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Active ManagementA type of investment approach employed to generate returns in excess of the market.
Additional Rate (of Income Tax)Tax on top band of income, currently 45%.
Alternative Investment Market (AIM)Established by the London Stock Exchange. It is the junior market for smaller company shares.
Annual Equivalent Rate (AER)The annualised compound rate of interest applied to a cash deposit or to a loan. Also known as the Annual Effective Rate or Effective Annual Rate.
Annual General Meeting (AGM)Yearly meeting of shareholders. Mainly used to vote on dividends, appoint directors and approve financial statements.
Approved PersonsEmployees in controlled functions, who must be approved by the regulator.
Articles of AssociationThe legal document which sets out the internal constitution of a company. Included within the Articles will be details of shareholder voting rights and company borrowing powers.
AuthorisationRequired status under FSMA for firms that wish to provide financial services.
Authorised Corporate Director (ACD)Fund manager for an OEIC.
Authorised Unit Trust (AUT)Unit trust which is freely marketable. Authorised by the FCA.
Balance of PaymentsA summary of all the transactions between a country and the rest of the world. The difference between a country’s imports and exports.
Bank of England (BoE)The UK’s central bank. Implements economic policy decided by the Treasury and determines interest rates.
Basic Rate (of Income Tax)Rate of tax charged on income that is below the higher-rate tax threshold.
BeneficiariesThe beneficial owners of trust property, or those who inherit under a will.
Bid PricePrice at which dealers buy stock. It is also the price quoted by unit trusts that are dual-priced for sales of units.
BondsInterest-bearing securities which entitle holders to annual interest and repayment at maturity. Commonly issued by both companies and governments.
Bonus IssueA free issue of shares to existing shareholders. No money is paid. The share price falls pro rata. Also known as a capitalisation or scrip issue.
CAC 40Index of the prices of 40 major French company shares.
Call OptionOption giving its buyer the right to buy an asset at an agreed price.
Capital Gains Tax (CGT)Tax payable by individuals on profit made on the disposal of certain assets.
Central BankCentral banks typically have responsibility for setting a nation’s or a region’s short-term interest rate, controlling the money supply, acting as banker and lender of last resort to the banking system and managing the national debt.
CertificatedOwnership (of shares) designated by certificate.
Certificates of Deposit (CDs)Certificates issued by a bank as evidence that interest-bearing funds have been deposited with it. CDs are traded within the money market.
Closed-EndedOrganisations such as companies which are a fixed size as determined by their share capital. Commonly used to distinguish investment trusts (closed-ended) from unit trusts and OEICs (open- ended).
ClosingReversing an original future position by, for example, selling what you have previously bought.
Commercial Paper (CP)Money market instrument issued by large corporates.
CommissionCharges for acting as agent or broker.
CommodityItems including sugar, wheat, oil and copper. Derivatives of commodities are traded on exchanges (eg, oil futures on ICE Futures).
ContractA standard unit of trading in derivatives.
Controlled FunctionsJob roles which require the employee to be approved by the FCA. There are groups of controlled functions, including significant influence functions, customer functions and LIBOR functions.
Convertible BondA bond that is convertible, at the investor’s choice, into the same company’s shares.
CouponAmount of interest paid on a bond.
Credit CreationExpansion of loans which increases the money supply.
CRESTElectronic settlement system used to hold stock and settle transactions for UK and Irish shares.
Debt Management Office (DMO)The agency responsible for issuing gilts on behalf of the Treasury.
Dematerialised (Form)System where securities are held electronically without certificates.
DerivativesOptions, futures and swaps. Their price is derived from an underlying asset.
Dilution LevyAn additional charge levied on investors buying or selling units in a single-priced fund to offset any potential effect that large purchases or sales can have on the value of the fund.
DiversificationInvestment strategy of spreading risk by investing in a range of investments.
DividendDistribution of profits by a company.
Dividend YieldMost recent dividend expressed as a percentage of current share price.
Dow Jones Industrial Average (DJIA)Major share index in the USA, based on the prices of 30 major company shares.
Dual PricingSystem in which a unit trust manager quotes two prices at which investors can sell and buy.
Economic CycleThe course an economy conventionally takes as economic growth fluctuates over time. Also known as the business cycle.
Economic GrowthThe growth of GDP expressed in real terms, usually over the course of a calendar year. Often used as a barometer of an economy’s health.
Effective Annual RateThe annualised compound rate of interest applied to a cash deposit or loan. Also known as the Annual Equivalent Rate (AER).
EquityAnother name for shares. Can also be used to refer to the amount by which the value of a house exceeds any mortgage or borrowings secured on it.
EurobondAn interest-bearing security issued internationally.
EuronextEuropean stock exchange network formed by the merger of the Paris, Brussels, Amsterdam and (later) Lisbon exchanges.
