Accrued Interest
Interest deemed to be earned on a security but not yet paid to the investor.
Agent(s)
An intermediary, bank or other financial organisation that regularly performs services for another in a place or market to which the other does not have direct access. Intermediaries may have agents in foreign countries or on exchanges of which they are not members. Sometimes also referred to as *correspondent.
Annual Report(s)
The formal financial statement issued yearly by a public company. The report shows assets, liabilities, revenues, expenses and earnings. The report also shows the company's financial condition at the close of the business year and other basic information of interest to shareholders. The annual report is also the most widely-read shareholder communication. A semi-annual report is issued by a company for the first six months of its *financial year.
Ask/Bid Prices
The market price of a security: the ask is the *market price if you are buying and the bid is the price if you are selling.
Auditor's Report
Often called the accountant's opinion. It is the statement of the accounting firm's work and its opinion of the company's financial statements, especially if they conform to the normal and generally accepted practices of accountancy.
Balance Sheet
A condensed financial statement showing the nature and amount of a company's assets, liabilities and capital on a given date. In Lm (or any other currency) amounts, the balance sheet shows what the company owned, what it owed, and the ownership interest in the company of its shareholders.
Basis Point
One step on a 100-point scale representing one percent: used especially in expressing variations in the yields of bonds. Fixed income yields vary often and slightly within one percent and the basis point scale easily expresses these changes in hundreds of one percent.
For example, the difference between 12.83% and 12.88% is 5 basis point (or 0.05%).
Bear Market
A nickname investors give the stock market when security prices are generally declining over an extended period of time. Down markets got nicknamed bear markets because of the popular myth that bears attack with their paws pointing down. (See Bull Market).
Best Execution
The obligation of intermediaries to execute customer's orders at the best price available at the time the trade is entered.
Bid
The bid is the highest price anyone wants to pay for a security at a given time. (see Offer, Quote) For *collective investment schemes, the 'bid' price is the price at which you sell units of the fund. (See Spread).
Block
A large holding or transaction of security - popularly considered to be 10,000 shares or more.
Blue Chip
Securities of a big, well-known company that has a history of good earnings. Some examples of blue chip companies are Disney, Microsoft and British Telecom.
Bond(s)
A long-term security in which the issuer agrees to pay the owner the amount of the *face value on a future date and to pay interest at a specified rate at regular intervals.
Bonus Issue
You will see a bonus issue descibed as a free issue, a capitalisation issue and a stock dividend. These are new shares issued by a company to its existing shareholders, usually in a mathematical proportion to the number of shares already held. What the company is doing is turning part of its reserves it will have accumulated into *issued capital. The shareholders do not pay for the new shares and appear to be no better off. However, in a 1 for 3 bonus issue, for example, the shareholders receive one new share for every three existing shares they own. Hence, a shareholder owning 99 shares will receive 33 bonus shares in return. This will reduce the price of the shares by 25% (assuming a price of Lm1 per share, the amount of the new shares, 33, divided by the total amount of shares owned, 132), catering to the preference of shareholders to hold lower-priced shares whilst encouraging them to hope that the price will gradually climb to its former value, which will of course make them 25% better off.
Bull Market
A nickname investors give the stock market when stock prices are generally rising over an extended period of time. The bull market got its name by the popular myth that bulls raise their heads up high when they charge. (See Bear Market).
Call
The right of the issuer to redeem outstanding *bonds before their scheduled maturity. Therefore a "callable bond" gives the option to the issuer to pay the *face value of a bond before it matures.
Capital Gain
Profit made on securities, either through *dividends or by selling the securities for a higher price than they originally cost.
Capital Loss
The loss on an investment when it is sold for less than it originally cost.
Capitalisation
The value of a company obtained by multiplying the number of shares issued by their *market price.
Certificate
The actual piece of paper that is evidence of ownership of a share in a company or stock issued by a government.
Churning (sometimes also known as excessive trading)
An intermediary excessively trades securities of an investor for the purpose of increasing his or her commissions, rather than to further the investor's *investment objective.
Clients' Account
Intermediaries are required to establish separate bank accounts into which investors' money available for investment is maintained. MFSC prohibits an intermediary from using investors' money to finance his own activities. It also requires intermediaries to segregate such money from that of his own.
