| 48 Hour Rule |
The requirement that a company seeking a listing
should submit any documents required in their final form to the Stock Exchange
48 hours prior to the hearing of the application to obtain a
listing. |
| A Day |
29 April 1988, the date when the
Financial Services
Act 1986 was enforced. |
| AA |
See
Against
Actual. |
| ADP |
See
Alternative Delivery
Procedure. |
| ADRs |
See
American Depository
Receipts. |
| AGM |
See
Annual General
Meeting. |
| AIM |
See
Alternative Investment
Market. |
| AMPS |
See
Auction Market
Preferred Stock. |
| APT |
See
Automated Pit
Trading. |
| ASB |
Accounting Standards
Board. |
| Abandon |
The choice made by the holder of an option to allow
an option to expire without exercise. |
| Abstracts |
Statements issued by the
Urgent Issues Task
Force. Companies must follow the requirements of Abstracts when
preparing their accounts. |
|
Accounting Standards |
Statements issued by the
Accounting Standards
Board, requiring the adoption of certain accounting principles and
methods when preparing accounts in the UK. There are currently two forms of
Accounting Standards in the UK -
Financial Reporting
Standards (FRSs) and Statements of Standard Accounting Practice
(SSAPs). The only difference between these is that SSAPs were issued prior to
1990. Since that date, the name has been changed to FRS. |
| Accounting Standards Board |
The body responsible for issuing Accounting
Standards in the United Kingdom. See also
Financial
Reporting Review Panel,
Urgent Issues Task
Force and Financial Reporting
Council. |
Accruals
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1. One of the fundamental accounting concepts, also
known as the matching concept. Revenue and costs are credited or charged to the
profit and loss account for the year in which they are earned or incurred, not
when any cash is received or paid. For example, if a sale is made on credit
this year, but the cash is only received next year, the sale is treated as
income in this year.
2. Amounts owed to third parties for which the company
has not yet been invoiced. This is shown in the balance sheet of a company as
part of creditors. For example, where a company has not been invoiced by a
telephone company for its telephone bill for the last three months of the year,
it will show in its accounts an accrual for the estimated amount of the
bill. |
| Accrued Interest |
See
Interest
Accrual. |
| Acid Test Ratio |
An accounting ratio, usually defined as
current
assets (with the exception of stocks) divided by
creditors
falling due within one year. It is designed to test the short term solvency of
a company, in a way similar to the
current
ratio and its interpretation is similar to the current ratio. It is
also known as the quick ratio. |
| Acting in Concert |
For the purpose of the Companies Act 1985, this is
when two or more people have an agreement to acquire interests in shares. For
the purpose of the Blue Book, it is when two or more
investors cooperate to obtain or consolidate
control of a
company. |
| Active Fund Management |
Fund managers who aim to manage a portfolio such
that it outperforms the market are undertaking active fund management. They aim
to achieve outperformance either by selecting specific stocks which they expect
to do well, or by timing their purchases of shares, i.e. aiming to buy shares
just before the market rises and sell shares just before the market falls
(market timing). Fees charged by active fund managers are higher than those
charged by passive fund managers. |
| Advance Corporation Tax |
Also known as ACT.
