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Jargon Buster

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Accretion/Dilution

Analysis that determines the change in a company's projected EPS due to a potential M&A or capital markets

transaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive" when there is a negative

change.

Accrued interest

The interest earned on a loan or note between two interest payment dates.

Acquisition

The act of one corporation acquiring control of another corporation or asset.

Agent

The bank responsible for administering a project's financing.

American Depository Receipt (ADR)

A certificate of ownership issued by a U.S. bank representing a claim on underlying foreign securities. ADRs may be

traded in lieu of trading in the actual underlying shares.

American Stock Exchange (AMEX)

The second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE). In general, the listing rules

are a little more lenient than those of the NYSE, and thus the AMEX has a larger representation of stocks and bonds

issued by smaller companies than the NYSE.

Amortization

Writing off an intangible asset investment over the projected life of the assets. Also the spreading out of intangible costs

over several years, such as amortization of stock option expense.

Analyst

Entry level position typically filled by graduates or lateral hires in a U.S. investment bank. Usually 2-3 years until

promotion to Associate.

Arbitrage

Buying securities in one country/market and selling them in another.

Arrangement fee

A fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction. It includes fees to be

paid to participating banks.

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Arranger

A bank or other financial institution responsible for originating and syndicating a loan transaction. The arranger always

has a senior role, is often the agent, and usually participates in the transaction at the most senior level (it holds the

largest share of the loan).

Asset allocation

The relative weightings of regions, sectors and types of investments (i.e. equities, bonds, etc) within a portfolio,

determined by client's risk and return requirements and the market outlook. This is central to financial planning and

investment management.

Asset class breakdown

Percentage of holdings in different types of investments (i.e. large stocks, international, bond, etc.).

Asset swap

The bond's swapped spread, in basis points. The asset swap spread, or gross spread, is derived by valuing a bond's

cash flows via the swap curve's implied zero rates. This gross spread is the basis point amount added to the swap

curve, which causes a bond's computed value to equal the market price of the bond.

Associate

Position above an Analyst and below a Vice President. Typically filled by Analysts promoted after 2-3 years of

experience, lateral hires or MBA graduates.

Audit

Professional examination and verification of a company's accounting data.

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B

Balloon payment

A final debt repayment that is substantially larger than the preceeding repayments.

Bank syndicate

A group of banks that have been banded together to underwrite and sell a specific issue of securities.

Base currency

The first currency quoted in a currency pair on the Foreign Exchange.

Basis point

A unit that is equal to a hundredth of a percent, a basis point is used to denote the change in a financial instrument. It's

commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

Bear

An investor who believes a market will fall.


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Bear market

A market in which traders and investors are feeling negative and prices are falling or static.

Beauty contest

The informal term for the competitive process by which clients choose an investment bank to mandate for a deal.

Benchmark index

An index that correlates with a fund, used to measure a fund manager's performance.

Best efforts

Term used by banks in selling an entire new security issue by a certain date. They agree to make their best effort to sell

an issue to the public. Instead of actually buying and reselling the issue (that would be called an underwrite), the banks

leave the risk with the issuer by maintaining an option to buy and the authority to sell.

Beta

Mathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared with rates of return

on the market (a diversified portfolio) as a whole. A beta of 1.0 indicates that an asset closely follows the market; a

beta greater (smaller) than 1.0 indicates greater (less) volatility than the market. Hence, beta is a measure of risk: the

higher the beta, the higher the risk.

Bill of Exchange

A bill made out by one party addressed to another requiring the addressee to pay a fixed sum of money by a certain

date. The bill is then traded on the money markets.

Bid

The price at which a market maker is willing to pay for a security.

Bid Offer

Bid Offer is the difference in price or spread between where one can buy a currency and one can sell it at the same

moment.

Big Figure

The whole dollar price of a quote often used to reference foreign currencies. For example, if a foreign currency

(EUR/USD) was trading at 1.5520, the big figure would be 1.55.

Bloomberg

Computer terminals providing real time quotes, news and analytical tools, often used by traders and investment bankers.

Bonds

A long-term loan certificate issued by governments and organizations in order to raise capital. The capital is repaid with

interest. A bond issued by a foreign institution is known as a bulldog in the UK, a yankee in the USA, a samurai bond in

Japan and so on.


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Book runner

The bank that extends invitations for syndication and is responsible for determining the composition of the lending group

and the final hold positions.

