AAccretion/DilutionAnalysis that determines the change in a companys projected EPS due to a potential M&A or capitalmarkets transaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive"when there is a negative change.Accrued interestThe interest earned on a loan or note between two interest payment dates.AcquisitionThe act of one corporation acquiring control of another corporation or asset.AgentThe bank responsible for administering a projects 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.AmortizationWriting off an intangible asset investment over the projected life of the assets. Also the spreading out ofintangible costs over several years, such as amortization of stock option expense.AnalystEntry level position typically filled by graduates or lateral hires in a U.S. investment bank. Usually 2-3years until promotion to Associate.ArbitrageBuying securities in one country/market and selling them in another, while taking advantage ofdislocations/inefficiencies in the market.Arrangement feeA fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction. It includesfees to be paid to participating banks.ArrangerA bank or other financial institution responsible for originating and syndicating a loan transaction. Thearranger always has a senior role, is often the agent, and usually participates in the transaction at themost senior level (it holds the largest share of the loan).
Asset allocationThe relative weightings of regions, sectors and types of investments (i.e. equities, bonds, etc) within aportfolio, determined by clients risk and return requirements and the market outlook. This is central tofinancial planning and investment management.Asset class breakdownPercentage of holdings in different types of investments (i.e. large stocks, international, bond, etc.).Asset swapThe bonds swapped spread, in basis points. The asset swap spread, or gross spread, is derived byvaluing a bonds cash flows via the swap curves implied zero rates. This gross spread is the basis pointamount added to the swap curve, which causes a bonds computed value to equal the market price of thebond.AssociatePosition above an Analyst and below a Vice President.Typically filled by Analysts promoted after 2-3years of experience, lateral hires or MBA graduates.AuditProfessional examination and verification of a companys accounting data.BBalloon paymentA final debt repayment that is substantially larger than the preceding repayments.Bank syndicateA group of banks that have been banded together to underwrite and sell a specific issue ofsecurities/loans.Base currencyThe first currency quoted in a currency pair on the Foreign Exchange.Basis pointA unit that is equal to a hundredth of a percent, a basis point is used to denote the change in a financialinstrument. Its commonly used for calculating changes in interest rates, equity indexes and the yield of afixed-income security.
BearAn investor who has a negative view on the market.Bear marketA market in which traders and investors are feeling negative and prices are falling or static.Beauty contestThe informal term for the competitive process by which clients choose an investment bank to mandate fora deal.Benchmark indexAn index that correlates with a fund, used to measure a fund managers performance.Best effortsTerm used by banks in selling an entire new security issue by a certain date. They agree to make theirbest effort to sell an issue to the public. Instead of actually buying and reselling the issue (that would becalled an underwrite), the banks leave the risk with the issuer by maintaining an option to buy and theauthority to sell.BetaMathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared withrates of return on the market (a diversified portfolio) as a whole. A beta of 1.0 indicates that an assetclosely follows the market; a beta greater (smaller) than 1.0 indicates greater (less) volatility than themarket. Hence, beta is a measure of risk: the higher the beta, the higher the risk.Bill of ExchangeA bill made out by one party addressed to another requiring the addressee to pay a fixed sum of moneyby a certain date. The bill is then traded on the money markets.BidThe price at which a market maker is willing to pay for a security.Bid OfferBid Offer is the difference in price or spread between where one can buy a security and one can sell it atthe same moment.Big FigureThe whole dollar price of a quote often used to reference foreign currencies. For example, if a foreigncurrency (EUR/USD) was trading at 1.5520, the big figure would be 1.55.
