Global securities and investments

Here you can find a list of definitions for terms associated with global securities, markets and investments. These terms are listed alphabetically, alternatively you can use the find facility within your internet browser (by pressing control + F simultaneously) to search for terms within this page.

Accrued Market Discount
An increase in the price of a discounted debt instrument which is not the result of falling interest rates but of its approaching maturity date, when the holder will be paid out at par.

Accumulating Net Asset Value (ANAV)
A method of compensating money market fund investors through increasing the net asset value (NAV) of each fund unit rather than through dividend payout. See stable net asset value (SNAV).

Active Investment Management
A method of managing investments that aims to generate returns by investing in individual securities that are undervalued by the market, based on certain research criteria, rather than mirroring the market or a section of the market in the expectation that they will beat market expectations. See passive investment management, stock picking.

Active Investment Strategy
An active approach to asset management in order to increase returns.

Actuary
A professional specialising in establishing and calculating risks involved in premium rates, dividends and annuity rates for insurance companies and pension funds.

Advice
Generic term for any type of document that is sent to an investor to confirm the execution of a given transaction. If transactions involving securities are involved, this document is generally referred to as a confirmation.

Agent Bank
A custody term designating any bank providing custody services on behalf of a custodian for securities traded in the country where the bank is based.

Alternative Investments
Investments that fall outside the range of ‘traditional' investments such as bonds and shares. Alternative investments are generally limited to large institutional, corporate and private investors. Hedge funds, private equity and managed future investments are examples of alternative investments.

American Depository Receipts (ADRs)
Depository receipts issued by US banks certifying their ownership of foreign securities that are held by a depository in the issuer's country. ADRs are traded on US stock markets independently from the respective underlying securities. ADRs are issued to overcome regulatory difficulties posed by US securities laws on foreign capital market instruments.

Annual Charge
The annual fee associated with management of a fund or client portfolio.

Annual Equivalent Rate (AER)
The notional annual rate of interest applied to current, deposit and savings accounts assuming that all interest is reinvested or compounded.

Annual Percentage Yield (APY)/Annual Percentage Rate (APR)
A method, prescribed by laws governing investment advertisements, for the calculation of the nominal yield of an asset calculated on a one-year basis. APY is used as a comparison tool by investors. In the case of an interest-bearing deposit account, the APY is equal to one plus the periodic rate (expressed as a decimal) raised to the power of the number of periods in one year. See compounding.

Annual Volatility
A method of evaluating portfolio risk through the assessment of the probable range of returns of a fund. The greater the volatility between the monthly returns of a fund, the likelier it is that the differential between a fund's future returns will be greater. Therefore, the greater the volatility, the greater the risk involved.

Annualisation
The return on a fund presented on an annual basis so as to facilitate the measurement of its performance average.

Annuity
An investment paying a predetermined annual income often until the investor dies.

Appreciation
The growth in the value of an asset over a given timespan.

Asset Allocation
An investment technique that consists of dividing and diversifying the available assets in a portfolio according to asset type or the market in which they are traded, whilst taking account of the risk profile of each asset class so as to achieve a balance of risk and return in line with the portfolio's investment objective.

Asset Allocation Fund
A fund that invests in a range of asset classes to achieve high diversification and reduce risk. Some asset allocation funds maintain a relatively fixed allocation between asset classes, while others actively alter the mix as market conditions change.

Asset Allocation Model
The formalised investment strategy underlying the asset allocation of available assets in a portfolio or fund.

Asset Class
Assets that share characteristics (e.g. fixed income securities subdivided in turn into short and long-term shares, cash, property) and are therefore classed together for asset allocation purposes.

Asset Management

1. The management of an organisation's assets, e.g. a corporate pension fund, with the view of maintaining, if possible, maximising the value of the assets and the income they generate.
2. The asset management service offered by a financial institution. Also known as investment management or fund management.

Asset Manager
The person or company responsible for investing and managing client assets usually against mandate guidelines and benchmarks. An asset manager's main functions include stock research and selection, risk management, balancing of in- and outflows from the investment fund, reporting regularly on investment position and portfolio performance, and setting out the investment strategy for the portfolio. See investment manager.

Asset Type
See asset class.

Assets
Investments or rights belonging to a company, trust or individual which are of commercial or economic value.

Association for Investment Management and Research (AIMR)
An international, non-profit organisation of more than 60,000 investment practitioners and educators in over 100 countries.

Association Française de la Gestion financière (AFG)
The trade body representing the French asset management industry.

Association Française des Entreprises d'Investissement (AFEI)
A trade body that aims to promote and develop investment services and investment banking in French financial markets.

Association of Investment Trust Companies (AITC)
Established in 1932, the AITC is the UK investment trust industry's trade body.

Associazione del risparmio gestito (Assogestioni)
The trade body representing the Italian asset management industry.

ASSOSIM
See Italian Association of Intermediaries.

Average
A method of determining securities' price trends. Another term for an index.

Average Annual Return
A measure of performance of an account, security or fund, achieved by comparing the annual returns with the compounding effect factored in over the security's or fund's lifetime.

Average Maturity
The amount of time needed for all securities held in a portfolio to reach maturity, weighted by the amount of assets invested in each security. See average effective maturity, average nominal maturity.

Average Effective Maturity

1. A calculation of the maturity of a bond taking account of any potential early redemption.
2. A calculation of the weighted average of the maturities of bonds in a portfolio, which includes all adjustable coupons, mortgage prepayments and puts.

Average Nominal Maturity
As opposed to average effective maturity, it does not take account of a potential early call, adjustable coupons, mortgage prepayments and puts.

Average Weighted Maturity (Weighted Average Maturity – WAM)
A calculation of the weighted average of the maturities of fixed income instruments held in a portfolio. Average weighted maturity is correlated to the risk profile of the portfolio, i.e. a longer WAM implies greater price volatility.

Balanced Fund
A mutual or investment fund that aims to balance income, growth and risk. This is generally done by balancing the mix of asset classes (including investments in other funds) and risk profiles in which the fund is invested.

Bank Deposits
Moneys deposited with a bank institution, formally known in the UK as an ‘authorised institution'.

