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HMRC internal manual

Stamp Taxes on Shares Manual

From
HM Revenue & Customs
Updated
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Glossary

The following is an alphabetical list of some of the legal terms that commonly occur in the financial securities industry and to Stamp Duty and SDRT. This edition draws on and encompasses the earlier Stamp Duty and SDRT Glossaries detailed in the Stamp Office Manual and incorporates new words and phrases that have emerged in the stock markets or have significance to SDRT.

Some of the terms used in the financial world have precise meanings for some people but are generic for other individuals. This glossary should therefore be seen as a guide but not as authority. The glossary does not pretend to be comprehensive, given the huge vocabulary of the financial sector, but is intended as an aide memoir to assist with understanding.

Where acronyms and other initials are used in this Glossary, they are listed in their strict alphabetical order rather than under their full name. Thus, for example, AIM will be found between ‘Agreement’ and ‘Allotment’.

Suggestions for future insertions will be gratefully received and forwarded to:

HMRC Stamp Taxes
SDRT Technical Adviser
100 Parliament Street
London
SW1A 2BQ

A

ABSOLUTE INTEREST A full and complete right or title to, or estate in stocks and shares combining both the legal and beneficial interests
   
ACCOUNTABLE PERSON The person who has statutory responsibility for the payment of SDRT to the HM Revenue & Customs. The accountable person is distinguishable from the liable person, who will normally be the person acquiring the chargeable security.
ACCOUNT STATUS ‘A’ In CREST, a member or participant account set up account status ‘A’ is the default for the payment of SDRT at the rate of 0.5% on securities purchased.
ACCOUNT STATUS ‘C’ In CREST, a member or participant account set up account status ‘C’ is the default for the payment of SDRT at the rate of 1.5% on securities purchased.
ACCOUNT STATUS ‘Z’ In CREST, a member or participant account set up with account status ‘Z’ means that no SDRT obligations arise on all purchases of UK registered securities. Such accounts include acquisitions for, and on behalf of, recognised charities.
ACCUMULATION UNITS Units in unit trusts / shares in an oeic, where income derived from investments held by the fund are ‘rolled up’ or automatically reinvested in the trust/oeic rather than being paid out to unit/shareholders as dividends. Unit/shareholders get the benefit of the dividends through a higher unit or share value.
ACD The person who operates an open-ended investment company (oeic) scheme and is responsible for investing cash contributions received from investors or dealing with surrenders of shares is called the Authorised Corporate Director (ACD). The ACD is responsible for keeping the register of the names of the holders of the oeic shares.
The person who is entrusted with the custody of the investments/assets contained within an oeic on behalf of the investors is called the Trustee.    
  ACQUISITION The process of one company taking over another by purchasing its assets or shares.
  ACTIVE MARKET A Market for a particular class of shares or stock in which there is active and regular trading.
  ADJUDICATION Under section 12 Stamp Act 1891, any person can request Stamp Taxes to express a formal opinion of the Stamp Duty charged upon executed documents and instruments of title. When the document is stamped with the duty assessed upon it a further stamp is impressed which denotes that it is then ‘Adjudged duly stamped’ or ‘Adjudged Not Chargeable with any duty’. The impression of the adjudication stamp on a document is conclusive and precludes any future question being raised by Stamp Taxes or a third party as the correctness of the stamping.
The adjudication process is compulsory for various claims to stamp exemption and/or relief. This includes, share purchases undertaken by recognised charities, sales of securities to intermediaries, stock lending arrangements, company acquisitions and transactions between associated companies.    
  ADR An American Depositary Receipt (ADR) allows US investors to own shares in non-US companies. Denominated in dollars, ADRs can be traded in London. A depositary receipt is defined, broadly, as an instrument acknowledging that a person holds stocks or shares but that another person is entitled to rights in relation to stocks or shares of the same kind including the right to receive such securities. A depositary receipt is in effect a substitute for a company share and is issued by a bank whose business includes the issuing of receipts against the deposit of the actual shares concerned.
  ADS Foreign stocks and shares that are issued in the U.S. and registered in the ADR system. The term ADR & ADS is often confused. In strictness, an ADS is the actual share trading, while an ADR represents a bundle of ADSs.
  AD VALOREM The English translation is ‘according to value’,assessing Stamp Duty on a transfer of property as a percentage (i.e. 0.5% or 1.5%) of the value of
  ADVISORY BROKER A broker that suggests changes to a shareholders existing portfolio or holding of securities. An advisory broker does not have the authority to execute share deals without client instruction.
  AGENT INDICATOR Used in CREST to indicate whether the participant is

a SRO member acting as agent or principal. If a participant is acting under instructions from a client, the indicator is set to value ‘A’, denoting an agency capacity. If the CREST participant is trading directly with another CREST participant and is buying the shares onto his own book, he is acting in a principal capacity and the indicator is set to value ‘P’ (to indicate a principal share purchase). Agent indicator ‘S’ denotes that a principal is selling securities from his book to a third party.

Indicator ‘N’ (not applicable) is input to show that the participant did not act in either an agent or principal capacity.    
  AGREEMENT Includes a legally binding contract made between two parties setting out details of actions which each is to perform and to which each has assented but goes wider.
  AIM The Alternate Investment Market (AIM) is a Market designed for shares of emerging or smaller companies which cannot fulfil all the requirements of the London Stock Exchange for a full quotation listing. AIM is operated by the London Stock Exchange. There are approximately 400 companies listed on AIM.
  ALLOTMENT The number of shares allotted to a subscriber of a new issue of shares.
  ANNUAL GENERAL MEETING An annual meeting called by the directors of a company to allow shareholders to stay informed and involved with Company decisions and workings.
  AMEX American Stock Exchange. Trading on AMEX includes index options and shares of smaller companies. Recently merged with NASDAQ.
  ANNUAL ACCOUNTS Yearly record of a publicly held company’s financial condition, including balance sheet, income statement and cash flow statement information.
  ANY-OR-ALL BID This generally involves a take-over bid where the acquirer offers to pay a set price for all outstanding shares of the target company, or any part thereof.
  APCIMS The Association of Private Client Investment Managers & Stockbrokers. The Association represents the interests of smaller to medium sized stock broking firms that specialise in providing services for individual investors, or private clients as they are often referred to.

112 Middlesex Street, London E1 7HY
Tel: 0207 247 7080 | | APPROVED PENSION SCHEME | Approved pension schemes are those that have been referred to the Pension Scheme Office of the HM Revenue & Customs and whose rules have been approved by that office so that they can then benefit from various tax exemptions. | | ARBITRAGE | The simultaneous sale (or purchase) of a financial security and the purchase (or sale) of an equal & opposite position in a similar security to provide profit i.e. exploiting share price differences across Stock Exchanges & Markets. | | ARMS LENGTH PRICE | The price at which a willing buyer and a willing unrelated eller will freely agree to transact. | | ARTICLES OF ASSOCIATION | A legal document establishing a company or corporation and its structure and business purpose. | | ASSETS | Anything owned by a company or trust having a monetary value. | | ASSIGNEE | A person to whom an asset or right is assigned. | | ASSIGNMENT | The transfer of ownership of an investment from one person to another. The investment can be tangible or intangible i.e. rights to an allotment or an option can be assigned to another person for valuable consideration. | | ASSIGNOR | A person who assigns an asset or right to another party. | | ASX | Australian Stock Exchange. | | AT-THE-MONEY | An option is ‘at-the-money’ if the strike price of the option is equal to the market price of the underlying security. | | AUDIT TRAIL | A historical record of a financial organisation’s dealings in securities transactions. There is a requirement for all financial transactions in a business to be traceable from beginning to end at any point in the accounting system. The auditor must be able to verify transactions that are shown in the organisation’s records. | | AUT | Authorised Unit Trust. | | AUTHORISED SHARE CAPITAL | The total number of shares a company is authorised to issued by reference to its Memorandum and Articles of Association. A company cannot issue more shares than it is authorised to issue in its Articles. |

B

BACK OFFICE The operational and administrative office of a stock broking organisation supporting the trading of stocks and other securities. The responsibilities of a back office will normally include trade confirmation and settlement of all transactions, whilst maintaining records and tax compliance.
   
BACK-TO-BACK TRADES A pair of transactions that requires a counterparty to receive and redeliver the same securities and quantity on the same day.
BAD DELIVERY TRADES A bad delivery in CREST occurs where on settlement of a transaction, the transfer of title cannot be effected on the share register i.e. the quantity of shares sold and settled does not agree with the number of shares held by the seller on the share register.
BARGAIN TRANSFORMATION Between agreeing to purchase shares and settling the transaction in CREST, the underlying company may announce that the class or description of its shares in issue are to be cancelled in the register of the company and replaced by, or transformed into, another share class or description to the same value as the former i.e. 50p ordinary shares to be replaced by 2 x 25p ordinary shares.

