    A payment card, which enables the holder to pay goods and services.

  • Debit note

    A note issued to a person or company indicating an amount owed.

  • Debit spread

    An option position in which the price of the option bought is greater than the price of the option sold, decreasing the account's cash balance when it is established.

  • Debt

    Money owed by an individual or company to another individual or company.

  • Debt consolidation

    When borrowers who have a number of debts on different credit cards, store cards, overdrafts and loans decide to arrange a single loan to clear all outstanding balances.

  • Debt instrument

    A promise in writing to repay a debt such as a bond, bill or note.

  • Debt Management Office (DMO)

    An Executive Agency of the Treasury responsible for issuing gilts to fund the Government's borrowing activities.

  • Debt refinancing

    When a company raise money to pay off existing debt.

  • Debt security

    A security such as a bond or note representing a loan which is repayable at some future date.

  • Debt standstill

    The temporary cessation of debt repayments which allows countries to reorganize and reschedule their debt repayment obligations.

  • Debt-to-equity ratio

    A financial ratio indicating the relative proportion of equity and debt used to finance a company's assets.

  • Debt-To-Income Ratio

    Debt expenses as a percentage of monthly income.

  • Debtor

    A person or company who owes money to another person or company.

  • Debtor days

    A ratio used to work out how many days on average it takes a company to get paid for what it sells. Calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.

  • Deck

    (US) All orders in a floor broker's possession that have not yet been executed.

  • Declaration date

    The date on which a dividend is declared by a company's directors.

  • Declaratory Judgement Expense

    Expenses incurred by an insurer in a declaratory judgement action brought to establish whether there is coverage under a policy.

  • Decreasing basis

    A cheaper option in which the payout is reduced over the length of the cover period.

  • Decreasing term assurance

    Life assurance for a fixed period of time or specified age in which the sum assured decreases each year.

  • Dedicated long

    An investment or trading strategy of always holding just long positions.

  • Dedicated long bias

    An investment or trading strategy of always being net long the overall market.

  • Dedicated short

    An investment or trading strategy of always holding just short positions.

  • Dedicated short bias

    An investment or trading strategy of always being net short the overall market.

  • Deductible

    Under an insurance policy, the deductible is the maximum amount that an insured person must pay toward his own losses before he can recover from the insurer.

  • Deductible Buyback (US-specific)

    Reinsurance purchased by a reinsured to cover for the deductible required under the reinsurance policy.

  • Deduction

    For tax purposes, the portion of an estate that does not generate tax.

  • Deduction

    (US) An expense allowed by the Internal Revenue Service which is deducted from adjusted gross income to establish taxable income. These include interest payments and state and local taxes.

  • Deed

    A legal document which transfers ownership of property from one party to another.

  • Deed of covenant

    (UK) A signed document by which somebody formally agrees to make payments for a period of several years to a beneficiary.

  • Deed of trust

    A deed that establishes a trust. It is used in some loan transactions in place of a mortgage.

  • Deed of variation

    A document allowing beneficiaries to vary the gifts specified in someone's will even after the giver's death.

  • Deep discount

    The issue of shares at a price much lower than the current trading price.

  • Deep in-the-money

    An option with an exercise price (strike price) significantly below (for a call option) or above (for a put option) the market price of the underlying asset.

  • Deep out-of-the-money

    An option with an exercise price (strike price) well above (for a call option) or below (for a put option) the market price of the underlying asset.

  • Deep out-of-the-money

    Used to describe an option or warrant that is unlikely to go into-the-money prior to expiration.

  • Default

    A situation when a debtor has not met its legal obligations according to the debt contract, e.g. it has not made a scheduled payment, or violated a covenant (condition) of the debt contract. Default may occur if the debtor is either unwilling or unable to pay their debt.

  • Default intensity

    An "instantaneous" rate of default.

  • Default mode

    A mode of analysis for a portfolio credit risk model.

  • Default model

    A type of model that assess the likelihood of default by the borrower.

  • Default probability

    The likelihood that a counterparty will default on an obligation.

  • Defeasance

    The process of rendering a contract or deed null and void following a specified act.

  • Defensive securities

    Securities that are steadier than the average stock or bond and provide the investor a safe return on their money. Because of the corporation's business (e.g. utility and food industries), its securities are relatively resistant to general economic changes.

  • Defensive stocks

    The shares of companies that are well-positioned to withstand recession, usually because the goods and services they sell are essential items rather than luxuries.

  • Deferment period

    A period during which a bond can be either non-callable or non-refundable.

  • Deferred income

    (UK) Also known as income drawdown and flexible pension. See 'personal pension plan'.

  • Deferred state pension

    (UK) When a person defer payment of his/her state pension.

  • Deferred-coupon bond

    A bond that pays no coupons for its first few years.

  • Deferred-interest bond

    Any of several types of bonds that defer the payment of interest.

  • Deficit

    A budget deficit occurs when an entity spends more money than it takes in.

  • Deficit Carry-Forward

    See Loss Carry-Forward.

  • Defined benefit fund

    A fund that provides retirement benefits that is set according to an agreement.

  • Defined contribution fund

    In a defined contribution fund, the contributions made are defined by the employment contract and by the rules of the fund.

  • Defined contribution pension plan

    A pension plan in which benefits are dependent on contributions to and the growth of the pension fund.

  • Deflation

    A persistent decline in the price of goods and services (the inverse of inflation).

  • Delinquency

    Accounts are classified as delinquent if the minimum contractual monthly amount due is not paid as scheduled.

  • Delivery

    The actual transfer of possession of securities from one party to another.

  • Delivery month

    For physically settled futures contracts, the month during which delivery occurs.

  • Delivery notice

    Notification of delivery by a clearing house to a buyer. The notice is initiated by the seller in the form of a 'Notice of Intention to Deliver.'

  • Delivery price

    The price to be paid under a forward contract.

  • Delta

    The Greek factor sensitivities measuring a portfolio's first order (linear) sensitivity to the value of an underlier.

  • Delta approximation

    A linear approximation for how a portfolio's value will change in response to a small change in an underlier's value.

  • Delta neutral

    A portfolio containing that consists of positions with offsetting positive and negative deltas (exposure to changes in the value of the underlying instrument), and these balance out to bring the net delta of the portfolio to zero.

  • Delta shares

    A term previously given to the shares of smaller companies least traded on the London Stock Exchange, along with alpha, beta and gamma shares. These terms were replaced by the normal market size classification in January 1991.

  • Delta-gamma approximation

    A quadratic approximation for how a portfolio's value will change in response to a small change in an underlier's value.

  • Delta-gamma remapping

    A quadratic remapping constructed from a portfolio's deltas and gammas.

  • Delta-gamma VaR measure

    Quadratic VaR measure.

  • Delta-normal VaR

    Linear VaR.

  • Demand deposit

    A bank account balance to which the holder has instant access.

  • Demand loan

    (US) A loan, with specific maturity date, which the lender can recall at any time.

  • Demerger

    A corporate restructuring in which one or more parts of a company split to become independent firms.

  • Democracy of capitalism

    A condition in which stock ownership of corporations is fragmented and widely dispersed among numerous investors.

  • Demutualization

    The process of changing ownership from the company's members to its shareholders.

  • Denomination

    The face value of currency, coins, and stocks and bonds.

  • Deposit

    For solvency reasons, some national legislations require insurance companies to lodge deposits for premium and loss reserves.

  • Deposit insurance

    A measure introduced by the government to protect deposits, in full or in part, in the event of a "run" on a bank or banks.

  • Deposit insurance

    (US) Financial protection of certain bank and credit union accounts by way of insurance provided by a federal agency.

  • Deposit Premium

    A type of insurance premium where the insured deposits money with the insurer to obtain perpetual insurance against future losses.

  • Deposit Protection Scheme

    (UK) A scheme set up to give limited financial protection to people with deposits in authorised banks which fail. The UK Deposit Protection Scheme covers 90% of a bank's total liability to a depositor subject to a set maximum.

  • Depository bank

    (US) A bank organised in the US which provides all the stock transfer and agency services in connection with a depository receipt program.

  • Depository Institutions Deregulation and Monetary Control Act of 1980

    US legislation that contributed to the deregulation of depository institutions.

  • Depository Trust Company (DTC)

    (US) The DTC is a national clearing house for the settlement of trade in corporate and municipal securities and performs securities custody-related services for its participating banks and broker-dealers.

  • Depreciation

    A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence

  • Depression

    A severe recession over a lengthy period.

  • Depth, market

    The volume of transactions necessary to move prices.

  • Derivatives

    A type of financial instrument whose value is ‘derived’ from the price of underlying assets (e.g. an interest level or stock market index). They are designed to help companies “hedge” (protect themselves against the risk of price changes) or as speculative investments from which great profits can be made.

  • Derivatives pricing theory

    The body of financial theory used by financial engineers to value derivative instruments.

  • Deterministic Exposure Models

    See Probabilistic Exposure Models.

  • Deterministic volatility function model

    Alternative name for a local volatility model.

  • Deutsche Aktienindex (DAX)

    The index for the largest 30 German companies quoted on the Frankfurt Stock Exchange.

  • Deutsche Terminborse (DTB)

    The German derivatives exchange, where the bund, Euromark futures and Dax futures and options contracts are traded.

  • Devaluation

    The reduction in value of a currency in comparison to another.

  • Diagonal spread

    An options strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates.

  • Differential equations approach

    An informal name for derivatives pricing models based upon the original Black-Scholes methodology.

  • Differential swap

    quanto swap

  • Digital option

    Binary option.

  • Diluted net asset value

    A method of calculating the net asset value of a company.

  • Diminishing Musharaka

    Allows equity participation and sharing of profit on a pro rata basis but also provides a method through which the equity of the bank keeps on reducing its equity in the project and ultimately transfers the ownership of the asset on of the participants. The contract provides for a payment over and above the bank share in the profit for the equity of the project held by the bank. That is the bank gets a dividend on its equity. At the same time the entrepreneur purchases some of its equity. Thus, the equity held by the bank is progressively reduced. After a certain time the equity held by the bank shall come to zero and it shall cease to be a partner. Musharaka form of financing is being increasingly used by the Islamic banks to finance domestic trade, imports and to issue letters of credit.

  • Direct debit

    A payment system in which the payer authorises the payee to take funds from his bank account, usually on a monthly basis.

  • Direct Input Provider (DIP)

    It enables companies to deliver price-sensitive announcements electronically to the London Stock Exchange's Regulatory News Service via a modem link.

  • Direct paper

    Commercial paper sold directly to investors by the issuer.

  • Direct Pay Program

    Regular monthly payments which are electronically debited from an account.

  • Direct purchase

    (US) The purchase of shares in an open end mutual fund directly from the fund company rather than through a broker.

  • Direct Reinsurer

    A reinsurer that deals with ceding companies without the use of an intermediary.

  • Direct taxation

    Taxes which are imposed directly on the individual.

  • Directional strategy

    A trading or investment strategy that takes net long or short positions in a market.

  • Directors' dealings

    The purchases and sales made by directors of shares in the publicly quoted companies for which they work.

  • Dirty price

    A bond price quoted with accrued interest.

  • Disability income insurance

    (US) Insurance which provides an income to policyholders when they are unable to work due to an illness or injury.

  • Disclosure

    The release of all relevant information by a company or individual in accordance with the requirements of a regulatory authority or a contract.

  • Discount

    The amount by which the current value of a share is below its asset backing.

  • Discount Broker

    A discount broker charges a lower fee for executing buy and sell orders on behalf of investors.

  • Discount curve

    A graph of discount factors as a function of maturity.

  • Discount factor

    The factor by which a future cash flow must be multiplied in order to obtain its present value.

  • Discount instrument

    A money market instrument that pays no coupons and matures according to its face value.

  • Discount rate

    The interest rate at which the US Federal Reserve lends money to member banks.

  • Discount yield

    A convention for calculating yield on a discount instrument.

  • Discounted cash flow (DCF)

    It is the current value of a company's free cash flow.

  • Discounted rate mortgage

    A mortgage which guarantees the interest rate charged will remain a set number of percentage points below the lender's standard variable rate. The rate changes as base rate moves up and down, but the relationship between base rate and the rate the borrower pays remains constant.

  • Discounted Stop Loss Cover

    Prospective financial reinsurance where the premium is based upon the discounted expected reinsurer's outflow from the liabilities assumed under the contract.

  • Discounting

    The process of calculating the present value of a stream of future cash flows.

  • Discrete process

    A stochastic process.

  • Discrete-time

    Refers to discrete stochastic processes.

  • Discretionary account

    An account whose holder has given an intermediary the authority to make buy and sell decisions on the customer's behalf.

  • Discretionary broker

    A broker who not only deals in stocks and shares on behalf of his client, but who also makes the decisions about what should be bought and sold for the portfolio and has authority to execute those decisions without getting prior approval from the client.

  • Disposable income

    The amount of income left to an individual after taxes have been paid.

  • Distance to default

    A metric of how close debt is to a defaulting.

  • Distribution period

    The period between the date a company's board of directors declares a stock dividend, known as the Declaration Date, and the Date of Record by which the shareholder must officially own shares to be entitled to the dividend.

  • Divergence

    A situation in which the price of an asset and an indicator, index or other related asset move in opposite directions.

  • Diversifiable risk

    The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market.

  • Diversification

    A portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction at the same time.

  • Dividend

    The amount of a company's earnings after tax which is then distributed to shareholders.

  • Dividend cover

    The ratio between a company's earnings and the net dividend paid to shareholders.

  • Dividend discount model

    It values the price of a stock by using predicted dividends and discounting them back to present value.

  • Dividend growth

    The amount by which a company's yearly dividends grow compared with the previous year.

  • Dividend imputation

    An Australian tax rule where the amount of corporate tax paid by a company is credited to shareholders of that company. The shareholder is assessed on the sum of the total amount of dividend and the imputation credit, but is allowed to claim the imputation credit as a tax rebate.

  • Dividend payout ratio

    The percentage of earnings paid out as dividends.

  • Dividend reinvestment plan (DRP)

    A plan which allows private investors to reinvest cash dividends from their investments cheaply and easily back into the market.

  • Dividend yield

    A rate of return measure, which is calculated by dividing the dividend per share by the share's current market price.

  • Dollar cost averaging

    (US) A strategy which enables investors to accumulate shares in stock or a mutual fund by purchasing on a regular basis. When the price is low, more shares will be bought whilst, when the price is high fewer shares are bought.

  • Domestic bond

    A bond issued in a country for domestic investors. Domestic bonds are denominated in that country's currency and are subject to local regulations.

  • Domestic CD

    A certificate of deposit issued by a bank or other financial institution.

  • Domicile

    The country in which a person lives or a company is registered.

  • Donee/Donor

    The recipient of a gift; the giver of a gift.

  • Double bottom

    A technical analysis term used to describe a chart on which the price of a security has made two approximately equal bottoms over a period of time.

  • Double indemnity

    The guaranteed payout of double the face value of a life insurance policy if the policyholder dies in an accident.

  • Double taxation

    Taxation of corporate earnings and subsequent taxation of dividends.

  • Double top

    A technical analysis term for two successive rises to the same price level.

  • Dow Jones (The)

    The Dow Jones Industrial Average is the average of 30 large blue chip US corporations. It has been computed since 1896, a history that has aided its broad recognition across the world.

  • Dow Jones Industrial Average

    One of the main US share indexes which monitors the movement of 30 industrial companies traded on the New York Stock Exchange.

  • Dow theory

    Market theory whereby a major stock market trend must be corroborated by a similar movement in selected industrial and transportation stocks.

  • Down tick

    Refers to a transaction made at a price lower than the preceding transaction.

  • Draft

    An order in writing by one party to another party to pay a specified sum to a third party or bearer on a particular date.

  • Drawee

    The party instructed to make payment by a draft.

  • Drawer

    The party who issues a draft.

  • Drexel Burnham Lambert

    The investment bank that dominated the junk bond market of the 1980s.

  • Drop-Down Clause

    A provision that specifies that the excess layer will “drop down” and attach if the limits of the primary layer or the retention are exhausted.

  • Dual capital trust

    See: 'split capital investment trust'

  • Dual purpose fund

    (US) A closed end fund with a limited life and two main classes of shares. Holders of preferred shares receive all the income. Common shareholders receive all the fund's assets at expiry after preferred shareholders have been paid their fixed redemption price.

  • Dual remapping

    A type of remapping used in value-at-risk measures.

  • Due date

    The date when any form of debt instrument becomes payable or matures.

  • Due diligence

    The process of checking the accuracy of information contained in a company public statement, such as a prospectus, before recommending that company to others. Is also the act of one company investigating another company before buying its shares.

  • Due diligence

    The investigative process carried out by companies before the acquisition of another firm. It involves checking the company's financial performance and liabilities before the acquisition is finalised.

  • Duration

    Measures a bond’s average life on a present-value basis, incorporating yield, coupons, final maturity and call features.

  • Duration matching

    A technique of asset-liability matching.

  • Dutch auction

    Named after the Dutch tulip auctions, this form of auction is one where the auctioneer starts with a high asking price , which is then lowered until a bidder accepts the auctioneers price.

  • Each way

    Commission earned by a broker on both sale and purchase of a trade.

  • Ear marking

    The practice of setting aside a proportion of the main earner's pension fund on divorce, which will benefit his or her partner.

  • Ear stroking

    A twist on the phrase 'ear bending' which is used to describe the way that the Bank of England lets the City know what it would like to happen in any given circumstance.

  • Early exercise

    A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.

  • Early redemption charge

    A charge made by the mortgage lender if the borrower terminates a mortgage in advance of the terms of that particular mortgage. This may be a percentage of the total advance, the sum repaid or the balance outstanding.

  • Early retirement

    For company pension schemes, an employee may retire at an early age provided it is authorised by the company. However, the amount of pension payable will be reduced in comparison to the amount payable at normal retirement age.

  • Early withdrawal penalty

    A charge imposed on holders of fixed-term investments in the event of withdrawal prior to maturity.

  • Earned income

    Income that comes from work such as a salary or wages, as opposed to unearned income such as bank interest and company dividends.

  • Earned Premium

    The premium earned under an insurance policy is the proportion of premium already paid during a certain period.

  • Earning asset

    Any asset which produces income.

  • Earnings

    The annual profits of a company after deduction of tax, dividends to preference shareholders and bondholders. Earnings are usually expressed on a per-share basis and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period.

  • Earnings factor

    Theoretical earnings figure that is used to calculate state pensions or guaranteed minimum pensions.

  • Earnings per share (EPS).

    Performance measure calculated by dividing a company's net profit after tax by the number issued shares.

  • Earnings retention ratio

    The percentage of earnings retained by a company (i.e. not paid out in dividends).

  • Earnings risk

    Risk due to uncertainty in future reported earnings.

  • Earnings yield

    The earnings yield is the company's earnings per share as a percentage of the current market price of the share. So if the EPS was 8p and the current market price is 116p, the earnings yield 8/116 x 100 = 6.03%.

  • Earnings-at-risk

    A category of earnings risk measures.

  • East India Companies

    Several companies formed by European businessmen to exploit the spice trade of the 1600s.

  • EBIT

    Earnings before interest and tax. Calculated by taking the pre-tax profit of a company and adding back only the total interest charges which it has paid on debt.


    (Earnings before interest, tax, depreciation and amortisation). EBITDA is a common way of measuring a company's profitability.

  • Ebx-warehouse

    A method for settling physical commodity trades.

  • ECO

    Equity collateralized obligation.

  • Economic capital

    Capital held for economic (as opposed to regulatory) purposes.

  • Economic profit

    Profit in excess of the opportunity cost of capital.

  • Economic value

    A generalisation of market value.

  • Economic value added (EVA)

    A measure of corporate performance which reveals whether a company is earning more or less than the amount which its capital is costing.

  • Economics

    Economics is the social science that studies the production, distribution, and consumption of goods and services.

  • EDS

    Equity default swap.

  • Effective annual yield

    The annualised interest rate on a security.

  • Effective Fed funds rate

    A dollar-weighted average of interest rates paid on overnight Fed funds.

  • Efficient frontier

    A theoretical set of portfolios, each offering an optimal risk-reward trade-off.

  • Efficient market theory (EMH)

    The theory that claims that the current price of a share reflects everything that is known about the company and its future earnings potential, and that is it impossible to beat the market consistently.

  • Eifuku Master Fund

    A Japanese hedge fund that failed in 2002.

  • Eigenvalue

    A concept from linear algebra.

  • Eigenvector

    A concept from linear algebra.

  • Either-or option

    See: 'rainbow option'

  • Electronic Data Gathering, Analysis and Retrieval System (EDGAR)

    (US) It performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the US Securities and Exchange Commission (SEC).

  • Electronic funds transfer (EFTS)

    An electronic payment system in which a plastic card is used to purchase goods or services.

  • Electronic public offering (EPO)

    An initial public offering, or new issue of shares, in which the process of applying for shares is handled electronically.

  • Elimination period

    (US) The period that elapses between a claim being made and its settlement.

  • Embargo

    A prohibition by a government on certain or all trade with a foreign nation.

  • Emergency tax

    (UK) A special code used by employers when an employee's tax code is unknown. Individuals allocated this code will only receive a single person's allowance and may pay excessive tax.

  • Emerging market debt

    Debt issued by governments or corporations in emerging countries.

  • Emerging markets

    The stock markets of countries which have a low per-head income compared with the developed world but which nevertheless have functioning stock exchanges.

  • Emoluments

    Total remuneration of an employee or director including salary, bonuses and other benefits.

  • Employee Retirement Income Security Act (ERISA)

    (US) A federal law which protects participants of private pension plans.

  • Employee stock ownership plan (ESOP)

    (US) A plan devised to encourage employees to purchase stock in their company, usually at a cheaper price.

  • Empty set

    The set that contains no elements.

  • Endowment

    A permanent fund bestowed upon an individual or institution to be used for a specific purpose.

  • Endowment assurance

    (UK) A fixed-term life assurance policy in which provision is made for premiums to pay for life cover plus a savings/investment element. The policy pays out a sum of money on the death of the life assured or at a specified date (the maturity date) if the life assured survives the term.

  • Endowment mortgage

    (UK) An interest-only mortgage ultimately repaid by the proceeds of an endowment assurance policy which is assigned to the lender providing the mortgage.

  • Endowment policy

    See: 'endowment assurance'

  • Enduring power of attorney

    (UK) A power of attorney which, subject to conditions and safeguards, continues in force even if the maker of the enduring power of attorney (the 'donor') becomes mentally incapable of conducting his/her affairs.

  • Enfranchisement

    The granting of voting rights to holders of non-voting shares in a company.

  • Engraftment

    An archaic practice for retiring government debt through a debt-for-equity swap.

  • Enron debacle

    In December 2001 Enron filed for bankruptcy in the midst of an accounting scandal.

  • Enterprise Investment Scheme (EIS)

    It is a series of tax reliefs designed to encourage investments in small unquoted companies.

  • Enterprise risk management

    The extension of financial risk management to non-financial risks.

  • Enterprise value

    The value of a company's business rather than the company itself.

  • Enterprise zone

    (UK) A region which offers special tax advantages to businesses (including exemption from business rates) as an incentive; the objective is to boost the area's economic and social development.

  • Enterprise zone trust

    A property trust which invests in enterprise zones.

  • Entitlement issue

    An entitlement issue, also known as an open offer, is an offer made by a quoted company to its shareholders inviting them to buy new shares in the company at a set price, which is normally lower than the current market price.

  • Equal Credit Opportunity Act

    A federal law that prohibits discrimination in credit transactions on the basis of race, colour, religion, national origin, sex, marital status, age, source of income, or the exercise of any right under the Consumer Credit Protection Act.

  • Equilibrium pricing model

    An asset pricing model based on economic arguments about how prices should behave to maintain market equilibrium.

  • Equipment Trust Certificate

    (US) A type of security, generally issued by a railroad, to pay for new equipment.

  • Equipment trust certificate

    Secured corporate debt issued through a trust to finance transportation equipment.

  • Equitable owner

    The beneficiary designated to receive property held in trust.

  • Equity (vehicle/vessel)

    The value of the vehicle/vessel minus the loan amount.

  • Equity collateralized obligation

    A synthetic CDO structured exclusively with equity default swaps.

  • Equity default swap

    A far out-of-the-money equity option structured much like a credit default swap.

  • Equity financing

    Ownership that is securitized as stock that may be held by multiple investors and traded in secondary markets.

  • Equity market neutral

    A hedge fund strategy that seeks to exploit differences in stock prices by being long and short in stocks within the same sector, industry, market capitalization, country, etc.

  • Equity options

    (UK) Options on the shares of companies.

  • Equity release scheme

    A scheme designed to allow homeowners to release cash from the value of their property.

  • Equity risk premium

    The excess return that an individual stock or the overall stock market provides over a risk-free rate.

  • Equivalent martingale measure

    A martingale measure which is equivalent to the "real world" probability measure.

  • Equivalent measures

    Equivalent probability measures.

  • Equivalent strategy

    An options strategy which has the same risk-reward profile as another strategy.


    (UK) Electronic Random Number Indicator Equipment, which selects the prizes in the premium bonds monthly draw.

  • Errors and Omissions Clause

    A provision in reinsurance agreements which is intended to neutralize any change in liability or benefits as a result of an inadvertent error by either party.

  • Escalating annuity

    The payment of a regular income, which increases annually by a given amount, by a life company to an annuitant in exchange for a lump sum either for life or shorter periods. The choosing of escalating annuity results in lower income compared with a level annuity over the initial years.

  • Escrow Account

    An amount set up by the lender into which the borrower makes periodic payments for taxes, hazard insurance, assessments, and mortgage insurance premiums. The funds are held in trust by the lender who pays the sums as they become due.

  • Estate

    The totality of the legal rights, interests, entitlements and obligations attaching to property.

  • Estate agent

    An agent who acts in the arrangements of property sales and purchases in return for a commission based on the selling price.

  • Estate duty

    (UK specific) A former tax on a deceased person's estate and the forerunner of capital transfer tax which itself has been superseded by inheritance tax.

  • Estate tax

    In the US, a tax imposed by the federal government or state on the net value of a deceased person's estate after deduction of an exclusion. The net proceeds, after estate tax has been paid, pass to the beneficiaries. If the sole beneficiary is a spouse, no tax is payable.

  • Estimated Maximum Loss

    This usually represents the maximum loss on a property insurance envisaged under all but the most extraordinary circumstances.

  • Estimated Premium Income

    The amount of premium estimated for the contract period to be renewed.

  • Ethical investment

    The policy of selecting stocks on the grounds of their ethical or environmental credentials.

  • Ethical Investment Research Service (EIRIS)

    The Ethical Investment Research Service (EIRIS) maintains a database which can be used to select an 'ethically sound' portfolio of stocks.

  • ETL

    Expected tail loss.

  • Euler's formula

    A mathematic formula relates the exponential, sine and cosine functions.

  • Euribor

    Euro interbank offered rate.

  • Euro

    The successor to the European Currency Unit (ECU), the euro was introduced as a non-physical form in 11 member states on 1st January 1999. The notes and coins for the old currencies, however, continued to be used as legal tender until new notes and coins were introduced on 1 January 2002.

  • Euro CD

    A certificate of deposit issued outside a country but denominated in that country's currency.

  • Euro Depositary Receipt (EDR)

    As with other depositary receipts, the EDR is a certificate representing ownership of the issuer's underlying shares.

  • Euro interbank offered rate

    Refers to indicative short-term interest rates available for the euro.

  • Euro medium-term note

    A debt instrument structured like a medium-term note and issued in the unregulated Euro markets.

  • Euro.nm

    A pan-European grouping of regulated stock markets dedicated to high growth companies.

  • Eurobond

    A bond, issued and underwritten by international syndicates of banks and issuing houses and sold to investors outside the country in whose currency it is denominated. A Eurobond is normally payable to the bearer and is free of tax.

  • Eurocheque scheme

    A European payment scheme in which a person can use eurocheques and a guarantee card where the EC sign is displayed to purchase goods and obtain cash in the local currency of a European country outside his/her country of residence.

  • Eurocurrency

    A currency which is deposited in banks outside its country of origin.

  • Eurodollar

    US dollar denominated deposits at non-US banks or foreign branches of US banks.

  • Euromarkets

    The markets for eurocredits, eurocurrencies and eurobonds - currencies and securities held in Europe and outside their country of origin.

  • European Association of Securities Dealers Automated Quotation (EASDAQ)

    EASDAQ was set up in 1996 as a pan-European stock market for technology and growth stocks.

  • European Community (EC)

    An international organization of European countries formed after World War II to reduce trade barriers and increase cooperation among its members.

  • European Currency Unit (ECU)

    A weighted average of European Community currencies with weighting tending to be proportional to a country's economy.

  • European exercise/option

    A provision that permits exercise of an option only at expiration.

  • European Monetary System (EMS)

    The monetary system of the EC which attempts to reduce the currency variations between members.

  • European style option

    An option which can only be exercised by the holder at expiration date.

  • European-style exercise

    System of exercising options contracts in which the option buyer can exercise the contract only on the last business day prior to expiration (normally Friday). This system is widely used with index options traded on various U.S. Exchanges.

  • European-style warrant

    A warrant which can be exercised only at the final maturity date or at other fixed times.

  • EVA

    Economic value added.

  • Event

    Some covers are arranged on an ""any one event"" basis. The primary function of this phrase is to identify those losses which may be aggregated together to form an ultimate net loss in respect of which a claim can be made.

  • Event driven strategy

    Speculative trading strategy that seeks to exploit relative mispricing between securities whose issuers are involved in mergers, divestures, restructurings or other corporate events.

  • Ex all

    Purchase of a security without entitlement to current dividends, rights issues or scrip issues.

  • Ex coupon (A)

    A bond sold without the right to the next interest payment.

  • Ex dividend

    Purchase of shares without entitlement to current dividends. This entitlement remains with the seller of the shares.

  • Ex gratia

    A payment made out of a sense of moral rather than legal obligation.

  • Ex Gratia Payment

    A payment made by the reinsured, despite the fact that it is not liable under the terms of the original policy.

  • Ex rights

    Purchase of shares without entitlement to current rights issues. This entitlement remains with the seller of the shares.

  • Ex scrip

    (UK) Purchase of shares without entitlement to current scrip issues. This entitlement remains with the seller of the shares.

  • Ex-coupon

    Refers to a bond trading too late for the buyer to receive an upcoming coupon.

  • Ex-coupon date

    The date on which a bond starts to trade ex-coupon.

  • Ex-dividend

    Shares sold ex-dividend entitle the seller to retain the current dividend.

  • Ex-dividend date

    The date on which a stock starts to trade ex-dividend.

  • Ex-dock

    A method for settling physical commodity trades.

  • Exceptional items

    Costs which affect a company's profit (or loss). They are usually associated with normal activities but are exceptionally high.

  • Excess

    (UK) The specified amount a policyholder must bear before the insurers pay a claim.

  • Excess of Loss Reinsurance

    A form of reinsurance which, subject to a specified limit, indemnifies the reinsured for the excess/of the deductible that needs to be paid under the reinsurance contract should a claim arise.

  • Exchange Delivery Settlement Price (EDSP)

    Price determined by the exchange on the last trading day and used to calculate the invoicing amount paid for a futures contract reaching its maturity.

  • Exchange for physicals

    An alternative to physical settlement offered by many futures exchanges.

  • Exchange for physicals (EFP)

    A transaction in which one party buys the physical commodity and simultaneously sells futures and the other party does the opposite - sells the physical commodity and simultaneously obtains a long futures position.

  • Exchange Price Input Computer code (EPIC)

    EPIC codes are the abbreviations given to company share quotations (e.g. the EPIC code for Vodafone is VOD). They serve the same function as 'ticker symbols' in the USA.

  • Exchange Rate Mechanism (ERM)

    The mechanism by which members of the EC formerly operated their currency exchange rates within given upper and lower limits.

  • Exchange rates

    The price of one country’s currency relative to another.

  • Exchange risk

    Another term for currency risk.

  • Exchange traded

    Traded on a formal exchange such as the New York Stock Exchange or Chicago Board of Trade.

  • Exchange traded fund (ETF)

    ETFs are a new kind of collective investment fund competing with investment trusts and unit trusts for investors' money.

  • Excise duty

    (UK) A tax imposed on certain types of products including alcohol and tobacco.

  • Excise taxes

    (US) Federal and state taxes on the sale or production of certain types of products such as alcohol and tobacco.

  • Exclusion

    A clause in an insurance policy which specifies items or conditions not covered.

  • Execute and eliminate

    A particular type of order which a client gives to his broker when buying shares. The client specifies the company he wants to buy shares in, a price, and the number of shares he is prepared to buy at that price.

  • Execution only broker

    A broker who buys and sells shares on the instructions of clients but offers no advice on what clients should buy or sell.

  • Executive insurance

    (US) An insurance policy taken out on the life of a company executive or senior employee whose death would cause significant loss to the company.

  • Executive pension plan (EPP)

    A pension plan which is tailored for directors and senior executive staff.

  • Executor

    The individual named in a will responsible for carrying out the provisions specified in that will.

  • Executrix

    The feminine form of executor.

  • Exempt security

    A security exempted from certain provisions of US securities laws.

  • Exemption

    (US) An allowable expense subtracted from gross income to reduce income tax liability.

  • Exercise

    When an option or warrant holder takes up his or her option to buy or sell the underlying instrument he/she is said to exercise the option or warrant.

  • Exercise notice

    A formal notice to the writer of an option from a clearing house that an option has been exercised by an option holder and that the writer is obliged to buy/sell the underlying instrument at the exercise price to meet his/her obligations.

  • Exercise price

    The price set for buying (calling) or selling (putting) the asset underlying an option.

  • Exit charge

    A fee levied on the sale of an investment, typically a unit trust.

  • Exit charge

    (UK) Instead of making an initial charge, some unit trust companies make a charge if units are cashed in, for example, within five years. In the US this is known as a back end load.

  • Exit P/E ratio

    The Price/Earnings ratio of a company at the time it is taken over by another company.

  • Exotic derivative

    A derivative contract that is considered more sophisticated than plain vanilla contracts.

  • Exotic warrant

    A warrant with complex exercise terms.

  • Expectation

    The expectation of a variable is the same as its expected value, and is also used with both meanings.

  • Expected default frequency

    Default probability calculated for a one-year horizon.

  • Expected exposure

    The expected value of credit exposure at some point in the future.

  • Expected loss

    Expected value of losses due to default over a specified period.

  • Expected shortfall

    Expected tail loss.

  • Expected tail loss (ETL)

    The average portfolio loss, assuming that the loss exceeds some quantile of loss.

  • Expense Ratio

    The portion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.

  • Expenses in employment

    When an employee incurs expenses wholly on behalf of his company which are not reimbursed, such expenses can be offset against tax.

  • Experience Balance

    A feature of a reinsurance contract that keeps track of the revenues and costs between the parties including positive or negative interest return on cash flow.

  • Experience Rating

    Pricing technique to establish the adequate premium for non-proportional reinsurance contracts based on the loss and premium experience of the portfolio in the past.

  • Expert investor

    A legal term given to an investor whose experience is such that members of the FSA are entitled to assume that he fully understands the nature of the investment he is making.

  • Expiration date

    The date when an option or contract expires.

  • Expiration value

    The value of an option at expiration.

  • Exponential moving average (EMA)

    A moving average that gives extra weight to more recent price data.

  • Export Credits Guarantee Department (ECGD)

    The government department which helps companies finance exports, mainly by insuring them against the possibility of non-payment by their customers.

  • Exposure

    The proportion of a share portfolio at risk in a certain area.

  • Exposure at default

    It is an estimation of the extent to which a bank may be exposed to a counterparty in the event of, and at the time of, that counterparty’s default.

  • Exposure Curves

    Scales that suggest distribution of Ground Up premium throughout the layers in a risk.

  • Exposure limit

    A risk limit based upon some exposure metric of risk.

  • Exposure Rating

    Pricing technique to establish the adequate premium for non-proportional reinsurance contracts in which the original risk premium is split between the reinsured's deductible and the reinsurance cover.

  • Extended coverage

    Insurance which extends the term of a warranty, such as covering repairs on appliances.

  • Extended Expiration Clause

    If the reinsurance should expire while a loss is in progress, this clause states that reinsurers should pay their proportion of the entire loss providing that the loss had commenced before the expiration of the reinsurance.

  • Extendible option

    An option whose expiration may be extended.

  • Extra Contractual Obligations

    In reinsurance, monetary damages awarded to the insured or a third party claimant by a court on the part of the reinsured because the insurer had acted negligent or in bad faith in rejecting a settlement offer or preparing a defence.

  • Extra dividend

    A dividend paid additionally to the normal dividend when profits of a company are particularly high.

  • Extraordinary general meeting (EGM)

    An EGM is a special meeting of a company and its shareholders which can be called by company directors or anyone with at least 10% of the voting rights on the company's shares.

  • Extraordinary items

    Costs which affect a company's profit (or loss) and are not associated with normal activities.

  • Extrinsic value

    The difference between an option's price and the intrinsic value.

