Use the glossary below to help build your understanding of key financial services terms.

In addition to our general Glossary of Financial Terms, we have included an abridged glossary (PDF 572KB) version designed especially for overseas delegates unfamiliar with UK financial markets terminology.

To find a term in the list below please hold down the Ctrl button and press F. This is Apple-F for Macs.

48-Hour Rule	The requirement that a company seeking a listing should submit any documents required in their final form, to the UK Listings Authority, 48 hours prior to the hearing of the application to obtain a listing.
AA	See Against Actual.
Abandon	The choice made by the holder of an option to allow an option to expire without exercise.
Accounting Bedrocks	The two accounting bedrocks, contained within FRS 18, Accounting Policies, are Accruals and Going Concern.
Accounting Standards Board	The body responsible for issuing Accounting Standards in the United Kingdom. See also Financial Reporting Review Panel, Urgent Issues Task Force and Financial Reporting Council.
Accrued Interest	See Interest Accrual.
ACD	See Authorised Corporate Director.
Acid Test Ratio	An accounting ratio, usually defined as current assets (with the exception of stocks) divided by creditors falling due within one year. It is designed to test the short-term solvency of a company, in a way similar to the current ratio. Its interpretation is also similar to the current ratio. It is also known as the quick ratio.
Acting in Concert	For the purpose of the Companies Act, this is when two or more people have an agreement to acquire interests in shares. For the purpose of the Blue Book, it is when two or more investors co-operate to obtain, or consolidate, control of a company.
ADP	See Alternative Delivery Procedure.
ADRs	See American Depository Receipts.
Advising	The act of giving advice on investments; an activity included in the definition of regulated activity and thus normally requiring authorisation under the Financial Services and Markets Act 2000.
Against Actual	The term used on the Euronext.liffe commodity market for an Exchange for Physical. See Exchange for Physical.
Agency Brokers	Brokers who only act as agents (on behalf of a customer) and do not deal as principals or as market makers.
Agency Cross	A trade between two customers of a broker executed through the office of the broker who acts as agent in the middle, with the two customers acting as principals. It will usually be carried out at the mid-market price for the stock in question. The broker will charge both customers commission.
Agent	A person, acting on behalf of somebody else, who is the principal to the trade when completing the trade. A common example is when a broker-dealer buys or sells shares on behalf of a customer with a market maker. See also Principal.
AGM	See Annual General Meeting.
AIM	See Alternative Investment Market.
Algorithm	See Uncrossing Algorithm.
Allocation	Often in open outcry markets the trader who has effected a bargain is not the owner of the trade, having initiated it on behalf of another firm. Allocation refers to the process of allocating, or `giving up' the trade within the trade registration system (TRS) to the originating firm, so that the trade ends up in the appropriate firm's account.
Alternative Delivery Procedure	Used on ICE Futures (formerly the International Petroleum Exchange (IPE)). This is where the long and short sides of a transaction agree to deliver either a different specification of the product from that stipulated in the contract specification, or to a different location from those included in the contract specification, or both. ADPs are not covered by the London Clearing House guarantee.
American Style Option	An option where the holder has the right to exercise up to and including the expiry date. Contrast with a European style option, where the holder has the right to exercise the option on the expiry date only. See Option.
AMPS	See Auction Market Preferred Stock.
Annual General Meeting	Also known as the AGM. All companies are required to hold an annual general meeting at least once every 15 months, however, the AGM must be held every calendar year. Shareholders must be given 21 calendar days' notice of the meeting and this may only be waived if all the shareholders agree.
Annuity	An annuity describes the situation where we have an equal annual cash flow for a set period of time.
Appointed Representative	A person conducting regulated activities, but exempt from the need to seek authorisation. The responsibility to control these persons, typically self-employed individuals, is borne by an authorised firm.
Approved Person	Someone performing a controlled function in an FSA firm who is required to show they are fit and proper.
Arbitrage	The purchase (or sale) of an instrument and the simultaneous taking of an equal and opposite position in a related instrument to exploit a mispricing. Also defined as the making of riskless, guaranteed profits by exploiting market inefficiencies. An activity undertaken by arbitrageurs. See also Conversion and Reversal.
Arbitrage Channel	An area that exists both above and below the fair value of a future, within which no arbitrage will take place. This is because additional costs, such as exchange fees, bid offer spreads and commissions, will exceed arbitrage profits within this channel. Thus, the width of the channel depends on the costs incurred by the participant in the market place.
Arbitrageur	An investor who trades in the markets with the intention of making riskless, guaranteed profits by exploiting market inefficiencies. For example, if the same index contract is traded in two different exchanges, it should trade at the same price in both exchanges. If the prices are not the same, an arbitrageur will buy at the cheaper price and immediately sell at the more expensive price in the other market, making a guaranteed profit.
Arithmetic Mean	The arithmetic mean is the simple average that is calculated by adding up the observed values and dividing by the number of observed items.
Articles of Association	The document that acts as a contract between a company and its shareholders, outlining the rights and duties of the shareholders with the company and between themselves. See also Memorandum of Association - the other main constitutional document of a company.
ASB	See Accounting Standards Board.
Asian Style Option	An option that is exercised at the average underlying price over a period.
Ask/Asking Price	The market selling price. See Offer Price.
Asset Allocation	Asset allocation is the stage where the investment manager decides what proportion of the total portfolio to invest in broad asset categories, such as shares, bonds, property, etc.
Assets	Resources owned and controlled by a company. Technically defined as access to future economic benefits as a result of past events or transactions. Assets are shown on a company's balance sheet.
Assignment	When an option is exercised by the holder, the clearing house will randomly match the exercise notice received against an open short position, and advise the chosen writer of the requirement to fulfil his contractual obligations. This is the process of assignment. Assignment is also the process by which a trade is directed into the appropriate account in the TRS, either into the house, segregated or non-segregated account of the firm.
Auction Market Preferred Stock	Preference shares issued by a company where the dividend is variable and is set at regular intervals to a market rate by means of an auction process between investors. Also known as AMPS.
Audit Trail	The range of documents, and other evidence including tape recordings, which records all business activities and transactions that the firm effects. Such a historic record allows the firm to piece together the chronology of a trade. It is also required for compliance purposes.
Auditor's Report	All companies above a certain size are required to have their financial statements audited, i.e. checked for truth and fairness, by a registered auditor. The auditor prepares a report, which is attached to the financial statements, stating his opinion as to whether or not the financial statements give a true and fair view of the company's results and financial position.
Authorisation	The process by which organisations are vetted and licensed to conduct investment business under the Financial Services and Markets Act 2000. Such organisations are known as Authorised Firms. The process of authorisation is sometimes referred to as Part IV Permission.
Authorised Corporate Director (ACD)	The Authorised Corporate Director (ACD) is responsible for the day-to-day management of the assets within an OEIC.
Automatic Exercise	A procedure whereby clearing houses exercise all manifestly in-the-money options at expiry without requiring instructions (in the form of an exercise notice) from the holder. Most automatic exercise routines will not exercise options that are only just in-the-money.
Automatic Matching	The process of instantly matching orders entered onto electronic dealing systems, such as SETS and LIFFE CONNECT.
Bad Delivery	A situation where the registrar rejects a request to transfer ownership so the transfer is not registered.
Balance of Payments	The statement that summarises cash inflows and outflows between the United Kingdom and the rest of the world as a result of imports, exports and capital investment. See also Current Account and Capital Account.
Balance Sheet	A statement of a company's financial position at a given point in time. It details the assets of the company and how these assets are being financed. Financing is broken down into two major categories, namely shareholders' funds and liabilities. Due to the way in which the balance sheet is prepared, total assets always equals total finance, i.e. the balance sheet will balance.
Balloon Maturity	See Bullet Form.
Bank of England	The UK's central bank with responsibility for the setting of interest rates through the Monetary Policy Committee (MPC). It is the lender of last resort to prevent a systemic collapse in the banking system. The Bank of England Registrar maintains the register of ownership of gilts.
Banking Consolidation Directive	A European Union Directive, similar in objective to the Investment Services Directive and aimed at the creation of a single market in banking and related activities. Formerly known as the Second Banking Co-ordination Directive.
Base Requirement	The amount of capital required by an FSA firm to cover its operating costs in periods of low activity.
Basis	The difference between the price of a futures contract and that of the underlying asset. Calculated by subtracting the futures price from the cash price.
Basis Point	One-hundredth of one percent (0.01%).
Basis Trading	Basis trading is the simultaneous entry into both a cash position for a particular product and an equal and opposite futures position on the same underlying. A basis trader looks to profit from a change in the relationship between the cash price and the future, i.e. from a change in the basis.
Basis Trading Facility (BTF)	A system operated on the Euronext.liffe market for certain bond futures which allows for the simultaneous execution of cash and futures trades (basis trades).
BCD	See Banking Consolidation Directive.
Bear	A person expecting a decline in prices; someone who is bearish.
Bear Spread	An example of a vertical spread, constructed by the purchase of a high strike call (put) and the sale of a low strike call (put), both options being on the same underlying asset and having the same delivery month. Entered into when moderately bearish.
