Agenda
A to D

A to D

A

Aaa

A credit rating given to the highest quality issuers. Also known as a ‘triple A’ rating

 

Aberdeen Standard Capital

A firm of fund managers focussed on providing the best possible financial outcomes for clients. To achieve this, Aberdeen Standard Capital offer a range of outcome-focussed solutions

 

Acquisitions

The purchase of a company or the division of a company

 

Agency trades

The buying or selling of securities carried out by a broker or market maker on behalf of a customer. Also see ‘principal trades’

 

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Bonds

Loans to a government or company. These loans are often for a set period and the bond owner usually receives regular interest payments. Bonds issued by the UK government are called Gilts and those issued by a company are corporate bonds

 

Bourse

A bourse is another term used to describe a stock exchange or securities exchange

 

Broker or market maker

A person or firm who buys and sells goods or assets for issuers [see ‘Issuers’] via the stock exchange

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B
C

Capital

Wealth in the form of money or other assets. This wealth can either be (a) owned by a person, or (b) owned by an organisation, or (c) made available for a purpose, such as starting a company or investing

 

Capital markets

A financial marketplace where companies and people raise capital by dealing in shares, bonds and other long-term investments. Capital markets bring together buyers and sellers to help businesses grow

 

Cell company

In Jersey there are two types of cell company: a protected cell company (PCC) is a single legal entity made up of a core and several ‘cells’ that have separate assets and liabilities. Incorporated cell companies (ICCs) are a type of company where each cell has a separate legal identity

 

Commercial property

These include office, industrial, retail (including retail warehouses, high street and shopping centres) and other types of property (care homes, student accommodation)

 

Contractual rights

The set of rights guaranteed whenever people enter into a legal contract with one another. Contract rights usually involve business matters such as the rights to buy or sell a particular product or service

 

Coupon [bonds]

The interest, normally fixed, received by a bond holder

 

Creditor

Creditors are a person or company to which an issuer (see ‘Issuer’) owes money

 

Credit rating agencies

An agency that publishes credit ratings for bonds. Investors can access these for a fee. Bond credit ratings are based on in-depth analysis of all the issues that might impact the quality of an issuer

 

Credit risk [bonds]

Before loaning or buying a bond, investors need to carefully consider the likelihood of getting their money back (principal) and the interest rate (coupon) agreed at the outset. Any negative change to the borrower or issuer that might reduce the likelihood of the repayment of the annual coupon or the final principal will likely have a bad impact on the value of the bond holding

 

Credit risk [same as ‘default risk’]

The possibility of a loss because a borrower cannot repay a loan or meet the terms of a contract

 

Credit risk appetite

The level of risk a bank is prepared to accept to achieve its objectives. It is important for banks to set risk appetite at an appropriate level to ensure credit risks are only accepted and managed within that appetite. See also ‘risk appetite’

 

Current yield [bonds]

The annual coupon rate (often paid semi-annually) divided by the current bond price

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Debentures

A long-term bond issued by a company, or, an unsecured loan that a company issues without a ‘pledge of assets’ (meaning the company does not ask the borrower for any assets as a guarantee)

 

Debt securities

Debt securities are issued by companies in order to raise finance from a wide range of investors. They can be bonds, loan notes, debentures and other securities or financial instruments which create or evidence indebtedness (a promise to pay back the principal amount and interest when the instrument matures).

 

Default risk [same as ‘credit risk’]

When making any loan or buying a bond, investors need to carefully consider the likelihood of getting their money back (principal) and the interest rate (coupon) agreed at the outset. Any adverse change to the borrower might reduce the likelihood of the repayment of the annual coupon or final principal will likely have a detrimental impact on the value of the bond holding

 

Defensive industries

Companies in the utilities industry, for example. They are ‘defensive’ because the demand for these goods and services does not soften along with a declining economy. Other defensive industries include telecommunications, food retailing, healthcare and companies involved in the distribution of energy

 

Derivatives

A derivative is a financial instrument – its value is derived from the underlying value or movement in other assets, financial commodities or instruments like equities, bonds, interest rates. Depending on how it is used, a derivative can involve little financial outlay but result in large gains or losses. Funds can sometimes use derivatives to improve portfolio management and to help meet investment objectives

 

Diversification

In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A popular path towards diversification is to reduce risk by investing in a variety of assets

 

Duration [bonds]

A measure of interest rate risk. The average time it takes for a bond owner to receive the cash flow payments from a bond

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D

E to I

E

Equity or equities

Part ownership of a company, also referred to as stocks and shares. The return on equities comes from growth in the value of the shares in a company, plus any income from dividends. Equities are one of the more volatile asset classes – although they can offer good growth potential

 

Event risk [bonds]

A corporate event which makes your current bond investment higher risk

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Face value

Value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity. It is also known as ‘par value’ or simply ‘par’