European Securities and Markets Authority (ESMA)Responsible for drafting, implementing and monitoring EU financial regulation.
ExchangeMarketplace for trading investments.
Exchange RateThe rate at which one currency can be exchanged for another.
Exchange-Traded Fund (ETF)Type of collective investment scheme that is open-ended but traded on an investment exchange, rather than directly with the fund’s managers.
Ex-Dividend (xd)The period during which the purchase of shares or bonds (on which a dividend or coupon pay- ment has been declared) does not entitle the new holder to this next dividend or interest payment.
Exercise PriceThe price at which the right conferred by an option can be exercised by the holder against the writer.
Financial Conduct Authority (FCA)One of the bodies that replaced the FSA in 2013 and which is responsible for regulation of conduct in retail, as well as wholesale, financial markets and the infrastructure that supports those markets.
Financial Services and Markets Act 2000 (FSMA)Legislation which provides the framework for regulating financial services.
Fiscal PolicyThe use of government spending, taxation and borrowing policies to either boost or restrain domestic demand in the economy so as to maintain full employment and price stability.
Fit and ProperFSMA 2000 requires that every firm conducting financial services business must be ‘fit and proper’.
Fixed-Interest SecurityA tradable negotiable instrument, issued by a borrower for a fixed term, during which a regular and predetermined fixed rate of interest, based upon a nominal value, is paid to the holder until it is redeemed and the principal is repaid.
Floating Rate Notes (FRNs)Debt securities issued with a coupon periodically referenced to a benchmark interest rate, such as LIBOR.
ForwardA derivatives contract that creates a legally binding obligation between two parties for one to buy and the other to sell a prespecified amount of an asset at a prespecified price on a prespecified future date. As individually negotiated contracts, forwards are not traded on a derivatives exchange.
Forward Exchange RateAn exchange rate set today, embodied in a forward contract, that will apply to a foreign exchange transaction at some prespecified point in the future.
FTSE 100Main UK share index of 100 leading shares (‘Footsie’).
FTSE 250UK share index based on the 250 shares immediately below the top 100.
FTSE 350Index combining the FTSE 100 and FTSE 250 indices.
FTSE All Share IndexIndex comprising around 98% of UK-listed shares by value.
Full ListingThose public limited companies (plcs) admitted to the London Stock Exchange’s (LSE) official list. Companies seeking a full listing on the LSE must satisfy the UK Listing Authority’s (UKLA) stringent listing requirements and continuing obligations once listed.
Fund ManagerFirm that invests money on behalf of clients.
Fund SupermarketAn internet-based service that provides a convenient way of investing in collective investment funds by allowing a variety of funds to be purchased from a number of different management groups in one place.
FutureAn agreement to buy or sell an item at a future date, at a price agreed today. Differs from a forward in that it is a standardised amount and, therefore, the contract can be traded on an exchange.
General Data Protection Regulation (GDPR)EU-wide regulations which came into effect in May 2018, replacing the Data Protection Act 1988. The regulations cover the principles of the protection of an individual’s data that firms have to adhere to.
Gilt-Edged Stock (Gilt)UK government bond.
Gross Domestic Product (GDP)A measure of a country’s output.
Harmonised Index of Consumer Prices (HICP)Standard measurement of inflation throughout the European Union.
HedgingA technique employed to reduce the impact of adverse price movements in financial assets held. Often uses derivatives to achieve this aim.
Higher Rate (of Income Tax)Tax on the band of income above the basic rate and below the additional rate, currently 40%.
HolderInvestor who buys put or call options.
Independent Financial Adviser (IFA)A financial adviser who is not tied to the products of any one product provider and is duty-bound to give clients best advice and offer them the option of paying for advice. IFAs must establish the financial planning needs of their clients through a personal fact-find, and satisfy these needs with the most appropriate products offered in the marketplace.
Individual Savings Account (ISA)Accounts that benefit from tax advantages and which can hold cash and stocks and shares.
InflationAn increase in the general level of prices.
Inheritance Tax (IHT)Tax on the value of an estate when a person dies.
Initial Public Offering (IPO)A new issue of ordinary shares, whether made by an offer for sale, an offer for subscription or a placing. Also known as a new issue.
Insider DealingCriminal offence by people with unpublished price-sensitive information who deal, advise others to deal or pass the information on.
IntegrationThird stage of money laundering.
Intercontinental Exchange (ICE)ICE operates regulated global futures exchanges and over-the-counter (OTC) markets for agricultural, energy, equity index and currency contracts, as well as credit derivatives. ICE conducts its energy futures markets through ICE Futures Europe, which is based in London, and also owns LIFFE.
Investment BankBusiness that specialises in raising debt and equity for companies.
Investment Company with Variable Capital (ICVC)Alternative term for an OEIC.
Investment TrustA company, not a trust, which invests in a diversified range of investments.
