| BIFFEX |
The Baltic International Freight Futures
Exchange. |
| BTAN |
Bons ` Taux Annuel Normalisi. Medium term French
government debt. |
| BTF |
See
Basis Trading
Facility. |
| Backwardation |
1. When the
bid price
exceeds the offer
price for a stock, the stock is in backwardation. For example, where
the prices are 512 - 510. This means that the best price at which
market makers
will sell the stock is less than the best price at which they will buy the
stock. This is unusual, since market makers will normally charge a
spread, buying
stocks for less than the price at which they will sell them. The reason is
usually some market distortion, such as a share repurchase scheme by the
company. When the price is backward, the touch strip on the SEAQ turns red. See
also Choice
Price and SEAQ 2. In
futures markets,
when the future price is less than the cash price. See also
Discount and
Contango. |
| Bad
Delivery |
A situation
where the registrar rejects a request to
transfer ownership so the transfer is not registered. |
| Balance
Sheet |
A statement of
a company’s financial position at a given point in time. It details the
assets of the
company and how these assets are being financed. Financing is broken down into
two major categories, namely
shareholders’
funds and liabilities. Due to the way in which the
balance sheet is prepared, total assets always equals total finance, i.e. the
balance sheet will balance. |
| Balance of
Payments |
The statement
which summarises cash inflows and outflows between the United Kingdom and the
rest of the world as a result of imports, exports and capital investment. See
also Current
Account and Capital Account. |
| Balloon
Maturity |
See
Bullet
Form. |
| Bank of
England |
The UK’s
central bank with responsibility for the setting of interest rates. It is also
the lender of last
resort to prevent a systemic collapse in the banking
system. |
| Basic Rate
of Tax |
The basic rate
of income tax is 23% in the fiscal year 1998/99 and is applied to taxable
income in between #4,300 and #27,100. See also
Lower Rate of
Tax, Higher
Rate of Tax and Taxable Income. |
Basis
back to top |
The difference
between the price of a futures contract and that of the underlying
asset. Calculated by subtracting the futures price from the cash
price. |
| Basis
Point |
One hundredth
of one percent (0.01%). |
| Basis
Risk |
The basis for a
particular product does not necessarily stay constant - changes in basis can
occur for a variety of reasons. Such changes can cause either a profit or loss
to be incurred by the holder of the product and thus constitute a risk. Basis
risk can mean that a person using
futures to
hedge an
underlying cash position cannot obtain a perfect hedge, where profits on one
side of the hedge exactly offset losses on the other. See also
Basis and
Basis
Trading. |
| Basis
Trading |
Basis trading
is the simultaneous entry into both a cash position for a particular product
and an equal and opposite futures position on the same underlying. A basis
trader looks to profit from a change in the relationship between the cash price
and the future, i.e. from a change in the
basis. |
| Basis
Trading Facility (BTF) |
A system
operated on the LIFFE market for certain
bond
futures which
allows for the simultaneous execution of cash and futures trades (basis trades)
without entering the futures pit. |
| Bear |
A person
expecting a decline in prices; someone who is bearish. |
| Bear
Spread |
An example of a
vertical spread,
constructed by the purchase of a high strike
call (put) and the sale of a low strike call
(put), both options being on the same underlying and
having the same delivery month. Entered into when
moderately bearish. |
| Bearer
Stock |
An
instrument for
which there is no register of the owner held by the company. Evidence of
ownership is given by physical possession of the instrument itself. Bearer
stock is common in the Eurobond market. |
| Best
Execution |
The act of
achieving the most advantageous price for a transaction of a particular type
and size. The duty is always owed to private customers as well as to
non-private customers unless they have waived this right. |
| Bid Ask
Spread |
See
Bid Offer
Spread. |
| Bid Offer
Spread |
The difference
between the bid
price and the offer price of a security. |
| Bid
Price |
The price at
which a market
maker is bidding to buy shares. It is usually lower than the
Offer Price at
which they will sell shares. For example, a quote of 510 - 515 indicates a bid
price of 510 and an offer price of 515. |
Big
Bang
back to top |
27 October
1986. The day when the system of share trading in the UK was radically changed
to remove fixed commissions and introduce screen based trading. |
| Black
Monday |
19 October
1987. The day of the great Stock Market crash worldwide. |
| Black
Scholes |
The name of a
theoretical option pricing model in widespread use in the market place. Named
after Fischer Black and Myron Scholes who first developed the
model. |
| Block
Trade |
Defined as 75 W
the normal market
size (NMS). Where a trade of this size is completed, it must be
reported into SEAQ under the usual deadlines. However,
whereas most trades are then displayed on the screen to give information to
investors, display of these larger trades is usually delayed for five business
days. This gives the market maker who has done the trade the
opportunity to cover his position in the stock. See also
Maximum Publication
Level and Less
Liquid SEAQ Securities. Generally, the phrase block trade can mean a
trade which is larger than the normal size of a trade for the particular stock.