 

Financial instrument

These are assets that can be traded. These assets can be (a) cash (b) a contractual right to deliver or receive cash, or (c) evidence of one’s ownership of an entity

 

Financial return

Money made or lost on an investment. It may be measured either in absolute terms (e.g. dollars) or as a percentage of the amount invested. Also see ‘return’

 

Fitch

One of the ‘big three’ credit rating agencies. See ‘credit rating agency’

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F
H

Hedging

The process of using different financial products to protect an investor from losing cash when dealing with multiple currencies

 

High-Yield Bonds

Also known as ‘junk bonds’, these are corporate bonds and government debt with a rating below Standard & Poor’s BBB rating

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Illiquid

The state of a stock, bond, or other assets that cannot easily be sold or exchanged for cash without a substantial loss in value

 

Inflation

A general increase in prices and fall in the purchasing value of money. For bonds, a 5% annual coupon rate might seem attractive in the current economic environment, where inflation is around 3%. But if inflation returned to the very long-term average of approaching 6%, then this will no longer be the case. If, prior to the bond maturity date, an investor wished to sell their bond to get their capital back, the next investor would look for an annual return higher than 6%. This would mean selling the bond for less than what you originally paid for it; a capital loss. Bond prices have an inverse relationship with interest rates. If expectations of inflation and interest rates rise the value of a bond will typically fall

  

Immaterial

Information that does not significantly affect the decisions of different users, such as banks, investors and owners. For example, a price movement in a stock of a single penny one way or another is almost always immaterial to the company’s continued operations. Also see ‘material’

 

Initial Coin Offering or Initial Token Offering

An initial coin offering (ICO) or initial currency offering is a type of funding using cryptocurrencies. The tokens sold are promoted as future functional units of currency if or when the ICO’s funding goal is met and the project launches

 

Interest rate risk [bonds]

Rising interest rates can reduce the current value of a bond

 

Investment time horizon

A time horizon or investment horizon is the total length of time a security is expected to be held by an investor. Normally, with a long-term horizon, investors feel more comfortable to take riskier investment decisions and make the most of market volatility

 

Investment vehicles

Vehicles which raise capital from one or more investors with a view to investing it (in accordance with a defined investment policy) for the benefit of its investors.

 

Issuer

A company which issues debt or equity securities.

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I

J to O

J

Junk Bonds

Also known as high-yield bonds, these are corporate bonds and government debt with a rating below Standard & Poor’s BBB rating

 

Junior debt

Debt that has a lower priority for repayment than other debt claims in the case of bankruptcy or default

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LIBID and LIBOR

LIBOR is the London Interbank Offered Rate and is the rate at which banks lend to each other. LIBID is the London Interbank Bid Rate and is the rate at which banks borrow from one another. Generally, LIBOR is a little above the Bank of England base rate and will also be higher than LIBID. Both can be used as a benchmark for money market instruments, which include cash

 

Limited Liability Company (LLC)

A separate and distinct legal entity. An LLC can get a tax identification number, open a bank account and do business, all under its own name

 

Link Asset Services

A Jersey-based firm that provide the infrastructure through which assets are secured or deployed in both regulated and unregulated markets

 

Listing

When an issuer applies and is granted admission to add their securities on the stock exchange list

 

Listing sponsor or listing agent

Appointed to assist an issuer with its listing application and to guide and advise the issuer in relation to its ongoing listing obligations.

 

Liquidity

The degree to which an asset can be quickly bought or sold in the market without affecting the asset’s price. [See also Illiquid]

 

Liquidity risk

Liquidity risk is the risk that a company or bank may be unable to meet short term financial demands. This usually occurs when the company or bank are unable to convert a security or hard asset into cash without losing money in the process

 

Loan notes

An extended form of a generic I Owe You (IOU) document from one party to another. It enables a borrower to receive payments from a lender, possibly with an interest rate attached, over a set period and ending on the date at which the entire loan is to be repaid

 

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L
M

Market maker

A company or person that quotes both a buy and a sell price in a financial instrument or commodity

 

Material

Describes information that is, or may be relevant, to operations; information that can influence financial decision-makers such as company shareholders. For example, if a video tape company is losing customers because most of its potential customers are buying DVD players, this is material information that will need to be disclosed to shareholders. See also ‘immaterial’

 

Maturity [bonds]

The length of the loan or the date you are expecting to receive the principal back

 

Money market

The financial marketplace where financial instruments with high liquidity and very short maturities [see maturity’] are traded. It is used for short-term borrowing and lending with maturities that often range from overnight to less than a year

 

Money market instruments (including cash)

These include deposits with banks and building societies, as well as governments and large corporations. They also include other investments that can have more risk and return than standard bank deposits. Investments in money market instruments are riskier than standard cash deposit accounts – in some circumstances their values will fall. The returns may also be lower than inflation

 

Moody’s

One of the ‘big three’ credit rating agencies. See ‘credit rating agency’

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Ogier

Ogier is a top-tier law firm which provides legal advice on BVI, Cayman, Guernsey, Jersey and Luxembourg law. Ogier’s listing agent, Ogier Corporate Finance Limited, is one of the leading listing agents in the offshore listing market and offers a cost effective, efficient and responsive listing service in relation to the listing of debt and equity securities on TISE and the Cayman Islands Stock Exchange.