Closed Ended Fund(s)
Shares in Closed Ended Funds are not readily transferable on the market especially if they may not be listed on a securities exchange. Shares issued by such funds are bought and sold similar to ordinary shares. The capitalisation of these companies remains the same unless action is taken to increase the *issued capital. (See Open Ended Funds)
Collective Investment Scheme (CIS)
These are financial products where money from a number of different investors are pooled and then invested by a *fund manager according to specific criteria. The scheme or fund is divided into segments called 'units', which are to some degree similar to shares. Investors take a stake in the fund by buying these units - they will therefore become unitholders. The price of a unit is based on the value of the investments the fund has invested in (Net asset value).
Commission(s)
The intermediary's basic fee for purchasing or selling securities as an *agent. Ask for a copy of the intermediary's commission schedule which lists fees or charges you will be required to pay when buying or selling *securities and when opening, operating and closing an account.
Compliance Officer
An official of an intermediary whose role is to ensure that the entity complies with all the laws under which it operates and rules issued by the *regulator.
Consideration
The money value of a transaction (the number of shares multiplied by the price) before adding or deducting commission, stamp duty etc.
Contract Note(s)
On the same day as a transaction takes place, an intermediary sends to the investor a contract note detailing the transaction including full title of the *security, price, stamp duty (if applicable), *consideration, commission, time of deal etc.
Cooling-off Period
This period starts from the day on which you buy the investment. The investor is given a few days' time (such as 15 days) during which he/she can consider his investment again. Before the lapse of this period, the investor can, if he so wishes, withdraw from the transaction without incurring any extra charges.
Correspondent
See Agent
Coupon
The rate of interest paid by a fixed-interest bond. A 5% coupon implies that the bond pays 5% interest.
Credit Institution(s)
This is another term for banks.
Current price
The market price at any given time.
Custodian
Someone who maintains assets on behalf of their owner. In the case of a minor, a custodian protects, manages and maintains assets until the individual reaches majority age, when the assets are turned over to him or her.
Debt
A sum owned by one person to another.
Director(s)
Person elected by shareholders, usually during an annual meeting, to serve on the Board of Directors of a company. Directors decide, among other matters, if and when dividends shall be paid.
Discount
The amount by which a security may sell below its par value. (See Premium).
Discretionary Portfolio Management
An account in which the customer gives the intermediary discretion to buy and sell securities, including selection, timing, amount and price to be paid or received.
Diversification
The practice of putting money into a number of different investments. Investors diversify so they can reduce the risk of their investments losing money. If you put your money into five shares and five bonds, for example, you're practising diversification. In effect, you're hoping that if one investment is not doing well, it will be offset by most of the other investments, which presumably are making money. Buying a *collective investment scheme is one of the best ways to diversify. Collective investment schemes, because they are a collection of shares, bonds or other securities, are typically diversified investments.
Dividend
The payment determined by the Board of Directors to be distributed pro rata among the shareholders of a company. The dividend varies with the profits of the company and may not be distributed if business is poor or if the directors determine to withhold earnings to invest in plants and equipment. Sometimes a company will pay a dividend out of past profits even if it is not currently operating at a profit.
Earnings Per Share (EPS)
EPS is the total profit that a company has made, divided up among the number of shares that rank for dividend. EPS is reported quarterly and is calculated by dividing the net profit after tax for the quarter by the number of shares in issue during that quarter.
Emerging Market(s)
Financial markets in Latin America (e.g. Brazil, Argentina), Africa, former communist countries in Eastern Europe and parts of Asia (e.g. Thailand).
Equity
See Ordinary Shares
Eurobond
A long-term loan issued in a currency other than that of a country or market in which it is issued. Interest is paid without the deduction of tax.
Ex-Dividend
A synonym for 'without dividend'. A share is described ex-dividend (xd or ex-div) when a potential purchaser will no longer be entitled to receive the company's current dividend, the right to which remains with the vendor.
Execution Only
A service in which the intermediary has no responsibility for advising the investor on whether a particular transaction is suitable or not (for the investor). The intermediary's responsibility is limited to executing the transaction on the investor's instructions.
