| C&F |
A term used in
the freight market (See CIF). Cost and freight is included in the
price, but not insurance. |
| CAC
40 |
The major
French share index, comprising the top 40 listed shares. |
| CAD |
Capital
Adequacy Directive; an EU directive setting out rules for all ISD
firms. |
| CAO |
See
Company Announcements
Office |
| CBOE |
Chicago Board
Options Exchange. |
| CBOT |
Chicago Board
of Trade. |
| CCSS |
See
CREST Courier and
Sorting Service. |
| CD |
See
Certificate of
Deposit. |
| CEDEL |
One of the two
Eurobond
clearing and settlement agencies. The other is
Euroclear. It
can also be used for settlement of German, French and UK government
debt. |
| CFTC |
Commodity
Futures Trading Commission - the US futures regulator. |
| CGO |
See
Central Gilts
Office. |
| CIF |
A term used in
international trade to identify what is included in a price. CIF means cost,
insurance and freight - as the price includes freight and insurance costs to a
specified destination. |
| CMA |
See
Cash Memorandum
Account. |
| CME |
Chicago
Mercantile Exchange. |
| COMEX |
Commodities
Exchange in New York. |
| CP |
See
Commercial
Paper. |
| CREPON |
CREPON is a
CREST member
and acts as a pooled
nominee. This
allows those members who wish, to hold stock in CREST but not to appear in the
register. It will allow anonymity to members such as
market
makers. |
CREST
 back to top |
The CREST
settlement system
was launched in July 1996 to replace TALISMAN, the settlement system operated
by the Stock Exchange which ceased to operate in April 1997. CREST is owned by
CrestCo Limited, an independent service company owned by a consortium of market
participants. CREST is an RCH (see
Recognised Clearing
House). CREST currently permits certificated and uncertificated
settlement (see Dematerialised Holdings), of UK and Irish
equities and corporate loan stocks. CREST’s benefits are more apparent as
a paperless system facilitating faster settlement including T + 0. |
| CREST
Courier and Sorting Service |
Part of
CREST which
deals with paperwork associated with settlement. |
| CREST
Member |
A
CREST
participant holding dematerialised stock (see
Dematerialised
Holdings) in stock accounts. A member is the legal owner of the
securities and will appear in the company register. Typical Crest members
include market
makers, broker-dealers, inter-dealer brokers,
stock borrowing and lending intermediaries, institutional investors and
custodians. |
| CREST Member
Accounts |
This facility
permits a member with an undesignated (house) account to
segregate different holdings, such as client holdings, in designated
accounts. |
| CREST
Participant |
A person or
organisation who has a formal relationship with
CREST. This
would include members,
payment banks,
registrars
and the Inland Revenue. |
| CREST
Sponsored Members |
Certain
investors such as private investors and institutions who are active traders,
wanting to hold stock in CREST accounts, but lacking the direct
technical access to CREST, can rely on another
member or
user of CREST. A sponsored member will appear in the register as the legal
owner. |
| CREST Stock
Account |
Within each
member account there is a stock account reflecting each individual line of
stock held. |
| CREST
User |
A person or
organisation with technical access permitting electronic communications with
CREST. |
| CSCE |
Coffee Sugar
and Cocoa Exchange, New York. |
| CTD |
See
Cheapest to
Deliver. |
| Cabinet
Trade |
Sometimes used
as an alternative to the simple abandonment of a
long options
position. This is where a worthless position is closed (sold) for a notional
consideration in order to facilitate the crystallisation of losses for taxation
and accounting purposes. |
| Cable |
The market term
used to describe the sterling/US dollar exchange rate. |
| Calendar
Spread |
See
Horizontal
Spread. |
| Call
Chairman |
The name of the
Exchange official on the LIFFE Commodity market who is responsible
for overseeing the opening and closing procedures on that market. |
Call
Option
back to top |
An
option that
gives the holder the right, but not the obligation, to buy an asset at a given
price on or before a given date. |
| Callable
Service |
A type of
allowable unsolicited call relating to the provision of services in
conservative investments, i.e. non-geared packaged products and readily
realisable securities. |
| Cap |
This is a
CREST
member’s credit limit with his payment bank. The payment bank
guarantees to meet client obligations up to this maximum. |
| Capital
Account |
The part of the
balance of
payments which is due to transactions in long term
assets and
liabilities, such
as when a UK company acquires an overseas subsidiary. |
| Capital
Adequacy |
The measure of
the sufficiency of a firm’s funds to meet its business and regulatory
obligations; see Financial Resources and
Financial Resources
Requirement. |
| Capital
Allowances |
The
depreciation
charged against profits when calculating
taxable
profits for corporation tax purposes, as opposed to
the depreciation charge in a company’s accounts. Accounting depreciation
