A glossary of investing in stocks and shares

Fixed Interest
Loans issued by a company, the Government (gilts or gilt-edged) or a local authority, where the amount of interest to be paid each year is set on issue. Usually the date of repayment is included in the title.

Flotation
The occasion on which a company's shares are offered on the market for the first time.

Futures
Securities or goods bought or sold at a fixed price for future delivery. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery.

Return to top

GH

Gearing
A company's debts expressed as a percentage of its equity capital. High gearing means debts are high in relation to equity capital.

GDRs
Global Depositary Receipts are negotiable certificates that give evidence of ownership of a company's shares. They are marketed internationally, mainly to financial institutions.

GEMMS
Gilt-edged market makers.

Gilts or Gilt-Edged Securities
Loans issued on behalf of the government to fund its spending.They fall into the following categories: � � longs: those with a redemption date greater than 15 years. � mediums: those with a redemption date between five-15 years. � shorts: those with a redemption date within five years.

Gross
Before deduction of tax.

Return to top

IJK

Index Linked Gilt
A gilt, the interest and capital of which change in line with the retail price index.

Insider Dealing
The purchase or sale of shares by someone who possesses "inside" information about the company. This is the information on the company's performance and prospects which has not yet been made available to the market as a whole, and which, if available, might affect the share price. In the UK such deals are a criminal offence.

Interim Dividend
A dividend declared part way through a company's financial year, authorised solely by the directors.

Investment Trust
Company whose sole business consists of buying, selling and holding shares.

IOSCO
International Organisation of Securities Commissions.

Issuing House
An organisation, usually a merchant bank, which arranges the details of an issue of stocks or shares. It will also make sure the listing of that issue complies with Exchange regulations.

Return to top

L

LCAC
Listed Companies Advisory Committee.

Letter of Renunciation
This applies to a rights issue and is the form attached to an allotment letter which is completed should the original holder wish to pass entitlement to someone else, or to renounce rights absolutely.

LIFFE
London International Financial Futures and Options Exchange.

Liquidity
Ease with which an item can be traded on the market.

Listed Company
A company whose shares have been admitted to the Daily Official List. It has had to comply with the Exchange's listing regulations.

Listing Particulars
The details a company must publish about itself and any securities it issues before these can be listed in the Daily Official List. Often called a prospectus.

Loan Stock
Stock bearing a fixed rate of interest. Unlike a debenture, loan stocks may be unsecured.

London Market Information Link
The Exchange's new main source of UK financial data for market professionals and information vendors. It is part of the Exchange's Sequence programme.

Return to top

M

Mandatory Quote Period
The period of time Monday to Friday when all registered market makers in a security must display their prices. For SEAQ the period is from 8.30am - 4.30pm, and for SEAQ International, 9.30am - 4.00pm.

Market Maker
An Exchange member firm which is obliged to offer to buy and sell securities in which it is registered throughout the mandatory quote period.

Member Firm
A trading firm of the London Stock exchange which may deal in shares on behalf of its clients or on behalf of the firm itself.

Mid Price
The price half-way between the two prices shown in the Daily Official list under "Quotation", or the average of both buying and selling prices offered by the market makers. The prices found in newspapers are normally the mid-price.

Minimum Quote Size (MQS)
The minimum number of shares in which market makers are obliged to display prices on SEAQ for securities in which they are registered.

Return to top

N

Net Asset Value
The value of a company after all debts have been paid, expressed in pence per share.

New Issue
A company coming to the market for the first time or issuing extra shares.

Nil Value Shares
Shares newly issued by a company. These shares can usually be transferred on renounceable documents.

Nil Paid
A new issue of shares, usually as the result of a rights issue, on which no payment has yet been made.

Nominee Name
Name in which a security is registered and held in trust on behalf of the rightful owner.

Nominated Adviser
A London Stock Exchange approved adviser for AIM companies.

