Banking and Stock Glossary
Due to their leverage, forward transactions are considered extremly risky investments which, if successful, yield high profits but are also associated with high risks. Banking customers who want to carry out forward transactions must therefore be informed by their bank or broker of the associated risks and subsequently sign a form to that effect. Banks or brokers who fail to comply with the information duty are liable to pay damages to the customer.
See Asset Backed Securities.
A special form of bookbuilding. It is normally structured as a private placement without the publication of a sales prospectus. Placement is restricted to institutional investors. The subscription period only runs for a few days to enable investors to be contacted with regard to subscriptions, but at the same time to avoid any pressure on prices in ongoing market trading. Owing to its speed and flexibility, the procedure is particularly suitable for volatile equities markets.
In practice, the term " acceptance" is used in two different ways:
(1) Drawn bill of exchange which has been accepted by the drawee (the principal debtor). The instructions to pay are thereby joined by an obligation to pay on the part of the drawee. A drawn bill of exchange which has still not been accepted is known as a "draft". A distinction is drawn between various kinds of acceptance: simple and full acceptance, partial acceptance (drawee only undertakes to pay part of the amount stated in the bill of exchange) and acceptance guarantee (additional guarantee by a third party).
(2) Written declaration of acceptance by the drawee.
For debt securities, interest that has accumulated since the last coupon date which the buyer of a fixed-income security must pay to the seller.
Security which is issued at face value but which does not bear regular interest; however, in addition to the capital sum, the repayment amount includes interest and compound interest. Repayment is usually made after an agreed fixed term. The interest rate is determined on the date of issue. A typical accrued interest paper is the Federal Savings Note Type B (Bundesschatzbrief Typ B). The opposite of accrued interest paper is interest discount paper.
Day-count convention according to which interest on loans is calculated on the basis of the exact number of days, with one year being deemed to have 360 days. This method is generally applied in the money market and in the ESCB's monetary policy operations.
Day-count convention according to which interest is calculated on an exact days basis, taking account of the actual number of calendar days in the year. This method is commonly used in the European and US bond market.
According to § 15 Securities Trading Act (Wertpapierhandelsgesetz/WpHG) issuers of financial instruments admitted to trading on the Official Market or on the Regulated Market (but not on the Regulated Unofficial Market) must publish without delay all price-relevant information that directly affects them. The ad hoc disclosure obligation is intended to counteract the abuse of inside information and increase market transparency. The information must be published on an electronically operated information system in widespread use and on the issuer's website. Infringement may be punished with an administrative fine.
The announcement must be made in German. Companies listed in Deutsche Börse's Prime Standard Segment undertake to publish ad hoc announcements in English as well. Before publication, the issuer must first disclose the relevant information to the managements of the organized markets on which the financial instruments or derivatives based on them are listed and to the Federal Financial Supervisory Authority. Under certain conditions, issuers may arrange to be temporarily exempted from the ad hoc disclosure obligation by the Federal Financial Supervisory Authority.
Stock market term for investors or issuers. In terms of creditworthiness, a 'prime address' is classified as first class and, generally speaking, receives finer conditions on the money market or capital market than less highly rated addresses.
Securities are admitted to official trading through submission of an admissions application to the Admissions Office. The application must contain all information relating to the security (amount, type, quantity, dates of maturity) and is made public by posting in the trading room, publication in the respective journal for statutory stock market announcements and publication in the Federal Gazette. A stock exchange prospectus containing all information required to assess the security must be published before each issue of a security. Permission to visit a stock exchange and participate in exchange trading is regulated in the rules and regulations of the respective stock exchange.
See American Depositary Receipt.
German abbreviation for Aktiengesellschaft. See "Joint stock corporation".
German abbreviation for Allgemeine Geschäftsbedingungen. See "General Business Conditions".
Abbreviation for Association of International Bond Dealers, now known as ICMA.
If an issue is oversubscribed, the underwriting bank allocates the securities in consultation with the issuer. This is done either by lottery or according to an allocation formula. The allocation formula generally gives priority to certain target groups preferred by the issuer.
Negotiable share certificates issued by US banks for non-US shares deposited with them. An ADR can be issued for one or several shares or for a fraction of a share. ADRs are traded on stock exchanges in place of the original shares and are quoted in dollars. They serve to simplify transactions in foreign securities in the United States. The ADR can be traded on a US stock exchange without the stock corporation having to complete the SEC's full listing procedure which would otherwise be necessary for a quotation.
Besides the NYSE and NASDAQ, AMEX is the most important equities exchange in the U.S.A. It is domiciled in New York.
Call or put option which can be exercised at any time during its term. The opposite of the American option is the European-style option.
See American Stock Exchange.
The balance sheet and income statement form the annual financial statements according to German commercial law. Depending on the legal form and size of the company, they must be supplemented by notes and where applicable a management report. The annual financial statements are used to establish the financial performance of the completed financial year as well as the company's total assets as of the reporting date. The exact requirements for the annual financial statements are specified by the various national and international regulations. For a German stock corporation, the annual financial statements are drawn up by the management board and audited by a state certified auditing firm as to their appropriateness.
Sum of annual interest and redemption payments. In the case of annuity redemption, this amount is constant over the entire life of the loan, with the capital redemption component increasing annually in line with the reduced interest payment.