is not allowed as a deduction from profits in calculating the corporation tax
liability since there is too much discretion in the amount of depreciation that
a company may charge in its accounts. As a result, the capital allowances
calculation is defined precisely in law. |
| Capital
Employed |
Usually defined
as fixed assets
plus working
capital, although alternative definitions are possible. Capital
employed is essentially the underlying asset base a company needs to generate
its profits and turnover. |
| Capital
Gains Tax Exempt Band |
The amount of
capital gains in the fiscal year which are tax free. For an individual the
exempt band in 1998/99 is #6,800. For a trust, the exempt band is
#3,400. |
| Capitalisation
Issue |
See
Bonus
Issue. |
| Carrying
(Carries) |
Describes the
borrowing or lending activity on the
LME. Another
term for an intramarket
spread. See also Borrowing,
Lending. |
Cash Against
Document
back to top |
Settlement arrangements ensuring
that neither the buyer nor the seller are at risk from default; i.e. not having
the cash or the securities. CREST provides such a structure. See
Delivery Versus
Payment. |
| Cash Flow
Statement |
Part of a
company’s financial statements. A summary of all
the cash flows of the company over a period of time, usually one year. The cash
flows are broken down into various categories. The major categories are
1. Cash flow from operations. 2. Returns on
investments and servicing of finance (e.g. interest received and paid,
dividends received and paid). 3. Taxation. 4. Capital expenditure. 5.
Acquisitions and disposals. 6. Equity dividends paid. 7. Management of liquid
resources. 8. Financing. |
| Cash
Market |
The market
place for the immediate delivery of and payment for assets. |
| Cash
Memorandum Account |
This is a
record of each CREST
member’s payment obligations. These accounts do not represent
cash, but rather instructions to members’ payment banks to transfer funds
at the end of the day. This is
settlement on the
business day following the day of the trade and is normal settlement for gilts
and new issues. Not to be confused with CS (Cash Settlement), a trade reporting
condition allowing advanced settlement of CREST eligible securities on a one
business day basis. |
| Cash
Settlement |
In respect of
derivatives, the
settlement of futures and
options
contracts for cash instead of settlement involving the physical transfer of
goods. Typically used for index-based products such as the
FTSE 100
future and option. In respect of securities, the settlement one business day
after the day of trade. |
| Cash and
Carry Arbitrage |
An
arbitrage trade
entered into where a futures contract is sold and the underlying
asset is purchased in the cash market. Such a trade will be effected where the
trader believes that the futures is trading relatively expensive to its
fair
value. |
| Central
Gilts Office |
The settlement
agency for gilts. |
| Certificate
of Deposit |
A money market
instrument, also known as a CD. The certificate is evidence of a deposit made
with a bank, which will be redeemed on the
maturity date
with interest. The difference between a certificate of deposit and a normal
deposit with a bank is that a certificate of deposit is a
bearer
instrument which can be sold on in the
money markets
to other investors. |
Certification
back to top |
This is the
process of authorising a stock transfer form to be deposited and
registered without the cover of a certificate. It can only be carried out by
the registrar. Certification may be
required if (i) One certificate is used to cover more than one trade. (ii)
Stock recently purchased is being sold, yet the original certificate has not
yet been received. (iii) A balancing certificate requested due to previous
trade has not been received and that stock is now being sold. |
| Chargeable
Accounting Period |
A company
calculates its profits for its chargeable accounting period and then pays
corporation
tax on these profits nine months after the end of the chargeable
accounting period (except for any
advance corporation
tax already paid). The chargeable accounting period is normally the
same period of time as the company’s accounting year. However, a
chargeable accounting period cannot be for longer than one year. If a company
changes its accounting year end, for example from 30 March to 30 June, in the
year of the change, it will have a fifteen month accounting period, from 1
April one year to 30 June the next year. For tax purposes, it will be obliged
to break this down into two chargeable accounting periods, one of twelve months
and one of three months. |
| Chargeable
Disposal |
A disposal of
an asset for capital gains tax purposes. This will include the sale of an
asset, the gift of an asset or when an asset becomes worthless, such as shares
when a company becomes insolvent. |
| Chargeable
Estate |
The amount of
an individual’s estate which is liable to inheritance tax. Of the
chargeable estate, the first #223,000 is currently free from inheritance tax.