This means that any transactions undertaken in the original security line cannot be delivered and settled in CREST. When a security is transformed from one ISIN code to another, CREST will automatically transform open bargains in order to create new replacement transactions in the new ISIN(s) by centrally deleting the open transaction and replacing it with a new transaction.

The replacement transaction is centrally generated by CREST with Transaction Stamp Status value ‘N’ (no SDRT liability, result of automatic transformation). CREST will, however, correctly continue to calculate and deduct any appropriate SDRT charge by reference to the original (now deleted) transaction.    
  BASIS POINT Unit of measure (usually one hundreth of a percentage point) used with interest rates and Stamp Duty/SDRT rates.
  BASKET A portfolio consisting of more than one security that may or may not replicate an exchange index i.e. a portfolio that consists of shares in all companies listed in the FTSE 100 index.
  BBA The British Bankers Association - the leading trade association that represents the views of those involved in the banking and financial services industry within the UK. The BBA is responsible for improving the Banking Code, Small Business Code, accounting principles and European regulations regarding banking practices.
  BEAR An investor who believes a stock or share or the overall market will fall in price.
  BEAR MARKET A Market in which prices are falling.
  BEARER SHARE A security not registered on the books of the issuing company and thus payable to whoever owns the bearer share certificate. Normally bearer shares are transferred by delivery without the need for a formal instrument. Dividends are paid upon presentation of dividend coupons attached to the bearer certificate which are dated and numbered.
  BEARER CERTIFICATE A certificate that contains a statement that the holder of the bearer is entitled to the number of shares of that type represented by the certificate.
  BED & BREAKFAST A practice of selling shares on one day and buying them back on the next. The purpose for UK taxpayers was to crystallise a gain (or loss) in a share that could then be used to offset a capital gains tax allowance. The anti-avoidance provisions of the 1998 Budget effectively ended the practice by making it impossible to get a tax advantage.
  BENEFICIAL OWNER The person in whom the ultimate right to property is vested with the right to dispose of the property by sale, mortgage, will or otherwise.
  BENEFICIARY A person for whose benefit property is held by others, such as administrators, executors, trustees, etc.
  BEST EXECUTION The Stock Exchange rule that requires brokers to undertake a share deal on behalf of a client at the best price available in the Market.
  BID PRICE The price at which a dealer in securities will buy stocks, shares and units in a unit trust.
  BILL Bill in Parliament. A draft Act which is discussed in Parliament and is known as an Act when it receives Royal Assent.
  BLANK TRANSFER Transfer of shares executed without the transferee’s name being noted on the instrument of transfer.
  BLUE CHIP COMPANY A company that is renowned for the quality and wide acceptance of its products or services and for its ability to make money and pay dividends (originally a U.S. term: the highest value poker chip is blue).
  BODY CORPORATE A succession or collection of persons having in law an existence, rights and duties distinct from those of the individual persons forming it from time to time. Examples are companies registered under the Companies Act 1985, limited and unlimited companies, and bodies controlled by Royal Charter.
  BOND A marketable debt / loan issued by a company or a government. A bond represent
  BONDHOLDER A person who lends money under a bond.
  BONDHOLDER IN POSSESSION Under Scots law a bondholder who, through the failure of the borrower to pay interest on the bond, has taken possession of the bonded property. The Scottish equivalent of Mortgagee in Possession.
  BONUS SHARES New shares issued free to existing shareholders in a proportion to their existing holding. Also known as a Scrip Issue.
  BOOK ENTRY The transfer of share ownership through a change in computerised records without the need for new share certificates being issued.
  BROKERAGE FEE Commission or fees charged by a broker for undertaking securities transactions for, & on behalf of, clients. Fees can be structured in various ways including charging a percentage of the contract value, charging of a flat fee whatever the value of the contract, or a combination of both.
  BROKER A person or firm who acts as agent in executing orders on behalf of clients.
  BROKER TRANSFER Under the rules of the London Stock Exchange, a Broker Transfer form can be used in the following circumstances:

London Stock Exchange Rule S180 and S181:
A member of the exchange must register (on a stock transfer form) any securities before it sells them on unless:

  1. it is standing as a riskless principal (i.e. the principal broker buys with the immediate intention to sell on the same quantity of shares in a security at the same share price), or
  2. it is a intermediary/market maker who, having previously contracted to sell the security, delivers the shares in the security within 2 days of receipt.    
      BULL An investor who believes a stock or share or the overall market will increase in price.
      BULL MARKET A Market in which prices are rising.
      BUSINESS DAY Any day upon which an Exchange is open for business.
      BUY To purchase a financial security; taking a long position.
      BUYING-IN When a seller is unable at date of settlement to deliver shares he has sold, the London Stock Exchange, for example, will buy the amount of stock required in the Market and charge the costs and expenses incurred to the seller.

C

CALL The exercise by a company of its right to demand initial/additional payment on new or partly paid shares.
   
CALLED AWAY A call or put option exercised against the option issuer is said to be ‘called away’.
CALL OPTION An option which gives the holder the right to purchase the underlying equity.
CAP Every member/participant of CREST has a Cash
Memorandum Account in order to pay for securities acquired or for credit received in respect of securities sold. The payment for securities (& SDRT) takes the form of agreed credit that the member’s bank allows for expenditure. Each day, the bank will inform the member, and CREST, of the amount of credit available. The maximum credit amount available during a business day is called the ‘cap’. A zero cap is possible.  
CAPITAL Money invested in a company or organisation.
CAPITALISATION ISSUE A process by which a company converts its cash reserves into new shares and issues them to existing shareholders
No payment is required from existing shareholders for the shares issued. A capitalisation issue is the same as a bonus issue or scrip issue. The effect of a capitalisation issue is to increase the number of shares in the company but the market price of the shares will typically fall to reflect the dilution.    
  CCF A Common Contractual Fund (CCF) is an unincorporated body established by a management company under which the participants by contractual arrangement participate and share in the property of the collective investment undertaking as co-owners. A CCF is a collective investment scheme governed by Irish Law that is analogous to a UK unit trust.
  CCP See Central CounterParty
  CCSS The ‘CREST Courier & Sorting Service’ (CCSS). The CCSS is used convey share certificates to company registrars in a secure and timely fashion to ensure such certificates can be processed by registrars and turned into an electronic entry in CREST, for the settlement of transactions. The CCSS also handles re-certificated paper, generated by CREST Stock Withdrawals.
  CENTRAL COUNTERPARTY An organisation, appointed by an exchange, operating a clearing system that guarantees securities transactions are ‘cleared’ and settled. A clearing house acts as a ‘middleman’ or ‘central counterparty’ providing anonymity and matching and guaranteeing the performance of securities transactions entered into by sellers and buyers on an electronic share trading system i.e. SETS. See also Clearing House.
  CENTRALLY GENERATED TRADES A term used to encompass all transaction types which are created by CREST (usually in consequence of earlier transactions input by CREST ‘Users’) rather than directly input by CREST ‘Users’.
  CERTIFICATE A certificate issued by the issuer of a security stating either that a named person is the registered owner or that the bearer is the owner.
  CFD A Contract for Difference (CfD) is a legally enforceable arrangement between two parties to realise a profit, or avoid a loss, by reference to movements in the price or value of a financial or non-financial asset, an index or other factor.
  CHAPS Clearing House Automated Payments System (CHAPS).
A computerised clearing system for clearing sterling (£) funds. It includes 14 member banks and nearly 450 participating banks.    
  CHESS Clearing House Electronic Subregister System (CHESS). CHESS is an electronic share transfer and settlement system for the majority of Australian Stock Exchange listed securities. Like CREST, CHESS is a Central Securities Depository (CSD).
  CIS See Collective Investment Scheme.
  CLASS A SHARES A division of common stocks or shares accompanied by more voting rights than Class B shares.
  CLASS B SHARES A division of common stocks or shares accompanied by fewer voting rights than Class A shares.
  CLAUSE A sub-division of a document.
  CLEARING HOUSE An organisation, appointed by an exchange, operating a clearing system that guarantees securities transactions are ‘cleared’ and settled. A clearing house acts as a ‘middleman’ or ‘central counterparty’ matching and guaranteeing the performance of securities transactions

entered into by sellers and buyers on an electronic share trading system i.e. SETS. Some exchanges act as their own clearing house, some depositories act as clearing houses and some clearing houses are entities separate from exchanges or depositories. Such entities include the London Clearing House.Clearnet, and X-Clear.

In order to provide the services of a clearing house, it is necessary to be designated as a Recognised Clearing House (RCH) by the Financial Conduct Authority (FCA).