  • F-3 fund

    A fund of funds of funds.

  • Face amount (face value)

    The value of a bond (or other debt instrument) that appears on the front, or face, of the certificate. Although a bond's price may change due to market conditions, the face value does not change. At maturity, the issuer redeems the bond at the face value amount.

  • Face value

    The price of a bond at maturity.

  • Facultative Certificate

    The document that formalises a facultative reinsurance cession.

  • Facultative Obligatory Contract

    A contract under which the reinsured may cede risks of a defined class whereas the reinsurer is obliged to accept that risk.

  • Facultative Reinsurance

    It implies that both the original insurer and the reinsurer have the option of placing/retaining and accepting/rejecting individual risks.

  • Fair Market Value

    It is a term in both law and accounting to based on an estimate of what a buyer would pay a seller for any piece of property or asset.

  • Fair value

    A rational and unbiased estimate of the potential market price of a good, service, or asset. In accounting, fair value is used as an estimate of the market value of an asset (or liability) for which a market price cannot be determined. In finance this term is used as the theoretical price at which a futures contract should trade to be equivalent to the purchase price of the underlying instrument. In options trading it is also used when referring to intrinsic value.

  • Falah

    (To thrive, to become happy or to have luck and success Lit.).

    Technically it implies success both in this world and in the Akhirah (Hereafter). The Falah presumes belief in one God, the apostlehood of Prophet Muhammad (Peace be upon him), Akhirah and conformity to the Shariah in behaviour.

  • Fall Back

    Part of a loss which is not reimbursed by the pro-rata reinsurers, but falls back into the retention of the cedant.

  • Fallen angel

    A bond that was investment grade when issued, but has since degraded to junk quality.

  • False Break

    Occurs when a market fails to carry on with the breakout, instead quickly reversing and returning to trade within the limits of the previous consolidation.

  • Family income benefit

    (UK) A type of term assurance in which, following the death of the life assured, instalments, rather than a lump sum, are paid to the beneficiary for the remainder of the policy term.

  • Fannie Mae

    Official name for what was formerly the Federal National Mortgage Association.

  • Fast Fourier transform

    An algorithm for rapidly valuing Fourier transforms.

  • Fastow, Andrew

    The chief financial officer of Enron Corporation until the US Securities and Exchange Commission opened an investigation into his conduct in 2001. Fastow was one of the key figures behind the complex web of off-balance sheet special purpose entities used to conceal their massive losses.

  • Fat cat

    Term used to describe executives who earn high salaries and bonuses.

  • Fatwah

    A religious decree.

  • FDIC

    Federal Deposit Insurance Corporation

  • Fed

    Short for the US Federal Reserve, the US central bank.

  • Fed funds

    Deposits held by US banks in accounts at their regional Federal Reserve banks.

  • Fed funds market

    A market for unsecured short-term loans of Fed funds.

  • Fed funds rate

    A rate of interest payable on overnight loans of Fed funds.

  • Fed Wire

    An electronic funds transfer system maintained by the Federal Reserve.

  • Federal agency security

    (US) A debt instrument with a high level of safety issued by a federal agency.

  • Federal Deposit Insurance Corporation (FDIC)

    (US) The federal agency that acts as guarantor for funds deposited in member banks.

  • Federal Financing Bank

    A bank established by the US Congress to consolidate debt issuances by federal agencies.

  • Federal gift tax

    (US) A federal tax levied on gifted property, money or securities. The tax is payable by the donor and based on fair market value of the gift.

  • Federal Home Loan Mortgage Corporation (FHLMC)

    A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans; principal and interest is guaranteed by the federal government through the FHLMC.

  • Federal Housing Administration FHA

    A division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders.

  • Federal Insurance Contributions Act (FICA)

    (US) The federal law which directs employers to withhold a proportion of employees' salaries for payment to the government in order to provide future pension and other social security benefits.

  • Federal National Mortgage Association (FNMA)

    (US) A government-backed corporation which purchases mortgages from lenders and resells them to investors. It is financed by the issue of debt securities. Equity shares, known as Fannie Maes, are traded on the New York Stock Exchange.

  • Federal Reserve

    The central bank of the United States.

  • Federal Reserve Board

    (US) A board of directors which directs the federal banking system, appointed by the President of the United States and confirmed by the Senate.

  • Federal Reserve System

    (US) The American central banking system which comprises 12 regional Federal Reserve Banks, their branches and all national and state banks within the system.

  • Federation Internationale des Bourses de Valeurs (FIBV)

    The International Federation of Stock Exchanges, a Paris-based organisation that encourages co-operative policies designed to stimulate a freer flow of capital across national boundaries.

  • Fee-based adviser

    An independent financial adviser whose income is derived from fees charged from customers rather than commissions from provider companies.

  • Fence

    See: 'Collar'.

  • FFT

    Fast Fourier transform.

  • FHC

    Financial holding company.

  • Fiber Digital Data Interface (FDDI)

    (US) Trading floor network connecting all trading floor terminals for the NYSE.

  • Fibonacci ratio

    The relationship between two numbers in the Fibonacci sequence.

  • Fibonacci Retracements

    Based on the number sequence developed by an Italian mathematician named Fibonacci - in theory, markets after moving substantially in one direction ‘back pedal’ or ‘correct’ a portion of the initial move. Using the Fibonacci number sequence, markets typically retrace 31.2% or 61.8% of the prior market move. 50% is commonly used as well. These retracement levels are usually used to derive targets for market moves as well as potential support and resistance levels.

  • Fictitious trading

    Wash trading, bucketing, cross trading, or other types of trade to give the appearance of trading where no competitive trade has occurred.

  • Fiduciary

    An individual or institution responsible for acting in the best interests of another party to manage his/her assets. A fiduciary is bound by law and duty to put aside personal interests and act in good faith when making decisions for the benefit of another.

  • Fifty Leaders Index

    A subset of the S&P/All Ordinaries share index that measures price movements in the 50 leading stocks as listed on the ASX.

  • Fill or kill (FOK)

    A particular type of order which a client gives to his broker when buying shares that consistes in filling a transaction immediately and completely or not at all.

  • Final dividend

    The end of year dividend. In the UK, companies normally pay dividends twice per year, an interim and a final dividend, the latter normally being the larger of the two.

  • Final results

    The results reported by a company for a full financial year.

  • Final salary

    The basis of determining a person's pension entitlement in a final salary scheme and which normally refers to an occupational pension.

  • Final salary scheme (defined benefit scheme)

    A pension scheme in which an employee's pension is based on number of years of service and final salary with each employer.

  • Finance house

    A company whose main purpose is the financing of hire purchase transactions.

  • Financial adviser

    A professional person qualified to give advice to clients regarding financial products such as life insurance, pensions, mutual funds/unit trusts and taxation.

  • Financial engineer

    A practitioner of financial engineering.

  • Financial engineering

    The field of applied finance devoted to the design and pricing of derivative instruments.

  • Financial futures

    Futures contracts where the underlying instruments are financial such as shares, interest rates, currencies and indexes etc.

  • Financial holding company

    A type of holding company authorized under US law following the repeal of Glass-Steagall to hold commercial banks, investment banks and insurance companies as affiliated subsidiaries.

  • Financial institution

    An institution which accepts funds from the public and reinvests in bank deposits, bonds and stocks. These include banks and insurance companies.

  • Financial intermediary

    An institution such as a bank, building society, credit union or insurance company which acts as a middleman between borrowers and lenders.

  • Financial pager

    A pocket-sized pager with data screen which can display a variety of financial information including equities, bonds, futures and market news.

  • Financial planner

    A professional person qualified to give clients financial planning service.

  • Financial planning

    A process of money management that may include any or all of several strategies, including budgeting, tax planning, insurance, retirement and investment.

  • Financial Quota Share

    A form of reinsurance that enables a cedant to increase its statutory surplus by the amount of the ceding commission in the reinsured unearned premium reserve.

  • Financial Reinsurance

    A specialised form of limited liability reinsurance whereby the financial and strategic motivations of the reinsured to effect the transaction take precedence over the risk transfer motivation. Also known as finite-risk reinsurance and non-traditional reinsurance.

  • Financial risk management

    Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit and market risk.

  • Financial Services Act 1986

    (UK) A Government Act introduced primarily to provide increased protection for investors and to regulate investment business conducted in the UK.

  • Financial Services Authority (FSA)

    (UK) It replaced the Securities and Investments Board (SIB). The FSA, which came into being on 28th October 1997, carries all regulatory responsibilities for the UK financial services industry.

  • Financial Services Compensation Scheme (FSCS)

    (UK) The Financial Services Compensation Scheme is the sole financial compensatory scheme set up by the Financial Services Authority (FSA) in December 2001.

  • Financial Services Modernization Act of 1999

    US legislation that revoked the Glass-Steagal separation of investment and commercial banking.

  • Financial strength

    The measure of a company's solvency.

  • Financial Times Indices

    (UK) A wide range of indices including shares, stocks and fixed interest securities published by the Financial Times.

  • Financial year

    An accounting period covering 12 consecutive months.

  • Fiqh

    Islamic law. The science of the Shariah, an important source of Islamic economics.

  • Fiqh

    Islamic jurisprudence. The science of the Shariah. It is an important source of Islamic economics.

  • Firm specific risk

    Risk that is linked to investment in a particular firm and which is independent of market risk.

  • First closing date

    The first closing date is one of the milestones in the process by which one company takes over another.

  • First death insurance

    A joint-life insurance policy which pays money to a surviving partner on the first partner's death.

  • First Loss Policy

    A type of partial insurance which covers less than the full value of goods or property at risk. This policy is used commonly in the burglary or theft insurance where the possibility of total loss is extremely remote.

  • First mortgage

    A mortgage which carries priority over any subsequent mortgages if the borrower goes into default and his/her assets have to be sold to pay creditors.

  • First mortgage bond

    A fixed income security that has the first mortgage and senior claim on an asset or group of assets.

  • First notice date

    The first date on which notice of delivery on a futures contract can be given to the exchange.

  • First notice day

    Notice of intention to deliver a commodity in fulfilment of an expiring futures contract can be given to the clearing house by a seller no earlier than the first notice day.

  • Fiscal policy

    Government policy that seeks to influence general economic activity through control of taxation and government spending.

  • Fiscal year

    A twelve month period used by a company for accounting purposes.

  • Fixed annuity

    (US) An annuity which guarantees payments to an annuitant which are fixed for life or a specific period. Similar to a level annuity in the UK.

  • Fixed assets

    Assets of a company such as buildings and machinery which are used over a long period of time for the purpose of generating profits.

  • Fixed Commission

    Commission which is fixed to a certain amount or percentage.

  • Fixed income arbitrage

    An investment strategy, generally associated with hedge funds, which consists of the discovery and exploitation of inefficiencies in the pricing of bonds, i.e. instruments from either public or private issuers yielding a contractually fixed stream of income.

  • Fixed income term structure

    Refers collectively to a spot curve, forward curve, discount curve, yield curve or any other curve that describes the time value of money.

  • Fixed interest asset

    A security such as a Treasury bond that pays a specified cashflow (e.g. six monthly coupon payments) over a specified period, and pays back the face value of the security at maturity.

  • Fixed premiums

    When premiums paid are fixed throughout the life of the policy.

  • Fixed Rate

    An interest rate that remains the same for the term of the loan.

  • Fixed Rate (Insurance)

    Reinsurance premium for a non-proportional reinsurance contract defined as a fixed percentage of the reinsured's subject premium.

  • Fixed rate mortgage

    A type of mortgage where interest repayments to the lender are fixed until maturity or for a specified term.

  • Fixed strike lookback option

    One of two basic forms of lookback options.

  • Fixed-for-floating swap

    An interest rate or currency swap in which fixed rate interest payments are swapped for floating rate payments.

  • Fixed-Income Securities

    Debt obligations issued by corporations, governments, or governments agencies which pay a fixed rate of interest over a defined time period.

  • Flat (trading)

    Refers to a bond whose price is quoted as an invoice price instead of a clean price.

  • Flat Premium/Rate

    Reinsurance premium for a non-proportional reinsurance contract defined as a fixed absolute amount irrespective of loss experience or portfolio development.

  • Flat yield

    The flat yield of a bond is the annual coupon payment divided by the current price. The major virtue of the flat yield for valuation is that it is extremely simple to calculate.

  • Flat-top butterfly

    See: 'condor spread'.

  • Flexible mortgage account

    A combined mortgage and current account.

  • Flight to quality

    When investors seek out less risky investments in times of uncertainty.

  • Float

    When a company offers its shares to the public and lists on a stock exchange.

  • Floater

    A fixed income instrument whose coupon fluctuates with some designated reference rate.

  • Floating rate bond

    A bond whose interest rate is reset periodically relative to a specified market rate.

  • Floating rate CMO

    A CMO tranch structured as a floater.

  • Floating rate note

    A floater issued by a corporate or agency borrower.

  • Floating strike lookback option

    One of two basic forms of lookback options.

  • Floor

    A type of derivative instrument that offers protection against declining interest rates.

  • Floorlet

    One of a series of options that comprise an interest rate floor.

  • Flotation

    When a company lists its shares on a stock market.

  • Flower bond

    A type of tax-advantaged bond issued by the US Treasury between 1953 and 1963.

  • Follow the Fortunes

    The main original purpose of this clause was to protect against possible consequences of the reinsured's failure to provide the reinsurer with the documentation required. Nowadays it is interpreted in the sense that the reinsurer follows the reinsured's results arising under insurance policies subject to the exclusions and limitations of the reinsurance contract.

  • Follow the Settlements

    Reinsurances are contracts to indemnify for sums paid in satisfaction of liabilities under an original policy. Therefore the reinsurer is not obliged to pay if the reinsured is not liable under the original policy or if the loss is excluded by the terms of the reinsurance contract.

  • Following Reinsurer

    A reinsurer which follows the lead reinsurer on a cover being placed, accepting or rejecting the terms as presented.

  • FOMC

    Abbreviation for the Federal Open Market Committee, which is part of the Fed, and determines interest policy in the US.

  • Force majeure

    Unforeseeable events, beyond the control of participants in a contract, which may excuse either side from fulfilling its liabilities.

  • Foreclosure

    The procedure by which a homeowner forfeits his property to the lender (mortgagee) following default.

  • Foreign bond

    A bond issued in one country and denominated in that country's currency by a foreign issuer.

  • Foreign CD

    A certificate of deposit issued within a country by a domestic branch of a foreign depository institution.

  • Foreign direct investment (FDI)

    The purchase of land, equipment or buildings or the construction of new equipment or buildings by a foreign company. FDI also refers to the purchase of a controlling interest in existing operations and businesses (known as mergers and acquisitions).

  • Foreign exchange (Forex)

    It is currency issued by a foreign government. Foreign exchange is required to pay for imported goods and to meet foreign debt repayment obligations.

  • Foreign exchange swap

    An agreement to exchange stipulated amounts of one currency for another at one or more future dates.

  • Forward buying contract

    An agreement between a buyer and a seller, calling for delivery of a specified amount of a specified asset at a specified future date.

  • Forward contract

    An agreement that calls for the future delivery of an asset at a price agreed to by the two parties involved in the contract.

  • Forward curve

    A graph of forward prices/interest rates for different maturities.

  • Forward dealing

    The buying or selling of underlying instruments such as commodities, securities and currencies etc for delivery at a specified future date and a fixed price.

  • Forward loan

    A loan that starts in a future date.

  • Forward price

    Market price quoted for a forward contract.

  • Forward pricing

    The setting of the price, which then remains fixed for forward dealing.

  • Forward rate

    The interest rate payable on a forward loan that accumulates interest to maturity.

  • Forward rate agreement

    A cash-settled forward contract on a short-term loan.

  • Forward settlement

    Trade settlement on some date subsequent to spot settlement.

  • Forward start option

    The forward purchase of a standard call option (ie right to buy) or put option (ie right to sell). On the forward start date the strike price of the option will be set at a predetermined level.

  • Forward trade

    A trade for settlement on some future date.

  • Fourier transform

    An integral transform used in signal processing, physics and financial engineering.

  • Fourth market

    (US) The trading of securities without brokers.

  • FRA

    Forward rate agreement.

  • Franchise

    A licence, granted by one company (franchisor) to another company or person (franchisee), entitling the franchisee to produce or market a product or service in a specific area. The licence is usually reviewed periodically, typically every 6 months or annually.

  • Franchisee

    The person or company accepting the right, granted by the franchisor to retail or provide services, using the franchisor's trade name or service marks, within the terms set in the franchise agreement.

  • Franchisor

    A person or company who decides to expand the business by giving to selected franchisees the right to do business under their trade or service marks in accordance with the franchise agreement.

  • Franked dividends

    Dividends on shares with dividend imputation credits attached.

  • Franked income

    (UK) Dividends, paid by UK companies to other companies, with a tax credit reflecting the fact that the company which has paid the dividend has done so out of post tax profits.

  • Freddie Mac

    Nick name for the Federal Home Loan Mortgage Corporation.

  • Free alongside

    A method for settling physical commodity trades.

  • Free asset ratio (FAR)

    The amount by which a company's assets outweigh its liabilities, expressed as a percentage.

  • Free assets

    The amount by which a company's assets outweigh its liabilities, expressed as a absolute sum.

  • Free cash flow

    The amount of money that a business has at its disposal at any given time after paying out operating costs, interest payments on bank loans and bonds, salaries and other fixed costs.

  • Free onboard

    A method for settling physical commodity trades.

  • Free standing additional voluntary contributions (FSAVC)

    An employee's pension scheme which is additional to but independent from his occupational pension scheme.

  • Freehold

    The permanent ownership of land or buildings.

  • Freeman, Robert

    Goldman Sachs arbitrager who became embroiled in the 1980's insider trading scandals.

  • Friendly society

    A mutual organisation whose funds, after the deduction of running costs, are owned by its policyholders.

  • Fringe benefits

    Benefits to employees additional to salary such as company cars, expense accounts and private medical insurance.

  • FRM

    Financial risk management.

  • FRN

    Floating rate note.

  • Front end load

    A charge imposed by a management company on a mutual fund or unit trust to cover administration costs and commission at the time of purchase.

  • Fronting Arrangement

    The issuance of a policy by one insurer on behalf of another because the second insurer is not licensed in the jurisdiction in which the line of business is being written.

  • FRS3

    The standard promulgated by the Accounting Standards Board which requires that all sources of profit/loss must be included in a company's statement of its headline profit and Earnings Per Share.

  • FT Eurotop 300

    An index of the share prices of the 300 largest European companies.

  • FT Government Securities

    (UK) An index of a range of Government Securities (gilts) prices.

  • FT Ordinary Share Index (FT 30 Index)

    (UK) An index of the share prices of 30 leading companies in the UK.

  • FTSE 100 Index (FOOTSIE)

    (UK) An index of the share prices of the 100 largest companies (by market capitalisation) in the UK which is updated throughout the trading day in real time. The index was started in 1984 with a base of 1,000. See also FTSE Actuaries All-Share Index.

  • FTSE A 350 Index

    (UK) A combined index of the FTSE 100 and the FTSE 250. See also FTSE Actuaries All-Share Index.

  • FTSE A Fledgling

    (UK) The index of the share prices of the companies listed on the London Stock Exchange which are too small to qualify for the FTSE Actuaries All-Share Index.

  • FTSE Actuaries All-Share Index

    (UK) The index of the share prices of over 800 leading companies and investment trusts on the London Stock Exchange.

  • FTSE Group

    British provider of financial indices and associated data services.

  • FTSE International

    A company jointly owned by the London Stock Exchange and FT which creates and compiles financial indices showing the performance of stock markets.

  • FTSE MID 250 Index

    (UK) An index of the share prices of the 250 largest companies (by market capitalisation) immediately following the largest 100 (FTSE 100).

  • FTSE Small cap

    (UK) The index of the share prices of the companies which are listed in the FTSE Actuaries All-Share Index but which are not large enough to appear in the FTSE 350 Index.

  • Full and Final Release

    At termination of a reinsurance contract all liabilities and obligations of the reinsurer end.

  • Full endowment

    (UK) An endowment policy in which the savings element is significantly increased.

  • Full faith and credit

    (US) A guarantee of payment of interest and repayment of principal capital of a bond issued by a government authority.

  • Full structural

    An extensive property survey.

  • Full-service broker

    A broker who provides investment research, information, and advice, as well as the services involved in purchasing and selling securities. Full-service brokers usually charge the highest commission rates.

  • Fully diluted earnings per share

    Earnings per share of a stock after converting all options, warrants and convertible securities into equivalent common stock.

  • Fully invested

    When all money in a portfolio is invested in securities.

  • Fully paid policy

    A life insurance policy which remains in force when the insured has paid premiums over part of the term of the policy but is unable to make further payments.

  • Function remapping

    A type of remapping used in value-at-risk measures.

  • Fund manager

    A professional whose job is to decide how the fund's money is invested.

  • Fund of funds

    An investment fund that invests in other investment funds.

  • Fund supermarket

    A website which provides information on a variety of collective investment funds from several providers, and allows users to invest in those funds by transacting online.

  • Fund switching

    The movement of assets from one mutual fund or unit trust to another.

  • Fund value

    The monetary value of a fund, calculated by adding up the value of its underlying assets.

  • Fundamental analysis

    Analysis of markets that predicts stock values on the basis of prospective earnings and dividends, interest rate expectations and risk considerations.

  • Fundamental analysis

    An approach to investment that focuses on analysis of a company's financial and business strengths, and how its performance has been converted into share price movements in the past.

  • Fundamental theorem of asset pricing

    A theorem that relates the existence of an equivalent martingale measure to the no-arbitrage condition and completeness of markets.

  • Funding of Reserves

    An arrangement whereby the reinsured retains funds of the reinsurer equivalent to outstanding Loss Reserves, sometimes referred to as Outstanding Claims Account (OCA) funds.

  • Funds-Withheld Transaction

    A type of reinsurance contract that allows the reinsured to delay all or part of the payment of premium to the reinsurer until a specified date.

  • Fungibility

    Interchangeability resulting from standardization. Futures and options contracts for the same commodity and delivery month are fungible due to their standardized specifications for quality, quantity, delivery date and delivery locations.

  • Fungible

    A security or commodity is fungible if it is perfectly interchangeable with any other of the same type and class. Many financial securities are fungible: a share in a particular company is exactly the same as another share in the same company (of the same class if the company has more than one class of share).

  • Further advance

    The raising of capital by a borrower from his existing mortgage lender.

  • Future

    An exchange-traded derivative that is similar to a forward.

  • Futures

    See 'futures contract'.

  • Futures Commission Merchant (FCM)

    (US) An individual or organisation who accepts orders to buy or sell futures contracts or futures options.

  • Futures contract

    A contract that commits the holder to the purchase or sale of an asset at an agreed price at a particular date in the future.

  • Futures contract

    A legal agreement to make or take delivery of a specified instrument (for example, a commodity such as coffee or a financial instrument such as shares) at a fixed future date at a price determined at the time of dealing.

  • Futures Industry Association (FIA)

    (US) The futures industry's national trade association.

  • Futures option

    The right to enter into a specified futures contract at a futures price equal to a stipulated exercise price.

  • Futures spread

    A long-short futures position.

  • G-20

    A group of the finance ministers and central bankers of the following 20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, European Union.

  • G-30 Report

    Group of 30 Report.

  • Gains trading

    Selective realization of gains to manipulate book value earnings.

  • Gamma

    The Greek factor sensitivities measuring a portfolio's second order (quadratic) sensitivity to the value of an underlier.

  • Gamma shares

    (UK) A term previously given to the shares of smaller companies traded far less frequently on the London Stock Exchange than alpha and beta shares. The term was replaced by the normal market size classification in January 1991.

  • GAN

    Grant anticipation note.

  • Gap analysis

    A technique of asset-liability management used to assess interest rate risk or liquidity risk.


    Generalized ARCH.

  • Garman and Kohlhager (1983) option pricing formula

    A formula for pricing European options on currencies.

  • Garnishee order

    (UK) A court order instructing a garnishee (a bank) that funds held on behalf of a debtor (the judgement debtor) should not be released until directed by the court.

  • Gaussian white noise

    An independent white noise with joint normal terms.

  • Gearing

    A measure of the indebtedness or leverage of a company (or an individual). The degree of gearing is often measured by use of the debt-to-equity ratio.

  • Gearing of warrant

    The degree of additional exposure gained by buying a warrant in comparison to buying its underlying asset.

  • General Agreement on Tariffs and Trade (GATT)

    A trade agreement between a large number of countries, dating back to 1948, which was set up to improve trading worldwide and to work towards the reduction of tariff barriers.

  • General lien

    The legal right for a creditor to seize the assets of a debtor to satisfy an outstanding debt.

  • General Mortgage Bond

    (US) It refers to a bond that is secured by a blanket mortgage on the issuing company's property.

  • General obligation bond

    A municipal bond backed by the general taxing authority of the issuer.

  • General obligation bond

    (US) A municipal bond whose interest and principal payments are supported by the full faith and credit of the issuing authority.

  • General personal equity plan

    See 'personal equity plan'.

  • Generalized ARCH

    A generalization of the autoregressive conditional heteroskedasticity model.

  • Geometric random walk

    A discrete stochastic process whose log returns are independent and identically normally distributed.

  • Geometric return

    Log return.

  • Gharar

    Any element of absolute or excessive uncertainty in any business or a contract about the subject of contract or its price, or mere speculative risk. It leads to undue loss to a party and unjustified enrichment of other, which is prohibited.

  • Gharar Lit

    Uncertainty, hazard, chance or risk. Technically, sale of a thing which is not present at hand; or the sale of a thing whose consequence or outcome is not known; or a sale involving risk or hazard in which one does not know whether it will come to be or not, such as fish in water or a bird in the air. Deception through ignorance by one or more parties to a contract. There are several types of gharar, all of which are haram.
    The following are some examples:

    Selling goods that the seller is unable to deliver
    Selling known or unknown goods against an unknown price
    Selling goods without proper description
    Selling goods without specifying the price
    Making a contract conditional on an unknown event
    Selling goods on the basis of false description
    Selling goods without allowing the buyer to properly examine the goods

    The root Gharar denotes deception. Bay' al-Gharar is an exchange in which there is an element of deception either through ignorance of the goods, the price, or through faulty description of the goods. Bay' al-Gharar is an exchange in which one or both parties stand to be deceived through ignorance of an essential element of exchange. Gambling is a form of Gharar because the gambler is ignorant of the result of his gamble.

  • Gift

    A transfer of an asset such as property or money from one person to another where no payment of any kind is given by the receiving person to the donor.

  • Gift tax

    (US) A tax imposed by the federal government or state on the donor of a gift when the transfer of money or property passes from one individual to another.

  • Gift Tax Annual Exclusion

    Under federal gift tax laws, each individual is permitted to gift up to $12,000 in cash or other property each calendar year to as many individuals as the taxpayer may desire without any gift tax.

  • Gilt-edged

    An investment is said to be gilt-edged if it has low risk/high security characteristics.

  • Gilt-edged market makers (GEMMs)

    A gilt edged market maker is a dealer authorised by the Bank of England to make a market in government stocks (gilts).

  • Gilt-edged stock (gilts)

    Gilts are Fixed Income or index-linked bonds issued by the UK government; it is the UK equivalent of US Treasury Securities.

  • Ginnie Mae

    Official name for what was previously the Government National Mortgage Association.

  • Girobank

    (UK) Girobank was established in 1968 by the Post Office to provide a public banking facility for people without bank accounts.

  • Give as you earn (GAYE)

    Schemes whereby a donation to your chosen charities is automatically deducted from your salary by your employer.

  • Glass-Steagal Act

    The United States 1933 Banking Act that separated commercial and investment banking and formed the FDIC.

  • Global bond

    A bond that is issued both as a foreign bond and as a Eurobond.

  • Global Depositary Receipt (GDR)

    A certificate which represents ownership of a given number of a company's shares and which can be listed and traded independently from the underlying shares.

  • Global fund

    A mutual fund which invests in securities in countries around the world such as Europe, Asia and the USA as well as the UK.

  • Global macro strategy

    An investment or trading strategy of taking net long or short positions simultaneously in multiple markets around the world.

  • Global remapping

    A type of function remapping.

  • Globalisation

    Refers to the increasing economic integration and interdependence of countries.

  • Go long

    The purchase of a security, commodity or financial instrument (e.g. shares) in the belief that the price will increase.

  • Go public

    The process by which a privately held company first offers shares of stock to the public. This is done via an Initial Public Offering (IPO).

  • Go short

    It means to sell an asset without first owning it with the expectation of it decreasing in value.

  • Gold card

    A plastic payment card which normally allows the holder higher spending limits over a standard card.

  • Gold fix

    The setting of the price of gold by dealers.

  • Golden Age (Dutch)

    A period during the 1600s when Dutch art, social tolerance and commerce flourished.

  • Golden cross

    This term refers to what happens when the short moving average price of a stock (for example, its 20-day moving average) cuts above a longer moving average (for example, its 50-day average).

  • Goldilocks economy

    An economy whose growth is believed to be neither too fast or too slow.

  • Good till cancelled order (GTC)

    An order to a broker to buy or sell shares at a specified price which remains valid until cancelled by the client.

  • Goodwill

    The value of a business to a purchaser over and above its net asset value.

  • Government National Mortgage Association (GNMA)

    (US) A government-owned corporation which guarantees payment of interest and principal of mortgage-backed pass through securities.

  • Government securities

    The short- and long-term bonds the government sells to finance its expenditures.

  • Government sponsored enterprise

    Any private corporation chartered by the US Federal Government and granted privileges to advance specific purposes.

  • Grace period

    The period during which an insurance policy remains in force even though the premium has not been paid.

  • Gradient

    In calculus, a vector of partial derivatives.

  • Gradient approximation

    In multivariate calculus, an approximation for a function constructed from its gradient.

  • Gradient-Hessian approximation

    In multivariate calculus, an approximation for a function constructed from its gradient and Hessian.

  • Graduated payment mortgage (GPM)

    (US) A mortgage scheme in which monthly payments commence at a lower level and increase over a period of a few years to a higher level.

  • Gramm-Leach-Bliley Act of 1999

    The Financial Services Modernization Act.

  • Granite Fund

    A hedge fund that failed in 1994.

  • Granny bonds

    Index-linked savings certificates, initially introduced for people above retirement age.

  • Grant anticipation note

    A short term debt obligation issued by state and municipal governments or private businesses in anticipation of the receipt of a future grant awarded for the successful installation of energy conversation or pollution control measures.

  • Grant of probate

    The proof of legal authority required by the person who is entrusted with dealing with a deceased person's estate where there is a will.

  • Grantee

    (UK) A term used by some assurance companies as an alternative to assured.

  • Grantor

    The person from whom a grant is made or a trust is set up.

  • Greeks

    A set of factor sensitivities used for measuring risk exposures related to options or other derivatives.

  • Greenmail

    (US) When a takeover target company buys back its own shares at a premium price.

  • Grey knight

    A company (or person) making an unwanted counter bid for another company.

  • Grey market

    The unofficial trading of securities before their formal issue.

  • Gross

    Before any deductions, particularly tax deductions.

  • Gross domestic product (GDP)

    The value of all goods and services created within an economy. It equals gross national product minus income from abroad.

  • Gross income

    Total annual income of a person or a company before any expenses.

  • Gross interest

    Interest earned by deposits before tax is deducted.

  • Gross Line

    The amount of insurance a company commits on a risk, including the amount it has reinsured.

  • Gross margin

    The difference between the selling price of an item and the purchase or manufacturing cost, expressed as a percentage of the selling price.

  • Gross Monthly Income

    The amount of income that an individual receives each month before income tax.

  • Gross national product (GNP)

    The total value of all goods and services produced by a country. Real growth in GNP measures the increase in output after making adjustments for inflation.

  • Gross Net Earned Premium Income

    A rating base for excess of loss reinsurance. It is the written premium of a primary insurer for the lines of business covered by a reinsurer, minus cancellations, refunds and reinsurance premium paid to other reinsurers who are providing coverage on the same lines.

  • Gross profit

    The difference between turnover and the cost of making a product or providing a service, before taking into account overheads, salaries and wages, and interest payments.

  • Gross redemption yield

    See 'redemption yield'.

  • Gross return

    Simple return plus 1.

  • Gross yield

    The yield on a security before the deduction of tax.

  • Grossing up

    UK shareholders receive dividends with a tax credit of 10%. This means that a notional 10% tax has already been paid by the company paying the dividend.

  • Ground rent

    (UK) Rent payable by the owner of a leasehold property to the freehold owner.

  • Ground-Up Loss

    The total amount of loss sustained by the reinsured before taking into account the credit) due from reinsurance recoverable(s).

  • Group insurance

    Insurance provided for company employees by employers.

  • Group of 30 Report

    An influential 1993 industry report on OTC derivatives.

  • Growth bond

    A bond which gives capital growth at maturity.

  • Growth fund

    A fund that aims to achieve above average rates of growth over the longer term.

  • Growth investing

    The approach to investing which aims to invest in fast-growing companies which are rapidly increasing their turnover and profits.

  • Growth stocks

    Stocks whose earnings have grown at an above average rate over a number of years and which are expected to continue to grow at a high rate for some time to come.

  • Guarantee

    A document, supplied by a manufacturer, indicating that in the event of product failure it will be repaired or replaced.

  • Guaranteed death benefit

    (UK) A life policy in which there is a minimum sum payable on the death of the life assured.

  • Guaranteed growth bond

    A bond in which a single premium secures a guaranteed amount at its maturity date

  • Guaranteed income bond (GIB)

    A bond in which a single premium secures a guaranteed regular income until maturity.

  • Guaranteed minimum pension (GMP)

    The minimum pension payable by a pension scheme in order that members may contract out of S2P (State Second Pension).

  • Guaranteed renewable policy

    An insurance policy will automatically renewed provided premiums are paid.

  • Guaranteed sum assured

    (UK) It refers to the minimum sum payable by a life policy either on the death of the life assured or on maturity.

  • Guaranteed trust

    Some unit trusts offer a floor price and guarantee their bid price will not be allowed to fall below that level.

  • Guarantor

    An individual, institution or other entity that guarantees to repay a debt if the borrower defaults.

  • Guardian

    An individual or institution named by a court to manage the property of a person who is adjudged incapable of handling his or her own affairs.

  • Guilder shares (New York Shares)

    (US) Dutch regulations do not permit their companies to issue ADRs linked to active home-country shares, even if those shares are held by a depository bank. Instead, the appropriate quantity of underlying home-country shares are cancelled and the equivalent amount of New York Shares (guilder shares) are issued.

  • Guldimann, Till

    Pioneered RiskMetrics.

  • Halal

    Anything permitted by the Shariah.

  • Halal

    That which is permissible. In Islam there are activities, professions, contracts and transactions which are explicitly prohibited (haram) by the Qur'an or the Sunnah. Barring them, all other activities, professions, contracts, and transactions etc. are halal. An activity may be economically sound but may not be allowed in the Islamic society if it is not permitted by the Shari'ah.

  • Hamanaka, Yasuo

    A rogue trader whose speculative activities during the 1980s and 1990s cost Sumitomo Corp. USD 1.8 billion.

  • Hammersmith and Fulham decision

    A 1992 legal decision that invalidated existing derivatives contracts with numerous UK local councils.

  • Hang Seng index

    The main Hong Kong share price index, similar to Australia's S&P/All Ordinaries index.

  • Haram

    Anything prohibited by the Shariah.

  • Haram


  • Hard currency

    A currency which is generally accepted throughout the world and which is unlikely to devalue.

  • Harmonization

    Making regulations consistent across industries.

  • Hawala

    Lit: bill of exchange, promissory note, cheque or draft. Technically, a debtor passes on the responsibility of payment of his debt to a third party who owes the former as debt. Thus the responsibility of payment is ultimately shifted to a third party. Hawala is a mechanism for settling international accounts, by book transfers.

  • Hawalah

    (transfer; legally Lit.)

    Agreement by which a debtor is freed from a debt by another becoming responsible for it or the transfer of a claim of a debt by shifting the responsibility from one person to another contract of assignment of debt. It also refers to the document by which the transfer takes place.

  • Hazard Insurance

    An insurance policy that pays for loss raising from certain hazards, such as fire and flood.

  • Hazard rate

    Default intensity.

  • Head and shoulders top

    A common chart formation in which a share price reaches a peak and declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines.

  • Head of risk management

    A senior manager with responsibility for financial risk management within a firm.

  • Headroom check

    The Inland Revenue limit on how much money can be paid into a free-standing additional voluntary contribution scheme.

  • Health insurance

    Generic term for insurance covering costs incurred due to illness, injury and disability.

  • Hedge fund

    A type of investment vehicle where investors in the fund allow its managers to use higher risk investment techniques to leverage up return potential.

  • Hedge ratio (for an option)

    The number of stocks required to hedge against the price risk of holding one option.

  • Hedging

    The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes.

  • Heir

    A person designated by a will or by the court to receive the assets of the deceased.

  • Her Majesty's Customs and Excise

    (UK) The government department which collects customs and excise duties and VAT.