Bearer Stock	An instrument for which there is no register of the owner held by the company. Evidence of ownership is given by physical possession of the instrument itself. Bearer stock is common in the Eurobond market.
Benchmark	In order to assess how well a fund manager is performing we need a benchmark for comparison. Once we have determined an appropriate benchmark, we can then compare whether the fund manager outperformed, matched, or underperformed that benchmark. The appropriate benchmark is one that is consistent with the preferences of the fund's trustees and the fund's tax status.
Best Execution	The act of taking reasonable care to achieve the most advantageous price for a transaction of a particular type and size.
Beta (()	The beta of an investment is a relative measure of the systematic risk of that investment. The sign of the beta (+/-) indicates whether, on average, the investment's returns move with (+) the market, rising and falling when it does, or in the opposite direction (-) to the market. The scale or value of the beta indicates the relative volatility.
Bid Ask Spread	See Bid Offer Spread.
Bid Offer Spread	The difference between the bid price and the offer price of a security.
Bid Price	The price at which a market maker is bidding to buy shares. It is usually lower than the Offer Price at which they will sell shares. For example, a quote of 510-515 indicates a bid price of 510 and an offer price of 515.
BIFFEX	The Baltic International Freight Futures Exchange.
Big Bang	27 October 1986. The day when the system of share trading in the UK was radically changed to remove fixed commissions and introduce screen-based trading.
Black Monday	19 October 1987. The day of the great Stock Market crash worldwide.
Black Scholes	The name of a theoretical option pricing model in widespread use in the market place. Named after Fischer Black and Myron Scholes who first developed the model.
Blue Book (The)	See Takeover Code (The). Also known as the City Code on Takeovers and Mergers.
Blue Chip	A phrase used to describe shares of the highest quality and lowest risk. Not to be confused with blue blood, which merely indicates a prestigious background.
Bobl	Medium-term German government debt.
Bond	A certificate indicating ownership of debt, giving details of the key terms of the underlying loan. Bonds are usually tradeable. See also Debenture.
Bond Washing	The process of selling a bond cum dividend and then repurchasing the bond ex-dividend, designed to convert the coupon element of the bond's price into a capital gain, rather than receiving the coupon as income. This does not, however, affect the investor's tax liability since the element of the gain on sale due to the interest accrual in the bond's price is taxed as income in the UK.
Book Entry	An electronic system of keeping records of ownership of shares and bonds so that all records are computerised. In the UK, the major example of a book entry system is CREST.
Book Value	The value at which a loan is shown in the balance sheet of the company that has borrowed the money. Note that book value is not necessarily the market value of the loan.
Books Close	This is relevant for corporate actions, such as dividend payments. Those investors whose names appear on the register as at the books closed date will receive the benefit from the company. Also referred to as the Record Date.
Borrowing	A futures trade on the LME involving the buying of near-dated contracts and the selling of long-dated contracts. An example of a `carry'. The equivalent of an intramarket spread trade sometimes known as `buying the spread'. See also Carrying and Intramarket Spread.
Bought Deal	A means of issuing Eurobonds. The lead manager of the issuer buys the whole issue on predetermined terms and price and then places the bonds with its own clients. See also Fixed Price Reoffer.
Breakeven Point	The underlying price at which a strategy is neither profitable nor unprofitable.
Bridge	The electronic link between Euroclear and Clearstream, the two Eurobond clearing houses.
Broker	A person who acts as an intermediary between two other persons, enabling them to complete a trade together.
Brokerage	Commission charges payable on securities transactions.
Broker-Dealer	A member of the Stock Exchange who may trade with customers either as principal or act as agent on their behalf, completing a trade for the customer with a market maker or doing an agency cross. See Dual Capacity.
BTAN	Bons Taux Annuel Normalis. Medium-term French government debt.
BTF	See Basis Trading Facility.
Building Society	A form of mutual organisation owned by its depositors and borrowers. Their original purpose was to take deposits and recycle these as mortgage loans for buying houses. However, modern large building societies have extended their role such that they are now virtually the same as banks.
Bull	Person expecting a rise in prices; someone who is bullish.
Bull Spread	An example of a vertical spread, constructed by the purchase of a low strike call (put) and the sale of a high strike call (put), both options being on the same underlying and having the same delivery month. Entered into when moderately bullish.
Bulldog Bond	A sterling bond issued in the United Kingdom by a foreign issuer.
Bullet Form	Also known as a balloon maturity. A debt issue where the capital is all redeemed on the final day of the bond's life, rather than in instalments over the life. The only payments over the bond's life are the coupon. Contrast to Sinking Fund or Purchase Fund.
Bund	Long-term German government bond.
Business Day	The period from 00:01-24:00 on any working day, i.e. excluding weekends and public holidays. Used to determine the intended settlement date of trades executed.
Business Risk	Business risk represents the uncertainty of cash flows generated by the firm's business.
Cabinet Trade	Sometimes used as an alternative to the simple abandonment of a long options position. This is where a worthless position is closed (sold) for a notional consideration in order to facilitate the crystallisation of losses for taxation and accounting purposes.
Cable	The market term used to describe the sterling/US dollar exchange rate.
CAC 40	The major French share index, comprising the top 40 listed shares.
CAD	Capital Adequacy Directive; an EU directive setting out rules for all ISD firms.
Calendar Spread	See Horizontal Spread.
Call Option	A long call option is an option that gives the holder (the buyer of the option) the right, but not the obligation, to buy (call) an asset at a given price, on or before a given date. See also Option.
Cap	This is a CREST member's credit limit with his payment bank. The payment bank guarantees to meet client obligations up to this maximum.
Capital Account	The part of the balance of payments which is due to transactions in long-term assets and liabilities, such as when a UK company acquires an overseas subsidiary.
Capital Adequacy	The measure of the sufficiency of a firm's funds to meet its business and regulatory obligations; see Financial Resources and Financial Resources Requirement.
Capital Employed	Usually defined as fixed assets plus working capital, although alternative definitions are possible. It can also be calculated by adding together shareholders' funds and long-term liabilities. Capital employed is essentially the underlying asset base a company needs to generate its profits and turnover.
Capital Gains Tax Exempt Band	The amount of capital gains in the fiscal year that are tax free. For an individual, the exempt band in 2004/2005 is 8,200. For a trust, the exempt band is 4,100.
Capitalisation Issue	See Bonus Issue.
CAPM	See Capital Asset Pricing Model.
Carrying (Carries)	Describes the borrowing or lending activity on the LME. Another term for an intramarket spread. See also Borrowing, Lending, and Intramarket Spread.
Cash Against Document	Settlement arrangements ensuring that neither the buyer nor the seller is at risk from default, i.e. not having the cash or the securities. CREST provides such a structure. See CREST and Delivery Versus Payment.
Cash and Carry Arbitrage	An arbitrage trade entered into where a futures contract is sold and the underlying asset is purchased in the cash market. Such a trade will be effected where the trader believes that the futures are trading relatively expensive to its fair value.
Cash Market	The market place for the immediate delivery of and payment for assets.
Cash Memorandum Account (CMA)	This is a record of each CREST member's payment obligations. These accounts do not represent cash, but rather obligations of members' payment banks to transfer funds at the end of the day.
Cash Settlement	This is settlement on the business day following the day of the trade and is normal settlement for gilts and new issues. In respect of derivatives, the settlement of futures and options contracts for cash instead of settlement involving the physical transfer of goods. Typically used for index-based products such as the FTSE 100 index future and option.
CBOE	Chicago Board Options Exchange.
CBOT	Chicago Board of Trade.
CCSS	See CREST Courier and Sorting Service.
CD	See Certificate of Deposit.
Central Counterparty	See London Clearing House and Novation.
Central Gilts Office	The former settlement agency for gilts. From 3 July 2000 gilts settle mainly through CREST.
Certificate of Deposit	A money market instrument, also known as a CD. The certificate is evidence of a deposit made with a bank, which will be redeemed on the maturity date with interest. The difference between a certificate of deposit and a normal deposit with a bank is that a certificate of deposit is a bearer instrument that can be sold on in-the-money markets to another investor.
CFTC	Commodity Futures Trading Commission - the US futures regulator.
CGO	See Central Gilts Office.
Chargeable Disposal	A disposal of an asset for Capital Gains Tax purposes. This will include the sale of an asset, the gift of an asset or when an asset becomes worthless, such as shares when a company becomes insolvent.
Chargeable Estate	The amount of an individual's estate that is liable to inheritance tax. The remainder is taxed at a rate of 40%.
Charterparty	A legal document produced when an agreement to charter a ship is made on the Baltic Exchange, setting out all the terms and conditions for the voyage to be undertaken.
Chinese Walls	Physical/procedural barriers erected to prevent the flow of information within a firm, e.g. between corporate finance and investment management. Under FSA rules, it is not obligatory to establish Chinese walls.
Churning	The act of engaging in excessive trading to generate commission whilst disregarding the best interests of customers.