The remainder is taxed at a rate of 40%. |
| Charges |
These arise
when a bond is
issued with security over certain assets. If the borrower defaults on the bond,
the charged assets can be sold and the proceeds used to repay the debt to the
lender. A fixed charge is a mortgage over a specific asset, usually land and
buildings, and is also known as a mortgage. A floating charge is a charge over
a class of assets, such as the stock in trade of the business. Bonds issued
with a fixed charge are often known as
debenture
stock. |
| Charterparty |
A legal
document produced when an agreement to charter a ship is made on the Baltic
Exchange, setting out all the terms and conditions for the voyage to be
undertaken. |
| Cheapest to
Deliver |
All
bond
futures have a
range of deliverable bonds which underlie the futures contract, giving the
seller the choice as to which one he delivers to meet his contractual
obligations. The deliverable bond that generates for the seller the greatest
profit or the least loss on a bond futures position is the cheapest to deliver,
and can be identified by calculating the returns from a
cash and carry
arbitrage on each of the deliverable bonds. The bond which gives the
greatest arbitrage
profit, or the least arbitrage loss, is the cheapest to deliver. |
Chinese
Walls
back to top |
Physical/procedural
barriers erected to prevent the flow of information within a firm, e.g.
corporate finance and investment management. Under
SFA rules it is
not obligatory to establish Chinese Walls. |
| Choice
Price |
When the touch
bid and offer prices for a stock are the same. See also
Backwardation. |
| Churning |
The act of
engaging in excessive trading to generate commission whilst disregarding the
best interests of customers. Expressly prohibited for all discretionary
customers and advisory private customers. |
| Circles
Processing |
Although the
majority of CREST transactions will settle in the
normal way, sometimes there may be a number of mutually dependent transactions,
i.e. a gridlock. CREST resolves this problem by simultaneously settling these
transactions, whilst ensuring that no member has insufficient stock or
credit. |
| City Code on
Takeovers and Mergers (The) |
The full name
of The Takeover
Code. |
| Clean
Price |
The price of
the bond
excluding the interest
accrual. The underlying capital value of the bond. Bond prices are
usually quoted on a clean basis. The actual price paid will be the clean price
with an interest accrual adjustment. This total price is known as the
Dirty
Price. |
| Clearing |
The process of
registration, guarantees and settlement of a
futures/options
transaction. |
| Clearing
Member |
An entity which
is a member of a clearing house and thus has the ability to clear transactions.
