FinanceTalking Financial Glossary

Standard and Poors - a large US debt rating agency. A company that issues a bond can apply to Moody's to give the bond a rating. The rating gives investors an indication of how likely they are to receive interest and get repaid. The rating is in effect a probability of default. The highest rating (lowest probability of default) is AAA. The lowest is D (in default).

The widest general-market index of stocks produced by the US company Standard & Poor.

Letters sent to nominees requesting the identity of the beneficial owners of a company's shares (now called section 793 notices). In the UK a company had a legal right to this information under section 212 of the Companies Act 1985, which has now been superseded by the Companies Act 2006 section 793. The notices are therefore now referred to as s793 notices.

Letters sent to nominees requesting the identity of the beneficial owners of a company's shares. In the UK a company had a legal right to this information under section 793 of the Companies Act 2006 section 793. The notices are therefore now referred to as s793 notices.

Register of interests declared under s793.

A safe harbour provides protection from litigation to companies making certain statements, such as forward-looking statements, so long as the information is adequately identified and accompanied by a cautionary statement.

A method of raising money in which an organisation sells its land or buildings to an investor on the condition that the investor will lease the property back to the organisation for a fixed term at an agreed rental.

An extreme form of poison pill in which a company believes it is to be the target of a takeover bid, so it makes its balance sheet or profitability less attractive than it really is by a reversible manoeuvre, such as borrowing money at an exorbitant rate of interest.

Usually refers to a scrip dividend or a bonus issue.

Dividends are offered to shareholders by way of additional shares instead of cash.

Scrip dividends are dividends paid to investors by way of additional shares instead of cash. Often shareholders will be offered a scrip alternative to the cash dividend.

An issue of new shares created out of reserves for no consideration. Also known as a bonus or capitalisation issue.

Stock Exchange Automated Quotations. The London Stock Exchange's quote-driven screen-based trading system.

Stock Exchange Alternative Trading Service. The trading system for small companies with less liquid shares.

Securities and Exchange Commission. The US regulator of investment business.

An SEC filing is information which must be submitted to the US regulator by a listed company. For example, filings are required for quarterly and annual results on forms 10Q and 10K respectively. Non-US companies must file annual results on form 20F.

Many international companies have a primary listing (main/first listing) on their own country's domestic stock exchange and secondary listings on other exchanges to enable the shares to be traded easily by overseas investors. Secondary listings usually carry lighter regulatory requirements because the company is already complying with the full requirements of the primary market.

If a security is newly issued, then the issuer receives funds direct from the lender/investor. This is called a primary market transaction. Subsequently, investors trade these securities on the secondary market.

An issue of shares to raise money subsequent to the initial public offer.

Letters sent to nominees requesting the identity of the beneficial owners of a company's shares (now called section 793 notices). In the UK a company had a legal right to this information under section 212 of the Companies Act 1985, which has now been superseded by the Companies Act 2006, section 793.

Letters sent to nominees requesting the identity of the beneficial owners of a company's shares. In the UK a company had a legal right to this information under section 793 of the Companies Act 2006.

Register of interests declared under s793.

An evaluation of a sector's expected performance and/or its risk level as judged by an analyst.

Recommendation to investors contained in an analyst's report as to whether the sector is likely to outperform or underperform the market (ie do better than or worse than the market).

A secured creditor has an arrangement whereby, in the event of non-payment, specific assets would be available as a fund out of which that person could be paid in priority to other creditors.

Instruments such as shares or bonds that can be traded.

The US regulator of investment business. Usually known as the SEC.

A stockbroker-based financial institution encompassing brokers, dealers, marketmakers, researchers and traders.

The process by which loans are issued directly to investors to fund particular assets, such as mortgages and credit card receivables.

Securitisation is the process by which loans are issued directly to investors to fund particular assets. Mortgages are often bundled together and sold to investors in this way.

Either an instrument such as a share or a bond that can be traded, or collateral for a loan.

Social, ethical and environmental policies.

The small amount of initial capital required to fund the research and development necessary before a new company is set up.

Intermediaries in the investment process ? investment banks and brokers who facilitate share trading.

An analyst who works for an investment bank or stock broker, in support of institutional sales, as opposed to a buy-side analyst who works for an investing institution or fund management organisation.