Barbell Trade
A spread position consisting of a short- and a long-maturity fixed interest security.

Benchmark
A standard set by the market (such as a stock market index) or by an institutional investor (such as an internally developed benchmark) against which the performances of a fund or portfolio can be managed and tracked.

Beneficial Ownership/Interest
The entitlement to receive some or all of the benefits of ownership of a security or other financial instrument (this encompasses income, voting rights, power to transfer, etc). A distinction has to be drawn between ‘beneficial ownership' and ‘legal ownership' of a security or financial instrument. See legal ownership.

Beneficiary
The party that is named by the grantor, settler or creator of the trust and is entitled, according to the terms in the respective trust deed, to benefit from the revenues of the trust.

Blue Chip
A share of a leading national or multinational company that enjoys a strong reputation for the quality of its management and that of its products/services and consequently is able to deliver relatively stable earnings and/or sound dividend growth as well as above-average share performance.

Board of Trustees
A group of people acting on behalf of a trustee or offering advisory services to a trustee.

Bond Fund
An investment fund that invests exclusively in bonds. Within bond funds there is further specialisation according to currency, country and risk profile.

Book Entry
An electronic method of registering ownership of and transferring securities.

Book-entry System
An accounting system that allows the transfer of claims (e.g. securities) without the physical movement of paper documents or certificates. See dematerialisation, immobilisation.

Bottom-up Approach
An active investment management method where a portfolio is built from the bottom up, selecting individual according to stock quality, management strength, market share or pricing power etc. See top-down approach.

Broker
An individual or a firm (also called broking house) that acts as an agent for investors by dealing in securities. Usually, the broker will charge commissions (called brokerage) for his advisory and trading services. A broker does not buy or sell on his own account but acts as an agent for his clients.

Bulk Trade Order
A single trade for the purchase or sale of a security across a number of different investment portfolios.

Bundesverband Investment und Asset Management e.V. (BVI)
Founded in 1970, the BVI is the central association representing the interests of the German investment fund industry.

Buy Side
The financial institutions and institutional investors who buy securities for the purpose of investment management. The opposite of sell side.

Buy-and-Hold
An investment strategy according to which investors buy a number of selected securities in order to hold them for a relatively long period, usually for several years. Hence the alternative name: long-term buy and hold (LTBH).

Canadian Depository for Securities Limited
Canada's national securities depository, clearing and settlement organisation.

Capital Asset Pricing Model (CAPM)
Economic model of asset pricing against systematic and residual risk.

Capital Gains
An increase in the value of an investment or asset.

Capital Growth
See capital gain.

Capital Growth Fund
Fund that, as its primary investment objective, has to maximise the value of invested capital rather than generate income. See also income fund.

Capitalisation Issue (or Bonus Issue or Script Issue)
When a company converts some or all of its reserves and issues them as new capital to existing shareholders.

Capitalised Value
The estimated market value of an asset to be paid/received in the future.

Cash Sale
A securities transaction requiring the securities to be delivered on the same day (delivery usually takes three days).

CDS
See Canadian Depository for Securities Limited.

CEDEL
See Clearstream.

Central Securities Depository (CSD)
A facility for holding securities that allows securities transactions to be processed by book entry. Physical securities may be immobilised by the depository or securities may be dematerialised (solely recorded as electronic records). In addition to safekeeping, a central securities depository may provide comparison, clearing and settlement functions.

Certificate
Document (commonly) providing evidence of the ownership of shares in a company.

Certificate of Deposit (CD)
A certificate issued for deposits made at a deposit-taking institution (generally a bank). The bank agrees to pay a fixed interest rate for the specified period of time, and repays the principal at the maturity. CDs can be purchased directly from the banking institution or through a securities broker. They are basically negotiable or non-negotiable bank time deposits. In most cases, CDs are negotiable and an active interbank secondary market exists.

Certificate of Ownership
A certificate issued to prove ownership of a given security.

CESR
See Committee of European Securities Regulators.

Chaining
A method, used in certain transfer systems (mostly for securities) for processing, where the sequence in which transfer instructions are processed is altered so as to increase the number or value of the transfers that may be settled with available funds and/or securities' balances (or available credit or securities lending lines).

Chartists (Technical Analysts)
The use of charts and graphs to predict future market movements.

Clearance
The process of transmitting, reconciling and, in some cases, confirming payment orders or security transfer instructions prior to settlement, possibly including netting of instructions and calculating final positions for settlement. Sometimes the term is used (imprecisely) to include settlement. Outside the securities market this process is generally referred to as clearing.

Clearstream
Alongside Euroclear, Clearstream is one of the leading clearing systems and depositories for euromarket securities as well being a major international central securities depositary (ICSD) and the central securities depository for the German and Luxembourg markets. Clearstream is owned by the Deutsche Borse.

Closed-End Funds/Closed-End Investment Companies
See investment trust.

Collateral Management
The safekeeping and monitoring of securities held as collateral. Generally provided as an additional service by custodians with respect to loaned securities.

Collective Investment Schemes
Generic term for any scheme where moneys from various investors are pooled for investment purposes. See mutual fund.

Comingled Funds
Intermedaries mixing together of different customers' accounts for investment or administrative purposes.

Committee of Advisors
An independent group of people offering nonbinding advice to trustees (such as pension fund trustees) and trust protecting bodies.

Committee of European Securities Regulators (CESR)
Independent body set up to improve co-ordination among securities regulators within the European Union. It also acts as an advisory group to the EU authorities as well as being a facilitator for the implementation of relevant EU legislation within the Member States.

Conversion Price
The price at which a convertible security will be exchanged for another security which is usually the issuer's equity.

Conversion Ratio
The number of shares into which a convertible security will be converted.

Corporate Pension Fund
The assets belonging to a company pension fund that are distributed to qualifying members of the company's pension scheme. Such assets are typically held in the form of securities and/or cash, the investment responsibility for which will be undertaken by the company's own internal fund managers or external fund managers appointed by the trustees, or a combination of both.

Corporate Trustee

1. The person or entity representing bondholder interests.
2. The legal entity that acts as trustee for a pension fund.

Correlation
The statistical performance relationship between a given set of securities.

