Asset Backed Securities are a type of bond or note issue that is backed by a pool of (usually) private underlying assets. The pooling of these cash flows and their division into tranches make them accessible to investors.
Asset and Liability Management. A risk management technique designed to help a bank maintain a comfortable surplus of revenues from its investments beyond its financing needs. ALM usually focuses on a bank's interest rate risk. For a more comprehensive explanation, see this comprehensive article from Glyn Holton's Web site
Coefficient used to gauge the performance of an investment in relation to the risk assumed, measured by its beta.
A trading approach which strives to take advantage of price gaps between different stock-market exchanges or between assets that are similar or of the same type.
The totality of a company's possessions of value. Financial assets include: securities, receivables and positive cash balances.
The management of one or more clients' investments by a financial services professional.
Value-added services offered by custodians to institutional investors, that go beyond the traditonnal services (custody and settlement): back or middle-office outsourcing, performance calculation, liquidity management, etc.
A financial contract in which the interest on a fixed-rate investment (like a bond) is exchanged for that of a floating-rate investment (e.g. an index).
Department where the post-trade processing of transactions is carried out: confirmation, settlement, payments, collateral managementcollateral management, fixing, reconciliations, etc.
Back to back
Systematic backing of each operation with an operation in the opposite direction. Usually used by the trading floor sales desks, which deal directly with the bank's clients and then immediately sell their position to a trading desk whose role is to find financing on the market.
Sum of total credits and total debits of an account.
A statement of a company's, assets, liabilities and owner's equity at a given point in time.
Financial institution whose main activity is the collection of deposits from the public, lending to businesses and individuals and providing means of payment.
Bank or service charges
Equivalent to interest. The premium or percentage added on a financial transaction. (Source: edubourse.com)
Share registered in the name of the holder in the books of a financial intermediary. Unlike registered shares, the issuer does not know the holders of its shares. This is the most common case.
Reference portfolio agains which the manager's performance is compared. In mutual funds management, the benchmark is a market index. In proprietary trading, the benchmark can also be a theoretical portfolio that is built in order to comply with a predefined level of risk and investment universe (eg equities, bonds, economic or geographical sector, etc.)
A coefficient measuring the volatility, or systematic risk, of a security relating to the market. It is determined by measuring the performance of the security over a period of five years, and calculating the percentage change for every percentage change in the market.
Bank Identifier Code. Eleven-character code provided to a participant in the SWIFT network. See BIC directory in the SWIFT site.
Tradable debt security issued by a private company or public entity.
Refers to the accounting system in which accounts were previously recorded in books.
Market provider acting as an intermediary. Its role may be limited to putting a buyer and a seller in touch, remunerated solely by a commission on the transaction. It can also take positions directly on the market, which is a riskier activity. This is known as a "broker-dealer". More info...
Buy or buy-back option.
Contract that protects the buyer by putting a cap on a rate rise.
Cash manager or cash desk supervisor
The person managing the bank's cash position in the trading room. For each currency in which the entity has positions, the cash manager must find a way to fund those showing a loss and invest the gains of others.
Cash or spot market
A market in which the transactions are said to be settled instantaneously (as opposed to futures or forward markets). In practice, settlement generally occurs two days after the deal is reached.
Collateralised Debt Obligation.
Credit Default Swap. Contract whereby a seller ("Protection Seller") commits against payment to compensate the buyer ("Protection Buyer") in case of an event ("credit event") affecting the solvency of a "Reference Entity". More info...
Key to financial markets, a country's central bank regulates banks, acts as a lender of last resort to the banking system and as the required transfer point for interbank payments.
Contract For Difference. An Over-the-counter (OTC) derivative product allowing the price fluctuations of the underlying to be followed without physical exchange of the latter.
Member adherent to a clearing house, authorized to clear transactions or those of its clients (in this case we also speak of GCM, Global Clearing Member).
