The explosion in the City colloquially known as the Big Bang has added some new words and phrases to the language of that other market. This we felt was an ideal opportunity to remind our readers of some of those “in” words.
Account: The principal division of the Stock Exchange calendar. Normally an account runs for two weeks (10 working days) and each account is identified by both a letter and a figure (for example, 5E). Account day: The day on which all bargins done during a particular account are settled — normally the second Monday following the end of the account.
Dealing within the account: Buying and selling the same security within the same account. This means that no stocks or shares need to be delivered and the investor either pays or receives the cash difference involved. This means he does not have to pay Ad Valorem stamp duty, and the broker only charges commission on one side of the transaction.
After-hours dealings: Dealings done after the Official close (3.30 pm) which count as the first deals done for the following business day. Also known as Early bargains.
Allotment letter: See Renounceable documents
Application form: When a company offers shares direct to the public the official application form must be used to apply for them. This form is printed as part of the Prospectus. Photocopies are not acceptable.
Arbitrage: Buying securities in one country and selling them in another with the object of making a profit.
At Best: An instruction to deal at the best price ruling in the Market at the time, ie the highest price when selling, and the lowest when buying.
Bargain: Any Stock Exchange transaction. No “special price” is implied.
Bear: One who has sold a security in the hope of buying it back at a lower price
Bear market: One in which bears would prosper, that is, a falling market.
Bearer stocks/shares: Securities for which no register of ownership is kept by the company concerned.
Beneficial owner: The ultimate owner of a security, regardless of the name in which it is legally registered.
Bid: (1) To indicate how much you are prepared to pay for shares. (2) An approach made by one company wishing to purchase the entire share capital of another company.
Big Bang: Nickname for the change in the Stock Exchange’s rules and practices, bringing British practice more into line with that of major stock exchanges overseas such as New York. The first rule changes, which permitted financial institutions such as banks and insurance companies to own Stock Exchange subsidiaries, came into force on March 1 1986, followed on October 27 1986 by the introduction of a new dealing system, abolition of the strict segregation between brokers and jobbers and the abolition of fixed commissions.
Blue Chip: Term for the most highly regarded industrial shares. Originally an American term, derived from the highest valued chip in poker.
Bonus issue: See Capitalisation of reserves.
Broker/dealer: Stock Exchange member firm which buys or sells shares. Pre-“Big Bang” only brokers were allowed to deal with the public. Post-“Big Bang” all member firms can deal in shares either as agents for public investors or as principals for their own account with other firms or outside investors.
Bull: One who has bought a security in the hope of selling it at a higher price.
Bull Market: One in which bulls would prosper, that is, a rising Market.
Call: The amount due to be paid to a company by the purchaser of nil-paid or partly paid shares.
Call option: The right to buy stock or shares at an agreed price on a future date. Money at call: Money loaned in a form that can be withdrawn at any time.
Capitalisation of reserves: The process whereby money from a company’s reserves is converted into issued capital, which is then distributed to shareholders as new shares, in proportion to their original holdings, in a Capitalisation issue (Also known as a Bonus, Free or Scrip issue).
Cash dealings: Dealings for settlement the following day.
Close: (1) 3.30 p.m. (See After-hours dealings).
Closing price: The price at this time.
(2) To remove the necessity to deliver shares or to receive them by making a balancing transaction in the opposite direction. Thus a purchase of 200 shares would open a position, which would be closed by a sale of the same amount during the same Account.
(3) Books closed date: The date on which a company’s share register will be closed temporarily to allow time to prepare payment of a dividend to shareholders on the register at that date.
Compensation fund: A fund maintained by the Stock Exchange to recompense investors should a member firm fail to meet its obligations, and be Hammered.
Consideration: The money value of a Stock Exchange transaction (for example, the number of shares multiplied by the price per share) before adding commission, stamp duty, VAT etc).
Contango: An arrangement whereby settlement for securities is deferred from one account to the next.
Contango day: The last dealing day of an account, on which contangos are arranged.
