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
ADR
American Depository Receipt. A Depository Receipt listed on a United States Stock Exchange and traded in USD.
Affirmation
Where two parties to an OTC derivative transaction confirm the economics of a transaction. Typically done by phone but can be by email if the relevant party's controls allow.
American
An option style that allows the holder to exercise prior to the contracted expiration date.
Arbitrage
The practice of creating a transaction (or transactions) to manipulate pricing abnormalities to return a riskless profit
At Market
A buy or sell order placed into the order book where the instruction for execution is the best price available on the exchange
At-the-Money
Term used to define the zero value of an option’s Intrinsic Value
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B
Basis
The difference between the forward price and the spot price
Basis Point
One hundredth of one percent (0.01%)
Basis Risk
Either (i) the exposure to change in the Basis or (ii) the exposure to differences in the legal or economic terms of two derivative contracts (that typically offset each other)
Basket
An underlying instrument made up of more than one asset. Typically composed of either shares or indices however any underlying can be placed into a basket with any other,
BBA
The British Bankers Association
Bermudan
An option style more flexible than a European but less so than an American where exercise can occur prior to contractual expiration but only on contracted dates.
Bid
The amount you are willing to pay to enter into a transaction.
Bloomberg
A global news agency with a large presence in the financial information market
Broker Dealer
A company that enters into transactions on behalf of (i) its clients and (ii) on its own behalf
Business Day
Contractual terms used to describe days when it is not possible to make payment in a particular currency
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C
Call Option
The right but not the obligation to buy an underlying asset at a fixed price on a date in the future.
Cash Price
See Spot Price
Clearing House
The entity responsible for managing the payment and title transfer process for trading in securities
Collateral
Cash or securities collected from/paid to a Counterparty to mitigate Credit Risk
Composite
An FX element to a derivative that adds exchange rate risk to the transaction. For a further explanation of Composite, click here.
Confirmation
A written contractual agreement of a derivative transaction
Counterparty
The party on the other side of a transaction to you.
CPPI
Constant Portfolio Protection Insurance. An equity derivative structure.
Credit Risk
The exposure to a change in the ability for your counterparty to meet its payment obligations under a transaction.
Cross Currency
Where the performance of a derivative transaction is converted into another currency at prevailing exchange rates. For a further explanation of Cross Currency, click here.
CSA
Credit Support Annex. The document, typically attached to a Master Agreement that sets for the collateral terms between the parties
CSIA
Component Security Index Annex. A supplemental document conceived in 2009 designed to amend the terms of an OTC Equity Swap contract to recognise that such contract is hedged with a Basket of Shares. Originally intended to apply to Delta One transactions
Cum-dividend Date
Cum in Latin means "with" and in relation to a dividend means that the shares trade with the relevant dividend.
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D
Delta
Letter of the Greek alphabet assigned to a measurement of risk that returns the change in the price of an Option contract for a given change in the underlying asset of that option.
Delta One
A name given to the Equity Finance area of an Equity Derivative trading floor, intended to reflect the hedge profile of that business where traders position the full amount of a corresponding contractual swap obligation.
Depository Receipt
A share, listed on a Stock Exchange where the Issuer is a foreign company not domiciled in the jurisdiction of the Stock Exchange.
DR
Depository Receipt
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E
ETC
Exchange Traded Contract. A derivative contract traded on an organised exchange
European
An option style that allows the holder to only exercise on the contracted expiration date.
EUROStoxx50
The European benchmark equity index sponsored by Stoxx Ltd
Ex-Dividend Date
Also known as the "Ex" date. In Latin "Ex" means without. In relation to a dividend, it is the date on which the relevant shares, trade without the relevant dividend.
Exercise Price
The price (or level) at which a listed Option is exercised
Exotic
See Structure
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F
Fed
The Federal Reserve Bank of New York. One of the many regulatory bodies in the USA
Floating Rate
A changeable interest rate determined at contracted intervals by reference to a published rate.
Forward
A privately negotiated contractual obligation to make (seller) or take (delivery) of an underlying asset at a preagreed price on a preagreed date.
FSA
The Financial Services Authority
Future
An exchange-traded contractual obligation to make (seller) or take (delivery) of an underlying asset at a preagreed price on a preagreed date.
FX
Foreign Exchange
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G
GDR
Global Depository Receipt. A Depository Receipt listed on a Stock Exchange outside the United States
Gearing
Where a multiplier is applied to the performance of a derivative
Give-up
Where a party will give up custody of an asset to another party on the instruction of a third party. Typically used in Equity Finance transactions where hedges either can't be sourced or avoid execution charges.
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I
Interdealer Broker
A company that facilitates transactions between two parties in return for commission payments
In-the-Money
Term used to define the positive value of an options Intrinsic Value
Intrinsic Value
The value of an asset today. In terms of options, it is the value of an option should it be exercised today (regardless of its style).