BloombergComputer terminals providing real time quotes, news and analytical tools, often used by traders andinvestment bankers.BondsA debt security in which an investor loans money to an entity (corporate or government) that borrows thefunds for a defined period of time at a fixed or floating interest rate. Principal is paid back at maturity.Book runnerThe investment bank that runs the debt or equity offering in the primary market.Book valueThe net-asset value of a company as determined by subtracting its liabilities from its assets.Brady bondsBonds issued by developing countries under a debt-reduction plan.Bridge financingInterim or temporary financing - usually shorter than 12 months.BrokerSomeone who earns commission for providing the link between buyers and sellers. Brokers generallytake little to no risk, as they match buyers with sellers.Bulge bracketThe largest and most prestigious firms on Wall Street.BullAn investor who has a positive view on the market.Bull marketA market in which traders and investors are feeling positive and in which prices are rising.Buy-side1. Investor end of a capital markets transaction.2. M&A process when J.P. Morgan is working with a potential buyer. It refers to the entity acquiring the asset.
CCalendarizationAct of adjusting company financials to a December 31 year-end in order to standardize financialperformance across companies with different fiscal years.Call optionThe right to buy shares at an agreed price at a future date (see put option).CapitalMoney 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 thatinvestors demand additional expected return (called the risk premium) if they are asked to acceptadditional risk.Capital expendituresMoney spent to acquire or upgrade physical assets such as buildings and machinery. Also called capitalspending or capital expense.Capital gainThe amount by which an assets selling price exceeds its initial purchase price. A realized capital gain isan investment that has been sold at a profit. An unrealized capital gain is an investment that hasnt beensold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.Capital marketsAt J.P. Morgan, our capital markets teams are Equity Capital Markets and Debt Capital Markets. They areresponsible for the origination of equity and debt instruments respectively. They are private-side teamsthat report into investment banking.Capitalization1. The sum of a corporations 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 outstandingby the price per share. Also called Market Cap or Market Capitalization.CEOChief 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 tosomeone else to get their capital back at short notice.CFAChartered Financial Analyst qualification. This is the industry qualification for research Analysts on thebuy side (markets) and Analysts and fund managers on the sell side (investment management andprivate banking).CFOChief Financial Officer.Chinese wallThe physical and regulatory separation between the public and private sides of a bank.ClearingThe process of matching, guaranteeing and registering transactions.Clearing houseAn institution that practices clearing, which significantly reduces the number of inter-bank payments.Closing PositionA traders position at the end of the trading day. Equal to the Opening Position plus or minus any tradesdone on that trading day.ClubA group of underwriters who do not need to proceed to syndication as part of fund-raising.CollateralAssets 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 FeeA per annum fee applied to undisbursed balances that lenders are committed to lend. The fee is chargeduntil the end of the availability period.CommoditiesPhysical items such as oil, gold or grain. Commodities are traded for spot (trade date plus two businessdays) and also for future delivery. There also exist options to buy and sell commodities.Common StockAlso called common equity, common stock represents an ownership interest in a company (as opposedto preferred stock). The vast majority of stock traded in the markets today is common, as common stockenables investors to vote on company matters. An individual with 51% or more of shares owned controlsa companys decisions and can appoint anyone he/she wishes to the board of directors and/or to themanagement team.Compound Annual Growth Rate (CAGR)The year over year growth rate applied to an investment or other part of a companys activities over amultiple-year period. The formula for calculating CAGR is (Current Value/Base Value)^(1/# of years) - 1.Comps or ComparablesAnalysis that uses ratios to compare company trading performance (trading comps) or previous M&A andcapital market transactions (transaction comps). Often used as part of a valuation analysis. Simply put,comps are used to compare different companies on price/ valuation to one another.Conditions Precedent (CPs)A set of preconditions that must be satisfied before the borrower can request drawdown or other creditfacilities be made available under a lending agreement.Convertible bondA bond that can be converted into shares in a company at a certain conversion price. Becauseconvertible bonds provide the option of converting debt into equity, their coupon rates are typically low.ConvexityThe rate of change of duration as yields change. A security exhibits positive convexity when its price risesmore for a downward move in its yield than its price declines for an equal upward move in its yield.