Cost of Funds Index (COFI) (USA)
An index reflecting the average rate of interest paid by savings and loans institutions on debt securities at a given point in time.

Cost-averaging
The averaging effect of periodically investing a fixed amount of money. More securities are purchased when prices fall and less are purchased when prices increase.

Coupon Rate
The rate of interest, expressed as an annual percentage, to be paid on debt securities.

Covered Warrants
Warrants for conversion into the debt or equity of a third party.

Creation Price
The fee that needs to be paid to create a new unit in a unit trust, based on the price at which the unit trust manager buys the underlying securities in the unit trust. The creation price is usually equivalent to the offer (purchase) price minus the initial charge.

CREST
See Euroclear.

CSD
See central securities depository.

Currency Cost of Capital
The opportunity cost of capital invested (i.e. the return on invested funds that could be received if another investment with equivalent risk was chosen) in a particular currency.

Currency Exposure
Exposure to the risk that fluctuations in exchange rates will affect investment values and returns.

CUSIP (Committee on Uniform Security Identification Procedures) (USA)
Committee, initially formed by the American Bankers' Association, which has established a standard method of identifying the different securities by assigning unique numbers.

Custodian
A bank, financial institution or other entity responsible for maintaining accurate and up-to-date registration details of the beneficial owners of those securities for which it has custodial responsibility. Custodians are also responsible for the administration of the assets they hold (including trade settlement), the collection of interest or dividends, exercising the voting rights attached to certain types of securities if so required, as well as being able to provide other services such as the production of portfolio valuations and performance measurement. As a result of dematerialisation, the need to hold and safe-keep securities in physical form has been largely removed in many of the world's major securities markets. See global custodian, local custodian.

Custody
The registration and administration of securities and financial instruments on behalf of investors.

Cyclical Stocks (or Cyclical Shares or Cyclicals)
Shares that are particularly affected by changes in the overall economy. See defensive shares.

Debenture Stock (USA)
Type of shares that have a similar status to preference shares, but which benefit from fixed and regular payments/dividends at specified intervals.

Debt Book-entry System
A book-entry system for the issue and registration of debt securities.

Declaration of Trust
The document creating a trust. Also known as trust deed.

Defensive Stock/Shares
Shares that are less vulnerable to difficult economic conditions and benefit from a stable income stream.

Delivery
The final settlement of a securities transaction.

Delivery Versus Payment (DVP) System or Delivery Against Payment System
A mechanism in an exchange-for-value settlement system that ensures that the final transfer of one asset occurs only if the final transfer of (an)other asset(s) take(s) place. Assets are, among others, monetary assets (this includes foreign exchange), all types of securities and other financial instruments. See exchange-for-value settlement system.

Delivery Versus Payment (DVP) Schemes (as defined by the G10 group)
In model 1, transfer instructions for both securities and funds are settled on a trade-by-trade basis, with final transfer of the securities from the seller to the buyer (delivery) occurring at the same time as final transfer of the funds from the buyer to the seller (payment). In model 2, securities transfer instructions are settled on a gross basis with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but funds transfer instructions are settled on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle. In model 3, transfer instructions for both securities and funds are settled on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.

Dematerialisation
The elimination of physical certificates or documents of title which represent ownership of securities, so that securities exist only as accounting records.

Depository
An agent whose primary function is to record securities either physically or electronically and to keep records of the ownership of these securities.

Depository Trust & Clearing Corporation (DTCC) (USA)
The most important provider of clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter credit derivatives in the USA.

Depository Trust Company (DTC) (USA)
A subsidiary of the Depository Trust & Clearing Corporation (DTCC), the Depository Trust Company is an automated central securities depository. It is a member of the US Federal Reserve System, a limited-purpose trust company under New York State banking law and a registered clearing agency with the Securities and Exchange Commission.

Directive 85/611
See Undertaking for Collective Investments in Transferable Securities (UCITS) Directive.

Diversification
The process of creating a portfolio of different types of securities with regard to type, price, risk issuer, maturity, etc. in order to reduce the overall risk of the portfolio as a whole.

Dividend Reinvestment
The reinvestment (rather than payout) of dividends into the security from which they originated.

Domestic Fund
A mutual fund which only invests in securities originating from a single country, which is more often than not the country in which the fund is domiciled.

Domicile
The country of a fund's creation.

DTCC
See Depository Trust & Clearing Corporation.

Econometric Models
Market price predictions based on statistically established links between different economic variables.

E-custody
All types of information technology applications that facilitate the automation of the custody process.

Efficient Markets Hypothesis
The hypothesis that a security's price reflects all that is known.

Efficient Portfolio
A portfolio giving the best return for an agreed level of risk.

Euroclear
Located in Brussels, Euroclear is the world's largest settlement system for domestic and international securities transactions (covering equities, bonds and funds), providing a comprehensive range of services to major financial institutions located in more than 80 countries worldwide. It also acts as the central securities depository (CSD) for Dutch, French, Irish and UK securities, a role that will soon be extended to include Belgian securities. See Clearstream.

European Central Securities Depositories Association (ECSDA)
Founded in 1997, ECSDA is composed of 19 (I)CSDs situated in the geographical area of Europe. It aims to improve cross-border securities settlement within Europe.

European/Euro Depository Receipt (EDR)
The equivalent instrument of an American depository receipts (ADR) or global depository receipt (GDR) that is available in the European capital markets. EDRs are denominated in EUR.

Evaluator
A person qualified to provide appraisals on the value of securities in an investor's portfolio.

Exchange-for-Value Settlement System
A system that involves the exchange of payments, securities or other financial instruments, in order to discharge settlement obligations. These systems may honour the resulting payment obligations through more than one fund transfer system. The links between the exchange of payments, securities or other financial instruments and the payment system(s) may be manual or electronic. See delivery versus payment system.

Exchange-traded Funds
Open-ended funds tracking an index which are priced on a continuous basis and can be bought or sold like shares.

Expense Ratio
The operating and management costs of a given investment fund (minus any transactional/brokerage expense) expressed as a percentage of the fund's average net assets for a given time period.

Exposure
The proportion of an investor's portfolio invested in a particular region, country or sector and therefore subject to the risk associated with this particular region, country or sector.

