| ICM |
See
Individual Clearing
Member. |
| ICO |
International
Coffee Organisation, a trade organisation active in the coffee
markets. |
| IDR |
International
depository receipt. See American Depository Receipts. |
| IFA |
Independent
financial adviser. |
| IPE |
See
International Petroleum
Exchange. The UK exchange for dealing in energy
derivatives,
such as Brent futures. |
| IPMA |
International
Primary Market Association. Responsible for regulating the issue of
Eurobonds. |
| IPO |
See
Initial Public
Offer. |
| ISMA |
International
Securities Market Association; a designated investment exchange responsible for
the market place in international securities such as
Eurobonds.
Trades undertaken are reported into a system known as
TRAX. Recognised
as a designated investment exchange by
FSA. |
| If As and
When Issued |
See
Grey
Market. |
| Illiquid
SEAQ Securities |
See
Less Liquid SEAQ
Securities. |
| Implied
Volatility |
Associated
solely with options, the market’s perception as
to future volatility can be implied by the input of
the market price of an option into the theoretical
option pricing
model, along with the other known inputs, namely time to expiry,
exercise price,
underlying price and interest rates in order to find the unknown
volatility. |
In-the-Money
back to top |
When an
option or
warrant has ‘intrinsic value’, it is
in-the-money. For a call option or a warrant, this is when the asset price
exceeds the exercise price of the option. For example, a call option on a share
with an exercise
price of 100p when the share price is 110p is in-the-money. For a put
option, it is when the exercise price exceeds the asset price. For example, a
put option on a share with an exercise price of 100p when the share price is
90p is in-the-money. See also
At-the-Money and
Out-of-the-Money. |
| Independence
Policy |
A written
policy used by certain SFA firms to manage conflicts of interest. A
policy of independence, which must be made known to private customers, requires
that the firm and its employees disregard the firm’s interests. An
alternative to a Chinese
wall. |
| Independent
Guarantee |
A type of
guarantee operated by clearing houses where losses caused by
clearing
member defaults are covered initially from the defaulting clearing
member’s assets (if any), and then from the clearing house’s own
resources. There is no guarantee fund contributed to by the clearing members
with this type of guarantee, unlike the
mutual
guarantee where such a fund exists. |
| Index-Linked
Gilts |
Gilts where the
coupon payments
and capital redemption value are linked to the increase in the
retail price
index over the period the
bond has been in
issue. The bigger the increase in the retail price index, the bigger the value
of the coupon and the capital value. Designed to give inflation protection to
investors. |
| Indexation |
See Passive
Fund Management. |
| Indexation
Allowance |
The calculation
which reduces the profit on disposal for capital gains tax purposes by allowing
for inflation over the period when the asset was owned. The calculation is
based on the cost of buying the asset multiplied by the proportional increase
in the retail price
index over the period the asset was owned. Indexation can be used to
reduce a gain, but cannot be used to convert a pre-indexation gain into a
post-indexation loss or to increase a pre-indexation loss. |
| Indirect
Customer |
A category of
customer. Indirect customers are customers who undertake business with an
SFA firm through
an intermediary or agent. If the SFA firm knows the name of the indirect
customer, the indirect customer is owed duties as if he were a direct customer
of the SFA firm. |
Indirect
Quote
back to top |
An indirect
quote in the foreign currency market is where the quote is expressed in terms
of US$1, with the other currency amount varying. For example, the US
dollar/French franc quote is indirect. This means that the quote will give the
number of francs which $1 will buy or the number of French francs required to
buy $1. |
| Individual
Clearing Member |
A
clearing
member of a clearing house who has the capacity to
clear for the firm and its clients only. Contrast with
General Clearing
Members, who can clear for the firm, its clients and other investment
businesses. |
| Initial
Margin |
The returnable
deposit required by clearing houses when opening certain
futures and
options
positions. Initial margin is usually calculated by taking the worst probable
one day loss that the position could sustain, and can be paid in either cash or
collateral. |
| Initial
Public Offer |
A share issue