Normal Market Size (NMS)
The SEAQ classification system that replaced the old alpha, beta, gamma system. NMS is a value expressed as a number of shares used to calculate the minimum quote size for each security.

Return to top

O

Offer
The price at which the market maker will sell shares to investors.

Offer for Sale
A method of bringing a company to the market. The public can apply for shares directly at a fixed price. A prospectus containing details of the sale must be printed in a national newspaper.

Option
The right (but not the obligation) to buy or sell securities at a fixed price within a specified period.

Ordinary Shares
The most common form of share. Holders receive dividends which vary in amount in line with the profitability of the company and recommendation of directors. The holders are the owners of the company.

Return to top

P

Par
The nominal value of a security.

PEP Personal Equity Plan
This allows investment in a number of shares. It carries various tax benefits including receiving dividends without paying income tax on the income, and sales free from capital gains tax on the profit.

PIA
Personal Investment Authority. The self regulating organisation responsible for personal pensions and unit trusts.

Portfolio
A collection of securities owned by an investor.

POTAM
Panel on Take-overs and Mergers. It regulates conduct of take-overs and is non-statutory.

Preference Shares
These are normally fixed-income shares whose holders have the right to receive dividends before ordinary shareholders but after debenture and loan stock holders have received their interest.

Preferential Form
The London Stock Exchange allows companies offering shares to the public to set aside up to ten per cent of the issue for application from employees and, where a parent company is floating off a subsidiary, from shareholders of the parent company. Separate application forms, usually pink (hence the nickname pink forms), are used for this.

Premium
1. If the market price of a new security is higher than the usual price, the difference is the premium. If it is lower, the difference is called the discount.
2. The cost of purchasing a trading option.

Price/Earnings Ratio (P/E Ratio)
The P/E ratio is a measure of the level of confidence investors have in a company (rightly or wrongly).

Generally, the higher the figure, the higher the confidence. It is worked out by dividing the current share price by the last published earnings per share which is net profit divided by the number of ordinary shares.

Price Sensitive Information
Information that has to be reported to the Exchange's Regulatory News Service, that may have an effect on a company's share price.

Primary Market
The function of a stock exchange in bringing securities to the market for the first time. Money is being raised either for the founders of the company or to fund future growth.

Privatisation
Conversion of a state-run company to a public limited company status often accompanied by a sale of its shares to the public.

Private Company
A company which is not a public company and which is not allowed to offer its shares to the general public.

ProShare
An independent organisation which promotes share ownership among individual investors, including employees.

Prospectus
Document giving the details that a company is required to make public to support a new issue of shares. See Listing Particulars.

Proxy
A person empowered by a shareholder to vote on his behalf at company meetings.

Public Limited Company (plc)
A company whose shares may be purchased by the public and traded freely on the open market and whose share capital is not less than a statutory minimum.

Put Option
The right but not the obligation to sell at an agreed price at or within a stated future time.

Return to top

Q

Quote Vendors
Screen-based computer system providing instant information on prices of shares, foreign exchange and commodities.

Return to top

R

Redemption Date
The date on which a security (usually a fixed interest stock) is due to be repaid by the issuer at its full face value. The year is included in the title of the security; the actual redemption date being that on which the last interest is due to be paid.

Renounceable Documents
Temporary evidence of ownership, of which there are three main types:

When a company offers shares to the public, it sends an allotment letter to the successful applicants. If it makes a rights issue, it sends a provisional allotment letter to its shareholders. � In the case of a capitalisation issue, it sends a renounceable certificate.

All of these are in effect bearer securities, and are valuable. Each includes full instructions on what should happen if the holder wishes to have the newly issued shares registered in their own name, or if they wish to renounce them in favour of somebody else.

Registrar
An organisation that takes responsibility for maintaining a company's share register.

RIE
Recognised Investment Exchange. An investment exchange which meets SIB requirements for recognition.

Rights Issue
An invitation to existing shareholders to purchase additional shares in the company.