Book value

The net-asset value of a company as determined by subtracting its liabilities from its assets.

Brady bonds

Bonds issued by developing countries under a debt-reduction plan.

Bridge financing

Interim or temporary financing.

Broker

Someone who earns commission for providing the link between buyers and sellers.

Bulge bracket

The largest and most prestigious firms on Wall Street.

Bull

An investor who believes the market will go up.

Bull market

A market in which traders and investors are feeling positive and in which prices are rising.

Buy-side

Investor end of a capital markets transaction.1.

M&A process when J.P. Morgan is working with a potential buyer.2.

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C

Calendarization

Act of adjusting company financials to a December 31 year-end in order to standardize financial performance across

companies with different fiscal years.

Call option

The right to buy shares at an agreed price at a future date (see put option).

Capital

Money put into a business by its shareholders.

Capital Asset Pricing Model (CAPM)

An economic model for valuing stocks by relating risk and expected return. Based on the idea that investors demand

additional expected return (called the risk premium) if they are asked to accept additional risk.


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Capital expenditures

Money spent to acquire or upgrade physical assets such as buildings and machinery. Also called capital spending or

capital expense.

Capital gain

The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment

that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a

profit if sold. Capital gain is often used to mean realized capital gain.

Capital markets

At J.P. Morgan, our capital markets teams are Equity Capital Markets and Debt Capital Markets. They're a part of our

Corporate Finance business and are responsible for issuing new securities.

Capitalization

1. The sum of a corporation's long-term debt, stock and retained earnings. Also called Invested Capital.

2. The market price of an entire company, calculated by multiplying the number of shares outstanding by the price

per share. Also called Market Cap or Market Capitalization.

CEO

Chief Executive Officer.

Certificate of Deposit (CD)

A certificate given by a bank to a depositor that can be traded on the money market. The depositor is able to get high

levels of interest by putting their money in the bank for a fixed term but can sell the CD to someone else to get their

capital back at short notice.

CFA

Chartered Financial Analyst qualification. This is the industry qualification for research Analysts on the buy side (markets)

and Analysts and fund managers on the sell side (investment management and private banking).

CFO

Chief Financial Officer.

Chinese wall

The physical and regulatory separation between the public and "inside" areas of a bank.

Clearing

The process of matching, guaranteeing and registering transactions.

Clearing house

An institution that practices clearing, which significantly reduces the number of inter-bank payments.

Closing Position

A traders position at the end of the trading day. Equal to the Opening Position plus or minus any trades done on that

trading day.


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Club

A group of underwriters who do not need to proceed to syndication as part of fund-raising.

Collateral

Assets pledged as security under a loan to assure repayment of debt obligations.

Collateralized Bond Obligation (CBO)

Securities issued against a portfolio of bonds with different degrees of credit quality.

Collateralized Loan Obligation (CLO)

Securities issued against a portfolio of loans with different degrees of credit quality.

Commercial Paper (CP)

Short term debt obligations issued by corporations and bought by money market funds in large quantities. Maturities

range from several days to 9 months.

Commitment Fee

A per annum fee applied to undisbursed balances that lenders are committed to lend. The fee is charged until the end of

the availability period.

Commodities

Physical items such as oil, gold or grain. Commodities are traded for spot (trade date plus two business days) and also

for future delivery. There also exist options to buy and sell commodities.

Common Stock

Also called common equity, common stock represents an ownership interest in a company (as opposed to preferred

stock). The vast majority of stock traded in the markets today is common, as common stock enables investors to vote

on company matters. An individual with 51% or more of shares owned controls a company's decisions and can appoint

anyone he/she wishes to the board of directors and/or to the management team.

Compound Annual Growth Rate (CAGR)

The year over year growth rate applied to an investment or other part of a company's activities over a multiple-year

period. The formula for calculating CAGR is (Current Value/Base Value) (̂1/# of years) - 1.

Comps or Comparables

Analysis that uses ratios to compare company trading performance (trading comps) or previous M&A and capital market

transactions (transaction comps). Often used as part of a valuation analysis.

Conditions Precedent (CPs)

A set of preconditions that must be satisfied before the borrower can request drawdown or other credit facilities be

made available under a lending agreement.

Convertible bond

A bond that can be converted into shares in a company at a certain conversion price. Because convertible bonds provide

the option of converting debt into equity, their coupon rates are typically low.