Face Value (or Par Value)
The value that appears on the face of the bond, unless the value is otherwise specified by the issuing company. Face value is not an indication of market value. (See Principal).
Fact Find
A document compiled by an intermediary that details vital facts about an investor's financial circumstances and investment objectives. The intermediary will rely on the information contained in a fact find to make appropriate investment recommendations to the investor.
Fair Market Price
A reasonable price for securities based on supply and demand.
Financial Year
A company's accounting year. Due to the nature of their particular business, some companies do not use the calendar year for their book-keeping. A typical example is the department store that finds 31 December too early a date to close its books after the Christmas rush. For that reason many stores wind up their accounting year on 31 January. Their financial year, therefore, runs from 1 February of one year through 31 January of the next. The financial year of other companies may run from 1 July through the following 30 June. Most companies though, operate on a calendar year basis.
Fund Manager (or Fund Management Company)
A Fund Manager is usually a company whose line of business is investing in other companies and entities on behalf of a *collective investment scheme. The Scheme appoints the Fund Manager to buy and sell securities in accordance with the *investment objectives. In Malta, a Fund Manager normally holds a Category 2 licence.
Gearing
A company's debts expressed as a percentage of its equity capital. High gearing means debts are high in relation to equity capital.
Going Public
When a company sells shares of itself to the public to raise capital for the first time. (See Initial Public Offering)
Going-concern Value
The value of a company as an operating business to another company or individual. (See Goodwill)
Goodwill
The going-concern value of a company in excess of its asset value. Generally, it is the value of the business' good name, its customer relations, high employee morale, and other factors that might translate into earning power.
Inflation
Increase in the prices for goods and services.
Initial Public Offering (IPO)
A company's first offering of shares to the public. (See Going Public)
Investment Objective
The goal - such as growth, capital appreciation, or income - that an investor pursues. *Collective investment schemes also have investment objectives which are stated in the *prospectus. The investment objective often determines the type of *securities in which the fund invests, the result expected and the level of risk with which it is associated.
Investment Portfolio
A variety of securities owned by an individual or an entity.
Investment Risk
The possibility of losing money or not gaining value in an investment.
Investor Compensation Scheme
This is the technical term which is used to describe a scheme which provides compensation to retail investors who stand to lose money as a result of the default or bankruptcy of an authorised intermediary. Payment of claims are limited to a specified amount - that is, investors may receive only a part of the monies invested through an intermediary who has defaulted or gone bankrupt. An investor compensation scheme will be introduced in Malta within the next 18 months.
Issued Capital
The number of shares on offer to the public at a particular time. Sometimes referred to as Issued Share Capital.
Linked Long Term Contracts of Insurance
(orLLTCIs) An LLTCI is a life assurance policy linked to property of any description - such as units in a *collectiveinvestment scheme. The benefits are wholly or partly determined by reference to the value of the units in the collective investment scheme.
Liquidity
1. How easily one's assets can be converted back into cash. For example, money in an account that cannot be withdrawn for five years is not very liquid;
2. The ability of the market in a particular security to absorb a reasonable amount of buying or selling at reasonable price changes. Liquidity is one of the most important characteristics of a good market.
Listed Security(ies)
The security of a company that is traded on a *stock exchange.
Load
A one-time sales charge that some *collective investment schemes charge unitholders to compensate the intermediary who sells the funds. The load is usually incurred only on purchase, there being, in most cases, no charge when the shares are sold (redeemed).
Manipulation
An illegal operation. Buying or selling a security for the purpose of creating false or misleading appearance of active trading or for the purpose of raising or depressing the price to induce purchase or sale by others.
Market Maker
Intermediaries, banks or stockbrokers who buy and sell securities on their own behalf to sell at a profit.
Market Price
The last reported price at which the security sold.
Maturity Date
The date that a bond comes due and must be paid off.
Money Laundering
Money Laundering may be described as the process through the financial system of the monies received from crime in order to disguise their illegal origin. Criminals mix 'dirty' money with 'clean' money, ultimately providing a legitimate cover for the source of their income. (See Prevention of Money Laundering).