Selling securities, commodities etc. which one does not own, in the hopes of buying later at a lower price.

Perception towards a company or its sector.

Stock Exchange Electronic Trading System. The electronic order book for trading in the shares of the largest companies, on which buy and sell orders are matched automatically.

Payment for a purchase or sale of shares, bonds etc.

Serious Fraud Office.

Summary Financial Statements. SFSs were introduced in the UK in 1990 and can be posted to shareholders by listed companies instead of full accounts. The SFS is a summary of the full annual report.

An abbreviation of the term 'Selling, General & Administrative' expenses.

A share is issued to a shareholder in exchange for cash or assets. The shareholder then owns a bit of the company. Usually, one share gives one vote. Share capital is also known as risk capital because the shareholders are the last people to be paid back in the event of a winding up.

Listed companies may wish to buy back their own shares, either on the market or by way of a tender offer if they have spare cash (or would like more debt) and if they believe their share price is too low. The buyback will reduce the number of shares outstanding and perhaps increase the share price. A share buyback is often seen as an alternative to paying an extra dividend, in terms of returning surplus cash to shareholders.

Share capital is the money that shareholders put into a company. It is regarded as the permanent capital of a business as it does not have to be repaid unless the company is wound up.

A document that provides evidence of ownership of shares in a company. Most shares are now held electronically, rather than in paper form.

A takeover bid in which the directors of one company offer shares as the payment for acquiring the shares in the target company. If the offer is accepted, the shareholders of both companies will become the owners of the newly formed combination.

A weighted average of the prices of a number of shares, rebased and then calculated on a minute-by-minute, hourly or daily basis.

A share issue is when a company creates new shares and sells them to investors in exchange for cash or assets.

A share offer is when shares are offered to investors, who can then buy them, giving the cash to the company in the case of new shares, or the previous investors in the case of existing shares.

A benefit/incentive sometimes offered to directors and employees, in which they are given an option to buy shares in the company for which they work at the current share price. The option is likely to be exercisable in a number of years time, which time the share price should have increased, so that the employee makes a profit.

When shares are issued, the nominal amount is recorded as share capital and any amount paid over nominal value is recorded as share premium.

The register kept by a limited company, in which ownership of shares is recorded, together with full names, addresses, extent of holding, and class of shares for each shareholder.

Listed companies may wish to buy back their own shares, either on the market or by way of a tender offer if they have spare cash (or would like more debt) and if they believe their share price is too low. The buy-back should mop up surplus supply and perhaps increase the share price. A share buy-back is often seen as an alternative to paying an extra dividend, in terms of returning surplus cash to shareholders.

Sometimes a company will split the nominal value of its shares into smaller units to increase liquidity and/or lower the share price.

The owner of shares in a limited company. A shareholder is also known as a member of the company.

Shareholder targeting is the process used by companies to identify appropriate institutional investors that do not hold the stock.

Shareholders expect a reasonable return for the level of risk they are taking. It goes without saying that investors expect more from a share than they would from a bank deposit. A company is said to be giving shareholder value when the returns generated are at least as much as the shareholders expect. The return is measured as a combination of the dividend and share price growth (capital gain) ? the total shareholder return.

The shareholders' equity is the same as the shareholders' funds in a company - the excess of the assets over the liabilities. In the balance sheet, shareholders' funds are the share capital plus all the reserves of the company.

The shareholders' funds in a company's balance sheet is the excess of the assets over the liabilities. Alternatively, you could view it as the shareholders' investment in the company ? the share capital plus all the retained profits of the company.

The number of shares currently in issue.

A measure to allow larger US companies to register advance details of new securities with the Securities and Exchange Commission, (SEC), without specifying a date of issue. When companies need the capital, they issue securities off the shelf, without having to wait for SEC clearance of the application. UK companies can also use a form of shelf-registration.

A position held by a dealer in securities, commodities, currencies etc by virtue of selling more of a security than was originally owned (the dealer expects the price to fall and will therefore profit from buying the investment at a lower price than the sale).

Selling securities, commodities etc. which one does not own, in the hopes of buying later at a lower price.

Selling securities, commodities etc. which one does not own, in the hopes of buying later at a lower price.

The interest paid on the sum invested only (ie not cumulative as in compound interest).