  • Herd behaviour

    The tendency of investors to behave in the same way in response to rumoured market changes.

  • Herstatt Bank

    A German bank whose 1974 failure highlighted the dangers of settlement risk.

  • Herstatt risk

    Settlement risk.

  • Hessian

    In calculus, a matrix of second partial derivatives.

  • Heteroskedasticity

    A condition where a stochastic process has non-constant second moments.

  • Hibah

    Is a Gift.

  • Hidden values

    (US) Assets owned by a company but undervalued on the balance sheet.

  • High current income fund

    A fund which aims to pay a high dividend to its shareholders by investing in bonds or other companies which themselves produce good income, either through high rates of interest or high dividend yields.

  • High grade security

    (US) A bond issued by a highly regarded company or municipal authority with a rating of AAA or AA.

  • High lending charge

    A one-off insurance premium charged by lenders to cover themselves in high risk lending situations, usually where lending is over 90% of the property's value.

  • High yield bond

    A high yield bond (non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below investment grade at the time of purchase.

  • High-tech shares

    The shares of companies operating in technology fields such as computers, semiconductors and electronics.

  • High-water mark

    A provision that an incentive fee will not be payable until any prior losses have first been made up.

  • High-yield stocks

    Stocks whose dividend payouts are high as a proportion of their share price.

  • Higher rate adjustment

    An income tax coding allocated to people who pay tax at the higher rate.

  • Higher rate tax

    (UK) The highest rate of income tax in the UK which in the 2007-2008 tax year is 40%.

  • Hire purchase

    System of purchase by paying in instalments.

  • Historic volatility

    A measure of the price changes of a security over a specific period of time.

  • Historical transformation

    For a VaR measure, a transformation procedure that employs the Monte Carlo method with realizations constructed from historical market data.

  • Historical VaR

    A category of VaR measures that employ an historical transformation.

  • Historical volatility

    Volatility estimated from historical data.

  • Hold-over relief

    The practice of deferring capital gains tax liability on a gift by transferring the liability to the recipient.

  • Holder extendible option

    An option that grants the holder the right to extend the expiration date.

  • Holder of record

    The owner of securities whose name is registered by the issuing company or its transfer agent as from a particular date.

  • Holding company

    A company which holds the majority of shares in its subsidiaries.

  • Holding period

    (US) The length of time an individual retains an investment.

  • Holding period return

    The rate of return over a given period.

  • Holdings

    A row vector listing the number of units of specific assets held by a portfolio.

  • Holdings remapping

    A type of portfolio remapping.

  • Holiday insurance

    A policy which covers the insured for the duration of their holiday and covers for travel delays, cancellation, baggage loss and damage, loss of personal items including cash and credit cards, personal accident and medical expenses abroad.

  • Home income plan (HIP)

    (US) A plan which enables elderly owner or owners of a property to use the capital locked in the property to provide a regular income.

  • Home insurance

    A type of property insurance which provides cover against such items as damage to the building, personal property, theft, personal liability etc.

  • Home reversion plan

    (UK) A plan which offers elderly people the opportunity of raising cash on their property. A financial institution such as an insurance company makes a purchase at a price well below market value with the original owners being entitled to live in the property until their death.

  • Homeowners Association

    An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services.

  • Homeowners equity account

    A credit line offered by banks and mortgage lenders which grants the homeowner the opportunity of borrowing against the equity in the property.

  • Homeowners Policy

    A multiple peril insurance policy available to owners of private dwellings. It usually covers buildings and contents in the case of fire or wind damage, theft, liability for property damage, and personal liability.

  • Homoskedasticity

    A condition where a stochastic process has constant second moments.

  • Horizontal spread

    An options strategy involving the simultaneous purchase and sale of two options of the same type, having the same strike price, but different expiration dates..

  • Hospital cash plan

    (UK) An insurance policy which pays a specified amount to the insured in the event that he/she is admitted into hospital.

  • Hostile takeover

    A takeover bid opposed by the target company's directors.

  • Hours Clause

    A clause used in catastrophe excess of loss reinsurance contracts to overcome the difficulties of applying the terms "event" or "occurrence" to multiple losses or losses occurring over a period of time all associated with the same phenomenon such as the operation of a natural peril.

  • House call

    (US) The notification to a client by a brokerage house that more funds are required to bring a margin account balance up to the required level.

  • Household insurance

    (UK) Insurance covering the structure or contents of a house. This type of insurance now tends to include the option of cover for additional items such as legal expenses.

  • Housing Expense Ratio

    A home owner's monthly housing expense in comparison to his/her monthly income.

  • Hull Identification Number ("HIN")

    A number assigned to the vessel by the manufacturer. Each number is unique and appears on the vessel’s registration and title.

  • Hurdle rate

    A provision that incentive fees will be paid only for returns exceeding some specified level.

  • Hybrid instrument

    A financial instrument that blend characteristics of debt and equity markets.

  • Hypothecation

    (US) The pledging of securities or assets as collateral to secure a loan.

  • IFA Association

    (UK) The trade association which represents IFAs.

  • IFA Promotion

    (UK) An organisation established in 1989 to improve the image of Independent Financial Advisers (IFAs) and their work and to encourage consumers to seek independent financial advice.

  • IFC

    International Financial Center

  • Iguchi, Toshihide

    A rogue trader whose speculative activities during the 1980s and 1990s cost Daiwa Bank Corp. USD 1.1 billion.

  • Ijab (see also qabul)

    Offer, in a contract.

  • Ijara (Leasing)

    A contract where the bank or financier buys and leases equipment or other assets to the business owner for a fee. The duration of the lease as well as the fee are set in advance. The bank remains the owner of the assets. This type of contract is a classical Islamic financial product. Leasing is also a lawful method of earning income, according to Islamic law. In this method, tangible assets such as machinery, a car, a ship, a house, can be leased by one person (lessor) to the other (lessee) for a specific period against a specific price. The benefit and cost of the each party are to be clearly spelled out in the contract so that any ambiguity (Gharar) may be avoided.

  • Ijarah

    Letting on lease. Sale of a definite usufruct of any asset in exchange of definite reward. It refers to a contract of land leased at a fixed rent payable in cash and also to a mode of financing adopted by Islamic banks. It is an arrangement under which the Islamic banks lease equipments, buildings or other facilities to a client, against an agreed rental.

  • Ijarah wa Iqtina (Lease to Purchase)

    Mode of financing adopted by Islamic banks. It is a contract under which the Islamic bank finances equipment, a building or other facility for the client against an agreed rental together with an undertaking from the client to purchase the equipment or the facility. The rental as well as the purchase price is fixed in such a manner that the bank gets back its principal sum along with some profit which is usually determined in advance.

  • Ijarah-wal-Iqtina‘

    A mode of financing, by way of Hire-purchase, adopted by Islamic banks. It is a contract under which the Islamic bank finances equipment, building or other facilities for the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rental as well as the purchase price are fixed in such a manner that the bank gets back its principal sum along with some profit, which is usually determined in advance.

  • Ijma‘

    Consensus of all or majority of the leading qualified jurists on a certain Shariah matter in a certain age

  • Ijtehad

    Effort, exertion, industry, diligence (Lit.). Technically, endeavor of a jurist to derive or formulate a rule of law on the basis of evidence found in the sources.

  • Ijtihad

    Endeavor of a qualified jurist to derive or formulate a rule of law to determine the true ruling of the divine law in a matter on which the revelation is not explicit or certain, on the basis of Nass or evidence found in the Holy Qur’an and the Sunnah. Express injunctions have no room for Ijtihad. Implied injunctions can be interpreted in different ways by way of inference from the accepted principles of the Shariah.

  • Imaginary number

    A complex number of the form bi, where b is real, and i is the imaginary number.

  • IMF (International Monetary Fund)

    An international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements as well as to provide temporary financial assistance to countries to help ease balance of payments adjustment.

  • Immediate-or-cancel order (IOC)

    A type of futures or option order which gives the trading crowd one opportunity to take the other side of the trade. After being announced, the order will be either be partially or totally filled with any remaining balance immediately cancelled.

  • Impact costs

    Transaction costs that arise for trades which are so large that they cannot be transacted at the best bid or ask price.

  • Impact Day

    The day on which the availability of a prospectus is advertised, and a flotation is officially announced.

  • Implementation shortfall

    A metric of total transaction costs—usually Perold's implementation shortfall.

  • Implied tree model

    Alternative name for a local volatility model.

  • Implied volatility

    The volatility of the underlying instrument implied by the market value option's price.

  • Importance sampling

    A technique of variance reduction for the Monte Carlo method.

  • In house

    A term used in banking which refers to settlement of payments between accounts both held at the same branch.

  • In the money

    An option that would generate profits if exercised now. A call is in-the-money if the underlier value is above the strike price.

  • In-the-money

    A condition where an option has a positive intrinsic value.

  • In-warehouse

    A method for settling physical commodity trades.

  • Incapacity benefit

    (UK) A state benefit payable after the expiry of state sickness benefit if a person is still unfit to work.

  • Incentive stock option

    (US) A stock option that specifies a set number of shares at a specific option price extending over a given period, which is free of tax when granted and when exercised.

  • Income

    Money received by an individual as a salary or from investments.

  • Income bond

    A corporate bond that only has to pay coupons if the issuer has sufficient income to do so.

  • Income dividend

    (US) The distribution of interest or dividends to the shareholders of a mutual fund.

  • Income drawdown

    A facility which allows a delay in buying an annuity if rates should be low when retirement age is reached.

  • Income endowment

    (UK) An endowment plan which carries an option at maturity for the proceeds to be paid in the form of a regular income.

  • Income from property

    Income received from property letting is subject to income tax. The amount taxable is the amount receivable in the tax year. If an owner occupier or tenant rents out a room he may receive up to a certain annual income without incurring a tax liability.

  • Income fund

    A fund that aims to pay a high dividend to its shareholders by investing in bonds or shares which themselves produce good income, either through high rates of interest or high dividend yields.The focus of such a fund is resolutely on income and it does not seek capital appreciation.

  • Income limit for age related allowances

    (UK) People aged 65 to 74 are entitled to an additional personal tax allowance provided total earnings do not exceed a given amount.

  • Income protection

    An insurance policy which pays out regular sums of money, up to retirement date, to the insured person in the event that they are no longer able to work.

  • Income pure endowment

    An endowment plan which carries an option at maturity for the proceeds to be paid in the form of a regular income.

  • Income shares

    Shares bought in anticipation of an above average income being produced. Also referred to as high yield shares.

  • Income statement

    A financial statement that shows a company's revenues and expenses (or profit/loss position) over a period of time.

  • Income Stock

    Common stock that pays dividends at a higher-than-average rate, resulting in a higher yield for stockholders.

  • Income tax

    A compulsory tax on employment and investment income.

  • Income tax allowances

    See: 'tax allowances'

  • incorporation by registration

    A 19th century legal innovation that streamlined the formation of corporations.

  • Increasing basis

    When the cover and premiums increase every year.

  • Increasing life annuity

    Another expression for escalating annuity.

  • Increasing term assurance

    An increasing term assurance policy provides either an automatically escalating sum assured, or includes an option to increase cover during the term of the policy. Unlike a level term assurance where, with inflation, the real value of the sum policy reduces over time.

  • Incurred But Not Enough Reserved

    See Incurred But Not Reported

  • Incurred But Not Reported

    The liability for future payments on losses that have already occurred, but have not yet been reported, either to the reinsured or to the reinsurer.

  • Indefinite matrix

    A square matrix that is neither positive semidefinite nor negative semidefinite.

  • Indemnity

    An indemnity is a sum paid by one person to another by way of compensation for a particular loss suffered by the second person.

  • Indemnity commission

    Where a life company pays commission to an agent, the company does so on the proviso it will be entitled to take back some or all of the commission if the policy is cancelled within a given period. Also known as 'clawback'.

  • Indemnity insurance

    A policy which covers the insured against the loss of an asset.

  • Indenture

    A bond's loan agreement.

  • Independence

    In the context of financial risk management, the segregation of risk management and risk taking functions.

  • Independent financial adviser (IFA)

    A person qualified to give financial advice to clients on life assurance, pensions, funds, and other financial products, who is not tied to any one financial institution.

  • Independent white noise

    A white noise with independent terms.

  • Index

    It reflects movements in financial markets, indicating market prices and shares of companies. Examples are: the Down Jones Industrial Index, the Russell 2000 Index, Standard & Poor's 500 Composite Stock Index, and the EAFE Index.

  • Index arbitrage

    An investment strategy that exploits divergences between actual futures prices and their theoretically correct prices to make a profit.

  • Index fund

    An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.

  • Index linked

    Scaled proportional to the change in the retail price index or other measure of the cost of living.

  • Index linked family income assurance

    (UK) Family income assurance in which the assured may, if he or she chooses, increase premiums in line with the retail price index.

  • Index linked term assurance

    (UK) Term assurance in which premiums are increased in line with the retail price index.

  • Index options

    Call or put options on an index such as the Standard and Poor's 500 Index or the FTSE 100 Index. Index options are exercisable into cash rather than the underlying shares in the index. This differentiates them from equity options which are exercisable into the shares to which the option relates.

  • Indexation

    Indexation is an allowance which reduces the taxable gain on an investment by increasing its base cost. It does this by applying a percentage uplift to the acquisition cost which increases according to the length of time that you have held the investment.

  • Indexing

    A procedure that adjusts the reinsured's retention and limit under excess of loss reinsurance contracts in accordance with the fluctuations of a published economic index, such as wage, price and cost-of-living.

  • Indirect taxation

    Taxation which is levied in an indirect way rather than being charged directly on an individual's income or estate, such as value added tax (VAT) charged on goods and services in the UK.

  • Individual Investor Express Delivery Service (IIEDS)

    (US) A service for individual investors which puts their orders at the head of any Tandem Systems Queue.

  • Individual retirement account (IRA)

    (US) A tax-deferred retirement savings account which may be set up by employed people.

  • Individual Retirement Account "Rollover"

    Established specifically for taxable funds distributing from a tax-qualified retirement plan.

  • Individual Retirement Account (IRA)

    A method of planning for retirement that enables individuals to save up to $2,000 annually.

  • Individual savings account (ISA)

    (UK) A tax-free saving scheme which allows investors to chose two components: equities and cash. There are strict limits on how much they can put in each component. ISA plans are sold by stockbrokers, IFAs, fund managers, banks and other authorised financial institutions.

  • Individual Turnover Report (ITR)

    The London Stock Exchange's report provides historic turnover data for individual equity and fixed interest securities, in a report format, on a daily, monthly or yearly basis.

  • Industrial life assurance

    (UK) An assurance policy on the life of an individual where weekly or monthly premiums are regularly paid to the assurance company by way of their agent who collects directly from the policyholder's home. This type of assurance is now virtually extinct.

  • Industry Loss Warranty

    Certain catastrophe reinsurance contracts may have a clause requiring that the industry loss must be of a certain size for the cover to trigger.

  • Inference procedure

    The procedure within a VaR measure that characterizes a joint probability distribution for key factors.

  • Inflation

    Prices increase over a period of time, usually annualised for comparative purposes.

  • Inheritance tax (IHT)

    Tax payable to the government based on the value of assets inherited.

  • Initial charge

    A charge imposed by a fund management company to cover administrative costs and any commission that has to be paid to an intermediary (also known as front end load).

  • Initial margin

    (US) The payment which investors have to make to a broker to trade on margin, commonly used in trading futures and contracts for difference. Initial margin is usually set at a percentage of the value of the contracts being traded.

  • Initial margin

    A deposit the client gives to a broker before he/she can invest in a future position.

  • Initial public offering (IPO)

    Stock issued to the public for the first time by a privately owned company or a privatised government enterprise.

  • Inland Revenue

    (UK) The government department responsible to the Treasury for the collection of direct taxes including income tax, capital gains tax and inheritance tax.

  • Input tax

    When a company registered for value added tax (VAT) buys goods or services from another supplier, VAT is charged. This is known as input tax.

  • Insider dealing

    Illegal share dealings by employees of a company where they have used confidential information for their own gain or the gain of their associates.

  • Insider information

    Price-sensitive information about a company that has not yet been made public.

  • Insider trading

    An illegal activity that involves trading by management, major shareholders or employees of a firm using information that is not yet publicly available to the markets.

  • Insolvency

    The inability of a person or company to settle debts when they become payable.

  • Insolvency Clause

    A clause in a reinsurance contract which may be required by state insurance law or regulation, under which the reinsurer agrees that reinsurance proceeds will be paid directly to the liquidator of an insolvent insurer on claims allowed in the insolvency proceedings.

  • Inspector

    A property inspector evaluates the condition of the property.

  • Instinet

    An electronic 'stock market' service owned by Reuters which enables members to display bid and offer quotes for stocks and to transact between themselves without using brokers.

  • Institute of Financial Planning (IFP)

    UK professional body which promotes the development of financial planning. The Institute was set up in 1986 and draws its members from accountancy, insurance, taxation, stock broking, education and legal professions.

  • Institutional investor

    A financial institution which invests large amounts of money in the stock, bond and other financial markets.

  • Insurance

    A contract in which payment of premiums covers the insured against something which may, or may not occur. In the UK insurance is differentiated from assurance (life assurance) which is protection against something which will inevitably occur.

  • Insurance broker

    A person specialising in insurance matters and who gives advice to and arrange cover on behalf of his/her clients.

  • Insurance Ombudsman

    See: 'ombudsman'

  • Insurance premium

    The amount payable by the insured in return for indemnification against specified risks.

  • Insurance premium tax (IPT)

    A tax imposed on certain insurance premiums where the risk is located in the UK.

  • Insured

    A person or company acquiring insurance.

  • Intangible assets

    Assets which are non-physical in form, such as patents, goodwill, trademarks and copyrights.

  • Integers

    The set of numbers {…, –2, –1, 0, 1, 2, …}.

  • Integrated Solution

    An insurance product that includes a combined lines policy with a financial product cover.

  • Intensity model

    A type of default model.

  • Inter bank clearing

    The process of payment clearance between two banks.

  • Inter branch clearing

    The process of payment clearance between two branches of the same bank.

  • Intercommodity spread

    A futures spread where the contracts are for different underliers.

  • Interest

    Earnings paid by a security such as a bond, a certificate of deposit or an annuity, or money paid for the use of money, for example in a loan.

  • Interest cover

    Interest cover measures the amount of interest paid by a company on its borrowings against its operating profit in the same period.

  • Interest coverage ratio

    A measure of a company's leverage. It equals earnings before interest and tax (EBIT) divided by interest expense, and provides an indication of a company's ability to meet interest payments.

  • Interest in possession

    The legal right to receive income from, or occupy, trust property.

  • Interest Paid Prior Year

    The total amount of interest charges paid in the previous year.

  • Interest Paid YTD (Year-to-Date)

    The total amount of interest charges paid so far in the current year.

  • Interest payable

    An accounting term which refers to the amount a company pays in the form of interest on cash borrowings.

  • Interest rate

    The percentage rate that is charged by the creditor for the money borrowed. This may be different from the APR.

  • Interest rate cap

    A derivative instrument which is linked to interest rates.

  • Interest rate floor

    A derivative instrument which is linked to interest rates.

  • Interest rate gap

    An imbalance in the assets and liabilities being repriced during a given period.

  • Interest rate parity

    An arbitrage condition that must hold between the spot interest rates of different currencies.

  • Interest rate risk

    The risk associated with holding a debt security such as a bond when interest rates are volatile.

  • Interest rate spreads

    Spreads between interest rates.

  • Interest rate swap

    Where two parties trade the cashflows corresponding to different securities without actually exchanging ownership on those securities.

  • Interest receivable

    An accounting term which refers to the amount of income a company receives in the form of interest payments on its cash.

  • Interest-only mortgage

    A mortgage where regular payments only meet the interest requirements. The capital amount outstanding remains the same and the borrower will need to make additional provision for repaying the loan.

  • Interim

    A term which means in the meantime. See 'interim bonus', 'interim dividend' and 'interim results'.

  • Interim bonus

    (UK) A bonus declared by life companies when maturity of a with profits policy or death of the assured occurs between normal bonus declaration dates.

  • Interim dividend

    The dividend declared before annual earnings are established.

  • Interim results

    The results reported by a company for the first six months of its financial year. In general, interim results are made public within three months of the end of the interim period.

  • Intermarket Surveillance Group (ISG)

    (US) It allows regulatory staffs of the US securities exchanges and the NASD to co-ordinate industry-wide efforts to exchange market data.

  • Intermarket Trading System (ITS)

    An electronic communications network that links nine US markets: the New York (NYSE), American (AMEX), Boston (BSE), Chicago (MSE), Cincinnati (CSE), Pacific (PSE) and Philadelphia (PHLX) stock exchanges, the Chicago Board Options Exchange (CBOE), and the NASD. The system enables market professionals to interact with their counterparts in other markets whenever the nationwide Consolidated Quote System (CQS) shows a better price.

  • Intermediary

    An agent, broker or financial institution who can give advice and act as a middle person between a company and a client.

  • Internal rate of return (IRR)

    The interest rate which, when used as the discount rate for a series of cash flows, gives a net present value of zero.

  • Internal Revenue Service (IRS)

    The US agency responsible for the collection of federal taxes including personal and corporate income taxes, excise and gift taxes.

  • International fund

    (UK) A fund whose portfolio comprises a range of securities from markets around the world.

  • International Monetary Fund (IMF)

    A fund formed in the mid 1940s by industrialised countries to stabilise exchange rates, promote international trading and provide short term loans to member countries with balance of payments problems.

  • International Organization of Securities Commissioners ( IOSCO)

    The international standard setter for securities markets. The Organization's wide membership regulates more than 90% of the world's securities markets.

  • International Organization of Securities Commissions

    An international organization representing securities regulators.

  • International Petroleum Exchange (IPE)

    Europe's leading energy futures and options exchange and the second largest in the world.

  • International Securities Identification Number (ISIN)

    International code for a listed security.

  • Internet banking

    A facility provided by banks which enables customers to conduct banking transactions online.

  • Interpolation

    In the mathematical subfield of numerical analysis, interpolation is a method of constructing new data points from a discrete set of known data points.

  • Interpolation remapping

    A global remapping implemented using interpolation.

  • Intestacy

    The condition of the estate of a person who dies owning property greater than the sum of his/her enforceable debts and funeral expenses without having made a valid will or other binding declaration.

  • Intestate

    A person who did not have a will when he/she died.

  • Intracommodity spread

    A futures spread where both futures are on the same underlier but have different maturities.

  • Intrinsic value

    The component of an option's market value that could be realized by exercising the option immediately.

  • Introducing broker (IB)

    (UK) An individual or firm who can perform all the functions of a broker except to accept money, securities, or property from a customer.

  • Invasion of a Trust

    Distribution of assets made from the principal of a trust.

  • Inverse floater

    A floater whose coupon varies inversely to its reference rate.

  • Inverse floater CMO

    A CMO tranch structured as an inverse floater.

  • Investment

    The act of investing; using money or capital in an enterprise to make profits.

  • Investment bank

    A firm, acting as underwriter or agent, that serves as an intermediary between an issuer of securities and investing institutions, and which advises corporate, institutional and sovereign clients on their acquisitions, disposals, capital raising, structuring and risk management.

  • Investment bond

    (UK) A unit-linked single premium whole life assurance policy. Part of the premium gives life cover whilst the balance is invested in unitised funds.

  • Investment business

    The Financial Services Act 1986 defines investment business to include dealing, arranging deals in, managing and advising on investments in addition to the setting up and operation of collective investment schemes.

  • Investment club

    A group of individuals who invest their capital collectively.

  • Investment company

    A company which invests the funds of small private investors in a range of securities. This enables fund shareholders to partake in ownership of a diversified portfolio of shares.

  • Investment Company Act of 1940

    US legislation authorizing the SEC to regulate investment companies.

  • Investment Company with Variable Capital (ICVC)

    An open-ended collective investment vehicle, similar to a unit trust. As with unit trusts, the money invested by savers is pooled, and then invested in the markets by professional fund managers appointed by the ICVC.

  • Investment grade

    It refers to bonds issued by companies or institutions with a higher level of financial standing (rated AAA to BBB).

  • Investment grade bond

    A bond whose credit rating is BBB or better.

  • Investment income

    Income, paid from an investment, such as dividends and interest.

  • Investment Management Account

    An account whereby a financial institution is given discretionary power with regard to investment decisions on behalf of the investor.

  • Investment portfolio

    A set of financial assets chosen by an investor.

  • Investment Services Directive

    A Directive produced by the European Commission in 1993 regarding the provision of investment services within the member states of the European Union. The Directive has been described as the ‘passport to Europe’ for securities houses.

  • Investment trust

    A closed-end fund with a fixed number of shares which are traded on the secondary markets similarly to corporate stocks.

  • Investor Protection Scheme

    See: 'Financial Services Compensation Scheme'.

  • Investors Compensation Scheme (ICS)

    (UK) A compensation scheme for investors with operating rules set by the Financial Services Authority (FSA). This scheme was replaced by the Financial Services Compensation Scheme (FSCS) in December 2001.

  • Invoice

    A document, issued by a person or company, indicating to the recipient the amount of money owed to that person or company for goods and/or services supplied.

  • IO (Interest Only)

    A mortgage-backed security whose payments derive exclusively from the interest payments on the underlying mortgages. Unexpected prepayments or defaults impair the value of IOs, curtailing payments of interest on the mortgages.


    An international organisation representing securities regulators designed to promote high standards of regulation, exchange information, establish standards and carry out an effective surveillance of international securities transactions by the means of a rigorous application of the standards and by effective enforcement against offenses.

  • Iron butterfly

    An option strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) combination.

  • Irredeemable securities

    (UK) Securities, such as some debentures and certain government loan stock which do not have a redemption date.

  • Irrevocable Trust

    A type of trust that cannot be revoked or changed in any way.

  • Israf(See also Tabzir)

    Refers to immoderateness, exaggeration and waste and covers spending on lawful objects but exceeding moderation in quantity or quality; spending on superfluous objects while necessities are unmet; spending on objects which are incompatible with the economic standard of the majority of the population.

  • Issue

    The number of shares of a company on sale to the public at a given time.

  • Issue price

    The price at which a company's shares are offered to the market for the first time.

  • Issued capital

    That part of a company's authorized capital that has already been issued to shareholders.

  • Issued share capital

    The amount of authorised share capital that shareholders have subscribed to a company for share ownership.

  • Issuer

    A company or public sector entity which has shares, bonds or other security listed on a stock exchange.

  • Issuing house

    A financial institution which launches the shares of new companies on a stock exchange.

  • Istihsan

    Doctrine of Islamic law that allows exception to strict legal reasoning, or guiding choice among possible legal outcomes, when considerations of human welfare so demand

  • Istisna (Progressive Financing)

    A contract of acquisition of goods by specification or order where the price is paid progressively in accordance with the progress of a job. An example would be for the purchase of a house to be constructed, payments are made to the developer or builder according to the stage of work completed. This type of financing along with bai salam are used as purchasing mechanisms, and murabaha and bai muajjal are for financing sales.

  • Istisna'a

    Contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. A manufacturer or builder agrees to produce or build a well described good or building at a given price on a given date in the future. Price can be paid in installments, step by step as agreed between the parties. Istisna’a can be used for providing the facility of financing the manufacture or construction of houses, plants, projects, and building of bridges, roads and highways.

  • Jacobian

    In calculus, a matrix of partial derivatives.

  • Jahl or Jahala

    Ignorance, lack of knowledge; indefiniteness in a contract, sometime leading to Gharar.

  • Japanese candlestick chart

    A charting technique that indicates the range of a day's prices, the opening and closing prices and whether the market moved up or down during the trading session.

  • Jobber

    (UK) A dealer in shares prior to the event known as Big Bang in October 1986. Jobbers dealt with investors only via stockbrokers who advised their clients on share transactions. After Big Bang, jobbers were replaced by market makers.

  • Johnson curves

    A family of curves used to model probability density functions.

  • Joint account

    Typically a bank or brokerage account in the names of two (or more) people.

  • Joint liability

    The legal liability of two or more people for claims against or debts incurred by them jointly.

  • Joint life and survivor annuity

    Income usually relevant to two people which continues until the death of the second person.

  • Joint life annuity

    Income usually relevant to two people which continues until the death of the first person only.

  • Joint life assurance

    An assurance policy usually taken out on two lives, typically husband and wife. Under this type of policy, the sum assured is payable at the event of the first death.

  • Joint Ownership

    Ownership of property by two or more persons.

  • Joint tax return

    A tax return completed and signed by two people, usually a husband and wife.

  • Jones, Alfred W.

    Pioneer hedge fund manager.

  • Ju'alal

    Stipulated price for performing any service (Lit.). Technically applied in the model of Islamic banking by some. Bank charges and commission have been interpreted to be ju'ala by the jurists and thus considered lawful.

  • Jua′alah or Ji'alah

    Joalah constitutes wages, pay, stipend or reward (Lit.). Legally, it is a contract for performing a given task against a prescribed fee in a given period. A similar contract is ‘Ujrah’ in which any work is done against stipulated wage or fee.

  • Judgement

    A ruling by a court of law.

  • Jumbo certificate of deposit

    (US) A certificate of deposit with a denomination of $100,000 and above. They are usually purchased by large institutions such as banks and insurance companies.

  • Jump-diffusion model

    A stochastic process that combines random jumps with a geometric Brownian motion.

  • Junk bond

    A bond whose credit rating is below BBB-.

  • Kaffirs

    (UK) A London Stock Exchange term for South African shares.

  • Kali bil-Kali

    Refers to something that is delayed; appears in a maxim forbidding the sale of al-Kali bil-Kali i.e. the

    exchange of a delayed counter value for another delayed counter value.

  • Kangaroos

    A term for Australian shares with emphasis on mining, tobacco and land companies.

  • kappa

    Alternative name for the Greek factor sensitivity vega.

  • Keogh pension plan

    (US) A tax deferred retirement savings plan for the self-employed. Contributions are based on a percentage of earned income and are tax deductible.

  • key factor

    A risk factor whose conditional probability distribution is directly modelled by a VaR measure.

  • key vector

    The vector of key factors.

  • Keyman keywoman insurance

    An insurance policy taken out on the life of a company executive or senior employee whose death would cause significant loss to the company.

  • Kharaj bi-al-Daman(see also Al- Ghunm bil Ghurm)

    Gain accompanies liability for loss; a Hadith forming a legal maxim and a basic principle.

  • Khiyar

    Option or a power to annul or cancel a contract.

  • Khiyar al-Majlis

    Option of the contracting session; the power to annul a contract possessed by both contracting parties as long as they do not separate.

  • Khiyar al-Shart

    A right, stipulated by one or both of the parties to a contract, to cancel the contract for any reason for a fixed period of time.

  • Kiddie tax

    (US) A tax imposed on the investment income of children under the age of 14 where such income exceeds a certain level.

  • KMV model

    A commercial implementation of the asset value model of credit risk.

  • Knock for knock agreement

    Although it currently rarely applies, this is a motor insurance term describing an agreement between insurance companies where each pays the claims of its own clients following an accident.

  • knock-in option

    A type of barrier option that is latent and only begins to function as a normal option once a certain price level is reached before expiration. A knock-in option might not knock in at all. A knock-in option is typically a currency or commodity option.

  • knock-out option

    A type of barrier option that expires worthless if a specific price threshold is crossed by the option’s underlying security. A knock-out option is typically a currency or commodity option.

  • Know your client

    (US) The ethical principle which ensures that investment advisors know detailed information about their clients' risk tolerance, investment knowledge and financial position.

  • Koonmen, John

    Manager of the Eifuku Master Fund, a Japanese hedge fund that failed in 2002.

  • Krugerrand

    A coin minted in South Africa containing one ounce of pure gold and originally intended as an investment item.

  • kurtosis

    A parameter describing the peakedness and tails of a probability distribution.

  • Lancer Offshore Fund

    A hedge fund that defrauded investors during the early 2000s.

  • Landlord

    A property owner who rents it to another party called a tenant.

  • Lapse

    A policy is deemed to have lapsed when the policyholder fails to pay the renewal premiums.

  • Lapsed option

    (US) The expiry of an option without being exercised by the holder. In the UK this is known as abandonment.

  • Large cap

    The term refers to the very largest companies with the highest market capitalisations. So companies in the FTSE 100 would certainly be large caps and those in the FTSE MID 250 would be large caps or mid caps.

  • Last notice day

    The final day on which notices of intent to deliver on futures contracts may be issued.

  • Last Payment Amount

    The total amount of money on most recent payment.

  • Last Payment Date

    The date that the most recent payment was received.

  • Last trading day

    It refers to the last day for trading in a contract for a particular delivery or expiry month.

  • Last Will

    The will last executed by an individual, which revokes any former existing wills.

  • Late charge

    A charge imposed by a lender to a borrower when the borrower fails to make payment on the due date.

  • Late reported trade

    A term used by the London Stock Exchange to denote that a trade was not reported in accordance with the Exchange's rules on trade reporting.

  • Lauer, Michael

    Manager of the Lancer Offshore Fund, a hedge fund that defrauded investors during the early 2000s.

  • Laundering

    The process of cleaning illicitly gained money so that it appears to others to have come from a legitimate source.

  • Law of one price

    The notion that, if two assets have identical cash flows, they should have the same market value.

  • Law Society

    (UK) The professional body for solicitors in England and Wales.

  • Lay, Kenneth

    Chairman of energy trading firm Enron, which failed spectacularly in 2001.

  • Layer

    Term used to denote a stratum of cover, e.g. for the part of a loss between 10,000 and 50,000, or between 50,000 and 250,000.

  • Layer Policy

    Insurance policy arranged in layers.

  • Leading Reinsurer

    This term is used when two or more reinsurers participate in a reinsurance contract. The leading reinsurer usually has the largest participation and sets the terms.

  • Lease

    A contract in which the legal owner of property or other asset agrees to another person using that property or asset in return for a regular specified payment over a set term.

  • Lease back

    A situation whereby a property is sold by its owner to another person or company on condition that the purchaser leases the property back to the original owner for an agreed rent over a set term.

  • Leasehold land

    Land which is rented from the owner for a specified term under a lease.

  • Ledger

    A book in which the accounts of a business are kept. In the UK the main ledgers operating within a business are the nominal ledger, the sales ledger and the purchase ledger.

  • Leeson, Nick

    The rogue trader who brought down Barings Bank in February 1995.

  • Leg

    A term describing one side of a position with two or more sides. When a trader legs into a spread, they establish one side first, hoping for a favourable price movement so the other side can be executed at a better price.

  • Legacy

    The making of a gift by will.

  • Legal expenses insurance

    Insurance that covers the cost of legal proceedings.

  • Legal list

    (US) A list of approved securities in which institutions such as banks, life insurance companies and pension funds may invest.

  • Legal personality

    A legal concept under which corporations are treated as artificial people, with a similar capacity for legal rights and obligations.

  • Legal risk

    Risk from uncertainty due to legal actions or uncertainty regarding the interpretation of contracts, laws or regulations.

  • Lender

    A person or company that offers to lend money to a borrower for a given period of time.

  • Lender of last resort

    An institution, usually a central bank, that can step in and lend funds to a bank facing a panic (sudden withdrawal of funds by depositors). In the US the lender of last resort is the Federal Reserve Bank whilst in the UK the Bank of England has this role.

  • Leptokurtosis

    Leptokurtosis describes a probability function which is similar to the bell curve. People studying the volatility of stocks usually find that the variance of a stock is leptokurtic. This means that most of the time the stock moves around somewhat randomly.

  • Lessee

    A person to whom a lease is granted, known as a tenant.

  • Lessor

    A person who grants a lease, known as a landlord.

  • Letter of Credit

    A financial instrument obtained from a bank that guarantees the availability of funds to be collected in the future under a reinsurance contract. In the non-commercial setting, these are known as standby credits in the event of non-performance by the obligor.

  • Letter of renunciation

    In a rights issue of shares, a letter of renunciation is the form attached to an allotment letter which the holder completes should he wish to transfer entitlement to another person or to renounce his rights absolutely.

  • Letter of wishes

    See: 'memorandum of wishes'.

  • Letters of administration

    An order made by the court empowering the administrator to settle the affairs of a deceased person in accordance with his/her will.

  • Level basis

    Fixed premiums for a fixed number of years, and a full payout on a claim at any point.

  • Leverage

    Leverage is used to amplify investment gains and losses on money invested. Financial leverage is created by using other people's money to increase the earning power of the person's investment.

  • Leverage on a warrant

    A measure of 'true gearing' which measures how much more a warrant will move in percentage terms against the underlying asset. Calculated by multiplying the delta by gearing.

  • Leverage ratio

    A ratio of a company's debt to that same company's shareholders' equity.

  • Leveraged buyout (LBO)

    The takeover of a company by investors who use the company's own assets as collateral to raise the money to finance the bid.

  • Leveraged inverse floater

    An inverse floater with coupon leverage greater than one.

  • Levine, Dennis

    Investment banker who formed an insider trading ring during the 1980s.

  • Liabilities

    The debts of a person or company.