LayeringSecond stage in money laundering.
LIFFEThe UK’s principal derivatives exchange for trading financial and soft commodity derivatives products. Owned by Intercontinental Exchange (ICE).
LiquidityThe ease with which an item can be traded on the market. Liquid markets are described as deep.
Liquidity RiskThe risk that shares may be difficult to sell at a reasonable price.
ListingCompanies whose securities are listed on the London Stock Exchange and available to be traded.
Lloyd’s of LondonThe world’s largest insurance market.
Loan StockA corporate bond issued in the domestic bond market without any underlying collateral, or security.
London InterBank Offered Rate (LIBOR)A benchmark money market interest rate.
London Metal Exchange (LME)The market for trading in derivatives of certain metals, such as copper, zinc and aluminium.
London Stock Exchange (LSE)The main UK market for securities.
Long PositionThe position following the purchase of a security or buying a derivative.
MarketAll exchanges are markets – electronic or physical meeting places where assets are bought or sold.
Market CapitalisationTotal market value of a company’s shares. The share price multiplied by the number of shares in issue.
Market MakerAn LSE member firm which is obliged to offer to buy and sell securities in which it is registered throughout the mandatory quote period. In return for providing this liquidity to the market, it can make its profits through the differences at which it buys and sells.
MaturityDate when the capital on a bond is repaid.
Memorandum of AssociationThe legal document that principally defines a company’s powers, or objects, and its relationship with the outside world.
MergerThe combining of two or more companies into one new entity.
Markets in Financial Instruments Directive (MiFID)The directive that introduced European-wide rules and regulations regarding the conduct of business and which enables the passporting of investment services across member states.
Mixed EconomyEconomy which works through a combination of market forces and government involvement.
Monetary PolicyThe setting of short-term interest rates by a central bank in order to manage domestic demand and achieve price stability in the economy.
Monetary Policy Committee (MPC)Committee run by the Bank of England which sets interest rates.
Multilateral Trading Facilities (MTFs)Systems that bring together multiple parties that are interested in buying and selling financial instruments including shares, bonds and derivatives.
Mutual FundA type of collective investment scheme found in the US.
NamesParticipants at Lloyd’s of London who form syndicates to write insurance business. Both individuals and companies can be names.
NASDAQNational Association of Securities Dealers Automated Quotations. US market specialising in the shares of technology companies.
NASDAQ CompositeNASDAQ stock index.
National DebtA government’s total outstanding borrowing resulting from financing successive budget deficits, mainly through the issue of government- backed securities.
National Savings and Investments (NS&I)Government agency that provides investment products for the retail market.
Nikkei 225The main Japanese share index.
Nominal ValueThe amount of a bond that will be repaid on maturity. Also known as face or par value.
Nominated Adviser (NOMAD)Firm which advises AIM companies on their regulatory responsibilities.
Offer PricePrice at which dealers sell stock. It is also the price quoted by unit trusts that are dual-priced for purchases of units.
OpenTo initiate a transaction, eg, an opening purchase or sale of a future. Normally reversed by a closing transaction.
Open EconomyCountry with no restrictions on trading with other countries.
Open-EndedType of investment such as OEICs or unit trusts which can expand without limit.
Open-Ended Investment Company (OEIC)Collective investment vehicle similar to a unit trust. Alternatively described as an ICVC (Investment Company with Variable Capital).
Open OutcryTrading system used by some derivatives exchanges. Participants stand on the floor of the exchange and call out transactions they would like to undertake.
OptionA derivative giving the buyer the right, but not the obligation, to buy or sell an asset.
Over-the-Counter (OTC) DerivativesDerivatives that are not traded on a derivatives exchange, owing to their non-standardised contract specifications.
Passive ManagementAn investment approach that aims to track the performance of a stock market index. Employed in those securities markets that are believed to be price-efficient.
Personal AllowanceAmount of income that each person can earn each year tax-free.
PlacementFirst stage of money laundering.
PlatformPlatforms are online services such as fund supermarkets and wraps that are used by intermediaries to view and administer their investment clients’ portfolios.
Preference ShareShares which pay fixed dividends. Do not have voting rights, but do have priority over ordinary shares in default situations.
PremiumThe amount of cash paid by the holder of an option to the writer in exchange for conferring a right.
Premium BondNational Savings & Investments bonds that pay prizes each month. Winnings are tax-free.
Primary MarketThe function of a stock exchange in bringing new securities to the market and raising funds.
ProtectionismThe economic policy of restraining trade between countries by imposing methods such as tariffs and quotas on imported goods.
ProxyAppointee who votes on a shareholder’s behalf at company meetings.
Prudential RegulationPrudential regulation rules require financial firms to hold sufficient capital and have adequate risk controls in place.