COOChief Operating Officer.Cost of capitalThe opportunity cost of an investment. This is, the rate of return that a company would otherwise be ableto earn at the same risk level as the investment that has been selected. For example, when an investorpurchases stock in a company, he/she expects to see a return on that investment. Since the individualexpects to get back more than his/her initial investment, the cost of capital is equal to this return that theinvestor receives, or the money that the company misses out on by selling its stock.Cost of carryThe cost of carry specifies the cost involved of carrying a security (i.e. bond) on the balance sheet. Thecost 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).CouponThe interest payment on a bond.CovenantAn 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. Breaching a covenant can be apre-cursor to an event of default.Coverage ratioA measure of a corporations ability to meet a particular expense.Credit Default Swap (CDS)CDS is an insurance contract in which the buyer of CDS pays a quarterly fee in return for the insurancecontract which protects them in the case of default by the reference entity. Buying CDS represents abearish view on a credit, selling CDS represents a bullish view.Cross-over tradingOffsetting buy and sell orders without recording the transaction on the exchange. This is prohibited as itmay mean the investor does not get the best price for the transaction.Currency pairThe quotation and pricing structure of currencies traded on the Foreign Exchange (FX) market.
CustodianA bank or institution that holds securities for safe-keeping and handles administrative arrangements suchas collecting coupons and dividends.CustodyThe retention of assets (e.g. stock certificates) on behalf of mutual funds, individuals and corporateclients.This invovles lending of securities, collecting income, and the information of positions, andreporting this to clients.DD&AAcronym for Depreciation & Amortization.Often combined into a single line item on financial statementsdue to the non-cash nature of both items.Data RoomCollection of documents (physical or virtual) used for due diligence surrounding potential M&A and capitalmarkets transactions.DCMAcronym for Debt Capital Markets - the area of an investment bank responsible for the issuance andpricing of bonds and other debt securities.DebentureA debt obligation secured by the borrowers general credit rather than being backed by a specific line onproperty. In other words, the debt obligation is not collateralized.DebtMoney owed to creditors or lenders or buyers of debt securities.Debt CapacityThe total amount of debt a company can prudently support given its earnings expectations, equity base,and asset liquidation value.
Debt Capital MarketsMarkets where capital funds (i.e. debt) are traded. This includes private placement as well as organizedmarkets and exchanges.DeliveryThe settlement of a futures contract, or upon settlement of a trade, securities are delivered.Depreciation1. 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 companys reported earnings while increasing free cash flow.2. A decline in the value of a given currency in comparison with other currencies. DerivativeA synthetic instrument whose market price depends on the value of an underlying security such as ashare or a bond. A derivatives market is a market in which derivative securities are traded.Discount RateThe interest rate used in discounting future cash flows. Often determined using CAPM (see Capital AssetPrice 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 acompany in the future and discounting them back to today.DivestitureWhen a company sells off a subsidiary or assets of the business to a buyer which acquires the subsidiaryor assets. This differs from a spin-off arrangement under which a company establishes a subsidiary as anew and separate business and distributes shares in the new company to its shareholders.DividendA payment by a company to shareholders of its stock, usually as a way to distribute profits toshareholders.Dow Jones Industrial Average (DJIA)Price-weighted average of 30 actively traded shares of blue-chip US industrial corporations listed on theNew York Stock Exchange.
DurationA weighted average maturity of all future cash flows of a bond. In more practical terms when tradingbonds, duration is used as a measure of a bonds sensitivity to changes in interest rates/yields (i.e. abonds price volatility).EEBITDAEarnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a companysoperating cash flow based on data from the companys income statement.ECMAcronym for Equity Capital Markets - the area of an investment bank responsible for structuring andpricing the sale of equity.EDSee Executive DirectorEmerging marketsDeveloping countries with fledgling capital markets. Banks make loans to emerging markets nations andalso assist them in issuing bonds and other debt securities.Enterprise valueA measure of what the market believes a companys ongoing operations are worth. Enterprise value isequal to the companys market capitalization minue cash and cash equivalents plus preferred stock plusdebt and plus minority interest. The number is of importance both to individual investors and potentialacquirers considering a takeover attempt.EPSAcronym 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 becalculated for the previous year ("trailing EPS"), for the current year ("current EPS"), or for the comingyear ("forward EPS").