First step of the post-market processing, which enable to determine the obligations of the parties to a trade. In regulated markets, this step goes through the Central Clearing Counterparty (CCP). In the case of an OTC (Over The Counter) trade it mainly relies on the exchange of confirmations.
An agency or corporation of an exchange that takes responsibility for settlement and delivery, the collection and maintenance of margin monies and, possibly, the implementation of netting operations.
Continuous Linked Settelement. Global FX settlement entity. More info...
Option strategy consisting of the purchase of a call and the sale of a put, making it possible to limit the risks.
Assets deposited by a party that owes money to its creditor, and which may serve to reimburse the creditor should the debtor not repay its debt. More info...
Collective investment schemes
A generic term used that covers both mutual funds (open-ended with legal personality) and European common funds (no legal personality). Collective investment schemes are free to operate throughout the EU in the form of UCITS on the basis of a single authorisation from a member state.
Sending a message in free text (fax, telex) or in standardised text (SWIFT) to the counterparty summarising the characteristics of the transaction that has just been negotiated.
Former solvency ratio imposed by the Basel Accords, now replaced by the McDonough ratio (Basel 2). See solvency ratio page.
Corporate action or event
Corporate actions (or corporate events) are actions initiated by the issuer or another player affecting the issuer's securities (e.g. bond redemption, dividend payment or split, etc.). More info...
The coupon, which was detachable from the paper bond in the past, represents the bearer's interest. Today, the bearer no longer receives a physical bond certificate, but the term "coupon" continues to designate the interest amount paid on a periodic basis by the bond issuer.
Credit rating agency
A company that evaluates the viability of certain types of debt issuers, and assigns them a credit rating, which the market then uses to set credit terms. More info...
Central Securities Depository. Financial intermediary that keeps up-to-date securities issues and stocks owned by the financial institutions for their own account or for the account of their customers. In the United States the CSD is DTCC.
The monetary unit of a country. The term is also used in contrast to the euro: payment in currency = payment in a currency other than the euro.
Financial agent responsible for the safekeeping of the assets of a UCITS (custodian function) as well as for controlling the operations of the UCITS and the calculation of its net asset value (custodian control function). More info...
Credit Valeur Adjustment. Market value of the marginal credit risk added by a transaction or position
A ratio indicating the change in the price of a derivative instrument relative to the change in the price of the underlying asset. It is part of the set of risk indicators known as 'greeks'. For more information, see this article on Investopedia.
A financial instrument that offers a return based on the behaviour of a given underlying asset. More info...
The portion of net profit distributed in cash to shareholders. Those holding shares are paid dividends on a prorata basis, according to the number of shares they own.
Short for Delivery Versus Payment. Mechanism for the simultaneous exchange of securities for cash to secure transactions.
Euro Banking Association. A Consortium of banks which have pooled their resources to establish a private cross-border payments system in euro, now called STEP1 for retail payments and STEP2 (previously ECS) for large payments.
European Market Infrastructure Regulation
Euro Medium Term Note
Exchange Traded Fund: A fund that tracks an index, and is traded on organised markets.
1) Originally a bond issued outside the country whose currency is used (e.g. bond issued in dollars in Europe). The prefix "euro" refers to the international character of the issue, not to the Euro currency. 2. Government securities that would be issued collectively by the countries of the Euro zone (only exists at the draft stage).
Foreign Account Tax Compliance Act. US law that means to curb tax evasion
Any operation to raise cash: borrowings, issuances of bonds or shares, etc.
A category of financial instruments, such as bonds, which produce income that can be calculated in advance, on the contrary to equities, which income (dividends) are determined by the shareholders' meeting.
Foreign exchange market and its transactions. More info...
Refers to an operation whose actual execution is postponed in time, such as Forward Rate Agreements.
Transfer of securities without charge.
Department that negotiates transactions with the bank's customers and market counterparties.
An asset that can be substituted for another asset of the same type and issued by the same issuer. Options and securities are fungible assets.