Family of Funds
A group of mutual funds with different investment objectives offered by an investment company.

FCP
See fonds commun de placement.

Federal Deposit Insurance Corporation (FDIC) (USA)
Through a deposit levy, the FDIC insures deposits up to USD100,000 at member banks.

Flat Income Bond
A bond traded at a price accounting for unpaid accrued interest.

Fonds Commun de Placement (FCP)
Type of collective investment scheme available in France and Luxembourg, which provides participants with co-ownership of a portfolio of securities managed by an investment management company. Unlike SICAVs, FCPs are not distinct legal entities.

Forced Settlement
The Bank of International Settlements (BIS) defines forced settlement as a securities or fund settlement that is either mandated or enforced by the actions of a third party.

Fund
A pool of third-party financial assets such as shares, bonds and derivatives.

Fund Administration
All administrative processes involved in the setting up and management of a fund, including regulatory processes.

Fund Management
See asset management.

Fund Manager
See asset manager.

Fund of Funds
A fund that solely invests in other funds so as to increase diversification and reduce the fund's overall risk profile.

Fund Performance
The performance of a fund over a given time in comparison to a benchmark index as well as other funds with similar investment objectives and risk profiles.

Fund Rating
The rating of funds, their performance and relative risk profile by specialist fund rating agencies.

Fund Size
The total value of the assets managed by a fund.

Fungibility
A concept that characterises the method of holding securities by a CSD or other financial intermediary in which each of a number of issues of physical or dematerialised securities are held in separate fungible pools. No owner has the right to any specific physical or dematerialised security in a particular pool, but does have a right to such an amount of physical or dematerialised securities as shown on its account with a CSD or another financial intermediary.

Global Custodian
An international financial institution that is able to provide custody services to leading international investors in several financial markets. See custodian.

Global Depository Receipts (GDRs)
Receipts or certificates issued by banks detailing their ownership of foreign securities. Depository receipts are traded independently from the underlying securities. GDRs are the international markets' instruments equivalent to American depository receipts (ADR) in US markets and European depository receipts (EDR) in the European markets.

Global Fund
A mutual or investment fund that has its assets invested in all major financial markets.

Growth Fund
A managed fund of which the investment objective is primarily to increase the value of investments rather than to generate income. It aims to achieve this by investing in growth stocks.

Haircut
The difference between the market value of a security and its collateral value. A lender will take a haircut as protection against losses arising from a fall in the market value of the security in the event of liquidation of the collateral. See margin, collateral.

Hedge Fund
Originally developed as an unregulated structure based on the use of leveraged strategies of investment that were neutral (hedged) with respect to market direction, the term now covers a wide range of funds pursuing a variety of leveraged investment strategies.

Hedging
An investment/risk management strategy of which the purpose is to offset investment risk (i.e. reduce the risk of incurring loss from a given investment) via taking an opposite position in respect of a portion of the total investment risk, often by short selling or via the use of put/call options or futures.

High-yield Fund
A mutual fund that invests in high-yield securities.

Historic Pricing
Trading shares in a portfolio or units in a fund based on their most recent market price.

Historical Yield
The return on an investment over a specific timespan.

Holding
Financial asset invested in order to receive income and/or make capital gain at a future time. Another name for investment or position.

Holding Period
Period of time an investor expects to hold an investment.

ICS
See international central securities depository.

Immediate or Cancel Order
Instruction to immediately cancel any part of a contract which has not been executed immediately.

Immobilisation
The placement of certificated securities and financial instruments in a central securities depository to facilitate book-entry transfers.

Income
Periodic revenue generated by investments under the form of dividends or interest payments.

Income Dividends
The payments a securities portfolio or fund generates under the form of dividends, interest, or short-term capital gains.

Income Fund
A managed fund of which the objective is to increase the value of investments/capital, via dividends, current interest income or short-term capital gains.

Income Shares
Ordinary or, in certain cases, preference shares providing shareholders with above-market rate dividends.

Index Fund
Fund of which performance and return aims to mirror or ‘track' that of a particular market index. Also known as tracker fund.

Initial Charge
The initial fee an investor is often required to pay in order to purchase a unit from a fund.

Insider Report (USA)
The monthly report of all transactions in the shares of a company, made by officers, directors, and any individuals holding 10% or more of the company's stock, that is submitted each month to the regulatory authorities to allow them to check that no insider trading has taken place.

Institutional Investor
An organisation that invests in financial assets on behalf of other smaller investors (retail investors). Examples of institutional investors are large insurance companies, pension funds and investment trusts.

Institutional Money Market Funds Association (IMMFA)
The trade association for providers of triple-A rated money market funds within Europe. Its members currently have funds domiciled in Dublin, Luxembourg and the Channel Islands.

International Central Securities Depository (ICSD)
A central securities depository that provides clearing and settlement facilities for cross-border transactions in domestic securities and/or international securities transactions.

International Council of Securities Associations (ICSA)
Council composed of the national trade associations and self-regulatory associations of ten countries' (Australia, Canada, France, Italy, Japan, Korea, Sweden, Taiwan, the UK and the USA) securities industries in addition to trade associations representing the global securities industry. The ICSA consequently represents most of the world's securities markets. The principal objectives of the ICSA are to promote the global securities market and to encourage harmonisation and co-operation.

International Fund
A fund which invests in securities outside the country of the investor.

International Organisation of Securities Commissions (IOSC)
Established in 1983, the IOSCO is an international co-operative body whose principal objective is to promote cooperation and harmonisation between over 90% the world's securities commissions with regard to the regulation, development and the efficiency of the securities markets.

International Securities Association for Institutional Trade Communication – International Operations Association (ISITC-IOA)
A global committee of securities industry professionals whose objectives are to promote co-operation within the industry and to advance the straight through processing (STP) of securities transactions.

International Securities Lending Association (ISLA)
A trade association established in 1989 to represent the common interests of securities lenders.

International Securities Market Association (ISMA)
Trade association for institutions dealing in the international securities market.

Investment
The purchase of financial assets in order to receive income and/or make capital gain at a future time.

Investment Accounting
Maintenance of portfolio accounting records that show all financial movements for a given period, e.g. purchases, sales, interest received, capital withdrawals and capital injections.