Although not recognised as a RCH, the OMLX market clears its own trades and is entitled to do so by virtue of its wider recognition as a Recognised Investment Exchange (RIE).    
  CLOSED-END FUND An investment company that issues/sells shares like any other company but does not permit share holders to surrender such shares back to the company for cancellation.
  CLOSING Before settling a bargain i.e. share buying, an opposite trade i.e. share selling, is undertaken in the same security sharing a common settlement date, resulting in a net number of shares being delivered or received or leaving a nil net balance of shares.
  CLOSING PRICE The final price at which a security is traded on a given trading day. The closing price represents the most up-to-date valuation of a security until trading commences again on the next trading day.
  CMA Used in CREST, the ‘Cash Memorandum Account’ (CMA) records a CREST Participant’s net use of credit during a business day.
  COLLATERAL Securities or other assets pledged by a borrower to guarantee a loan.
  COLLECTIVE INVESTMENT SCHEME An arrangement with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income (as defined in section 235 of the Financial Services and Markets Act 2000).
  COMMISSION The fee paid to a broker to execute a trade, based on the number of shares, bonds, options and value sole/bought, or a flat fee.
  COMMODITY MARKET A Market where food, metal, oil, or other physical substances that investors can buy or sell are traded.
  COMMON CONTRACTUAL FUND See CCF.
  COMMON INVESTMENT ARRANGEMENT Companies in a group that each run a separate exempt approved Pension Scheme for their employees may choose to ‘pool’ the investments of their respective schemes to form a Common Investment Arrangement (CIA). The administrator of a CIA operates as an agent for the trustees of the participating schemes. The terms of the CIA are not made subject to trusts overriding the terms that govern each participating scheme. In this situation, beneficial ownership of those assets contained in the CIA remain with each scheme’s entitlement.
CIA is a collective investment scheme but is not chargeable to SDRT (Sched.19 Finance Act 1999) if the CIA is formed by trustees of exempt approved pension schemes (within the meaning of section 592(1) ICTA 1988).    
  COMPANY A business entity; ownership of which is divided into shares, which are owned by persons called shareholders who have limited liability. The business is managed by directors who are appointed by shareholders.
  CONDITIONAL AGREEMENT An agreement to transfer property, the terms of which provide that the underlying property and payment will only be settled and enforceable on the happening of some future event or other condition being satisfied.
  CONTINGENT INTEREST An interest which is dependent on an event which is not certain to occur.
  CONTRA TRADE An entry/transaction input to a system i.e. CREST or record to nullify a previous entry or transaction.
  CONTRACT An agreement intended to be legally enforceable whereby two or more parties agree to give or do or abstain from doing something for the other’s benefit. A contract of sale normally has four main elements, namely a vendor (seller), a purchaser (buyer), a thing sold (property) and a price (consideration).
  CONTRACT FOR DIFFERENCE A CFD is a form of derivative, a contract or agreement between the investor and the CFD provider, who is usually a stockbroker. The contract entered into concerns the future direction of a share price or other financial asset. CFDs performance is based on (or derived from) the movement of the price of an underlying asset, which does not have to be bought or sold.
  CONTRACT SIZE The deliverable quantity of securities or other assets underlying futures, forwards, and option contracts.
  CONVERTIBLE SHARES Holders have the option to convert shares into ordinary shares or further loan capital during a designated period and at the conversion price.
  CORPORATE ACTION A term that refers to various activities that companies can do that affect the number of shares in issue. Examples of corporate actions include, take-overs, rights issues, bonus/scrip issues, stock splits, stock conversions and scrip dividends.
  COUNTERPARTY One of the parties to a transaction - either the seller or the buyer.
  COURT OF SESSION The supreme civil court in Scotland, and the one which hears Scottish stamp duty cases.
  COUPON The physical coupon detached from a bearer certificate in order to claim a dividend or interest payment.
  COUNSEL A practising Barrister or Advocate.
  COVENANT An agreement which creates an obligation contained in a deed.
  COVERED WARRANT A security that is issued by a party other than the issuer or originator of the underlying asset i.e. the security is issued other than by the issuing company, giving the holder the right but not the obligation to acquire a share at a specific price and date.
  COUNTERPARTY The person or party on the other side of a securities transaction.
  CREST BUSINESS DAY A CREST business day is a day on which the CRESTCo

systems are operational other than, Saturday, Sunday, Christmas Day, Good Friday, or a day which is a bank holiday in England or on which banking transactions in England are suspended under section 2 of the Banking & Financial Dealings Act 1971. | | CRESTCO | The Central Securities Depository (CSD) in the UK that holds UK and Irish company shares in dematerialisation form and settles securities trades in UK and Irish company shares. | | CRESTCo Ltd | The company which owns and operates the CREST system. CRESTCo Ltd is owned by, and forms part of, the Euroclear group.
33 Cannon Street, London EC4M 5SB
Tel: 0207 849 0000 | | CREST PARTICIPANT | A member of CREST who holds stock in stock accounts in CREST and whose name appears on the company share register. A CREST participant has a physical link into, and can report share trading into, CREST. | | CREST PARTICIPANT ID | The code used in the CREST system to identify a particular CREST participant or member. | | CREST SECURITY | A Guernsey security, Irish Security, Isle of Man security, Jersey Security or UK security. | | CREST SPONSORED MEMBER | A participant within CREST who holds stock in stock accounts in CREST and whose name appears on the company share register, but unlike a participant, has no physical link and cannot report trades into CREST. The link into CREST is provided by another participant, commonly called a ‘User’ who sponsors the sponsored member. | | CREST STOCK ACCOUNT | A computer account within CREST that records the share holdings of participants and sponsored members. Shares held in stock accounts are dematerialised. | | CREST USER | A participant within CREST who has an electronic link to CREST. A ‘user’ in CREST cannot hold securities in the CREST system, nor can he/she be party to any transaction, though the person who is the user may also be a participant. | | CREST USER ID | The identification code used in the CREST system for a particular ‘user’. | | CROSS BORDER SETTLEMENT | A settlement that takes place other than in a country other than the country in which one or both of the trading counterparties are located. | | CSD | Central Securities Depository. An organisation which holds securities in dematerialised form thereby enabling transactions to be processed and settled by book entry transfer i.e. CREST | | CUM DIVIDEND | The trading of a share with the right to the next dividend payment. | | CUMULATIVE PREFERENCE SHARES | As preference shares, but with the right to receive a missed dividend in a subsequent year. | | CUM RIGHTS PRICE | The share price before a rights issue takes place - the price with the entitlement to the rights issue. | | CUMULATIVE SHARES | If the dividend on a share is not paid on time, payment is deferred not cancelled. The purchase of cumulative shares therefore carry the right to receive dividend arrears before dividend payments out of current company profits are made to other shareholders. | | CUSTODIAN | An organisation (typically a bank) that holds and stores clients investments in safe custody or provides clearing and settlement services for its clients. |

D {.blue6}

DAILY OFFICIAL LIST (DOL) The daily record setting out the share prices of all tradesin shares and other securities that are undertaken on the London Stock Exchange.
   