Block trading refers to the trading of large parts of a portfolio and is often
referred to as Upstairs
Trading in the USA. |
| Blue Book
(The) |
See
Takeover Code
(The) |
| Blue
Chip |
A phrase used
to describe shares of the highest quality and lowest risk. Not to be confused
with blue blood, which merely indicates a prestigious background. |
| Bobl |
Medium term
German government debt. |
| Bond |
A certificate
indicating ownership of debt, giving details of the key terms of the underlying
loan. Bonds are usually tradeable. See also
Debenture. |
| Bond
Washing |
The process of
selling a bond
cum dividend
and then repurchasing the bond
ex dividend,
designed to convert the coupon element of the bond’s price
into a capital gain, rather than receiving the coupon as income. This does not
however, affect the investor’s tax liability since the element of the gain
on sale due to the interest accrual in the bond’s price
is taxed as income in the UK. |
Bonus
Issue
back to top |
Also known as a
scrip issue, a capitalisation issue, a free issue or a gratis issue. It is the
issue of new fully
paid shares in a company to existing shareholders for free on a basis
pro rata to existing holdings. For example, a 1 for 4 bonus issue would mean
that a shareholder would receive one free share for every four existing shares
they own in the company. The impact of a bonus issue is to reduce the share
price, since the same total market capitalisation is being spread over a larger
number of shares. This may have a beneficial impact in terms of liquidity of
trading. |
| Book
Entry |
An electronic
system of keeping records of ownership of shares and bonds so that all records
are computerised. In the UK, the major examples of book entry systems are the
CGO gilts
register and CREST. |
| Book
Value |
The value at
which a loan is shown in the
balance sheet
of the company which has borrowed the money. Note that book value is not
necessarily the market value of the loan. |
| Bookbuilding |
A method of
implementing an Offer
for Subscription or
Offer for Sale.
It is a compromise method of issue which draws on elements of a
Fixed Price
Offer and a Tender. Prior to the issue of shares,
the issuing house conducts a bookbuilding exercise where it contacts investors
and obtains commitments to purchase a number of shares at a specified price.
Having established the demand for the shares over a two week period or so, the
issuing manager sets the fixed price for the issue in line with the demand
levels that have been established. Bookbuilding is a common method of
implementing very large offers where the level of the issue price is difficult
to determine in advance and where it is difficult to obtain
underwriting
for the issue. |
| Books
Close |
This is
relevant for corporate actions such as dividend payments. Those investors whose
names appear on the register as at books close date will receive the benefit
from the company. Also referred to as Record Date. |
| Borrowing |
A futures trade
on the LME
involving the buying of near dated contracts and the selling of long dated
contracts. An example of a ‘carry’. The equivalent of an
intramarket
spread trade sometimes known as ‘buying the
spread’. |
| Bought
Deal |
A means of
issuing Eurobonds. The lead manager of the
issuer buys the whole issue on predetermined terms and price and then places
the bonds with its own clients. See also
Fixed Price
Re-offer. |
| Breakeven
Point |
The underlying
price at which a strategy is neither profitable nor unprofitable. |
| Bridge |
The electronic
link between Euroclear and
CEDEL, the two
Eurobond
clearing houses. |
Broker
back to top |
A person who
acts as an intermediary between two other persons, enabling them to complete a
trade together. |
| Broker-Dealer |
A member of the
Stock Exchange who may trade with customers either as
principal or act
as agent on
their behalf, completing a trade for the customer with a
market maker
or doing an agency
cross (see Dual
Capacity). |
| Brokerage |
Commission
charges payable on securities transactions. |
| Building
Society |
A form of
mutual organisation owned by its depositors and borrowers. Their original
purpose was to take deposits and recycle these as mortgage loans for buying
houses. However, modern large building societies have extended their role such
that they are now virtually the same as banks. |
| Building
Society Act |
Act of
Parliament governing Building Societies; consequently these
organisations do not need authorisation under the
Financial Services
Act unless undertaking investment business. |
| Bull |
Person
expecting a rise in prices; someone who is bullish. |
| Bull
Spread |
An example of a
vertical spread,
constructed by the purchase of a low strike
call (put) and the sale of a high strike call
(put), both options being on the same underlying and having the same
delivery month.
Entered into when moderately bullish. |
| Bulldog
Bond |
A sterling bond
issued in the United Kingdom by a foreign issuer. |
| Bullet
Form |
Also known as a
balloon maturity. A debt issue where the capital is all redeemed on the final
day of the bond’s life, rather than in instalments over the life. The only
payments over the bond’s life are the
coupon. Contrast
to Sinking Funds
or Purchase
Funds. |
| Bund |
Long term
German government bond. |
| Business
Day |
The period from
00.01 -24.00 on any working day; i.e. excluding weekends and public holidays.
Used to determine the intended
settlement date
of trades executed. |
