Glossary

Guiding you through the major terms and acronyms impacting the global capital markets today & tomorrow.

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A

ABCP - Asset backed commercial paper

Short-term debt collateralized by securities, such as mortgages or auto loans, typically issued with a maturity of 90-180 days.

ABS - Asset backed security

Asset backed securities are typically backed by loans (excluding mortgages and loans secured against commercial property), leases, credit card debt or a company's receivables or royalties.

ADV - Ave. daily volume

The total traded volume of a security or group of securities divided by the total number of trading days within a specific time period, typically calculated by quarter or month.

AFME - Association for Financial Markets in Europe

A trade body which represents the wholesale financial markets and its constituent financial service providers.

Algorithmic trading

A system of trading based on super-fast programmes based on pre-set rules that facilitates transactions in financial markets faster than by a human trader.  
B

Basel III

The global regulatory response to the financial crisis intended to strengthen banks' capital and reduce the risk of system wide shocks. It contains a number of requirements intended to improve regulation, supervision and risk management in the banking sector.  

BIC - Business Identifier Code

A unique code used to identify a specific business when making a payment.  

Bid-offer spread

The difference in prices quoted for an immediate sale bid and an immediate purchase offer of a security, commonly used as a measure of the liquidity of the market. Also known as bid–ask  spread (or buy–sell spread when quoted by a market maker).

BIS - Bank for International Settlements

Based in Basel, Switzerland, the Bank for International Settlements acts as a central bank for national central banks and aims to foster international monetary and financial cooperation.  

Broker-dealer

An individual or company that buys and sells securities for its clients - acting as a broker (or agent) - as well as for itself as a dealer (or principal). Services typically include providing investment advice to customers, supplying liquidity through market-making activities, facilitating trading activities, publishing research and raising capital for companies.
C

CBO - Collateralized bond obligation

Investment-grade bond backed by a pool of bonds with a lower credit quality.

CCP - Central counterparty

Central counterparty clearing houses help facilitate trading and reduce credit risk in European derivative and equity markets, replacing the bilateral contract between the buyer and seller with contracts between the buyer and the CCP and between the CCP and the seller.    

CDO - Collateralized debt obligation

Financial instrument that pools and repackages assets that generate a future cash flow into tranches that can be sold to investors.    

CDS - Credit default swap

Credit default swaps are designed to mitigate the buyer's risk if the issuer of the bonds defaults.

CFD - Contract for difference

A form of derivative where one counterparty agrees to pay the other counterparty the difference between the current value of an asset and its value at a specified time in the future.

CLO - Collateralized loan obligation

Collateralized loan obligations are backed by a pool of lower credit quality debt, typically issued by multiple small or medium sized corporates. 

CLOB - Central Limit Order Book

Central Limit order books match  buy and sell orders in a central, anonymous market place. Trades are executed if a new order can be matched against an existing order in the book. Unmatched orders are held until a new offsetting trade is entered.

CMBS - Commercial mortgage backed security

Commercial mortgage-backed securities are backed by the loan on a commercial property.    

CMU - Capital Markets Union

Proposed by the European Commission, the Capital Markets Union is a framework of regulation designed to create deeper and more integrated capital markets across Europe.  

Common Equity Tier 1

A measure of a bank's financial strength under Basel II that compares equity capital (excluding factors such as preferred shares or non-controlling interests) with total risk-weighted assets.

Core Tier 1

A measure of high quality capital based on share capital and eligible reserves plus non-controlling equity interests, excluding factors such as intangible assets and losses above excess of regulatory impairment charges.

Corporate bonds

Securities issued by companies to raise capital, backed by the company's future earnings or physical assets.

CT - Consolidated tape

An electronic system that reports price and volume data on sales of shares listed on an exchange in real time.
D

DEA - Direct electronic access

An arrangement where a member, participant or client of a trading venue provides access to a third party to trade directly on the venue.
E

ETF - Exchange-traded fund

Exchange traded funds are investment funds that track indices, bonds, or commodities and can be traded like a stock on an exchange.
H

HFT - High frequency trading

A form of high speed algorithmic trading often with high turnover rates and high order-to-trade ratios.
I

Internalisation

When a brokerage firm decides to fill a buy order for shares with its own inventory of shares instead of  seeking a trade with the use of outside inventory.

ISIN - International Securities Identification Number

A unique code that identifies a security, set by the ISO.
L

LEI - Legal entity identifier

A unique code that identifies a single corporate entity involved in a financial transaction.

Liquidity

Although liquidity can be defined in many ways, it generally refers to the ease with which a market participant can enter the market and buy or sell a security without influencing the market in a timely fashion.
M

Market maker

Securities dealer that agrees to buy or sell at specified prices at all times.
N

Net stable funding ratio

Liquidity requirements for banks set out under Basel III that sets out the ratio of available funding to required funding (as defined in the Basel II requirements) over one year. 
O

Option

A form of derivative that offers the right, but not the obligation, to buy or sell a security at an agreed price at a specific date.

OTC - Over the counter

Bilateral transactions between two counterparties conducted off an exchange.
P

Price transparency

The ability to see bid and ask prices and trading quantities for a given security at any point in time.
R

RMBS - Residential mortgage backed securities

Securities backed by a pool of loans secured on residential property.

RTS - Regulatory Technical Standards

European regulatory standards set by ESMA, the EBA or other relevant bodies, that detail how legislation should be apply in local law.
S

SEF - Swap execution facility

Mandated by the U.S. Dodd-Frank Act, swap execution facilities provide transparency and execution services for derivatives transactions.

SI - Systematic internaliser

Defined under European regulation as investment firm that executes client orders on its own account or through an MTF outside a regulated market on an organised, frequent and systematic basis.
T

Tick size

The minimum price movement of a tradeable financial instrument.

TR - Trade repository

Trade repositories collect and centrally maintain records of OTC derivatives.
U

UTC - Coordinated Universal Time

The standard time zone most widely used across the world.