Investment Company
A listed company that has as its sole asset a diversified portfolio of securities (including derivatives) invested in other companies on behalf of its shareholders. See investment trusts, investment funds.

Investment Company Institute (ICI)
The national association of the US investment company industry.

Investment Fund
See mutual fund.

Investment Funds Institute of Canada (IFIC)
The trade body that represents the interests of the investment management industry in Canada.

Investment Grade
Securities with credit ratings equal to or above investment grade which is currently BBB (Standard & Poor's) or better.

Investment Management
See asset management.

Investment Management Association (IMA)
Established in February 2002 following a merger between the Association of Unit Trusts and Investment Funds (AUTIF) and the Fund Managers' Association (FMA), the IMA acts as the UK investment management industry's trade body.

Investment Management Guidelines
Guidelines set by the beneficial owner of the portfolio against which the performance of the investment manager will be tracked. For example, the maximum percentage allowed to be held in equities, the maximum percentage to be held in a particular industry sector, and the overall performance return must beat specified index/indices by a specified percentage.

Investment Manager
See asset manager.

Investment Objective
The objective an investment company, investment fund or trust sets itself on what returns its wants to achieve for the assets under its management. This entails determining how to invest assets under management, forecasting the likely returns of those investments, calculating the risk involved with those investments and deciding how (and to what extent) to mitigate those risks.

Investment Position
A company's (or an individual investor's) holding in a specific security or market.

Investment Services Directive (ISD) (Directive 2004/39/EC)
An EU Directive that harmonises regulatory standards and consequently, through a single passport, permits any regulated investment company established in the EU to invest in any of its Member States without having to seek permission in each individual state.

Investment Trust
A listed company whose assets consist only of investments in securities of other companies and which manage a diversified portfolio or fund on behalf of their shareholders. Since their capital is predetermined in their articles of association, investment trusts are, particularly in the USA, also referred to as closed-end funds.

Investors
The buyers of securities. They can basically be classified into private and institutional investors. Private investors are individuals who invest in the capital markets. Institutional investors are organisations, such as insurance companies mutual or pension funds, which invest on behalf of other investors.

Italian Association of Intermediaries (ASSOSIM)
Association of Italian intermediaries which are authorised to provide one or more of the following investment services:

1. dealing for own account;
2. dealing for customer account;
3. placement, with or without firm commitment, underwriting or standby commitments to issuers;
4. management on a client-by-client basis of investment portfolios;
5. reception and transmission of orders and bringing together two or more investors.

Japan Securities Deposit Center (JASDEC)
The Japanese central securities depository.

Jumbo Certificate of Deposit (CD) (USA)
A certificate of deposit with a high face value generally purchased by institutional investors looking for low-risk investments.

Large-cap (Capitalisation) Stocks/Large Caps

1. (USA) Companies that have outstanding shares for a value of at least USD6 billion.
2. By extension, the companies of which the outstanding shares have a total value well above that of the other companies quoted on that exchange. See small-cap (capitalisation) stocks/small caps.

Last Trade
The value achieved by a security in its last (i.e. most recent) transaction.

Launch Date

1. The date on which a collective investment vehicle is launched.
2. The date on which an underwriter is asked to participate in a new securities issue.

Layered Trust
Several trusts in series where one trust is the beneficiary party of another trust.

Legal Ownership
Legal recognition of the ownership of a security or other financial instrument.

Legal Transfer
The transfer of ownership of an asset, which is generally but not necessarily a security.

Limited-maturity Fund
A collective investment structure that primarily invests in securities with maturities of five years or less. The investment objective is to generate current income rather than long-term capital gains.

Listed Investments
Securities which have been admitted for trading on an official exchange. See quoted investments.

Load

1. The fee charged by a fund upon purchase or redemption of units/shares in the fund accounting for sales commissions and marketing expenses. See initial charge, no load funds.
2. Interest to be paid on a debt security.

Local Agent/Custodian
Any company/institution providing custody services for securities traded in the country in which it is based.

London Investment Banking Association (LIBA)
The principal trade association in the United Kingdom for firms that are active in the investment banking and wholesale securities industry. LIBA represents the London offices of investment banks from around the world.

Loss Sharing Pool
Assets pooled by participants in a transfer or clearing system to cover any losses resulting from the failure of one or more participants to fulfil their obligation(s).

Managed Fund
A fund of which the portfolio and investment strategy are both administered by a company or individual known as the fund manager.

Managed Fund Association (MFA)
The international association representing the investment professionals in hedge funds, futures and other alternative investments.

Managed Futures Investment
A form of alternative investment, managed future investment is the investment of pooled third-party funds into futures.

Management Fee

1. Portion of the underwriting spread or front-up fee paid to the manager of a security issue or transaction.
2. Fee charged by a fund manager or investment management company for the management of the fund, usually under the form of a percentage of the total assets under management.
3. Fee charged by financial advisers for investment advice that is levied as a percentage of the assets about which the advice is given.

Management Group
Term used in the Euromarkets to refer to the leading underwriters of a security (i.e. lead/senior managers, joint managers, junior managers etc).

Mandatory Corporate Action
An action that a company is required to carry out which will have an effect on its shareholders and which cannot be prevented or altered by the shareholders.

Margin Account
An account on which a sum of money or securities (to be used as collateral) are deposited by a customer borrowing money from a broker to purchase or short sell a security.

Market Timing (or Timing The Market)
The practice of trying to predict market movements and investing accordingly, i.e. investing in a market when returns are likely to exceed those obtained on short-term cash holdings and selling when returns are likely to fall below those obtained on short-term cash holdings.

Mid Market Price (Mid Price)
The average value of the bid price and offer price of a security or fund unit.

Modern Portfolio Theory (MPT)
An investment theory that aims to establish what the optimum (equilibrium) risk-return ratio for a given set of assets would be if investment conditions were ideal.

Modigliani–Miller Hypothesis
An investment theorem stating that, in the absence of taxes, bankruptcy costs, and asymmetric information, and with perfect markets, the value of a firm is unaffected by how that firm is financed. It does not matter if the firm's capital is raised by issuing stock or selling debt, nor does the firm's dividend policy matter.