Self-Invested Personal Pension. A SIPP is a type of DIY personal pension where you pick the investments yourself. The permitted range of investments for SIPPs include stocks and shares on the world's major stock exchanges, investment trusts, unit trusts, OEICS, gilts and even commercial property. There were plans to allow investment in residential property, i.e. buy-to-let, and other assets such as wine. However, the government backtracked on these proposals and now only allows indirect investment in such assets, through a fund for example.

Structured Investment Vehicle. Some banks set up structured investment vehicles (SIV) ? funds which exist to borrow money by issuing short-term securities at low interest rates and then use the money to buy long-term securities at a higher interest rate, making a profit for investors from the difference. SIVs typically invest in a range of asset-backed securities. The risk that arises from the transaction is twofold. First, the solvency of the SIV may be at risk if the value of the long-term securities that the SIV has bought falls below that of the short-term securities that the SIV has sold. Second, there is a liquidity risk, as the SIV borrows short term and invests long term - ie out-payments become due before the in-payments are due. Unless the SIV can refinance short-term at favourable rates, it may be forced to sell the long-term security into a depressed market.

Companies that form part of the FTSE all share index, but are not in the FTSE 350 index - ie companies smaller than the top 350.

Produce raw materials which are traded on commodities markets.

The financial state of a person or a company that is able to pay all debts as they fall due.

The new European rules for insurance companies, designed to ensure that they have enough 'capital' to cover the risks that they are taking.

The difference between the assets and the liabilities of an insurance company.

A bank's tier 1 capital and tier 2 capital divided by the risk-weighted assets. Also known as the Risk Asset Ratio. See also capital adequacy.

Sum of the Parts. For groups that include different types of business, analysts will often use different valuation methodologies for different parts of the group. These separate valuations will then be added together to determine the valuation of the whole group.

Sum of the Parts. For groups that include different types of business, analysts will often use different valuation methodologies for different parts of the group. These separate valuations will then be added together to determine the valuation of the whole group.

The highest rating that a bond can have is generally dictated by the country rating where the issuer is situated. The rating of the country is known as the sovereign ceiling as a result. See also Moody's and debt rating.

A sovereign wealth fund (SWF) is a state-owned investment fund, investing in bonds, shares and other assets. The SWFs are growing fast as countries reap the benefits of high oil prices or large trade surpluses.

A special dividend is a one-off extra dividend paid to shareholders as a way of distributing surplus cash.

A resolution of the shareholders that requires 75% of the vote in order to be passed.

The purchase or sale of something for the sole purpose of making a capital gain. Speculating suggests taking above average risks and a short-term view.

An investment trust company in which the equity is split into two classes of shares. The income shares pay dividends but do not offer any capital appreciation. The capital shares offer the potential for capital gains but no income. Different shares will be attractive to different investors depending on their tax position.

The difference between the price at which you can buy and sell an investment.

Spread betting involves entering into a bet on the price movement of a share, an index, a currency or a commodity (or the outcome of sporting events). Bets are usually made on a short term basis (days or weeks) and require a margin payment. You can lose more than your stake ? BUT you can use stop and limit orders.

Special Purpose Vehicles, Regulators world-wide require banks and other lenders to hold sufficient capital to cover any expected losses. Mortgage business is low margin business. So although in bulk it can be profitable, it can tie up a bank's capital which could otherwise be used for more profitable business. Over the years, banks have found ways to shift this business off their balance sheets by moving the mortgages and their funding into a Special Purpose Vehicle (SPV). These SPVs often get their funding by issuing bonds which are purchased by other banks. The SPV is, in effect, designed to insulate the issuer of the bonds from the sponsor, or originator, of the assets (mortgages). This process of moving the mortgages into a SPV and financing the loans with a bond is known as securitisation and the bonds are known as Asset Backed Securities (ABS).

The name given to the commercial district of the city of London which has historically been the principle financial district. Also known as The City.

Socially Responsible Investment.

The SST is the risk based solvency system in Switzerland. It is mandatory for all insurance companies in Switzerland and requires them to have enough capital at the beginning of the year to be 99% sure to be able to cover losses and claims that might arise during the year.

A person who applies for shares in a new issue in the hopes that the price when trading begins will be higher than the issue price.

Sterling Transferable Accruing Government Securities.