Circles Processing	Although the majority of CREST transactions will settle in the normal way, sometimes there may be a number of mutually dependent transactions, i.e. a gridlock. CREST resolves this problem by simultaneously settling these transactions, whilst ensuring that no member has insufficient stock or credit.
CIS	See Collective Investment Scheme.
City Code on Takeovers and Mergers (The)	The full name of The Takeover Code, also known as the Blue Book.
Civil Offence	The aim of the Civil Law is to compensate victims (although the market abuse offence also provides for punishment via fines). A civil offence is punishable in either the County Court or High Court. Penalties include making contracts voidable, damages, compensation/restitutions orders and injunctions. The burden of proof is `the balance of probabilities'.
Class A Shares	Shares that usually carry no voting rights.
Clean Price	The price of the bond excluding the interest accrual. The underlying capital value of the bond. Bond prices are usually quoted on a clean basis. The actual price paid will be the clean price with an interest accrual adjustment. This total price is known as the dirty price. See also Interest Accrual.
Clearing	The process of matching, registration and settlement of securities and derivatives transactions.
Clearing Member	An entity that is a member of a clearing house and thus has the ability to clear transactions. Contrast with a non-clearing member, who cannot clear directly via the clearing house, and must therefore employ the services of a clearing member to clear trades on his behalf. See also General Clearing Member and Individual Clearing Member.
Clearstream	One of the two Eurobond clearing and settlement agencies. The other is Euroclear. It can also be used for settlement of German, French and UK government debt.
Click	The computer-based trading platform operated by the OM Exchange in Stockholm.
Client Agreement	A signed contract between the firm and customer outlining the basis on which services are to be provided by the firm.
Client Money	The money of segregated clients held in trust by an authorised firm. Such money should be protected against a default/failure of the authorised firm.
Close (Out)	A transaction that extinguishes commitments to the markets, i.e. a purchase if the initial transaction was a sale and vice versa. See also Closing Purchase and Closing Sale.
Close Period (The)	See Model Code.
Closing Auction	A period of five minutes (plus possible extensions), starting at 16:30, in which limit and market orders may be input into the SETS system. No automatic matching occurs until the end of the auction when the uncrossing algorithm is run. This will normally give the closing price for that security.
Closing Order	An order type used where the order must be executed during the official closing period in the market concerned.
Closing Purchase	A transaction in which a position is purchased to cancel a sold position already established. See also Offset.
Closing Sale	A transaction in which a position is sold to cancel a purchased position already established. See also Offset.
CMA	See Cash Memorandum Account.
CME	Chicago Mercantile Exchange.
COBS	See Conduct of Business Sourcebook.
Code of Market Conduct	The Code provides guidance on what constitutes market abuse and which `safe harbours' are deemed not to be abusive.
Code of Practice for Approved Persons	This sets out conduct that the FSA believes would breach the FSA's Statements of Principle.
Combination	An options trade involving both calls and puts on the same underlying asset, e.g. buy a call and buy a put option with the same strike price for the same delivery month in the same underlying product (known as a long straddle). Contrast with an option spread trade, where the trade consists of either all calls or all puts.
COMEX	Commodities Exchange in New York.
Commercial Bills	Also known as trade bills. IOUs issued by companies (usually medium sized) and usually guaranteed (`accepted') by a bank. They pay no interest and hence are issued at a discount to nominal value. They have varying maturities. They may be eligible bills, indicating that the Bank of England is prepared to purchase them in the money markets.
Commercial Paper	Borrowing in the form of short-term paper issued by companies. Also known as CP or ECP (Euro Commercial Paper). Usually redeemable at par value and pays no interest. Hence it is issued and trades at a discount.
Commodities Exchange Act	US legislation governing the commodities and futures markets.
Commodities Modernization Act	US legislation aimed at liberalising the US derivatives markets. In particular, it has amended the law to allow the trading of single stock futures in the US.
Common Stock	See Equity Shares.
Compensation Order	The power of the FSA to require a defendant to pay an unlimited compensation order.
Competent Authority (The)	The UK Listing Authority, which has been designated as the competent authority under the Financial Services and Markets Act 2000 Part VI for the purpose of regulating companies that are seeking an official listing.
Complaints Procedure	Written procedure that all FSA firms must establish to deal with complaints.
Complements	Complements are goods that are normally consumed in combination, for example cars and petrol. As the price of cars falls, the demand for cars will rise and, as a consequence, so will the demand for petrol.
Concert Parties	See Acting in Concert.
Conduct of Business Sourcebook	Detailed rules that govern a firm's relationship with its customers.
Confirmation	The document which outlines the details of a trade just undertaken; must be sent out promptly (end of next business day).
CONNECT	The screen-based trading system for Euronext.liffe's derivative products. It replaces Automated Pit Trading and open outcry trading.
Consistency	One of the fundamental accounting principles. A company must prepare its accounts on a consistent basis year on year to facilitate comparisons.
Consolidated Stock	A name for several issues of UK government bonds, the most common of which is 2.5% Consolidated Stock. Also known as Consols.
Consolidation of Control	A Blue Book concept. Defined as, where an investor owns between 30% and 50% inclusive of the voting rights in a company and adds on any more shares. If this occurs, the investor will be required to make a mandatory offer for all the other shares in the company.
Consols	See Consolidated Stock.
Consumer Price Index	A harmonised measure used across the EU to measure the rate of change of prices, i.e. inflation. It is the measure targeted by the MPC of the Bank of England in their monetary policy. See also Retail Price Index.
Consumer's Hedge	An alternative term used to describe a long hedge. See Long Hedge.
Contango	A term used in the futures markets to describe the situation when the spot or nearby prices (cash prices) are lower than longer term prices (futures prices). The opposite of backwardation. Sometimes such markets are said to be at a premium. See also Premium and Backwardation.
Contingent Liability Transaction	A derivative transaction under which the customer may be required to pay money after the trade date, i.e. any type of margined trade.
Continuing Obligations	The ongoing rules of the UK Listing Authority, detailed in the Listing Rules which have to be followed by a listed company. For example, to disclose price-sensitive information via a Regulatory Information Service.
Continuous Auction	See Instant Auction.
Contract	The standard unit of trading for futures and options - sometimes also referred to as a `lot'. Trades can only be effected in whole contracts - it is not possible to trade fractions of one contract.
Contract for a Difference	A term used in the Financial Services and Markets Act to describe cash-settled instruments, e.g. FTSE 100 index futures, FRAs, swaps and spread betting. The difference between two numbers, one agreed at the start of the contract, e.g. FTSE 100 = 4200, and the other determined later, e.g. FTSE 100 = 4500, is paid in cash, e.g. 300 points at 10 per point.
Contract Note	A former name for a confirmation (see above).
Contract Size	The amount of the underlying asset which one futures contract represents, e.g. the contract size for a copper contract is 25 tonnes. This means that underlying one copper future is 25 tonnes of copper that the investor has the obligation to buy (long future) or sell (short future).
Contract Specification	The legal document produced by the relevant exchange that sets out the details of a future or options contract, e.g. trading times, delivery procedures, quantities of underlying per one contract, etc. The use of contract specifications leads to standardised products and thus maintains liquidity.
Controlled Function	Specific roles within an FSA firm which require the persons performing them to prove they are fit and proper and become approved persons.
Controlling Shareholder	For the purpose of the Listing Rules, an investor holding 30% or more of a listed company's shares. Such a shareholder will only be permitted for a listed company if it can be demonstrated that any conflicts of interest arising between the controlling shareholder and the interests of other shareholders will be suitably managed.
Conventional Gilts	The term used to describe all gilts except index-linked gilts.
Convergence	The process by which future prices and cash prices move together as delivery approaches. Convergence occurs on the final day of trading of the future, when there is no longer any cost of carry included in its price. At this point the futures price equals the cash price.
Conversion	An example of an arbitrage trade, where the future is purchased and a synthetic future is sold by buying a put option and selling a call option with the same maturity and strike price on the same underlying asset. Entered into when the relationship described as put/call parity has broken down, and the future is relatively cheap to the synthetic. The opposite of a reversal. See also Arbitrage and Reversal.
Convertible Debt	Debt where the lender has the option to convert the debt into ordinary shares in the company rather than receiving repayment in cash.
Convertible Gilt	UK government bond, where the holder of the bond has the option to convert the bond into another issue of government bonds rather than receive repayment in cash.
CoredealMTS	A Recognised Investment Exchange for electronic trading in bonds.
Corporate Actions	A generic term referring to actions taken by a company with its shareholders. This will include payment of dividends, bonus or right issues and voting at meetings.
Corporation Tax	Taxation payable by companies, as opposed to individuals and trusts that pay income and Capital Gains Tax.
Cost of Carry	The costs incurred in buying an asset today and carrying it through to the delivery day of a future. Such costs may include finance costs, insurance, storage, etc. and will be reduced by the benefits of holding certain assets such as dividends and coupons.
Coupon	The rate of interest payable on a bond. For example, a bond with a 10% coupon and a nominal value of 100 will pay gross annual interest of 10 in total, regardless of the price at which the bond is trading in the market.
