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Cab
A cabinet bid, which is a facility enabling holders of out-of-the-money options to close their positions at a nominal £1 per contract.
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Call Option (LIFFE)
An option that provides the holder with the right (but not obligation) to buy an underlying asset at a specified capital price on or before a specific date.
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Call Warrant
A warrant that gives the holder the right to buy the underlying share.
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Capital Gains Tax (CGT)
Capital gains tax is payable by the individual taxpayer at a rate equivalent to the taxpayer’s highest rate of income tax on gains arising from the sale of securities or other chargeable assets.
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Capitalisation Issue
See Bonus Issue
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Cash Market
Traditionally, this term has been used to denote the market in which commodities were traded for immediate delivery against cash. Since the inception of futures markets for T-bills and other debt securities, a distinction has been made between the cash markets in which these securities trade for immediate delivery and the futures markets in which they trade for future delivery.
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Cash Settlement
Transactions for immediate settlement (normally the next business day).
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Cash Settlement (LIFFE)
In the case of index options where it is impossible or impractical to effect physical delivery of stock, open positions are closed out on the day of exercise or the last day of trading at a price determined by the underlying index level.
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Central Bank
The bank that provides financial and banking services to the government of a country and its commercial banking system and which implements the government’s monetary policy.
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Centrale de Livraison de Valeurs Mobilieres (CEDEL)
A Luxembourg based clearing house for the matching and settlement of bonds, now merged with Deutsche Börse Clearing to form Clearstream.
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Certificate
Paper form of shares (or bonds), representing ownership of a company (or its debt).
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Chinese Walls
Artificial barriers to prevent the flow of sensitive information between departments in a large firm.
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City Code
Principles and rules written by the panel to regulate conduct during a takeover, also known as the Blue Book. The code comprises of 10 general rules and around 38 detailed rules
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Class
All listed options of a particular type (call or put) on a particular instrument, e.g. all FTSE 100 index call options.
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Clean Price
A description of a bond price which does not include accrued interest.
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Clearing
The process of matching, registering and providing the guarantee for exchange traded transactions.
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Clearing House
A company that acts as central counterparty for the settlement of on-exchange transactions (also some OTC transactions i.e., Swapclear). The clearing organisation acts as the guarantor of the performance and settlement of contracts.
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Client Agreement
A legal document between the broker and the client, setting out the conditions of the broking relationship.
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Closed End Fund
A collective investment scheme which has a fixed capital, or a share capital which can be changed only after the completion of certain formalities.
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Closing
A transaction which reverses an original position by selling what you have bought or buying back what you have sold. The closing transaction is normally dealt to settle on the same day as the initial purchase or sale.
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Collateral
An acceptable asset used to cover a margin requirement.
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Collective Investment Scheme (CIS)
A generic term encompassing authorised unit trusts, common investment funds, OEICs and investment trusts. Also called a Mutual Fund particularly in the USA.
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Commission
A charge made by a firm for executing a transaction on behalf of the client.
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Commodity
The raw materials traded on specialist markets.
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Consolidation
A corporate action in which a company proportionally increases the nominal value of each share whilst decreasing the number of shares in issue. A consolidation is effectively the opposite of a subdivision.
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Contract
The standard unit of trading for futures and options. It is also commonly referred to as a lot.
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Contract for Difference (CFD)
A contract which tracks an underlying security and allows investors to profit from both rising and falling markets.
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Contract Note
Legal documentation sent by brokers/banks to clients providing details of a transaction completed on their behalf.
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Conversion Ratio
The number of shares into which a given amount (e.g., £100 or $1,000) of the nominal value of a convertible can be converted.
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Convertibles
Bonds or preference shares which may be exchanged for another class of security, usually equity, on pre-determined terms.
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Corporate Action
One of many possible capital restructuring changes, or similar actions taken by the company, which may have an impact on the market price of its securities, and which may require the shareholders to make certain decisions.
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Corporate Bond
Securities issued by companies (corporates) in order to raise capital for project financing, takeovers or restructuring. They have typical maturities of between 3 and 30 years.
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Corporate Finance
Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while reducing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.
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Corporate Restructuring
A significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business.
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Cotation Assistee en Continue (CAC-40)
The leading French stockmarket index, on which futures and options are traded on Euronext.
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Coupon
Generally, the nominal annual rate of interest expressed as a percentage of the principal value. The interest is paid to the holder of a fixed income security by the borrower. The coupon is generally paid annually, semi-annually or, in some cases, quarterly, depending on the type of security.
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Coupon Stripping
Selling on each of the coupons separately as zero coupon bonds in their own right.
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Cover
To remove the risk of an exposure by reversing the position or hedging (dealing in an instrument with a similar but opposite risk profile).
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Covered Warrants
A call option on the shares of a company issued by a bank. The bank hedges its position in the underlying stock, generally by holding shares of the company in question.
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Covered writing
In the case of call writing, covered means having a holding of shares at least equal to that implied by the option position, and in the case of put writing, covered means having a cash sum sufficient to take up the underlying security if allocated.
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Credit Rating
A way of rating the level of security of a bond or note issue, e.g., AAA issued by companies such as Standard & Poors, and Moodys
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CREST
An electronic share settlement system for securities. Most UK equities are settled via the Crest system. Crest is now a subsidiary of Euroclear, a global clearance, settlement and custody system.
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CREST Sponsored Member
A participant within CREST who holds stock in a CREST account and whose name appears on the share register. Unlike a member, a sponsored member is not their own user. The link to CREST is provided by another user who sponsors the sponsored member.
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Cross Currency
A pair of currencies traded in forex that does not include the U.S. dollar. One foreign currency is traded for another without having to first exchange the currencies into U.S.dollars.
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Cum Dividend
Literally, “with dividend”. An investor buying a stock cum dividend is entitled to receive the dividend, or interest, that has been declared, or is due, but which has not yet been paid. (See also Ex Dividend)
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Cumulative
A term which usually refers to preference shares, which are designed accordingly. Any arrears of dividends on such shares must be paid before any distributions may be made to ordinary shareholders. However, not all preference shares are cumulative.
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Current Coupon
A coupon rate that is close to current market rate.
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Current Yield
A measure of the annual income on a bond as a percentage of the price of the bond.
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Custodian
An agent, such as a broker or a bank that undertakes safekeeping of its customers’ investments.
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Custody
The storing and safekeeping of securities together with maintaining accurate records of ownership. The term also implies management of those securities such as the collection of dividends.