DBV Delivery By Value (DBV). A CREST Transaction code Id allowing its members and participants to give and receive securities as collateral.
DEALER An individual or firm willing to buy or sell securities for their own account.A dealer differs from an agent in that a dealer acts as a principal in a transaction.
DEBENTURE Another term for a Bond. A debenture is a document under a company’s seal acknowledging a capital debt and undertaking to repay on an ascertainable date and to pay interest at a fixed rate. Debentures are normally secured on assets of the company.
DEBT/EQUITY SWAP  
  Exchange of debt for equity, often part of a company reconstruction or takeover.  
  DECLARATION OF TRUST An acknowledgement by a person that he/she now holds property in trust for another.
  DEED A written instrument signed sealed and delivered.
  DEFERRED OPTION/ WARRANT An option/warrant that can only be exercised after the lapse of a specified period.
  DEFERRED SHARES Shares that carry negligible rights. They do not usually carry voting rights or entitle the holder to any dividends or a return of capital on a winding-up of the company except in certain limited circumstances.
  DEL The general CREST transaction process indicator that is used to initiate transfers and delivery of securities to a purchaser and the payment by the buyer to the seller. A ‘DEL’ CREST instruction requires matching by both parties to a transaction before settlement.
  DEMATERIALISATION The move from physical certificates to electronic book keeping. Shares that are recorded in a central computerised system i.e. CREST, and for which no share certificates exist. Transfer of shares is by way of book entry.
  DEMERGER A corporate restructuring in which one part of a company is separated or ‘hived’ off to form one or more new companies. Commonly, the shareholders of the existing company will be issued new shares from the new company or companies.
  DEMUTUALISATION A process whereby a mutual organisation such as a building society or insurance company (i.e. owned by their members/customers) converts itself into a limited liability company which distributes profits i.e. dividends to its shareholders.
  DEPOSITARY INTEREST A depositary interest is a UK registered security that enables trading in non-incorporated and registered shares to be settled by approved operators of electronic systems within the UK i.e. CREST. Depositary interests are created and issued by UK company registrars. CRESTCo is also enabled to create depositary interests and these are called CREST Depositary Interests (CDIs).
  DEPOSITARY RECEIPT A depositary receipt is defined in broad terms, as an instrument acknowledging that a person holds stocks or shares but that another person is entitled to rights in relation to stocks or shares of the same kind including the right to receive such securities.
  DEPOSITORY TRUST COMPANY The Depository Trust Company (DTC) is a S national clearing house for the settlement of securities and performs custody-related services for its member banks and stock brokers.
  DERIVATIVE A financial instrument whose performance is based on (or derived from) the movement of the price of an underlying asset, which does not have to be bought or sold. The main types of known derivatives include options, futures, warrants and contract for differences.
Buying and selling derivatives can be attractive as large profits (but also losses) can be made on a small stake. Because derivatives are essentially a bet on which way the price of the underlying security is going, profit can be made irrespective of whether the market goes up or down, which is not true on the purchase of shares where profit can only be made if the share price rises.    
  DERIVATIVE SECURITY A financial product whose value is determined in part from the value and characteristics of another security. The other security is referred to as the underlying security.
  DEUTSCHE BORSE German Stock Exchange.
  DISCRETIONARY ACCOUNT An account that allows a broker to buy and sell securities without the client’s consent. Sometimes referred to as a managed account. The client must sign a discretionary disclosure or some other authority with the broker as authorisation of the client’s consent.
  DISCRETIONARY BROKER Under the terms of a client/broker agreement, a discretionary broker has authority to manage a client’s existing portfolio or holding of securities - buying and selling securities for, and on behalf of, the client without initially taking client instruction.
  DISCRETIONARY TRUST A trust whereby the trustees have the power to accumulate income and to distribute income or capital to beneficiaries as they think fit.
  DIVIDEND A distribution of profits to the shareholders of the company.
  DIVIDEND IN SPECIE A dividend that is satisfied in assets other than cash.
  DOCUMENT A paper that can be relied upon as proof, or in support, of something.
  DONOR One who gifts something to another.
  DONEE One who receives a gift.
  DRAFT An interim stage document.
  DRIP A Dividend Re-Investment Plan (DRIP) enables an investor automatically to reinvest dividends in more registered shares of the company’s stock rather than receive the dividend in the form of cash. Once shareholders elect to receive shares, the company registrar will arrange for shares to be purchased from the market.
  DUAL LISTING A security that is listed on more than one exchange.
  DTC The Depositary Trust Company is a depository for holding U.S company shares.
  DUE DILIGENCE In general terms, due diligence refers to the care a reasonable person should take before processing a transaction, or entering in an agreement with another party.
  DvP Delivery versus Payment. Securities transferred and delivered in return for payment.

E {.blue6}

EASDAQ The European Association of Securities Dealers Automated Quote exchange (Brussels based Stock Exchange). A pan-European stock market. UK investors can buy shares in companies listed on EASDAQ through a registered European broker. European brokers are listed on the EASDAQ website.
   
EASEMENT A right, i.e. a right of way, that a landowner enjoys over another’s land.
EDX LONDON LTD EDX London Ltd (being part of the London Stock Exchange) is an integrated and prescribed Recognised Investment Exchange (RIE) and clearing house for futures and options derivatives having acquired the business of OMLX in June 2003.
EQUITABLE INTEREST A right to enjoy property, or its income, governed by the law of equity.
EQUITY MARKETS The various global stock exchanges.
EQUITIES Shares in a company.
EQUITY SWAPS Market participants can swap assets for cash, using notional amounts and contracts.
ESCROW A deed or bond delivered to a person who is not a party to it, to be held until conditions are satisfied, when it is delivered and becomes absolute.
ESCROW BALANCE A form of balance within CREST whereby, upon settlement of a specific transaction type (Transfer to Escrow (TTE)), securities can be pledged to and controlled by a different counterparty with no change in legal ownership.
Transfers to and from the escrow balance settle in CREST free of consideration.    
  ETF See Exchange Traded Fund.
  EUREX The European derivatives exchange formed in 1998 following the merger of the Deutsche Terminborse (DTB) and the Swiss Options and Financial Futures Exchange (SOFFEX).
  EURONEXT.LIFFE See LIFFE.
  EXCHANGE The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded.
  EXCHANGE TRADED FUND (ETF) ETFs are a type of collective investment scheme competing with unit trusts/oeics and investment trusts.

Investors contribute cash into the fund which is then ‘pooled’ and invested in a basket of shares in companies that make up an index i.e. FTSE 100.

Similar to unit trusts and oeics, ETFs are open-ended allowing new shares to be issued in response to demand. But the main advantage of an ETF over a unit trust or oeic is that its shares are listed on an exchange allowing trading of its shares on the secondary market.    
  EX-DIVIDEND This literally means ‘without dividend’. A buyer of shares when they are quoted ex-dividend is not entitled to receive a declared dividend.
  EXECUTION The process of completing an order to buy or sell securities.
  EXECUTION BROKER A broker who will undertake and execute buy or sell securities instructions received from a client. An execution broker will not advise on the type of securities to be sold or purchased.
  EXERCISE The process by which the holder of an option exercises his/her right to buy/sell underlying securities.
  EXERCISE NOTICE A broker’s notification of a client wanting to exercise a right to buy or sell the underlying security at the strike/exercise share price agreed in the option contract.
  EXERCISE / STRIKE PRICE The price at which the purchaser of a call/put option may buy/sell the underlying security. Also known as the strike price.
  EXCHANGE The marketplace where shares, options and futures on stocks, bonds and commodities are traded.

An exchange provides:

a) liquidity allowing the trading of securities (a marketplace where securities can be bought and sold);

b) access to freely a wide range of securities centrally;

c) integrity, as they are regulated.    
  EXOTIC OPTION An exotic option is more complex than a simple put or call option. For example, a ‘Caput’ is a call option on a put option.
  EXPIRY DATE The last day on which an option (or warrant) may be exercised.
  EXTRAORDINARY GENERAL MEETING (EGM) An EGM is a special meeting of a company and its shareholders that can be called by company directors or anyone with at least 10% of the voting rights on the company shares. EGMs have to be called for certain resolutions to be passed i.e. to approve and consent to a take-over, merger or winding-up of the company.

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FACE VALUE See par value.
   
