| DAX |
The major
German share index, comprising 30 shares. |
| DTB |
Deutsche
Terminborse - the German derivatives exchange. |
| Daily
Official List |
A
Stock
Exchange publication giving details of share trading in the previous
day. |
| Dealing |
Entering into
transactions in investments either for customers or for the firm’s own
account. |
| Debenture |
A
bond issued with
security. See Charges. Note that this is the UK
terminology. In the USA, a debenture refers to an unsecured bond. |
| Debt to
Equity Ratio |
See
Gearing
Ratio. |
| Debtors |
Amounts owed to
a company by its customers and other third parties. Debtors are shown as part
of current
assets in a company’s
balance
sheet. |
| Declaration
Day |
An
LME term used
to describe the expiry day of an option contract. See
Expiry
Date. |
| Deep
Discount Bonds |
Bonds issued at a discount to
par value and
redeemed at par or a premium to par. They may either pay a low
coupon over their
lives (low coupon bonds) or no coupon at all (zero coupon bonds). The difference between
the issue price and the redemption price is effectively interest on the amount
borrowed. |
Default
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Failure by a
party to fulfil its obligations on a
future or
options
contract when they fall due, e.g. failure to meet a
margin call, or
to make or take delivery. |
| Delivery |
The
settlement of a
futures or options contract via the delivery of a physical asset or
cash. |
| Delivery
Versus Payment |
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
Cash Against
Document. |
| Delta |
Drawn from the
theoretical options pricing model (see
Black Scholes),
the delta of an option shows the rate of change in an
option premium
with respect to a change in price of the underlying asset or security. For
example, the premium on an option with a delta of 0.5 will move by 0.5p for
every 1p move in the price of the underlying. Delta can also be defined as
either (i) the probability that the option will expire in-the-money, or (ii)
the theoretical number of futures contracts of which the holder is either long
(with a call option) or short (put option). |
| Delta Based
Margin |
A margining
system which used to be used on the
LME to
calculate initial margins on sold options. The initial margin of a future on
the same underlying was multiplied by the option’s delta to obtain the
initial margin requirement on the option. Note that the LME now uses
SPAN. |
| Delta
Hedged |
See
Delta
Neutral. |
| Delta
Neutral |
The term used
to describe the situation where the net delta of a portfolio of options and
futures is zero. Also known as Delta Hedged. Such a position means that there
is no exposure to directional movements in the underlying. Note however, that
this does not mean that there is no risk attached to such a position. Option
deltas change for a variety of reasons, and so the portfolio must be constantly
readjusted in order to maintain a delta neutral position. |
| Dematerialised
Holdings |
This describes
stock which is held in electronic accounts, i.e. in uncertificated form,
instead of as paper certificates, i.e. in certificated form. See
CREST. |
| Deposit
Set |
This is a
collection of documents required for a stock deposit to be made at
CREST; a
transfer form and the certificate or certified transfer form. See
Stock Deposit
and Certification. |
Depreciation
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Amounts charged
to the profit and loss
account to reflect the wearing out of a
fixed asset
over its useful life. For example, if a company buys a car for #10,000 with an
expected useful life of four years, it will charge the #10,000 cost to profit
and loss account over a four year period. The simplest way to do this is to
charge #2,500 expense per year (straight line depreciation). The purpose of
depreciation is to comply with the accruals concept. Since the benefit of the
car is received over a four year period, the cost of acquiring the car is
charged against profits over a four year period. |
| Derivatives |
A term used to
encompass products such as futures,
options, and
swaps; because of
their potentially high risk, special rules often apply. |
| Derivatives
Risk Warning Notice |
A warning
notice sent by an SFA firm to all private customers
contemplating derivative transactions. The notice sets
out the nature and risks of the products, and must be signed by the customer
and returned to the firm before the firm may act for the customer. |
| Designated
Agency |
The
non-governmental organisation established to co-ordinate the enforcement of the
Financial Services
Act; the Financial
Services Authority. |
| Designated
Client Account |
A type of
client money bank account whose monies may not be pooled with other "general"
client accounts. |
| Designated
Investment Exchange (DIE) |
An overseas
exchange deemed by the Financial Services Authority to provide an
appropriate level of investor protection. |
| Diagonal
Spread |
An option
spread where one option is purchased and a different
option is sold. The sold option has a different
strike price
and expiry date
from the purchased. The spread will be constructed with either all calls or all
puts on the same underlying asset. |
| Difference
Account |
A document that
sets out the profit/loss arising from the closing of a futures
position. |
| Dilution |
A general
phrase, describing the fact that as more shares are issued by a company, the
interests of existing shareholders will be diminished. The specific impact is
that the earnings per share of the company may be reduced as a result of the
increased number of shares. A more specific meaning is used in the context of
Fully Diluted
Earnings per Share. |
Direct Offer
Advertisement
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An
advertisement incorporating a tear out coupon, the completion of which alone
creates an investment agreement; often referred to as an "off the page" advert.