RNS
Regulatory News Service. A service operated by the Exchange, in its role as competent authority for listing, which ensures that price-sensitive information from listed companies is collected and then disseminated to all RNS subscribers at the same time.

Return to top

S

SAEF
The SEAQ Automated Execution Facility. This enables small trades in UK shares to be carried out automatically at a computer terminal instead of over the telephone.

Scrip Issue
See Capitalisation Issue.

SEAQ
The Stock Exchange Automated Quotations system for UK securities.

This is a continuously updated computer database containing price quotations and trade reports in UK securities. SEAQ carries the market makers' bids and offers for the UK securities and is part of the Exchange's Sequence programme.

SEAQ International
The Exchange's electronic price quotation system for non-UK equities. Similar to SEAQ it is part of the Exchange's Sequence programme.

SEATS PLUS
A service which supports the trading of listed UK equities in which turnover is insufficient for the market making system.

It is distributed via a number of screen-based information services. it shows current orders, company information, historical trading activity for each stock and the sole market maker, where only one is registered. It is part of the Exchange's Sequence programme.

Secondary Market
Marketplace for trading in securities that are not new issues.

Securities
General name for stocks and shares of all types. In common usage, stocks are fixed interest securities and shares are the rest.

SEPON (The Stock Exchange Pool Nominee)
An account into which stock is registered during the course of settlement.

Sequence
An integrated, reliable computer system developed by the Exchange to deliver a wider range of better quality trading and information services to market participants. The SEAQ, SEATS and SEAQ international trading service operate on the new system.

SETS
Stock Exchange Electronic Trading Service

Settlement
Once a deal has been made, the settlement process transfers stock from seller to buyer and arranges the corresponding movement of money between buyer and seller (see Talisman).

Settlement Day
Day on which bought stock is due for delivery to the buyer and the appropriate payment to the seller.

SFA
The Securities and Futures Authority (previously known as The Securities Association). The self-regulating organisation responsible for regulating the conduct of brokers and dealers in securities, options and futures, including most member firms of the Exchange.

Shares
See Securities.

Shorts
See Gilts or Gilt-Edged Securities.

SIB
Securities and Investments Board. This is the agency appointed by the Government under the Financial Services Act to oversee the regulation of the investment industry, including the SROs, RIEs and clearing houses.

SRO
Self regulating Organisation. An organisation recognised by the SIB and responsible for monitoring the conduct of business by, and capital adequacy of investment firms.

Stag
One who applies for a new issue in the hope of being able to sell the shares allotted to him/her at a profit as soon as dealing starts.

Stamp Duty
A UK tax currently levied on the purchase of shares.

Stocks
See Securities

Return to top

T

Talisman
The computerised settlement system used by the Exchange until April 1997, which acted as a central clearing house for transactions in equities (see CREST).

Tender Offer
In an offer by tender, buyers of shares specify the price at which they are willing to buy.

Touch
The best buying and selling prices available from a market maker on SEAQ and SEAQ International in a given security at any one time.

Traded Options
Transferable options with the right to buy and sell a standardised amount of a security at a fixed price within a specified period.

Transaction
A deal made on the Exchange or subject to the rules of the Exchange.

Transfer
The form signed by the seller of a security authorising the company to remove his/her name from the register, and substitute that of the buyer.

Return to top

UWY

Underwriting
An arrangement by which a company is guaranteed that an issue of shares will raise a given amount of cash. The underwriters undertake to subscribe for any of the issue not taken up by the public. They charge commission for this service.

Unit Trust
A portfolio of holdings in various companies, divided into units and managed by professionals.

White Knight
A company which rescues another company which is in financial difficulty, especially one which saves a company from an unwelcome take-over bid.

Yield
The return earned on an investment taking into account the annual income and its present capital value. There are a number of different types of yield, and in some cases different methods of calculating each type.

This Jargon Buster session was provided by the London Stock Exchange.

A B C D E F GH IJK L M N O P Q R S T UWY