Money Market Fund
An investment fund such as a mutual fund or a unit trust that invests exclusively in money market securities.

Monte Titoli
The Italian central securities depository for all Italian financial instruments (Italian Government bonds included, since 2000).

Mutual Fund
A pool of capital provided by small as well as institutional investors and invested in a portfolio of securities. There are two types of mutual funds: open-ended and close-ended mutual funds. While close-ended mutual funds have a predetermined amount of capital to be invested, open-ended mutual funds do not. Also called investment fund.

National Securities Clearing Corporation (NSCC)
A wholly-owned subsidiary of the Depository Trust & Clearing Corporation (DTCC), the NSCC is a central counterparty that provides centralised clearance, settlement and information services for virtually all broker-to-broker equity, corporate bonds and municipal bonds, exchange-traded funds and unit investment trust (UIT) trades in the USA.

Net Asset Value (NAV)
The market price of an investment fund's portfolio of securities (after the deduction of debt to be repaid) calculated by dividing the total value with the total volume of securities. It is the price at which a shareholder will sell a fund's shares or units.

No Load Fund
A fund which does not impose an initial charge on the sale of a unit.

Nominee
A person or entity named by another person or entity to act on its behalf.

NSCC
See National Securities Clearing Corporation.

Odd Lot
Block of securities traded in a smaller amount than normal.

OEIC
See open-ended investment company.

Offshore Fund
Any fund or investment company (in the case of a unit trust or FCP) that is legally established outside the country of the investor. Popular offshore fund locations are Bermuda, Luxembourg, Ireland and the Channel Islands.

Omnibus Account
An account with a financial intermediary which the account holder uses to clear or settle transactions with its own customers (via sub-accounts) without revealing the identity of the customers.

Open-Ended Investment Company (OEIC)
A limited company listed on the stock exchange whose sole aim is to invest in securities issued by other entities. Unlike an investment trust, there is no limitation on the number of shares that can be issued (i.e it is an open-ended structure). The value of the shares is determined by the OEIC's underlying assets, however there is no bid-offer spread. OEICs can be the underlying structure for a single fund or the umbrella fund for a family of sub-funds. See unit trust.

Open-end Fund (USA)
See unit trust.

Operational Safe Custody Accounts
Defined by the Bank of International Settlements as securities accounts run by the central bank in which credit institutions can place securities deemed suitable for the backing of central bank operations. The securities held on these accounts are finally deposited with the central securities depository (CSD) under the name of the central bank, so that the transfer into a safe custody account results in a transfer between the bank's and central bank's account with the CSD. The securities deposited with the central bank are generally pledged to the central bank as collateral for (interest-bearing) overnight and (interest-free) intra-day Lombard loans (Lombard Loans should be defined separately). They can also be used for open market transactions (repos) based on a general authorisation given to the central bank to acquire securities.

Opportunity Cost of Capital
The opportunity cost of capital invested i.e. the return on invested funds that could potentially be received if another investment with equivalent risk was chosen instead.

Overweight Exposure
In relation to an investment portfolio, investment fund or investment trust, refers to when an individual investment or series of individual investments in a given security, sector, asset class, country or region exceeds the size of the weighting of that investment in the portfolio's benchmark: The opposite of underweight. Most investment funds have limits on how much a fund can be underweight or overweight in order to maintain sufficient diversification and limit risk.

Partial Redemption
The (obligatory) redemption before maturity of a portion of a fixed debt security.

Passive Investment Management
A investment method that consists of building up a diversified portfolio of leading companies in a given market or replicating the market index rather than actively trying to identify securities that are undervalued by the market. See active investment management.

Paying Agent
An institution, a company or a bank which, on behalf of the issuing company, makes interest payments and repayment of the principal upon presentation of coupon and/or bond certificates.

Pension Fund
A fund that pools individual pension contributions, and manages and invests to generate income for pension payments. Pension funds are major institutional investors.

Performance Attribution
When a portfolio's performance return can be attributed, e.g. overall reduction in the value of the portfolio can be attributed to the fall in the value of the stock market.

Performance Measurement
Assessment of a fund's or fund manager's performance against (agreed) benchmarks.

Portfolio
A collection of financial assets purchased by private or institutional investors in order to achieve return on the capital invested.

Portfolio Management
The management of an investor's portfolio of securities. The main task in portfolio management is to create an optimal mix of assets with regard to return and risk that also comply with any guidelines set by the beneficial owner of the portfolio.

Portfolio Manager
The individual responsible for managing an investor's portfolio including determining which securities are to be bought, held or sold within investment mandate guidelines.

Portfolio Optimisation
The creation of a portfolio that best reflects an investor's needs in terms of income, capital growth and risk profile.

Portfolio Rebalancing
The investment management guidelines may dictate that investments in fixed income UK bonds must be 50% of the value of the portfolio. Rebalancing occurs to adjust any under- or overweight situation and may require the investment manager to purchase or sell fixed income UK bonds (in this example) to return to the mandated level.

Portfolio Strategic Modelling
‘What if' type modelling to identify an investment strategy across multiple or single portfolios.

Portfolio Turnover
A measure of the amount of buying and selling of a portfolio's securities in relation to the value of the portfolio.

Portfolio Valuation
The value of an individual portfolio at any given time based on the market price of the portfolio assets (equities, bonds, etc.) prevailing at the time of the valuation. Used to asses investment manager performance when compared with previous portfolio valuation.

Position
See holding.

Private Equity
A form of alternative investment, private equity is the investment in equity securities of companies that are not listed. As this type of investment is far less liquid than investments in listed securities, it only appeals to long-term investors; most of whom invest by subscribing to private equity funds run by banks or other managers with good access to debt capital.

Proprietary Account
The account used by a financial intermediary for trading its own account rather than that of its clients.

Quartile
Statistical measure of data that is used to measure fund performance. Each of the three points that divide an ordered set of data into four parts. Based on their characteristics, funds are divided into four quarters (quartiles) reflecting the value and performance of the funds.

Quotation/Quote

1. A dealer's bid or offer price for a security.
2. A security's listed market price.

Quoted Investments
See listed investments.