Negotiable Instrument
A document of title that can be freely negotiated. For example, cheques, in which the stated payee of the instrument can negotiate the instrument by either inserting the name of a different payee or by making the document 'open' by endorsing it (signing one's name), usually on the reverse.
Net Asset Value
Usually used in connection with *collective investment schemes to mean net asset value per share. A collective investment scheme computes its assets daily, or even twice daily, by totalling the *market value of all securities owned. All expenses are deducted, and the balance divided by the number of units held by the fund's investors. The resulting figure is the net asset value per unit.
No Load
A term used to describe *collective investment schemes that have no sales charges.
Nominee Services
Investors' money and investments are held in the name of the intermediary on their behalf.
Non-professional Investor
See Retail Investor
Offer
The price at which a person is ready to sell. For *collective investment schemes, the 'offer' price is the price at which you purchase units in the fund. (See Spread)
Open-Ended Fund(s)
Open-ended funds sell their own new units to investors, stand ready to buy back their old units, and are sometimes listed on a stock exchange. Open-ended funds are so called because their capitalisation is not fixed, they issue more shares depending on how much investors want to invest (in the fund). In Malta, the words SICAV p.l.c. (a French acronym that stands for collective investment scheme with variable capital) which follows a name of a *collective investment scheme denote that the fund is open ended.
Orders
Specific instructions for handling transactions.
Ordinary Share(s)
The most common form of share. The holders are the owners of the company and receive dividends which vary in amount in line with the profitability of the company and recommendation of directors. Also referred to as "equity".
Par Value
See Face Value
Partnership
A business relationship in which two or more people agree to share the risks and profits of running a business.
Portfolio(s)
A group of shares, bonds or other investments owned by a *collective investment scheme or individual investor.
Preference Share(s)
These are normally fixed-income shares whose holders have the right to receive dividends before ordinary shareholders but after debt holders have received their interest.
Premium
The amount by which a bond may sell above its par value. May also refer, also, to redemption price of bond if it is higher than face value. (See Discount)
Prevention of Money Laundering
This is the term used to describe the world-wide efforts to combat *money laundering. In Malta, all intermediaries are obliged to follow strict rules to ensure that the local financial system is not used by criminals to launder their illegal monies. As part of this process, intermediaries must establish the identity of the investor with whom they are dealing - a process usually referred to as "knowing your customer" - by requesting the person to provide his identity card and asking a number of questions.
Price Earnings Ratio (P/E Ratio)
The P/E ratio is a measure of the valuation of a company, based on the level of confidence investors have in the company (rightly or wrongly). Generally, the higher the figure, the higher the confidence. It is worked out by dividing the current share price by the last published Earnings Per Share. (See EPS)
Primary Market
The process by which a company's share or stock is issued for the first time. It is then sold to the public on the secondary market. (See Initial Public Offering)
Principal
A person on whose behalf an *agent or broker acts. The term "principal" may also refer to a person's capital or to the face amount of a bond. (See Face Value)
Professional Investor(s)
Professional investors would be experienced in financial matters and therefore capable of investing with minimum or without assistance of intermediaries. (See Retail Investor)
Profit and Loss Account
A report on a company's financial status of its earnings or losses over a given period. The profit and loss account lists the income earned, expenses paid and the net profit available for reinvestment.
Prospectus
1. A legal document that describes an investment objective and policies, investment restrictions, officers, directors and expenses of *collective investment scheme;
2. A document that provides details about a new offering of securities for sale to the public. It gives a detailed financial background of the issuing company, how the proceeds of the securities will be used, and other pertinent information investors will need to make an informed decision.
Quote
The highest bid to buy and the lowest offer to sell any security at a given time.
Return (or Total Return or Net Return)
Total return measures increases and decreases in the value of your investment over time, after subtracting costs (you will usually find it written as "Net Return"). When expressed as a percentage, net return for an indicated period is calculated by dividing the change in a fund's *net asset value, assuming reinvestment of all income and capital gains distributions, by the initial price.
Recession
A period of no or negative economic growth and high unemployment.
Redemption price
The price at which a bond may be redeemed before maturity, at the option of the issuing entity.