EquitiesShares - certificates that represent a part ownership in a corporation.EquityThe risk-sharing part of capital.Equity Capital MarketsMarkets where capital funds (i.e. equity). This includes private placement as well as organized marketsand exchanges.Equity Default SwapsEquity Default Swaps are contracts structured to provide the buyer with protection (typically for five years)against a severe decline in the price of a companys stock.EurobondA bond issued in the Euromarket.EurocurrencyA currency held outside its country of origin, traded in the Euromarket.EurodollarU.S. Dollars deposited in foreign banks or foreign branches of U.S. banks.EuromarketThe 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.
FFace amountThe quantity purchased. Also called notional.Fairness OpinionThe professional opinion of an investment bank, provided for a fee, regarding the fairness of a priceoffered in a merger or takeover.Fallen AngelA credit that has fallen from investment grade ratings to below BBB-, into high yield ratings.Fed (The)The Federal Reserve, which manages the countrys economy by setting interest rates.Financial instrumentsCollective noun for established financial contracts (securities and derivatives).Fixed IncomeDebt securities or bonds.FloatThe number of shares available for trade in the market times the price. Generally speaking, the bigger thefloat, the greater the stocks liquidity.Floating rateAn interest rate that is benchmarked to other rates (such as the rate paid on U.S. Treasuries) that allowsthe interest rate to change with market conditions.FOREX or FXThe Foreign Exchange Market. This market deals in foreign currency, specifically the exchange of onecurrency for another. In global markets, the underlying reference currency is generally the US Dollar, but"crosses" may be traded with different currencies.Form 10KAudited document required by the SEC and sent to a public companys or mutual funds shareholders atthe 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 10QUnaudited document required by the SEC for all U.S. public companies, reporting the financial results forthe quarter and noting any significant changes or events in the quarter. The Form 10Q contains financialstatements, a discussion from the management, and a list of "material events" that have occurred with thecompany (such as a stock split or acquisition).Form 8KA document required by the SEC to announce certain significant changes in a public company, such as amerger or acquisition, a name or address change, bankruptcy, change of auditors, or any otherinformation which a potential investor should know about.Free Cash FlowOperating 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 leftover after it has paid all of its expenses, including investments. Future free cash flows are the discountedcash flows in a DCF (see Discounted Cash Flow) valuation.FutureThe right and the obligation to enter into a security transaction at a date in the future and at a price fixednow.Futures contractA contractual agreement transacted through an organized exchange to buy or sell a security orcommodity at an agreed price for delivery at some data in the future. Futures contracts can be freelytraded on the exchange. Some contracts such as index futures are cash settled and no actual physicaldelivery takes place.FTSEThe Financial Times Stock Exchange 100 stock index, a market cap weighted index of stocks traded onthe London Stock Exchange.
GGlobal CustodyRetention of clients assets for worldwide firms. Their assets can be monitored regardless of currency andgeographical location.GoodwillAn intangible asset which provides a competitive advantage, such as a strong brand, reputation, or highemployee morale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amountby which the purchase price exceeds the net tangible assets of the acquired company.HHedgeHolding two contrary positions in two or more financial instruments in order to offset a loss in one by again in the other.HedgingA strategy that eliminates a risk through the post sale of the risk or through a transaction in an instrumentthat represents an obligation to sell the risk in the future. The goal is to ensure that any profit or loss onthe current sale or purchase will be offset by the loss or profit on the future purchase or sale.High GradeBonds that are rated AAA through BBB-.High YieldDescription of investments with high rates of return. Generally, these are bonds that are rated BB+ andlower, and offer higher yields to compensate for the greater risks.IIndex fund
An index fund is a mutual fund that mirrors as closely as possible the performance of a stock marketindex. For example, many mutual fund companies have since established S&P 500 index funds to mirrorthat index by purchasing all 500 stocks in the same percentages as the index.Information Memorandum (IM)A document that describes a potential M&A or capital markets transaction (including project descriptionsand financing details). It is used during the marketing and due diligence phase of a transaction and is alsoreferred to as Offering Memorandum (OM) and Descriptive Memorandum (DM).Institutional clientsOrganizations with large amounts of assets, who together make up well over half of the assets traded inall markets. Examples include: governments, banks, insurance companies, central banks, and pensionfunds.Intangible AssetSomething 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 GradeAn investment rating level of "BBB" or better from Standard & Poors Corporation, or "Baa3" or better fromMoodys Corporation. See also High Grade.IPOInitial Public Offering - a companys first issuance of shares in the market.IRRInternal Rate of Return. The rate of return that would make the present value of future cash flows plus thefinal market value of an investment or business opportunity equal the current market price of theinvestment or opportunity. Used as a measure of return on equity in an LBO scenario.JJunk BondHigh risk, high yielding bonds. This is an nformalterm, see also High Yield.