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Convexity

The rate of change of duration as yields change. A security exhibits positive convexity when its price rises more for a

downward move in its yield than its price declines for an equal upward move in its yield.

COO

Chief Operating Officer.

Cost of capital

The opportunity cost of an investment. This is, the rate of return that a company would otherwise be able to earn at the

same risk level as the investment that has been selected. For example, when an investor purchases stock in a company,

he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial

investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses

out on by selling its stock.

Cost of carry

The cost of carry specifies the cost involved of carrying a security (i.e. bond) on the balance sheet. The cost of carry is

calculated as difference between interest income (income generated by the security, e.g. coupon payment) and the cost

of financing the purchase of the security (e.g. Libor).

Coupon

The interest payment on a bond.

Covenant

An agreement by a borrower to undertake (a positive covenant) or not to undertake (a negative covenant) a specific

action. Breaching a covenant is considered an event of default.

Coverage ratio

A measure of a corporation's ability to meet a particular expense.

Credit and Rates

Loans and the interest charged on the loan.

Credit Default Swap (CDS)

A credit derivative transaction in which two parties enter into an agreement, whereby one party pays the other a fixed

periodic coupon for the specified life of the agreement. The other party makes no payment unless a credit event, relating

to a predetermined reference asset, occurs. If such an event occurs, the party will then make a payment to the first

party, and the swap will terminate. The size of the payment is usually linked to the decline in the reference asset's

market value following the determination of the occurrence of a credit event. Thus it is a type of insurance. If you go long

CDS, you are a protection buyer and have to pay the premium (e.g. 100bp on notional) up-front to the counterparty. In

case of a credit event, leading to the default of the underlying security, the swap counterparty compensates you for your

losses and you are protected. The higher the risk, the higher the CDS level, the higher the "insurance" premium.

Cross-over trading

Offsetting buy and sell orders without recording the transaction on the exchange. This is prohibited as it may mean the

investor does not get the best price for the transaction.

Currency pair


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The quotation and pricing structure of currencies traded on the Foreign Exchange (FX) market.

Custodian

A bank or institution that holds securities for safe-keeping and handles administrative arrangements such as collecting

coupons and dividends.

Custody

The retention of assets (e.g. stock certificates) on behalf of mutual funds, individuals and corporate clients. This

invovles lending of securities, collecting income, and the information of positions, and reporting this to clients.

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D

D&A

Acronym for Depreciation & Amortization. Often combined into a single line item on financial statements due to

the non-cash nature of both items.

Data Room

Collection of documents (physical or virtual) used for due diligence surrounding potential M&A and capital markets

transactions.

DCM

Acronym for Debt Capital Markets - the area of an investment bank responsible for the issuance and pricing of bonds

and other debt securities.

Debenture

A debt obligation secured by the borrower's general credit rather than being backed by a specific line on property. In

other words, the debt obligation is not collateralized.

Debt

Money owed to creditors or lenders or buyers of debt securities.

Debt Capacity

The total amount of debt a company can prudently support given its earnings expectations, equity base, and asset

liquidation value.

Debt Capital Markets

Markets where capital funds (i.e. debt) are traded. This includes private placement as well as organized markets and

exchanges.

Delivery

The settlement of a futures contract.


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Depreciation

A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most

assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their

useful life is reached. Because it is a non-cash expense, depreciation lowers the company's reported earnings

while increasing free cash flow.

1.

A decline in the value of a given currency in comparison with other currencies.2.

Derivative

An instrument whose market price depends on the value of an underlying security such as a share or a bond. A

derivatives market is a market in which derivative securities are traded.

Derivatives

Collective noun for financial contracts between buyers and sellers of commodities and capital. Includes futures, options

and swaps.

Discount Rate

The interest rate used in discounting future cash flows. Often determined using CAPM (see Capital Asset Price Model)

analysis, its intended to approximate the level of risk to the cash flows.

Discounted Cash Flow (DCF)

A common means of valuing companies. This is done by forecasting the cash flows expected from a company in the

future and discounting them back to today.

Divestiture

When a company sells off a subsidiary or assets of the business to a buyer which acquires the subsidiary or assets.

This differs from a spin-off arrangement under which a company establishes a subsidiary as a new and separate

business and distributes shares in the new company to its shareholders.

Dividend

A payment by a company to shareholders of its stock, usually as a way to distribute profits to shareholders.

Dow Jones Industrial Average (DUIFG)

Price-weighted average of 30 actively traded shares of blue-chip US industrial corporations listed on the New York

Stock Exchange.

