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A glossary of investing in stocks and shares
Jargon Buster
A
After hours dealing
Dealing done after the mandatory quote period, which is treated as dealing done
on the following business day.
AGM
Annual General Meeting of shareholders which a company must call every year.
AIM
The Alternative Investment Market - Exchange's new market for smaller and growing
companies which began trading in June 1995.
Allotment Letter
See Renounceable Documents.
APCIMS
Association of Private Client Investment Managers and Stockbrokers.
Arbitrage
Buying securities in one country, currency or market and selling in another
to take advantage of price differences.
Bear
An investor who has sold a security in the hope of buying it back at a lower
price as he or she thinks the market will go down.
Bear Market
A falling market in which bears would prosper.
Bed and Breakfast Deal
Selling shares one day and buying them back the next, for tax purposes at the
end of the financial year.
Best Execution
Brokers are advised to take reasonable care to find out the price which is the
best available for their customers.
Bid
1. The price at which the market maker will buy shares. 2. An approach made
by one company wishing to buy the majority of another company's shares.
Big Bang
October 27, 1986, when the Exchange's new regulations took effect and the new
automated price quotation system was introduced.
Blue Chip
Term for the most highly regarded shares. Originally an American term, from
the highest value poker chip.
Bonus Issue
See Capitalisation issue.
Broker/Dealer
A London Stock Exchange member firm, which provides advice and dealing services
to the public and which can deal on its own account.
Bull
An investor who has bought a security in the hope of selling it at a higher
price as he or she thinks the market will go up.
Bull Market
A rising market in which bulls would prosper.
Call
The amount due to be paid to a company by the buyer of new or partly-paid shares.
Call Option
The right but not the obligation to buy stock or shares at an agreed price up
to a date in the future.
Capital Adequacy
Requirement for firms conducting investment business to have sufficient funds.
Capitalisation Issue
Money from a company's reserves is converted into issued capital, which is then
distributed to shareholders in place of a cash dividend. Also known as a bonus
or scrip issue.
Commodity
Any item that can be bought and sold. Taken to refer to Exchange-traded items,
including sugar, wheat, coffee, tin etc.
Commission
The fee that a broker may charge clients for dealing on their behalf.
Consideration
The money value of a transaction (number of shares multiplied by the price)
before adding or deducting commission, stamp duty etc.
Contract Note
On the same day as a transaction takes place a member firm sends a contract
note to the client, detailing the transaction , including full title of the
stock, price, stamp duty (if applicable), consideration, commission, time of
deal etc.
Coupon
1. On bearer stocks, the detachable part of the certificate exchangeable for
dividends. 2. Denotes the rate of interest on a fixed interest security - a
ten pre cent coupon pays interest of ten per cent a year on the face value of
the stock.
Covered Warrants
Covered Warrants allow the buyer the right - but not the obligation - to buy
or sell an asset at a specified price on, or before, a specified date.
CREST
The new paperless share settlement system, introduced by CRESTCo in 1996.
Cum
Latin for "with" used in the abbreviations cum cap, cum div, cum rights etc.
to indicate that the buyer of a security is entitled to participate in the forthcoming
capitalisation issue, dividend or rights issue.
Daily Official List
The Daily Official List is the register of listed securities and gives the prices
at which all stocks were traded on the previous day. It is produced by Extel.
Debenture
A loan raised by a company, paying a fixed rate of interest and secured on the
assets of the company.
Depositary Receipts
Marketed internationally to sophisticated investors, these are negotiable certificates
that give evidence of ownership of a company's shares. They are a good medium
for international investors because they may be more liquid and more easily
traded than the shares they represent.
Discount
When the market price of a newly issued security is lower than the issue price.
Dividend
That part of a company's profits after tax distributed to shareholders, usually
expressed in pence per share. See Final Dividend and Interim Dividend.
EDS
Electronic Data Services, an historical turnover information service representing
trading on the London Stock Exchange.
EGM
Extraordinary General Meeting. Any meeting of a company's shareholders other
than its AGM.
Equity
The risk sharing part of a company's capital, usually referred to as ordinary
shares.
Eurobond
A long-term loan issued in a currency other than that of the country or market
in which it is issued. Interest is paid without the deduction of tax.
Ex
The opposite of cum, and used to indicate that the buyer is not entitled to
participate in whatever forthcoming event is specified. Ex cap, ex dividend,
ex rights etc.
FESE
Federation of European Stock Exchanges.
FIBV
World Federation of Stock Exchanges.
Final Dividend
The dividend paid by a company at the end of the financial year.
FTSE Indices
Figures which show the performance of the UK and the European markets over a
period of time.
The FTSE indices are run by FTSE International Ltd. They are the:
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.
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.
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.
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.
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.
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.
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.
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.
Quote Vendors
Screen-based computer system providing instant information on prices of
shares, foreign exchange and commodities.
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.
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
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.
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.
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