Standardised forward contract, traded on a regulated market, which enables to lock in a price for the purchase or sale of a fixed quantity of a given underlying asset for a specific date. More info...
Protection against the risk generated by a position. Two methods are possible: sell back this position, which amounts to cancelling it by negotiating a contract in the opposite direction, or use an appropriate financial instrument, generally speaking, a derivative.
Mutual fund, generally for wealthy investors, that aims at reaping an absolute level of performance, uncorrelated to the market's performance. More info...
Calculated volatility, based on the market prices of the asset on a given period of time.
Abbreviation for International Financial Reporting Standards. International accounting standard developed by the IASBIASB (International Accounting Standards Board) and applied throughout the world except in the United States, which has its own standard (GAAP), in the process of being reconciled with IFRS however.
Calculated volatility, based on the market price (premium amount) of the option on the considered asset. The implied volatility is the volatility value which one needs to use in the Black and Scholes model in order to get the premium amount of the option.
Message sent by a client to a trustee bank asking it to execute a given transaction: payment receipt, delivery of shares, etc. Unlike a stock-market order, an instruction proceeds from a previously negotiated transaction and does not entail any uncertainty, although its final execution may be subject to unforeseen events.
Foreign exchange market for banks.
Any transaction entailing the purchase of assets: loans, purchases of securities, etc.
International Securities Identification Number. Unique number allocated to a security (equity, bond, listed derivative, mutual fund share, etc.) by a codification agency. More info...
Creation and putting into circulation of new securities (shares or bonds). The market for newly issued securities is called the primary market.
An entity seeking to raise funds via the issuance of debt (bonds, money market instruments) or equity (shares).
All the means of financing used by the company: capital, financial and commercial debts, cash overdraft, ...
The call requiring the deposit of cash to offset the adverse price movement of a security to bring the amount of a guarantee deposit into line with the value of a debt with which it is associated.
Mark to market
Valuation (of an asset, contract, position) at market price based on any changes in price of underlying asset.
A dealer, who supplies prices and is prepared to buy or sell securities at those stated bid and ask prices. Their role is to maintain a continuous supply of the financial instrument while acting as counterparty to any interested buyer or seller.
A perverse effect encouraging actors to take ill-considered risks because of the existence of a protection, insurance contract or guarantee from a third party, e.g. the State. Moral hazard came to the forefront during the 2009 financial crisis and led regulators to undertake a thorough review of banking and financial regulation.
Negotiable Debt Security
Equivalent to French TCN: negotiable short- and medium-term debt instruments, generally under seven years, traded on OTC markets. More info...
The real value of the assets of a UCITS (or of any company) obtained by subtracting the amount of its debts from its total assets. Used as a basis for calculating the net asset value.
Net Asset Value (NAV)
Total value of a company's assets, minus its liabilities. Also used for the market value of a mutual fund share. In this case it is calculated by dividing the net asset value of the fund by the number of shares.
Calculation of a net balance based on the aggregate of all transactions traded during the day between two parties (bilateral netting) or from each market participant in relation to all the others (multilateral netting). The netting then makes it possible to exchange only the balance obtained, and therefore to simplify post-trade processing and reduce risks.
"Obligation Assimilable du Trésor": an important French treasury issue
Amounts representing separate legal entities to which the company may have commitments that do not appear on its balance sheet (source: US GAAP)
Risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. More info...
A financial instrument that gives its holder the right, but not the obligation, to buy or sell an underlying asset at a fixed price in exchange for a premium to be paid to the option's seller.
Instruction to buy or sell (usually securities) on the market. Elements of the final transaction (price, date, quantity, etc.) are undetermined at the time of the order.
Over The Counter: off-exchange transactions.
Trading system in which orders are communicated to brokers in a trading pit, by hand signals or voice. Although losing ground to electronic trading, outcry (also called open-outcry) quotation remains popular in the United States.