Coupon Stripping	Taking a coupon paying bond and selling on each of its coupons separately as zero-coupon bonds in their own right.
Covenant	A stipulation in a loan agreement that restricts the borrower's freedom of action while the loan is outstanding. Designed to protect the interests of the lender.
Covered	A position is described as covered if the cash or asset to be delivered by the contractual obligation in the derivatives position is already held, e.g. if you sell a copper future and thereby become obligated to deliver 25 tonnes of copper, you would be covered if you already held the copper. Not to be confused with Margin. Contrast with Naked.
Covered Warrant	A call option on the shares of a company issued by a bank, where the bank has hedged its position in the underlying stock, usually by holding shares of the company in question.
CP	See Commercial Paper.
CPI	See Consumer Price Index.
Credit	A credit item is a liability, provision, or shareholders' funds balance in the balance sheet, as well as an item of income or increasing profits in the profit and loss account.
Creditors	Part of a company's liabilities representing amounts due to third parties. Creditors are analysed in the balance sheet into those due within one year and those due after more than one year.
CREST Courier and Sorting Service	Part of CREST that deals with paperwork associated with settlement.
CREST Member	A CREST participant holding dematerialised stock (see dematerialised holdings) in stock accounts. A member is the legal owner of the securities and will appear in the company register. Typical CREST members include market makers, broker-dealers, inter-dealer brokers, stock borrowing and lending intermediaries, institutional investors and custodians. The term generally means that the participant is a CREST user.
CREST Member Accounts	This facility permits a member with an undesignated (house) account to segregate different holdings, such as client holdings, in designated accounts.
CREST Participant	A person or organisation who has a formal relationship with CREST. This would include members, payment banks, registrars and the Inland Revenue.
CREST Sponsored Members	Certain investors, such as private investors and institutions who are active traders, wanting to hold stock in CREST accounts, but lacking the direct technical access to CREST, can rely on another member or user of CREST. A sponsored member will appear in the register as the legal owner.
CREST Stock Account	Within each member account there is a stock account reflecting each individual line of stock held.
CREST User	A person or organisation with technical access permitting electronic communications with CREST.
Criminal Justice Act 1993 (CJA93)	Legislation dealing with insider dealing.
Crossing	A term used to describe the situation in which a firm has both the buy side and the sell side of an order. Rules exist on derivative exchanges governing the crossing of trades. Also known as Matching and Self Trading.
CSCE	Coffee, Sugar and Cocoa Exchange, New York.
CTD	See Cheapest to Deliver.
Cum Dividend/Cum Interest	The trading status of a bond or share such that the purchaser of the bond or share is entitled to receive the next interest or dividend payment. The alternative is ex-dividend or ex-interest, where the seller of the bond or share retains the right to receive the next interest or dividend payment.
Current Account	The part of the balance of payments that is due to trade flows. It can be broken down into visibles, which are physical goods imported into and exported from the United Kingdom, and invisibles, which are services imported to or exported from the UK, such as advertising, insurance and training.
Current Assets	All assets apart from fixed assets. Usually assets that have been acquired with the intention of converting them into cash or cash itself, e.g. stocks, debtors, short-term investments, cash and bank balances.
Current Ratio	An accounting ratio, usually defined as current assets divided by creditors falling due within one year. The ratio is designed to assess the solvency of a company in the short term. If the current ratio exceeds one, then the value of current assets is greater than the value of the short-term creditors, indicating that the company is able to pay its short-term debts as they fall due. Note that this interpretation is fairly simplistic.
Custody	The safekeeping (and often settlement) of investments that is a category of regulated activity under the Financial Services and Markets Act 2000.
Customer Borrowing	Funds lent to customers by firms. Credit may normally only be extended to private customers with prior written consent and with agreement as to the maximum amount of the loan and charges.
Daily Official List	A Stock Exchange publication giving details of share trading in the previous day. Sometimes referred to as SEDOL (Stock Exchange Daily Official List).
DAX	The major German share index, comprising 30 shares.
Dealing	Entering into transactions in investments either for customers or for the firm's own account.
Debenture	A bond issued with security. See Charges. Note that this is the UK terminology. In the US, a debenture refers to an unsecured bond.
Debit	A debit item is an asset balance in the balance sheet, as well as an expense item, decreasing profits, in the profit and loss account.
Debt Management Office	An Executive Agency of HM Treasury responsible for the issuance of gilts and Treasury Bills.
Debtors	Amounts owed to a company by its customers and other third parties. Debtors are shown as part of current assets in a company's balance sheet.
Debt-to-Equity Ratio	See Gearing Ratio.
Declaration Day	An LME term used to describe the expiry day of an option contract. See Expiry Date.
Deep Discount Bonds	Bonds issued at a discount to par value and redeemed at par or a premium to par. They may either pay a low coupon over their lives (low coupon bonds) or no coupon at all (zero-coupon bonds). The difference between the issue price and the redemption price is effectively interest on the amount borrowed.
Default	Failure by a party to fulfil its obligations on a future or options contract when they fall due, e.g. failure to meet a margin call, or to make or take delivery.
Defined Benefit Pension Scheme	A defined benefit pension scheme offers a specific return based on the employee's salary and number of years' service with the company - also known as a final salary pension scheme.
Defined Contribution Pension Scheme	A defined contribution pension scheme offers a general increase in value of the contributions paid on behalf of the employee - also known as a money purchase pension scheme.
Delivery	The settlement of a futures or options contract via the delivery of a physical asset or cash.
Delivery by Value	The system by which CREST settles repos.
Delivery Versus Payment	Settlement arrangements ensuring that neither the buyer nor the seller is at risk from default, i.e. not having the cash or the securities. CREST provides such a structure. See CREST and Cash Against Document.
Delta Hedged	See Delta Neutral.
Demand	Within microeconomics, demand represents the quantity that individuals will buy at a given price. In this context, we are talking about effective demand, i.e. a want that the consumer has the resources to satisfy.
Dematerialised Holdings	This describes stock that is held in electronic accounts within CREST, i.e. in uncertificated form, instead of being held as paper certificates, i.e. in certificated form. See CREST.
Deposit Set	This is a collection of documents required for a stock deposit to be made at CREST; a transfer form and the certificate or certified transfer form. See Stock Deposit and Certification.
Derivatives	A term used to encompass products such as futures, options and swaps, which derive their value from the movement in price of an underlying asset. Owing to their potentially high risk, special rules often apply.
Designated Client Account	A type of client money bank account whose monies may not be pooled with other `general' client accounts.
Designated Investment Business	Activities defined by the FSA that relate generally to investments, such as stockbroking and fund management. It therefore does not include the other areas regulated by the FSA, such as general insurance and banking.
Designated Investment Exchange (DIE)	An overseas exchange, not operating in the UK, deemed by the Financial Services Authority to provide an appropriate level of investor protection. Examples of DIEs include the Tokyo Stock Exchange and the New York Stock Exchange.
Designated Professional Body (DPB)	These are the professional bodies who govern the members of certain professions such as lawyers, accountants and actuaries. Although these professionals may sometimes be giving investment advice, they are usually exempt from the need to be authorised under FSMA 2000.
Diagonal Spread	An option spread where one option is purchased and a different option is sold. The sold option has a different strike price and expiry date from the purchased. The spread will be constructed with either all calls or all puts on the same underlying asset.
DIE	See Designated Investment Exchange.
Difference Account	A document that sets out the profit/loss arising from the closing of a futures position.
Dilution	A general phrase, describing the fact that as more shares are issued by a company, the interests of existing shareholders will be diminished. The specific impact is that the earnings per share of the company may be reduced as a result of the increased number of shares. A more specific meaning is used in the context of Fully Diluted Earnings per Share.
Direct Offer Financial Promotion	An advertisement (financial promotion) incorporating a tear-out coupon, the completion of which alone creates an investment agreement; often referred to as an `off the page' advert.
Direct Quote	A direct quote arises in the foreign currency markets where the variable currency is the US dollar and the other currency is fixed as one unit. For example, sterling is quoted directly against the dollar. This means that the quote is always expressed in terms of 1 and the number of dollars it takes to buy 1 or the number of dollars 1 will buy. Most currencies are quoted indirectly against the dollar, rather than directly.
Directors' Report	Part of a company's annual report. It is a legal requirement that the directors write a report summarising the company's performance over the year, its future prospects and with certain other required disclosures.
Dirty Price	The total price payable on the purchase of a bond, given by the clean price with an interest accrual adjustment.
Disallowed Expenditure	Expenses charged by a company in arriving at its accounting profit before tax which are not allowable as a deduction when calculating its taxable profits on which its corporation tax charge is based. Examples include entertainment expenditure and depreciation. Note, however, that although a company is not allowed to charge depreciation, it is permitted to charge in its place capital allowances, which is effectively the same thing.
Discount	When a bond is trading at a discount to par, this indicates that its price is lower than its nominal value. When a currency is at a discount in the foreign currency forward markets, this indicates that it is weakening in the forward market relative to the spot market. The forward discount is added to the spot rate quote as a result. See also Backwardation.