Contrast with a non-clearing member, who cannot clear directly via the clearing
house, and must therefore employ the services of a clearing member to clear
trades on his behalf. See also
General Clearing
Member and Individual Clearing
Member. |
| Click |
The computer
based trading platform marketed by
OMLX. |
| Client
Money |
The money of
segregated
customers held in trust by an authorised person. Such money should be protected
against a default/failure of the authorised person. |
| Close
(Out) |
A transaction
which extinguishes commitments to the markets, i.e. a purchase if the initial
transaction was a sale and vice versa. See also
Closing
Purchase and Closing Sale. |
| Close Period
(The) |
See
Model
Code. |
| Closing
Order |
An order type
used where the order must be executed during the official closing period in the
market concerned. |
| Closing
Purchase |
A transaction
in which a position is purchased to cancel a sold position already
established. |
| Closing
Sale |
A transaction
in which a position is sold to cancel a purchased position already
established. |
| Collective
investment Scheme |
A system for
pooled investment in securities where investors combine their resources to buy
investments together. It is achieved through the medium of
Unit Trusts or
Investment
Trusts. The benefit to the small investor is the ability to spread his
limited resources over a wider pool of investments, giving the benefit of
diversification, and to profit from the expertise of the fund manager running
the scheme. Known in the USA as mutual funds. See also
Undertakings for
Collective Investment in Transferable Securities and
Open-Ended Investment
Companies. |
Combination
back to top |
An
options trade
involving both calls and
puts on the
same underlying asset, e.g. buy a call and buy a put option with the same
strike price for the same delivery month in the same underlying product (known
as a long straddle). Contrast with an option spread trade, where the trade
consists of either all calls or all puts. |
| Commercial
Bills |
Also known as
trade bills. IOUs issued by companies (usually medium sized) and usually
guaranteed (‘accepted’) by a bank. They pay no interest and hence are
issued at a discount to nominal value. They have varying
maturities. They may be
eligible bills, indicating that the Bank of England is prepared to purchase
them in the money markets. |
| Commercial
Paper |
Borrowing in
the form of short term paper issued by companies. Also known as CP or ECP (Euro
Commercial Paper). Usually redeemable at par value and pays no interest. Hence
it is issued and trades at a discount. |
| Commodities
Exchange Act |
US legislation
governing the commodities and futures markets. |
| Common
Stock |
See
Equity
Shares. |
| Companies
Act 1989 |
An Act of
Parliament which, amongst other things, changed the applicability of Section 62
of the Financial
Services Act and, thus facilitated the
New
Settlement. |
| Company
Announcements Office |
A department of
the Stock Exchange, to which listed companies are obliged to report
announcements prior to releasing the information elsewhere. The CAO will then
arrange for the announcement to be disseminated to the market, ensuring that
all investors have equal opportunity to hear the information at the same
time. |
| Compensation
Order |
The power of an
SFA disciplinary
tribunal to require a defendant to pay a maximum of #50,000 to compensate a
customer. |
| Compensation
Scheme |
A scheme run by
the Financial Services Authority to compensate investors if authorised persons
default. The maximum payout by the Investors Compensation Scheme (ICS) in any
year is #100m for each SRO, and the maximum payout per claim
is #48,000 plus interest. |
| Competent
Authority (The) |
The
London Stock
Exchange, which has been designated as the competent authority under
the Financial
Services Act 1986 for the purpose of regulating companies which are
seeking an official
listing. |
| Complaints
Bureau |
A part of the
SFA that considers
customer complaints with a view to conciliate between the firm and the
client. |
| Complaints
Commissioner |
An independent
person who scrutinises the work of the
SFA complaints
bureau. He does not, however, review cases. |
| Complaints
Procedure |
Written
procedure that all SFA firms must establish to deal with
complaints. |
| Concert
Parties |
See
Acting in
Concert. |
| Confirmation
Note |
The
derivative
equivalent of a securities
contract note
which outlines the details of a trade just undertaken; normally sent out with
"due despatch" (end of next business day). |
Consistency
back to top |
One of the
fundamental accounting
concepts. A company must prepare its accounts on a consistent basis
year on year to facilitate comparisons. |
| Consolidated
Stock |
A name for
several issues of UK government bonds, the most common of which is 2.5%
Consolidated Stock. Also known as Consols. |
| Consolidation
of Control |
A
Blue
Bookconcept. Defined as, where an investor owns between 30% and 50%