Council of the Stock Exchange: The governing body of the Stock Exchange. It has 46 members, elected by the members of the Stock Exchange, plus five lay members and the Government broker, who is an ex-officio member, but has no vote. All actions of the Stock Exchange are taken in the name of the council.
Coupon: On Bearer securities, a detachable part of the certificate exchangeable for dividends. Also used generally to denote the rate of interest on a fixed interest security.
Cover: (1) Collateral deposited as security against an open position.
(2) The amount of money a company has available for distribution as dividend, divided by the amount actually paid. If this results in a figure of 1 or more, the dividend is that number of times covered. If the result is less than 1, the dividend is uncovered.
Cum: (1) Latin for “with”. Used in the abbreviations Cum Cap, Cum Div, Cum Rights etc, to indicate that the buyer is entitled to participate in the forthcoming capitalisation issue, dividend or rights issue. (2) Short for Cumulative, as Cum Pref, meaning Cumulative Preference Share.
Discount: (1) Used to indicate that some expected future event has already been allowed for in the current price of a security. (2) See Premium.
Discount houses: Specialist financial institutions, operating in the Money Market.
Dividend: Payment from a company’s profits to its shareholders. Dividend mandate: A form, completed by the shareholder, requiring the company to pay his dividends direct to a bank, or to some other person. Dividend warrant: The cheque by which the dividend is paid. Interim dividend: A dividend declared part way through a company’s financial year, authorised solely by the directors. Final dividend: The dividend covering the last part of a company’s year, recommended by the directors, but authorised by the shareholders at the Annual General Meeting. Cut a dividend: Pay a smaller dividend that the previous one. Pass a dividend: Fail to pay one.
Equity: The risk-sharing part of a company’s capital. The term equities is often used instead of ordinary shares.
Ex: Without. The opposite of Cum, and used to indicate that the buyer is not entitled to participate in whatever forthcoming event is specified. Abbreviated to xd, for ex-dividend, etc.
FT Index: Refers to the Financial Times Index, usually the Industrial Shares Index, also known as the “30 share index”. This started in 1935 at 100, and is based on the prices of 30 leading industrial and commercial shares. These are chosen to be representative of British industry and commerce, rather than of the Stock Exchange. Government stocks, banks and insurance companies are not included. The main reason for its popularity as a market indicator was that until recently it was the only one calculated throughout the day, being calculated hourly during trading hours, and again as a “Closing Index” at 5.00 pm. The Financial Times also produces the FT/Actuaries Indices, started in 1962. There is a large range of these, covering various sectors of the market, the best known being the “All-share” and “Government securities” indices.
FT-SE 100 Index: Popularly known as “Footsie”, is an index of 100 leading UK shares listed on the Stock Exchange. It provides a minute by minute picture of how Stock Exchange values are moving. It started on January 3 1984 and was given the base number 1000.0. It has proved extremely successful, both in tracking the market and as a basis for trading in options.
Fully paid: See PAR.
Gilts or Gilt-edged: Securities whose interest and capital are guaranteed by the UK Government.
Irish gilts: Those whose interest and capital are guaranteed by the Government of the Republic of Ireland. Long Gilts or Longs: Those without a redemption date within 15 years. Medium gilts, or Mediums: Those with a redemption date between 5 and 15 years ahead. Short Gilts, or Shorts: Those with a redemption date within 5 years.
Gross: Before deduction of tax. Grossing up: Calculating the amount that would be required, in the case of an investment subject to tax, to equal the income from an investment not subject to tax.
Hammering: Announcement of the failure of a Stock Exchange Firm. See Compensation fund.
Issuing house: An organisation which arranges the details of an issue of stock or shares, and the necessary compliance with Stock Exchange regulations in connection with its listing.
Jobber: A Stock Exchange member whose firm acts as a dealer in securities (See Market maker).
Letter of indemnity: Request to a company’s registrar to issue a replacement stock or share certificate when the original has been lost, destroyed or stolen. In it the holder undertakes to indemnify the company for any loss incurred as a result of issuing a duplicate document; most companies require this undertaking to be countersigned by a bank or insurance company.
