| Q |
|
| 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'. |
| R |
|
| 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. |
| RAROC |
Risk-adjusted return on capital. |
| RARORAC |
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. |
| 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/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. |
| 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. |
| 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). |
| 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. |
| RiskMetrics |
A free service launched by JP Morgan in 1994 to promote the use of value-at-risk. |
| Risk-return trade-off |
The risk attached to an investment, and the return one can attain by holding that investment. |
| 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. |
| RORAC |
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 |
|
| 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). |
| 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. |
| SEATS |
Stock Exchange Automated Trading System, a computer network that allows stockbrokers to trade via computer terminals. |
| SEC |
Securities and Exchange Commission |
| SEC 7-DAY YIELD |
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. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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 option |
An option on a spread. |
| 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. |
| 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. |
| Step-up bond |
A bond that pays a reduced coupon during its first few years. |
| 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. |
| Stockbroker |
A broker dealing in stocks and shares on behalf of a client. |
| Stockholder |
Person who owns stock. |
| 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. |
| 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 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. |
| 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). |
| 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. |
| 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. |
| Super-efficient portfolio |
The portfolio on the efficient frontier with the highest Sharpe Ratio. Also known as the market portfolio. |
| 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. |
| 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 |
|
| TAC bond |
Targeted amortization class bond. |
| 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. |
| Taxable income |
The amount of an individual's annual income on which tax is payable. |
| 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. |
| Taxes, Tags and License Fees (TT&L) |
Tax, title, and license fees associated with the purchase and registration of a vehicle/vessel. |
| Tax-exempt bond |
Municipal or other bond whose interest is not subject to taxes. |
| 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. |
| T-bill |
Treasury bill. |
| 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. |
| 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. |
