Banking and Stock Glossary
Property charge which stipulates that a certain sum of money is owed to the holder of the land charge (see also § 1191 of the German Civil Code). Land charges are abstract and, unlike mortgages, do not relate to a certain claim. An annuity charge is a type of land charge.
Public register of land records, maintained by the Land Registry of the Local Court responsible for a particular district. It enjoys public trust and may be inspected by anyone who can prove a legitimate interest. The Land Register is subdivided into three sections: details of ownership are set out in the first section, the second section covers the charges and restrictions, and the third section contains the liens on property, such as mortgages, land charges and annuity charges.
According to the Guidelines for securities printing, shares are printed in DIN A4 landscape format, the sole exception being preferred shares, which are printed in portrait format.
Abbreviation for leveraged buy-out
Late index, indicator for the development of prices on the trading floor of the FWB (Frankfurt Stock Exchange) between 5:30 p.m. and 8:00 p.m. This index was introduced so that the German benchmark index can be calculated even after the close of Xetra trading (5:30 p.m.). In its composition, the L-DAX® corresponds exactly to the "original" index DAX® . However, it is based only on the trading floor prices at the Frankfurt Stock Exchange. The late indices (L-DAX®, L-MDAX®, L-SDAX®, L-TecDAX®) serve merely as indicators and not as underlyings for any derivative products such as certificates, warrants, funds, etc.
Banks and financial serivces providers can be admitted as lead brokers in floor trading by the management of the stock exchange. They enter price estimates for the securities allocated to them - these are non-binding likely execution prices provided to market as a guide - and calculate the actual execution prices. The basis for this is the order book in which all current buy and sell orders are pooled. There is only one designated lead broker for each security.
Also called: syndicate leader, bookrunner, global coordinator. The lead manager manages the syndicate in close cooperation with the issuers of the security and takes care of all of the taks that are central to the issue. He is repsonsible for formulating the equity story, marketing the shares to investors, specifying the placement volume and handling the documentation, including the preparations of the sales prospectus and documents for the public offering and exchange listing as well as for the time schedule and the coordination of the involved parties. In practice, the success of the transaction depends to a significant degree on the know-how of the lead manager, which is why this bank handles the largest ratio of the securities to be issued.
Movable or immovalbe goods are leased, or rented so to speak, by a financial institution, called the leasing company, or by the manufacturer of the goods. Leasing is a special form of financing. Instead of a purchase with equity or debt capital financing or a mixture of the two, the rent or lease payment is provided. Possible categorization aspects of leasing can be: period and ability to terminate the leasing contract (financial and operating leasing), the role of the lessor (direct and indirect leasing), type of object being leased (real estate, furniture and staff leasing), etc.
Also referred to as documentary credit. This constututes a contractual obligation on the part of a bank to pay a specific amount of money or to provide some other financial service by order of, for account of and according to the instructions of a customer against the presentation of certain documents and subject to the fulfilment of certain conditions. The legal basis for the letter of credit is the ICC publication "Uniform Customs and Practice for Documentary Credits". The letter of credit is used mainly in international lending business and in goods trade. This form of settlement gives the buyer the certainty that he does not have to pay until the seller has delivered and has proven this by submitting clean documents. The seller has the certainty that he will receive payment after delivering the goods and presenting clean documents.
In connection with options and warrants, leverage is a key figure used to establish in a purely arithmetic manner the number of units that the value of a warrant would rise or fall if the underlier rises or falls by one unit.
Formula: Price of underlier : (subscription ratio x option or warrant price).
The leverage effect describes the potential advantageousness of substituting "expensive" equity capital (e.g. share capital of stock corporations) by "inexpensive" debt capital (e.g. loans) in the financing of investment projects. The resulting possible reduction of overall capital costs can increase the net return on the investment after deducting the costs of capital. It is important to note that taking on an excessive amout of debt capital increases the company's credit risk and raises the interest rate demanded by lenders for their loans. This diminishes the leverage effect.
Key figure widely used to determine the value of warrants and options. A leverage of 3 on a warrant means that a third of what the underlying asset (a share, for instance) costs has to be invested in the warrant in order to arithmetically participate in the same absolute price change. The higher the leverage factor, the greater the leverage effect it creates. In case of a leverage factor of 3 on a warrant combined with a low premium on it, it can generally be assumed that the price of the warrant will rise or fall by roughly the same factor in relation to a change in the underlier.
Formula: current leverage = share price : (warrant price x subscription ratio).
In a leveraged buy-out a company is taken over by outside or company-internal investors. In particular, a takeover by a third-party management team is called a "management buy-in", and by the company's own management a "management buy-out". This kind of company acquisition typically involves the use of only a small amount of equity capital. The major portion of the capital needed to purchase the company is obtained through bank loans and/or the issuing of bonds. Interest and amortization payments are financed through the acquired company's future earnings, but in many cases also through the sale of company units, i.e. from the net asset value.