  • Liability sensitive

    Having liabilities that reprice earlier than assets.

  • Liability swap

    A non-vanilla swap customized to change the character of a specific liability.

  • Libid

    London interbank bid rate.

  • Libor

    London Interbank Offered Rate.

  • Lien

    A legal security interest, held by a lender, on an asset taken as collateral.

  • Lien-Free Vehicle/Vessel

    A lien-free vehicle/vessel is owned outright by an individual(s), listing that individual(s) on the title as the registered owner. There is no outstanding loan obligation on a lien-free vehicle/vessel.

  • Liened Vehicle/Vessel

    A liened vehicle/vessel is a vehicle/vessel that has an outstanding loan obligation. The Certificate of Title for the vehicle/vessel lists the individual(s) as the registered owner with the lender listed as the lienholder.

  • Life assurance

    An insurance policy which pays a lump sum on the death of the insured.

  • Life assurance premium relief

    A tax relief of 15% on the premiums paid into long-term insurance policies. It applies only to policies lasting for more than 10 years and issued before 13 March 1984.

  • Life of another

    A life assurance policy taken out on the life of another person rather than the policyholder.

  • Lifelong individual savings account (LISA)

    See 'individual savings account'.

  • Limean

    The average of Libor and Libid

  • Limit

    Risk limit.

  • Limit

    1. The limit of indemnity to be the maximum sum that an excess of loss reinsurer will pay for any event, occurrence, accident or in the aggregate any one year; 2. The capacity made available to the cedant by a surplus treaty; 3. The maximum gross sum insured, after facultative reinsurance, the cedant may write on a policy to be ceded to a quota share.

  • Limit moveday

    A price that has advanced or declined the permissible amount during one trading session, as fixed by the rules of a contract market.

  • Limit order

    An order to buy shares up to a maximum price or sell down to a minimum price.

  • Limit price

    The maximum buying price or minimum selling price a client is prepared to pay or accept for shares or commodities.

  • Limit utilization

    Given a risk limit, the amount of risk being taken as a fraction of the limit.

  • Limit violation

    Risk taken in excess of that permitted by a risk limit.

  • Limited company

    A company whose shareholders' maximum liability is limited to their share capital in the event of winding up.

  • Limited liability

    The principle that the liability of shareholders for debts of a corporation or limited company is limited to the nominal value of their shares. In other words, their personal assets are not at risk if the company becomes insolvent and is liquidated.

  • Limited liability company

    A company where shareholders have no personal liability to the creditors of that company should it go bankrupt.

  • Limited partnership

    A partnership comprising a general partner and limited partners.

  • Line of Business

    A class or type of insurance or reinsurance (fire, marine or liability, among others).

  • Line Slip

    An arrangement whereby reinsurers and a reinsured or broker agree (for specified types of risks) that the reinsured or broker only needs to approach the leading reinsurer, who will accept or reject the individual risk on behalf of all participants on the Line Slip.

  • Linear derivative

    A derivative instrument whose payoff diagram is liner or almost linear.

  • Linear interpolation

    Interpolation using a linear polynomial as an interpolation function.

  • Linear polynomial

    A polynomial of the form p(x) = bx + a.

  • Linear remapping

    A global remapping that replaces a portfolio mapping function with a linear polynomial.

  • Linear transformation

    In the context of value-at-risk, a transformation procedure applicable to linear portfolios.

  • Linear VaR

    A category of VaR measures applicable to linear portfolios.

  • Lipper Convertible Fund

    A hedge fund whose manager misrepresented performance to investors.

  • Liquid assets

    A company's cash plus assets which can readily be converted into cash.

  • Liquid market

    A market in which large quantities of shares (or commodities) are being bought and sold thereby making trading straightforward.

  • Liquidation

    When a company sells its assets, pays outstanding debts, and distributes the remainder to shareholders, and then goes out of business.

  • Liquidator

    An official appointed to supervise the liquidation of a company.

  • Liquidity

    The speed at which an asset can be converted in to cash, or the availability of sufficient resources to meet payments and obligations needs.

  • Liquidity black hole

    A condition where liquidity dries up.

  • Liquidity gap

    A net cash outflow projected for a given period.

  • Liquidity ratio

    It expresses a company's ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash.

  • Liquidity risk

    Risk due to uncertain liquidity.

  • Liquidity spread

    A yield or interest rate spread due to lack of liquidity.

  • Listed company

    A company that has satisfied the requirements for its shares to be listed on a Recognised Investment Exchange (RIE).

  • Listed firm

    (US) A company whose stock is traded on a leading stock exchange such as the London Stock Exchange or New York Stock Exchange.

  • Listed securities

    Securities such as shares, stocks and bonds which are quoted on a leading stock exchange.

  • Listing

    The process by which a company's shares become tradable on a stock exchange. Also known as a 'flotation'.

  • Listing particulars

    (UK) Details which a company must publish about itself together with any securities it issues before it obtains a listing on a recognised stock exchange.

  • Litigation

    When person or company takes legal action against another.

  • Living Trust

    A trust that takes effect while the settlor is still alive.

  • Living Will

    It usually covers specific directives as to the course of treatment that is to be taken by caregivers should the principal be unable to give informed consent due to incapacity.

  • Lloyd's of London

    Lloyd's is a specialist insurance market with 46 managing agents and 66 syndicates.

  • Load

    A sales charge associated with buying shares in some mutual funds.

  • Loading

    1) Administration charges imposed by institutions on mutual funds, unit trusts and pension plans. 2) Part of the reinsurance premium which is in addition to the expected loss costs.

  • Loan

    An advance of money from a lender to a borrower over a period of time.

  • Loan account

    An account, opened for a customer by a bank, following the granting of a loan. The amount of the loan is credited to the customer's current account and similarly debited to the loan account.

  • Loan capital

    The part of a company's capital structure which is raised by loans. Such loans (typically debentures) are usually over a stated period of time and pay fixed interest to the person making the loan.

  • Loan guarantee

    Commitment by a third party to meet a debtor's obligations in the event that the debtor is unable to do so.

  • Loan protection policy

    An insurance policy in which the insured pays regular premiums in return for insurance against being unable to repay a loan due to accident, sickness or unemployment.

  • Loan stock

    (UK) A security bearing a fixed rate of interest. The capital (the amount loaned) is repaid after a given period of time.

  • Loan to value (LTV)

    The amount borrowed expressed as a percentage of the value of the property.

  • Loan-To-Value Ratio

    The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $95,000 on a home that costs $100,000, the loan-to-value ratio is 95 percent.

  • Local authority investment

    A bond issued by a local authority to raise capital.

  • Local taxes

    (US) Taxes paid by an individual to a local state or county. These are deductible on the person's federal tax return.

  • Lock-in

    A specified time period that an investor is locked into an investment.

  • Lock-In-Rate

    A commitment from a lender to make a loan at a preset interest rate at some future date, usually for not more than 60 days.

  • Log return

    A standard metric of return.

  • Lognormal distribution

    A probability distribution.

  • London Bullion Market

    A two-way market place in which investors can sell or buy both gold and silver.

  • London Bullion Market Association (LBMA)

    An association which represents the interests of the participants of the London Bullion Market.

  • London Clearing House (LCH)

    The LCH is a Recognised Clearing House under the Financial Services and Markets Act (2000).

  • London Inter Bank Offered Rate (LIBOR)

    The rate of interest at which banks lend money to each other.

  • London interbank bid rate

    A rate at which banks bid for deposits from other banks.

  • London interbank offered rate

    A rate at which banks offer to lend money to other banks.

  • London Interbank Offered Rate (LIBOR)

    The rate at which creditworthy banks charge each other for large loans of Eurodollars in the London market.

  • London International Financial Futures and Options Exchange (LIFFE)

    In 1996, LIFFE merged with the London Commodity Exchange with unified administration and exchange systems. All trades of the merged exchange are guaranteed by the London Clearing House (LCH). LIFFE is a Recognised Investment Exchange (RIE), regulated by the Financial Services Authority (FSA).

  • London Market

    This refers to the international insurance and reinsurance business written in London.

  • London Market Information Link (LMIL)

    The London Stock Exchange's main source of UK financial data for market professionals and information vendors.

  • London Metal Exchange (LME)

    An international market, located in London, for the trading of non-ferrous metals, namely copper, primary aluminium, aluminium alloy, lead, nickel, tin and zinc, primarily for industrial use.

  • London Securities and Derivatives Exchange (OMLX)

    An integrated exchange and clearing house for futures and options derivatives based mainly on the Swedish and Norwegian equity markets. Products include futures and options on the OMX Swedish equity index (the 30 most liquid shares traded on the Stockholm Stock Exchange), the OBX Norwegian equity index (the 25 most traded stocks on the Oslo Stock Exchange), Swedish equity futures and options and Norwegian equity futures and options.

  • London Stock Exchange (LSE)

    The world's third largest stock exchange by market capitalisation of domestic stocks listed, after the New York Stock Exchange and Tokyo Stock Exchange. The LSE also lists foreign companies, and its turnover of foreign shares is the largest in the world.

  • Long bond

    A bond with a maturity of ten years or more.

  • Long position

    The purchase of a security, commodity or financial instrument in the belief that the price will increase.

  • Long Tail Business

    Classes of business where claims take a long time to be notified or to be settled.

  • Long Term Capital Management

    A hedge fund that failed in 1998.

  • Long term care insurance

    The planning, by way of suitable insurance, for covering partially or in full, the cost of long-term care in old age.

  • Long term debt

    Debt liabilities due in one year or more.

  • Long term Equity Anticipation Securities (LEAPS)

    LEAPS are long-term stock or index options. Like all options, they are available in two types, calls and puts, with expiration dates up to three years in the future.

  • Long term liabilities

    Debts of a company which are not due for repayment in the next accounting period.

  • Long-short position

    A position that is long one asset and short another.

  • Long/short strategy

    Market timing, usually in an equity market.

  • Longs

    (UK) Redeemable gilts or bonds with a redemption date beyond fifteen years.

  • Lookback option

    Call or put option whose strike price is not determined until the option is exercised.

  • Loss

    An event giving rise to a claim under the reinsurance/insurance contract.

  • Loss Adjuster

    An independent assessor called in by an insurance company to check the validity of claims.

  • Loss Adjustment Expenses

    The expenses associated with handling insurance claims against a policy of insurance.

  • Loss Carry-Forward

    The transfer of losses/deficit from one accounting period (as defined within a reinsurance contract) to the succeeding accounting period for the purpose of calculating the level of profit commission payable.

  • Loss Corridor

    A mechanism contained in a proportional or an excess of loss agreement that requires the ceding insurer to be responsible for a certain amount of the ultimate net loss that is above the company’s designated retention and below the designated limit, and which would otherwise be reimbursed under the reinsurance agreement.

  • Loss Cost

    The portion of the premium rate that is applicable solely to loss, without provision for company expenses or profits.

  • Loss Development

    The difference between the current value of a loss, as reserved by the reinsured or reinsurer, and the ultimate value at time of the final settlement.

  • Loss Development Factor

    Derived by mathematical analysis of the development of losses from initial reporting and reserving to final closure or settlement. LDF's are used to project losses to their ultimate value.

  • Loss given default

    The fraction of credit exposure that will not be recovered in the event of default on a specified obligation.

  • Loss in Excess of Policy Limits

    A loss within the scope of the insurance policy but in excess of its limits which results from the insurer's negligence or bad faith in rejecting a settlement.

  • Loss Occurrence

    All individual losses arising out of and directly occasioned by one catastrophe.

  • Loss of income insurance

    (US) Insurance in which the insured is covered against loss of income.

  • Loss Participation

    A clause requiring the reinsured to participate in adverse experience under proportional treaties. It operates as a form of negative profit commission.

  • Loss Portfolio Entry

    At the inception of a reinsurance contract, or the commencement of a reinsurance period the reinsurer can assume a contractually-defined set of outstanding liabilities for consideration.

  • Loss Portfolio Withdrawal

    At the end of a reinsurance period, or at the cancellation of the reinsurance contract, the reinsurer can be relieved of responsibility for claims outstanding at that time by paying to the reinsured a proportion of those outstanding claims.

  • Loss Reserves

    An amount set aside to provide for outstanding claims, both reported and unreported.

  • Losses Occurring Reinsurance

    Reinsurance cover provided on the basis that all losses occurring during the term of the reinsurance contract are covered, no matter when the loss is notified.

  • Lot

    The amount of a commodity or financial instrument which can be traded in a futures or option market.

  • Low Earnings Threshold

    The level of earnings used in the calculation of the state second pension.

  • Lower earnings limit

    (UK) The level of income at which employees start to pay Class 1 National Insurance contributions.

  • Lower rate tax

    The lowest rate of income tax in the UK.

  • LTCM

    Long Term Capital Management.

  • Ltd

    Ltd' after a company name indicates that the company is privately owned with 'limited liability' status. This means that the directors of the company are not personally liable for the company's debts.

  • Lump sum

    A sum of money paid in a single instalment.

  • Luxury tax

    (US) A tax on goods considered to be luxury items.

  • M0

    In the UK, the amount of notes and coins in circulation plus bank and building society deposits.

  • M1

    (US) The amount of notes and coins in circulation plus demand deposits (checking accounts from which money can be withdrawn on demand).

  • M2

    In the UK, it includes all M0 items plus a range of other products which can be used to settle debts. In the US, it includes all M1 items plus savings deposits of $100,000 or below.

  • M3

    (US) It includes all M2 items plus savings deposits over $100,000.

  • M4

    (UK) It includes all M2 items plus Bank wholesale deposits and Certificates of Deposit.

  • MA process

    Moving-average process.

  • Macaroni defense

    A tactic used by a company as defense against a hostile takeover bid involving the issue of a large number of bonds that must be redeemed at a higher value if the company is taken over.

  • Macaulay duration

    Weighted average maturity.

  • Macroeconomics

    The area of economics that focuses on analysis of broad trends in a country's economy.

  • Main market

    The market for larger companies of the London Stock Exchange, also known as the Official List. The LSE also has a junior market called The Alternative Investment Market (AIM) for smaller, younger companies.

  • Maintenance margin

    The minimum amount of equity that must be maintained in a margin account

  • Maintenance payments

    (UK) Money paid by a divorced person to his/her partner to assist with living expenses.

  • Maisir

    An ancient Arabian game of chance played with arrows without heads and feathering, for stakes of slaughtered and quartered camels. It came to be identified with all types of hazard and gambling.

  • Making a price

    A term used on the London Stock Exchange which refers to the obligation of a market maker to quote a bid price and an offer price on the shares for which he acts as a 'wholesaler'.

  • Mal-e-Mutaqawam

    Things that are lawful to use under the Shariah; or wealth that has a commercial value. Legal tenders of

    modern age that carry monetary value are included in Mal-e-Mutaqawam. It is possible that certain wealth has no commercial value for Muslims (non Mutaqawam) but is valuable for non-Muslims. Examples are wine and pork.

  • Maloney Act of 1938

    US legislation authorizing oversight of securities firms by self regulating organizations.

  • Managed account

    An investment account, managed by the investment department of a bank on behalf of a client.

  • Managed CDO

    A CDO whose collateral is actively managed by a portfolio manager.

  • Managed fund

    A fund managed for a number of investors by an investment company.

  • Managed futures

    Portfolios of forwards or futures managed as an "alternative asset category."

  • Management buy in (MBI)

    The purchase of a company by outside investors who bring with them a new set of managers.

  • Management buy out (MBO)

    The purchase of a company by its managers, often with backing from a venture capitalist.

  • Management charges

    Charges made by the managers of, for example, a mutual fund or unit trust which cover investment management and administration costs. Charges usually take the form of a percentage fee based on the value of the fund.

  • Managerial capitalism

    A condition in which stock holdings in corporations become so fragmented and dispersed that owners lose effective control over those corporations.

  • Mandate

    An official order from an authority to implement an action.

  • Mandatory quote period

    Term used on the London Stock Exchange which refers to the period of time during which market makers in a security are obliged to display their prices.

  • Manhattan Fund

    A hedge fund that defrauded investors during the 1990s.

  • Mapping procedure

    The procedure within a VaR measure that characterizes a portfolio's exposures.

  • Margin

    A deposit lodged with an exchange or clearing house to cover adverse movements in market prices.

  • Margin account

    An account holding funds available for making margin payments.

  • Margin call

    A requirement for increased margin deposits to cover for an adverse shift in prices on futures contracts.

  • Margin of safety

    The term given by Benjamin Graham, 'the father of value investing', to the idea that if you buy shares for less than two thirds of their net asset value, you automatically have a cushion against any deterioration in the company's trading position in the future.

  • Margin securities

    Securities which may be bought or sold on margin. In the US, an approved list of margin securities is published by the Federal Reserve Board.

  • Marginal tax rate

    The additional tax which someone pays on each £1 increase of his or her taxable income.

  • Margrabe option

    An option that grants the right to exchange one asset for another. Essentially, it is a spread option with a strike price equal to zero.

  • Maricopa funds

    Fraudulent hedge funds run by David M. Mobley during the 1990s.

  • Mark, Rebecca

    Enron executive whose ill-advised international acquisitions lost billions of dollars.

  • Mark-to-market

    An accounting process by which the price of securities held in an account are valued each day to reflect the closing price, or market quote if the last sale is outside of the market quote.

  • Mark-to-market exposure

    Credit exposure calculated from instruments' current market values.

  • Mark-to-market mode

    A mode of analysis for a portfolio credit risk model.

  • Mark-to-model

    Use of financial models to ascribe a market value to an asset.

  • Market

    A group of buyers and sellers; the term is used to describe a geographical unit, for example Southeast Asia, Eastern Europe; certain organisations and entities such as the reinsurance or the London market, or lines of business, for example the marine market.

  • Market capitalisation

    It is a measurement of corporate or economic size equal to the share price times the number of shares outstanding of company.

  • Market indices

    In the stock market, an index is a device that measures changes in the prices of a basket of stocks, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of stocks in the index.

  • Market Loss Franchise

    Certain catastrophe reinsurance contracts may have a clause requiring that the loss to the whole insurance industry must be of a certain size for the cover to respond. In effect, such covers have a dual trigger – the industry loss and the individual reinsured’s loss.

  • Market maker

    A market maker is a dealer on the London Stock Exchange who acts as a wholesaler (i.e. quotes buy and sell prices to brokers) for the shares in which he is registered to trade as a principal.

  • Market maker to market maker

    A term used by the London Stock Exchange to denote that a transaction was between two market makers registered in the security in question.

  • Market neutral

    Balanced long and short positions which result in no net exposure to broad market moves.

  • Market neutral strategy

    Speculative trading strategy that seeks to exploit relative mispricings between instruments while avoiding systematic risk.

  • Market not held order

    A market order in which the floor trader has the discretion to execute the order when he/she feels it is best.

  • Market order

    An order to buy or sell securities or commodities at the best price with immediate effect.

  • Market portfolio

    A theoretical portfolio which comprises every security available to investors in a given market

  • Market price

    A security's last reported sale price (if on an exchange) or its current bid and ask prices (if Over-the-Counter).

  • Market price of risk

    This relates to the extra return, or risk premium that investors demand if they are to purchase a risky asset.

  • Market risk

    Risk that the value of an investment will decrease due to moves in market factors.

  • Market Supervision and Surveillance Department

    The department of the London Stock Exchange which ensures that trading in listed companies takes place in an orderly and fair manner.

  • Market timing

    Asset allocation where investments in particular markets are increased when the investor expects that market to outperform other markets or the overall market.

  • Market value

    In relation to a listed security, the middle market quotation for that security as derived from the Daily Official List on the relevant date.

  • Market value CDO

    A CDO whose payments to investors are contingent on the adequacy of the market value of its collateral.

  • Market-book ratio

    The market price of a share of a share divided by the book value per share.

  • Market-if-touched (MIT)

    An order that becomes a market order when a particular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market.

  • Market-on-close (MOC)

    An order to buy or sell at the end of the trading session at a price within the closing range of prices.

  • Market-on-opening (MOO)

    An order to buy or sell at the beginning of the trading session at a price within the opening range of prices.

  • Marking to market

    Pricing an asset at today's market value.

  • Markowitz, Harry

    1990 Nobel Prize winner who launched the field of portfolio theory.

  • Married put strategy

    The simultaneous purchase of stock and put options representing an equivalent number of shares.

  • Martingale

    A type of stochastic process with zero drift.

  • Martingale measure

    A probability measure under which all asset prices relative to a given numeraire are martingales.

  • Master Certificate

    A master reinsurance certificate contains a general outline of the terms and conditions upon which specific risks will be covered.

  • Master fund

    A fund that allows investors to choose a number of different wholesale or retail pooled funds operated by a variety of funds managers.

  • Matador

    A foreign bond issued in Spain.

  • Matched bargain

    A system of share trading which relies on matching sale orders with corresponding orders to buy.

  • Maturity

    The date the borrower must pay back the money he or she borrowed through the issue of a bond.

  • Maturity Date

    The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop. It is also the termination or due date on which an instalment loan must be paid in full.

  • Maxi ISA

    (UK) An Individual Savings Account in which investors can shelter up to £3,000 of cash and £4,000 of stocks and shares.

  • Maximum Aggregate Amount

    The maximum liability of the reinsurer any one reinsurance period under an excess of loss contract, derived from the number of reinstatements and the occurrence limit.

  • Maximum Cash Deficit

    Limit for any credit amount credited from the reinsurer to any reinsured.

  • Maximum likely exposure

    A metric for potential credit exposure.

  • Maximum option

    A form of rainbow option.

  • Mean

    Expected value.

  • Mean reversion

    A tendency for a stochastic process to remain near, or return over time to a long-run average.

  • Mean vector

    The vector of the expected values of the components of a random vector.

  • Means test

    An evaluation of a person's income and assets to establish if he/she qualifies for state benefits.

  • Medical insurance

    See: 'private medical insurance' (UK) and 'health insurance' (US)

  • Medium term bond

    A bond with a maturity between 2 and 10 years. Often known as 'mediums'.

  • Medium-term note (MTN)

    1) A note that usually matures in five to 10 years. 2) A corporate note continuously offered by a company to investors through a dealer. Investors can choose from differing maturities, ranging from nine months to 30 years.

  • Member bank

    A bank which is a member of the Federal Reserve System.

  • Member firm

    A broker/dealer in which at least one of the general partners (if a partnership) or officers (if a corporation) is a member of an exchange, a self-regulatory organization, or a clearing corporation.

  • Memorandum of association

    (UK) The details which a company, when formed, must submit to the Registrar of Companies together with its articles of association. They include company name, registered office, objectives, authorised share capital and a statement of limited liability.

  • Memorandum of wishes (letter of wishes)

    A memorandum or letter addressed to the executors of a will by the testator (feminine testatrix) specifying additional wishes to be carried out.

  • Merchant bank

    A bank which offers a range of services to corporate clients.

  • Merger

    The process by which two companies become one.

  • Merger arbitrage

    Speculative trading strategy designed to exploit relative mispricings between the stocks of a firm and another it intends to merge with or acquire.

  • Merton (1973) option pricing formula

    A pricing formula for European options on stocks or stock indexes that have a known dividend yield.

  • Merton model

    Alternative name for the asset value model of credit risk.

  • Metallgesellschaft Debacle

    In 1993, a US subsidiary of Germany’s Metallgesellschaft lost USD 1.3 billion unwinding failed hedges of long-dated oil and fuel contracts.

  • Method of least squares

    Any of several techniques for fitting a curve to data to minimize the sum of squared differences between the curve and data points.

  • Metric

    An interpretation of the measurements obtained from a measure.

  • Microeconomics

    The study of the behavior of economic units such as companies, industries, or households.

  • Mid cap

    It refers to companies with market capitalisations of £500 million or as much as £3 billion.

  • Mid price

    The average of the bid price and offer price of a security.

  • Mid-offer price

    Average of the bid and ask prices.

  • Mid-Tail Business

    Any class of business which has a run-off period of more than three but less than ten years.

  • Milken, Michael

    The "junk bond king" of the 1980s.

  • Min-max option

    Either a minimum option or a maximum option.

  • Mini ISA

    (UK) An Individual Savings Account in which pay up to £3,000 of cash.

  • Minimum

    The smallest element of a real set.

  • Minimum funding requirement (MFR)

    A rule introduced in the wake of the Maxwell pensions scandal which was intended to ensure that company pensions funds always have enough assets to pay out their liabilities. The legislation uses the yield from long term gilts as the yardstick by which a pensions fund's liabilities are measured.

  • Minimum lending rate

    The minimum rate of interest at which the Bank of England was willing to lend to the money markets. Discontinued in 1981.

  • Minimum maintenance

    (US) The minimum amount of equity which must be kept in a margin account as specified by the New York Stock Exchange, the National Association of Securities Dealers and brokerage firms.

  • Minimum option

    A form of rainbow option.

  • Minimum Payment

    The minimum monthly payment of principal and interest contractually required to be paid.

  • Minimum Premium

    Frequently used in excess of loss treaty reinsurance where a provision can be found that the final adjusted premium may not be less than a stated amount.

  • Minimum price fluctuation

    Smallest increment of market price movement possible in a given futures or options contract.

  • Minimum quote size

    A London Stock Exchange term which refers to the minimum number of shares in which market makers must display prices on the SEAQ for those securities for which they are registered.

  • Mississippi Scheme

    A French stock bubble that burst spectacularly in 1720.

  • Mithli (Fungible goods)

    Goods that can be returned in kind, i.e. gold for gold, silver for silver, US $ for US $, wheat for wheat, etc.

  • Mobley, David M.

    Manager of the fraudulent Maricopa hedge funds.

  • Model risk

    Model risk arises when the model’s assumptions do not exactly correspond to reality.

  • Modern portfolio theory

    A body of theory relating to how investors optimize portfolio selections.

  • Modified duration

    A modification of Macaulay duration.

  • Monetary policy

    The control of the money supply and interest rates by a government in order to achieve its economic objectives.

  • Money broker

    A type of agent who arranges short-term loans between banks and borrowers such as institutions.

  • Money Flow Index (MFI)

    A volume indicator that tracks the flow of money into or out of a market.

  • Money laundering

    See: 'laundering'

  • Money market

    A market in which money and other liquid assets such as bills of exchange and Treasury bills can be lent and borrowed in order to satisfy the short-term (from overnight to several months) cash flow requirements of banks and other institutions.

  • Money Market Funds

    Mutual funds investing solely in money market instruments.

  • Money purchase scheme (defined contributions scheme)

    A pension scheme in which the benefits will be dependent on contributions to, and growth of, the fund and the fund manager's costs.

  • Money supply

    The total amount of money in an economy at a given time.

  • Money transmission

    The process of transferring funds and making payments.

  • Monte Carlo method

    Any numerical method that employs statistical sampling to solve problems.

  • Monte Carlo transformation

    For a VaR measure, a transformation procedure that employs the Monte Carlo method with pseudo randomly generated realizations.

  • Monte Carlo VaR

    A category of VaR measures that employ a Monte Carlo transformation.

  • Monthly compounding

    Compounding based on monthly crediting of interest.

  • Monthly Payment

    The principal and interest paid on a monthly basis during the life of a loan.

  • Moral hazard

    Prospect that a party insulated from risk has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

  • Mortality model

    A type of default model.

  • Mortgage

    A loan to finance the purchase of property, usually with specified payment periods and interest rates.

  • Mortgage agreement in principle

    An expression of a mortgage lender's willingness to enter into an agreement subject to other conditions being met such as credit checks and a satisfactory property valuation.

  • Mortgage backed bond

    An obligation that is secured by a pool of mortgages.

  • Mortgage backed security

    A security interest in mortgage collateral.

  • Mortgage backed security

    (US) A security backed by one or more mortgages.

  • Mortgage bond

    A corporate bond collateralized with assets such as a power plant or factory.

  • Mortgage broker

    A person or company engaged in the arrangement of mortgages for buyers.

  • Mortgage indemnity

    It allows a mortgage lender to recover the costs incurred from a repossession by pursuing the former owner for the difference between what the property was sold for and what the former owner still owes under the mortgage.

  • Mortgage Insurance

    A policy that allows mortgage lenders to recover part of their financial losses from an insurance company if a borrower fails to repay the loan.

  • Mortgage interest relief at source (MIRAS)

    The mechanism by which income tax relief was extended to a borrower on the interest paid on the first £30,000 of a mortgage on their main home. The amount of relief available on MIRAS was gradually scaled down to 10% and ended altogether from 6th April 2000.

  • Mortgage Investor

    Any person or institution that invests in mortgages.

  • Mortgage Life Insurance

    A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically paid by the insurer.

  • Mortgage pass-through

    A securitized pool of mortgages.

  • Mortgage protection

    (UK) Term assurance which covers the repayment of a mortgage in the event of the death of the mortgagor during the period of the loan.

  • Mortgage Protection Insurance

    This covers the loan repayments made by borrowers in the event that they are unable to meet them, for example, through illness or redundancy.

  • Mortgagee

    A company or institution such as a bank or building society which makes loans secured by property and the land on which it is built.

  • Mortgagor

    A person or company who takes out a loan and offers a property and the land on which it is built as security.

  • Motor insurance

    (UK) The insurance of motor vehicles covering damage or loss and liabilities for injuries to other people as well as damage to property.

  • Motor Insurers' Bureau (MIB)

    (UK) An organisation formed in 1946 which compensates victims of road accidents caused by uninsured or untraceable drivers.

  • Moving average

    A simple moving average is calculated by adding together the closing prices of a financial instrument over a certain number of days and then dividing the sum by the number of days involved.

  • Moving Average Convergence/Divergence (MACD)

    A technical analysis indicator developed in the 1960s by Gerald Appel which uses moving averages to indicate buy and sell opportunities.

  • Moving-average process (MA Process)

    A type of stochastic process that can be described by a weighted sum of a white noise error and the white noise error from previous periods.

  • MPT

    Modern portfolio theory.

  • MSCI Index

    Abbreviation for Morgan Stanley Capital International Index. The MSCI consists of a number of country indexes focusing on equity markets.

  • MTN

    Medium-term note.

  • Mu'amalah (t)

    Economic transaction(Lit.).

  • Mubah

    Object that is lawful (i.e. something which is permissible to use or trade in).

  • Mudaraba / Modaraba (Trust Financing)

    Form of business contract in which one party brings capital and the other personal effort. The proportionate share in profit is determined by mutual agreement. But the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets nothing for his labour. The financier is known as 'rab-al-maal' and the entrepreneur as 'mudarib'. Mudarib In a mudaraba contract, the person or party who acts as entrepreneur.

  • Mudarabah

    Form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared between the two

    parties on a pre-agreed basis, while loss is borne by the provider(s) of the capital.

  • Multi Line

    See 'Combined Lines'.

  • Multi-Year Reinsurance

    Reinsurance where the period of the contract is two or more years.

  • Multiasset option

    A multifactor option.

  • Multicollinear

    A covariance matrix is muticollinear if it is 'almost' singular.

  • Multifactor option

    Any option linked to multiple underliers.

  • Multilateral netting

    Netting of obligations between three or more parties.

  • Multinormal distribution

    It belongs to the large family of elliptical distributions which has recently gained a lot of attention in financial mathematics. Elliptical distributions are often used, particularly in risk management.

  • Multivariate normal distribution

    A specific probability distribution, which can be thought of as a generalization to higher dimensions of the one-dimensional normal distribution.

  • Muni

    Municipal security.

  • Municipal bond

    Bond issued by a state, city, or local government. Municipalities issue bonds to raise capital for their day-to-day activities and for specific projects that they might be undertaking (usually pertaining to development of local infrastructure such as roads, sewerage, hospitals etc). Interest on municipal bonds are generally exempt from federal tax.

  • Municipal bond

    A type of municipal security.

  • Municipal bond insurance

    (US) An insurance policy which guarantees a mutual bond in the case of default; issued by private insurers.

  • Municipal note

    Notes issued by state and municipal governments to meet short term financing needs. They are not a source of permanent financing. Notes usually have maturities of less than one year, however they may have longer maturities.

  • Municipal note

    A type of municipal security.

  • Municipal security

    A debt security issued by a local government or its agencies in the US.

  • Murabaha

    Sale on mutually agreed profit (Lit.) Technically, it is a contract of sale in which the seller declares his cost and the profit. This has been adopted by Islamic banks as a mode of financing.

    As a financing technique, it can involve a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost which is stipulated in advance.

  • Murabaha / Morabaha (Cost-Plus Financing)

    sale on profit (Lit.). Technically a contract of sale in which the seller declares his cost and profit. This has been adopted as a mode of financing by a number of Islamic banks. As a financing technique, it involves a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost which is agreed in advance. It has been estimated that 80 to 90 percent of financial operations of some Islamic banks belong to this category. There are a number of requirements for this transaction to meet the Islamic standards of a legal sale. The entire transaction is to be completed in two stages and as two separate contracts. In the first stage, the client requests the bank to undertake a Murabaha transaction and promises to buy the commodity specified by him, if the bank acquires the same commodity. In the second stage, the client purchases the good acquired by the bank on a deferred payments basis and agrees to a payment schedule. The Murabaha form of financing is being widely used by the Islamic banks to satisfy various kinds of financing requirements. It is used to provide finance in various and diverse sectors e. g. in consumer finance for purchase of consumer durable such as cars and household appliances, in real estate to provide housing finance, in the production sector to finance the purchase of machinery, equipment and raw material etc.

  • Musaqah

    A contract in which the owner of the garden shares its produce with another person in return for his services in irrigating the garden.

  • Musawamah

    Musawamah is a general kind of sale in which price of the commodity to be traded is bargained between seller and the purchaser without any reference to the price paid or cost incurred by the former.

  • Musharaka (Venture Capital)

    Technique of financing used as a partnership. It is where two or more financiers provide finance for a project. All partners are entitled to a share in the profits resulting from the project in a ratio which is mutually agreed upon. However, the losses, if any, are to be shared exactly in the proportion of capital proportion. All partners have a right to participate in the management of the project. However, they can waive the right of participation in favour of any specific partner or person. There are two main forms of Musharaka: Permanent Musharaka and Diminishing Musharaka. These are briefly explained below:

  • Musharakah

    Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed

    among the partners in pre-agreed ratios, while the loss is borne by every partner strictly in proportion to respective capital contributions.

  • Mutual Fund

    An investment company that enables investors to pool their funds to invest in a managed portfolio of securities.

  • Mutual fund custodian

    (US) A commercial bank or trust company that safeguards securities held by a mutual fund.

  • Mutual savings bank

    (US) A savings bank which is owned by its depositors.

  • Muzara'a

    A contract in which one person agrees to till the land of the other person in return for a part of the produce of the land.

  • Myners Report

    A report produced in March 2001 by Paul Myners recommending a voluntary code of practice for the pension fund industry.

  • Naked

    An uncovered position such as the position of a writer of an option which is not covered by an opposite position in the underlying instrument (for example shares, commodities).

  • Narrow money

    Another name for M1 in the US and M0 in the UK.

  • NASD

    National Association of Securities Dealers


    The National Association of Securities Dealers Automated Quotations known as NASDAQ, is the largest electronic screen-based equity securities trading market in the United States.

  • National Association of Investors Corporation (NAIC)

    Not-for-profit organization created to assist investors in creating or joining investment clubs and educate the public about investing

  • National Association of Securities Dealers (NASD)

    The association which owns and operates NASDAQ.

  • National Credit Union Administration

    (US) An independent federal agency which supervises federal credit unions and insures members' deposits.

  • National debt

    The total debt accumulated by a government through the issue of government bonds, Treasury bills and Treasury notes.

  • National Futures Association (NFA)

    (US) A registered futures association in the US authorized by the CFTC in 1982 that requires membership for FCMs, their agents and associates, CTAs, and CPOs.

  • National Insurance (NI)

    (UK) A form of taxation, payable by employees, employers and the self employed, which is notionally to fund state benefits including pensions, sickness, unemployment and maternity. There are currently four categories of contributions: Class 1, Class 2, Class 3 and Class 4.

  • National Insurance contributions

    An additional form of tax paid by most employers, employees, self employed (and some unemployed) people. For the employed it is deducted from income by the employer on a scale related to income levels. The employed pay part flat rate, part income related. The self employed and the unemployed may pay a flat rate voluntary contribution to keep their benefits entitlement up to date.

  • National Insurance Pension (State Pension)

    (UK) Regular income from the state paid to retired people who have made contributions during their life.

  • National Savings

    (UK ) A variety of savings schemes for the general public backed by the government.

  • National Savings Bank

    (UK) The savings bank operated by the government's Department of National Savings.

  • National Savings Certificates

    See: 'National Savings'

  • National Savings Stock Register

    (UK) A register of government stocks (gilts) which can be purchased by the public through the Post Office at favourable rates of commission for moderate purchases and sales.

  • National Securities Clearing Corporation (NSCC)

    (US) An organisation that facilitates trade processing, clearance, delivery and settlement of equities, and corporate and municipal bonds. NSCC is owned equally by the New York and American Stock Exchanges and the National Association of Securities Dealers.

  • National Securities Markets Improvement Act

    1996 law that liberalized regulatory limitations on the activities of hedge funds.