done when a company comes to the market for the first time. |
| Injunction |
A court order
that makes certain acts illegal. |
| Instant
Auction |
A system of
trading used on the Tradepoint Stock Exchange, also known as
continuous
auction. It is an order driven system where buy and sell
orders are instantly matched by the system if the prices at which the buyer and
seller are prepared to deal match up. |
| Instruments |
The products
falling within the scope of the
ISD. Similar
to the 1986 Act definition of investments except that commodity
derivatives are
not instruments, whilst they are
investments. |
| Intangible
Assets |
A sub-category
of fixed assets
in the balance
sheet of a company. Fixed assets which are not physical and cannot be
touched, e.g. goodwill, brands. Note that not all intangible assets are shown
on the balance sheet on the basis that they are too difficult to measure
reliably. |
| Intended
Settlement Date |
This is the
date on which a trade will settle if the stock and the cash are
available. |
| Inter Dealer
Brokers |
Also known as
IDBs. Stock Exchange member firms who act as intermediaries for anonymous
trading between market
makers. When a market maker wishes to complete a large trade, he may
advertise the trade through an IDB. Another market maker may take the other
side of the bargain. The deal is anonymous, with neither market maker knowing
who is completing the other side of the trade. This is achieved by having the
market makers dealing with the IDB as a
principal, rather
than as an agent
between the two final participants. |
Interest
Accrual
back to top |
Interest earned
but not yet paid on a bond. When a bond is sold, the purchaser
will have to compensate the seller for interest accrued up to the date of sale.
This is achieved by means of adding on an interest accrual to the clean price
being quoted in the market, to give the dirty price payable by the purchaser.
See also Clean
Price and Dirty
Price. |
| Interest
Cover |
An accounting
ratio, measuring the level of a company’s profits relative to its interest
charge in the profit and
loss account. It is usually defined as profits before interest and tax
divided by interest charges, but the precise definition will vary depending on
the circumstances. The higher the ratio, the less ‘gearing’ a company
has. See also Gearing and
Gearing
Ratio. |
| Interest
Rate Swaps |
An agreement to
pay or receive a sum of money calculated by reference to the difference between
a floating rate of
interest and a fixed rate of interest, based on a notional principal
sum. This definition relates to a plain vanilla
swap, which is
the simplest form of interest rate swap
available. |
| Intermarket
Spread |
A transaction
involving the purchase of a
future on one
asset and the sale of a future in another, usually related asset. For example,
purchasing a Brent crude oil future and selling a gas oil future. Such
spreads are
entered into in order to profit from a change in the price differential between
the two products. |
| Intermediaries
Offer |
An issue of
shares where intermediaries such as
brokers and
investment banks apply for shares on behalf of their own client base. A method
of issuing shares used by companies which are obtaining a listing of their
shares for the first time. See also
Offer for
Subscription, Offer for Sale,
Placing and
Introduction. |
| International
Depository Receipts |
See
American Depository
Receipts. |
| International
Petroleum Exchange (IPE) |
A recognised
investment exchange trading energy
derivatives. |
| Intervention
Orders |
A mandatory
written instruction issued by the
SFA requiring a
firm or individual to take certain steps, or, at worst, to cease conducting
investment
business altogether. Non-compliance is a disciplinary offence and the
intervention is the most powerful enforcement power held by the
SFA. |
Intraday
Margin
back to top |
If a market
suddenly becomes highly volatile, the clearing house may call in
additional margin
payments at short notice in order to reduce the increased risk it would
otherwise suffer. This is known as intraday margin. |
| Intramarket
Spread |
A
futures
spread trade
where one delivery month is sold and another bought in the same underlying
product. Such a trade is entered into in order to take advantage from an
expected change in the price differential between the two delivery months. This
could occur, for example, because of short term supply problems with the
near-dated future. |
| Intrinsic
Value |
Used in
connection with options and
warrants. For a
call option or
a warrant on shares, it is the amount by which the share price exceeds the
