Alternative Investment Market (AIM)
The second tier or junior market, established by the London Stock Exchange in 1995, to provide trading facilities in the shares of smaller companies.
Something that has earning potential or value, such as property.
The settlement, processing and accounting departments of a bank or broking firm. Now more usually referred to as Operations.
British Bankers Association. A leading trade association for the UK banking and financial services sector.
A marketable debt instrument issued by a company or a government. An alternative name for fixed interest securities.
Markets in which companies trade stocks and bonds. These are used to raise funds.
Goods which are exchanged during commerce, such as gold or grain. Commodities are interchangeable with other commodities of the same type, regardless of the producer. When traded on an exchange, commodities must meet minimum standards, known as a ‘basis grade’.
An individual or a firm that acts as principal in all transactions, buying for his or its own account.
A financial instrument whose value is dependent upon the value of an underlying asset.
The release of information about a company to the public. Full disclosure means to release both positive and negative information so as to not mislead potential investors.
The distribution of profits made by a company to its shareholders, if it chooses to do so.
A common term to describe stocks or shares.
Equity Capital/Share capital
Money staked by the owners of a company by purchasing ordinary shares. This is used to get companies off the ground. The value of equity capital is calculated by the current market values of everything owned by the company.
European Central Bank
One of the world’s most important central banks, the European Central Bank (ECB) was established in 1998 and is based in Frankfurt, Germany. The ECB administers the monetary policy of the Eurozone member states with the aim of keeping inflation low and preventing deflation.
A place where stocks and shares are bought or sold.
The rate at which one currency trades against another.
Financial Services Authority (FSA)
A body created by the Financial Services and Markets Act 2000 to regulate the financial services industry in the UK. The FSA is appointed by the Treasury, but operates independently of government.
Fast growing, new companies challenging large traditional banking organisations. These companies focus on customer experience; offering effective and fast solutions to their problems.
A type of investment whereby issuers (borrowers) must make fixed payments on a fixed schedule. If an issuer misses a payment on a fixed income security, they are in default, and can be forced into bankruptcy. This can be contrasted with Equity securities, where there’s no obligation to pay dividends, and no default if a payment is missed.
The term used for the trading or dealing room.
The FTSE 100 index is a widely used measure of business prosperity. FTSE 100 companies are the top 100 companies listed on the London Stock Exchange with the highest total value of shares.
An individual or specialist company responsible for investing the assets of a fund in such a way as to maximise its value. The fund manager does this by following a strategy to buy and sell equities and other financial instruments.
A contract which legally obliges the buyer to buy an asset at a set date in the future at a set price. These are used to hedge, by reducing the risk of an asset by locking in its price.
Global Systemically Important Financial Institutions. A list of banks decided upon by international regulatory bodies ‘whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity’. In essence, this means they are ‘too big to fail’.
A company which is judged able to continue trading without the risk of insolvency in the foreseeable future.
An investment fund established to allow investors to transfer risk, either by offsetting it or taking an extra risk in return for expected higher returns. Hedge funds are not open to the public; only certain types of investors, such as institutions and pensions funds are deemed to have the necessary knowledge to undertake the risk.
Products are things that are sold within the financial services industry, such as services (like financial planning) shares, stocks or bonds. Hybrid products are a combination of two or more types of financial products – for example, combining annuities and long-term care insurance.
A persistent rise in prices in an economy.
The charge for money borrowed, calculated as a percentage of the capital that has been loaned.
Any product in which money is spent with the aim of receiving more money back at a later date. The Financial Services Market Act 2000 defines it in terms of specified activities, which are regulated by the Act.
A company whose sole business is buying, selling and holding shares.
Investors Compensation Scheme
A scheme run by the FSA to compensate private customers in the event of the default of the authorised investment business through whom they invested.
Initial public offering – otherwise known as a Stock Market Launch, this is the first sale of stock by a private company to the public. IPOs are used to raise capital, often by small companies to fund expansion. All money invested in newly issues shares goes straight to the company.
Key indicators, or Key Performance Indicators (KPI) are the measures a company uses for determining if it’s reaching its goals- for example sales figures.
London Interbank Offered Rate. This is an interest rate at which banks can borrow from other banks in London. It’s fixed every day by the BBA, and is used as a benchmark for short-term interest rates.
Assets that can be quickly ‘liquidated’ or converted into cash without losing much value.
When a company issues stock, insiders from the company and underwriters agree on a lock-up agreement to prevent insiders from selling their stock for a specified period of time, normally six months. This ensures more stability for the issuing company.
Whilst traditionally separate from Investment Banking, there is often an overlap. Merchant banks deal in international finance, long-term loans and underwriting. Merchant banks place private equity – put money into companies that are not publicly traded, often in exchange for full or part ownership.
Mergers and Acquisitions (M&A)
A division of securities houses, merchant banks and investment banks responsible for advising on takeover activity. Usually it works with the corporate finance department and the two departments are often regarded internally as a single unit.
Moody’s Investors Services
One of the Big Three credit rating agencies alongside Standard & Poor’s and Fitch Group, Moody’s is a bond credit rating business, giving debt securities a credit rating from ‘AAA’ to ‘C’ to indicate the level of credit risk.
A contract offering the right to buy or sell a specific product at a specified fixed price. This is known as the strike price. Call options offer the right to buy, whilst Put options offer the right to sell. Traders use options to speculate, hoping that the stock of the product will go up for call options, or down in the case of put options.
Dealing in stocks, bonds, currencies and commodities with the bank’s own money rather than client’s money, in order to make direct profit for the bank.
Quantitative Easing (QE)
The introduction of new money into the money supply by a central bank in order to stimulate the economy and increase lending. The central bank will purchase assets from the market, thereby injecting money into those financial institutions. This has the effect of lowering the yield of the assets bought by raising their price.
A proposed banking reform which separates retail banking operations from investment and wholesale banking functions. The aim is to protect personal and small and medium-sized enterprises’ deposits and overdrafts from the riskier sides of banking.
Return on Equity: this measures how profitable a company is making by showing net income as a percentage of the money shareholders have invested.
Financial instruments (any tradeable assets): generally equities.
The shadow banking system is the collection of institutions that provide banking services but do not hold a banking license and therefore don’t take deposits from the public. This includes hedge funds and money markets funds. These institutions are still subject to the same regulation as the rest of the finance industry.
The unit of ownership of a company. The equal parts into which a company’s capital (assets) is divided.
Mechanisms set up by governments or central banks to achieve economic stability in domestic markets, for example to maintain to protect revenue from large commodity price fluctuations and avoid inflation.
Syndicates are an association of individuals or firms temporarily formed in order to undertake a specific duty. In banking & investment terms, syndicates are formed in order to handle large transactions, in order to pool resources and share risks.
Also known as ‘the pit’, the trading floor is where trading activities take place, i.e. the buying and selling of assets. These can be found in a stock exchanges such as the London Stock Exchange, brokerages or investment banks. As trading has become more electronically based, physical trading floors have started to disappear.
Standing for ‘Undertakings for Collective Investments in Transferable Securities’, UCITS is the European regulatory framework for a collective investment that can be marketed in all EU countries.
User experience specialists make sure customer satisfaction is high by improving the ease of use and effectiveness of a product.
Wholesale banks provide services between other banks and large companies, services such as cash management, large loans and currency conversion. Wholesale banks generally deal with larger companies and institutions, whilst retail banking caters to individuals and smaller companies.