Duration

A weighted average maturity of all future cash flows of a bond. In more practical terms when trading bonds, duration is

used as a measure of a bond's sensitivity to changes in interest rates/yields (i.e. a bond's price volatility).

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E


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EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating

cash flow based on data from the company's income statement.

ECM

Acronym for Equity Capital Markets - the area of an investment bank responsible for structuring and pricing the sale of

equity.

ED

See Executive Director

Emerging markets

Developing countries with fledgling capital markets. Banks make loans to emerging markets nations and also assist them

in issuing bonds and other debt securities.

Enterprise value

A measure of what the market believes a company's ongoing operations are worth. Enterprise value is equal to the

company's market capitalization minue cash and cash equivalents plus preferred stock plus debt and plus minority

interest. The number is of importance both to individual investors and potential acquirers considering a takeover attempt.

EPS

Acronym for Earnings Per Share. Total earnings divided by the number of shares outstanding. Companies often use a

weighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year ("trailing

EPS"), for the current year ("current EPS"), or for the coming year ("forward EPS").

Equities

Shares - certificates that represent a part ownership in a corporation.

Equity

The risk-sharing part of capital.

Equity Capital Markets

Markets where capital funds (i.e. equity). This includes private placement as well as organized markets and exchanges.

Equity Default Swaps

Equity Default Swaps are contracts structured to provide the buyer with protection (typically for five years) against a

severe decline in the price of a company's stock.

Eurobond

A bond issued in the Euromarket.

Eurocurrency


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A currency held outside its country of origin, traded in the Euromarket.

Eurodollar

U.S. Dollars deposited in foreign banks or foreign branches of U.S. banks.

Euromarket

The offshore international financial market.

Exchange-traded fund (ETF)

An index fund which is traded on the stock market.

Executive Director (ED)

Title given by the Investment Bank when promoted from Vice President.

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F

Face amount

The quantity purchased. Also called notional.

Fairness Opinion

The professional opinion of an investment bank, provided for a fee, regarding the fairness of a price offered in a merger

or takeover.

Fallen Angel

A bond which was investment-grade when issued, but which is now of significantly lower quality.

Fed (The)

The Federal Reserve, which manages the country's economy by setting interest rates.

Financial instruments

Collective noun for established financial contracts (securities and derivatives).

Fixed Income

Debt securities or bonds.

Float

The number of shares available for trade in the market times the price. Generally speaking, the bigger the float, the

greater the stock's liquidity.


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Floating rate

An interest rate that is benchmarked to other rates (such as the rate paid on U.S. Treasuries) that allows the interest

rate to change with market conditions.

FOREX or FX

The Foreign Exchange Market. This market deals in foreign currency, specifically the exchange of one currency for

another. In global markets, the underlying reference currency is generally the US Dollar, but "crosses" may be traded

with different currencies.

Form 10K

Audited document required by the SEC and sent to a public company's or mutual fund's shareholders at the end of each

fiscal year, reporting the financial results for the year (including the balance sheet, income statement, cash flow

statement and description of company operations).

Form 10Q

Unaudited document required by the SEC for all U.S. public companies, reporting the financial results for the quarter and

noting any significant changes or events in the quarter. The Form 10Q contains financial statements, a discussion from

the management, and a list of "material events" that have occurred with the company (such as a stock split or

acquisition).

Form 8K

A document required by the SEC to announce certain significant changes in a public company, such as a merger or

acquisition, a name or address change, bankruptcy, change of auditors, or any other information which a potential

investor should know about.

Free Cash Flow

Operating cash flow (net income plus amortization and depreciation less increases in net working capital) minus capital

expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it has paid all of its

expenses, including investments. Future free cash flows are the discounted cash flows in a DCF (see Discounted Cash

Flow) valuation.

Future

The right and the obligation to enter into a security transaction at a date in the future and at a price fixed now.

Futures contract

A contractual agreement transacted through an organized exchange to buy or sell a security or commodity at an agreed

price for delivery at some data in the future. Futures contracts can be freely traded on the exchange. Some contracts

such as index futures are cash settled and no actual physical delivery takes place.

FTSE

The Financial Times Stock Exchange 100 stock index, a market cap weighted index of stocks traded on the London

Stock Exchange.

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G

Global Custody

Retention of client's assets for worldwide firms. Their assets can be monitored regardless of currency and geographical

location.