Discretionary Fund Management	An investment arrangement where the firm decides when and what investments to invest in within restrictions/objectives outlined by the customer.
Dispersion	Dispersion is the measure of variability or spread of values around a central point of location.
Diversification	The process of holding a range of investments in order to diversify risk, so that if one investment performs badly, this is compensated by better returns from the remainder of the portfolio.
Dividend Yield	An accounting ratio, defined as the dividend per share divided by the share price. Broadly speaking, the lower the dividend yield, the higher the company's share price and the more highly rated the company.
Dividends	Amounts paid to shareholders, usually annually or semi-annually, representing a return on their investment in a company. Preference shares receive a fixed dividend while for equity shares the level of dividend depends on the profitability of the company. Dividends are effectively declared and paid net of 10% income tax.
DJIA	See Dow Jones Industrial Average.
DMO	See Debt Management Office.
Domicile	A legal term, indicating the country to whose legal system an individual is attached. When an individual is domiciled in the United Kingdom, they are liable to pay inheritance tax on their worldwide assets at death. Individuals who are not domiciled in the UK will only be liable to inheritance tax on their UK assets. Most people acquire their domicile at birth, being the domicile of their father. This is referred to as the domicile of origin.
Double Tax Relief	See Overseas Tax Relief.
Double-Dated Stocks	Bonds where the issuer has the option to redeem the stock on or between two specified dates.
Dow Jones Industrial Average	The US equivalent of the FTSE Ordinary Share Index, comprising 30 shares. This is an equally weighted, or unweighted, index.
DTI	See Department of Trade and Industry.
Dual Capacity	The ability of a firm to act either as principal with the customers when trading or to act as agent on behalf of their customers. See also Agent, Principal and Broker-Dealer.
Duration	A measure of a bond's volatility or sensitivity of the bond's price to changes in interest rates. (Defined as the weighted average of the number of years in the bond's life, the weighting factor being the present value of the cash flows in the year discounted at the internal rate of return of the bond's cash flows.)
Earnings Per Share	A measure of a company's profitability from the point of view of equity shareholders. It is defined as earnings attributable to equity shareholders divided by the number of equity shares in issue over the year. See also Earnings.
Earnings Yield	An accounting ratio defined as net earnings per share divided by the share price. Broadly speaking, the lower the earnings yield, the higher the company's share price and the more highly rated the company.
ECP	See Commercial Paper.
EDC	See Electronic Data Capture.
EDSP	See Exchange Delivery Settlement Price.
EEA	European Economic Area. European Union (EU) countries plus Norway, Iceland and Liechtenstein.
EFFAS	See European Federation of Financial Analysts' Societies.
Efficient Market Hypothesis (EMH)	EMH states that markets that can immediately and fully reflect all available information in the market place can be referred to as informationally efficient.
Efficient Portfolio Management (EPM)	The EPM regulations set out the ways in which certain types of unit trust may use derivatives. EPM requires that all derivatives positions of the trust are covered.
EGM	See Extraordinary General Meeting.
Elasticity	Elasticity is the concept that economists use to explain the degree of sensitivity demand exhibits in respect of various factors. The factors include the price of the good, i.e. price elasticity of demand (PED), incomes, i.e. income elasticity of demand (YED) and the price of other goods, i.e. cross elasticity of demand (XED).
Electronic Data Capture	This is the input into CREST of the details of a stock deposit. See Stock Deposit.
Eligible Bills	Bills that the Bank of England is prepared to purchase in the money markets.
EMH	See Efficient Market Hypothesis.
Endowment Policies	Endowment policies combine life insurance and savings. These policies are generally associated with mortgages where the savings element is designed to pay off the capital borrowed at the end of the term of the policy, and the life insurance will repay the mortgage should the policyholder die before the end of that term. See Life Assurance.
Equilibrium	There is one price and one level of output at which supply and demand are in balance. This is the point of equilibrium. At this point and at this price, the amount which consumers are prepared to demand and the amount that the producers supply are in balance.
Equity	See Shareholders' Funds and Equity Shares.
Equity Market Makers	See Market Makers.
Escrow Account	In takeover situations this is a CREST facility that permits dematerialised stock to be transferred on behalf of accepting shareholders into this special account. The stock remains in the name of the holder, but under the control of the receiving agent (Escrow).
ETF	See Exchange-Traded Funds.
ETS	Energy Trading System; the screen trading system used on the International Petroleum Exchange.
EUREX	A European derivatives exchange formed in 1998 by the merger of the Deutsche Terminbrse and SOFEX.
Eurobond	A bond issued outside of the country in whose currency it is denominated. For example, a Eurobond denominated in US dollars is issued outside of the US.
Euroclear	One of the two Eurobond clearing and settlement agencies. The other is Clearstream. It can also be used for settlement of German, French and UK government debt.
Euronext	A European securities and derivatives exchange formed through the merger of the Paris, Amsterdam and Brussels Stock Exchanges and MATIF. They now also own LIFFE.
Euronext.liffe	See LIFFE.
European Economic Area (EEA)	Economic grouping incorporating all European Union states plus Iceland, Liechtenstein and Norway. The Investment Services Directive passport applies to the EEA.
European Federation of Financial Analysts' Societies	The EFFAS has established a permanent commission on performance measurement. The commission is attempting to establish standards that are compatible with both local and global requirements.
European Style Option	An option where the holder has the right to exercise the option only on its expiry date. Contrast to an American style option, where the holder can exercise up to and including the expiry date. See Option.
European Union (EU)	Political and economic grouping of European member states.
Evidential Provision	These are linked to rules and set out circumstances in which the FSA will assume that the rule has been followed or breached.
Exceptional Items	Part of a company's profit and loss account. Items which are material, derived from events or transactions within a company's ordinary activities and which need to be disclosed separately to ensure that the company's accounts give a true and fair view. Contrast with an Extraordinary Item.
Exchange (of Future) for Physical (EFP)	The exchange between two customers of a physical and futures position, which is agreed directly between the two parties outside of the exchange on which the futures are dealt. EFPs are reported to the exchange, and documentary evidence of a physical transfer of goods may be required by the exchange. Also known as Against Actuals on the LIFFE Commodity market.
Exchange Delivery Settlement Price (EDSP)	The price at which futures contracts are settled upon delivery. The EDSP is determined by the exchange, and is often an average of traded prices over a set period.
Exchange-Traded Funds (ETFs)	Shares in an OEIC that can be traded on the London Stock Exchange's ExtraMARK.
Ex-Dividend/Ex-Coupon	The trading status of a bond or share such that the seller of the bond or share retains the right to receive the next interest or dividend payment. The alternative is cum dividend or cum interest, when the purchaser has the right to receive the next interest or dividend payment.
Execution Only	The relationship between a firm and client under which the client merely instructs the firm to buy or sell.
Exempt Legacies and Transfers	Gifts during an individual's life or death, i.e. by means of a will, which, by virtue of the nature of the gift or the recipient, are automatically exempt from inheritance tax. Examples include transfers between spouses, gifts to charities and gifts to political parties. The charity and the political party must be recognised as such by the Inland Revenue.
Exercise	The process by which an option holder takes up his right to buy (call) or sell (put) the asset underlying the option contract.
Exercise Notice	The document sent by the holder of the option to indicate they wish to exercise their rights under the option.
Exercise Price	The price at which an option holder has the right to buy (call) or sell (put) the asset underlying the option contract. The contract specification will set out the exercise price intervals, e.g. 10p intervals. Also known as Strike Price and Strike.
Exercise Style	Defines the date(s) that an option holder has the right to exercise his option. See American Style Option and European Style Option.
Expiry (Date)	The date after which an option can no longer be either exercised or traded. This date will be specified in the contract specification for the product in question.
ExtraMARK	The part of the London Stock Exchange that trades ETFs (shares in OEICs).
Extraordinary General Meeting	Ad hoc shareholders' meetings held by a company for a specific purpose, such as to approve a major transaction. Fourteen calendar days' notice must be given of such a meeting, if only ordinary resolutions are to be discussed. If a special resolution is to be discussed, 21 calendar days' notice is required. The notice period may only be shortened if at least 95% of shareholders agree.
Extraordinary Item	Part of a company's profit and loss account. Items that are material and possess a high degree of abnormality are not expected to recur and are derived from events or transactions outside of the ordinary activities of a company. Note that, because the definition of ordinary activities is extremely wide, it is extremely unlikely that a company will show an extraordinary item in its accounts in any one year. Contrast with an Exceptional Item.
Fair Value	The theoretical price at which a futures or options contract should trade.
Fast Market	A situation where markets are hectic and turbulent such that prices are rapidly changing. As a result, prices quoted on electronic trading systems may not be up to date. In the UK, SEAQ prices become indicative rather than firm during a fast market as a result.
Federal Reserve System	The central banking system of the US, made up of a number of regional Federal Reserve banks that regulate banking activities.
FII	See Franked Investment Income.