FAILED DELETION A typical ‘failed deletion’ in CREST represents an agreement that was not legally enforceable but which was nevertheless matched and settled in CREST, the parties having failed to delete the instructions in good time.
FCP A Fond Commun de Placement (FCP) is an
unincorporated body managed by a Management Company under which the participants participate and share in the property of the collective investment undertaking as co-owners and whose rights are represented by units in the FCP. A FCP is a collective investment scheme governed by Luxembourg Law that is analogous to a UK unit trust.    
  FEEDER FUND A feeder fund is a relevant pension scheme dedicated to a single regulated Collective Investment Scheme or to a single investment trust. A feeder fund conducts all its investing through another fund generally called the master fund.
  FILL The price at which an order is executed.
  FINANCIAL SERVICES AND MARKETS ACT 2000 The statute that regulates the financial securities industry in the UK.
  FINANCIAL SPREAD BET A financial spread bet is, in essence, a wager on either the upward or downward movement in a particular index i.e. FTSE 100 index, or the share price of a particular security. As no underlying shares of a security are transferred on sale nor is there an agreement to transfer chargeable securities, there are no Stamp Duty or SDRT implications.
  FIRM A partnership. In Scots law (but not elsewhere in the UK) a firm is a legal persona, separate and distinct from the partners.
  FISCAL AGENT An organisation, such as a bank or trust company, that takes responsibility for the fiscal duties (that may include tax issues, distribution of interest and maturity payments on bonds, dividends etc).
  FIXED INCOME An asset that pays fixed amount of interest i.e. bonds, stocks etc.
  FLOTATION The process by which a company’s shares are admitted to listing and trading on a stock exchange. The process includes the issue of a prospectus setting out the business activities and objectives of the company. The prospectus will also provide details of the issue of new shares and the share offer price.
  FORM 88(3) Where shares are issued as consideration for an acquisition of a company, but there is no written agreement for sale, then a form 88(3) (form 98(3) in Northern Ireland), must be completed by the issuing company and sent to the relevant registrar of companies. The form is so called as it required to be produced to the Registrar of Companies under section 88(3) of the Companies Act 1985. With effect from 1 December 2003, the form 88(3) is no longer chargeable to Stamp Duty (SI 2003/2868). The stamp duty exemption was extended to include companies in Northern Ireland that allot shares and make a return to the Registrar of Companies using form 98(3) with effect from 7 July 2005 (SI 2005/1634).
  FORM 169 A UK company re-purchasing its own shares must make areturn of that acquisition to the UK Registrar of Companies using a form 169, so called because company statute requires that this must be done under the provisions of section 169 of the Companies Act 1985 as amended by The Companies (Acquisition of Own Shares)(Treasury Shares) regulations 2003 (SI 2003/1116 & 2003/3031).
Any return which relates to shares purchased by the company and is delivered to the Registrar of Companies under Section 169(1) (form 169) or 169(1B) of the Companies Act 1986 (form 169(1B)), is chargeable with ad valorem Stamp Duty as if it were a transfer on sale to the company.    
  FOND COMMUN DE PLACEMENT See FCP.
  FORWARD CONTRACT A Market transaction where delivery of the securities is deferred until after the agreement has been made. Forwards are generally not tradeable nor transferable on an exchange. Although delivery is made in the future, the price is determined at the date of the agreement.
  FRIENDLY SOCIETY A mutual organisation whose funds, after deduction of running costs, are owned by its policyholders.
The main purpose of a friendly society is to provide life assurance and to assist members during sickness and unemployment. Friendly societies are regulated by the Financial Conduct Authority (FCA).    
  FRONT OFFICE The sales employees in a financial services company. The front office is where revenues are generated i.e. dealers trading in securities.
  FCA The Financial Conduct Authority (which took over the regulatory duties of the The Financial Services Authority (FSA) in April 2013). This a regulatory body
established for the protection of investors. The FCA is responsible for the registration and monitoring of investment businesses. It is a criminal offence to undertake investment business in the UK unless duly authorised to do so, or specifically exempted.    
  FTSE 100 INDEX Known informally as the ‘footsie’, it is an index of the100 leading UK company shares that are listed on the London Stock Exchange, and gives an up-to-the-minute indication of how share prices are moving.
  FULLY PAID A new issue of shares where the subscription cost of the shares has been paid in full. This normally applies following a rights issue.
  FUND MANAGER A professional person with responsibility to decide how fund money is invested. Fund managers work for investment trusts, unit trusts, oeics and pension funds and have considerable influence in the financial markets because of the weight of money behind them. If they decide to move assets of a fund out of a market securities sector, their decision can influence the market price of individual securities.
  FUND OF FUNDS A unit trust or oeic that invests in other unit trusts &/or oeics. Often a fund of funds will invest in trusts run by the same group, but some of them will invest in funds operated by third party collective investment schemes.
  FUND SUPERMARKET A fund supermarket is typically a web site operated by a
brokerage firm that provides an alternative, more convenient way of investing in collective investment funds. The ‘supermarket’ term reflects the way in which they operate; units/oeic shares can be purchased in a number of individual unit trusts/oeics in one online place via one central point, namely the brokerage firm.    
  FUNGIBLE A security or other financial instrument that is tradeable on more than one stock exchange or market is said to be fungible.
  FUTURE CONTRACT A future is an agreement to buy or sell a standard quantity of a specified asset on a fixed future date at a price agreed today. Futures can be traded and transferred on exchange. A futures contract is different from an option contract because an option is a right to buy or sell, whereas a future is a promise to actually buy or sell.

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GCM A General Clearing Member (GCM) is a member of LCH (and the London Stock Exchange) that can clear other firms Principal broker dealing business in addition to any Principal broker dealing trades undertaken by the organisation itself.
   
GDR Global Depositary Receipt. Very similar to ADRs but are generally issued to access two or more international markets. A bank receipt (GDR) is issued for shares deposited with the bank.
GIFT (or VOLUNTARY DISPOSITION) The grant or transfer of property from one person to another for no consideration or obligation.
GIFT INTER VIVOS Property given from one living person to another.
GILT A gilt edged security; loan stock issued by UK Treasury, and backed by the credit of the UK. So called because of their low risk of default and because the first certificates issued had gilt edges.
GLOBAL FUND A fund that can invest in companies located anywhere in the world, including the UK. The difference between an international and global fund is that an international fund includes the entire world except for the home country of the fund.
GOING PUBLIC The process of issuing new shares that were formerly privately held within the company to new investors for the first time. The process is also known as an initial public offering.
GRANT (1) Transfer of property under written instrument without immediate delivery.
(2) The allocation of rights, powers, etc to persons.    
  GREY MARKET An informal market in which investors can buy and sell shares that have not yet been issued.
  GUARANTOR A person who commits to guarantee the debts of another. For example, if an individual defaults on repaying a loan, the guarantor will be obliged to make those repayments.
  GUI he ‘Graphical User Interface’ (GUI) is the interactive software which CRESTCo provides to all ‘users’ to enable them to communicate with CREST. The software is described as the ‘CREST software’ when it is used to communicate with CREST.

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HEDGE A strategy employed in the futures, options and warrants Markets to limit any investment loss by effecting a transaction which offsets an existing risk position.
   
HEDGE FUND A managed fund portfolio that actively buys and sells investments that include direct stocks & shares and derivatives for maximum profit.
The majority of hedge funds are limited to a maximum of 100 investors. Like mutual funds, hedge funds tend to be unregulated because it is assumed that the people investing in them are large institutions and wealthy individuals.    
  HOLDER A person who has purchased a financial security i.e. shares, option, warrant.
  HYBRID SECURITY A security that combines two or more different types of financial products. A common example of a hybrid security is a convertible security such as a loan or bond which has the characteristics of being a debt that is capable of being converted into an underlying equity such as shares.

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ICM An Individual Clearing Member (ICM) is a member of LCH (and the London Stock Exchange) able only to clear its own Principal broker dealer business;
   
ICVC An Investment Company with Variable Capital (ICVC) is an open-ended collective investment scheme, similar to a unit trust. As with unit trusts, money invested into the fund is ‘pooled’ and then invested in the stock Markets by a professional fund manager appointed by the ICVC. The difference between an ICVC and a unit trust is that an ICVC is a company rather than a trust. If you invest in a ICVC, you receive shares, not units, to the value of your investment. Also, an ICVC has just one price, whether you are buying or selling shares in it, with charges shown separately.
IDB See Interdealer Broker.
ILLIQUID An investment i.e. stocks or shares which is lightly traded (for whatever business reason) is said to be illiquid.
IMRO The Investment Management Regulatory Organisation had responsibilities for monitoring the manner in which investment firms managed their funds. It supervised the way firms treat their clients and provided investment services. Typical IMRO members included unit trusts and pension funds. Since Dec 2001, all regulatory functions of IMRO have been taken over by the Financial Conduct Authority and its predecessor the Financial Services Authority.
INCORPORATION The process of creating a company in accordance with statute of the country concerned.
IN-HOUSE Keeping a business activity within the firm or organisation rather than go to the Market.
INITIAL PUBLIC OFFERING A company’s first offering of shares (stock) to the public for subscription. It is also known as a new share issue.
INSIDER DEALING Dealing in quoted securities by someone, such as a director, employee or substantial shareholder, who has confidential information.
IN SPECIE In its own form (and not in an equivalent) i.e. in coin, not paper money.
INSTINET An electronic ‘stock market’ service owned by Reuters which enables members to display bid and offer prices for stocks and shares and to transact between themselves without the services of a broker.
INSTITUTIONAL INVESTOR An organisation that trades large volume of securities in a single transaction. Such institutions i.e. insurance companies, pension funds, etc usually invest money on behalf of individuals
INSTRUMENT Any formal legal document in writing i.e. a will, deed, stock transfer form, bearer etc.
INTERDEALER BROKER This is a broker who acts as a “middleman” exclusively to market makers or broker dealers who wish to trade anonymously. IDBs help market makers transact large share volumes by matching the other side of the trade with one or more counterparties. An interdealer broker is permitted only to deal with market makers, rather than the public.
INTERIM DIVIDEND A dividend that is paid midway through a company’s financial year.
INTER VIVOS Between living persons.
INTESTACY Where a person has died without making a valid will.
IN-THE-MONEY A call option is ‘in-the-money’ if the strike price of the option is less than the Market price of the underlying security. Conversely, a put option is in-the-money if the strike price is greater than the Market price of the underlying security.
INVENTORY A detailed list of investments.
INVESTMENT The use of capital for the purpose of creating more money, to generate income or increase capital, or both.
INVESTMENT MANAGEMENT ASSOCIATION (IMA) An association formed to represent the interests of unit trusts and open-ended investment companies.The association makes representations to the UK Government on legislative, regulatory and taxation matters which affects the business of its members.
IPA An Individual Pension Account (IPA) is a way of saving for a pension but are not pension schemes themselves. Savers put money into an IPA and this money is invested on their behalf. When the investor retires, the fund is used to purchase a pension from a pension provider.
IRREDEEMABLE SECURITY/ SHARES A loan capital security that is issued with no fixed date for maturity or redemption, and with little prospect of repayment is often classed or described as irredeemable.
ISA Individual Savings Account (ISA). A tax-favoured savings account introduced on 6 April 1999 that replaced PEPs and TESSAs. They are a tax-free wrapper whereby investors can invest securities or cash to a maximum of £7,000 per year. Stock and share investments that can be held in a ISA include units in a unit trust, hares in an oeic, shares in investment trusts and ordinary/preference shares in companies.
ISIN CODE International Security Identification Number. Every security traded has an identification number or code which may be nationally or internationally issued.
ISSUE 1. In relation to units in unit trust or shares in an oeic, an issue represents new units or oeic shares issued by the fund manager of the trust or oeic in consideration of a subscription paid by an investor.
  1. In relation to stocks and shares, an issue represents new shares (that are previously unregistered) being created and issued by a company.    
      ISSUED SHARE CAPITAL That part of a company’s capital which has been issued to shareholders.