Regulator(s)
A body set up by law entrusted with overseeing the financial services sector. Sometimes it is also referred to as the Competent Authority. In Malta, the regulator or competent authority for investment services is the Malta Financial Services Authority.
Reinvest
Funnelling of profits back into a company to enhance its operations. An individual stockowner can also reinvest by choosing that dividends paid on stock will be used to purchase additional shares of that stock. The same applies in the case of *collective investment schemes - an individual unitholder can also reinvest by choosing that dividends paid on units will be used to purchase additional units of that fund.
Retail Investor (also referred to as Non-Professional Investor).
A person who buys or sells securities for his or her own account. A retail investor is dependant on the intermediary for information and assistance. Therefore the level of protection of a retail investor is higher than that given to a *professional investor.
Retained Profits
Profits a company keeps for its operations, after paying taxes and dividends.
Rights issue
An opportunity to existing shareholders of a company to buy more shares in the company at a discounted rate, without the need to buy through intermediaries.
Risk
See Investment Risk
Secondary market
When stocks or bonds are traded or resold, they are said to be sold on the secondary market. The majority of all securities transactions take place on the secondary market.
Security(ies)
A general term for stocks, *bonds, *collective investment schemes and other products.
Settlement
Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivers securities sold and receives from the broker the proceeds of a sale.
Shares
See Ordinary Shares
SICAV
See Open-Ended Fund
Speculative
The buying and/or selling of securities, currencies etc with a view to making relatively quick profits as opposed to long term investment.
Spread (Bid-Offer Spread)
The difference between the bid and offer price is the 'spread' - which usually represents the commission or fee. Therefore, if you had to buy units (*offer price) in a *collective investment scheme and sell them on that same day (at the *bid price), the difference in the price will be the commission or fee you paid (the spread).
Stock Exchange
A market for the sale and purchase of securities, in which prices are controlled by the laws of supply and demand. Their basic functions is to allow public entities and governments to raise capital by selling securities to investors. They perform valuable secondary functions by allowing those investors to buy and sell these securities, providing *liquidity and reducing the risks attached to investment. Sometimes referred to as Stock Market.
Stock Index
A way of using a select group of stocks for long term evaluation. The performance of a group of stocks that the sponsor of the index regard as important is averaged and over time that average serves as an indicator of the market's general movement. For example, the FTSE 100 is an index of the share prices of the 100 largest companies (by market capitalisation) in the UK, which is updated throughout the trading day. Stock indices are designed to give investors an idea of the general movement of the stock markets and its overall value. By comparing the performance of their own portfolios with the performance of one of the stock indices, investors can see how well they have done from a comparative point of view. In particular they can see whether they would have been better off putting their money in an index tracker fund.
Stockbroker
A person or entity who buys and sells securities on a *stock exchange on behalf of an investor and receives remuneration for this service in the form of a commission.
Terms of Business Letter
This is a document which sets out in detail the investment services agreement between the intermediary and the investor. It should specify, amongst other things, whether the intermediary will provide investment advice or not, and the type of fees and commissions which the intermediary will charge.
Underwriting
An arrangement by which a company is guaranteed that an issue of shares will raise a given amount of cash. The underwriters undertake to subscribe for any of the issue not taken up by the public. They charge commission for this service.
Valuation Statement (-s)
A report showing the extent to which investments have increased or decreased from all the various gains and losses registered in a specific period.
Yield
The return earned on an investment taking into account the annual income. There are a number of different types of yields, and in some cases different methods of calculating each type.
Yield to Call
A yield on a security calculated by assuming that interest payments will be paid until the call date, when the security will be redeemed at the call price. The Yield to Call is calculated in the same way as *yield to maturity but assumes that a bond purchased at a premium will be called and that the investor will receive the amount of the face value at the call date.
Yield to Maturity
The rate of return earned on an investment (such as a *bond) bought at a specified price and held until maturity. The Yield to Maturity equals all the interest you receive from the time you purchase the bond until maturity (including interest on interest at the original purchasing yield) plus any gain (if you purchased the bond below its face, or par, value) or loss (if you purchased it above its face value). The tax payable on the interest and the capital repayments is ignored.
Courtesy of the Malta Financial Services Authority