Goodwill

An intangible asset which provides a competitive advantage, such as a strong brand, reputation, or high employee

morale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchase

price exceeds the net tangible assets of the acquired company.

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H

Hedge

Holding two contrary positions in two or more financial instruments in order to offset a loss in one by a gain in the other.

Hedging

A strategy that eliminates a risk through the post sale of the risk or through a transaction in an instrument that

represents an obligation to sell the risk in the future. The goal is to ensure that any profit or loss on the current sale or

purchase will be offset by the loss or profit on the future purchase or sale.

High Grade

Describes bonds rated "AAA" or "AA" by Moody's or Standards & Poor's rating services.

High Yield

Description of investments with high rates of return. Generally, a high yield bond will be ranked very low by a rating

agency, because these are bonds which have a relatively high chance of default, and therefore have to offer higher

returns.

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I

Index fund

An index fund is a mutual fund that mirrors as closely as possible the performance of a stock market index. For example,

many mutual fund companies have since established S&P 500 index funds to mirror that index by purchasing all 500

stocks in the same percentages as the index.


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Information Memorandum (IM)

A document that describes a potential M&A or capital markets transaction (including project descriptions and financing

details). It is used during the marketing and due diligence phase of a transaction and is also referred to as Offering

Memorandum (OM) and Descriptive Memorandum (DM).

Institutional clients

Organizations with large amounts of assets, who together make up well over half of the assets traded in the stock

markets. Examples include: governments, banks, insurance companies, central banks, and pension funds.

Intangible Asset

Something of value that cannot be physically touched, such as a brand, franchise, trademark, or patent. Goodwill

created during an M&A transaction is an intangible asset.

Investment Grade

An investment rating level of "BBB" or better from Standard & Poor's Corporation, or "Baa3" or better from Moody's

Corporation.

IPO

Initial Public Offering - a company's first issuance of shares in the market.

IRR

Internal Rate of Return. The rate of return that would make the present value of future cash flows plus the final market

value of an investment or business opportunity equal the current market price of the investment or opportunity. Used as

a measure of return on equity in an LBO scenario.

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J

Junk Bond

High risk, high yielding bonds.

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L

Last trading day

The final day on which trading is allowed in a futures contract.

League tables


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Tables that rank investment banks based on underwriting volume in numerous categories, such as stocks, bonds, high

yield debt, convertible debt, etc. High rankings in league tables are key selling points used by investment banks when

trying to land a client engagement.

Leverage

A company's debts relative to its equity capital. Usually expressed as a percentage.

Leveraged buy-out (LBO)

Using debt in the form of junk bonds or bank loans to take over a company.

LIBOR

London Inter-bank Offered Rate. A widely used short-term interest rate. LIBOR represents the rate banks in England

charge one another on overnight loans or on loans of up to five years. LIBOR is often used by banks to quote floating

rate loan interest rates. Typically the benchmark LIBOR is the three-month rate.

Lien

A legal security interest on property to secure the repayment of debt and the performance of related obligations.

Liquidity

The ease with which a financial asset can be exchanged for good without the holder incurring financial loss. A currency

like sterling is liquid; a life-insurance policy is not.

Long

When you have bought securities you are said to be long of the market and hope that prices will rise.

Lot

A quantity of the financial instrument being traded determined by an exchange or regulatory body.

LTM

Acronym for Last Twelve Months. Can be calculated for any income statement line item. LTM= Last full year statement -

previous year quarter + current year quarter.

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M

M&A

Acronym for Mergers and Acquisitions, also known as Advisory. This is the department of an investment bank which

provides transaction advice and its execution to large corporatations.


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Management fee

The annual fee charged to investors in a fund.

Managing Director

Title given by the Investment Bank when promoted from Executive Director.

Mandate

The portfolio given to investment managers by clients to be managed within their risk control requirements.1.

A contract to work with a corporate client on an M&A or capital markets transaction.2.

Market capitalization

The value of shares in a public company at a certain point in time. This value is equivalent to the number of shares

issued multiplied by their current market price.

Market maker

A firm or individual who sets a price at which they're willing to sell or buy stock, providing a stable price against which to

judge any rise or fall.

Material Adverse Change (MAC)

Prior to closing, an event or occurrence that allows the lender to adjust the terms (i.e. rate) of a loan agreement. After

closing, a MAC is an event that gives lenders the right to refuse further drawings or to require immediate debt

repayment.