Letter of renunciation: Form attached to an allotment letter which is filled in should the original holder wish to pass his entitlement to someone else. See Renounceable documents.
Limit: A restriction set on an order to buy or sell, specifying a minimum selling or maximum buying price. When giving a limit the client should say for how long it is to be kept in force, eg good for the (current) account, good till cancelled, etc.
Listed Company: A company whose shares are listed on the Stock Exchange. Sometimes also called a Quoted company.
Listing Particulars: The details a company must publish about itself and any security it issues before these can be listed on any Stock Exchange in the EEC.
Longs: See Gilts.
Mark: A price given in the Official list under the heading “Business Done”. Though under Stock Exchange Rules marking is not compulsory, (except in a few specified instances) the use of computers to compile this information has meant that it is now the rule rather than the exception.
Market Maker: A Stock Exchange member firm which is prepared to buy or sell shares at all times, thus “making a market” in them. Pre-“Big Bang” this role was filled by the jobbers, who were not allowed to deal with the public. Post-“Big Bang”, all members are broker/dealers, some of whom will specialise as market makers.
Medium: See Gilts.
Middle price: The price half-way between the two prices shown in the Stock Exchange Daily Official List under “Quotations”, or the average of both buying and selling prices offered by a jobber. The prices found in newspapers are normally their estimate of the middle price.
New shares: Term used to indicate that the shares can be transferred on Renounceable documents.
New time: “New time” dealings may be done by special arrangement in the last two days of an account, and settled as if they had been done during the following account.
Nil paid: A new issue of shares, usually as a result of a Rights issue, on which no payment to the company has yet been made.
Nominal value: See Par.
Nominee name: Name in which a security is registered that does not indicate who the Beneficial owner is.
Offer: To indicate that you are prepared to sell shares at a particular price.
Official close: See After-hours dealings.
Official list: The Stock Exchange Daily Official List is the list of official prices published each day by the Stock Exchange.
Opening Price: The price at 9.30 am.
Option: An agreement giving the right to buy or sell a share at a pre-arranged price at a future date. See also Traded option.
P/E Ratio: See Price/Earnings ratio.
Par: The Nominal Value of a security (always taken as £100 in fixed interest stocks). By British and Irish Company Law, a company must set a Par value on its ordinary shares. In some countries shares can have No par value (abbreviated to NPV).
Pari passu: Equal in every respect. Used to describe new issues of shares in relation to shares already in issue.
Pink form: See Preferential form.
Portfolio: The list of securities owned by a person or financial institution.
Preferential form: The Stock Exchange allows companies offering shares to the public to set aside up to 10% of the issue for applications from employees, or, where a parent company is floating off a subsidiary; shareholders of the parent company. Special differently coloured application forms, usually pink (hence the nickname Pink forms), are used for this.
Premium: If the market price of a new security is higher than the issue price, the difference is the premium. If it is lower, the difference is the Discount.
Price/Earnings ratio: The current share price divided by the last published earnings (expressed as pence per share). It is used as a measure of whether a share should be considered “expensive” — thus a share selling at 50p with a P/E ratio of 10 would be dearer than one selling at 100p with a P/E ratio of 5.
Probate price: The price used in valuing shares for taxation purposes. It is calculated on the QUARTER UP principle: that is, instead of taking the Middle price in the Official list the difference between the two prices given under “Quotations” is divided by four, and this amount added to the lower one.
Prospectus: Document giving details of a company required to support a new issue, and which must be lodged with the Registrar of Companies before any shares can be offered for sale.
Provisional allotment letter: See Renounceable documents.
Proxy: A person empowered by a shareholder to vote on his behalf at company meetings. Proxy card: The form supplied by the company by which the shareholder appoints his proxy.
Put option: The right to sell stock or shares at an agreed price on a future date.
Put through: Special dealing procedure, applying usually to very large orders, by which the broker finds both a seller and a buyer, and the jobber “puts the shares through” the market for a very small Turn.
Quotations: The double price given in the Official List indicates the range of buying and selling prices.
Quoted company: See Listed company.