Portfolio return (profit or loss) on a given period of time, related to the amount initially invested. In the asset management context, portfolio return (profit or loss), related to the evolution of a reference market index or portfolio (benchmark)
Situation resulting from commitments made on the market: i.e. taking a buy position (going long) or sell (shorting).
Refers to all dealings or exchanges occurring after the conclusion of a transaction from which they flow.
Intermediary that provides services such as market intermediation, middle and back office processing, treasury management, financing and structuring to hedge funds customers
Establishment of an asset's price
To publish the price at which someone is willing to bid or sell a given product.
Price of the money for a given period on a given market.
Operations aimed at rebalancing a portfolio whose composition deviates from the strategic objectives due to variations in the prices of the assets held.
1) Final payment of a bond. The owners of the bond get paid of the final amount (typically the nominal amount, plus the last coupon payment) and the securities are destroyed. 2) Reimbursement of one or several shares of a mutual fund to the investor, who gets back his or her investment, plus or minus any profit or loss of the fund during the ownership period. The redeemed shares are destroyed.
Share registered in the name of the bearer in the books of the issuer (pure registered) or of a financial intermediary appointed by the issuer (administered registered). This method of management, which is more costly for the issuer, enables it to know at all times who the holders of its capital are, unlike bearer shares.
Repayment of principal
At a bond's maturity date, the issuer returns the amount of borrowed capital: the repayment of principal. Each bondholder receives the balance of the bond principal based on the number of bonds held.
Repurchase agreement a contract in which the seller of securities agrees to buy them back at a specified time and price.
Individual in trading room responsible for dealing with bank's clients.
Financial instrument that represents either a fraction of a firm's equity (share) either a fraction of a firm's liabilities (bonds, short term instruments such as commercial paper etc.)
Exchange of securities in return for payment.
A security representing a share of a company's capital.
"Système Interbancaire de Télécompensation": French settlement system for processing high-volume payments.
"Système de Livraison par Accord Bilatéral" (Delivery by mutual consent system): a securities delivery subsystem managed by Euroclear France.
1) Difference between the bid (buy) offer and the ask (sell) offer. 2) Difference between the rate and issuer can obtain on the market and the risk-free rate. 3. Difference between a variable rate loan and the reference rate.
Socially Responsible Investing: investment taking into account environmental, social and good governance criteria
Designates the volume of share held.
In France, these firms act as intermediaries in the market trading of securities.
Purchase of shares of a mutual funds; generally speaking, purchase of securities on the primary market
A derivative contract in which the counterparties agree to exchange one asset for another or the income of an asset for the ones of another: e.g. currency or interest rate swaps interest rate swaps.
The Society for Worldwide Interbank Financial Telecommunication operates a worldwide electronic messaging network for the major financial market players. More info...
Any player outside the entity and with which it has a relationship: e.g. clients, correspondents, counterparties, etc.
A fund that replicates a market index whose units are listed and traded on a stock exchange like shares.
Actor responsible for buying and selling financial instruments on behalf of a financial institution. More info...
Buying and/or selling securities on the market.
The price at which a security is traded on a given market (e.g. currency exchange rate: the exchange rate between different currencies). - Share price: price at which share is trading.
Addition of information needed (e.g. payment instructions) for the transaction's execution.
An intermediary mandated by the issuer (usually, a fund) to keep a record of investor orders (subscription or buy-back in the case of a fund), transmit them to the issuer and deal with any problems. In France, they are collective investment scheme coordinators, the intermediary responsible for managing the debt.
A cash financial instrument that is transferable or negotiable on an organized market, such as bond, equity, warrant, etc. More info...
Treasury or cash position
The balance of very short-term (under one year) cash credits/debits.
Financial instrument against which a derivative instrument is defined. More info...
To buy back a short position or sell a long position
Important step in any management system: a transaction only takes effect after it has been validated.
Value At Risk
Measure of the rate and frequency at which the price of an asset moves up and down over time.
A derivative instrument giving its holder the option to buy or sell a security; it is listed and traded like a security.