Special form of land charge where an annuity - rather than capital - is paid on a periodic basis out of the property. Can be repaid; the amount of the repayment amount is determined when the annuity charge is created and must be entered in the land register.
Stock market expression for a presumption of events in the price development. When the event actually materializes, the price will only be affected minimally, or not at all.
Savings accountholders can be exempted from direct payment of capital gains tax up to a certain legally prescribed limit. To do so, they only need to file an exemption application with their bank. If they fail to do so, or if the admissible ceiling is exceeded, persons receiving interest income, for instance, must wait until they file their income tax statement to apply for reimbursement of the tax paid in advance.
Transaction entailing the risk-free exploitation of differences between the prices of or interest rates on identical assets at different trading centres at any given point in time by purchasing in markets with low prices and selling in markets with high prices. Depending on the type of asset traded, a distinction is drawn between foreign exchange, specie, securities, bill, precious metals and commodities arbitrage.
Manager of a consortium in loan syndications and securities issues. The arranger is responsible for documentation and the placement mechanism. He can be compared with the lead manager of an international bond issue.
See American Stock Exchange.
Option where the strike price is not fixed in advance, but is determined, for example, on the basis of the mean market prices of the underlying over a specific period.
Price at which a market participant is prepared to sell a security. The opposite is bid. See "selling rate".
In securities trading, this term is generally understood to mean the quoted price at which a market participant is prepared to sell a security. The opposite is "bid". If no sale takes place at this price, the letter "B" (stands for "Brief" = ask) is placed after the price. The security was offered for sale, but found no buyers at the quoted price.
Every transaction involving securities collateralized by debts is based on a triangular structure involving an originator (party selling the debt), a special purpose vehicle (SPV) and the investor. If a bank acts as originator with its own loan receivables (e.g. amounts receivable under mortgage loans, consumer loans) its first step is to bundle suitable loans in a "debt pool" and then sell them to an SPV. If this sale is on-balance-sheet, it is referred to as a "true sale". In return, the originator receives the value of the debts in cash. The SPV, in turn, refinances the purchase through the (public or private) placement of securities on the capital market. The coupon and redemption payments to investors are funded by the restructured interest and redemption payments made by the original borrowers. The SPV is formed for the sole purpose of securitizing these debts and its only asset is the risk from this diversified debt pool.
The advantage for the originator lies primarily in the fact that he receives cash and can now invest it at a profit, e.g. by investing in products offering a higher return. He can also wind down his liabilities. This reduces his balance sheet and increases his capital adequacy ratio. With a true sale, the originator also improves his rating and thereby obtains better refinancing conditions. The capital costs of an investment funded by ABS are lower compared with traditional debt finance because the default risk is transferred to the SPV when the debts are sold. This risk transfer thereby reduces the regulatory capital backing requirement. Depending on the debtor, the bank has to provide less or no liable equity capital for the sold loans.
Assets are all the items of value owned by or owed to a company and are set out in the balance sheet in relation to the firm's obligations (liabilities). The assets inform the reader how the capital invested in the company has been used.
Assets are all the items of value owned by or owed to a company and are set out in the balance sheet in relation to the firm's obligations (liabilities). The assets inform the reader how the capital invested in the company has been used.
Banking activities involving the assets side of a bank's balance sheet, in particular amounts due from banks and customers (e.g. loans).
A form of loan collateral similar to a guarantee but not expressly regulated by law. Loans can be secured by assigning claims and other rights of the borrower to the lending bank. In addition, a claim the borrower has on a third party can be assigned to the bank through a deed. This deed of assignment is made between the creditor of this claim, known as the assignor, and the bank or another secured party, known as the assignee, without the participation of the debtor of the claim. The deed is valid in informal form. In addition to this silent assignment, there is an open assignment in which the third party debtor is informed about the assignment. A distinction is also made between the assignment of individual claims and a blanket or global assignment. While, in the case of a blanket assignment, the borrower assigns different outstanding debts, yet future claims are only deemed to be assigned once these claims have been submitted to the bank, in the case of global assignments, all current and future claims on specific third party debtors are assigned, and thus deemed to be assigned as soon as they arise.
Contractual transfer of a claim from one creditor to another. The new creditor (assignee) takes the place of the former creditor (assignor). In banking business, claims are often assigned as a means of securing loans.
An order with no limit to sell securities at the best price offered. The sale must be completed under all circumstances. Opposite: Cheapest.
Abbreviation for automated teller machines (or cash dispensers). With their bank card or credit card in connection with the personal identification number (PIN), customers can access cash at ATMs around the world.
This term refers to the situation where the exercise price of an option or warrant is close to the current spot price of the underlying asset. The intrinsic value of this option or warrant is therefore almost zero.
This term refers to the situation where the exercise price of an option or warrant is close to the current spot price of the underlying asset. The intrinsic value of this option or warrant is therefore almost zero.
Auction-like public bid procedure for the issue of securities where the bidder submitting the highest bid wins the auction. There is no fixed issue price, subscribers are only given a minimum price. Depending on their interest, subscribers can submit higher bids. Securities are allotted starting from the highest to the lowest bid. A distinction is made between fixed rate tenders and variable rate tenders.
Automatic ascertainment and notification of a possible positive intrinsic value to the holder of the warrant on the exercise day (American-style) or on the last day of the exercise period (European-style). Automatic exercise only occurs if it is provided for in the option conditions.
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