  • Near month

    The nearest delivery months of a futures or options market.

  • Nearbys

    See: 'near month'

  • Negative equity

    A term used to refer to when the value of an asset used to secure a loan is less than the outstanding balance on the loan.

  • Negative Equity

    When the amount owned on an asset is larger than the asset's current value.

  • Negative gearing

    Borrowing money to acquire assets whose payments exceed the income generated by these assets.

  • Negative semidefinite matrix

    A square matrix, all of whose eigenvalues are real and nonpositive.

  • Negotiable instrument

    An instrument, such as a cheque or a bill of exchange, which can be transferred by one person to another by the first signing his name on the back of the instrument.

  • Net

    The return on investments, such as savings accounts and fixed interest securities, after deduction of tax.

  • Net asset backing

    Total shareholders' funds in a company divided by the number of shares on issue.

  • Net asset value (NAV)

    (US) The total assets of a company less all its liabilities including loan capital, and preference shares. NAV is usually expressed on a per share basis.

  • Net assets

    The total assets of a company (current assets plus fixed assets) less its current liabilities.

  • Net book value (NBV)

    The net value of an asset. Equal to its original cost (its book value) minus depreciation and amortization.

  • Net cash flow

    It measures a company's financial health; equals cash receipts minus cash payments over a given period of time.

  • Net income

    Net profit attributable to ordinary shareholders after the deduction of all other charges.

  • Net Line

    The amount of insurance the primary company carries on a risk after deducting reinsurance from its 'gross' line.

  • Net Loss

    The amount of loss sustained by a reinsured after deducting all recoveries, salvage and reinsurance.

  • Net present value (NPV)

    The present value of an investment's future net cash flows minus the initial investment.

  • Net profit

    It is calculated by subtracting a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time.

  • Net profit after tax

    The net profits of a company after taxation.

  • Net profit before tax (pre-tax profit)

    The net profits of a company before taxation.

  • Net relevant earnings

    (UK) A person's pensionable income plus taxable benefits in kind, less any allowable business expenses but before deduction of personal allowances.

  • Net Retention

    The amount of liability which the reinsured/reinsurer retains for its own account after co-insurance, pro-rata or facultative reinsurance.

  • Net return

    The remainder left after operational expenses and interest payments are deducted from gross income

  • Net tangible assets

    Net assets less intangible assets such as goodwill.

  • Net Worth

    Assets value minus liabilities.

  • Net yield

    The yield on a security after the deduction of tax.

  • Netting

    The offsetting of cash flows or other obligations against each other.

  • Neuer Market

    Germany's junior stock market, equivalent to the LSE's AIM and TechMARK.

  • New issue

    The issue by a company of new shares, enlarging its share capital and often the number of shareholders on its register. Also used to refer to an Initial Public Offering (IPO).

  • New York Mercantile Exchange (NYMEX)

    Following the merger with the Commodity Exchange (COMEX) in 1994, the exchange operates two divisions - the NYMEX which deals in futures and options on a number of products including crude oil, heating oil and platinum and the COMEX which deals in futures and options on copper, gold and silver.

  • New York Stock Exchange (NYSE)

    The world's largest stock exchange with well over 3,000 companies listed and a market capitalisation of trillions of dollars.

  • Next Payment Amount

    The minimum amount required to avoid additional late fees on upcoming payments.

  • Next Payment Date

    The due date on which payment must be made.

  • Nexus of contracts theory of the firm

    The contracts theory of the firm.

  • Nikkei 225

    An index of the average value of the shares of 225 Japanese companies which reflects share price movement on the Tokyo Stock Exchange.

  • Nikkei Index

    Japanese share price index that covers the top 225 shares listed on the Tokyo Stock Exchange.

  • Nil paid

    A new issue of shares where no payment has yet been made.

  • Nil paid shares

    A company's newly issued shares which can normally be transferred on a renounceable document.

  • No arbitrage condition

    A condition where prices in the market offer no opportunities for arbitrage.

  • No Claims Discount/Bonus

    Discount given to insureds who have not made a claim on their policies.

  • No load fund

    (US) A mutual fund where investors deal directly with the investment company rather than through a broker.

  • No par value (NPV)

    The shares of a company which carry no nominal value or par value.

  • No-Load Fund

    A mutual fund that does not charge a fee for buying or selling its shares.

  • Noise

    Stock price movements that cannot be explained by changes in the underlying economic or financial fundamentals.

  • Nominal account

    An account kept in a ledger which itemises revenue and expenditure such as sales and operating costs.

  • Nominal income

    (US) Income which does not take into account changes in the purchasing power of the dollar.

  • Nominal ledger

    A ledger which contains the nominal accounts and real accounts of a company.

  • Nominal par value

    A par value significantly below the intended issuance price of a security.

  • Nominal value

    The price of a security when originally issued. This bears no relation to the market price.

  • Nominal yield

    A bond's yield calculated as annual coupon divided by par value.

  • Nominated adviser (NOMAD)

    An exchange-approved adviser which helps companies to list on the Alternative Investment Market (AIM), and which continues to advise them after flotation.

  • Nominated Broker (NOMBRO)

    The broking firm for companies listed on the Alternative Investment Market which brings buyer and sellers of the company's shares together.

  • Nominee

    A person or company nominated by another to hold shares on his behalf. The most common use of nominee accounts is where execution-only brokers act as nominees for their clients.

  • Nominee account

    An account in which the named holder holds assets on behalf of another (the beneficiary). In the stock market, the most common use of nominee accounts is where execution-only brokers act as nominees for their clients.

  • Nominee company

    A company formed by a bank or other organisation which operates nominee accounts.

  • Non contributory pension plan

    A pension plan in which an employee does not make contributions. The plan is funded totally by the employer.

  • Non forfeiture clause

    A clause in a life insurance policy which states the conditions under which the policy may remain in force if the premium is not paid.

  • Non qualifying life policy

    (UK ) A life assurance policy which does not satisfy the requirements of the Inland Revenue and does not qualify for certain tax relief.

  • Non taxpayer

    Someone whose income falls below their annual personal tax allowance.

  • Non-Admitted Reinsurance

    US-term. A reinsurance company which is not licensed to operate in that jurisdiction.

  • Non-Concurrent

    Reinsurance contract where the terms and conditions are different to those of the original policy/policies.

  • Non-cumulative preferred stock

    Preferred stock for which missed dividends are forfeited.

  • Non-linear derivative

    A derivative instrument whose payoff diagram is non-linear.

  • Non-Proportional Reinsurance

    A form of reinsurance where the reinsurer makes loss payments to the reinsured only when the reinsured's loss exceeds a pre-determined limit.

  • Non-regular way

    A trade made with stated conditions, such as a cash sale, which may have delivery and settlement terms that are different from the standard procedures.

  • Non-risk trade

    A term used by the London Stock Exchange to denote that a transaction was specifically for SEATS based segments only (i.e. SEQ1, AIM, SEAT).

  • Non-singular random vector

    A random vector with non-singular covariance matrix

  • Non-systematic risk

    These are firm-specific risk factors that can be eliminated by diversification.

  • Non-Traditional Reinsurance

    Types of Reinsurance under which the amount of risk transferred is more limited than under Traditional Risk Reinsurance. The limitations on risk transfer take the form of an aggregate dollar amount or loss ratio limits according to the reinsurance coverage in effect. Premiums for nontraditional reinsurance instruments are usually larger than those for traditional reinsurance instruments.

  • Normal market size (NMS)

    (UK) When shares are traded on the London Stock Exchange, the market makers have to quote a bid price and offer price at which they will deal. But the prices they quote, which are disseminated to brokers via the SEAQ system, only have to be honoured up to a certain size of order.

  • Normal trading unit

    The normal size of a securities order. A normal trading unit for shares is 100.

  • Normalised earnings

    Earnings a given company should generate for its volume of sales on the basis of the normative margin of the company’s sector.

  • Not negotiable

    Words written on a bill of exchange or cheque which should prevent encashment following theft.

  • Note

    A debt instrument whereby the issuer promises repayment on or before a specified date.

  • Notice of assignment

    Document signed by Lessee and Lender, acknowledging that another party has taken an assignment of the rental payments. It also notifies Lessee that payments will be made directly to the assignor/lender.

  • Notice of delivery

    Notice to a futures exchange of intent to close a short futures position by delivery.

  • Notional amount

    The quantity of an underlier to which a derivative instrument applies.

  • Notional limit

    A risk limit based upon notional amount as a crude exposure metric.

  • Nouveau Marche

    (FR) France's junior market for smaller companies.

  • NTR

    Shortcut for 'not trading related'; part of the standard terminology used on bulletin boards.

  • Numeraire

    Any unit of account used in financial engineering.

  • Numerical method

    A methodology for constructing numerical solutions.

  • Numerical solution

    An approximation that can be evaluated in a finite number of standard operations.


    The division of the New York Mercantile Exchange which deals in crude oil, heating oil and platinum futures and options.

  • OAS

    Option-adjusted spread.

  • Obligatory Reinsurance

    When the reinsurer is obliged to accept an entire category of risk as opposed to facultative reinsurance, which covers only a particular policy or risk.

  • Obligor

    An individual or company that owes debt to another individual or company.

  • OCC

    Office of the Comptroller of the Currency.

  • Occupational pension scheme

    A pension scheme generated by a company or organisation for the benefit of its employees. In 'contributory' schemes both the employer and employee contribute to a fund which grows free of tax during the savings period. In 'non-contributory' schemes, only the employer contributes.

  • Occupational Pensions Regulatory Authority (OPRA)

    (UK) The Authority set up under the Pensions Act 1995 to make occupational pensions more secure.

  • Occurrence

    The term is used to describe the trigger of coverage. Per occurrence cover permits all losses arising out of one event to be aggregated together.

  • Occurrence Limit

    A provision in property Per Risk Reinsurance contracts that limits the reinsurer's liability for all risks involved in one occurrence.

  • Odd lot

    (US) The trading of securities at lots less than 100, which is less than the normal trading unit.

  • Ofex

    The UK's independent public market, dedicated to smaller companies, and based on a quote-driven trading platform.

  • Off-balance sheet financing

    Financing that does not appear on a firm's balance sheet.

  • Off-the-run

    Refers to US Treasury securities that were not recently auctioned.

  • Offer

    In the stock market, offer means that a seller is willing to sell a share at a given price. In contract law instead, an offer is one half of the contract equation, the other being 'acceptance'.

  • Offer for sale

    One of the ways a company can float its shares on a stock exchange is to issue a prospectus announcing its intention to issue new shares, set a price for them, and invite the public to apply for them at the advertised price. The alternative route is to issue shares and 'place' them in the hands of a number of institutions who then release them on to the secondary market.

  • Offer price

    (US ) The price at which securities are offered for sale.

  • Offer-only warrant

    A warrant is offer-only if the holder is unable to sell it back to the issuer.

  • Office of the Comptroller of the Currency

    Established by the National Currency Act of 1863, it serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States.

  • Office of Thrift Supervision (OTS)

    (US) An agency of the US Treasury Department responsible for overseeing the savings and loans industry.

  • Official List

    (UK) The main exchange of the London Stock Exchange whose members tend to be the larger quoted or listed companies.

  • Offset

    Liquidating a purchase of futures or options through the sale of an equal number of contracts of the same delivery month.

  • Offset Clause

    A contractual accounting provision under which the reinsured and reinsurer agree that debits and credits between the parties may be set off against each other.

  • Offshore funds

    Funds based outside the tax system of the country where the intended investor is residing.

  • OID

    Original issue discount.

  • Old Lady of Threadneedle Street

    A traditional name for the Bank of England, located in Threadneedle Street, London.

  • Ombudsman

    (UK) An independent organisation which investigates the complaints of individuals against companies or public authorities.

  • Omnibus account

    (US) An account carried by one Futures Commission Merchant (FCM) with another.

  • On-balance sheet financing

    Financing that appears on a firm's balance sheet.

  • On-balance volume indicator (OBV)

    The weighted sum of volume used to quantify buying or selling pressure to either confirm the current price trend or warn of a possible reversal.

  • On-the-run

    The most recently issued (and typically the most liquid) US government bond in a particular maturity range.

  • One cancels other (OCO)

    A qualifier used when multiple orders are entered and the execution of one order cancels a second or alternate order.

  • OPAS

    (UK) Occupational Pensions Advisory Service, a voluntary independent organisation.

  • Open Cover

    Marine insurance term. When there are regular sending of goods, it is usual to arrange an open cover to avoid issuing separate policies for each shipment.

  • Open end fund

    A mutual fund, unit trust or open ended investment company (OEIC) which does not have a fixed amount of capital, but is 'open ended'. Therefore the fund managers can issue new units and cancel old ones in accordance with supply and demand of investors.

  • Open interest

    The net amount of outstanding open positions, either long or short, in a given futures or options contract.

  • Open interest

    The number of futures contracts outstanding.

  • Open offer

    An open offer, also known as an entitlement issue, is an offer made by a quoted company to its shareholders inviting them to buy new shares in the company at a set price, which is normally lower than the current market price.

  • Open outcry

    A public auction system used for futures trading on the floors of futures exchanges where communication is by shouting and hand signals between traders. Nowadays many commodity futures and some stock exchanges, that used to run an open outcry method of trading, are now computerised.

  • Open-ended mortgage bond

    A mortgage bond whose claim on collateral can be diluted by subsequent bond issuances.

  • Opening Automated Report Service (OARS)

    It receives, stores, and continuously tabulates market orders up to a specified size routed through the common message switch. It matches buy and sell interest in each stock, calculates imbalances, and reports them to specialists.

  • Opening sale

    A transaction where the seller of an option becomes the writer.

  • Operating cash flow

    The cash generated from the operations of a company, generally defined as revenues less all operating expenses, but calculated through a series of adjustments to net income.

  • Operating costs

    Also known as overheads, these are the costs which are additional to the direct costs of manufacturing or of providing services.

  • Operating margin

    The turnover of a company minus direct costs and overheads.

  • Operating profit

    A company's profit after deducting its operating costs from gross profit.

  • Operations risk

    Risk associated with the day-to-day operation of a firm.

  • Opportunity cost

    It is the cost of something in terms of an opportunity forgone (and the benefits which could be received from that opportunity), or the most valuable forgone alternative (or highest-valued option forgone), i.e. the second best alternative.

  • Option

    An option takes the form of a contract that gives its holder the right but not the obligation to buy or sell a fixed number of shares (or other instrument) at a fixed price on or before a given date.

  • Option holder

    The party to whom an option grants rights, usually the purchaser.

  • Option issuer

    Option writer

  • Option premium

    The 'price' of the option, paid by the buyer.

  • Option pricing theory

    The body of financial theory used by financial engineers to value options and other derivative instruments.

  • Option series

    A specific option defined by its underlying stock, exercise price, expiry date and type.

  • Option spread

    A position combining two or more options on a single underlier.

  • Option to redeem

    Some stocks, in particular loan notes, give their holders the right to convert the stock into cash at particular times during the stock's life. In the case of loan notes, the opportunity will often occur at the time the interest payments are made which may be half-yearly or quarterly.

  • Option valuation

    Any procedure for assigning a market value to an option.

  • Option writer

    The party who grants an option, usually the seller of an option.

  • Option-adjusted duration

    A modified duration calculation which incorporates the expected duration- shortening effect of an issuer's embedded call provision.

  • Option-adjusted spread

    Yield spread not attributable to embedded options.

  • Option-adjusted yield

    A metric of yield calculated for fixed income instruments that have embedded options.

  • Options Clearing Corporation (OCC)

    (US) The body which clears options transactions. Founded in 1973, OCC is the largest clearing organisation in the world for financial derivatives instruments.

  • Orange County debacle

    In 1994, the Orange County investment pool lost USD 1.7 billion from speculative activities.

  • Order book

    The automated trading system introduced in 1997 for the largest companies quoted on the London Stock Exchange. Trades through SETS cut out the need for market makers which theoretically means a narrower bid-offer spread for investors.

  • Ordinary interpolation

    A flexible technique for interpolating functions.

  • Ordinary least squares

    A flexible technique for fitting a curve to data so as to minimize the sum of squared differences between the curve and data points.

  • Ordinary shares

    Securities that represent a stake or share in the ownership of a company. If a company is wound up, the ordinary shareholder generally rank behind secured creditors in the wind-up process.

  • Ordinary trade

    A term used by the London Stock Exchange to denote that a transaction does not have any other special trade designation.

  • Organic growth

    A company is said to be growing organically when it is increasing the turnover of its existing business.

  • Organised securities exchange

    A stock exchange where trading of listed securities takes place, such as the New York Stock Exchange.

  • Original issue discount bond

    Zero-coupon bond.

  • Oscillator

    An indicator that moves up and down within a band. e.g. MACD.

  • Ostrander, Patsy

    Manager of a Fidelity Investments junk bond fund who was convicted of accepting illegal compensation from Michael Milken during the 1980s.

  • OTC

    Over the counter.

  • Out of the money

    An option is said to be out-of-the-money if it has zero intrinsic value.

  • Outperformance option

    An option to exchange one asset for another.

  • Output tax

    The amount of value added tax (VAT) a company adds to the price of its product or service.

  • Outstanding Claims Account

    See Funding of Reserves.

  • Over the counter (OTC)

    A stock or share that is not traded on a listed exchange, but which is traded between dealers by telephone and computer.

  • Over-Line

    A commitment by a reinsured or reinsurer that is above and beyond its normal capacity.

  • Over-Subscribed

    Term used to describe the overplacement (e.g. 120%) of a reinsurance contract.

  • Over-the-counter market

    In informal group of dealers and/or brokers who trade in a market. However, there is not a formal exchange. over-the-counter (OTC) if it trades in some context other than a formal exchange. Most debt instruments are traded OTC with investment banks making markets in specific issues.

  • Overcapitalised

    A term describing a company which has more equity capital than it needs.

  • Overdraft

    A facility (usually at a bank or other financial institution) enabling an account holder to borrow up to an agreed amount for a period of time.

  • Overfit

    An interpolated function is said to be overfit if it inappropriately weaves up and down in order to fit too many data points.

  • Overheads

    The indirect costs incurred in running business. These include rent and rates, marketing and publicity, administrative an financial costs.

  • Overlay strategy

    Addition of managed futures to an existing investment portfolio.

  • Overnight

    Commencing immediately and lasting for one trading day.

  • Overnight trade

    A term used by the London Stock Exchange to denote that a transaction was reported after 17:15 on one day and before 7:15 on the following day.

  • Overriding Commission

    Commission paid by the reinsurer which is over and above the commission required to compensate the reinsured for the original acquisition costs and management expenses of the business in question.

  • Oversold

    A term used to describe the situation following a decline in share prices generally or of a particular share, when some investors believe that prices have fallen too far and shares are undervalued.

  • Oversubscribed

    A term referring to an offer for sale where applications for shares exceed the number of shares available.

  • Overweight

    A fund is said to be overweight in an asset when it holds more than the appropriate index or benchmark weight.

  • Own Funds Directive

    1989 European legislation defining capital for banks.

  • P/E ratio

    See: 'price-earnings ratio'

  • PAC bond

    A type of CMO bond that has minimal prepayment risk.

  • PAC II bond

    A support bond for a PAC bond that is itself structured as a PAC bond.

  • PAC III bond

    A support bond for a PAC II bond that is itself structured as a PAC bond.

  • Paid in capital

    Capital subscribed by shareholders for a company's stock or shares.

  • Paid up policy

    (US) A life insurance policy where all premiums have been paid. This may be a policy where premiums are paid for a set number of years after which it is deemed paid up although continuing in force.

  • Pairs trading

    Statistical arbitrage based on trading long-short pairs of stocks.

  • Panel on Takeovers and Mergers (POTAM)

    The City watchdog whose job is to oversee the conduct of takeovers involving companies listed on the London Stock Exchange.

  • Paper loss

    A loss which would become real if the shares held were sold at their current price.

  • Paper market

    A market in which transactions are cash settled.

  • Paper profit

    A profit which would become real if the shares held were sold at their current price.

  • Par value

    The issued price of a security. Par value is the same as 'nominal value' and bears no relation to the market price.

  • Parametric VaR

    Linear VaR.

  • Pari passu

    It means ranking equally; for example, in a new issue of shares which carry equal rights with existing shares they are said to rank pari passu.

  • Parity

    A term used to describe an option contract's total premium when that premium is the same amount as its intrinsic value. For example, when an option's theoretical value is equal to its intrinsic value, it is said to be 'worth parity.'

  • Parity ratio

    A measure of a warrant's intrinsic value.

  • Part A Statement

    In the event of a takeover, the bidder must provide this statement to the shareholders of the takeover target. Its aim is to help these shareholders decide whether or not to accept the takeover offer.

  • Part B Statement

    In the event of a takeover, the board of the takeover target must provide this statement to the shareholders of the takeover target. Its aim is to help these shareholders decide whether or not to accept the takeover offer.

  • Partial intestacy

    A situation where a will does not cover the whole estate of a deceased person.

  • Participating plan

    A with-profits life assurance policy which participates in the bonuses of the company.

  • Participating preference shares

    (UK) Preference shares which, in addition to paying a specified dividend, entitle preference shareholders to participate in receiving an additional dividend if ordinary shareholders are paid a dividend above a stated amount.

  • Participating preferred stock

    (US) Preferred stock which, in addition to paying a specified dividend, entitles preferred stockholders to participate with holders of common stock in receiving any additional dividends.

  • Partly paid shares

    In privatisations it is usual for shareholders to pay for their shares in two or three instalments. Until the final instalment is made the shares are only partly paid.

  • Partner

    A person who is a member of a partnership.

  • Partnership

    Two or more people who jointly own a business.

  • Pass-through

    A security issued by a special purpose vehicle that pays investors whatever net cash flows the special purpose vehicle's assets generate.

  • Passed dividend

    The failure of a company to pay a scheduled dividend, usually because of reduced profits.

  • Passive fund

    A collective fund which does not try to beat the index, but aims to track it by investing in companies in accordance with the constituents of an index.

  • Passive management

    The creation of a well-diversified portfolio that replicates a broad-based market index such as the S&P/All Ordinaries share price index.

  • Path dependence

    A property of certain exotic options whose terminal value depends upon the path taken by the underlier during the life of the option.

  • Pathfinder prospectus

    A prospectus published by a company prior to flotation on the stock market which contains information about the company and the offer, but which leaves out details of the offer price, prospective yield and P/E ratio. The missing information is filled in just before the full prospectus is published.

  • Pay as you earn (PAYE)

    (UK) People who earn income from employment or who receive a pension are liable for income tax under the PAYE system.

  • Pay as you go basis

    (US) A method of paying income tax in which the employer deducts a portion of an employee's monthly salary to remit to the Inland Revenue Service.

  • Pay back

    The number of years it would take to repay a loss exhausting the reinsurance limit, if a given premium level remains unchanged.

  • PAYE emergency tax

    See: 'emergency tax'

  • Payee

    The part to receive payment under a contract.

  • Payer

    A person who makes a payment to a payee.

  • Payer swaption

    An option to pay fixed on an interest rate swap.

  • Payment netting

    Netting of cash flows.

  • Payment protection insurance

    A type of insurance sold alongside loans which will repay the outstanding debt if the borrower is unable to repay due to a number of specific reasons.

  • Payment-in-kind bond

    A bond that give the issuer the option of paying coupons in cash or in more bonds.

  • Payoff Balance

    Final payment which settles the debt in full.

  • Payoff diagram

    A graph of an options spread's payoff as a function of underlier value at expiration.

  • Payoff Good Through Date

    The final day in which quoted payoff is good through.

  • Payout ratio

    (US) The proportion of earnings paid out in dividends to shareholders.

  • PCA

    Principal component analysis

  • Pecuniary legacy

    A pecuniary legacy is a fixed sum of money. It is worth noting that pecuniary legacies tend to decrease in value over time due to rises in inflation and need to be reviewed in order to maintain their original intended value.

  • Peek-a-Boo

    Public Company Accounting Oversight Board

  • Penny shares

    Literally, any share costing less than 100p. According to the Financial Services Authority, penny shares are shares which have limited liquidity and are hard to buy and sell in quantity without moving the price.

  • Penny stocks

    (US) Stocks which normally sell for $1 or less and traded in the over the counter market.

  • Pension Benefit Guaranty Corporation (PBGC)

    (US) A federal corporation set up in conjunction with the Employee Retirement Income Security Act (ERISA) of 1974 to guarantee basic benefits to participants in pension plans which are underfunded.

  • Pension forecast

    (UK) Upon request, a written forecast may be obtained from the Pensions Service outlining a person's estimated entitlement to the National Insurance Pension at retirement age.

  • Pension fund

    A fund set up by a company, union, government entity, or other organisation to invest the pension contributions of its members and employees.

  • Pension plan

    See 'personal pension plan'.

  • Pension Schemes Registry

    (UK) The Register of all occupational and personal pension schemes.

  • Pensions Advisory Service

    See: 'OPAS'

  • Pensions Compensation Board (PCB)

    (UK) An independent body set up on 6th April 1997 which pays compensation to individuals whose occupational pension scheme funds become insolvent.

  • PEP transfer

    Investments sheltered in a Personal Equity Plan (PEP) which are transferred to a new manager without losing their tax-efficient status.

  • Peppercorn rent

    A nominal rent intended to demonstrate that a property is leasehold and not freehold.

  • Per Occurrence Excess of Loss Clause

    A reinsurance contract provision that aggregates all losses arising out of a single occurrence, subject to the reinsured's retention prior to reinsurance recovery.

  • Percentile

    A type of quantile.

  • Perfected interest

    A claim that is senior to any existing or future third-party claims in the event of bankruptcy.

  • Performance Benchmark

    Index most representative of a portfolio’s investment objective class. Investors can use the benchmark as a reference point when monitoring fund performance.

  • Performance bond

    A bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor.

  • Performance fund

    (US) A fund whose objective is capital growth.

  • Performance share

    (US) A share whose price is anticipated to grow at an above average rate but with little or no dividend payments.

  • Peril

    This term refers to the possible causes of loss in property insurance, such as fire, windstorm, earthquake, hail, etc.

  • Period of Contract

    The period during which the contract is in force.

  • Periodic payment plan

    (US) A plan in which an investor agrees to make monthly or quarterly investments in a mutual fund as a method of accumulating shares over a period of years. Fixed periodic contributions result in dollar cost averaging.

  • Permanent interest bearing shares (PIBS)

    (UK) Shares issued by building societies which pay a fixed rate of interest rather than a dividend.

  • Permanent Musharaka

    In this form of Musharaka an Islamic bank participates in the equity of a project and receives a share of profit on a pro rata basis. The period of contract is not specified. So it can continue so long as the parties concerned wish it to continue. This technique is suitable for financing projects on a longer term where funds are committed over a long period and gestation period of the project may also be protracted.

  • Perold's implementation shortfall

    A metric of total transaction costs.

  • Perpetual bond

    A bond without a maturity date which pays interest indefinitely.

  • Perquisite (perk)

    A benefit given to an employee in addition to his/her salary such as a company car, pension contributions and free products.

  • Personal accident insurance

    An insurance policy which pays a specific sum in the event of death, loss of sight or limbs or other permanent disablement due to an accident.

  • Personal allowance

    (UK) The amount a person may subtract from personal income when calculating income tax.

  • Personal equity plan (PEP)

    Although no longer available, a Personal Equity Plan was a form of tax-privileged investment account.

  • Personal exemption

    (US) The amount a person may subtract from personal income when calculating federal and state income tax.

  • Personal identification number (PIN)

    A set of numbers used by credit or debit card holders to authorise payment or withdraw money from a cash machine.

  • Personal income

    A person's total income including salary, transfer payments, dividend and interest income.

  • Personal Investment Authority (PIA)

    (UK) A self-regulating organisation which regulates the majority of companies conducting investment business with private investors in the financial services market.

  • Personal ledger

    A book in which the personal accounts of a company are kept.

  • Personal loan

    Loan available from banks and other financial institutions to private individuals for personal use.

  • Personal pension plan (PPP)

    (UK) A savings scheme introduced by the government in 1985 to enable the self employed, and employees working for companies not operating a group pension scheme, to build up a pension fund for retirement.

  • Petty cash

    Cash held by a company on its premises to cover for small expenses.

  • Physical delivery

    A derivative instrument has physical delivery if it settles with actual delivery of some underlier.

  • Physical market

    A market in which transactions are physically settled.

  • Physical settlement

    Settlement of a derivative instrument with physical delivery of an underlier.

  • Physicals

    The actual commodity that is delivered to the contract buyer at the completion of a commodity contract in the spot market or the futures market.

  • Pit

    An area within a futures exchange where trading in a particular futures or options contract is conducted by open outcry.

  • PITI

    Principal, Interest, Taxes, and Insurance are the components of a mortgage payment.

  • Plain vanilla option/warrant

    An option or warrant with fairly standard exercise terms and no special clauses.

  • Planned amortization bond

    A type of CMO bond that has minimal prepayment risk.

  • PO

    See 'Principal Only'

  • Point

    A dollar amount paid to a lender for making a loan. A point is 1 percent of the loan amount. Also called discount points.

  • Point and figure

    A type of charting used by technical analysts which differentiates itself from other charting methods by only plotting significant price changes.

  • Polarisation

    A principle of UK financial regulation which states that financial advisers must choose between being either independent or tied to a particular provider.

  • Policy

    Insurance contract.

  • Policy document

    The document which forms the contract between the insured and the insurance company.

  • Policy loan

    A loan granted by a life assurance company to a policyholder.

  • Policy Year

    Refers to all claims and premiums arising from a set of insurance policies issued over a twelve-month period.

  • Ponzi scheme

    A fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors not from actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent.

  • Pool

    A pool is a joint underwriting operation of reinsurance and/or insurance in which the participants assume predetermined and fixed particular types of risks with premiums, losses and expenses shared in agreed ratios.

  • Portability

    1) In relation to superannuation, portability is the ability to switch benefits from one fund to another, or from a superannuation fund into a rollover fund; eg. upon a change of employment. 2) A mortgage option that allows the borrower to transfer the mortgage to their new home, provided that it has the same value or more, without paying a discharge penalty to the lender.

  • Portfolio

    The combined investment holdings of an individual or an institution.

  • Portfolio Composition

    Represents the allocation in each asset class within a portfolio as a percentage of the total market value.

  • Portfolio credit risk

    The sum credit risk of a portfolio of obligations.

  • Portfolio credit risk model

    Financial model that assess portfolio credit risk.

  • Portfolio management

    Where assets are combined into a portfolio that fits the investor's preferences and needs.

  • Portfolio mapping

    A functional relationship specified by a VaR measure between a portfolio's value and the key vector.

  • Portfolio mapping function

    The function that defines a portfolio mapping.

  • Portfolio remapping

    A remapping that simplifies a portfolio mapping by replacing the mapping function and/or key vector.

  • Portfolio Run-Off

    Upon cancellation of a reinsurance contract the reinsurer may remain liable until the ceded premium is earned and/or all losses are settled, i.e. until the portfolio has run off.

  • Portfolio theory

    A body of theory relating to how investors optimize portfolio selections.

  • Portfolio Turnover Rate

    The value of purchases or sales of a portfolio’s securities, whichever is less, divided by the monthly average value of the portfolio’s securities.

  • Position limit

    The maximum position, either net long or net short, in a futures market or options market that may be held or controlled by one person as prescribed by an exchange or by the CFTC.

  • Positive definite matrix

    A real symmetric matrix, all of whose eigenvalues are real and positive.

  • Positive semidefinite matrix

    A real symmetric matrix, all of whose eigenvalues are real and nonnegative.

  • Possible Maximum Loss

    See 'Probable Maximum Loss'.

  • Post-dated cheque

    A cheque which has a future date on it.

  • Posting

    The recording of an entry in a ledger.

  • Potential exposure

    Credit exposure that may develop on an obligation due to possible changes in its market value.

  • Potentially exempt transfer (PET)

    (UK) A gift from one person to another which is not liable to inheritance tax provided the person making the gift lives for at least seven years after the transfer is made.

  • Power of Appointment

    The power given by an individual to another in a will or trust document to determine which persons will receive an interest in his or her estate.

  • Power of Attorney

    Written document authorising one person to take certain legal actions on behalf of the person giving the power of attorney.

  • Pre-emptive rights

    Rights given to shareholders which entitle them to buy additional shares in a new issue before they are offered to the general public.

  • Pre-payment fee

    (US) A fee charged to a borrower by a lender when a loan or mortgage is repaid ahead of schedule.

  • Pre-settlement risk

    Credit risk of default on a derivative instrument prior to final settlement.

  • Pre-tax profit

    See: 'profit before tax'

  • Precious metals

    Uncommon and highly valuable metals characterised by their superior resistance to corrosion and oxidation. Included are silver, gold, platinum, palladium, iridium, osmium, rhodium, and ruthenium.

  • Preference option

    Chooser option.

  • Preference shares

    (UK) Shares in a company which give their holders an entitlement to a fixed dividend but which do not usually carry voting rights.

  • Preferential form

    Companies listed on the London Stock Exchange offering shares to the public are allowed to set aside up to 10% of the issue for application from employees and from shareholders of a parent company floating a subsidiary via a preferential form.

  • Preferred Stock

    A class of stock that has preference over common stock in the event of the liquidation of a company's assets.

  • Preliminary results

    The first release of a company’s results for the financial year to the stock exchange.

  • Premium

    1) The purchase price of an option, not including commissions. 2) The sum paid by a policyholder to keep an insurance policy in force.

  • Premium Portfolio Entry

    At the inception of a reinsurance contract the reinsurer may assume responsibility for cessions in force at that time such as unexpired liabilities, by being paid the unearned premium

  • Premium Portfolio Withdrawal

    At the end of a reinsurance period or upon cancellation, the reinsurer can be relieved of its responsibility for risks still in force by returning to the reinsured that proportion of premium relating to unexpired policies. The reinsurer will then have no liability for any losses under those policies after that date.

  • Premium Reserves

    The reinsurer agrees to deposit the unearned premium with the cedant for future liabilities.

  • Premium Trend Factor

    The adjustment to reflect historical rate changes needed to project loss ratios in a prospective period.

  • Premium Warranty

    A guarantee given by the reinsured to pay the premium within a certain period of time.

  • Prepayment

    The payment of a debt prior to its being due.

  • Prepayment

    The early payoff of a loan's outstanding balance.

  • Prepayment protection band

    A range of prepayment rates between which a PAC bond will redeem principal according to schedule.

  • Prepayment risk

    Risk to holders of mortgage-backed securities arising from uncertainty in the rates at which mortgagors will prepay.

  • Prerefunded bond

    Refunded bond.

  • Prevailing interest rate

    (UK) Banks decide the rates of interest that they will pay on deposits, and the rates of interest they will charge their borrowers, on the basis of the prevailing interest rate which is in turn decided by the Bank of England.

  • Price / Operating Cash Flow ratio

    This ratio compares a company's share price with the cash flow per share.

  • Price cash flow ratio

    A financial ratio which is calculated by taking the current share price and dividing it by cash flow per share

  • Price data

    Virtually all the charts and indicators used by technical analysts are based on price data. Price data is a record of the day-to-day share price over a period.

  • Price earnings growth factor (PEG)

    The PEG of a company is calculated by dividing its prospective P/E ratio by the estimated future growth rate in earnings per share of the company. So to calculate a PEG, you first need to calculate its P/E ratio.

  • Price high

    The highest price achieved by a particular share in the past 12 months.

  • Price low

    The lowest price achieved by a particular share in the past 12 months.

  • Price sensitive information

    Information which, if made public, is likely to have a significant impact on the price of a company's securities.

  • Price to book value

    A financial ratio which represents the market capitalisation of the company divided by its total net assets.

  • Price to sales ratio (PSR)

    A financial ratio which represents the company's market capitalisation divided by total sales.

  • Price-earnings ratio (P/E ratio)

    A common share market indicator that measures the price of a share divided by the earnings of that same share.

  • Primary capital

    A bank's permanent capital.

  • Primary dealer

    Primary government securities dealer.

  • Primary government securities dealer

    A Treasury securities dealer with whom the New York Fed transacts in its open market activities.

  • Primary instrument

    A financial instrument whose value is not derived from that of another instrument.

  • Primary mapping

    A portfolio mapping constructed directly from the portfolio's holdings.

  • Primary market

    A market in which new issues are traded. In other words, the trading of shares directly between a company and investors.

  • Prime broker

    A brokerage firm that provides bundled services to a hedge fund.

  • Prime Rate

    Prime rate is a standardized short-term borrowing rate established by the Federal Reserve Board. Most banks use the prime rate and base the loan on the creditworthiness and collateral of bank customers.

  • Principal

    1) The original amount of money loaned, excluding interest. 2) Assets included in a trust that yield income. 3) The face value of a debt instrument such as a bond or a note.

  • Principal component analysis

    A technique for orthogonalizing a random vector.

  • Principal component remapping

    A portfolio remapping implemented using principal component analysis.