inclusive of the voting rights in a company and adds on more than 1% in any one
year. If this occurs, the investor will be required to make a
mandatory
offer for all the other shares in the company. |
| Consols |
See
Consolidated
Stock. |
| Consumer
Arbitration Scheme |
An
SFA scheme
available for private customers with claims of #50,000 or less. |
| Consumer’s
Hedge |
An alternative
term used to describe a long hedge. |
| Contango |
A term used in
the futures
markets to describe the situation when the
spot or nearby
prices (cash prices) are lower than longer term prices (futures prices). The
opposite of backwardation. Sometimes such markets are
said to be at a premium. |
| Contingent
Liability Transaction |
A
derivative
transaction under which the customer may be required to pay money after the
trade date, i.e. any type of margined trade. |
| Continuing
Obligations |
The ongoing
rules of the Stock Exchange, detailed in the
which have
to be followed by a Listed Company. |
| Continuous
Auction |
See
Instant
Auction. |
| Contract |
The standard
unit of trading for futures and
options -
sometimes also referred to as a ‘lot’. Trades can only be effected in
whole contracts - one cannot trade fractions of one contract. |
| Contract
Note |
Securities version of a
confirmation
note. |
| Contract
Size |
The amount of
the underlying asset which one
futures contract
represents, e.g. the contract size for a copper contract is 25 tonnes. This
means that underlying one copper future is 25 tonnes of copper which the
investor has the obligation to buy (long future) or sell (short future). |
| Contract
Specification |
The legal
document produced by the relevant exchange that sets out the details of a
future or
options
contract, e.g. trading times, delivery procedures, quantities of underlying per
one contract etc. The use of contract specifications leads to standardised
products and thus maintains liquidity. |
| Contracts
for Differences |
A term used in
the Financial
Services Act to describe
cash settled
instruments, e.g. FTSE
100 futures, FRAs,
Swaps and
spread
betting. |
Control
back to top |
1 For
legal purposes, usually owning in excess of 50% of the voting rights of a
company or having the right to appoint directors on the company’s board
with a majority of voting rights.2 For
Blue Book
purposes, owning 30% of a company gives effective
control. If an
investor obtains control of a company covered by the Blue Book, he is obliged
to make a mandatory
offer to buy out all the other shareholders. 3 For Yellow Book
purposes, see Controlling
Shareholder. |
| Controlling
Shareholder |
For the purpose
of the Stock Exchange, an investor holding 30% or more of alisted company’s shares.
Such a shareholder will only be permitted for a listed company if it can be
demonstrated that any conflicts of interest arising between the controlling
shareholder and the interests of other shareholders will be suitably
managed. |
| Convergence |
The process by
which future
prices and cash prices move together as
delivery
approaches. Convergence occurs on the final day of trading of the future, when
there is no longer any cost of carry included in its price. At this point the
futures price equals the cash price. |
| Conversion |
An example of
an arbitrage
trade, where the future is purchased and a
synthetic future
is sold by buying a put option and selling a call option with the same
maturity and
strike price on the same underlying asset. Entered into when the relationship
described as put/call
parity has broken down, and the future is relatively cheap to the
synthetic. The opposite of a
reversal. |
| Convertible
Debt |
Debt where the
lender has the option to convert the debt into ordinary shares in the company
rather than receiving repayment in cash. |
| Convertible
Gilt |
UK government bond where the
holder of the bond has the option to convert the bond into another issue of
government bonds rather than receive repayment in cash. |
| Cooling Off
Period |
The length of
time during which a customer can choose whether or not to proceed with a
particular investment decision. Of particular relevance to the unsolicited
calls made with respect to
callable
services where there is a seven day cooling off period. |
Core
Service
back to top |
A term derived
from the Investment
Services Directive (ISD) meaning the activity of dealing, arranging or
managing certain financial instruments. |
| Corporate
PEP |
A
PEP which is
sponsored by a company, meaning that it is able to charge lower commission
costs to investors. The PEP may be set up under mainstream or single company
PEP rules. It is often a requirement that the PEP is only used to buy shares in
the sponsoring company. |
| Corporation
Tax |
Taxation
payable by companies, as opposed to individuals and trusts. |
| Corporation
Tax Rates |
The rate at
which companies pay corporation tax. The rate varies depending on the size of
the company. A small company for tax purposes pays corporation tax,