Corporation
tax liabilities are normally payable nine months after the end of the
chargeable accounting period to which they relate. However, where a company
pays a dividend to shareholders it is obliged
to pay some corporation tax in advance of this date. The amount of ACT
payable is calculated as the net dividend paid by the company multiplied
by the fraction 20/80 or 25%. Having paid the ACT, the company is
then allowed to deduct the ACT from its mainstream corporation tax liability,
thereby reducing the amount payable after the year end. |
Advising
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The act of giving advice on
investments; an activity included in
the definition of investment business and thus normally requiring authorisation
under the Financial Services Act
1986. |
| Against Actual |
The term used on the
LIFFE
commodity market for an Exchange for Physical. |
| Agency Brokers |
Brokers who only act as
agents and do
not deal as principals or as
market
makers. |
| Agency Cross |
A trade between two customers of a
broker
executed through the office of the broker who acts as
agent in the
middle, with the two customers acting as
principals. It
will usually be carried out at the
mid-market price
for the stock in question. The broker will charge both customers
commission. |
| Agent |
A person acting on behalf of somebody else who is
the principal
to the trade when completing the trade. A common example is when a
broker
dealer buys or sells shares on behalf of a customer with a
market
maker. |
| Allocation |
Often in open outcry markets the trader who has
effected a bargain is not the owner of the trade, having initiated it on behalf
of another firm. Allocation refers to the process of allocating, or
‘giving up’ the trade within the
trade registration
system (TRS) to the originating firm, so that the trade ends up in the
appropriate firm’s account. |
| Alternative Delivery Procedure |
Used on the
International
Petroleum Exchange (IPE). This is where the long and short sides of a
transaction agree to deliver either a different specification of the product
from that stipulated in the contract specification, or to a different location
from those included in the contract specification, or both. ADPs are not
covered by the London Clearing House
guarantee. |
| Alternative Investment Market |
Also known as AIM. A market for issuing and trading
shares on the London Stock Exchange. It is designed
to be a lightly regulated market with very low regulatory costs for companies,
while giving the company the ability to raise capital and investors the ability
to trade their shares. It is attractive for smaller companies for whom an
‘official
listing’ would be both expensive and cumbersome. As a lightly
regulated market, it involves more risk for investors than the listed companies
market. |
American Depository Receipts
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Certificates issued in the USA representing the
right to ownership of shares in a UK (or other foreign) company. A bank will
buy shares in a UK company and issue receipts into the USA in respect of those
shares. Typically, one ADR will represent the right to say eight or ten shares
in a company. Although the shares are UK-based, the ADR will trade in US
dollars. The bank will receive payment of dividends in sterling, but will
convert this into dollars to pay to ADR holders. ADRs have the right to vote
but are not allowed to participate in
rights
issues. The purpose of ADRs is to give US investors a convenient way to
invest in UK or other foreign companies. Global Depository Receipts (GDRs) and
International Depository Receipts (IDRs) operate worldwide on the same
basis. |
| American Style Option |
An
option where
the holder has the right to exercise up to and including the
expiry date.
Contrast with a European style option, where the holder
has the right to exercise the option on the expiry date only. |
| Annual General Meeting |
Also known as the AGM. All companies are required to
hold an annual general meeting at least once every 15 months. Shareholders must
be given 21 days notice of the meeting and this may only be waived if all
shareholders agree. |
| Annual Report and Accounts |
All limited companies are required by law to prepare
an annual report each year, containing their financial statements,
directors’ report and
auditor’s
report. The annual report of a listed company must also contain a five
year summary of results. The annual report must be sent to shareholders and to
the Registrar of Companies, a civil servant whose role it is to maintain
records of companies. Once sent to the Registrar, the annual report becomes a
public document, available for anyone to view. |
| Appointed Representative |
A person conducting investment business, but exempt
from the need to seek authorisation. The responsibility to
control these persons, typically self-employed individuals, is borne by an
authorised person. The more formal name for a
Tied Agent. See
Polarisation. |
Arbitrage
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The purchase (or sale) of an
instrument
and the simultaneous taking of an equal and opposite position in a related
instrument to exploit mispricing. Also defined as the making of riskless,
guaranteed profits by exploiting market inefficiencies. An activity undertaken
by arbitrageurs. |
| Arbitrage Channel |
An area which exists both above and below the fair
value of a future, within which no
arbitrage will
take place. This is because additional costs, such as exchange fees,
bid/offer
spreads and commissions, will exceed arbitrage profits within this
channel. Thus, the width of the channel depends on the costs incurred by the
participant in the market place. |
| Arbitrageur |
An investor who trades in the markets with the
intention of making riskless, guaranteed profits by exploiting market
inefficiencies. For example, if the same index contract is traded in two
different exchanges, it should trade at the same price in both exchanges. If
the prices are not the same, an arbitrageur will buy at the cheaper price and
immediately sell at the more expensive price in the other market, making a
guaranteed profit. |
| Arbitration |
A low cost method of solving disputes, see
Full
Arbitration and Consumer Arbitration. |
| Articles of Association |
The document which acts as a contract between a
company and its shareholders, giving the rights and duties of the shareholders
with the company and between themselves. See also
Memorandum of
Association, the other main constitutional document of a
company. |
| Asian Style Option |
An
option which
is exercised at the average underlying price over a period. |
Ask
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The market selling price. See also
Offer
Price. |
| Asking Price |
See
Offer
Price. |
| Assets |
Resources owned and controlled by a company.