Prudential Regulation Authority (PRA)The UK body that is responsible for prudential regulation of all deposit-taking institutions, insurers and investment banks.
Public Sector Net Cash Requirement (PSNCR)Borrowing needed to meet the shortfall of government revenue compared to government expenditure.
Put OptionOption where buyer has the right to sell an asset.
Quote-DrivenDealing system driven by securities firms who quote buying and selling prices.
Real Estate Investment Trust (REIT)An investment trust that specialises in investing in commercial property.
RedemptionThe repayment of principal to the holder of a redeemable security.
Redemption YieldA measure that incorporates both the income and capital return – assuming the investor holds the bond until its maturity – into one figure.
RegistrarThe official of a company who maintains the share register.
ResolutionProposal on which shareholders vote.
Resolution (Banking)Resolution is the process by which the Bank of England can step in to make sure that a bank which is failing does so in an orderly way. They also work with banks to draw up plans for how they could be dealt with if they failed.
Retail BankOrganisation that provides banking facilities to individuals and small/medium businesses.
Retail Prices Index (RPI)Index that measures the movement of prices.
Rights IssueThe issue of new ordinary shares to a company’s shareholders in proportion to each shareholder’s existing shareholding, usually at a price deeply discounted to that prevailing in the market.
Robo-AdviceThe application of technology to the process of providing financial advice but without the involvement of a financial adviser.
Secondary MarketMarketplace for trading in existing securities.
SecuritiesBonds and equities.
SettlorThe creator of a trust.
Senior ManagersIndividuals holding certain positions that require approval from the regulators.
Share CapitalThe nominal value of a company’s equity or ordinary shares. A company’s authorised share capital is the nominal value of equity the company may issue, while issued share capital is that which the company has issued. The term share capital is often extended to include a company’s preference shares.
Short PositionThe position following the sale of a security not owned, or selling a derivative.
Société d’Investissement à Capital Variable (SICAV)Type of European collective investment scheme that is open-ended.
Single PricingRefers to the use of the mid-market prices of the underlying assets to produce a single price for units/shares in collective investment schemes.
Special ResolutionProposal put to shareholders requiring 75% of the votes cast.
Stock Exchange Electronic Trading Service (SETS)LSE’s electronic order-driven trading system.
Stock Exchange Electronic Trading Service – quotes and crosses (SETSqx)A trading platform for securities less liquid than those traded on SETS. It combines a periodic electronic auction book with stand-alone quote- driven market making.
STRIPSThe principal and interest payments of those designated gilts that can be separately traded as zero coupon bonds (ZCBs). STRIPS is the acronym for Separate Trading of Registered Interest and Principal of Securities.
SwapAn over-the-counter (OTC) derivative whereby two parties exchange a series of periodic payments based on a notional principal amount over an agreed term. Swaps can take the form of interest rate swaps, currency swaps or equity swaps.
SyndicateLloyd’s names joining together to write insurance.
T+2The two-day rolling settlement period over which all certificated deals executed on the London Stock Exchange’s (LSE) SETS are settled.
TakeoverWhen one company buys more than 50% of the shares of another.
Third-Party Administrator (TPA)A firm that specialises in undertaking investment administration for other firms.
TreasuryGovernment department ultimately responsible for the regulation of the financial services sector.
SpreadDifference between a buying (bid) and selling (ask or offer) price.
Stamp DutyTax at 1⁄2% on the purchase of certain assets including certificated securities.
Stamp Duty Land Tax (SDLT)Tax charged on the purchase of properties and land above a certain value.
Stamp Duty Reserve Tax (SDRT)Stamp duty levied at 1⁄2% on purchase of dematerialised equities.
State-Controlled EconomyCountry where all economic activity is controlled by the state.
Stock Exchange Automated Quotations (SEAQ)LSE screen display system where market makers display the prices at which they are willing to deal. Used mainly for fixed-income stocks and small cap shares.
Treasury BillsShort-term (usually 90-day) borrowings of the UK Government. Issued at a discount to the nominal value at which they will mature. Traded in the money market.
TrusteesThe legal owners of trust property who owe a duty of skill and care to the trust’s beneficiaries.
Two-Way PricePrices quoted by a market maker at which they are willing to buy (bid) and sell (offer).
UnderlyingAsset from which a derivative is derived.
Unit TrustA system whereby money from investors is pooled together and invested collectively on their behalf into an open-ended trust.
WrapA type of fund platform that enables advisers to take a holistic view of the various assets that a client has in a variety of accounts.
WriterParty selling an option. The writers receive premiums in exchange for taking the risk of being exercised against.
Xetra DAXGerman shares index, comprising 30 shares.
YieldIncome from an investment as a percentage of the current price.
Zero Coupon Bond (ZCB)Bonds issued at a discount to their nominal value that do not pay a coupon but which are redeemed at par on a prespecified future date.

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