MD

See Managing Director.

Modified duration

The percentage price change of a security for a given change in yield. The higher the modified duration of a security, the

higher its risk.

Moody's

One of the most prominent credit rating agencies in the U.S.

Multiples

A typical valuation technique in corporate finance (see Price Earnings and Comps). What multiple is a company's market

value of its earnings, employees, sales or other measure = trading multiple. What multiple of earnings, employees, sale

or other measure was paid in a recent similar deal = transaction multiple.

Municipal bonds (Munis)

Bonds issued by local and state governments (a.k.a. municipalities). Municipal bonds are structured as tax-free for the

investor, which means investors in muni's earn interest payments without having to pay federal taxes. Sometimes


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investors are exempt from state and local taxes, as well. Consequently, municipalities can pay lower interest rates on

muni bonds than other bonds of similar risk.

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N

Nasdaq

A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and

ask price quotes on over-the-counter stocks and some listed stocks. Unlike the Amex and the NYSE, the Nasdaq (once

an acronym for the National Association of Securities Dealers Automated Quotation system) does not have a physical

trading floor to bring together buyers and sellers.

National Association of Securities Dealers (NASD)

A self-regulatory organization operating under the supervision of the SEC. Its purpose is to standardize practices,

establish high ethical standards, and enforce fair and equitable rules.

Net asset value (NAV)

The total value of an ETF's (or mutual fund’s) portfolio at any given time - the sum of the value of its holdings less any

liabilities. Usually quoted on a per-share basis.

NYSE

New York Stock Exchange. The oldest and largest stock exchange in the U.S., located on Wall Street in New York City.

The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of

member seats, and evaluating applicants.

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O

Offer

The price at which a market maker is willing to sell a security.

OPEC

Organization of Petroleum Exporting Countries - an organization which tries to control the price and production of oil.

Opening Position

A trader’s position in each contract at the start of the trading day. Equal to the Closing Position from the previous day.

Option


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The right, but not the obligation, to buy (a call option) or sell (a put option) a given stock, security or commodity at a

fixed price (known as the strike price or exercise price) on a specified date in the future (the expiry date). Includes

traded options, currency options and interest rate options. Similar to a Future (see Future), however, the purchaser pays

a premium to gain the option, rather than the obligation, to complete the contract.

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P

Pitchbook

The book of exhibits, graphs, and initial recommendations presented by bankers to a prospective client when trying to

land an engagement or mandate.

Portfolio

A collection of investments (can be shares, bonds, convertibles, cash, convertibles, derivatives, property, art, etc) held

by an individual or institutional investor. The purpose of a portfolio is to reduce risk by diversifying investments (i.e.

holding many and spreading out the risk.)

Position

A long position is the amount of a security owned by an individual or dealer. A short position is the amount of a security

borrowed by an individual or dealer.

Premium

The price of an option determined by traders on the Exchange float.1.

The difference between the issued price and market price of a new security if it rises in value immediately after it

is issued.

2.

Price/earning ratio

A figure indicating the investor confidence a company enjoys. This is calculated by the current share price divided by the

most recent figure for the earnings per share. Typically, the higher the figure, the more confident the investors.

Price spread

The difference between the "bid" and "ask" price on a stock or ETF.

Principal

An investor who buys or sells on their own account at their own risk as opposed to a broker acting on behalf of someone

else.

Private clients

People with significant personal assets (cash, company stock, art, shares) requiring professional investment

management.

Private Equity


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Sometimes known as merchant banking or venture capital. Investment in illiquid shares in new companies - high risk, high

return.

Proprietary trading

Trading of the firm's own assets (as opposed to trading client assets).

Prospectus

A report issued by a company (filed with and approved by the SEC) that wishes to sell securities to investors.

Distributed to prospective investors, the prospectus discloses the company's financial position, business description, and

risk factors.

Put option

The right to sell shares at an agreed price on a future date (see call option.)

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Q

Quote

The most current price (and quantity) a buyer and seller agree to trade a security.

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R

Rating agency

A company that publishes ratings for securities such as preferred stock and debt issues based on the likelihood of

consistent and timely payments. These rankings are arrived at by looking at a variety of balance sheet data. Some

rating services are very influential, and an upgrade or downgrade can affect their borrowing costs significantly. The

major US rating agencies are Moody's, S&P and Fitch.