LLast trading dayThe final day on which trading is allowed in a futures contract.League tablesTables that rank investment banks based on underwriting volume in numerous categories, such asstocks, bonds, high grade debt, high yield debt, convertible debt, etc. High rankings in league tables arekey selling points used by investment banks when trying to land a client engagement.LeverageA companys debts relative to its equity capital. Usually expressed as a percentage.Leveraged buy-out (LBO)An LBO is the acquisition of a company financed with a substantial amount of debt/ loans that lever upthe balance sheet of the entity being acquired. LBO activity accelerated in the 1980s as investors lookedto extract additional value for shareholders from companies. The book Predator’s Ball by Connie Bruckimmortalizes the rise of the LBO market.LIBORLondon Inter-bank Offered Rate. A widely used short-term interest rate that resets daily. LIBORrepresents the rate banks charge one another on overnight loans. LIBOR is often used by banks to quotefloating rate loan interest rates. Typically the benchmark LIBOR is the three-month rate.LienA legal security interest on property to secure the repayment of debt and the performance of relatedobligations.LiquidityThe ease with which a financial asset can be bought and sold in the market. A currency like the euro isextremely liquid; a life-insurance policy is not.Long
When you have bought securities you are said to be long of the market or long risk, and hope that priceswill rise.LotA quantity of the financial instrument being traded determined by an exchange or regulatory body.LTMAcronym for Last Twelve Months.Can be calculated for any income statement line item. LTM= Last fullyear statement - previous year quarter + current year quarter.MM&AAcronym for Mergers and Acquisitions, also known as Advisory. This is the department of an investmentbank which provides transaction advice and its execution to large corporatations.Management feeThe annual fee charged to investors in a fund.Managing DirectorTitle given by the Investment Bank when promoted from Executive Director.Mandate1. The portfolio given to investment managers by clients to be managed within their risk control requirements.2. A contract to work with a corporate client on an M&A or capital markets transaction.Market capitalizationThe value of shares in a public company at a certain point in time. This value is equivalent to the numberof shares issued multiplied by their current market price.Market makerA firm or individual who sets a price at which theyre willing to sell or buy securities, providing a stableprice 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 loanagreement. After closing, a MAC is an event that gives lenders the right to refuse further drawings or torequire immediate debt repayment.MDSee Managing Director.Modified durationThe percentage price change of a security for a given change in yield. The higher the modified duration ofa security, the higher its risk.MoodysBond rating service.MultiplesA typical valuation technique in corporate finance (see Price Earnings and Comps). What multiple is acompanys market value of its earnings, employees, sales or other measure = trading multiple. Whatmultiple of earnings, employees, sale or other measure was paid in a recent similar deal = transactionmultiple.Municipal bonds (Munis)Bonds issued by local and state governments (a.k.a. municipalities). Municipal bonds are structured astax-free for the investor, which means investors in munis earn interest payments without having to payfederal taxes. Sometimes investors are exempt from state and local taxes, as well. Consequently,municipalities can pay lower interest rates (and therefore have a lower cost of funding) than other bondsof similar risk.NNasdaqA computerized system established by the NASD to facilitate trading by providing broker/dealers withcurrent bid and ask price quotes on over-the-counter stocks and listed stocks. Unlike the NYSE, theNasdaq (once an acronym for the National Association of Securities Dealers Automated Quotationsystem) 