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JOBBER An old slang term for a market maker on the London
Stock Exchange.  
   

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LCH. CLEARNET The London Clearing House (LCH). LCH clears trades undertaken on the London International Financial Futures Exchange (LIFFE), Virt-x Exchange and the London Stock Exchange (LSE).

LCH merged with Clearnet S.A to form the LCH.Clearnet Group. Both LCH and Clearnet S.A. are leading clearing houses in Europe.

LCH is a Recognised Clearing House under the regulatory supervision of the Financial Conduct Authority (FCA). In essence, LCH. Clearnet (LCH) acts as a central clearing counterparty for share transactions that have been effected using an exchange’s electronic ‘order book’ system i.e. SETS. This means that once a trade is matched, say, in SETS, LCH becomes the ‘buyer’ to every LCH member who sells and ‘seller’ to every LCH member who buys, ensuring the financial performance of transactions. LCH does not, however, hold principal positions for its own account, but simply acts as a central counterparty (or ‘middleman’) to ensure the seller delivers securities and the buyer accounts for the consideration payable.    
     
  LEGAL OWNER Trustee or nominee of the beneficial owner; person in whose name investments is registered.
  LETTER OF DIRECTION A letter of direction is, typically, an instruction by the

beneficial owner of a chargeable security to the legal owner, (normally a nominee or custodian), to hold the legal title in the investment from a specified date for, and on behalf of, another person who has acquired the beneficial interest in the underlying asset.

A letter of direction may be an instruction regarding one or more chargeable securities held in the name of the legal owner.    
  LIABILITIES Amounts owed by a company or other organisations, individuals etc to third parties.
  LIEN The right of an individual to retain possession of the property of another until the latter fulfils his/her obligation such as the repayment of an outstanding loan or other debt.
  LIFFE The London International Financial Futures and Options Exchange (LIFFE) is a Recognised Investment Exchange (RIE), regulated by the Financial Conduct Authority (FCA). LIFFE is a derivatives exchange allowing the trading of options, futures and other financial derivatives that are listed on the exchange. LIFFE is now owned by Euronext.
  LIMITED COMPANY A company whose shareholders’ maximum liability is limited to their share capital in the event of the company being wound up or liquidated.
  LIMIT ORDER An order given to a broker by a client that specifies a price; the order can only be executed if the Market reaches or betters that price.
  LIQUIDATION The formal process of closing down (or ‘winding up’) a company. A firm or organisation is said to be in liquidation when its business is terminated, all its assets are sold, all liabilities are paid and any resultant credit balance proceeds distributed to its shareholders.
  LIQUIDITY A Market is said to be ‘liquid’ when it has a high level of trading activity allowing buying and selling of securities.
  LIQUIDNET EUROPE LTD Liquidnet is an alternative electronic share trading platform for UK share equities enabling institutional clients to deal anonymously with each other in UK shares ‘off exchange’. All trade deals are undertaken on an Agency broking basis with the transactions notified to Bear Stearns who clear and settle the transactions in CREST.
  LISTED SECURITY When a company has its shares accepted for trading on an exchange, the company shares are said to be ‘listed’.
  LISTING PARTICULARS The name for a prospectus for a listed company.
  LOAN CAPITAL Loan capital is a form of debt. Investors lend money to a company or to a Government in return for a loan note that normally guarantees a rate of interest or dividend when the loan period matures or expires and the capital is repaid to the investor, in cash and / or shares.
  LOAN STOCK Another name for a corporate bond - usually unsecured.
  LONG POSITION An investor’s stock position where the number of shares purchased exceeds the number of shares sold at any given time.
  LSE The London Stock Exchange - the world’s third largest stock exchange by market capitalisation of domestic securities listed, after the New York Stock Exchange and Tokyo Stock Exchange. The LSE also permits non-UK companies to list on the exchange. In order for a company to be admitted to the Exchange, it must make application for its shares on the ‘Official List’. This involves providing extensive data regarding the company’s financial status and trading history etc. As well as the Official List of large companies, the LSE also regulates the Alternative Investment Market (AIM) for smaller companies.
Trading in securities can also be undertaken by the Stock Exchange Electronic Trading System (SETS) and the Stock Exchange Automated Quotation system (SEAQ).    
  LTD LTD’ after a company name indicates that the company is privately owned with ‘limited liability’ status. This means that the directors of the company are not liable for the company’s debts if it goes bust. If the number of shareholders in the company is 50 or more, the company changes to a ‘Public Limited Company’ (PLC), though this does not necessarily mean that their shares are publicly tradeable. Only companies that formally listed their shares on a Stock Exchange are fully tradeable.

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MARKETABLE SECURITY A security of such a description as to be capable of being sold in any UK stock market.
   
MARKET MAKER A person (i.e. a broker-dealer firm) who publicly quotes two way share prices (i.e. a price to buy or a price to sell)in a given security. Market makers compete for customer orders by displaying buy and sell share prices for a guaranteed number of shares.
MARKET PRICE The value of marketable goods which a trader hold in stock, either for sale or for use in the business.
MEMBER FIRM An organisation that has membership of a Recognised Investment Exchange i.e. London Stock Exchange. Such organisations may be eligible for intermediary and stock lending stamp relief if the Recognised Investment Exchange has entered into arrangements with HM Revenue & Customs.
MEMORANDUM OF ASSOCIATION One of the two documents of constitution of a company.
MERGER A business merger that involves the acquisition of one firm, fund, company, or other organisation by another, so that only one continuing fund, company etc remains.
MITIGATION Reduction of a penalty. A mitigated penalty is less than the penalty which could be charged.
MONEY BROKER A type of agent broker who arranges short term loans between banks (which are seeking to lend money) and borrowers such as financial institutions. The money broker is not involved in the process of lending/borrowing but merely acts as a ‘middleman’ earning a commission.
MORTGAGEE A lender of money on a mortgage.
MORTGAGOR A borrower of money on a mortgage and whose property is pledged as security for the loan.
MTF A ‘Multilateral Trading Facility’ (MTF) is not a recognised exchange but an alternative trading system that brings together multiple third party buyers and sellers of securities together in a system that results in a contract. The operator of a MTF prints and reports deals executed on the system by its members through a data vendor i.e. Reuters, rather than a recognised stock exchange.
MUTATIS MUTANDIS With the necessary changes made.
MUTUAL FUND Mutual funds are investment companies that manage‘pools’ of money invested by individuals

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NASDAQ The National Association of Securities Dealers Automated Quote (electronic USA Stock Exchange)

Durrant House, 8-13 Chiswell Street, London EC1Y 4XY
Tel: 0207 374 6969 | || | NC CONDITION | Used by participants in CREST to identify a transaction as ‘Not for CREST Settlement’ (NC). When the CREST indicator is set to ‘Y’, the transaction can only be used for generating reports and SDRT payments. | | NCM | A Non-Clearing Member can be a member of the London Stock Exchange but usually a non-member of LCH. Whether acting as an agent or principal broker on SETS, a NCM must appoint a GCM to clear its SETS business. Each NCM must also sign a NCM-GCM-LCH Agreement with the GCM and LCH so that the GCM and NCM will be bound by the rules of LCH in case of default. | | NET ASSET VALUE | The value of a Collective Investment Scheme’s investments i.e. unit trusts and oeics are Collective Investment Schemes. | | NIL PAID | A new issue of shares where no payment has yet been made. This normally applies following a rights issue. | | NOMINAL CAPITAL | The minimum price at which a share can be issued. Also called par value. | | NOMINAL VALUE | See Par Value. | | NOMINEE | A person registered as the holder of a security who is holding it on behalf of another person. | | NOTARY | A solicitor. | | NPV | The shares of a company which carry no nominal value or par value. |

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OAT Used by participants of CREST to report ‘Own Account Transfers’ (OAT). OATs represent an internal transfer of securities between accounts of the same member or participant. An OAT instruction can also be used with the CREST ‘NC’ bargain condition for transaction reporting and / or for accounting for SDRT.
   