currently 21%. A small company for tax purposes is defined as a company
with taxable profits of #300,000 or less. The normal rate of corporation tax is
currently 31% and is paid by companies with taxable profits of #1.5 million or
more. Companies with profits between these two limits pay corporation tax at a
tapering rate between 21% and 31%. |
| Cost of
Carry |
The costs
incurred in buying an asset today and carrying it through to the delivery day
of a future. Such costs may include finance costs, insurance, storage etc. and
will be reduced by the benefits of holding certain assets such as
dividends and
coupons. |
| Counterparty
Risk Requirement (CRR) |
A component of
the financial resources requirement for both
ISD and
non-ISD firms. The CRR requires that timely provision is made in case of bad
debts/non-deliveries. |
| Coupon |
The rate of
interest payable on a bond. For example a bond with a 10% coupon
and a nominal
value of #100 will pay annual interest of #10 in total, regardless of
the price at which the bond is trading in the market. |
| Coupon
Stripping |
Taking a
coupon paying
bond and selling on each of its coupons separately as
zero coupon bonds
in their own right. |
Covenant
back to top |
A stipulation
in a loan agreement which restricts the borrower’s freedom of action while
the loan is outstanding. Designed to protect the interests of the
lender. |
| Covered |
A position is
described as covered if the cash or asset to be delivered by the contractual
obligation in the derivatives position is already held, e.g.
if you sell a copper future and thereby become obligated to deliver 25 tonnes
of copper you would be covered if you already held the copper. Not to be
confused with margin. |
| Covered
Warrant |
A
call option on
the shares of a company issued by a bank, where the bank has
hedged its
position in the underlying stock, usually by holding shares of the company in
question. |
| Creditors |
Part of a
business’s liabilities. Amounts due to third parties.
Creditors are analysed in the
balance sheet
into those due within one year and those due after more than one
year. |
| Cross
Rates |
A cross rate is
the effective exchange rate achieved for two currencies across the US dollar.
For example, a cross rate for sterling and French francs, where the customer
wishes to sell sterling and buy French francs would be calculated by firstly
converting the sterling into dollars and then converting the dollars into
French francs. The use of cross rates is to identify potential
arbitrage
opportunities and to obtain quotes for currencies which are not commonly quoted
against each other. |
Crossing
back to top |
A term used to
describe the situation in which a firm has both the buy side and the sell side
of an order. Rules exist on derivative exchanges governing the
crossing of trades. See also
Matching and
Trading. |
| Cum
Dividend/Cum Interest |
The trading
status of a bond
or share such that the purchaser of the bond or share is entitled to receive
the next interest or dividend payment. The alternative is
ex dividend or ex
interest, where the seller of the bond or share retains the right to
receive the next interest or dividend payment. |
| Current
Account |
The part of the
balance of
payments which is due to trade flows. It can be broken down into
visibles, which are physical goods imported and exported from the United
Kingdom, and invisibles, which are services imported to or exported from the
UK, such as advertising, insurance and training. |
| Current
Assets |
All assets
apart from fixed
assets. Usually assets which have been acquired with the intention of
converting them into cash or cash itself, e.g.
stocks,
debtors, short
term investments, cash balances. |
| Current
Ratio |
An accounting
ratio, usually defined as current assets divided by
creditors
falling due within one year. The ratio is designed to assess the solvency of a
company in the short term. If the current ratio exceeds one, then the value of
current assets is greater than the value of the short term creditors,
indicating that the company is able to pay its short term debts as they fall
due. Note that this interpretation is fairly simplistic. |
| Custody |
The safekeeping
(and often settlement) of investments introduced as a category of investment
business under the Financial Services Act 1986 in June
1997. |
| Customer |
A term which,
within the SFA
rules, means a client who is either a private or non-private customer, but does
not include market
counterparties (non-customers). |
| Customer
Agreement |
A signed
contract between the firm and customer outlining the basis on which services
are to be provided by the firm. Such agreements are mandatory for all
discretionary customers, as well as for private customers engaged in
contingent liability
transactions. |
| Customer
Borrowing |
Funds lent to
customers by firms. Credit may normally only be extended to private customers
with prior written consent and with agreement as to the maximum amount of the
loan. |
