Trading Glossary

ABCDS
A credit default swap based on an Asset-Backed Security itself based on relatively risky home equity loans (U.S.) In effect a type of insurance against default on the underlying ABS.

ABCP
Taiwan: Asset-Backed Commercial Paper

AICPA
American Institute of Certified Public Accountants

Alpha
Hedge Funds: the incremental return above the market that a manager generates.

American-Style Option
Option contract which can be excercised at any time between the purchase date and the expiration date. Most commonly exchange-traded option in the U.S.

Arbitrage
Simultaneous sale and purchase of identical or equivalent financial instruments or commodity futures to benefit from a discrepancy in their prices.

Assignment
Receipt of an exercise notice by an option writer (seller) that obligates him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.

At-the-money
Occurs if the strike price of the option is equal to the market price of underlying security.

Back-months
Futures or options on futures months being traded that are furthest from expiration.

BaFin
Germany: financial regulator

Bank Of England
UK Central Bank

Bear
Person who believes prices will move lower

Bear Market
Market in which prices are moving lower.

Beta
Hedge Funds: market exposure

Bid
Price that market participants are willing to pay.

Bull
Person who believes prices will move higher

Bull Market
Market in which prices are moving higher.

Buy on Close
Buy at the end of a trading session at a price within the closing range.

Buy on Opening
Buy at the beginning of a trading session at a price within the opening range.

Call
An option contract giving the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.

Capped-Style Option
Option with an established profit cap. The cap price is equal to the option's strike price plus a cap interval for a call option or the strike price minus a cap interval for a put option. Exercised automatically when the underlying security closes above or below the cap price, depending on whether it is a call or a put.

CEO
Chief Executive Officer

CFO
Chief Financial Officer

CII
Council of Institutional Investors

CIO
Chief Investment Officer

Close
End of trading session period. Also called the Closing Range. The official close is designated as the high and low prices or bids and offers recorded during the period.

Closing Purchase
Transaction entered into to reduce or eliminate a short position in a given series of options.

Commission
One off fee brokerage fee to a customer when a futures or options on futures position is liquidated either by offset or delivery.

Contract
1) Unit of trading for a financial or commodity future.

2) Bilateral agreement between buyer and seller (parties) of a futures or options on futures transaction. Defined by the exchange.

Contract Month
The month in which futures contracts may be satisfied by making or accepting delivery.

Covered Call Option Writing
Trading strategy involving simultaneously selling call options and owning an equivalent position in the underlying security. The reverse is to sells a put option and shorting the underlying security.

Day Order
Order placed for execution within one trading session. Automatically cancelled if it can not be executed within the day.

Day Trading
Within one day establishing and liquidating the same position or positions. No positions should be established at the days end.

Deferred
Back Months

Delivery
Tender and receipt of an actual commodity or financial instrument, or cash in settlement of a futures contract.

Derivative Security
Financial security whose value is determined in part from an another security's (the underlying security) value and characteristic.

Dow Joines Industrial Average
US Index made up of 30 picked stocks. Weighted by share price

EAI
Enhanced Analytics Initiative

ECB
European Central Bank

EPS
Earnings Per Share

Equity Options
Options on shares of an individual common stock.

ERFRAG
European Financial Reporting Advisory Group

ERM
Enterprise Risk Management

ETF
Exchange-Traded Fund

European-style Options
Option contracts that can only be exercised during a specified period of time just prior to their expiration.

Exercise Settlement Amount
Difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered , multiplied by the index multiplier.

Expiration Cycle
The dates on which options on an underlying security expire. A given option is assigned to one of three cycles, January, February or March.

Expiration Date
Date on which an option and the right to exercise it, cease to exist.

FASAC
Financial Accounting Standards Advisory Council

FASB
Financial Accounting Standards Board

Financial Accounting Standards Advisory Council
Overseer of the Financial Accounting Standards Board.

Financial Reporting
Defined by the COSO Framework as:-

The preparation of reliable published financial statements, including interim and condensed financial statements and selected financial data derived from such statements, such as earnings releases, reported publicly.