Fill	The execution of an order on the derivatives market.
Final Salary Pension Scheme	See Defined Benefits Pension Scheme.
Financial Gearing	See Gearing. For a company, financial gearing is measured either by its Gearing Ratio or by Interest Cover.
Financial Promotion	The regulatory term under FSMA for an advertisement of investments and related services. See also Real-Time Financial Promotions and Non-Real Time Financial Promotions.
Financial Promotions Order	This order contains exemptions from Section 21 of FSMA 2000.
Financial Reporting Council	The body that provides the strategic direction behind the development of Accounting Standards in the UK. It owns two subsidiary companies, the Accounting Standards Board and the Financial Reporting Review Panel, which issue and enforce accounting standards in the UK.
Financial Reporting Review Panel	The body responsible for ensuring that companies in the UK follow accounting standards. See also Accounting Standards Board and Financial Reporting Council.
Financial Reporting Standards (FRS)	See Accounting Standards.
Financial Resources (FR)	A conservative measure of the capital of an authorised firm. The capital adequacy rules require that the financial resources must at all times exceed the financial resources requirement.
Financial Services Act 1986	The original UK legislation relating to the regulation of the financial services industry now replaced by the Financial Services and Markets Act 2000 (FSMA) from 1 December 2001.
Financial Services and Markets Act 2000 (FSMA)	The new principal UK legislation relating to the regulation of the financial services industry. It came into force on 1 December 2001.
Financial Services and Markets Tribunal	Part of the Department for Constitutional Affairs which re-hears cases relating to discipline and authorisation/approval of firms/individuals under FSMA 2000.
Financial Services Authority	Formerly known as the Securities and Investment Board (SIB). The FSA is the single statutory regulator under the Financial Services and Markets Act 2000 and thus the regulator of exchanges, clearing houses, banks, wholesale money markets and other investment businesses.
Financial Services Compensation Scheme	A scheme run by the Financial Services Authority to compensate investors if authorised firms default. The maximum payout by the Financial Services Compensation Scheme for investment activities is 48,000 plus interest per investor.
Financial Statements	Accounts prepared by companies, comprising a balance sheet, profit and loss account, cash flow statement, related notes and other statements required by regulation.
Financial Year	The year for which corporation tax rates apply. It runs from 1 April one year to 31 March next year and is denoted by the year in which it starts. Contrast this with the fiscal year, which is the tax year for income tax and capital gains tax suffered by individuals.
Firm Price	A guaranteed price.
First Notice Day	For futures contracts where notice of delivery can be given by the seller before expiry of the contract, the first day on which such notice can be given.
Fiscal Year	The tax year by reference to which an individual's personal tax liability for income tax and capital gains tax is calculated. It runs from 6 April one year to 5 April the next year and is denoted by both years in which it falls. For example, the fiscal year 2004/2005 starts on 6 April 2004 and ends on 5 April 2005.
Fit and Proper Test	A prerequisite for the authorisation of a business or the approval of an individual. The test involves the FSA scrutinising the competence, reputation and financial integrity of the applicant.
Fixed Assets	Assets acquired for continuing use in the business and not with the intention to resell, e.g. land and buildings, cars, plant and machinery, and fixtures and fittings.
Fixed Charge	See Charges.
Flat Yield	The annual gross coupon on a bond divided by its price and expressed as a percentage. For example, a bond with a 10% coupon and a price of 95 has a flat yield of 10 95 = 10.5%. The flat yield is also known as the income yield or the running yield.
Flex (Contract)	A derivatives contract traded on an exchange where the contract specification allows certain terms of the contract to be negotiated between buyer and seller, unlike a normal standardised derivative contract, where only the price is negotiated. Flexible terms may include maturity, strike price and exercise style of the contract.
Floating Charge	See Charges.
Floating Rate	A rate of interest that varies over time, depending on market rates of interest.
Floating Rate Note (FRN)	A bond that pays a floating rate of interest. The rate of interest payable on the bond will be reset at regular intervals, for example, each three months or six months.
FOF	See Futures and Options Fund.
Forward Currency Transaction	A currency transaction where a rate of exchange is agreed today but delivery occurs on an agreed date in the future. The rate of exchange is known as the forward exchange rate.
Forward Rate	The rate of exchange agreed today for a currency transaction to be settled on an agreed date in the future. The difference between the forward rate and the spot rate is the mathematical result of the difference in interest rates of the two countries concerned.
Forward Rate Agreement (FRA)	An agreement where the counterparties agree to pay or receive the difference between LIBOR on the expiry date of the FRA and the agreed FRA rate. An example of a contract for a difference and thus an investment.
FRA	See Forward Rate Agreement.
Franked Investment Income	Franked investment income is dividends received from a UK company. It does not matter whether the dividend is a preference or ordinary dividend. For a corporate investor, franked investment income is free of any further corporation tax, on the basis that the company paying the dividend must already have paid corporation tax on the underlying profits.
FRC	See Financial Reporting Council.
Free Delivery/Free Payment	A settlement situation whereby one side of the trade is delivered in the absence of the other side, i.e. the free delivery of securities in a bonus issue or the free payment of dividends.
Free Issue	See Bonus Issue.
FRN	See Floating Rate Note.
FRS	See Financial Reporting Standard.
FSA	See Financial Services Authority.
FSA Handbook	A term used to collectively describe all the principles, codes and rulebooks the FSA has issued.
FSA'86	See Financial Services Act 1986.
FSMA 2000	See Financial Services and Markets Act 2000.
FTSE 100	Financial Times Stock Exchange 100 Index - the index containing the top 100 listed shares in the UK. The FTSE 100 is an arithmetic weighted index, weighted by market capitalisation.
FTSE 250	The index containing the second largest 250 listed shares in the UK after the FTSE 100 index.
FTSE 350	The index containing the top 350 listed UK shares. This index is used for calculating the industry baskets, which give average ratios for the companies in each sector.
FTSE All Share Index	The index containing virtually all major listed shares in the UK, comprising some 900 shares.
FTSE Eurotop 100	The index containing the top 100 shares in Europe (including UK).
FTSE Eurotop 300	The index containing the top 300 shares in Europe (including UK).
FTSE Ordinary	The index containing the top 30 shares in the UK. This index is an equally weighted (unweighted or price-relative) index. The index is also geometrically calculated.
Full Listing	See Official Listing.
Fund	A term used to describe a collective investment scheme, which is where investors' monies are pooled together and managed as a single entity with a common investment aim.
Fundamental Accounting Principles	The basic assumptions that all companies must follow when preparing their accounts. When a set of accounts is prepared, it is assumed that these principles have been followed. The fundamental accounting principles are going concern, accruals (also known as matching), consistency, prudence and no netting off. The first two are also known as accounting bedrocks.
Fundamental Analysis	A person who uses fundamental analysis will study the various supply and demand factors affecting prices in a particular market, in order to forecast future price movements in that market. Such factors may include macroeconomic factors, crop reports, shipping conditions, weather forecasts, etc.
Funeral Plan Contracts	An investment whereby a person makes payments during their lifetime to pay for their funeral expenses upon death.
Future	A legal agreement to buy or sell a standard quantity of a specified asset for delivery at a fixed future date at a price agreed today. Futures are traded on futures exchanges, such as Euronext.liffe or the London Metal Exchange. They are available in a range of assets, such as wheat and copper and also on indices, such as the FTSE 100.
Future Value	See Terminal Value.
Futures and Options Fund (FOF)	A type of UK authorised unit trust that is allowed to invest in futures and options within specific criteria. No gearing is allowed in the fund, and it is therefore relatively safe as an investment when compared with a geared futures and options fund (GFOF). See Geared Futures and Options Fund.
Gamma	The rate of change of delta with respect to the price of the underlying. It describes how fast an option's position is becoming increasingly or decreasingly bullish or bearish.
GCM	See General Clearing Member.
GD	Good for the Day, an order type. An order which must be filled during the day, otherwise it is cancelled. Contrast with a GTC (good `til cancelled) order, which if not filled on one trading day, is carried forward indefinitely until it is either filled or cancelled by the investor. Orders are GD unless otherwise specified. See GTC.
GDR	Global depository receipt. See American Depository Receipts.
Geared Futures and Options Fund (GFOF)	A type of UK authorised unit trust that is allowed to invest in futures and options within specific criteria. Limited gearing is allowed in the fund, and therefore returns are likely to be more variable than when compared to a futures and options fund (FOF). See Futures and Options Fund.
Geisha Bond	A Yen bond issued both inside and out of Japan, as opposed to a EuroYen bond (outside Japan) or a domestic Yen bond (inside Japan).
GEMM	See Gilt-Edged Market Maker.
General Clearing Member	A clearing member of a clearing house who has the capacity to clear for the firm, its clients and other investment businesses. Contrast with individual clearing members, who can clear for the firm and its clients only, not for other investment businesses.
General Client Account	A client money bank account for segregated customers. These accounts, unlike designated accounts, may be pooled upon default.
General Prohibition	The requirement that persons carrying out a regulated activity in the UK by way of business must either be authorised by the FSA or granted exemption. This requirement is within Section 19 of FSMA 2000.