  • Principal Only (PO)

    A mortgage-backed security that pays no coupon. Its payments derive exclusively from the principal payments on the underlying mortgages. Prepayments always enhance the value of POs.

  • Principal Reduction Payment

    Payments in excess of the contractual minimum payments which reduce the principal balance.

  • Principal strip

    A Treasury strip formed from the principal cash flow of a Treasury security.

  • Prior charges

    The fixed liabilities of an investment trust including loan capital and usually preference shares.

  • Prior lien bond

    A senior mortgage bond issued as part of a reorganization.

  • Private activity bond

    A taxable municipal bond issued to finance some private-sector purpose.

  • Private equity

    An asset class consisting of equity investments in companies that are not traded on a public stock exchange. Investments typically involve a transformational, value-added, active management strategy. Private equity firms generally receive a return on their investments through one of three ways: an IPO, a sale or merger of the company they control, or a recapitalization.

  • Private medical insurance

    An insurance policy which provides cover for the cost of private medical treatment.

  • Private placement

    A non-public offering of securities.

  • Private-label mortgage-backed security

    An MBS issued by an entity that is not a quasi-agency of the US Government.

  • Privatisation

    The sale of government-owned equity in nationalised industries or other commercial enterprises to private investors.

  • Pro-forma invoice

    An invoice presented by one company to another for payment for goods prior to their despatch.

  • Pro-Rata Reinsurance

    A generic term describing all forms of reinsurance in which the reinsurer shares a proportional part of the original losses and premiums of the reinsured.

  • Probabilistic Exposure Models

    Exposure models used in measuring a reinsured's exposure to catastrophe loss.

  • Probable Maximum Loss

    The anticipated value of the largest loss that could result from the destruction and the loss of use of property, given the normal functioning of protective features (firewalls, sprinklers, etc.). This number is usually smaller than the maximum foreseeable loss, which assumes the failure of all protective features.

  • Probate

    The legal procedure by which a will is authenticated and which confirms the authority of the executors to administer its contents.

  • Profit and Loss Account (P&L Account).

    A financial statement showing a company's earnings and expenses over a period of time.

  • Profit and loss statement

    A set of accounts, usually prepared annually, which shows a company's trading performance and is normally read in conjunction with the balance sheet and cash flow data.

  • Profit before tax

    A company's net profit before deduction of corporation tax.

  • Profit Carry-Forward

    The transfer of credit or profit from one accounting period (as defined within a reinsurance contract) to the succeeding accounting period.

  • Profit Commission

    A remuneration by the reinsurer to the cedant based on a predetermined percentage of the profit realised by the reinsurer on the business ceded.

  • Profit margin

    Operating profit as a percentage of sales (or turnover). To calculate profit margin, multiply operating profit by 100, and divide the result by turnover.

  • Profit sharing scheme

    A scheme where part of a company's profits are paid to employees as a reward for loyalty and contribution to the company's success.

  • Profit taking

    The selling of shares when the price has risen to consolidate trading profits.

  • Profits warning

    If a quoted company expects its profits figure to be lower than the consensus forecast of analysts, the directors are required to issue a profits warning. The warning is released via the Stock Exchange to ensure that all investors have access to the news at the same time.

  • Program Contract

    A that is a combination of treaty and individual facultative reinsurance. It is similar to a treaty in that it often reinsures a group of policies, but also has some similarity to individual facultative reinsurance.

  • Programme trading

    A generic term for a variety of stock market strategies whose aim is to automatically rebalance the weightings of assets in a portfolio by shifting the holding of shares, options and futures.

  • Project finance

    Off-balance sheet financing of a power plant, infrastructure or other project.

  • Promissory note

    A signed statement promising to pay to a specified person a particular sum of money on a fixed date or on demand.

  • Proof of title

    (UK) When a claimant makes a claim in respect of life assurance, he/she will have to provide proof of identity and evidence that he/she is entitled to the proceeds.

  • Property bond

    A bond issued by life insurance companies to investors whose premiums are invested in property.

  • Property income taxation

    See: 'income from property'.

  • Property tax

    (US) A tax charged on real property and assessed according to whether it is used for residential, commercial or industrial purposes.

  • Proportional Reinsurance

    A type of reinsurance in which the reinsurer accepts a proportionate share of each risk ceded and will bear the same share of any claims which occur.

  • Proposal form

    A form which is completed by a person applying for a life policy and which forms the basis of the contract.

  • ProShare

    An independent non-profit making company set up in 1992 with funding from the government, the London Stock Exchange and 22 companies to encourage wider share ownership for private individuals and employees.

  • Prospect

    A person who is not currently customer who may or may not become a client.

  • Prospectus

    A statement that provides details of securities issue to the public. In Australia, prospectuses must be approved by the Australian Securities and Investments Commission (ASIC) prior to their issue.

  • Protected investment products (PIPs)

    PIPs' are designed to give investors a guaranteed return on whilst at the same time giving investors the opportunity to benefit from rises in the stock market.

  • Protected portfolio

    A term used by the London Stock Exchange to denote that a transaction was reported as a protected portfolio, or was as a result of a worked principle agreement for a portfolio transaction.

  • Protected rights

    (UK) Pension benefits payable at retirement age which are derived from funds built from minimum contributions paid into an appropriate personal pension plan by the government.

  • Protection applied

    A term used by the London Stock Exchange to denote that a transaction was protected at the time of reporting it.

  • Provisional Notice of Cancellation

    Reinsurance contracts are often written on a continuous basis and may be cancelled by either party only on the anniversary date of the contract with prior written notice.

  • Provisional Rate

    See Retrospective Rating.

  • Proxy

    A person who acts on behalf of a member of a company for the purpose of voting at a company meeting.

  • Prudent Investor Rule

    Legal term that refers to the duty of the fiduciary to invest and manage assets on behalf of another person.

  • Prudent man rule

    (US) An investment standard. In some US states, the law requires that a fiduciary, such as a trustee, may invest the fund's money only in a list of securities designated by the state the so-called legal list. In other states, the trustee may invest in a security if it is one that a prudent man of discretion and intelligence, who is seeking a reasonable income and preservation of capital, would buy.

  • PSA

    A metric for projecting prepayments over the life of a mortgage-backed security.

  • PTM levy

    A charge automatically imposed on investors, and collected by their brokers, when they sell or buy shares with an aggregate value in excess of £10,000.

  • Public Company Accounting Oversight Board

    A US federal agency tasked with overseeing external auditors.

  • Public limited company (plc)

    A company registered as a public company which has an unlimited number of shareholders, and can offer its shares to the public.

  • Public Sector Borrowing Requirement (PSBR)

    See 'Public Sector Net Cash Requirement (PSNCR)'.

  • Public Sector Net Cash Requirement (PSNCR)

    (UK) Formerly known as Public Sector Borrowing Requirement (PSBR), PSNCR is the difference between the expenditure of the public sector and its income.

  • Pullback

    After a strong trend, the market retraces a small portion of that move before resuming its trend. This differs from a consolidation, which trades sideways.

  • Purchase and sale statement (P&S)

    A statement sent by a Futures Commission Merchant to a customer that communicates adjustments or transactions affecting the margin of a futures trader. The P&S statement serves as a summary of the most recent account activity, delivering details of transactions and any changes in margin.

  • Purchase ledger

    A book that contains the personal accounts of suppliers from whom the business has bought on credit and it records information such as invoices received, credit notes received and payments sent.

  • Purchased life annuity

    A lump sum investment contract providing a tax-efficient guaranteed gross income throughout the future lifetime of named individuals or over a selected period.

  • Purchasing power

    The amount of goods and services which can be purchased by a given unit of currency after taking into account the effect of inflation.

  • Put

    An option to sell an asset.

  • Put option

    The right but not the obligation to sell an asset at a specified exercise price on or before a specified expiration date.

  • Put spread

    An options spread comprising a long-short position in put options.

  • Put warrant

    A warrant which gives its holder the right to sell an underlying instrument and which would therefore normally be used by an investor who thought the price of the underlying asset was due to fall.

  • Put-call parity

    A relationship between the prices of European put and call options on the same underlier.

  • Putting on a spread

    The act of purchasing and/or selling instruments to comprise an options or futures spread.

  • Pyramid scheme

    An investment scheme which relies on recruiting an ever-growing number of new entrants to pay off its earlier members.

  • Pyramiding

    The use of profits on existing futures positions as margin to increase the size of the position.

  • Qabul

    Acceptance, in a contract; see also Ijab.

  • Qard (Loan of fungible objects) (see Salaf)

    The literal meaning of Qard is ‘to cut’; the property is really cut off when it is given to the borrower.
    Legally, Qard means to give anything having value in the ownership of the other by way of virtue so that the latter could avail of the same for his benefit with the condition that same or similar amount of that thing would be paid back on demand or at the settled time (Opposite term, see Al-‘Aariyah). It is that loan which a person gives to another as a help, charity or advance for a certain time. The repayment of loan is obligatory. The Holy Prophet is reported to have said “…..Every loan must be paid……”. But if a debtor is in difficulty, the creditor is expected to extend time or even to voluntarily remit the whole or a part of the principal. Qard is, in fact, a particular kind of Salaf. Loans under Islamic law can be classified into Salaf and Qard, the former being loan for fixed time and the latter payable on demand.

  • Qard Hasan (Interest free loans)

    Most of the Islamic banks also provide interest free loans (Qard Hasan) to their customers. If this practice is not possible on a significant scale, even then, it is adopted at least to cover some needy people. Islamic view about loan (Qard) is that it should be given to borrower free of charge.

  • Qimar

    Gambling. Technically, it is an arrangement in which possession of a property is contingent upon the happening of an uncertain event. By implication it applies to a situation in which there is a loss for one party and a gain for the other without specifying which party will lose and which will gain.

  • Qimer

    Gambling(it.). Technically, an agreement in which possession of a property is contingent upon the occurrence of an uncertain event. By implication it applies to those agreements in which there is a definite loss for one party anLd definite gain for the other without specifying which party will gain and which party will lose.

  • Qiyas

    Measure, example, comparison or analogy (Lit).. Technically, it means a derivation of the law on the analogy of an existing law if the basis (‘illah) of the two is the same. It is one of the sources of Islamic law.

  • Quadratic formula

    A general formula for solving quadratic polynomial equations.

  • Quadratic interpolation

    Interpolation using a quadratic polynomial as an interpolation function.

  • Quadratic polynomial

    A polynomial of the form p(x) = cx2 + bx + a.

  • Quadratic portfolio

    In the context of value-at-risk, a portfolio whose portfolio mapping function is a quadratic polynomial.

  • Quadratic remapping

    A global remapping that replaces a portfolio mapping function with a quadratic polynomial.

  • Quadratic transformation

    For a VaR measure, a transformation procedure that is applicable to quadratic portfolios.

  • Quadratic VaR measure

    A category of VaR measures that are applicable to quadratic portfolios.

  • Qualification period

    Initial period on an insurance policy during which the policyholder's ability to make claims is severely restricted, to discourage fraud.

  • Qualification period

    (US) The period of time, as stated in an insurance policy, during which benefits are not payable to the insured.

  • Qualified plan

    (US) A tax-deferred pension plan set up by an employer to enable employees to accumulate tax-free savings for retirement benefits.

  • Qualified stock option

    (US) A US stock option, given to executives and employees, which complies with the requirements of the Internal Revenue Service. A qualified stock option is not subject to tax at the grant date or when exercised.

  • Qualifying annuity

    (US) An annuity which is purchased within a qualified plan.

  • Qualifying policy

    The proceeds from a life assurance policy to an individual are free of tax provided the policy is qualifying.

  • Quant

    A financial engineer.

  • Quantile

    A notion from probability.

  • Quantile

    A notion from probability. Quantiles are points taken at regular intervals from the cumulative distribution function of a random variable.

  • Quanto

    A cash settled derivative that has an underlier denominated in one currency, but settles in another currency based on a fixed exchange rate.

  • Quanto swap

    An interest rate swap linked to different currency's interest rates.

  • Quarterly compounding

    Compounding based on quarterly crediting of interest.

  • Quartile

    Any of the three values which divide the sorted data set into four equal parts, so that each part represents 1/4th of the sampled population.

  • Quartile

    A type of quantile.

  • Quartile

    The investment industry ranks the performance of collective funds on the total returns they have produced for investors. The rankings list the funds in descending order and the list is divided into four 'quartiles', with the best performing 25% in in the

  • Quick ratio

    A financial ratio which is similar to the current ratio, but more stringent. It is defined as: current assets minus stocks, divided by current liabilities.

  • Quota Share

    The basic form of pro-rata reinsurance whereby the reinsurer accepts a stated percentage of each and every risk within a defined category of business.

  • Quotation

    The highest bid price and the lowest offer price of a security available at any particular time.

  • Quoted company

    See: 'listed company'.

  • Rab-al-maal

    In a mudaraba contract the person who invests the capital.

  • Rainbow option

    A single option linked to two or more underlying assets. Its payoff is determined by first identifying which of two assets performs the better (or the worse) relative to each other and then comparing the better (or worse) performer to the exercise price.

  • Rally

    A sudden upturn in a share or a market's performance, following a long fall.

  • RAN

    Revenue anticipation note.

  • Random walk

    The theory by French Mathematician Louis Bachelier in 1900 which states that past share prices are of no use in predicting future prices.

  • Range forward

    A type of derivatives hedge.

  • RAPM

    Risk-adjusted performance metric.


    Risk-adjusted return on capital.


    Risk-adjusted return on risk-adjusted capital.

  • Ratchet cap

    A cap whose strike is reset to the current rate for each caplet.

  • Ratchet floor

    A floor whose strike is reset to the current rate for each floorlet.

  • Ratchet option

    Also known as a cliquet or reset option, it that allows buyers to lock-in gains on the underlying security during chosen intervals over the life time of the option. The option’s strike price is effectively reset on predetermined dates. Gains, if any, are locked in.

  • Rate of return

    The rate of return on an investment, expressed as a percentage of the total amount invested. Rate of return is usually, but not always, calculated annually.

  • Rate on Line

    A method used to judge the rates for excess of loss covers. It is derived by expressing the reinsurance premium as a percentage of the reinsurance limit.

  • Rating

    The classification of the quality of securities by various rating services.

  • Ratings migration mode

    A default model based upon historical patterns of changes in bonds' credit ratings.

  • Ratings transition matrix

    A matrix indicating probabilities of upgrades or downgrades in bonds' credit ratings.

  • Ratio call spread

    A call spread in which there is not a one-to-one ratio between the numbers of long and short calls.

  • Ratio put spread

    A unique bearish strategy. It involves a bearish strategy (Bear Put Spread) along with a bullish strategy (Short Put).

  • Ratio spread

    Option strategy using either puts or calls. The trader purchases a certain number of options and then sells a larger number of out-of-the money options.

  • Real account

    A ledger account detailing assets and capital (such as buildings and machinery).

  • Real estate

    A term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is stationary, or fixed in location.

  • Real estate broker

    (US) One who arranges the sale and purchase of property in return for a commission. Known as an estate agent in the UK.

  • Real estate investment trust (REIT)

    (US) A publicly traded investment trust which invests the capital of its shareholders in real estate.

  • Real interest rate

    The excess of the nominal interest rate less the inflation rate.

  • Real property

    See 'real estate'.

  • Real return

    The return provided by an investment after inflation has been taken into account.

  • Real time

    The processing of information that returns a result so rapidly that the interaction appears to be instantaneous. In share trading, real-time prices means the live prices of shares made available on a computer screen the moment they are updated on the stock exchange systems.

  • Reassured

    See 'Reinsured'.

  • Receiver

    A person appointed by the court to receive and preserve the property or funds that are the subject of litigation.

  • Receiver swaption

    An option to receive fixed on an interest rate swap.

  • Receivership

    When a company cannot meet its financial commitments, one or more of its main creditors may appoint a receiver.

  • Recession

    A decrease in economic activity (usually measured in terms of Gross National Product or GNP) for two consecutive quarters.

  • Recognised Clearing House

    (UK) A clearing house which meets the requirements for recognition under the Financial Services Act 1986 and is approved by the Financial Services Authority.

  • Recognised Investment Exchange (RIE)

    (UK) An investment exchange which meets the requirements for recognition under the Financial Services Act 1986 and is approved by the Financial Services Authority.

  • Recognised Professional Body (RPB)

    (UK) A body which regulates the practice of a profession such as the Institute of Chartered Accountants, The Law Society, the Institute of Actuaries and the Insurance Brokers' Registration Council.

  • Record date

    The date on which the owners of a security are identified for the purpose of making an upcoming interest or dividend payment.

  • Recovery rate

    In the event of a default, the fraction of the outstanding obligation expected to be recovered through bankruptcy proceedings or some other form of settlement.

  • Recovery shares

    Shares which have fallen in value but can recover their former value.

  • Red Book

    Informal name for the detailed Government spending and revenue forecasts which accompany each Budget speech. Formally known as the Financial Statement.

  • Redeemable

    A security which can be bought back by the original issuer.

  • Redeemable preference shares

    Preference shares which the issuing company reserves the right to redeem. The shares may, or may not have a specific redemption date or dates.

  • Redemption

    The re-purchase of a security, such as a bond or preferred stock, by the issuing company at or before maturity.

  • Redemption date

    The actual date on which repayment of a bond or loan stock takes place.

  • Redemption fees

    (US) Fees imposed by a mutual fund on shareholders who dispose of shares within a relatively short period after purchase.

  • Redemption price

    The price at which a bond or preferred stock can be redeemed by the issuer.

  • Redemption yield

    The IRR that a buyer would receive if they purchased the bond at the current market price. Also known as YTM (Yield to maturity).

  • Reduced form model

    A model having compiled an empirical record of parameter instability particularly in the face of breaks in the stochastic behavior of the exogenous variables and disturbances.

  • Reduced stable distribution

    Standardized stable distribution.

  • Refer to drawer

    A phrase used by banks in the UK when a cheque is dishonoured or 'bounced'.

  • Refunded bond

    Municipal bond for which assets have been set aside in an escrow account or trust to fully retire the debt.

  • Refunding

    A transaction in which bonds are called so they can be replaced with new debt, usually at a lower interest rate.

  • Regime switching model

    A category of stochastic processes.

  • Registered bond

    A bond for which ownership is evidenced by both a certificate and the issuer's records.

  • Registered Competitive Market Maker (RCMM)

    (US) It identifies New York Stock Exchange (NYSE) floor members with a specific NYSE-imposed obligation to enhance the quality of NYSE markets by injecting their own or their firms' capital into difficult market-making situations.

  • Registered Representative (RR)

    (US) Also known as account executive, customers' broker, or similar title. It describes full-time New York Stock Exchange member organisation sales people who have met the NYSE knowledge criteria.

  • Registered securities

    When holders have their names kept in a register maintained by the company issuing securities.

  • Registrar of Companies

    The official body responsible for the registration of all companies in the UK.

  • Regression analysis

    Analysis which examines the correlation between two or more variables in a mathematical model and attempts to prove whether or not the past relationships will be the same in the future. Regression analysis is used in the Black-Scholes option pricing model, portfolio theory and the capital asset pricing model.

  • Regular-way settlement

    The standard basis on which some security trades are settled: the delivery of the securities purchased is made against payment in Fed funds on the day following the transaction.

  • Regulation T

    (US) It refers to the federal regulation governing the amount of credit that may be advanced by brokers and dealers to customers for the purchase of securities.

  • Regulation U

    (US) It refers to the federal regulation governing the amount of credit that may be advanced by a bank to its customers for the purchase of listed share.

  • Regulatory capital

    Capital held in accordance with statutory or regulatory requirements.

  • Regulatory News Service (RNS)

    The London Stock Exchange's service which ensures that price sensitive information from listed and AIM companies, and certain other bodies, is disseminated to all RNS subscribers at the same time.

  • Regulatory Pyramid

    (US) A network of safeguards that surrounds the US securities industry, from individual brokerages all the way up to the US Congress.

  • Rehypothecation

    The reuse of collateral for one's own purposes.

  • Reimbursement

    The repayment of a person who has incurred expenses on behalf of another.

  • Reinstatement Premium

    A Pro-Rata Reinsurance premium that may be charged for reinstating the amount of reinsurance coverage reduced as the result of a reinsurance loss payment under a catastrophe cover.

  • Reinsurance

    The practice whereby one party, the reinsurer, in consideration of premium paid, agrees to indemnify another party, the reinsured, for part or all of the liability assumed by the reinsured under a policy (or policies) of insurance.

  • Reinsurance Contract

    Reinsurance contract is an insurance contract issued by one insurer to compensate another insurer for losses on one or more contracts issued by the cedant.

  • Reinsurance Premium

    The premium paid by the reinsured to the reinsurer as consideration for the liability assumed by the reinsurer.

  • Reinsured

    An insurance company that transfers to another insurance company all or part of its assumed liabilities.

  • Reinvestment risk

    Risk from uncertainty in the interest rate at which future cash flows may be invested.

  • Relative pricing model

    An asset pricing model that assigns prices based on prices of other instruments quoted in the market.

  • Relative strength

    Relative strength compares the percentage gain in the price of a share to the percentage gain of a chosen index over the same period.

  • Relative strength index (RSI)

    A widely used index which compares a company's share price to a broadly-based market index like the FTSE All-Share. The point of the comparison is to show whether historically the company share price outperforms or underperforms the index.

  • Relative Strength Indicator (RSI).

    This indicator is used to measure the underlying strength of a market move.

  • Relative value strategy

    Market neutral strategy.

  • Remainder man

    In the case of a trust, this term refers to the individual who will receive the principal of a trust when final distribution takes place.

  • Remapping

    In value-at-risk, the approximation of one risk vector with another.

  • Rembrandt

    A foreign bond issued in the Netherlands.

  • Remortgage

    The process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.

  • Renewable term assurance

    (UK) Term life insurance with a term of, for example, three years, at the end of which the policy can be renewed for a further period of time.

  • Renounceable documents

    Documents which provide temporary evidence of ownership of unregistered shares.

  • Rent

    Regular payment by a tenant to a landlord for the use of his/her land or buildings.

  • Rental yield

    This is what a landlord can expect to receive in rent, expressed as a percentage of the purchase price of the property.

  • Reopening

    A Treasury securities auction in which previously issued securities are again offered.

  • Repayment charges

    Most fixed, capped and discounted mortgages impose a financial penalty on customers who redeem their mortgages before their deal comes to an end.

  • Repayment mortgage

    A mortgage where throughout the term, regular payments are made to repay both the loan's interest and capital.

  • Replacement cost

    The cost of replacing an obligation of a counterparty.

  • Repo

    Repurchase agreement.

  • Repo market

    The repo market is one in which two participants agree that one will sell securities to another and make a commitment to repurchase equivalent securities on a future specified date, or on call, at a specified price.

  • Repo rate

    The rate of interest on a general collateral repo transaction.

  • Reporting level

    Sizes of positions set by the exchanges or the CFTC at or above which commodity traders and brokers who carry their accounts must make daily reports as to the size of the position by futures or options contract, delivery month and whether the position is speculative or hedging.

  • Reporting limit

    See: 'reporting level'

  • Repricing

    Resetting of an interest rate.

  • Repricing date

    Any date on which an interest rate is reset.

  • Repricing gap

    Interest rate gap.

  • Repricing risk

    Term structure risk.

  • Repurchase agreement

    1) An agreement to sell and subsequently repurchase a security. 2 ) The sale of Treasury bonds for a short period of time, with an agreement these bonds at a slightly higher price.

  • Reserve Bank of Australia

    Australia's central bank.

  • Reserves

    1) International reserves of a government or central bank. 2) Amounts held by commerical banks in their vaults or on deposit with the central bank as backing for deposits.

  • Reset date

    Any date on which the floating rate payable on a floater is reset.

  • Reset option

    See: 'Ratchet option'.

  • Residence status

    (UK) The definition of a person's status when living or working outside the UK with regard to his/her taxation liabilities.

  • Residual claim

    The claim of stockholders on corporate assets after claims to all other parties have been met.

  • Residuary legacy

    In a will, the gift of whatever is left (the residue) after specific gifts are given.

  • Resiliency, market

    The speed with which prices return to equilibrium following a large trade.

  • Resistance

    When price levels in a market are expected to provide some barrier to a price rise.

  • Resistance level

    A price level identified by technical analysts at which persistent selling of a share or commodity takes place.

  • RESPA (Real Estate Settlement Procedures Act)

    RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

  • Result of exercising option

    A term used by the London Stock Exchange to denote that a transaction was reported as a result of exercising a traditional option or a negotiated option.

  • Result of stock swap

    A term used by the London Stock Exchange to denote that a trade was reported as a result of a stock swap or stock switch (one report is required for each line of stock swapped or switched).

  • Retail investor

    A private investor who buys shares through a stockbroker for his/her private portfolio.

  • Retail price index (RPI)

    An index of the prices of consumer goods and services used to measure the rate of inflation.

  • Retailer card

    A plastic payment card issued by a specific retailer or group of retailers for limited use at their own outlets.

  • Retained earnings

    The proportion of a company's profits after tax which are not paid out as dividends but reinvested in the company.

  • Retention

    The amount of risk or loss that the reinsured or the reinsurer keeps for its own account or that of specified others.

  • Retirement pension forecast

    See: 'pension forecast'

  • Retirement relief

    A special relief for Capital Gains Tax purposes which applies when an individual aged 55 or over disposes of his business or an interest in a business.

  • Retracement

    The reversal of a stock's price counter to the recent trend.

  • Retroactive Reinsurance

    A plan or method that provides for the adjustment of final reinsurance ceding commission or premium on the basis of the actual loss experience under the reinsurance contract, subject to minimum and maximum limits.

  • Retrocession

    Amount of the risk accepted by the reinsurer which is then passed on to other reinsurance companies.

  • Retrospective Rating

    A plan for which the final premium is not determined until the end of the coverage period and is based on the insured's own loss experience for that same period. It is subject to a maximum and minimum. A plan of this type can be used in various types of insurance.

  • Retrospectively Rated Reinsurance

    Reinsurance in which the ultimate premium paid by the reinsured is based upon the ultimate liabilities assumed by the reinsurer under the contract.

  • Return

    Profit earned by a capital investment or other type of security.

  • Return on assets (ROA)

    Earnings after tax divided by total assets.

  • Return on capital

    A profitability ratio measured using net income divided by invested capital. This is equivalent to return on assets multiplied by the leverage ratio (assets/equity).

  • Return on capital employed (ROCE)

    A measure of a company's profitability.

  • Return on equity (ROE).

    Earnings after tax divided by shareholders' equity.

  • Return on investment

    The overall profit (or loss) on an investment expressed as a percentage of the total invested.

  • Return on risk-adjusted capital

    A risk based profitability measurement framework for analysing risk-adjusted financial performance and providing a consistent view of profitability across businesses. RAROC is defined as the ratio of risk adjusted return to economic capital.

  • Revenue account

    An investment trust term referring to analysis of investment income. This details whether income is franked or unfranked and whether the source of income is from UK investments, overseas or unlisted securities.

  • Revenue anticipation note

    Security issued in anticipation of future revenue which will be used for repayment.

  • Revenue bond

    Municipal bond issued to finance a specific revenue-producing projects, such as a toll road, airport or public housing.

  • Reverse annuity mortgage (RAM)

    (US) A mortgage that permits elderly people who own their home to receive an income for life in return for the property's equity.

  • Reverse floater

    Inverse floater.

  • Reverse inquiry

    A request by an investor that a medium-term note be issued based on terms other than those offered.

  • Reverse leverage

    (US) The investment of borrowed money where the return fails to match the interest payable on the loan.

  • Reverse mortgage

    A mortgage that permits elderly people who own their home to receive an income with the home as collateral. The loan is repaid plus interest either at the end of the term or on the death of the borrower when the property is sold.

  • Reverse Rating

    An experience rating where the reinsured pays higher reinsurance premium in good years (i.e. years with good results) and lower premium in bad years (i.e. with bad results). See Experience Rating.

  • Reverse repo

    The opposite side of a repo transaction.

  • Reversionary bonus

    (UK) A bonus added to the sum assured of a with profits life assurance policy out of a life company's surplus profits usually on an annual basis.

  • Reversionary interest

    The right to receive the property held in a trust at some future date.

  • Revocable Trust

    A type of trust that can be terminated by the settler.

  • Rho

    The Greek factor sensitivity measuring a portfolio's first order (linear) sensitivity to the risk-free rate.

  • Riba

    An excess or increase. Technically, it means an increase over principal in a loan transaction or in exchange for a commodity accrued to the owner (lender) without giving an equivalent counter-value or recompense

    (‘iwad) in return to the other party; every increase which is without an ‘iwad or equal counter-value.

  • Riba

    (lit.) means an increase or addition. Technically it denotes any increase or advantage obtained by the lender as a condition of the loan. Any risk-free or "guaranteed" rate of return on a loan or investment is riba. Riba, in all forms, is prohibited in Islam. In conventional terms, riba and "interest" are used interchangeably.

  • Riba Al-Fadl

    Riba Al-Fadl (excess) is the quality premium in exchange of low quality with better quality goods e.g. dates for dates, wheat for wheat, etc. – an excess in the exchange of Ribawi goods within a single genus. The Concept of Riba Al-Fadl refers to sale transactions while Riba Al-Nasiah refers to loan transactions.

  • Riba Al-Nasiah

    Riba Al-Nasiah or riba of delay is due to exchange not being immediate with or without excess in one of the

    counter values. It is an increment on principal of a loan or debt payable. It refers to the practice of lending money for any length of time on the understanding that the borrower would return to the lender at the end of the period the amount originally lent together with an increase on it, in consideration of the lender having granted him time to pay. Interest, in all modern banking transactions, falls under purview of Riba Al-Nasiah. As money in present banking system is exchanged for money with excess and delay, it falls, under the definition of riba. A general accord reached among scholar about its prohibition.

  • Ribawi

    Goods subject to Fiqh rules on Riba in sales, variously defined by the schools of Islamic Law: items sold by weight and by measure, foods, etc.

  • Riding the yield curve

    Where bond market players buy longer-term bonds in anticipation of capital gains as yields fall with the declining maturity of their bond holdings.

  • Right of redemption

    (US) The right to recover property forfeited by foreclosure by paying the outstanding principal owed plus interest.

  • Right of survivorship

    The right of a joint owner to the full title of a property following the death of the other joint owner.

  • Rights issue

    An offer made to existing shareholders in a company to buy new shares of that company at discount price.

  • Rights offering

    See 'rights issue'.

  • Ring fence

    A protection-based transfer of assets from one destination to another, usually through the use of offshore accounting.

  • Risk

    The chance that an investment could lose or fail to maintain value.

  • Risk arbitrage

    Merger arbitrage.

  • Risk capital

    Funds made available for startup firms with exceptional growth potential. Also called venture capital (VC).

  • Risk committee

    A board level committee with responsibility for issues related to financial risk management.

  • Risk factor

    A random variable whose value will affect the value of a portfolio.

  • Risk limit

    A limit placed upon risk taking activity for the purpose of avoiding excessive risk.

  • Risk management department

    A department within a firm that is responsible for risk management.

  • Risk manager

    A professional who performs duties related to risk management.

  • Risk measure

    An operation for quantifying a risk.

  • Risk neutral valuation

    A concept that underlies many techniques for pricing options and other derivatives.

  • Risk oversight committee

    A committee of senior managers with responsibilities related to financial risk management.

  • Risk Premium

    The portion of the premium that is allocated to enable the reinsured to pay losses.

  • Risk Transfer

    The extent to which insurance risk is shifted from the reinsured to the reinsurer.

  • Risk vector

    A random vector whose components are risk factors.

  • Risk-adjusted capital ratio

    A firm's capital ratio with an adjustment made to the denominator to reflect the risk of its assets.

  • Risk-adjusted performance metric

    A standard accounting performance metric adjusted to reflect "true" or "economic" risk.

  • Risk-adjusted return on capital

    A Risk-Adjusted Performance Metric (RAPM) based on return on capital (ROC).

  • Risk-adjusted return on risk-adjusted capital

    A Risk-Adjusted Performance Metric (RAPM) based on return on capital (ROC).

  • Risk-averse investor

    An investor who only buys a risky asset if it provides compensation for risk via a risk premium.

  • Risk-Based Capital

    Risk-based capital is the amount of capital that is needed to absorb the risks of operating a business.

  • Risk-free rate

    An interest rate that can be earned with certainty.

  • Risk-lover investor

    Investors who will accept lower expected returns on investments with higher levels of risk.

  • Risk-lover investor

    Investors who accept higher levels of risk.

  • Risk-return trade-off

    The risk attached to an investment, and the return one can attain by holding that investment.

  • Risk/reward

    The comparison of the returns which can be earned from different types of financial instruments (bank deposits, bonds, shares, unit trusts, investment trusts, property) and the risks that are attached to them.

  • Riskless principle

    A term used by the London Stock Exchange which means that a trade was reported as a riskless principle transaction between two non-members, where the two transactions are executed at different prices or on different terms (requiring two separate trade reports).

  • RiskMetrics

    A free service launched by JP Morgan in 1994 to promote the use of value-at-risk.

  • ROA

    Return on assets.

  • Robber barons

    A term used disparagingly to refer to industrialists of America's Gilded Age.

  • ROC

    Return on capital.

  • ROE

    Return on equity.

  • Rolling settlement

    In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day.

  • Rollover

    The transferring of funds from one investment to another such as rolling over the proceeds from a bond which has matured into another bond, or the rolling over of the proceeds of a share sale into a tax-efficient investment vehicle like a Venture Capital Trust.

  • Rollover relief

    A capital gains tax relief which applies when an individual disposes of a business or an asset used in a business and spends the proceeds on acquiring replacement assets during a qualifying period (normally up to one year before and up to three years after the date of the disposal of the original asset).

  • Rollover risk

    Rollover risk is the risk that a derivative associated with a government’s debt does not extend to the maturity of that debt.


    Return on risk-adjusted capital.

  • Round lot

    (US) It refers to the normal trading unit on a securities exchange. A round lot on the New York Stock Exchange is $100 for shares and $1,000 face value for a bond.

  • Round trip

    The opening purchase or sale of a futures or options contract and the subsequent closing sale or purchase in the same contract.

  • Royal Mint

    The Royal Mint is the body permitted to manufacture, or mint, coins in the United Kingdom of Great Britain and Northern Ireland. It originated over one thousand years ago, but it has functioned since 1975 as a 'Government Trading Fund', operating in much the same way as a government-owned company.

  • RSP Gateway

    A centralised routing system for electronic links between stockbrokers and Retail Service Providers (RSPs), who provide electronic pricing and execution services.

  • Rule 415

    SEC rule allowing shelf registration of medium-term notes.

  • Rule of 113

    An arithmetic equation used to calculate how many years it would take for an investment to triple in value, given knowledge of its annual rate of return and reinvestment (compounding) of income.

  • Rule of 72

    An arithmetic equation used to calculate how many years it would take for an investment to double in value, given knowledge of its annual rate of return and reinvestment (compounding) of income.

  • Run

    A sustained period of selling which drives down the price of a security or commodity.

  • Run-Off Cancellation

    A termination provision of a reinsurance contract stipulating that the reinsurer shall remain liable for losses under reinsured policies in force at the date of termination.

  • S&P/All Ordinaries share price index

    A share price index that measures the market prices of the major stocks listed on the Australian Stock Exchange (ASX).

  • Sadaqah

    Charitable giving.

  • Salaf or Loan / Debt (see Qard)

    Loan which draws forth no profit for the creditor (Lit.). In wider sense, it includes loans for specified periods, i.e. short, intermediate and long-term loans. Salaf is another name of Salam as well wherein price of the commodity is paid in advance while the commodity or the counter value is supplied in future; thus the contract creates a liability for the seller. Amount given as Salaf cannot be called back, unlike Qard, before it is due.

  • Salary reduction plan

    A plan which allows employees to contribute pre-tax compensation to a qualified tax deferred retirement plan.

  • Sales charge

    A brokerage fee charged to a buyer of shares in a mutual fund.

  • Sales ledger

    It contains the personal accounts of customers to whom the business has sold on credit.

  • Sales tax

    (US) A state or local government tax levied on goods and services. The amount of tax is based on a percentage of the selling price.

  • Sales/Use Taxes

    Sales/use taxes vary from state to state and are assessed on purchased units.

  • Samurai

    A foreign bond issued in Japan.

  • Samurai bond

    A foreign bond issued in Japan.

  • Sarbanes-Oxley Act of 2002

    US legislation enacted in response to the accounting scandals of 2001-2002.

  • Sargeted amortization class

    A type of CMO bond structured to minimize risk due to high prepayment rates.

  • Save as you earn (SAYE)

    (UK) A former government scheme, abolished in 1994, which allowed tax concessions to people making regular savings from their salaries into certain building society, bank and National Savings accounts.

  • Savings account

    An account with a bank or financial institution which pays interest on balances held.

  • Savings and Loan Association

    (US) A financial institution in which depositors' savings are used to provide home mortgages loans.

  • Savings element

    (US) The cash value which accumulates within a life insurance policy. The premium is applied to give both life cover plus a savings element which is allowed to grow tax deferred until withdrawn.