OEIC Open-Ended Investment Company (OEIC). An OEIC is a Collective Investment Scheme that continually creates new shares on demand from investors. OEIC shareholders can also surrender or redeem their shares to the fund manager of the OEIC at any time. This is different to a ‘close-ended’ investment company that issues a fixed number of shares but does not permit share holders to surrender such shares back to the company for cancellation.
OFEX An unregulated trading system for trading in UK securities which are unlisted and not traded on AIM. OFEX is not a Recognised Investment Exchange and all trading is undertaken outside of LSE between J P Jenkins Ltd (Market Maker) and other stock exchange member firms acting on behalf of their clients. OFEX is regulated by the Financial Conduct Authority (FCA).
There are around 138 companies listed on OFEX, many of them small, young companies. Admission to OFEX is decided by a panel of ‘wise men’ and the only requirement is that companies must publish financial reports twice a year.    
  OFFER FOR SALE A company can float its shares on a stock exchange by issuing a prospectus announcing its intention to issue new shares (and/or existing registered shares held by the company directors), set a price for them, and invite the public to apply for them at the advertised price. A cheaper alternative for companies however, is to ‘place’ its new (or/and registered shares) in the hands of a number of institutions who then release them on to the secondary market.
  OFFER PRICE The price at which a dealer in securities will sell stocks, shares and units in a unit trust.
  OFF-EXCHANGE Securities transactions that are entered into other than under and subject to the rules of an exchange are said to be ‘off-exchange’. See also ‘off-market’.
  OFF MARKET Securities transactions that are not undertaken on a regulated exchange are said to be ‘off-market’.
‘Off-market’ also includes situations where SDRT is accounted for other than in CREST.    
  OMLX The London Securities and Derivatives Exchange (OMLX), was an integrated exchange and clearing house for futures and options derivatives. It was a competitor to the LIFFE exchange. In June 2003, EDX London Ltd (the London Stock Exchange’s derivative business arm of the exchange) acquired the equity derivative business activities of OMLX.
  ON-EXCHANGE Dealings of securities that are listed, traded and reportable to a Recognised Investment Exchange.
  OPTION An option is a contract which confers the right, but not the obligation, to buy or sell an asset at a given (strike) price on or before a given date.
  OPTION HOLDER A person who has the right to buy (Call) or sell (Put).
  OPTION WRITER A person who is selling an option.
  ORDER DRIVEN A stock market where brokers acting on behalf of clients match buy and sell orders for securities.
  ORDINARY SHARES Shares which usually make up the bulk of the share capital of a company.
  OTC Over The Counter - dealings of securities that are not listed on an organised stock exchange. OTC contracts are undertaken by parties (i.e. companies, banks and brokers) entering into contracts directly with each other.
  OUT-OF-THE-MONEY A call option is ‘out-of-the-money’ if the strike price is greater than the Market price of the underlying security. A put option is out-of-the-money if the strike price is less than the Market price of the underlying security. This type of option will not normally be exercised while it is out-of-the-money’.
  OWNERSHIP The right to exclusive enjoyment of something. It may be absolute in which case the owner may freely use or dispose of the property, or restricted, as in the case of joint ownership. Beneficial ownership is the right of enjoyment of a thing, as contrasted with legal ownership.

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PAIRED SHARES Stock of two companies (UK companies or a UK and a non-UK company) under the same management that are sold as one ‘unit’ with one share certificate. For example, Eurotunnel was formed as a result of the merger of a UK company and a French incorporated body. To purchase shares in Eurotunnel, an investor has to buy Eurotunnel “units” with each unit representing one UK share and one French share.
   
PAPER A generic term for any document, instrument, or certificate that records details of any financial transaction entered into, or of the name of the holder of an interest in a financial security.
PARI-PASSU Pari-passu means ‘without partiality’ and having equal rights. For example, a further issue by a company of new shares that carry equal rights with it’s existing registered shares in circulation are said to rank ‘pari-passu’.
PARTICIPANT ID The identification code used in the CREST system to identify a particular participant.
PARTNERSHIP Two or more people who jointly own a business. There are two types of partner - a general partner and a limited partner. General partners are fully responsible for the debts of the business and have unlimited liability. Limited partners are liable only to the extent of their original investment and are not allowed to participate in its management.
PARTIES The persons who take part in transactions, or in legal proceedings.
PARTLY PAID A new issue of shares where a part payment or instalment has been paid for the shares. This normally applies following a rights issue.
PAR VALUE Nominal or face value of a share. A registered share that is traded at par value is said to be worth equivalent to the original issue value or nominal value. For example, 100 Ordinary 50p shares are purchased for £50 with each share valued the same as the original nominal value of 50p.
PENSION FUND A fund set up by a company, union, government entity, or other organisation to invest the pension contributions of members and employees, and pay out pensions to those people when they reach retirement age.
Pension funds accumulate large ‘pools’ of capital which, in turn, are invested in financial securities.    
  PEP A Personal Equity Plan (PEP) was a scheme which gave UK resident investors the opportunity of investing in the stock market without paying tax. Shares held in a PEP were held on trust for investors, who retained the beneficial ownership of the shares. While the shares were held in the PEP, no income tax is payable on dividends, and no capital gains on disposals. PEPs were replaced by Individual Savings Accounts (ISAs) from 6 April 1999 but PEPS in existence at that date can continue.
  PENSION FUND POOLING VEHICLE The definition of a Pension Fund Pooling Vehicle (PFPV) (under the Income Tax (Pension Funds Pooling Schemes) Regulations 1996 (SI 1996/1585) includes the requirement that each participant in the scheme must be an exempt approved scheme, or a superannuation fund, or an overseas fund, each of which has been approved by the Board of Inland Revenue as being eligible to participate in the scheme.

Essentially, a PFPV is a Collective Investment Scheme whereby individual pension funds can effectively ‘pool’ together their funds for investment in securities

through a professional fund manager, thus spreading their risk. The Stamp Duty and SDRT (Pension Fund Pooling Schemes Regulations 1996 (SI 1996/1584) provide for unit trust schemes that qualify as PFPVs under SI 1996/1585 to be transparent for stamp purposes and not treated as unit trust schemes for Stamp Duty & SDRT purposes.

A PFPV enables investors to both contribute and withdraw ‘stock or marketable securities’ without a charge to ad valorem Stamp Duty. The provisions of SI 1996/1584 treat units that are issued as consideration by a PFPV as not being ‘stock’ for the purposes of stamp duty on transfers.

When a PFPV is established, it must seek recognition HM Revenue & Customs approval. Once approved, the Stamp Taxes Stamp Duty and SDRT Senior Technical Adviser maintains a record of all such PFPVs.    
  PFPV See Pension Fund Pooling Vehicle.
  PIA The Personal Investment Authority (PIA) had responsibility for the retail investment industry. It governed the sale of life assurance, personal pensions, friendly society investments, unit trusts etc. The Financial Services Authority (FSA) took over PIA’s business with effect from 1 December 2001. The FSA was split in April 2013 with the Financial Conduct Authority (FCA) taking over its regulatory duties.
  PIBS Permanent Interest Bearing shares (PIBS) are issued by building societies that pay a fixed rate of interest rather than a dividend.

As an investor, the rate of interest you receive will be the rate in effect at the time you bought the shares.

Section 109(e) Building Societies Act 1986 exempts PIBs from stamp duty and therefore SDRT.    
  PLACING Sale of new shares to institutions or individuals directly or using a financial intermediary. It does not involve an offer to the general public.
  PLACING/UNDERWRITING AGREEMENT An instrument that deals with the legal aspects of the share flotation including the disclosure listing particulars, warranties, indemnities etc. A placing involves new shares being offered by a company to a specific group of individuals (usually institutions).
  PLC A company registered as a public company that has an unlimited number of shareholders, and can offer its shares to the public.
  PORTFOLIO Holdings of securities by a company, individual, or institution.
  POSIT POSIT is an approved HM Treasury Multilateral Trading Facility (MTF) Market (with effect from 11 August 2005) allowing its members to trade in listed UK securities on the system. POSIT is operated by Investment Technology Group Ltd (ITG).
  POWER OF ATTORNEY A document by which one party gives another person the power to act on his/her behalf and in his/her name. It may be a general power or a power limited to certain purposes.
  PRE-EXEMPTION RIGHT The right of a shareholder whereby a company making or creating a new issue of shares must first offer the shares to their existing shareholders (before offering the shares to the general public) in proportion to their existing holdings.
  PREFERENCE SHARES Shares in a company that give holders an entitlement to a fixed dividend but which do not usually carry voting rights. Important differences between preference and ordinary shares include:

a) Dividends on ordinary shares is variable dependable on company profits. Preference holders are entitled to a fixed dividend which, if not paid is usually accumulated until it can be paid;

b) Ordinary share holders are entitled to voting rights;    
  PREMIUM The cost of writing an option that is paid by the holder and received by the writer.
  PRIMA FACIE At first sight, on the face of it.
  PRIMARY MARKET The process whereby companies and Governments issue shares in the equity market. The primary market is where the original transfer of money from investors to organisations is undertaken in return for the issue of shares. Onward trading of the shares after issue is undertaken in the secondary market.
  PRIME BROKER There is no standard definition of the term ‘prime broker’ so it needs to be clearly established on a case-by-case basis exactly what is meant by this phrase. In general terms, a prime broker may act as a settlement agent, provide custody for investments and provide financial assistance in the form of loans
  PRINCIPAL BROKER DEALER An individual or organisation who buys and sells securities for his own account as well as selling to or buying from clients.
  PRINCIPAL INTERMEDIARY A recognised member of a regulated market, multilateral trading facility or recognised foreign exchange, or pproved by HMRC Stamp Taxes
  PRIVATE INVESTOR An individual who hold securities solely for their own benefit.
  PROMISSORY NOTE An unconditional promise in writing and signed, undertaking to pay on demand, or at a fixed or determinable time, a sum of money to a specified person, or to his order, or to the bearer.
  PROPERTY ‘Property’ is that which belongs to a person exclusively of others, and can be the subject of a bargain and sale.
  PROVISIONAL ALLOTMENT LETTER There are three main types:
  1. An allotment letter is sent by a company to successful applicants for shares offered to the public - applicants then have to pay for the shares provisionally allotted;

  2. A provisional allotment letter is sent by a company to its shareholders in the event of a rights issue - inviting them to subscribe for new shares;

  3. A renounceable letter of allotment is sent by a company giving the holder the right to subscribe for new shares (wholly or in part) or to renounce the rights (wholly or in part) in favour of someone else.