They are not allowed for either
derivatives or
warrants. |
| Direct
Quote |
A direct quote
arises in the foreign currency markets where the variable currency is the US
dollar and the other currency is fixed as one unit. For example, sterling is
quoted directly against the dollar. This means that the quote is always
expressed in terms of #1 and the number of dollars it takes to buy #1 or the
number of dollars #1 will buy. Most currencies are quoted indirectly against
the dollar, rather than directly. |
| Direction |
A mandatory
written instruction issued by the
SFA when a breach
of the rules has or may occur. Non-compliance is a disciplinary
offence. |
| Directors’
Report |
Part of a
company’s annual
report. It is a legal requirement that the directors write a report
summarising the company’s performance over the year, its future prospects
and with certain other required disclosures. |
| Dirty
Price |
The total price
payable on the purchase of a bond, given by the
clean price with an
interest adjustment. |
| Disallowed
Expenditure |
Expenses
charged by a company in arriving at its accounting profit before tax which are
not allowable as a deduction when calculating its taxable profits on which its
corporation
tax charge is based. Examples include entertainment expenditure and
depreciation.
Note, however, that although a company is not allowed to charge depreciation,
it is permitted to charge in its place
capital
allowances, which is effectively the same thing. |
Discount
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1. When a
bond is trading
at a discount to par, this indicates that its price is lower than its
nominal value.
2. When a currency is at a discount in the foreign currency
forward markets, this
indicates that it is weakening in the forward market relative to the
spot market. The forward
discount is added to the spot rate quote as a result. See also
Backwardation. |
| Discretionary
Fund Management |
An investment
arrangement where the firm decides when and what investments to invest in
within restrictions/objectives outlined by the customer. The delegation of
decision making to the firm carries significant risks for the customer and
consequently such customers have additional protection under the
rules. |
| Diversification |
The process of
holding a range of investments in order to diversify risk,
so that if one investment performs badly, this is compensated by better returns
from the remainder of the portfolio. |
| Dividend
Cover |
An accounting
ratio defined as net earnings per share divided by net
dividend per share. The
purpose of the ratio is to identify how much of a company’s profits are
being distributed to shareholders and how much is being retained to finance
future expansion of the business. Generally a company with a low dividend cover
is paying out most of its earnings as dividends and is unlikely to achieve high
growth in the future, compared to a company with high dividend
cover. |
| Dividend
Yield |
An accounting
ratio, defined as the gross dividend per share divided by the share
price. Note that the companies declare dividends on a net basis (net of 20%
tax) and therefore the net dividend per share will need to be grossed up by the
fraction 100/80. The reason that the calculation is done on a gross
basis is to facilitate comparison with the yields available on other
investments. Broadly speaking, the lower the dividend yield, the higher the
company’s share price and the more highly rated the company. |
| Dividends |
Amounts paid to
shareholders, usually annually or semi-annually, representing a return on their
investment in a company. Preference shares receive a fixed dividend
while for equity shares the level of dividend depends on the profitability of
the company. Dividends are effectively declared and paid net of 20% income
tax. |
Domicile
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A legal term,
indicating the country to whose legal system an individual is attached. When an
individual is domiciled in the United Kingdom, they are liable to pay
inheritance tax on their worldwide assets at death. Individuals who are not
domiciled in the UK will only be liable to inheritance tax on their UK assets.
Most people acquire their domicile at birth, being the domicile of their
father. This is referred to as the domicile of origin. |
| Double Tax
Relief |
See
Overseas Tax
Relief. |
| Double-Dated
Stocks |
Bonds where the issuer has the
option to redeem the stock on or between two specified dates. |
| Dow Jones
Industrial Average |
The US
equivalent of the FTSE
Ordinary Share Index, comprising 30 shares. |
| Dual
Capacity |
The ability of
a firm to act either as principal with the customers when trading
or to act as agent on behalf of their
customers. |
| Duration |
A measure of a
bond’s
volatility or
sensitivity of the bond’s price to changes in interest rates. (Defined as
the weighted average of the number of years in the bond’s life, the
weighting factor being the present value of the cash flows in the year
discounted at the internal rate of return of the bond’s cash
flows). |