  • Sax and revenue anticipation note

    A type of municipal security.

  • Scalper

    A trader who buys and sells quickly to take advantage of small price fluctuations.

  • Scenario analysis

    Formalized "what if" analysis performed as a part of asset-liability management or corporate risk management.

  • Schedule

    The part of an insurance or assurance policy which sets out the particular details relevant to the contract.

  • Schedule D

    The tax schedule under which a self-employed person's profits are assessed.

  • Schedule E

    The tax schedule under which directors and employees of a company are assessed.

  • Scrip dividend

    (UK) The issue of additional shares by a company to a shareholder in lieu of a dividend. The shares have an equivalent cash value to the dividend. No dealing charges or stamp duty is payable the issue of the new shares.

  • Scrip issue

    A scrip issue is the issue of new shares to existing shareholders at no charge, pro-rata to their existing shareholdings.

  • Scripophily

    A term coined in the mid-1970s to describe the hobby of collecting antique bonds, stocks and other financial instruments.

  • SEAQ trade

    A term used by the London Stock Exchange to denote a single uncrossing trade, detailing the total executed volume and uncrossing price as a result of a SEAQ auction.

  • Seasoned issue

    A security issued by a well established and sound performing company with generally high liquidity.

  • Seat

    Membership of a securities or commodities exchange.


    Stock Exchange Automated Trading System, a computer network that allows stockbrokers to trade via computer terminals.

  • SEC

    Securities and Exchange Commission


    Income earned as defined by the Securities Exchange Commission, over the seven-day period and annualized.

  • Second Banking Coordination Directive

    1989 European financial legislation.

  • Second Event Cover

    Catastrophe excess of loss cover with an annual aggregate deductible of one limit, so that the sub total loss is retained by the reinsured.

  • Second Event Retention

    A provision under which the reinsured's retention for excess of loss protection (especially under catastrophe covers) is reduced for subsequent catastrophes during the same reinsurance period.

  • Second hand endowment

    See: 'traded endowment policy'.

  • Second mortgage

    A mortgage on real estate which has already been pledged as collateral for an earlier mortgage. The second mortgage carries rights which are subordinate to those of the first.

  • Second mortgage bond

    A subordinate mortgage bond.

  • Secondary capital

    A bank's transient capital.

  • Secondary market

    The financial market for trading of securities that have already been issued in an initial private or public offering.

  • Secondary market

    The trading of shares amongst investors which does not involve the company itself.

  • Section 32 transfer

    (UK) A reference to section 32 of the Finance Act 1981 which defined the original legislation allowing a person to transfer a payment representing pension benefits from a previous employer to a personal pension plan operated by an insurance company.

  • Sector

    A group of listed companies operating in the same industry, such as energy, financials, general industries, pharmaceutical and technology.

  • Sector fund

    A mutual fund or unit trust which invests in a specific sector.

  • Sector, Inc.

    (US) Sector, Inc., is a wholly owned subsidiary of the US Securities Industry Automation Corporation (SIAC). It provides a variety of communications and outsourcing services to organisations that require high-availability for critical operations in both data center and network operations.

  • Secured bond

    A bond which is secured by the guarantee of assets or collateral.

  • Secured creditor

    A creditor who has a charge over the assets of a debtor in the event of the debtor failing to meet his/her obligations.

  • Secured lending

    Collateralized lending.

  • Secured loan

    A loan backed by an asset, which can seized in the event of default.

  • Securities

    Financial instruments (such as bonds or stocks) that can be traded freely on the open market.

  • Securities Act of 1933

    US legislation to regulate the primary (underwriting) market for securities.

  • Securities and Exchange Commission (SEC)

    (US) The US federal agency empowered to regulate US financial markets in order to protect investors. All quoted American companies have to comply with SEC rules and regulations.

  • Securities and Investments Board (SIB)

    (UK) A private limited company formerly reporting to the Chancellor of the Exchequer with responsibility for the regulation of the UK investment market in accordance with the Financial Services Act 1986. It was replaced by the Financial Services Authority (FSA) in October 1997.

  • Securities Exchange Act of 1934

    US legislation to regulate the secondary market for securities.

  • Securities firm

    A firm that brokers or sells securities.

  • Securities Industry Association (SIA)

    (US) It represents the collective business interests of more than 500 brokerages and investment banking firms in the US Membership includes most NYSE member organisations, major firms of all US and Canadian exchanges, and the OTC market.

  • Securities Industry Automation Corporation (SIAC)

    (US) SIAC operates the New York and American Stock Exchanges automation and communications systems to support trading, market data reporting, and surveillance activities.

  • Securities Investor Protection Corporation (SIPC)

    (US) A not-for-profit organisation which provides insurance for cash and securities in customer accounts held by approved brokerage firms. Brokers and dealers registered with the Securities and Exchange Commission are obliged to be members of SIPC.

  • Securities lending

    The lending of securities by one party to another.

  • Securities Masterfile (SMF)

    It provides up-to-date information on securities traded on UK and international markets (from the London Stock Exchange).

  • Securitisation

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.

  • Securitised derivative

    A derivative which is freely traded and listed on a stock exchange.

  • Securitize

    To legally structure or package a financial interest as a security.

  • Security

    A financial instrument (such as bonds or stocks) that can be traded freely on the open market.

  • Security Agreement

    An agreement between a borrower and a lender which allows the lender or creditor to place a lien on specific collateral.

  • Self assessment

    (UK) It is a tax return which has to be completed individuals who are self employed, a business partner, a company director, or have complex tax affairs.

  • Self regulating organization

    In the United States, a private organization that performs a regulatory function under the supervision of the SEC.

  • Self Regulatory Organisation (SRO)

    (UK) Following the Financial Services Act 1986, SROs were set up to regulate companies dealing in investment business, but all regulatory functions of SROs were taken over by the Financial Services Authority as of December 2001.

  • Self-administered pensions scheme

    A pension scheme with no more than 12 members where one or more of the members is a trustee or the company which established the scheme is a trustee.

  • Self-Insurance

    When companies or individuals set funds aside to pay for possible losses.

  • Self-invested personal pension (SIPP)

    (UK) A type of personal pension which allows wider investment freedom.

  • Self-select ISA

    An ISA in which the investor makes decisions about what investments go into the tax-free shelter, rather than relying on advice from a broker or IFA.

  • Sell side

    A broker/dealer who sells expertise in research, order execution or any other service to an individual or institution.

  • Selling price

    The price at which units in a unit trust are sold by investors. Also known as the bid price.

  • Semi-annual compounding

    Compounding based on semi-annual crediting of interest.

  • Semi-variance

    An alternative to variance that focuses on negative values of a distribution.

  • Senior debt

    (US) A debt which receives priority for repayment in the event of a corporation's liquidation.

  • Senior mortgage bond

    (US) A mortgage bond which receives priority on the assets of a company over other bonds in the event of liquidation.

  • Separation theorem

    The result that portfolio composition and portfolio leveraging are two unrelated decisions.

  • Sequential pay CMO bond

    A type of CMO bond whose structure comprises three or four tranches that mature sequentially. All tranches participate in interest payments from the mortgage collateral, but initially, only the first tranch receives principal payments.

  • Serial bond

    A bond which is arranged to be repaid in instalments over a period of time.

  • Series

    Options contracts on the same instrument which have the same exercise price and expiry date are known as the same series.

  • Service Agreement

    A contract binding a company to compensate the covered party for the repairs of a vehicle/vessel above and beyond the original manufacturer's warranty.

  • Servicing agent

    The party who performs servicing on collateral of a securitization.

  • Servicing fee

    A fee subtracted from the cash flows of a securitization to cover the cost of servicing.

  • Servicing rights

    Rights to process payments and perform related tasks associated with the collateral of a securitization.

  • Settlement

    The process whereby securities or interests in securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising under securities trades.

  • Settlement date

    The date on which a trade settles.

  • Settlement options

    (US) The various options available to the beneficiaries of a life insurance policy in the event of the death of the insured.

  • Settlement price

    A price set for a futures contract at the close of trading for the purpose of calculating margin payments.

  • Settlement risk

    A form of credit risk that arises at the settlement of a transaction.

  • Settlor

    The term given to an individual setting up assets under a trust.

  • Share

    An individual unit of ownership in a publicly-owned corporation or mutual fund.

  • Share account

    (UK) A building society account where there is no cheque book facility. Share account holders are members of the society and are entitled to vote and attend annual general meetings.

  • Share buyback

    The purchase by a listed company of its own shares either in the open market or by tender offers.

  • Share capital

    The proportion of a company's capital which derives from the issue of ordinary shares and preference shares.

  • Share certificate

    A certificate denoting ownership of shares in a company.

  • Share exchange

    A facility offered by some investment trusts which enables investors to convert individual shares they hold into shares in the investment trust.

  • Share option

    A right to acquire shares in the future, usually at a fixed price.

  • Share perks

    When a company gives their shareholders a discounted price on the company's goods and services.

  • Share to buy

    A mortgage scheme which enables groups people to jointly buy a property.

  • Shared appreciation mortgage (SAM)

    (US) A mortgage in which a borrower pays lower rate of interest to the lender on the understanding that the latter shares a proportion of the appreciation of the property.

  • Shared ownership schemes

    With shared ownership an affordable share of a property is purchased and rent is paid on the remaining share, which is owned by a housing association. Gradually, further shares may be bought until the home is owned outright.

  • Shareholder

    Person who owns shares in a company.

  • Shariah

    Refers to a divine guidance as given by the Holy Qur’an and the Sunnah of the Prophet Muhammad (PBUH) and embodies all aspects of the Islamic faith, including beliefs and practice.

  • Shariah / Sharia / Shari'a

    Islamic canon law derived from 3 Primary sources: the Quran; the Hadith (sayings of the Prophet Muhammad); and the Sunnah (practice and traditions of the Prophet Muhammad), and three Secondary sources Qiyas (Analogical deductions and reasoning), Ijma (Consensus of Islamic Scholars) and Ijtihad (Legal reasoning).

  • Sharpe, William

    1990 Nobel Prize winner who published the original capital asset pricing model.

  • Shelf registration

    A flexible form of SEC registration applicable to medium-term notes.

  • Shell company

    A company which exists in name only but has ceased to trade.

  • Shirkah

    A contract between two or more persons who launch a business or financial enterprise to make profits. In the conventional books of Fiqh, the partnership business has been discussed under the option of Shirkah that, broadly, may include both Musharakah and Mudarabah.

  • Shirkah

    A contract between two or more persons who launch a business or financial enterprise to make profit. Shirka = musharaka.

  • Short bond

    A bond with a near maturity date, generally under two years.

  • Short covering

    The act of buying back a commodity, security or opposing futures contract to close out a short position.

  • Short position

    In the case of a futures contract, the promise to sell a certain quantity of a good at a particular price in the future. opposite of a long position.

  • Short sale

    Sale of a borrowed security.

  • Short seller

    Someone who sells an asset short.

  • Short selling

    The strategy which involves selling shares you don't yet own in the expectation that the price will fall and you can buy them back at a lower price later and make a profit.

  • Short squeeze

    Situation in which those who are short cannot repurchase their contracts, except at a price substantially higher than the value of those contracts in relation to the rest of the market.

  • Short term debt

    (US) Debts or current liabilities which are due within one year.

  • Short-Tail Business

    A term used in insurance business when claims will generally be notified and settled quickly.

  • Short-Term Securities

    Securities which have less than one year between issue date and maturity.

  • Shortfall Cover

    A facultative reinsurance cover, usually temporary, that is used to fill in the shortfalls in the reinsured's programme.

  • Shorting a market

    A strategy where the investor sells an asset that she does not own. It entails the investor borrowing the asset from a broker, and then giving it back to the broker when the loan is repaid.

  • Shorts

    Redeemable gilts or bonds with a redemption date within five years.

  • Sickness benefit

    (UK) A benefit payable by the state to employed people who become ill and are unable to work.

  • Siegel, Martin

    Kidder Peabody investment banker who became embroiled in the 1980s insider trading scandals.

  • Sight draft

    A draft on which payment is to be made immediately.

  • Simple interest

    Interest, normally paid annually, which is earned on deposited capital only. Unlike compound interest, the annual interest is not added to the capital.

  • Simple Interest Loan

    In contracts which use simple interest, the customer promises to pay back the principal balance of the purchase price, plus interest to the lender. Interest accrues daily on the daily outstanding balance.

  • Simple random walk

    A random walk whose increments form a strong white noise whose terms only take on the values 1 or –1, each with probability 0.5.

  • Simple reversionary bonus

    A with profits life assurance bonus, normally declared annually, which is based on the profits of the life company's investments. The simple reversionary bonus is calculated on the sum assured (or basic sum assured) only and is payable at the maturity of the policy or prior death.

  • Simplified employee pension plan

    (US) A pension plan, set up by an employee, in which both employer and employee contribute to an Individual Retirement Account (IRA).

  • Simulation analysis

    Scenario analysis performed as a Monte Carlo analysis.

  • Single monthly mortality

    A method of measuring the prepayment rate of a mortgage pool. Specifically, the single monthly mortality is equal to the unscheduled prepayments during a month divided by the scheduled balance for the end of the month expressed as a percentage.

  • Single premium life insurance

    When the policyholder makes a single payment for an insurance policy rather than paying out a regular amount.

  • Single price

    Units in unit trusts are priced by dividing the value of the trust's underlying investments by the number of units in issue. OEICs have single pricing, based on the mid-market valuation of the underlying investments.

  • Singular positive semidefinite matrix

    A matrix that is positive semidefinite but not positive definite.

  • Singular random vector

    A random vector whose covariance matrix is singular.

  • Sinking fund

    Money regularly set aside by a company to redeem its bonds, debentures or preferred stock from time to time as specified in the indenture or charter.

  • SIPC

    Securities Investor Protection Corporation.

  • Skewness

    A parameter that describes a lack of symmetry of a probability distribution.

  • Skilling, Jeffrey

    Former President and CEO of energy trading firm Enron, which failed in 2001.

  • Sliding Scale Commission

    A system whereby the remuneration payable by the reinsurer to the cedant on premiums ceded is, within limits, directly related to the loss ratio of the treaty.

  • Slip

    A document containing details of a risk proposed for reinsurance, the premium and the participation of the reinsurer.

  • Slip Policy

    Provisions of the reinsurance contract wording form part of the slip. Signature of the slip policy makes it legally binding.

  • Slump

    A severe recession over a lengthened period.

  • Small cap

    Small cap' can refer to companies with market capitalisations of just £50 million or as much as £500 million.

  • Small self administered scheme (SSAS)

    A self-administered occupational pension scheme with no more than 12 members. The scheme will normally be run for a family business.

  • Small traders

    Traders who are not required to file reports of their futures transactions or positions with an exchange or the CFTC because their positions are smaller than the reporting levels of the exchange of the CFTC.

  • SMM

    Single monthly mortality

  • Social security disability income insurance

    (US) Insurance which provides income to disabled people incapacitated for one year or more.

  • Social security tax

    (US) A federal tax imposed on income and paid equally by employer and employee up to a maximum income level.

  • Society for Worldwide Interbank Financial Telecommunications (SWIFT)

    An international body which sets protocols and standards for international payment systems such as electronic money transfers.

  • Soft dollars

    (US) Payment to a broker by a customer by way of commission charges for services provided rather than a fee (known as hard dollars).

  • Solvency Margin

    An insurer must maintain a minimum margin of assets surpassing liabilities. The way in which solvency margins are calculated is normally regulated by the supervisory authority of a given country.

  • Solvency Ratio Directive

    European legislation (1989) specifying capital requirements for the non-trading portion of a bank's balance sheet.

  • South Sea Bubble

    An English stock bubble that burst in 1720.

  • Sovereign risk

    The risk that a foreign central bank will change its foreign-exchange regulations thereby significantly reducing or completely nulling the value of foreign-exchange contracts.

  • SOX

    Sarbanes-Oxley Act of 2002

  • SPE

    Special purpose entity.

  • Special Acceptance

    The facultative extension of a reinsurance treaty to cover a risk not automatically included within its terms.

  • Special bonus

    (UK) An additional bonus applied to a with profits life assurance policy when the life company's profits are exceptional.

  • Special purpose entity

    Special purpose vehicle.

  • Special purpose vehicle

    A firm or other legal entity established to facilitate off-balance sheet financing.

  • Special security

    A security for which there is particular demand in the repo market.

  • Specialised mutual fund

    See: 'sector fund'.

  • Specialist

    (US) A member of a stock exchange who executes limit orders and buys and sells securities when abnormal fluctuations occur to maintain market stability.

  • Specific risk

    That component of an instrument or portfolio's market risk that is uncorrelated with the overall market.

  • Speculation

    The buying and/or selling of securities, commodities and currencies with a view to making relatively quick profits as opposed to long-term investment.

  • Speculative grade bond

    Junk bond.

  • Speculative limits

    See: 'position limit'.

  • Spline interpolation

    A form of interpolation where the interpolant is a special type of piecewise polynomial called a spline. Spline interpolation is preferred over polynomial interpolation because the interpolation error can be made small even when using low degree polynomials for the spline.

  • Split

    (US) The issuing of additional shares by a company to its shareholders in proportion to their existing holdings, resulting in a lower market price which adds no value to shareholders' equity. In a one for one split, original ownership of 1,000 shares at $10 per share changes to 2,000 shares at $5 per share.

  • Split capital investment trust

    An investment trust with a limited life, in which the equity capital is divided into two classes - income shares and capital shares.

  • Spot curve

    A graph of spot interest rates for different maturities.

  • Spot loan

    A pre-approved line of credit.

  • Spot market

    A market in the underlying instrument (for example, shares, commodities) on which a futures or options contract is based. This market is for immediate delivery as opposed to future delivery.

  • Spot price

    The market price for immediate delivery of a commodity, such as gold, silver or platinum

  • Spot rate (or spot price)

    The current interest rate (or price) on offer for an asset. In currency markets it refers to the current exchange rate between two countries' currencies.

  • Spot Reinsurance

    Facultative reinsurance, usually applied to one item, risk, peril or location for property.

  • Spot settlement

    Immediate settlement of a trade.

  • Spot trade

    A trade for spot settlement.

  • Spot-next

    A loan commencing spot and lasting one trading day.

  • Spousal IRA

    (US) An individual retirement account set up on behalf of a non-working spouse.

  • Spread

    The taking of a long position in a futures contract with one maturity, and a short position of a futures contract with a different maturity.

  • Spread betting

    A form of investing which is more akin to betting, and can be applied either to sporting events or to the financial markets. At its core is the maxim 'the more right you are, the more you win'. Financial spread betting lets you back your trading judgement without having to purchase or sell the stock you want to trade.

  • Spread option

    A type of option that derives its value from the difference between the prices of two or more assets.

  • Spread risk

    Risk due to exposure to some spread.

  • Spread trading

    An approach to trading that involves being both long and short at the same time.

  • SPV

    Special purpose vehicle.

  • Square root of time rule

    A formula for computing a volatility for one unit of time from a volatility for a different unit of time.

  • Squeeze

    A long squeeze occurs when supplies of a commodity are not enough to allow delivery of the asset underlying the futures contract.

  • SRO

    Self regulating organization

  • Stable distribution

    A probability distribution that remains the same under addition.

  • Stable Paretian distribution

    A non-normal stable distribution.

  • Stag

    A person who applies for shares in a new issue with the intention of selling them soon after trading begins. The stag hopes that the price will rise high enough in early trading for him to make a quick profit.

  • Stagflation

    Economic stagnation (or recession) combined with inflation.

  • Stamp duty

    (UK) A tax imposed on those buying shares or property. As far as shares are concerned, the tax is collected by brokers on behalf of their clients, and appears on the contract note which they send out to clients when they buy shares.

  • Standard & Poor's Claims Paying Ability Rating

    Standard & Poor's opinion on the financial capacity of an operating insurance company and its ability to meet the obligations of its insurance policies in accordance with their terms (secure range: AAA to BBB; vulnerable range: BB to CCC).

  • Standard and Poor's 500 Index (S&P 500)

    (US) A capitalisation weighted index of 500 stocks. Standard and Poor's 500 index represents the price trend movements of the major common shares of US public companies.

  • Standard deviation

    A statistic that measures dispersion around a particular point. One use of the standard deviation is to measure how stock price movements are distributed about the mean.

  • Standard normal distribution

    The normal distribution with mean 0 and variance 1.

  • Standard variable rate (SVR)

    A mortgage lender's main interest rate, which fluctuates with changes in the base rate.

  • Standardized stable distribution

    A stable distribution whose scale and location parameters are 1 and 0.

  • Standing order

    (UK) An order by a customer to his/her banker to make regular payments to another account.

  • Stat arb

    Statistical arbitrage.

  • State Earnings Related Pension Scheme (SERPS)

    (UK) A government scheme introduced in April 1978 which enables employees (but not the self-employed) to top up the basic pension they receive on retirement with additional pension payments based on their earnings. SERPS was replaced in April 2002.

  • State Pension

    (UK) Regular income from the state paid to retired people who have made contributions during their life.

  • State Second Pension (SSP or S2P)

    In April 2002 the State Second Pension replaced the State Earnings Related Pension Scheme (SERPS) to pay a top-up pension based on employed people's earnings. Also known as additional pension.

  • Stated value

    Par value.

  • Statement

    See: 'statement of account' and 'bank statement'

  • Statement of account

    A document, issued by a supplier to its customer, listing transactions over a given period.

  • Statement of cash flows

    A financial statement that shows a company's cash receipts and cash payments over a period of time.

  • Static CDO

    A CDO whose collateral is not actively managed by a portfolio manager.

  • Stationarity

    Covariance stationarity.

  • Statistical arbitrage

    Market neutral trading strategy used in equity markets and employing time series analysis.

  • Statutory sick pay (SSP)

    (UK) Pay made by employers to employees who are ill and unable to work for more than three consecutive days. SSP is payable for the first eight weeks of absence after which sickness benefit becomes payable.

  • Statutory underwriter

    An investor who acts as a securities underwriter under the 1933 Securities Act.

  • Step-up bond

    A bond that pays a reduced coupon during its first few years.

  • Stepped interest debenture stocks

    (UK) A debenture stock where the rate of interest payable to lenders is increased in stages over the initial life until a certain rate is reached. Thereafter, the rate remains fixed until the redemption date.

  • Stepped preference shares

    Preference shares with dividends which increase annually by a specified amount and with a predetermined capital return.

  • Sterling

    The currency of the UK.

  • Sticky delta

    A bond that pays a reduced coupon during its first few years.

  • Sticky strike

    A model whereby volatility skew is stable relative to option strikes.

  • Stochastic

    A model based on the belief that as prices go up or down, closing prices tend to accumulate ever more closely to the highs (or lows) for a given period.

  • Stochastic calculus approach

    An informal name for derivatives pricing models that employ stochastic calculus with risk neutral valuation or other techniques based upon modelling future asset values.

  • Stochastic oscillator

    The stochastic oscillator compares where a security's price closed relative to its price range over a given time period.

  • Stochastic process

    An ordered collection of random variables.

  • Stochastic volatility model

    A category of conditionally heteroskedastic stochastic processes.

  • Stock

    The American terms for shares in a company. The two main types of stock are common stock and preferred stock. In the UK, stock is traditionally used to mean fixed interest securities like gilts (e.g. 'Treasury Stock').

  • Stock dividend

    (US) The payment of a dividend to shareholders in the form of stock instead of cash.

  • Stock exchange

    A market where issued securities are bought and sold.

  • Stock Exchange Automated Quotation (SEAQ) International

    The London Stock Exchange's electronic price quotation system for non UK securities.

  • Stock Exchange Automated Quotation system (SEAQ)

    The computerised system at the London Stock Exchange which continuously updates prices and trade reports for UK securities (shares, gilts etc). SEAQ lists the market makers' bid and offer prices, together with the Normal Market Size at which those prices will be honoured. Shares traded using SEAQ are said to be traded on the 'quote book'.

  • Stock Exchange Automated Trading System PLUS (SEATS)

    SEAT Plus is a trading system which handles the trading of all AIM and listed UK equities whose turnover is insufficient for the market making system or the Stock Exchange Electronic Trading Service (SETS).

  • Stock Exchange Daily Official List code

    A seven digit unique number used as an identifier for a security listed on the London Stock Exchange.

  • Stock Exchange Electronic Trading Service

    The automated trading system introduced in 1997 for the largest companies quoted on the main list of the London Stock Exchange. Trades through SETS match buyers and sellers automatically, cutting out the need for a market maker which theoretically means a narrower bid-offer spread.

  • Stock Exchange Pool Nominee (SEPON)

    The nominee company where all stocks and shares are held during the course of settlement on the London Stock Exchange.

  • Stock in trade

    Raw materials and finished products carried in stock by a company. These would be included in the company's assets on the balance sheet.

  • Stock Situation Notices (SSN)

    Notices from the London Stock Exchange which contain extensive details of a corporate action (e.g. of a rights issue, or takeover bid).

  • Stock Split

    A method of reducing stock price by issuing new shares.

  • Stock transfer form

    The form which the seller of shares signs when transferring a holding to a new owner.

  • Stock-settled warrant

    A warrant is stock-settled if it is exercisable in exchange for a physical security such as a share, rather than for cash.

  • Stockbroker

    A broker dealing in stocks and shares on behalf of a client.

  • Stockholder

    Person who owns stock.

  • Stockturn

    A financial ratio which shows how fast a company sells its goods.

  • Stop Loss Reinsurance

    Stop loss reinsurance does not cover individual claims. The reinsurer's liability is limited to a stipulated percentage of the loss and/or a maximum amount.

  • Stop order

    An order that becomes a market order when a specified price level is reached. A sell stop is placed below the market, a buy stop is placed above the market.

  • Stop-limit order

    An order that goes into force as soon as there is a trade at the specified price.

  • Stop-loss limit

    A market risk limit based upon incurred mark-to-market loss.

  • Stop-loss order

    A sell order to be made if the price of a stock holding falls below a pre specified level.

  • Stop-out yield

    The highest yield (the lowest price) accepted for the new treasury securities issued in a Treasury auction.

  • Stopped out

    When a stop order is activated and a position is offset, the trader has been 'stopped out'.

  • Straddle

    An options spread comprising a long put and a long call both with the same strike price.

  • Strafaci Edward

    Manager of the Lipper Convertible Fund, who misrepresented fund losses as gains.

  • Strangle

    It is the simultaneous purchase of a put and a call option/warrant in the same underlying instrument, with the same expiry date, but where the exercise prices are different.

  • Stratified sampling

    A technique of variance reduction for the Monte Carlo method.

  • Street name

    (US) The securities of an individual held in the name of a broker or other nominee rather than the name of the individual.

  • Stress testing

    A form of testing that is used to determine the stability of a given system or entity. It involves testing beyond normal operational capacity, often to a breaking point, in order to observe the results.

  • Strict stationarity

    A property of some stochastic processes.

  • Strike price

    The price specified by an option at which an asset is to be purchased or sold.

  • Strip

    A zero-coupon bond "stripped" from the cash flows of a Treasury security.

  • STRIPS Program

    A US Department of Treasury program for "stripping" coupon-bearing Treasury securities to form zero-coupon securities.

  • Strong white noise

    Independent white noise.

  • Structural credit risk model

    A model for assessing credit risk, typically of a corporation's debt. It is also sometimes called the Merton model or asset value model.

  • Subcustodian

    A custodian who holds securities locally on behalf of foreign investors.

  • Subject Premium Income

    Portion of the reinsured's premium to which the reinsurance premium rate is applied to establish the reinsurance premium in non-proportional contracts.

  • Submartingale

    A type of stochastic process that may have positive drift.

  • Subordinate PAC bond

    A pack bond that is paired with a super PAC bond to take most of the prepayment risk.

  • Subprime lending

    Lending at a higher rate than the prime rate. The term "subprime" refers to the credit status of the borrower (being less than ideal). Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and adverse financial situations usually associated with subprime applicants.

  • Subprime lending

    Subprime lending is the practice of extending credit to borrowers with certain credit characteristics e.g. a FICO score of less than 620 which disqualifies them from loans at the prime rate

  • Subprime mortgage financial crisis (2007)

    It was a sharp rise in home foreclosures which started in the United States in late 2006 and became a global financial crisis during 2007 and 2008.

  • Subscription price

    The price an investor pays for shares in a new issue.

  • Subscription terms

    The terms under which an investor can subscribe for shares in a new issue.

  • Successor Trustee or Executor

    An individual or institution taking the place of a trustee or executor unable to continue the responsibilities designated in the trust agreement or will.

  • Sudden Death

    An immediate termination provision in a reinsurance contract to facilitate cancellation of the contract if certain events occur, such as one party going into liquidation or outbreak of war involving the reinsured's country of domicile.

  • Suftajal

    A banking instrument used for the delegation of credit and was used to collect taxes, disburse government dues and transfer funds by merchants. In some cases suftajahs were payable at a future fixed date and in other cases they were payable on sight. Suftajah is distinct from the modem bill of exchange in some respects. Firstly, a sum of money transferred by suftajah had to keep its identity and payment had to be made in the same currency. Exchange of currencies could not take place in this case. Secondly, Suftajah usually involved three persons. 'A' pays a certain sum of money to 'B' for agreeing to give an order to 'C' to pay back to 'A'. Third, a Suftajahs could be endorsed.

  • Sukuk

    A certificate entitling the holder to the benefits of the income stream of the assets backing the certificate. Equivalent to a Fixed income bond.

  • Sum assured

    (UK) In a life assurance policy, the sum assured is the minimum amount payable to the assured or his/her dependants on the death of the life assured.

  • Sumitomo Corp. debacle

    Rogue trader scandal (1996).

  • Sunnah

    Custom, habit or way of life. Technically, it refers to the utterances of the Prophet Muhammad (PBUH) other than the Holy Quran known as Hadith, or his personal acts, or sayings of others, tacitly approved by the Prophet.

  • Sunrise Clause

    A clause sometimes found in casualty reinsurance contracts that provides coverage for losses reported to the reinsurer during the term of the current reinsurance contract, but resulting from occurrences that took place during a prior period.

  • Sunset Clause

    A clause sometimes found in casualty reinsurance contracts that stipulates that the reinsurer will not be liable for any loss that is not reported to the reinsurer within a specified period of time after the expiration of the reinsurance contract.

  • Super Designated Order Turnaround System

    (US) The system that transmits New York Stock Exchange (NYSE) member firms' market and day limit orders, up to specified sizes in virtually all listed stocks, through the common message switch to the proper trading floor workstation.

  • Super PAC bond

    A form of PAC bond that is structured to have less prepayment risk than an accompanying subordinate PAC bond.

  • Super-efficient portfolio

    The portfolio on the efficient frontier with the highest Sharpe Ratio. Also known as the market portfolio.

  • Superannuation

    An investment vehicle which operates primarily to provide benefits for retirement. Superannuation savings are usually made through trust funds and if these funds meet prescribed government standards they are eligible for tax concessions.

  • Supermartingale

    A type of stochastic process that may have negative drift.

  • Support bond

    A bond that takes most of the prepayment risk in a PAC CMO structure.

  • Support level

    Term used in technical analysis to describe a price level below which it is supposedly difficult for a stock to fall.

  • Supremum

    The supremum of a real set A is the smallest real number such that all elements of A are less than or equal to that number.

  • Suretyship

    The function of being a surety; it embraces all forms of obligations to pay the debt or answer for the default of another.

  • Suretyship

    In Islamic law is the creation of an additional liability with regard to the claim, not to the debt or the assumption only of a liability and not of the debt.

  • Surplus Relief

    The use of admitted reinsurance on a portfolio basis to offset unusual drains against policyholders' surplus.

  • Surplus Treaty

    When the reinsurer shares the risk with the reinsured on a pro rata basis.

  • Surrender value

    (US) The cash value of, for example, an endowment assurance policy at any time throughout the term prior to its maturity.

  • Survival function

    Probability of avoiding default expressed as a function of time.

  • Swap

    A derivative whereby two parties exchange cash flow streams.

  • Swap curve

    A yield curve of swap rates.

  • Swap rate

    The fixed rate quoted on a vanilla interest rate swap.

  • Swaption

    An option on a swap.

  • Sweeper account

    Traditionally the exchange of one security for another to change the maturities of a bond portfolio or the quality of the issues in a stock or bond portfolio, or because investment objectives have changed.

  • Switching

    The transferring of assets from one mutual fund or unit trust to another within a range of funds with differing objectives such as bonds, capital growth, chemicals, overseas capital growth, all managed by the same mutual fund company or unit trust institution.

  • Symbol

    An identity code allocated to a company by the exchange on which its stock is traded. Usually the code is an abbreviation of the company's name.

  • Syndicate

    A group of investment bankers who together underwrite and distribute a new issue of securities or a large block of an outstanding issue.

  • Synthetic CDO

    A CDO that creates credit exposures for investors primarily through CDSs.

  • Synthetic long call

    A long stock position combined with a long put of the same series as that call.

  • Synthetic long put

    A short stock position combined with a long call of the same series as that put.

  • Synthetic long stock

    A long call position combined with a short put of the same series.

  • Synthetic position

    A hedging strategy combining futures and futures options for price protection and increased profit potential.

  • Systematic risk

    Risk attributable to macroeconomic factors.

  • T-bill

    Treasury bill.

  • Tabarru'

    Donation/gift the purpose of which isn’t commercial but is seeking the pleasure of Allah. Any benefit that is given by a person to other without getting anything in exchange is called Tabarru’.

    Gracious repayment of debt, absolutely at lender’s own discretion and without any prior condition or inducement for reward, is also covered under Tabarru’. Repaying a loan in excess of principal and without a pre-condition

    is commendable and compatible with the Sunnah of the Holy Prophet (peace be upon him). But, it is matter of individual discretion and cannot be adopted as a system because this would mean that loan would necessarily

    yield a profit. If such reward takes the form of a system, it would be considered Riba.

  • Tabzir

    Spending wastefully on objects which have been explicitly prohibited by the Shariah irrespective of the quantum of expenditure. See also Israf.

  • TAC bond

    Targeted amortization class bond.

  • Takaful

    Form of Islamic insurance based on the Quranic principle of Ta'awon or mutual assistance. It provides mutual protection of assets and property and offers joint risk sharing in the event of a loss by one of its members. Takaful is similar to mutual insurance in that members are the insurers as well as the insured. Conventional insurance is prohibited in Islam because its dealings contain several haram elements including gharar and riba, as mentioned above.

  • Take home pay

    The amount of money employers take home after all deductions from their salary.

  • Takeover

    The acquisition of one business or company by another, either on an agreed or hostile basis.

  • TAN

    Tax anticipation note.

  • Tangible assets

    Physical assets owned by a company or individual such as stock, machinery, property etc.

  • Taper relief

    Taper relief was introduced into the UK taxation regime with effect from 6th April 1998. It aims to reduce the amount of capital gains tax investors have to pay when they sell shares, to account for the effect of inflation.

  • Targeted amortization class bond

    Bonds offered as a tranche class of some CMOs, according to a sinking fund schedule. They differ from PAC bonds whose amortization is guaranteed as long as prepayments on the underlying mortgages do not exceed certain limits.

  • Tax allowances

    (UK) Tax allowances are concessions by the Inland Revenue which can be used to reduce a person's Taxable Income.

  • Tax and revenue anticipation note

    A short-term obligation used to finance short-term deficits resulting from the difference between government expenses and government taxes or revenues.

  • Tax anticipation note

    Short-term debt securities issued in anticipation of future tax collections.

  • Tax avoidance

    The act of minimising tax liability using legal methods, as opposed to tax evasion which uses illegal means and is therefore a criminal offence.

  • Tax codes

    Under the PAYE system of taxing income, tax codes are allocated annually to employees. These codes enable the employer to deduct tax at the correct rate from salaries or wages on a monthly (or weekly) basis for remittance to the Inland Revenue. Most codes depict a number followed by a letter.

  • Tax evasion

    The act of minimising tax liability by failing to declare taxable income or taxable capital gains or by submitting false information to the tax authorities. This is a criminal offence with severe penalties.

  • Tax exile

    A wealthy person who lives outside his/her own country in order to minimise taxes.

  • Tax haven

    A country where companies or individuals may legally take advantage of lower taxation levels.

  • Tax relief

    Amounts which you can deduct from your annual income to reduce the amount on which you have to pay tax.

  • Tax return

    A form on which certain taxpayers list their annual income. This information is then used by the Inland Revenue to assess tax liability.

  • Tax spread

    A (usually negative) yield or interest rate spread due to some tax advantage.

  • Tax voucher

    A paper advice slip issued by companies when paying dividends to its shareholders. The voucher indicates a number of items including the date, the dividend rate in pence per share, whether the dividend is interim or final, the number of shares held by the shareholder, the net dividend payable and the tax credit.

  • Tax year

    (UK) The twelve month period commencing 6th April and ending 5th April the following year.

  • Tax-backed bond

    A municipal bond backed by anticipated tax, penalty or fee revenue.

  • Tax-Deferred Investments

    An investment in which some or all taxes are paid at a future date, rather than in the year the investment produces income.