IRS
Interest Rate Swap
ISDA
The International Swaps and Derivatives Association
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L
LIBOR
London Interbank Offer Rate. An interest rate compiled by the BBA as the average of the offer prices at which banks on London will borrow money from each other
Limit Down
The suspension in the trading of an asset by the relevant exchange because the price of that asset has declined below a limit down price
Limit Price
An instruction to execute an order only at a certain price
Limit Up
The suspension in the trading of an asset by the relevant exchange because the price of that asset has exceeded a limit up price
Long
The act of purchasing or already owning an asset.
Long Form
A self contained Confirmation where all the terms are defined within that Confirmation.
LSE
London Stock Exchange
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M
Master Agreement
A high level, (non-transaction specific) document that sets out contractual terms between two parties.
MCA
Master Confirmation Agreement. A product specific Confirmation that contains all mechanisms, definitions and triggers but no economics. The economics are designed to be captured in a supplemental document called a Transaction Supplement that are matched between the parties. The creation of MCA's and Transaction Supplements allows for much shorter paper confirmations and also the electronic matching of trades
MEIA
Multiple Exchange Index Annex. A supplemental document conceived in early 2000 designed to amend the terms of an OTC Index Option contract to recognise that such contract is hedged with an Index Future and that its constituents are traded on multiple exchanges. Originally intended for the EUROSTOXX50 Index
MIS
Management Information Statistics
MSCI
Morgan Stanley Capital International. Morgan Stanley are a global Investment bank who sponsor a number of worldwide global benchmark indices.
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N
Novation
A tri-party contract intended to transfer the rights and obligations of an annexed contract from one party to another.
NYSE
New York Stock Exchange
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O
OET
Optional Early Termination. A clause, usually in a Swap contract that allows one or both parties to break the transaction early
Offer
The amount you are willing to receive to enter into a transaction
Open Outcry
A form of trading where dealers and brokers trade face to face rather than electronically over a phone or through an order book
Option
A contract between two parties giving the buyer the right to effect a transaction with the seller. An option can be either a Put Option or a Call Option
Option Style
The part of an option that dictates its exercise dynamics
Order Book
The stock exchange platform where buy and sell orders are entered for execution
OTC
Over the Counter. A privately negotiated derivative contract traded away from any organised exchange
OTC Equity Swap
A Swap contract where the obligations of the parties usually reflect the payment of the price performance of an equity asset in exchange for interest on the aggregate value of that equity asset
Out-the-Money
Term used to define negative Intrinsic Value of an Option
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P
Put Option
The right but not the obligation to sell an underlying asset at a fixed price on a date in the future.
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Q
Quanto
An FX element to a derivative transaction that eliminates exchange rate risk. For a further explanation of
Quanto, click here.
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R
Record Date
The date on which a registrar will determine share ownership in order to distribute a dividend
Recovery Rate
The total amount of a dividend receivable from the amount the issuer distributes after tax and any other considerations
Registrar
The entity responsible for registering ownership of Shares
Reuters
A global news agency with a large presence in the financial information market
RIC
Reuters Identification Code. An identifying code that, when placed into a Reuters platform will display the required information
Risk
An exposure to change
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S
Schedule
An appendix to a Master Agreement where all of the terms are elected.
Secondary Market
An agreement to provide prices in an instrument subsequent to its initial offering.
Share(s)
Part ownership of a company that can be purchased, from a broker who is a member of the relevant Stock Exchange. The value of that ownership is determined by the prices made by the members of the relevant stock exchange
Short
The act of selling or having already sold an asset
Short Form
A Confirmation that references definitions, mechanisms and triggers from another referenced source (such as the ISDA 2002 Equity Derivatives Definitions)
Spot Price
The value of an asset today
Spread
Either (i) an amount applied to the Floating Rate of an Equity Swap as commission on the transaction (represented as either a number of Basis Points or a percentage or (ii) the distance between the Bid and Offer prices of an asset/transaction.
SSI
Standard Settlement Instruction
Stock Exchange
A platform on which securities (usually Shares) are traded. Stock Exchanges can trade on an Open Outcry or screen -based basis.
Stock Loan
Contractual agreement to lend shares for a certain tenor in exchange for a fee which is typically a percentage of the aggregate value of the shares
Strike Price
The price (or level) at which an OTC Option is exercised
Structure
A derivative transaction where the payoff is more complex than a vanilla
Swap
A contract between two parties where (usually two) payment obligations are exchanged.
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T
Tenor
The length of a transaction (in terms of time)
Theta
Letter of the Greek alphabet assigned to measure the change in an Options' premium for a given change in
Tenor of the Option
Time Value
The difference between an options premium and its intrinsic value
TS
Transaction Supplement. An annex to an MCA where the economic terms are confirmed
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U
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Underlying
The asset on which a derivative contract is measured
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V
Vanilla
Term attributed to a derivative transaction that is plain and simple
Variance
Volatility to the power of 2
Vega
Letter of the Greek Alphabet assigned to the measure the change in an options volatility for a given movement in the Underlying
Volatility
The measure of the amount by which the value of an asset moves over a given time
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Z
Z-yen
Company who collects and sells performance-based metrics across the financial and other communities. www.zyen.com