A large US debt rating agency. A company that issues a bond can apply to Moody's to give the bond a rating. The rating gives investors an indication of how likely they are to receive interest and get repaid. The rating is in effect a probability of default. The highest rating (lowest probability of default) is AAA. The lowest is D (in default).

The profit that the company is required to report by law - this will include exceptional items etc, which the company might prefers to exclude from its own headline figures.

Fixed costs are usually stepped ? ie they remain fixed for small increases in volumes, then they step up. For example, admin salaries may remain fixed for a while but eventually increased sales volume is likely to need more admin support.

Stock or inventory is the cost of the goods which are to be sold. Stocks include raw materials, work-in-progress (WIP) and finished goods. Stock is also the US term for a share.

An agent who buys and sells securities on a stock exchange, on behalf of his clients, for commission.

A stock exchange is an organised market for shares and bonds.

SEATS is the trading system for small companies with less liquid shares.

SAEF is a computerised system used on the London Stock Exchange to enable a broker to execute a transaction in a security automatically with a marketmaker.

SETS is the electronic order book for trading in the shares of the largest companies.

A stock exchange is an organised market for shares and bonds.

A benefit/incentive sometimes offered to employees, especially new employees, in which they are given an option to buy shares in the company for which they work at the current share price. The option is likely to be exercisable in a number of years time, by which time the share price should have increased, so that the employee makes a profit.

An evaluation of a stock's expected performance and/or its risk level as judged by an analyst.

Sometimes a company will split the nominal value of its shares into smaller units to increase liquidity and/or lower the share price.

An agent who buys and sells securities on a stock exchange on behalf of his clients for commission. Stockbrokers also offer investment advice.

Depreciation calculated in equal annual instalments.

A broad term used to describe the structuring of an investment to transfer the risk ? for example, securitisation and the creation of CDOs.

Pre-packaged investments often offered via private banking, which enable the investor to meet specific tax or investment return requirements or to reduce the risk to capital. The bank which structures the investments often uses derivatives to achieve the desired structure.

A sub-prime loan is any loan in which the borrower has challenges in obtaining financing because of poor credit. See also junk bonds.

A loan that ranks after all other loans in a winding up.

A subsidiary is a company that is controlled by another company (the parent). The control usually comes from the fact that the parent has the majority of the shares and therefore controls the composition of the board of directors.

An Islamic bond. Since interest is not permissible in Islamic law (Sharia), Sukuks are structured to avoid this. Sukuks are asset-based financing, generally involving the sharing of profits relating to the asset being financed with the financier, rather than interest payments.

For groups that include different types of business, analysts will often use different valuation methodologies for different parts of the group. These separate valuations will then be added together to determine the valuation of the whole group.

Summary financial statements (SFS) were introduced in the UK in 1990 and can be posted to shareholders by listed companies instead of full accounts. The SFS is a summary of the full annual report.

Senior lenders are those who are in the best position if a company gets into difficulties with its debt as the senior lenders have first call on the unsecured assets (before other lenders). However, in a debt restructuring, sometimes new lenders come in to fund the continuing operation of the company on a super-senior basis. This means that the senior debt becomes subordinated to the new super-senior debt.

A supply chain is the system of people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer.

A UK borrower may be able to borrow most easily in sterling, but he may prefer to have a US$ loan. A US company might have the opposite problem. A swap allows them to exchange the interest payable on the loans and therefore effectively achieve what they want. Swaps can also apply to fixed and floating rate interest as well as currencies.

Sovereign Wealth Fund. A SWF is a state-owned investment fund, investing in bonds, shares and other assets. The SWFs are growing fast as countries reap the benefits of high oil prices or large trade surpluses.

The Swiss solvency test is the risk based solvency system in Switzerland. It is mandatory for all insurance companies in Switzerland and requires them to have enough capital at the beginning of the year to be 99% sure to be able to cover losses and claims that might arise during the year.

Acronym standing for 'Strengths, weaknesses, opportunities and threats'. Often used a a way of assessing the position and potential performance of a sector or company.

Loans which are shared among several banks - the lead bank, or lead manager will arrange the syndicate of lenders. This is a method of spreading risk from the lender's point of view.

Financial benefits from an acquisition, such as cost savings.

A synthetic CDO is a one in which the underlying credit exposures are taken on using a credit default swap rather than by buying physical assets. See also CDO.

This involves the risk of a failure in a whole system.