  • Tax-equivalent yield

    Indicates for an investor the yield a taxable bond would have to earn in order to match, after taxes, the yield available on an untaxed municipal security.

  • Tax-exempt bond

    Municipal or other bond whose interest is not subject to taxes.

  • Taxable income

    The amount of an individual's annual income on which tax is payable.

  • Taxes, Tags and License Fees (TT&L)

    Tax, title, and license fees associated with the purchase and registration of a vehicle/vessel.

  • Taylor polynomial

    A polynomial approximation for a function constructed from its derivatives.

  • Taylor series expansion

    A power series obtained as a limit of Taylor polynomials that may approximate or equal the function from which it is constructed.

  • TechMARK

    An index launched in 1999 with a base figure of 2,300 points by the London Stock Exchange to reflect the growth at that time in internet and technology stocks. To be included, a company must be listed on the exchange, and must be committed to technological innovation. It includes biotechnology companies as well as net stocks and software companies.

  • Technical analysis

    Technical analysis is a method of investing which focuses on past price movements and attempts to identify trends that indicate future price movement. The successful technical analyst buys and sells on the basis of his preferred technical indicators, and hopes to make a profit when the share price fulfils his predictions.

  • Technical rally

    A short term rise in share price against a background of general decline in prices.

  • Tenancy agreement

    An agreement (lease) whereby land/property is leased by the owner (lessor) to a tenant (lessee).

  • Tenancy at will

    The occupancy of property by a tenant for an unspecified period. The tenancy can be terminated by either the landlord or tenant at any time.

  • Tenancy in common

    A situation where two or more people own land/property. In the event of the death of one of the owners, his/her interest passes to his/her estate and not the other tenants.

  • Tenant

    A person who occupies land/property on a lease basis.

  • Tender offer

    When a company decides to list its shares on the Stock Exchange, it can either offer its shares to the public at a price which it stipulates, or it can make an 'offer by tender'.

  • Term

    A specified period of time.

  • Term assurance

    (UK) A life insurance policy in which cover is provided for a specified period of time (the term). The sum assured is paid if the death of the insured occurs during the term.

  • Term CD

    Certificates of deposit with a term of a year or more.

  • Term repo

    A long-term repo transaction.

  • Term structure

    Any curve describing some financial quantity as a function of time to maturity or expiration.

  • Term structure risk

    That component of interest rate risk due to changes in the fixed income term structure.

  • Terminal bonus

    (UK) An additional bonus paid to reflect the overall performance of a with profits life assurance policy at maturity or prior death of the life assured. See 'reversionary bonus'.

  • Termination

    Expiration or cancellation of a contract.

  • Testament

    A will or codicil.

  • Testamentary Trust

    A type of trust that is established under the will of a deceased individual.

  • Testate

    The situation which exists when a person dies having made a will.

  • Testator

    A person who makes a will.

  • Testatrix

    The feminine form of testator.

  • The Budget

    (UK) The annual announcement which the Chancellor of the Exchequer makes once a year to outline his government's taxation and spending plans for the forthcoming financial year.

  • The City

    (UK) The financial community in the City of London which traditionally operates out of 'the Square Mile' although increasingly the big securities houses and firms of accountants are basing themselves in the Docklands.

  • The rule of twenty

    An investing axiom that says the domestic inflation rate plus the P/E ratio of the stock market as a whole should equal 20.

  • Theta

    The rate of change of an option or warrant premium for a given change in the number of days to expiry. Usually expressed in pence per day or per week, the theta measures the loss of time value as the option/warrant nears its expiry date.

  • Thin market

    A market with unusually few transactions occur. This may apply to the shares of a specific company or the market as a whole.

  • Third market

    The trading of exchange-listed securities in the over-the-counter market.

  • Third party

    The person who claims against an insured person when loss or damage to property or injury has occurred as a result of the insured person's negligence.

  • Third party insurance

    Insurance which covers against liability which the insured may incur to another person.

  • Thrift institution

    (US) A US depository organisation for savings, including savings and loan associations and mutual savings banks.

  • Tick

    An upward or downward movement in the price of a security.

  • Ticker

    A telegraphic system that continuously provides the last sale prices and volume of securities transactions on exchanges.

  • Ticker symbol

    A three or four letter abbreviation used to identify a US security whether on the floor, a TV screen, or a newspaper page.

  • Ticker tape

    (US) The machine which displays stock symbols, prices and volumes and transmits world wide.

  • Tier 1 capital

    Core measure of a bank's financial strength under the Basel Accords from a regulator's point of view.

  • Tier 2 capital

    A measure of a bank's financial strength with regard to the second most reliable form of financial capital under the Basel Accords, from a regulator's point of view.

  • Tier 3 capital

    A measure of a bank's financial strength with regard to the second most reliable form of financial capital under the Basel Accords, from a regulator's point of view.

  • Tiger economy

    A term originally used to describe rapidly-growing economies in the Far East. Now used to describe any relatively undeveloped country where growth prospects are thought to be high.

  • Tightness, market

    Bid-ask spread as a component of liquidity.

  • Time Decay

    The process whereby the value of an option premium is eroded as expiry approaches.

  • Time deposit

    (US) A savings account or certificate of deposit whose funds are subject to notice (such as 30 days) prior to withdrawal.

  • Time draft

    A draft on which payment is to be made in the future.

  • Time series

    A series of observations made over a period of time.

  • Time to expiry

    Period of time remaining until expiry of a futures or an option contract.

  • Time value

    In options, the time value is the amount by which an option's price exceeds its intrinsic value.

  • Time value of money

    Used informally to refer to the fact that the present value of future cash flows decreases with time until they are received.

  • Time-and-Distance Policies

    Largely used by reinsurance Syndicates at Lloyd's of London to close the books on old underwriting years, based upon contractually specified cash flow payments between the reinsured and insured covering past losses.

  • Timely execution

    The principle that stockbrokers should transact the sell/buy orders of their clients within a reasonable time, 20 minutes from the time of order is taken to be the appropriate period.

  • Timing risk costs

    Transaction costs arising from market movements during the period between an order being placed and filled.

  • TIPS

    Treasury Inflation-Protected Securities.

  • Tipsheet

    A newsletter that makes specific recommendations on which shares to buy, sell and hold.

  • Title

    A legal term for an owner's interest in a piece of property. It may also refer to a formal document that serves as evidence of ownership.

  • Title Insurance

    Insurance which provides for the payment of a specific amount of funds for loss caused by defects in the title to real estate.

  • Tobin tax

    A proposal by Nobel-prize winning economist James Tobin to place a small tax on all foreign exchange transactions as a means of stabilizing currency markets.

  • Tokyo Stock Price Index (Topix)

    The index of the 1,000 largest companies quoted on the Tokyo Stock Exchange. Although the Nikkei 225 Index is quoted more often, Topix can be a more representative index.

  • Tomorrow-next (tom-next)

    The purchase and sale of a currency made to avoid taking actual delivery of the currency. The current position is closed out at the daily close rate and re-entered at the new opening rate the next trading day.

  • Top slicing

    (UK) A method of assessing the income tax liability on the proceeds of life assurance policies. Although income tax is not normally payable on benefits from qualifying policies, liabilities may exist if the policy is cashed in early, that is, within ten years (or within 75% of the policy term if this happens to be shorter) or if it becomes a paid up policy.

  • Top Ten Holdings

    Individual securities held within each portfolio as a percentage of net assets.

  • Total Assets

    The sum of current assets owned by a person, company, or other entity.

  • Total Insured Value

    The total value for insured perils and coverage for a particular risk, whether or not insurance limits have been purchased to that amount.

  • Total Market Value Of Investments

    Fair market value of securities owned, which does not include collateral held for securities loaned, uninvested cash, foreign currency, receivables, forward foreign currency contract appreciation or variation margin on futures contracts.

  • Total Monthly Payment

    The contractual amount to be paid monthly.

  • Total return

    The gain or loss on an investment which is made up of income (dividends or interest) and capital growth (increase in the share price or bond price).

  • Total return swap

    A contract in which one party receives interest payments on a reference asset, plus any capital gains and losses over the payment period, while the other receives a specified fixed or floating cash flow unrelated to the credit worthiness of the reference asset, especially where the payments are based on the same notional amount.

  • Touch

    In the London stock markets, 'touch' is jargon for the best bid and offer quote offered by competing market makers.

  • Toxic asset

    Financial assets that have had their value decreased significantly and when there is no longer a functioning market for these assets to be reasonably sold.

  • Tracker fund

    A fund which aims to achieve the same returns as a chosen share index, and which does this by investing in all the companies in the index according to a market value weighting.

  • Tracker mortgage

    This kind of mortgage has an interest rate which follows the Bank of England’s base rate. This means that monthly repayments go up when the base rate goes up, and go down when the base rate goes down.

  • Tradable Instrument Display Mnemonic (TIDM)

    A mnemonic code allocated by the London Stock Exchange and used to identify a tradable instrument. Used to be called an EPIC code.

  • Trade reference

    A reference given by one company to another regarding the creditworthiness of third company to whom it supplies goods. It is usual for two or more trade references together with a bank reference to be requested by companies prior to supplying goods or services on credit.

  • Traded endowment policy

    An endowment policy that the original policyholder has sold by absolute assignment of all future benefits.

  • Traded options

    Transferable options with the right to buy and sell a standardised amount of a security at a fixed price within a specified period.

  • Tradepoint Investment Exchange

    A London-based stock exchange which opened on 21st September 1995 and which currently deals in 900 of the most actively traded UK equities.

  • Trader's remorse

    A term used in technical analysis to describe the situation where a trader thinks a support or resistance price has been broken, and he/she buys/sells on the strength of the break, only to discover that the share price rebounds to its old level shortly afterwards.

  • Trading book

    Under bank regulations, a portion of a bank's balance sheet set side for trading activities.

  • Trading Index (TRIN)

    See: 'Arms index'.

  • Trading posts

    The 17 horseshoe-shaped counters manned by clerks and specialists on the Trading Floor of the New York Stock Exchange (NYSE). Each trading post is responsible for over 100 stocks.

  • Trading unit

    (US) The minimum number of shares, bonds or commodities which are traded in a transaction on an exchange. This number is usually 100 for shares.

  • Traditional options

    Options on shares which, unlike traded options, are not transferable and must be exercised on specific dates. In order to make a profit, the owner of the options has to purchase and then sell them on the market.

  • Traditional Reinsurance

    Reinsurance where the primary driver is insurance risk transfer.

  • TRAN

    Tax and revenue anticipation note.

  • Tranch

    One class of bonds issued in a securitization that has multiple classes of bonds.

  • Tranche

    (US) One of a combined group of related securities which offer various risk, reward and maturity alternatives.

  • Transaction costs

    Direct costs associated with transacting trades.

  • Transfer value (TV)

    (UK) The value of a pension fund which would be available for transfer into an alternative type of plan either with the same or an alternative pension provider.

  • Transformation procedure

    One of the three essential components of a VaR measure.

  • Travel insurance

    Insurance which covers people travelling either on holidays or business. Some of the benefits, depending on the policy, include reimbursement for medical expenses, loss of luggage and money, cancellation or curtailment, departure delay and loss of passport etc.

  • Traveller's cheques

    Cheques issued by credit card and banks which enable the holder to obtain cash or pay for goods and services when visiting a foreign country. The cheques are signed by the traveller on their receipt and again when payment is being made.

  • Treasury Bill

    (UK) A government security usually with a life of three months but also up to one year maturity. Such bills are issued by the government at a discount and redeemable at par with no interest payable.

  • Treasury bills (T-bills)

    Short-term securities with minimum denominations of $10,000 and maturities of three months, six months and one year. They are issued at a discount to face value.

  • Treasury bonds (T-Bonds)

    A negotiable, coupon-bearing debt obligation issued and backed by the US government. T-Bonds have minimum denominations of $1,000 and maturities of ten years or more.

  • Treasury Inflation-Protected Securities

    Inflation-indexed bonds issued by the US Treasury.

  • Treasury notes

    (US) Medium-term securities with minimum denominations from $1,000 and maturities of one to ten years.

  • Treasury securities (treasuries)

    Debt obligations issued by the US government and secured by full faith and credit. Income from treasuries is subject to federal tax but not state and local taxes. They fall into three categories, Treasury bills, Treasury bonds and Treasury notes.

  • Treasury strip

    A zero-coupon bond "stripped" from the cash flows of a Treasury security.

  • Treasury-Eurodollar spread

    The yield difference between US Treasury bills and eurodollar futures contracts. An increasing spread indicates greater risk.

  • Treaty Reinsurance

    Obligatory Reinsurance. A standing agreement between reinsured and reinsurer(s) for the cession or assumption of certain risks as defined in the contract.

  • Trend

    A trend in a share price, whether upwards or downwards, which indicates an imbalance in the supply and demand for the share.

  • Trend lines

    Lines that are formed by a stock’s price movement.

  • Trending Indicator

    Trending indicators are used to identify whether a market is in a trending phase.

  • Trendline violation

    See: 'breakout'.

  • Trigger warrant

    A form of warrant which triggers a one-off payout in the event of an underlying asset reaching a specified level.

  • Triple witching hour

    The last trading hour on the third Friday of March, June, September and December when options and futures on stock indices expire concurrently.

  • Trough

    That point of time in an economic cycle when a recession bottoms.

  • TruPS

    Trust preferred security.

  • TruPS CDO

    A CDO that has trust preferred securities as collateral.

  • Trust

    A legal, fiduciary relationship in which an individual or institution (the trustee) holds legal title to property with the responsibility for keeping or managing this property for the benefit of another person or beneficiary.

  • Trust Agreement

    A legal document that establishes a trust and outlines its rules and guidelines.

  • Trust deed

    A trust deed is a legal document for setting up a trust. In order for a unit trust to be authorised by the FSA, the trustees and fund managers must submit a draft trust deed and scheme particulars.

  • Trust Fund

    Property, especially money and securities, held or settled in trust

  • Trust preferred security

    Cumulative preferred stock issued by a bank holding company through a special purpose vehicle.

  • Trustee

    The individual or institution with responsibility for management of the assets placed in trust.

  • Tunnel

    A type of derivatives hedge.

  • Turnover

    (US) The volume of shares traded in a specific period either for the market as a whole or for a specific company. Also, a company's total sales figure for a year.

  • Two Risk Warranty

    A clause used to ensure that reinsurance coverage only responds when the reinsured sustains a loss from two or more original risks involved in the same loss occurrence.

  • Two-asset correlation option

    A type of rainbow option.

  • Uberrimae fidei

    All contracts of insurance are subject to 'utmost good faith' in that applicants for insurance are obliged to disclose any detail which may be of importance to the insurers whether or not it is requested.


    Undertakings for Collective Investments in Transferable Securities

  • Ujrah

    See Jua′alah.

  • UK Listing Authority (UKLA)

    The body authorised by the FSA which decides on the rules for the listing of public companies, reviews and approves the prospectuses of companies that want to list, and which in consultation with various departments of the London Stock Exchange, enforces those rules.

  • Ultimate Net Loss

    The sum paid by the reinsured in settlement of its contractual liability for losses or claims arising out of one event/risk/loss occurrence.

  • Umbrella Cover

    Reinsurance protection for several classes of business by combining the contracts of different classes of business into one reinsurance contract.

  • Umbrella fund

    A collective fund containing several sub-funds, each of which invests in a different market or country.

  • Umbrella personal liability insurance

    (US specific) In the US, liability insurance giving excess cover over and above that cover provided by other policies. For example if general policies give total liability insurance cover of $400,000, an umbrella policy could typically provide cover of $1 million. If a claim of $700,000 were made the umbrella policy would pay out only after the $400,000 has been first exhausted.

  • Unconditional heteroskedasticity

    A condition where a stochastic process has non-constant unconditional second moments.

  • Unconditional homoskedasticity

    A condition where a stochastic process has constant unconditional second moments.

  • Uncovered

    See: 'naked'.

  • Undated stocks

    Fixed interest stocks which have no redemption date.

  • Underlier

    A primary instrument or variable which will determine the value of a derivative instrument.

  • Underlying instrument

    The instrument such as shares and commodities on which a futures or options contract is based.

  • Undertakings for Collective Investment in Tradable Securities (UCITS)

    UCITs are collective funds which can be sold across national borders within the EU in accordance with the 'Undertakings for Collective Investment in Tradable Securities' Directive. For UK investors, one of their significance attributes is they can be sheltered from tax within the Stocks and Shares component of an ISA.

  • Underwriter

    1. An intermediary between an issuer of a security and the investing public, usually an investment bank; 2) The issuer of an insurance policy.

  • Underwriting Risk

    Risk that premiums will not be sufficient to cover future Incurred Losses and that losses and loss adjustment expenses' current reserves are not sufficient.

  • Underwriting Territory

    The geographical limits in which original insurances subject to the reinsurance agreement are written.

  • Underwriting Year Basis

    A basis of (normally proportional) reinsurance cover, under which the treaty responds according to the inception or renewal date of the original policy ceded to it. This means that premiums and claims of different underwriting years are accounted for separately until each runs off.

  • Unearned income

    Income received from sources such as dividends from shares and bonds, i.e.. income which has not been earned by working.

  • Unemployment benefit

    Benefit received from a government department when a person becomes unemployed. The claimant must be able to verify previous employment and that he/she is actively seeking new employment.

  • Unexpected loss

    A risk metric related to the second moment of a portfolio's losses due to default over a specified horizon.

  • Unfunded pension plan

    A pension plan which is funded by an employer from current income for the benefit of retirees.

  • Unfunded unapproved retirement benefits scheme

    An unfunded occupational pension scheme that is not designed to be approved by the Pension Schemes Office.

  • Unified Credit

    A federal tax credit that offsets gift and estate tax liability.

  • Unified tax credit

    (US) A federal tax credit which may be deducted from estate tax and gift tax liability.

  • Uniform distribution

    A continuous probability distribution that has constant probability on a finite interval.

  • Uniform Net Capital Rule

    The SEC's rule setting minimum capital requirements for broker-dealers trading non-exempt securities.

  • Uninsured motorist insurance

    (US) Automobile insurance which gives cover to the insured and passengers in the event of vehicle damage and personal injury caused by an uninsured motorist.

  • Unissued stock

    A company's authorised stock which has not yet been issued.

  • Unit linked

    See: 'unit linked policy'.

  • Unit linked endowment assurance

    See: 'endowment assurance'.

  • Unit linked life assurance

    See : 'unit linked policy'.

  • Unit linked policy

    (UK) A life assurance policy in which a portion of the premium is used to purchase life cover, with the balance invested in an authorised unit trust/trusts. The return on the policy is thus linked to the performance of the units in the unit trust.

  • Unit of trading

    The minimum number of shares, bonds or commodities which are traded in a transaction on an exchange. This number is usually 100 for shares.

  • Unit trust

    (UK specific) Unit trusts are collective funds which allow private investors to pool their money in a single fund, thus spreading their risk, getting the benefit of professional fund management, and reducing their dealing costs.

  • Unitisation

    The conversion of an investment trust into unit trust.

  • Unitised with profits

    (UK) With-profits and investment-linked funds combined in the same contract with the choice of switching between them.

  • Universal bank

    A bank that engages in both commercial and investment banking activities.

  • Universal life insurance

    (US) A combination of term life insurance and a savings element. The policy is flexible in that the death benefit, savings element and premiums can be reviewed and altered from time to time as a policyholder's circumstances change.

  • Universal stock futures (USF)

    A range of standardised futures contracts on the shares of individual companies. The futures contract is an agreement between buyer and seller to buy or sell a given quantity of shares at some time in the future at a pre-determined price. The contract is cash-settled, which means that the stock does not actually have to be delivered, but the parties reconcile accounts based on the difference between the share price at the time of settlement and the contract price.

  • Universal volatility model

    Any of a class of option pricing models that model volatility skew by combining elements of local volatility, jump-diffusion and stochastic volatility models.

  • Unlisted securities

    (US) Shares which are not listed on a Recognised Investment Exchange. A limited number of unlisted securities have traded since 1980 on the unlisted securities market (USM) which however closed at the end of 1996. The USM was replaced by the alternative investment market (AIM).

  • Unpaid dividend

    A dividend which has been declared by a corporation but has not yet been paid.

  • Unsecured loan

    A loan where the lender has no entitlement to any of the borrower's assets if he/she defaults.

  • Up tick

    Refers to a transaction made at a price higher than the preceding transaction.

  • Upper earnings level

    (UK The earnings level of an employee above which no further Class 1 National Insurance contributions are payable.

  • Uptrend

    An uptrend line or rising trend is defined by successively higher prices for a share. There will be dips in the price throughout the uptrend, but each time the price drops, due to a small correction such as profit taking, the 'bottom' will be higher than the previous bottom.

  • US Federal Reserve

    See: 'Federal Reserve'.

  • US Treasury Securities

    Debt obligations secured an backed the US government.

  • Utilities

    Companies which provide essential services such as electricity, gas and water.

  • Utilization

    Given a risk limit, the amount of risk being taken as a fraction of the limit.

  • Utmost Good Faith

    The observance of honourable intent in business relations and the avoidance of any attempts to deceive.

  • Valuation

    The value of a share using a weighted average of the P/E ratio, DCF, price/net tangible assets and other measures.

  • Value added tax (VAT)

    (UK) An indirect tax levied on goods and services in the UK. A company or trader registered for VAT pays suppliers VAT additionally to the cost of goods or services purchased which is known as input tax. Also VAT is added to the sales cost of their product when invoicing customers which is known as output tax.

  • Value at risk (VAR)

    A category of risk metrics that describe probabilistically the market risk of a trading portfolio. Value-at-risk is widely used by banks, securities firms, commodity merchants, energy merchants, and other trading organizations.

  • Value date

    The date on which a trade is intended to settle.

  • Value investing

    An investment style which favors good stocks at great prices over great stocks at good prices.

  • Valued policy

    An insurance policy in which the value of the insured item is agreed at the start of the policy.

  • Vanilla currency swap

    A standardized fixed-for-floating or floating-for-floating currency swap.

  • Vanilla derivative

    A derivative instrument that is simple or of a common form.

  • Vanilla interest rate swap

    A standardized fixed-for-floating fixed income swap.

  • Vanilla option

    A simple put or call option.

  • Vanilla swap

    One of a few standardized forms of swaps that are widely quoted in the markets.

  • VaR


  • VaR horizon

    The period of time over which a VaR measure assesses a portfolio's market risk.

  • VaR implementation

    An implementation of a VaR measure, generally as software on a computer.

  • VaR limit

    A market risk limit that uses some VaR metric to quantify and limit risk.

  • VaR measure

    A set of operations through which a portfolio's VaR is calculated.

  • VaR measurement

    The numerical value a VaR measure assigns to a portfolio's market risk.

  • VaR metric

    An interpretation of a VaR measure.

  • VaR model

    The financial theory, mathematics, and logic that motivate a VaR measure.

  • Variable interest rate

    Interest rates offered by banks and financial institutions on loans or deposits. Variable rates can fluctuate according to market conditions.

  • Variable life insurance

    (US) A form of cash value life insurance in which the cash value of the policy may be invested in shares and bonds according to the insured's choice.

  • Variable Rate

    Any interest rate or dividend that changes on a periodic basis.

  • Variable rate demand note

    Variable rate demand obligation.

  • Variable rate demand obligation

    A type of floating-rate municipal security.

  • Variable rate mortgage (VRM)

    A mortgage whose interest rate can fluctuate according to market conditions.

  • Variables remapping

    A type of remapping used in value-at-risk measures.

  • Variance

    A parameter describing the dispersion of a probability distribution.

  • Variance-covariance VaR

    Linear VaR.

  • Variation margin

    A margin payment to restore a margin account to the initial margin level.

  • Vcv VaR

    Shorthand for "variance-covariance VaR".

  • Vega

    The Greek factor sensitivity measuring a portfolio's first order (linear) sensitivity to the implied volatility of an underlier.

  • Vehicle Identification Number ("VIN")

    A number assigned to the vehicle by the manufacturer.

  • Vendor

    A person or company selling goods and property.

  • Vendor placing

    An arrangement in which the vendor (seller) of a business who receives shares in the acquiring company as part of the deal immediately sells them on to an institutional investor.

  • Venture capital

    Capital invested into small and young companies in return for equity ownership. Venture capitalists (VCs) supply capital to companies that are small and high risk, and which could not get funds by listing on the stock market or borrowing from banks.

  • Venture capital trust (VCT)

    (UK) A type of investment trust which invests in small unquoted companies with assets of under £15 million, including AIM and OFEX companies, and which is designed to attract risk capital from higher rate taxpayers by giving them tax concessions.

  • Vesting

    Conversion. For example the vesting of a pension fund is its conversion into a pension.

  • Void periods

    Periods 'between tenants' when a rental property is generating no rental income but the landlord still has to cover overhead costs, such as mortgage repayments.

  • Volatility

    The tendency of financial markets to change abruptly at the whims of investors.

  • Volatility clustering

    A property of some stochastic processes that they experience periods of high and low variance.

  • Volatility skew

    A condition where implied volatilities vary by strike

  • Volatility smile

    A condition where implied volatilities for in-the-money and out-of-the-money strikes exceed those for at-the-money strikes.

  • Volatility surface

    A function describing implied volatilities' dependence on both strike and expiration.

  • Volatility term structure

    A curve that describes volatility as a function of expiration for a given strike.

  • Volume

    The number of shares traded on a stock exchange for a given period, also known as market turnover. Low volume is sometimes referred to as 'thin' trading.

  • Volume data

    See 'volume'.

  • Volume weighted average price (VWAP)

    The average price paid for an instrument in all trading of that instrument during a given day.

  • Voluntary deductible employee contribution plan

    (US) A type of pension plan in which an employee elects to have regular payments deducted from each pay check.

  • Voluntary liquidation

    When a company goes into liquidation with the agreement of its shareholders.

  • Voting right

    The entitlement of the owner of common stock or ordinary shares to vote in person or by proxy at annual meetings or annual general meetings.

  • Voting stock

    (US) It gives its owner the right to vote on election of directors and other corporate matters.

  • VRDO

    Variable rate demand obligation.

  • VWAP

    Volume-weighted average price

  • Waiting period

    (US) It refers to the prior payments by the insurers to a policyholder of disability income insurance after a claim, during which no payments are made. This is typically several months. Known as deferment period in the UK.

  • Waiver of premium

    In the event of the policyholder becoming disabled or ill, and unable to work for longer than (usually) six months, the insurance company will pay the premiums for on his/her behalf until he/she is able to return to work.

  • Wakalah

    Absolute power of attorney.

  • Waqf

    Detention (Lit.). Technically appropriation or tying-up of a property in perpetuity so that no propriety rights can be exercised over the usufruct. The Waqf property can neither be sold nor inherited or donated to anyone. Awqaf consists of religious foundations set up for the benefit of the poor.

  • Warrant

    A certificate, usually issued along with a bond or preferred stock, entitling the holder to buy a specific amount of securities at a specific price, usually above the current market price.

  • Warrant premium

    The warrant premium measures the extra cost incurred by buying a warrant and exercising the warrant into the shares, over simply buying the shares directly in the market.

  • Warranty

    A warranty is a written statement agreeing to maintain the said property in good working condition for the period mentioned in the warranty agreement.

  • Wash sales

    An illegal process in which simultaneous purchases and sales are made in the same commodity futures contract, on the same exchange, and in the same month. No actual position is taken, although it appears that trades have been made. The intention is that the apparent activity will induce legitimate trades, thus increasing trading volume and commissions.

  • Wasting asset

    An asset with an expected useful life of less than 50 years.

  • Watered stock

    Stock sold for a price below its par value.

  • Weak market

    A stock market where volume is low and the spread is high.

  • Wedding insurance

    Insurance to give protection against financial loss in relation to a wedding. Typically it cover costs arising out of unavoidable cancellation, damage to hired dress wear, loss/damage to or retaking of photographs and loss of or damage to wedding presents and wedding rings etc.

  • Weekend effect

    A theory of stock market growth which claims that traders optimism normally fades between Friday and Monday.

  • When-issued security

    A government security that trades forward in advance of being issued.

  • Whipsaw

    When a share price moves in one direction, and then abruptly reverses direction.

  • White knight

    A company which comes to the rescue of another listed company which is under siege from an unwelcome bidder.

  • White noise

    A simple form of stochastic process.

  • Whole Account Cover

    Reinsurance contract which covers all classes of business.

  • Whole life insurance

    (US) A life insurance policy, with level premiums, which provides a stated benefit on the death of the life insured and a savings element which accumulates a cash value. The dividends or interest are allowed to build up tax-deferred.

  • Wiener process

    A continuous-time stochastic process named in honor of Norbert Wiener. Also known as Brownian motion.

  • Wiener, Norbert

    Mathematician who proved the existence of Brownian motion.

  • Will

    A legal document expressing the wishes of an individual regarding distribution of his or her assets after death.

  • Windfall shares

    (UK) Free shares issued to members of demutualised societies.

  • Windfall tax

    (UK) One-off tax imposed by the government in the budget of July 1997 on the profits of privatised utilities companies. It was applied to fund the government's Welfare to Work programme.

  • Winding up

    The process of paying creditors and distributing assets that occurs before the dissolution of a corporation. See also 'liquidation'

  • Wireless Data System (WDS)

    New technology used to transmit orders, reports, and administrative messages between brokers and clerks.

  • With-profits bond

    With-profits bond funds are designed to be low risk investments which produce growth, but which also allow investors to take out income if they want to. The insurance company invests the fund's money in a variety of assets including shares, gilts, property and cash.

  • With-profits policy

    A savings plan, often an endowment linked to a mortgage, which is sold as low risk because your money is invested in a mix of shares, property and bonds. Each year, the insurance company running the plan announces a bonus which is added to your policy and cannot be taken away. And when the plan matures, you usually get a terminal bonus.

  • Withholding

    (US) It refers to a deduction from an employee's salary by an employer for federal, state and local tax liabilities.

  • Withholding tax

    An amount of an employee's income that an employer sends directly to the tax authority as partial payment of that individual's tax liability for the year.

  • Without prejudice

    The basic meaning is 'without loss of any rights'. It is a term used when two parties are in dispute, and one makes a settlement offer to the other. It puts 'without prejudice' on its offer to make it clear that the settlement offer should not be construed as a waiver of rights.

  • Worked principle trade

    A term used by the London Stock Exchange to denote that a reported trade was from a worked principle agreement for a single security.

  • Working capital

    A company's current assets (cash, debtors, work in progress) less its current liabilities (creditors, taxes due). This capital is used by a company to run its business.

  • WorldCom bankruptcy

    The largest bankruptcy in US history.

  • Worst-of option

    A form of rainbow option.

  • Wrangle

    An options spread that is long (short) both a ratio call spread and a ratio put spread.

  • Writ

    A written order issued by a court instructing the defendant to appear in court to answer charges made by the plaintiff.

  • Writer

    A person who makes an opening sale of an option contract. Upon notification of exercise by the option holder (the buyer), the writer is obliged to deliver or take delivery of the underlying instrument (for example, shares, commodities).

  • Writer extendible option

    An option whose expiration is extended if some pre-defined condition is met.

  • Written Premium

    Premium income in respect of business written (new or renewed) during a certain period.

  • Xa

    Another way of writing ex all. This means that shares bought in a company are without entitlement to current dividends, rights issues or scrip issues. Such entitlement remains with the seller of the shares.

  • Xc

    Another way of writing ex scrip or ex capitalisation. Shares bought in a company are without entitlement to current scrip issues. Such entitlement remains with the seller of the shares.

  • Xd

    Another way of writing ex dividend, and sometimes abbreviated to just x. Shares bought in a company are without entitlement to current dividends, and bonds are without entitlement to interest. Such entitlement remains with the seller of the shares.

  • Xr

    Another way of writing ex rights. Shares bought in a company are without entitlement to current rights issues. Such entitlement remains with the seller of the shares.

  • Xw

    Another way of writing ex warrants. Shares bought in a company are without entitlement to warrants.

  • Yankee bonds

    Foreign bonds denominated in U.S. dollars and issued in the United States by foreign banks and corporations. These bonds are usually registered with the SEC. Such as, bonds issued by originators with roots in Japan are called Samurai bonds.

  • Yankee CD

    A foreign certificate of deposit issued in the United States.

  • Yankee market

    The foreign market in the United States.

  • Year-end dividend

    A special dividend declared at the end of a fiscal year that usually represents distribution of higher-than-expected company profits.

  • Year-to-date (YTD)

    The period beginning at the start of the calendar year up to the current date.

  • Yearling

    A local authority bond normally issued for one year.

  • Yellow Book

    A yellow binder where the listing rules of the London Stock Exchange are issued.

  • Yellow strip

    The screen used by brokers which displays the highest bid and the lowest offered prices that competing market makers are offering in a share. They are known colloquially as the 'touch' or 'yellow strip' prices.

  • Yen bond

    Any bond denominated in Japanese yen currency.

  • Yield

    The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note.

  • Yield advantage

    The advantage gained by purchasing convertible securities instead of common stock, which equals the difference between the rates of return of the convertible security and the common shares.

  • Yield burning

    A municipal bond financing method. Underwriters in advance refundings add large markups on U.S. Treasury bonds bought and held in escrow to compensate investors while waiting for repayment of old bonds after issuance of the new bonds. Since bond prices and yields move in opposite directions, when the bonds are marked up, they "burn down" the yield, which may violate federal tax rules and diminishes tax revenues.

  • Yield curb

    Applies mainly to convertible securities. Difference in current yield between the convertible and the underlying common.

  • Yield curve

    The graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The yield curve can accurately forecast the turning points of the business cycle.

  • Yield curve option-pricing models

    Models that can incorporate different volatility assumptions along the yield curve, AKA arbitrage-free option-pricing models.

  • Yield curve risk

    Term structure risk.

  • Yield gap

    A comparison between the average yield from shares (dividend yield) and the average current yield from long dated gilts (15 years or more to redemption).

  • Yield spread strategies

    Investments that position a portfolio to capitalize on expected changes in yield spreads between sectors in the bond market.

  • Yield to average life

    A yield calculation in which bonds are retired routinely during the life of the issue. Since the issuer buys its own bonds on the open market because of sinking fund requirements, if the bonds are trading below par, this action provides automatic price support for these bonds and they will usually trade on a yield to average life basis.

  • Yield to call

    The percentage rate of a bond or note if the investor buys and holds the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on coupon rate, length of time to call, and market price.

  • Yield to maturity

    The percentage rate of return paid on a bond, note, or other fixed income security if the investor buys and holds it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity, and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.

  • Yield to warrant call

    Applies mainly to convertible securities. Effective yield of usable or synthetic convertible bonds determined against the first date at which the warrants can be called.

  • Yield to worst

    The minimum of several metrics of yield.

  • Yo-yo stock

    A highly volatile stock that moves up and down like a yo-yo.

  • Zakah/Zakat

    A tax which is prescribed by Islam on all persons having wealth above an exemption limit at a rate fixed by the Shariah. According to the Islamic belief Zakah purifies wealth and souls. The objective is to take away a part of the wealth of the well-to-do and to distribute it among the poor and the needy. It is levied on cash, cattle, agricultural produce, minerals, capital invested in industry, and business etc. The distribution of Zakah fund has been laid down in the Qur'an (9:60) and is for the poor, the needy, Zakah collectors, new converts to Islam, travellers in difficulty, captives and debtors etc. It is payable if the owner is a Muslim and sane. Zakah is the third pillar of Islam. It is an obligatory contribution which every well-off Muslim is required to pay to the Islamic state, in the absence of which individuals are required to distribute the Zakah among the poor and the needy as prescribed by the Shariah.

  • Zero Coupon Bond

    A bond which pays no interest through its life and which pays a capital gain by being issued at a substantial discount to the maturity value. If it is a deep discounted bond, the gain is subject to income tax.

  • Zero Coupon Yield Curve

    A yield curve, known as a spot yield curve, of zero coupon bonds that can be derived from the par yield curve and is used to derive discount factors.

  • Zero Dividend Preference Shares (zeros)

    Preference shares that receive no dividends throughout their lives. Instead a fixed known amount is paid at maturity.

  • Zero Rated

    A term relating to value added tax (VAT). It refers to goods (for example, food and books) which are taxable but at a zero rate. The significance of this rating is that businesses selling such goods may claim back their input tax (the VAT which they have paid to their suppliers). Businesses which provide goods and services which are VAT exempt (for example, stamps and postal services) are not able to reclaim input tax.

  • Zero-coupon Treasury security

    Treasury strip.

  • Zoning

    City or county laws specifying how property may be used in specific areas.

  • ‘Illah

    Attribute of an event that entails a particular Divine ruling in all cases possessing that attribute. ‘Illah is the basis for applying analogy for determining permissibility or otherwise of any act or transaction.

  • ‘Inah ( A kind of Bai)

    Double sale by which the borrower and the lender sell and then resell an object between them, once for cash and once for a higher price on credit, with the net result of a loan with interest.

  • ‘Inan (A type of Shrikah)

    Form of partnership in which each party contributes capital and has a right to work for the

    business, not necessarily equally.