R-squared
Ratio that reflects the percentage of a fund's movements that are explained by movements in its benchmark index. See alpha, beta.

Ratio Analysis
Method of analysing a company's financial standing from ratios based on its financial statements.

Real Estate Investment Trust (REIT)
An investment company that exclusively invests in real estate and related securities (mortgage-backed securities).

Registrar
See transfer agent.

Registration
The listing of ownership of securities in the records of the issuer or its transfer agent/registrar, or a centralised securities depository.

Reinvestment
The acquisition of securities using investment income from the existing portfolio.

Remote Access to a Central Securities Depository (CSD)
The facility in a securities settlement system (SSS) in one country (home country) to become a direct participant in a CSD established in another country (host country) and, for that purpose, to have a securities account in its own name with the CSD in the host country. See securities settlement system (SSS).

Repo
See repurchase agreement.

Repurchase agreement (or Repo)
A sale and repurchase agreement. An arrangement by which an investor with a long position in a security sells given security to a counterparty while simultaneously obtaining the right and obligation to repurchase it at a specific price on a future date or on demand. Such an agreement is used by investors with a long position in securities but short on cash with which to obtain financing similar to secured borrowing, although legal ownership of securities is not retained. Government repos are also issued by several central banks to help banks meet short-term shortfalls in their reserve requirements and as a means of creating liquidity in their national government debt market.

Resistance Areas, Levels or Points
Market price levels or rates from which stability or a reverse is predicted.

Reverse Repo
A purchase and resale agreement. An arrangement by which a party with a short position in securities purchases securities from a counterparty while simultaneously obtaining the right and obligation to resell them at a specific price on a future date or on demand. Such an agreement is used by parties with a short position in securities but a long position in cash with which to obtain securities similar to secured lending, although ownership of securities is transferred.

Reversing Trade
Transaction closing out a position.

Safekeeping
The physical holding and preservation of securities, or the maintenance of up-to-date CSD records, for the beneficial owners of securities by an agent bank, custodian or fund administrator. See custody.

Savings and Loan Associations (S&L) (USA)
A federal or state institution which gathers deposits and makes loans, usually at fixed rates, against real estate.

Sealed Bid Auction
An auction where sealed bids from investors or underwriting institutions for the issue of securities are submitted contemporaneously.

Sector

1. The industry in which a publicly listed company is active.
2. (UK) Classification of funds by IMA.

Sector Fund
Fund that invests solely in one or more sectors. See specialised fund.

Sector Weighting
The proportional investment distribution of a fund across different sectors.

Securities Depository (Book-entry System)
See central securities depository.

Securities Industry Association (SIA)
Established in 1972 through the merger of the Association of Stock Exchange Firms (1913) and the Investment Bankers Association (1912), SIA brings together the shared interests of more than 600 securities firms to accomplish common goals. SIA member firms (including investment banks, broker-dealers, and mutual fund companies) are active in all US and foreign markets and in all phases of corporate and public finance.

Securities Lending
The loaning of securities to brokers/market makers for a specified period of time in order to enhance the income gained from the security. To ensure return of the loaned securities, borrowers are required to provide collateral.

Securities Settlement System (SSS)
A system which permits the transfer of securities: either free of payment, i.e. free delivery (for example in the case of pledge), or against payment. Settlement of securities occurs on securities deposit accounts held with a central securities depository (private CSDs or a central bank acting as a CSD) or with a central bank (safe custody operational accounts). In the latter case, the central bank acts as the intermediate custodian of the securities. The final custodian is normally a CSD. Settlement of cash occurs in an interbank funds transfer system (IFTS), through a settlement agent.

Segregated Fund
An investment fund that is managed separately from other funds managed by the investment management company.

Segregation

1. The segregation of the portfolio of a company and those of its clients.
2. The segregation of funds. This is often due to regulatory requirements.

Sell Side
The financial institutions and financial intermediaries who market and sell securities. See buy side.

Settlement
The exchange of securities between buyer and seller and the corresponding transfer of money between the two contractual parties. Settlement is usually preceded by confirmations on, among other things, the date and method of exchange and payment.

Settlement Date
The date on which a security transaction is settled, i.e. payment is made and securities are physically received and delivered or beneficial ownership records are changed in CSDs. See trade date.

Share Book-entry System
A computerised system for the issue and registration of equity securities in book-entry form. See book-entry system, debt book-entry system.

Share Price
The price of a share at a given moment in time resulting from the relationship between supply and demand.

Shareholder
Individual or company which has invested in a company's shares.

Sharpe Ratio
A calculation of the gains acquired from a portfolio or net holding adjusted in accordance with the risk involved i.e. a share's average excess return over a specific period divided by the standard volatility of the portfolio/net holding during that period.

SICAV
See société d'investissement à capital variable.

Small-cap (Capitalisation) Stocks/Small Caps
Companies with a market capitalisation below that of the average market capitalisation of the other companies quoted on that exchange. The threshold amounts differ from market to market. In the USA where the term originated, it usually refers to companies with a market capitalisation below USD500 million. In the UK, the term tends to refer to stocks which are not included in the FTSE 250/350 index of the larger companies. See large-cap (capitalisation) stocks/large caps.

Société d'Investissement à Capital Variable (SICAV)
Type of collective investment scheme available in France and Luxembourg. Unlike FCPs, SICAVs are distinct legal entities, with each investor being a shareholder of the company. In other words, SICAVs are open-ended investment companies.

Special Memorandum Account
An account that allows brokers to monitor a client's status with respect to the availability of funds in the client's margin account.

Specialised Fund
Any fund that focuses on a specific region, country, sector and type of security.

Speculative Grade Securities
Securities with credit ratings below investment grade which is currently BBB (Standard & Poor's) or better.

Sponsor
An individual or legal entity responsible for managing the listing of a new security.

SSS
See securities settlement system.

Stable Net Asset Value (SNAV)
A method of compensating money market fund investors by dividend payout rather than dividend reinvestment. Consequently, the net asset value (NAV) of each fund unitremains stable. See accumulating net asset value (ANAV).

Stock and Bond Fund
A portfolio/fund composed of bonds, preference shares and ordinary shares, of which the investment objective is to increase both income and principal. See balanced fund.