Redemption date: The date on which a security is due to be redeemed by the issuer at its full face value. The year is included in the title of the security; the actual redemption date is that on which the last interest payment is due. Redemption yield: See Yield.
Renounceable documents: Temporary evidence of ownership, of which there are four main types: When a company offers shares to the public, it sends an Allotment Letter to successful applicants; if it has a Rights issue, it sends a Provisional Allotment Letter to its shareholders, or in the case of a Capitalisation Issue, a Renounceable Certificate. Any of these may be replaced, in the initial dealing period, by a split receipt, which takes the place of the original letter or renounceable certificate. All of these are, in effect, Bearer securities, and are valuable. Each includes full instructions on what the holder should do if he wishes to have the newly issued shares registered in his own name, or if he wishes to renounce them in favour of somebody else. This facility applied for a strictly limited time, during which, however, shares represented by renounceable documents are not subject to Stamp duty.
Rights issue: When a company, whose shares are already Listed, makes a further offer of shares for sale. The Stock Exchange requires that these be offered to existing shareholders, in proportion to their existing shareholdings. This is known as a Rights Issue (See Renounceable documents).
SEAQ: The Stock Exchange Automated Quotation service which will be operative post-“Big Bang”. This will be a new screen-based dealing system, on which the competing market makers in any particular security display their buying and selling prices simultaneously to all users of the system.
Scrip: Stock and share certificates.
Scrip Issue: See Capitalisation of reserves.
Securities: General name for stocks and shares of all types. In common usage, Stocks are Fixed interest securities and Shares are the rest, though strictly speaking, the distinction is that stocks are denominated in money terms. For example, ICI does not have any ordinary shares at all: Its Equity capital is in fact divided into units of ordinary stock, transferable in multiples of £1, but the difference between this and ordinary shares of £1 each is academic. Stock (in the singular) is often used in the same way as Scrip to describe the actual paper changing hands.
Shares: See Securities.
Shorts: See Gilts.
Spread: The difference between a buying price and selling price.
Stag: One who applies for a new issue in the hope of being able to sell what is allotted to him at a profit as soon as dealing starts.
Stamp duty: General name for a group of taxes levied by the Inland Revenue.
Stocks: See Securities.
Talisman: The Stock Exchange’s computerised settlement system. The letters stand for Transfer Accounting, Lodging for Investors and Stock Management for Jobbers.
Tap stocks: Government stocks which the Government broker will supply at a given price. The price he chooses, set in consultation with the Bank of England, provides a means of influencing interest rates in general.
Times covered: See Cover.
Traded options: Options which can be bought and sold throughout their life, and exercised by the eventual holder at their expiry date.
Transfer: The form signed by the seller of a security authorising the company to remove his name from the register, and substitute that of the buyer.
Trustee status: Used with reference to ordinary shares of those companies which meet the requirements of the “wider range” investments defined by the Trustee Investments Act, 1961. Briefly, the company is UK-registered, has paid-up capital of at least £1 million, and has paid a dividend for at least the last five years.
Turn: The difference between a buying and selling price where business done has resulted in a profit. To make a turn: buy and sell at a profit.
USM: Unlisted securities market.
Underwriting: An arrangement by which a company is guaranteed that an issue of shares will raise a given amount of cash, because the Underwriters, for a small commission, undertake to subscribe for any of the issue not taken up by the public.
Unlisted security: One which has not been admitted to the Official List. Usually the issuer will be an Unlisted company, but not always. It is not uncommon for a company to apply to the Stock Exchange for its ordinary shares to be listed but not its loan stocks, or vice versa.
Warrant: A special kind of option, given by a company to holders of a particular security, giving them the right to subscribe for future issues, either of the same or some other security.
Dividend Warrant: See Dividend.
XC, XD, XR etc: See Ex.
Yield: The annual return on your money, based on the current price of the security, on the assumption that the next dividend paid will be the same as the last one. Flat yield: The income on a fixed interest stock, ignoring any capital gain that may be made if the stock is due to be redeemed at par at some future date. Redemption yield: The same, but allowing for the expected capital gain.