Technically defined as access to future economic benefits as a result of past
events or transactions. Assets are shown on a company’s
balance
sheet. |
| Assignment |
When an
option is
exercised by the holder, the
clearing house
will randomly match the exercise notice received against an
open
short
position, and advise the chosen
writer of the
requirement to fulfil his contractual obligations. This is the process of
assignment. Assignment is also the process by which a trade is directed into
the appropriate account in TRS, either into the
house,
segregated or
non-segregated account of the firm. |
| At-the-Money |
An
option or
warrant where
the exercise
price is equal to the current market price of the asset subject to the
option. For example, a call option with an exercise price of
100p on a share with a share price of 100p is at-the-money. More generally,
however, an at-the-money option is an option whose exercise price is nearest to
that of the underlying asset. For example, where an option has
strike
prices at intervals of 10p, e.g. 90p, 100p, 110p etc, if the underlying
asset has a price of 97p, the at-the-money option is the 100p strike, which is
the nearest strike price to the underlying price. See also
In-the-Money
and Out-of-the
Money. |
Auction
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A common method of issuing
gilts.
Similar to a Tender
Offer. In an auction, investors apply to buy the new gilts being
issued, specifying the amount they wish to purchase and the price they are
prepared to pay. The new gilts will be issued to investors who bid the highest
prices and investors pay the price which they bid. This is the one difference
between the auction and the tender - in a tender investors all pay the same
strike
price, regardless of what price they bid. |
| Auction Market Preferred Stock |
Preference shares issued by a company
where the dividend is variable and is set at
regular intervals to a market rate by means of an auction process between
investors. Also known as AMPS. |
| Audit Trail |
The range of documents, and other evidence including
tape recordings, which records all business activities and transactions which
the firm effects. Such a historic record allows the firm to piece together the
chronology of a trade. It is also required for compliance purposes. |
| Auditor’s Report |
All companies above a certain size are required to
have their financial statements audited (i.e.
checked for truth and fairness) by a registered auditor. The auditor prepares a
report which is attached to the financial statements stating his opinion as to
whether or not the financial statements give a true and fair view of the
company’s results and financial position. |
| Authorisation |
The process by which organisations are vetted and
licensed to conduct investment business under the
Financial
Services Act 1986. Such organisations are known as Authorised
Persons. |
| Automated Pit Trading |
A screen trading system used on
LIFFE for
certain financial derivatives. APT is generally used for
trading after hours (i.e. once the trading pit has closed); however, the JGB
future trades exclusively on APT. |
| Automatic Exercise |
A procedure whereby clearing houses exercise all
in-the-money
options at
expiry without
requiring instructions (in the form of an exercise notice) from the holder.
Most automatic exercise routines will not exercise options which are only just
in-the-money. |
| Automatic Partials Processing |
This is an end of
settlement day
process whereby transactions which are ready for settlement, but cannot settle
due to insufficient stock or cash, are split into two parts by
CREST. One
part reflects where sufficient stock or cash is available and will settle
immediately. The other part remains within the
settlement
queue. |