Stock Fund
A portfolio/fund primarily invested in shares that is geared towards generating value rather than income.

Stock Lending
See securities lending.

Stock Picking
An investment technique that consists of selecting individual securities for investment based on a prior analysis of a security's fundamentals with the aim of identifying mispriced securities. See active management.

Stock Reconciliation
Agreement between the investment manager and the global custodian about which securities are held in individual portfolios.

Sub-custodian
Any company/institution providing custody administration services on behalf of other custodians who may not have an operation in the country concerned.

Substitution
The replacement of a given security by another security with similar features.

Switching
The simultaneous exchange of a security in a portfolio or section of a portfolio with that of another. The securities being switched are sold at the bid price and then purchased at the offer price.

Tap Issue
A security that is issued on a controlled basis so as to match market demand. Government securities are often issued on a tap basis.

Technical Analysis
Forecasts of price movement based on past movements.

Term Structure of Interest Rates
See yield curve.

Top-down Approach
An active investment management method. It consists of building a portfolio from the top downwards by first selecting the region, country, sector to invest and only then the securities. The opposite of bottom-up approach.

Total Return
Return on an investment taking into account reinvested income as well as capital appreciation.

Total Return Accounts
Institutional investors who are focused on making positive absolute returns, as opposed to other institutional investors who seek to outperform a given benchmark.

Tracker Fund
See index fund.

Tracking Error
The difference in the performance of an index fund from that of a benchmark market index.

Trade Date
The date on which a transaction is executed following which settlement will occur on the agreed settlement date. Also known as transaction date. See settlement date.

Trade Netting
The consolidation and offsetting of individual trades into net amounts of securities and money due between trading partners or among members of a clearing system.

Trade Order
Another term for a deal to purchase or sell securities. A trade order for the purchase or sale of securities across multiple portfolios is known as a bulk trade order.

Traded Position
The position at the trade date which will be different from the actual position when the various trade orders settle on settlement date in the various securities clearing systems.

Trade-for-Trade Settlement
A form of settlement where trades are settled individually to minimise risk. Trade-for-trade settlement is only feasible when it involves a relatively small number of trades.

Transaction
Market purchase or sale.

Transaction Costs
The costs associated with buying or selling securities.

Transaction Date
See trade date.

Transfer Agent
An individual or company that records, on behalf of a company, the sale and purchase of a company's securities as well as maintaining detailed ownership records of the company's shares and other registered securities. Sometimes called registrar in the USA.

Trust
An asset conserving entity created by a settlor by transferring ownership of the assets to a trustee on behalf of the beneficiary party.

Trust Agreement
See trust deed.

Trust Corporation (USA)
A bank or non-bank financial institution which operates as trustee, holding the assets of a trust, and is permitted to carry out banking activities.

Trust Deed
A document underlying a trust and providing for asset protection.

Trust Fund
A fund that manages the assets of a trust. All unit trusts are trust funds.

Trust Indenture
A document creating an offshore trust.

Trust Instrument
See trust deed.

Trust Protector
An individual overseeing and protecting a trust on behalf of the respective beneficiaries. The trust protector is, at the same time, responsible for appointing or removing trustees and consulting the settlor.

Trustee

1. A person or legal entity entrusted with the assets of a third party to manage these to the benefit of the third party.
2. Trustee of a pension fund which represents the interests of all stakeholders. Their responsibilities include mandating a professional investment management company to invest the assets of the fund and monitoring the latter's performance.
3. A bank or any other financial institution that is appointed by an issuer of debt securities or holder of debt securities to represent the latter's interests and to make sure that the issuer fulfils their payment obligations.

Trustee Services Jurisdiction
The jurisdiction in which a trustee is legally allowed to operate.

UCITS
See undertaking of collective investment in transferable securities.

Umbrella Fund
A fund consisting of different compartments that each has their own investment objective.

Undertaking for Collective Investments in Transferable Securities (UCITS) Directive (Directive 85/611)
An EU Directive on how UCITS can, upon authorisation of the relevant regulatory authority, be marketed within any country of the EU.

Undertaking of Collective Investment in Transferable Securities
Generic term for any open-ended collective investment scheme involving investments in assets that are available under the form of transferable securities, i.e. FCPs, OICs, SICAVs and unit trusts.

Underweight Exposure
In relation to an investment portfolio, investment fund or investment trust, refers to when an individual investment or series of individual investments in a given security, sector, asset class, country or region is below the size of the weighting of that investment in the portfolio's benchmark: The opposite of overweight. Most investment funds have limits on how much a fund can be underweight or overweight in order to maintain sufficient diversification and limit risk.

Unit
A share or portion of securities in a managed portfolio, such as that of a unit trust.

Unit Investment Trust
An investment fund, established by a broker, whose units are sold in order to purchase securities which compose a portfolio that remains constant throughout the life of the trust. Investors receive income and capital periodically.

Unit Trusts
An investment fund that is composed of two institutions: the investing managers and the trustee company. While the investing managers are in charge of the trust's investment policy, strategy and the composition of its portfolio of securities, the trustee company holds the securities in which the trust has invested. Unlike investment trusts, funds raised for investment are distinct from the trust's own assets and capital and, unlike investments trusts, unit trusts have an open-ended capital structure. Known as open-end fund in the USA.

Unitised Fund
Any form of collective investment, such as a unit trust, where investors buy units in a open-ended collective pool of assets managed by an investment company.

Unit-linked
An investment that is linked to a unitised fund.

Unlisted Investments
Securities that are not traded on an official stock exchange and are only available via an OTC market.

Up-tick
When a security is traded at a higher price than in its last transaction.

Venture Capital Trusts (VCTs)
Tax-efficient investment trusts established in order to provide finance to high-risk new companies and enterprises. They allow investors that have a high risk tolerance to gain exposure to high-growth companies.

Yield to Maturity (YTM)
The return on a security held to maturity, taking account of the coupon and re-investment rates and the buying price compared to its face value. YTM assumes that all coupons are fully paid out on their due dates and reinvested at the same yield and that the principal is paid back in full upon maturity. It is an internal rate of return calculation performed on the security's expected cash flows.

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