Financing of a company acquisition carried out by external financial investors, usually with the involvement of the company's management. Leveraged finance typically comprises a very high amount of external debt (leverage) in the purchase price financing, which is serviced exclusively from the acquired company's future cash flow and secured by the company's assets.
The liabilities and shareholders' equity side of the balance sheet lists, under equity and debt capital, the sources of the funds that serve in the financing of the company's (assets) transactions.
Abbreviation for London Interbank Offered Rate
Liens on real property serve as collateral for loan claims and are entered in Section III of the Land Register. The creditor is entitled to settlement of his claims against the lien object. If required, therefore, the owner is obliged to accept foreclosure of his property. The principal types of lien include mortgages and land charges.
Abbreviation for London International Financial Futures and Options Exchange.
For exchange orders, a limit places a restriction on the highest or lowest price. If the exchange price exceeds the limit (for a buy order) or if the exchange price is lower than the limit (for a sell order), the respective order is not executed.
Limit orders have a restriction on their executable prices. The buy or sell order is carried out at the requested price or better. Xetra provides for the entry of stop orders. The system places these orders automatically in the order book as soon as the price of the specified limit is reached and executes the order at the next exchange price. This makes it possible for owners of securities to secure a profit or limit a loss without having to continually monitor the market. See market orders.
The term liquidity can appear in three different contexts:
(1) It refers to the ability of a bank to discharge all of its payment obligations on time. Pursuant to the German Banking Act (KWG), credit institutions must invest their resources in such a way as to guarantee adequate payment reserves at all times. The Federal Minstry of Finance, in consultation with the Deutsche Bundesbank, establishes the principles to assess in general whether a credit institution has sufficient liquidity. A Deposit Protection Fund is there to assist a bank in the event that it experiences liquidity problems.
(2) Liquidity also refers to a market situation in which a security can be bought and sold at any time. A security's liquidity depends on the number of units in circulation and the number of market participants who are willing to buy or sell these units. For liquid securities, there is sufficient supply and demand so that a transaction contract, i.e. the reciprocal buying and selling of a security, is always possible. For less liquid securities, the market maker or designated sponsor ensures additional liquidity by providing quotes of prices at which they are prepared to buy or sell the security.
(3) Furthermore, liquidity refers to the characteristic of being able to quickly convert a means of payment into cash.
Price being paid for securities or currencies on the exchange. When expressed as percent quotations, the listed price is calculated by multiplying the nominal amount with the price and then dividing by 100.
§ 607 of the German Civil Code defines a loan as the handing over of money or other fungible objects, with an obligation on the part of the borrower to repay the loan, or return objects of the same kind, quality and quantity at a later date. Generally speaking, a loan is understood to be a long-term credit.
Measures, agreements or objects intended to secure the repayment of a loan. In Germany a distinction is made between accessory and non-accessory or fiduciary collateral. Accessory (subsidiary) collateral is tied to the principal obligation, for example, guarantees, liens on movable assets and on claims, and mortgages. Non-accessory or fiduciary collateral has no direct legal connection between the scope of the security and the scope of the claim being secured. Examples here are assignments as security, assignments and land charges. Furthermore, a distinction can be made between collateral secured by real property and personal liability.
Difference between the nominal amount of a loan, or other form of debt, and the actual loan amount paid out to the borrower. Net interest is calculated by applying the nominal interest rate to the lower disbursement amount. See: Discount.
The loan-to-value ratio designates that percentage of a collateral asset's market value which a lender is prepared to accept as collateral in a financing transaction. The size of this loan-to-value ratio (expressed in per cent) depends on the nature of the collateral and the lender's risk propensity. In the case of loans secured against real estate, mortgage banks finance 60% of market value, savings and loan associations 80% and commercial banks, as a rule, 80% to 90% of market value. If the customer has a very high credit rating, financings in excess of those percentages are possible.
A Lombard loan is a loan granted by banks against collateral, in particular, securities. The Lombard rate is one of the interest rates set by the central bank, and it is the rate at which banks can obtain short-term liquidity from the central bank by liens on securities. In Germany before 1999, the Lombard rate was set by the Deutsche Bundesbank. It was mostly one percentage point above the discount rate. Upon the transfer of responsibility for monetary policy to the European Central Bank, the interest rate for main refinancing operations (MRO) replaced the Lombard rate.
LIBOR is the reference interest rate set daily as part of the interbank lending business. It is determined on the basis of the interest rates at which banks lend money to each other in the London money market. It serves as a reference rate for floating rate notes, swaps, etc.
Founded in 1982, it is the oldest European exchange for financial futures. In January 2002, Euronext took over LIFFE and changed its name to Euronext.liffe. www.euronext.com
Bonds with longer overall or remaining periods until redemption, usually more than eight years. In contrast to "short bonds", long-term bond prices are more volatile. Investors prefer them, in particular, during phases of falling interest rates in light of the chances of rising prices.
A long position is created through the purchase of a contract or a security. The investor anticipates increasing exchange prices. Opposite: short position
Abbreviation in German for "Landeszentralbank", one of the regional central banks in Germany.
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