exercise price
of the option or warrant. For a
put option, it
is the amount by which the exercise price exceeds the share price, i.e. it is
the net amount received if an investor exercises the warrant or option and then
closes out the
position by buying a share (for a put option) or selling a share (for a call
option or a warrant). For example, a call option with an exercise price of 100p
when the share price is 150p has intrinsic value of 50p. The holder of the
option could exercise the option, buying a share for 100p and then immediately
sell the share for 150p, giving a net pay off of 50p. Intrinsic value has a
minimum value of zero, since an investor would never exercise an option to give
a loss. |
| Introduction |
A method of
obtaining a listing for shares. Where a company
wishes its shares to be listed and it already has a wide range of shareholders
such that the marketability of the shares on listing can be assumed, it is
permitted to apply for a listing by means of introducing the shares to the
market. In other circumstances, when the existing number of shareholders is too
small for the marketability of the shares to be assumed, the company will be
required to do a share issue to increase the number of shareholders. See also
Offer for
Subscription, Offer for Sale,
Intermediaries
Offer and Placing. |
| Inventories |
See
Stocks. |
| Investigation |
A formal
SFA examination
into the activities of a firm or
registered
person. Firms or individuals involved are served with a written "Notice
of Investigation". |
Investment
back to top |
This has a
special regulatory meaning under the
Financial Services Act
1986. Only those products defined as "investments" are caught in the
scope of the Act. Investments are shareholdings and other investments in
companies. They may be shown either as part of fixed assets or current assets
in the balance
sheet of the investing company, depending on whether the investment is
long term or not. |
| Investment
Business |
Under the
Financial Services Act
1986 investment business is taken to include the activities of
dealing,
arranging, managing, advising, the establishment or operation of a
collective investment
scheme and the arrangement or provision of
custodial
services. |
| Investment
Grade |
Bonds which are a very high level
of credit quality. A bond rated BBB or above by Standard and Poors and a bond
rated BAA or above by Moodys. Any other bond is known as a
Junk Bond or
High Yielding
Bond. |
| Investment
Management Regulatory Organisation (IMRO) |
Self-regulatory
organisation for fund managers. |
| Investment
Manager |
An
SFA firm which
provides continuing advice to a customer or has
discretion over
the composition of his portfolio. |
| Investment
Services |
Under the
Investment Services
Directive this phrase incorporates the activities of
dealing,
arranging and managing. As such, these activities when undertaken in qualifying
instruments are
within the scope of the Directive. |
Investment
Services Directive (ISD)
back to top |
A European
directive that allows certain businesses once
authorised in one
part of the EEA
to undertake investment services in another part of the EEA without the need
for re-authorisation. Consequently, authorisation becomes "passportable". Note,
however, that not all activities are passportable. See
Core and
Non-Core and
compare the definitions of Instruments/Investments and
Investment
Business and Investment Services. |
| Investment
Trusts |
A form of
Collective Investment
Scheme. An investment trust is a
public limited
company which issues shares to raise funds and then invests the funds
in specified securities. When investors wish to realise
their investment, they have to sell the shares to other investors in the
secondary
market or wait for the investment trust to be wound up. This feature
gives the investment trust the description of being ‘closed-ended’.
Once the issue of shares has taken place, the size of the investment trust in
terms of number of shares will not be changed. This is in contrast to
Unit Trusts,
which are open-ended. See also
Open-Ended Investment
Companies. |
| Invisibles |
See
Current
Account. |
| Invoice
Amount |
The amount paid
by the buyer to the seller when a
future is
delivered, the invoice amount is calculated by taking the reference price set
by the exchange, known as the exchange delivery settlement price (EDSP), and
multiplying it by the number of
contracts and
the scaling factor, which converts the quotation into the price of one
contract. Further adjustments may take place for certain futures, e.g.
accrued
interest on bond futures. |