Financial Supervisory Commission
Taiwan: financial regulator

Floor Broker
Licensed member of an Exchange, who is paid a fee for executing orders for Clearing Members or their customers.

Floor Trader
Also known as a "local". Exchange member who only trades for his own account.

Futures
All contracts covering purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange.

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GAAP
Generally Accepted Accounting Principles.

Hedge
Strategy to limit investment loss by effecting a transaction which offsets an existing position.

Holder
Purchaser of an option

IFRS
International Financial Reporting Standards

IFRS 3
Accounting standard for "business combinations" or Merger and Acquisitions transactions. First standard written jointly by International Accounting Standards Board and the U.S. Financial Accounting Standards Board.

Initial Performance Bond
Also known as "Initial Margin". Funds required when a futures position is opened.

Integrity and Ethics
Reside under the Control Environment. The senior management need to set the tone for the company. Whilst they might be considered "soft" and "intangible" concepts, they affect the design, administration and monitoring of other internal controls. According to COSO, the actions of management is more important than having them written down.

Negative examples of integrity and ethics are the infamous Enron and WorldCom scandals.

A positive example is BP which sets a high bar for ethical behaviour by employees. To back this policy up they make mention of it and its effectiveness in financial reports.

In-the-money
Occurs if the strike price of a call option is less than the market price of the underlying security. For put options the strike price has to be higher than the market price of the underlying security for it to be in-the money.

Intrinsic Value
Amount by which an option is in-the-money.

ISDA
International Swaps and Derivatives Association

LTCM
Long Term Capital Management

Margin Requirement for Options
Amount an uncovered (naked) option writer is required to deposit and maintain to cover a position. Calculated

Market Order
Order for immediate execution given to a broker to buy or sell at the best obtainable price.

Mark-To-Market
Daily adjustment of margin accounts to reflect profit and loss.

MD&A
Management's Disclosure and Analysis

Mezzanine
When applied to finance refers to moderate risk or mid level.

Minimum Price Fluctuation
Smallest increment of price movement possible in trading a given contract. It is also referred to as "lead month".

NASPP
National Association of Stock Plan Professionals

Nearby
Nearest active trading month of a futures or options on futures contract.

NYSE
New York Stock Exchange

Offer
Price at which an investor is willing to sell a futures or options contract. Offset buying if one has sold, or selling if one has bought, a futures or options on futures contract.

Open Interest
Total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. An indicator of the depth or liquidity of a market (the ability to buy or sell at or near a given price) and of the use of a market for risk and/or asset management.

Private Equity Intelligence
Research group specialising in the private equity arena.

Public Company Accounting Oversight Board
Organization set up under Sarbanes-Oxley Act 2002 to regulate auditing of public companies and auditors.

Regulation FD
Regulation Fair Disclosure

Rule enforced by the SEC requiring U.S. to make available to the public that they make to securities analysts. If the disclosure is intentional the release has to be simultaneous. Unintentional disclosure has to be made available to the public within 24 hours.

Repo
The practice of loaning out shares in return for cash.

Risk Assessment
One of five components of internal control according to the COSO Internal Control Framework

Risks faced by the company have to be recognized. Objectives have to be set, integrated into the value-chain. To achieve the objectives, risks have to be identified, analyzed and develop methods to manage them.

Rule 13a-15 (e)
SEC rule which defines Disclosure Controls and Procedures.

Rule 13a-15 (f)
SEC rule which defines Internal Control over Financial Reporting

SCSE
Society of Corporate Compliance and Ethics

SEC
Securities and Exchange Commission.

SOX
Shorthand for Sarbanes-Oxley.

Structured Notes
Derivatives-linked bonds designed to deliver high returns over a fixed period.

Synthetic Collateralised Debt Obligations
Repackaged portfolios of credit derivatives.

TOCOM
Tokyo Commodity Exchange

TS2
System proprosed by the ECB for a single securities settlements across the Eurozone.

TSE
Tokyo Stock Exchange