GFOF	See Geared Futures and Options Fund.
Gift Aid	An evidenced donation to charity that is an allowable deduction from gross income for income tax.
Gilt-Edged Market Maker	A LSE member firm which is obliged to quote firm two-way prices, i.e. guaranteed prices at which they will buy and sell, for all conventional gilts or all index-linked gilts. The latter is known as an IG GEMM.
Gilt-Edged Stocks	Also known as gilts. Bonds (excluding Treasury bills) issued by the UK government through the Debt Management Office. Capital gains and losses arising on disposal of gilts are exempt from capital gains tax. The two main types are conventional and index-linked gilts.
GIPS	See Global Investment Performance Standards.
Give Ups	See Allocation.
Global Depository Receipts	See American Depository Receipts.
Global Investment Performance Standards	An global standard of fund performance reporting set up by the CFA Institute
GLOBEX	A screen trading system developed by the CME and the quote vendor, Reuters. CME, CBOT and Euronext Paris products trade upon it.
Going Concern	One of the fundamental accounting principles and bedrocks of accounting. It is assumed that a company will continue in operational existence for the foreseeable future.
Goodwill	The difference between the total value of a business and the value of its net assets in its balance sheet. It represents the ability of the business to generate profits and cash in the future.
Grandfathering	The process by which a firm or individual regulated under the FSA 86 has their regulatory status automatically transferred into the new regulatory regime.
Grantor	An LME term for an options writer. See Writer and Taker.
Gratis Issue	See Bonus Issue.
Grey Market	Trading in a bond prior to the formal issue of the bond. Trading is completed on an `if, as and when issued' basis. Settlement takes place when the bond is finally issued.
GRY	See Gross Redemption Yield.
GTC	Good `til cancelled, an order type. An order which, if not filled on the day it was received, is carried forward indefinitely until it is either traded or cancelled by the customer. Contrast with a GD order, where the order must be filled the same day or is cancelled.
Guarantee Fund Contributions	Contributions made to a guarantee fund by the clearing members of a clearing house operating a mutual guarantee. The guarantee fund will be used in the event of a default of a clearing member causing losses, and must be exhausted before the resources of the clearing house are then used.
Guarantee Stock	A bond where the lender's performance of its obligations is guaranteed by a third party. These often arise where a subsidiary company raises external finance and the bond is guaranteed by its holding company.
Guaranteed Fund	A fund that promises to return at least the original sum invested to the investor after a set period (normally 5-7 years), and in addition, further profits if the fund has traded successfully.
Guaranteed Stop	An order type where the investor is guaranteed that the stop order will be filled at the stop level specified and not the prevailing market price when the stop is filled. Such an order involves large risks for the broker, and therefore such orders are rare and incur high charges.
Guidance	This is non-binding elaboration on a rule. The FSA makes guidance via its powers granted under Section 138 of FSMA 2000.
Hang Seng	The major Hong Kong share index, consisting of 33 shares.
Headroom	This equates to the difference between a CREST member's cap, i.e. the credit they have available, and the net CMA balance, i.e. the cash movements from that day's activities.
Hedge	A futures or options transaction motivated by the wish to reduce risk.
Hedger	A person who uses the markets to reduce the risk of his underlying position by undertaking a hedge. For example, a wheat farmer may sell wheat futures (i.e. a short hedge) to guarantee him a fixed selling price for his wheat. Contrast with a Speculator.
Her Majesty's Treasury (HMT)	The government department responsible for implementing the 1986 Financial Services Act and the Financial Services and Markets Act 2000.
High Level Standards	A term used to collectively describe the Principles for Businesses and Statements of Principle and the rest of Block 1 of the FSA Handbook.
High Net Worth Individual	An individual who has been certified by their employer or accountant as having met the criteria for classification as a High Net Worth Individual and consequently may be the recipient of certain types of financial promotions.
High Yielding Bond	Also known as a junk bond. Any bond that is not of investment grade.
Higher Rate of Tax	The higher rate of tax is 40% and is applied to taxable income above the basic rate band. For up to date bands see www.hmrc.gov.uk . For dividend income, it is charged at a rate of 32%. See also Starting Rate of Tax, Basic Rate of Tax and Taxable Income.
Historic Volatility	The volatility of the price of an asset during a past period. This can be used by a trader to forecast future volatility of the price.
Holder	The buyer of an option. Also known as the long. The holder of the option has the right, but not the obligation, to exercise the option. See Option.
Holding Company	A company that controls one or more subsidiary companies in which it owns shares. See also Subsidiary Company.
Horizontal Spread	An option spread where one option is purchased and a different option is sold. The sold option has the same strike price but a different expiry date from the purchased option. The spread will be constructed with either all calls or all puts on the same underlying asset. This spread is sometimes known as a Time Spread or a Calendar Spread.
House	An account or transaction designated for the firm's own purposes, rather than for those of its segregated customers, known also as a principal account or transaction.
Hybrid	A security, such as a convertible debt instrument, that has the main characteristics of a bond and an equity instrument.
ICM	See Individual Clearing Member.
ICO	International Coffee Organisation, a trade organisation active in the coffee markets.
ICVC	See Investment Company with Variable Capital.
IDB	See Inter-Dealer Broker.
Idiosyncratic Risk	See Unsystematic Risk.
IDR	International depository receipt. See American Depository Receipts.
If As and When Issued	See Grey Market.
IFA	See Independent Financial Adviser.
IG GEMM	See Gilt-Edged Market Maker.
ILG	See Index-Linked Gilts.
Illiquid	An investment that is difficult to sell. Unlisted securities and over-the-counter products are relatively illiquid. Contrast with Liquid.
IMA	See Investment Management Association.
Immunisation	Immunisation is the process where it is possible to create a portfolio that will provide an assured return over a specific time horizon irrespective of any changes in the interest rate. Therefore, if we need to match a liability, we should select a bond portfolio with the same duration as the liability it is intended to meet.
Implied Volatility	Associated solely with options, the market's perception as to future volatility can be implied by the input of the market price of an option into the theoretical option pricing model, along with the other known inputs, namely time to expiry, exercise price, underlying asset price and interest rates in order to find the unknown volatility.
IMRO	See Investment Management Regulatory Organisation.
Independence Policy (Policy of Independence)	A written policy used by certain FSA firms to manage conflicts of interest. A policy of independence requires that the firm and its employees disregard the firm's interests. An alternative to a Chinese wall.
Independent Financial Adviser (IFA)	An advisor that offers advice on all the products in the market.
Independent Guarantee	A type of guarantee operated by clearing houses where losses caused by clearing member defaults are covered initially from the defaulting clearing member's assets (if any), and then from the clearing house's own resources. There is no guarantee fund contributed to by the clearing members with this type of guarantee, unlike the mutual guarantee where such a fund exists. See Mutual Guarantee.
Indexation	See Passive Fund Management.
Index-Linked Gilts	Gilts where the coupon payments and capital redemption value are linked to the increase in the retail price index over the period the bond has been in issue. The bigger the increase in the retail price index, the bigger the value of the coupon and the capital value. Designed to give inflation protection to investors.
Indirect Quote	An indirect quote in the foreign currency market is where the quote is expressed in terms of US$1, with the other currency amount varying. For example, the US dollar/Swiss franc quote is indirect. This means that the quote will give the number of francs that $1 will buy or the number of Swiss francs required to buy $1.
Individual Clearing Member	A clearing member of a clearing house who has the capacity to clear for the firm and its clients only. Contrast with General Clearing Members, who can clear for the firm, its clients and other investment businesses.
Individual Savings Account (ISA)	A tax-free savings scheme that allows investors to hold shares and cash free of income and capital gains tax. The maximum contribution is 7,000 per fiscal year. However, the 10% tax credit on dividend income is no longer recoverable.
Inheritance Tax	Tax payable on worldwide chargeable estate of a UK domiciled individual on death.
Initial Capital Requirement	An absolute minimum amount of resources that an FSA firm must exceed when first seeking authorisation.
Initial Margin	The returnable deposit required by clearing houses when opening certain futures and options positions. Initial margin is usually calculated by taking the worst probable one-day loss that the position could sustain, and can be paid in either cash or collateral. See also Margin.
Initial Public Offer (IPO)	A share issue done when a company comes to the market for the first time.
Injunction	A court order that makes certain acts illegal.
Insider Dealing	A criminal offence under the Criminal Justice Act 1993 of acting with price-sensitive information that is not publicly available. The maximum penalty is seven years' imprisonment and an unlimited fine.
Instant Auction	A system of trading used on virt-x, also known as continuous auction or automatic matching. It is an order-driven system where buy and sell orders are instantly matched by the system if the prices at which the buyer and seller are prepared to deal match up.
Intangible Assets	A sub-category of fixed assets in the balance sheet of a company. Fixed assets that are not physical and cannot be touched, e.g. goodwill, brands. Note that not all intangible assets are shown on the balance sheet on the basis that they are too difficult to measure reliably.