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 standardizepractices, establish high ethical standards, and enforce fair and equitable rules.Net asset value (NAV)The total value of an ETFs (or mutual fund’s) portfolio at any given time - the sum of the value of itsholdings less any liabilities.Usually quoted on a per-share basis.NYSENew York Stock Exchange.The oldest and largest stock exchange in the U.S., located on Wall Street inNew York City. The NYSE is responsible for setting policy, supervising member activities, listingsecurities, overseeing the transfer of member seats, and evaluating applicants.OOfferThe price at which a market maker is willing to sell a security.Offering Memorandum (OM)A document that describes a potential M&A or capital markets transaction (including project descriptionsand financing details). It is used during the marketing and due diligence phase of a transaction and is alsoreferred to as Information Memorandum (IM), Descriptive Memorandum (DM) or commonly as the redherring.OPECOrganization of Petroleum Exporting Countries - an organization which tries to control the price andproduction of oil.Opening PositionA trader’s position in each contract/security at the start of the trading day.Equal to the Closing Positionfrom the previous day.OptionThe right, but not the obligation, to buy (a call option) or sell (a put option) a given stock, security orcommodity 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 theobligation, to complete the contract.PPitchbookThe book of exhibits, graphs, and initial recommendations presented by bankers to a prospective clientwhen trying to land a mandate.PortfolioA 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 bydiversifying investments (i.e. holding many and spreading out the risk.)PositionA long position is the amount of a security owned by an individual or dealer. A short position is theamount of a security net sold and (often) borrowed by an individual or dealer.Premium1. The price of an option determined by traders on the Exchange float.2. 2. The difference between the issued price and market price of a new security if it rises in value after it is issued.Price/earning ratioA figure indicating the investor confidence a company enjoys. This is calculated by the current share pricedivided by the most recent figure for the earnings per share. Typically, the higher the figure, the moreconfident the investors.Price spreadThe difference between the "bid" and "ask" price on a security, also referred to as the bid/offer.PrincipalAn investor who buys or sells on their own account at their own risk as opposed to a broker acting onbehalf of someone else. Also refers to the face value of a bond, repaid upon final maturity.Private clients
People with significant personal assets (cash, company stock, art, shares) requiring professionalinvestment management.Private EquityPrivate equity firms buy companies and restructure them, adding/ extracting value from the entity andlook to resell them for significantly more than they bought them for.Proprietary tradingTrading of the firms own assets (as opposed to trading client assets).ProspectusFinal version of the Offering Memorandum that is distributed to investors in the transaction. In the case ofan SEC registered debt transaction, it will be filed with the SEC and available to the public on the EDGARsite. If it is a 144a debt transaction, it is exempt from registering with the SEC and the prospectus isprivate, available only to those investors who hold the security.Put optionThe right to sell shares at an agreed price on a future date (see call option.)QQuoteIndicative market made by the trader.RRating agencyA company that publishes ratings for securities such as debt issues based on the likelihood of consistentand timely payments. These rankings are arrived at by looking at a variety of balance sheet data. Somerating services are very influential, and an upgrade or downgrade can affect the borrower’s financingcosts significantly. The major US rating agencies are Moodys, S&P and Fitch.Red herringSee Offering Memorandum.Reserve BankA countrys lender of last resort.