 

Ongoing charge

This is a measure of the total cost for investing in a fund. It’s made up of the Annual Management Charge (AMC) and other additional costs. The AMC is imposed by the manager and is used to pay the investment manager, financial advisor, fund accountant, fund administrator and distributor. Additional costs include the costs for other services paid for by the fund, such as the fees paid to the trustee (or depository), custodian, auditor and regulator

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O

P to Z

P

Par Value

The value of the bond at the point of issue, which is normally the amount that you would also expect to receive at maturity. Also see ‘face value’

 

Primary market

Also known as a ‘New Issue Market’, is where new securities are issued – it is part of the capital market

 

Principal

The original sum of money borrowed in a loan or put into an investment. For bonds, this is the value of the bond at the point of issue, which is normally the amount that you would also expect to receive at maturity

 

Principal trades

The buying or selling of securities [see ‘securities’] carried out by a broker or market maker for their own accounts

 

Property investing

This includes direct investment in buildings and land, as well as indirect investments such as shares in property companies. The value of direct property is generally based on a valuer’s opinion and is not fact. Like equities, property securities can have sharp changes in value at any time. The values of different types of property do not necessarily move in line with each other. For example, commercial property could be losing value even if house prices are going up

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Redemption

The return of an investor’s principal in a fixed-income security such as a stock or bond

 

Return

Money made or lost on an investment. It may be measured either in absolute terms (e.g. dollars) or as a percentage of the amount invested. Also known as ‘financial return’

 

Risk

All investments carry risk. Some are riskier than others. Higher-risk investments offer the potential for higher returns. There is no guarantee that investors will get back all the money they initially invested. Money market instruments (including cash) are generally considered to be the least risky investments

 

Risk appetite

Risk appetite is the amount and type of risk that an organisation is willing to take to meet their goals, and before action needs to be taken to reduce the risk. It is a balance between potential benefits of doing something different and the unavoidable threats that change brings

 

Risk-return

Generally, the higher the risk the more likely an investor will get a higher return (i.e. make a profit on an investment). The lower the risk, then investors are most likely to get a smaller return. An investor considers this when making decisions

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R
S

Secondary market

In the secondary market, investors trade securities among themselves. See also ‘primary market’

 

Securities

Debt or equity securities issued by an issuer

 

Securities exchange

Another name for a stock exchange

 

Senior debt

Debt that takes priority over other unsecured or otherwise more “junior” debt owed by an issuer in the case of bankruptcy or default (see also ‘Junior Debt’)

 

Shares

A unit of ownership in a company. Owning shares means you are also a company owner. When you buy shares, you are buying a share of the company’s assets and its profits

 

Sharpe ratio

The Sharpe ratio gives an idea of how well a fund has performed relative to the amount of risk it has taken. It’s calculated by dividing the excess return (in this case, the return above cash) by the standard deviation of the return. A higher Sharpe ratio suggests that a fund is taking on less risk to achieve its return

 

Spending power

The ability for an investor to maintain the cash value of its investments over a long period of time and into the future

 

Standard & Poor’s

One of the ‘big three’ credit rating agencies. See ‘credit rating agency’

 

Standard deviation

A statistical measure of how much the return for an investment is likely to vary. The higher the number, the more variable the return. Given two investments with the same average return, but different standard deviations, we would expect the fund with the larger standard deviation to have a wider range of likely return

 

Stock exchange

An organised, public marketplace which provides organisations (‘issuers’) with the visibility and connectivity to raise funding from investors through the buying and selling of their financial assets (‘securities’) as investments

 

Structured products

Structured products are tailored investment strategies that mix traditional financial instruments, such as shares and bonds, with elements that utilise derivatives.  They enable sophisticated investors to invest in a customised product which provides access to a wide range of underlying assets (such as equities, interest rates, foreign exchange, indices and  commodities) and offers various redemption possibilities in order to manage risk.

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The International Stock Exchange (TISE)

TISE is an innovative listing and trading facility for companies to raise capital from investors around the world. With an office in Jersey, it provides a responsive venue for listing a wide range of products, including trading companies, investment vehicles and debt securities

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T
V and Y

V

 

Volatility

Volatility measures the risk of loss, based on statistics. In most cases, the higher the volatility, the riskier the security

 

Y

 

Yield

Income received from an investment

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