Intended Settlement Date	This is the date on which a trade will settle if the stock and the cash are available.
Interest Accrual	Interest earned but not yet paid on a bond. When a bond is sold, the purchaser will have to compensate the seller for interest accrued up to the date of sale. This is achieved by means of adding on an interest accrual to the clean price being quoted in the market, to give the dirty price payable by the purchaser. See also Clean Price and Dirty Price.
Interest Cover	An accounting ratio, measuring the level of a company's profits relative to its interest charge in the profit and loss account. It is usually defined as profits before interest and tax divided by interest charges, but the precise definition will vary depending on the circumstances. The higher the ratio, the less `gearing' a company has. See also Gearing and Gearing Ratio.
Interest Rate Risk	Interest rate risk is the variability in return caused by changes in the level of prevailing interest rates.
Interest Rate Swaps	An agreement to pay or receive a sum of money calculated by reference to the difference between a floating rate of interest and a fixed rate of interest, based on a notional principal sum. This definition relates to a plain vanilla swap, which is the simplest form of interest rate swap available.
Intermarket Spread	A transaction involving the purchase of a future on one asset and the sale of a future in another, usually related, asset. For example, purchasing a Brent crude oil future and selling a gas oil future. Such spreads are entered into in order to profit from a change in the price differential between the two products.
Intermediaries Offer	An issue of shares where intermediaries such as brokers and investment banks apply for shares on behalf of their own client base. A method of issuing shares used by companies which are obtaining a listing of their shares for the first time. See also Offer for Subscription, Offer for Sale, Placing, Introduction and Marketing Operation.
Internal Rate of Return	The internal rate of return is the rate of interest that discounts the investment flows to a net present value of zero.
International Depository Receipts	See American Depository Receipts.
Intraday Margin	If a market suddenly becomes highly volatile, the clearing house may call in additional margin payments at short notice in order to reduce the increased risk it would otherwise suffer. This is known as intraday margin.
Intramarket Spread	A futures spread trade where one delivery month is sold and another bought in the same underlying product. Such a trade is entered into in order to take advantage from an expected change in the price differential between the two delivery months. This could occur, for example, because of short-term supply problems with the near-dated future. See also Borrowing, Carrying and Lending.
Inventories	See Stocks.
Investigation	A formal FSA examination into the activities of a firm or approved person. Firms or individuals involved are normally served with a written `Notice of Investigation' unless the FSA believe the notice would prejudice their investigation.
Investigators	FSA officials responsible for reviewing the compliance with FSA rules by firms and approved persons.
Investment Company with Variable Capital	The regulatory term for open-ended investment companies.
Investment Grade	Bonds that are a high level of credit quality. A bond rated BBB or above by Standard and Poor's and a bond rated Baa or above by Moody's. Any other bond is known as a Junk Bond or High Yielding Bond.
Investment Management	Investment management is the management of an investment portfolio on behalf of a private client or an institution, the receipt and distribution of dividends and all other administrative work in connection with the portfolio.This management may be conducted on either<ul><li>A discretionary basis; orA non-discretionary basis.</li></ul>
Investment Management Association	The Investment Management Association (IMA) represents the UK unit trust and investment management industry.
Investment Management Regulatory Organisation (IMRO)	One of the former self-regulatory organisations for fund managers. Now replaced by the FSA.
Investment Manager	An FSA firm that provides continuing advice to a customer or has discretion over the composition of his portfolio and acts under a discretionary or non-discretionary investment management agreement. See Investment Management.
Invisibles	See Current Account.
Invoice Amount	The amount paid by the buyer to the seller when a future is delivered, the invoice amount is calculated by taking the reference price set by the exchange, known as the exchange delivery settlement price (EDSP), and multiplying it by the number of contracts and the scaling factor, which converts the quotation into the price of one contract. Further adjustments may take place for certain futures, e.g. accrued interest on bond futures.
IOU	An abbreviation (I Owe You) used for any debt instrument.
IPE	See International Petroleum Exchange.
IPO	See Initial Public Offer.
IRR	See Internal Rate of Return.
ISA	See Individual Savings Account.
ISMA	International Securities Market Association; a designated investment exchange responsible for the market place in international securities such as Eurobonds. Trades undertaken are reported into a system known as TRAX. Recognised as a designated investment exchange by the FSA.
Jensen Measure	The Jensen measure calculates the excess return that a portfolio generates over that predicted by CAPM based on the beta of the funds and is also known as Jensen's Alpha.
Junk Bond	Also known as a high yielding bond. Any bond that is not of investment grade.
Kassenvereine	The previous domestic settlement agency for German government bonds. Now the Bund settles through Clearstream and Euroclear.
Kerb	A trading method on the LME when open outcry transactions may occur in all metal futures at the same time. Kerb trading takes place twice a day, at the end of both the first and second trading sessions. Each of the two trading sessions has two rings that immediately precede the kerb trading. See also Ring.
Laspeyre Index	The Laspeyre index is a base-weighted index, i.e. all prices are weighted by the base date quantities.
Last Trading Day	The last day on which a derivatives contract may be traded.
LCH.Clearnet	See London Clearing House.
Lender of Last Resort	A description of the Bank of England, indicating that the Bank is prepared, in the money markets, to provide cash and liquidity to the market by means of repurchasing bills.
Lending	An example of a `carry' which takes place on the LME, this is the sale of near-dated futures and purchases of longer dated futures. On other markets such an intramarket spread trade it is known as `selling the spread'. See also Carrying and Intramarket Spread.
Less Liquid SEAQ Securities	A SEAQ stock with a normal market size of 500 or less. Since these securities have less liquid trading than other SEAQ securities, details of trades done by market makers in such stocks are not normally displayed on SEAQ. This enables the market maker to cover his position in the stock. See also Maximum Publication Level and Block Trades.
Letter of Acceptance	Also known as a letter of allotment. Where an investor applies for shares on a new issue and his application is successful, he will receive a letter of acceptance as evidence of his ownership of the shares in the short term.
Letter of Allotment	See Letter of Acceptance.
Leverage	See Gearing.
Liabilities	Financing provided to a business by third parties other than shareholders. Major examples include trade creditors (suppliers who sell goods to the company on credit) and bank loans and overdrafts. See also Balance Sheet.
LIBID	See London Inter Bank Bid Rate.
LIBOR	See London Inter Bank Offered Rate.
Life Assurance	Life assurance is a form of insurance against an eventuality that is assured to arise, i.e. that people will die. Life assurance policies take a number of forms, including<ul><li>Term assurance policies.Whole of life policies.Endowment policies.</li></ul>
LIFFE (now called Euronext.liffe)	The London International Financial Futures and Options Exchange. A recognised investment exchange and the main derivatives exchange in the UK. Trades derivatives in equities, bonds, interest rates, indices and commodities and is now part of Euronext.
LIFFE CONNECT	The screen-based automated trading order book system for Euronext.liffe products.
LIMEAN	See London Inter Bank Mean Rate.
Limit (Up or Down)	The maximum price advance or decline from the previous day's closing price permitted by exchange rules. See also Price Limit.
Limit or MOC Order	Limit or market on close is a type of order used in the derivatives market. It refers to an order that may be filled at or better than the limit during the trading day, but which if not already traded, must be filled at the prevailing market price during the official closing period.
Limited Liability	See Equity Shares.
Liquidator	The person responsible for winding up a company, converting its assets into cash and distributing those assets to investors according to a legally defined priority, starting with creditors and ending with ordinary shareholders.
Liquidity	Refers to the ease with which an investment may be realised in cash. Cash is the most liquid of all assets, since it can be used to buy any other asset. Investments traded on an RIE or DIE are considered to be more liquid than off-exchange traded products. Contrast with Illiquid.
Listed Company	See Official Listing.
Listing Agent	See Sponsor.
Listing Rules (The)	The rules of the UK Listing Authority to which companies must adhere in order to obtain and keep a listing on a Recognised Investment Exchange. See also Competent Authority.
Lloyd's of London	An insurance market authorised as a regulated activity under the Financial Services and Markets Act 2000.
LME	See London Metal Exchange.
Local	Private trader operating on an exchange floor, whose activities help provide liquidity.
Location	A location measure attempts to indicate a central, long run average value or return achieved. There are four location measures of importance, being arithmetic mean, median, mode, and the geometric mean.
LondonClearing House (LCH) (now called LCH.Clearnet)	A Recognised Clearing House (RCH) under the FSA. Responsible for the clearing and settlement of derivative transactions effected on LIFFE, LME and IPE, and also securities transactions on virt-x. On 26 February 2001, it became the central counterparty to all SETS transactions. See Novation.
LondonGold Fix	The open fixing of a price for gold which takes place twice a day in London.
LondonInter Bank Bid Rate	Known as LIBID. The rate at which leading banks offer to take deposits on the money markets from other leading banks. See also London Inter Bank Offered Rate and London Inter Bank Mean Rate.
LondonInter Bank Mean Rate	Known as LIMEAN. The average of LIBOR and LIBID.
LondonInter Bank Offered Rate