Retail clientsIndividuals who buy investments on their own behalf, not for an organization. Typically these investmentsare much smaller than those by institutional clients and therefore fees are higher. The opposite of aninstitutional client, commonly referred to as “Mom and Pop” investors.Return on equity (ROE)The ratio of a firms profits to the value of its equity. Return on equity is a commonly used measure of howwell an investment bank is doing because it measures how efficiently and profitably the firm is using itscapital.Revolver or Revolving Credit LineAn agreement by a bank to lend a specific amount to a borrower, and to allow that amount to beborrowed again once it has been repaid.Rights issueSelling new shares to existing shareholders to raise capital.Risk managementMeasuring and quantifying the risks in a trading book/ portfolio of securities. To reduce the risk, one willhedge out different types of risk that the trader does not want to take a view on or does not wantexposure to.RoadshowThe series of presentations to investors that a company undergoing an IPO or a debt offering usuallygives in the weeks preceding the offering. Heres how it works: several weeks before the IPO/debtoffering is issued, the company and its investment bank will travel to major cities throughout the country.In each city, the companys top executives make a presentation to analysts, mutual fund managers, andothers attendees and also answer questions.S
S&P (Standard &Poors)Bond rating service.S&P 500Standard& Poors 500. A basket of 500 stocks that are considered to be widely held. The S&P 500 indexis weighted by market value, and its performance is thought to be representative of the stock market as awhole.SECAcronym for Securities and Exchange Commission.The U.S. government agency that supervises theexchange of securities to protect investors against malpractice.SecuritiesCollective noun for bonds and shares.SecuritizationThe replacement of conventional ways of raising finance (e.g. loans) by instruments like Euronotes; theprocess whereby untradable assets become tradable.Sell side1. Commonly refers to the investment bank, vs. the buy-side, made up of investors.2. M&A process when J.P. Morgan is working with a potential seller.SharesA certificate issued by a company for general purchase entitling the holder to dividends from any profitsthe company may make.ShortWhen you have net sold securities you are said to be short of the market and will benefit if pricesfall.Short squeezeA situation in which a lack of supply forces prices upwards.
Spot priceThe current value of an asset.Spread1. The difference between the price at which a financial institution will buy a security and the price at which it will sell.2. The difference between the yield of a corporate bond and U.S. Treasury security of a similar maturity. StockbrokerMember of the Stock Exchange advising those buying/selling securities.StocksAlso known as equities or shares, stocks represent ownership of a corporation and claims to its assetsand earnings.SwapsA contract between two parties to make a cash flow exchange now or at a point in the future. The twoborrowers agree to pay the interest on each others debt; under a currency swap, they may also repay thecapital.SweepTypically a covenant that requires all or a specified fraction of available cash flow to be used for debtservice, including prepayments of principal.Syndicated loanA loan which several banks have clubbed together to make.TTenorThe length of a deal. Or the time period over which money is borrowed or lent.Tick1 tick = 1 basis point.
Terminal valueThe value of any item at the end of a specified time period. Examples include the maturity value of a bondand the value of a fully depreciated asset.TombstoneThe advertisements that appear in publications like Financial Times or The Wall Street Journalannouncing the issuance of a new security. The tombstone ad is typically placed by the investment bankto publicize that it has completed a major deal. This term can also refer to the lucite made tocommemorate a debt or equity offering.Trading a bookAn individual traders total positions in the market.TreasuryThe section of a bank or business involved in the financial management of the organizations liquiditythrough dealing and borrowing.UUnderwritingThe 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 thesecurities to investors for a slightly higher price, making money on the spread. This spread is often pre-agreed with the borrower, and is commonly known as the fee paid by the borrower on the transaction.USPPAcronym for US Private Placement.A negotiated sale in which the securities are sold directly toinstitutional or private investors, rather than through a public offering. These placements are notregistered with the Securities and Exchange Commission.VVice President (VP)Title given when promoted from Associate. Usally after 2-5 years as an Associate.
WWeighted Average Cost of Capital (WACC)Weighted Average Cost of Capital. An average representing the expected return on all of a companyssecurities. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate ofreturn, and then these required rates of return are weighted in proportion to the share each source ofcapital contributes to the companys capital structure. The resulting rate is what the firm would use as aminimum for evaluating a capital project or investment.Working CapitalWorking capital measures how much in liquid assets a company has available to build its business. Thisvalue, measured in liquid assets, is derived by subtracting a company’s current liabilities form their currentassets.YYieldThe return on an investment. Yields on bonds move inversely to prices.YTDAcronym for Year to Date.