Red herring

Also known as a preliminary prospectus. A financial report printed by the issuer of a security that can be used to

generate interest from prospective investors before the securities are legally available to be sold. Based on final SEC

comments, the information reported in a red herring may change slightly by the time the securities are actually issued.

Reserve Bank

A country's lender of last resort.

Retail clients

Individuals who buy investments on their own behalf, not for an organization. Typically these investments are much

smaller than those by institutional clients and therefore fees are higher.


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Return on equity (ROE)

The ratio of a firm's profits to the value of its equity. Return on equity is a commonly used measure of how well an

investment bank is doing because it measures how efficiently and profitably the firm is using its capital.

Revolver or Revolving Credit Line

An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it

has been repaid.

Rights issue

Selling new shares to existing shareholders to raise capital.

Risk management

The measurement of the possibility of losing or not gaining value.

Roadshow

The series of presentations to investors that a company undergoing an IPO usually gives in the weeks preceding the

offering. Here's how it works: several weeks before the IPO is issued, the company and its investment bank will travel to

major cities throughout the country. In each city, the company's top executives make a presentation to analysts, mutual

fund managers, and others attendees and also answer questions.

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S

S&P 500

Standard & Poor's 500. A basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted

by market value, and its performance is thought to be representative of the stock market as a whole.

SEC

Acronym for Securities and Exchange Commission. The U.S. government agency that supervises the exchange of

securities to protect investors against malpractice.

Securities

Collective noun for bonds and shares.

Securitization

The replacement of conventional ways of raising finance (e.g. loans) by instruments like Euronotes; the process whereby

untradable assets become tradable.

Sell side


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Issuing end of a capital markets transaction.1.

M&A process when J.P. Morgan is working with a potential seller.2.

Shares

A certificate issued by a company for general purchase entitling the holder to dividends from any profits the company

may make.

Short

When you have sold securities you are said to be short of the market and will benefit if prices fall.

Short squeeze

A situation in which a lack of supply forces prices upwards.

Spot price

The current value of an asset.

Spread

The difference between the price at which a financial institution will buy a security and the price at which it will

sell.

1.

The difference between the yield of a corporate bond and U.S. Treasury security of a similar maturity.2.

Stockbroker

Member of the Stock Exchange advising those buying/selling securities.

Stocks

Also known as equities or shares, stocks represent ownership of a corporation and claims to its assets and earnings.

Swaps

A contract between two parties to make a cash flow exchange now or at a point in the future. The two borrowers agree

to pay the interest on each other's debt; under a currency swap, they may also repay the capital.

Sweep

Typically a covenant that requires all or a specified fraction of available cash flow to be used for debt service, including

prepayments of principal.

Syndicated loan

A loan which several banks have clubbed together to make.

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T

Tenor

The length of a deal. Or the time period over which money is borrowed or lent.

Tick

1 tick = 1 basis point.

Terminal value

The value of any item at the end of a specified time period. Examples include the maturity value of a bond and the value

of a fully depreciated asset.

Tombstone

The advertisements that appear in publications like Financial Times or The Wall Street Journal announcing the issuance

of a new security. The tombstone ad is typically placed by the investment bank to publicize that it has completed a major

deal.

Trading a 'book'

An individual trader's total positions in the market bounded by specific risk limits.

Treasury

The section of a bank or business involved in the financial management of the organization's liquidity through dealing and

borrowing.

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U

Underwriting

The function performed by investment banks when they help companies issue securities to investors. Technically, the

investment bank buys the securities from the company and immediately resells the securities to investors for a slightly

higher price, making money on the spread.

USPP

Acronym for US Private Placement. A negotiated sale in which the securities are sold directly to institutional or private

investors, rather than through a public offering. These placements are not registered with the Securities and Exchange

Commission.

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V


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Vice President (VP)

Title given when promoted from Associate. Usally after 2-5 years as an Associate.

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W

Weighted Average Cost of Capital (WACC)

Weighted Average Cost of Capital. An average representing the expected return on all of a company's securities. Each

source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required

rates of return are weighted in proportion to the share each source of capital contributes to the company's capital

structure. The resulting rate is what the firm would use as a minimum for evaluating a capital project or investment.

Working Capital

Working capital measures how much in liquid assets a company has available to build its business. This value, measured

in liquid assets, is derived by subtracting a company’s current liabilities form their current assets.

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Y

Yield

The annual return on investment. A high yield bond, for example, pays a high rate of interest.

YTD

Acronym for Year to Date.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z


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