A Provisional Allotment Letter can be traded in nil, partly or fully paid form.    
  PTM LEVY Panel on Take-overs and Mergers (PTM). This is a non-statute body regulating the conduct of company take-over offers. A charge is automatically imposed on investors and collected by their broker when shares are bought/sold with an aggregate value in excess of £10,000. The charge is 25p and the money raised goes to the PTM.
Any PTM levy charged on a contract/agreement for a transfer of securities does not form an integral part of the consideration for the securities purchased, and therefore not subject to Stamp Duty or SDRT.    
  PUT OPTION An option which gives the holder the right to sell the underlying equity. If the right is not exercised the option expires and the buyer forfeits the money paid as premium, for the writing of the option, to the option issuer.

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QUALIFIED DEALER A qualified dealer is a person who is not a member of an exchange, but has permission under Part 4 of the Financial Services & Markets Act 2000 to carry on an investment business, or is authorised under a legislative provision of the Government of a territory outside of the UK to carry on an investment business, or while not required to be authorised to do so, carries on an investment business.
Qualified dealers can include, banks, solicitors, accountants etc.    
     
  QUALIFIED INVESTOR SCHEME A Qualified Investor Scheme (QIS) is a collectiveinvestment scheme being an authorised unit trust marketed to sophisticated investors (i.e. institutions) rather than the general retail market (i.e. the public).
Accordingly, QIS’s have a more relaxed set of regulatory FCA rules governing their operation and in particular, their investment powers than for retail schemes. A QIS is essentially a mixed asset type scheme allowing different types of investment to be held and included as part of the fund property. Units are issued in return for capital or other property invested in the fund.    
  QUID PRO QUO Quid pro quo means ‘something for something’. In financial terms, this generally describes a mutual agreement between two parties in which one party provides a service or an asset to the other, in return for the other party doing the same. For example, firm A uses the CREST software provided to firm B in exchange for firm B executing all of firm A’s trading in securities.
  QUOTE DRIVEN An electronic order-book stock exchange system where share prices are determined from quotations made by market makers and broker dealer principals. SEAQ (Stock Exchange Automated Quotation) system is an example.

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RECOGNISED CLEARING HOUSE A body recognised as a clearing house by the Financial Conduct Authority (FCA) under Part XVIII of the Financial Services and Markets Act 2000 (FSMA).
   
RECTIFICATION A process of correcting errors made in recorded written agreements and documents. The burden of proof is on the party seeking rectification who must be able to provide substantive evidence that the agreement of document does not reflect the intentions of the parties and the agreement/document as rectified will reflect those intentions.
REDEEMABLE SHARES Shares in a security that can be re-purchased by the original issuing company from the holder. Redeemable shares are repayable on a given date, normally at their nominal value.
REG CREST transaction type code ‘REG’ (Registrars Adjustment) is used by company registrars to report into CREST an adjustment in the quantity of shares held by a person, institution etc, in the company share register. For example, a REG instruction may represent an issue of bonus shares or the correcting of a number of shares held by an individual on the register.
REGISTERED SHARES Shares where title is registered with the company or with a registrar appointed by the company.
REGISTRAR OF COMPANIES The official body of the Department of Trade & industry responsible for the formation and registration (& deletion) of companies and the general operation of Companies House.
REGULARLY TRADED A security listed or admitted to trading which falls within the Article 21 of the Investment Services Directive except for the caveat for illiquid stocks. HMRC Stamp Taxes accept that any security just admitted to listing, or admitted to trading, by an exchange with which the HM Revenue & Customs has entered into arrangements, is regularly traded.
RENOUNCEABLE LETTER OF ALLOTMENT (RLA) In a rights issue of new shares, a renounceable letter of allotment is the form attached to an allotment letter which the holder completes should he/she wish to transfer the rights to the allotment to another person or renounce his/her rights absolutely. The third party then lodges the RLA with the company registrar in order to have shares allotted and registered in his/her name.
RENOUNCEABLE LETTER OF (RLA) If existing registered shares are offered for sale by a ACCEPTANCE company, a renounceable letter of acceptance (RLA) is the form attached to an acceptance letter which the holder completes should he/she wish to transfer the rights to the acceptance to another person or renounce his/her rights absolutely.
RENUNCIATION The selling of rights or interests in a security by one person to another by the completion of a renunciation form usually attached to an allotment letter.
REPURCHASE AGREEEMNT Repurchase agreements (commonly known as ‘repos’) are a means of providing short term finance against collateral i.e. securities held as collateral. The borrower sells securities to the lender subject to an agreement to repurchase them either at a fixed price or at the market price on a subsequent day.
RES CREST Transaction type code: Residual Settlement.
RESIDUAL CLOSING Where unlisted stock exchange company shares are transferred on sale from person A to Person B, but before the trade is allowed to be settled, Person B ‘closes out’ the transaction by sub-selling the same security and quantity to Person C with the same settlement date, resulting in the shares being moved from Person A directly to Person C, the bargain between Person A and Person B is called a ‘residual closing’ upon which a charge to SDRT may arise as no stock transfer form will be required for share registration purposes.
RESIDUAL SECURITY There are some shares traded in smaller UK incorporated companies that can be reported to, but are NOT capable of being settled in the UK electronic share settlement system called CREST. CREST is currently only able to settle UK and Irish company shares (securities) that are listed on a stock exchange.

In general terms, shares in companies that do not have an exchange listing and therefore are not capable of being settled in CREST are called ‘residual securities’.

UK registered residual securities are regarded as being ‘stock or marketable securities’ for Stamp Duty charging purposes and ‘chargeable securities’ for SDRT.    
  REVERSE STOCK SPLIT A reduction in the number of a company’s shares in circulation but the value of its remaining shares enhanced. For example, a 1:2 reverse split means that a holding of 100 shares valued at a market price of £2 per share is reduced to 50 shares but at a market value of £4 per share.
Companies undertake reverse stock splits for a variety of reasons - to avoid its shares being delisted on an exchange, make their shares appear more valuable, although in reality nothing changes. Reverse stock splits are usually a sign that a company is not performing well.    
  RFE A Recognised Foreign Exchange
  RFOE A Recognised Foreign Options Exchange
  RIE A Recognised Investment Exchange (RIE) is any investment exchange that is recognised by the by the Financial Conduct Authority (FCA) under Part XVIII of the Financial Services and Markets Act 2000 (FSMA). This includes the London Stock Exchange, Euronext. LIFFE and EDX London Ltd.
  RIGHTS ISSUE Additional shares are offered by a company to existing shareholders in a fixed proportion to the number of ordinary shares already held. The shareholder can either exercise or renounce his interest in the rights. Alternatively, a shareholder can let the rights to an allotment of new shares lapse; there is no obligation to subscribe for new shares.
  RISKLESS PRINCIPAL The term ‘riskless principal’ can apply to a market maker or principal broker dealer where two separate transactions in the same security are executed at the same share price.
  RO CREST Transaction Bargain indicator code : Result of Option.
The RO bargain indicator can be used by CREST Participants to demonstrate to exchange regulators that the purchase of securities at the stated share price was the result of an exercise of an option rather than at current market value.    
  ROLLING SETTLEMENT Exchange system where share transactions are normally settled a fixed number of days after the trade date. Usually denoted as T + n where n is the number of business days. For example T +10 means settlement will occur 10 business days after the trade date.
  RPO CREST Transaction type code: Repo transaction (RPO).
  RPR CREST Transaction type code: Repo return (RPR)
  RUMP The shares not taken up by existing shareholders in a rights issue.
  RUR The CREST Transaction type code : Register Update Request allows a registrar to credit or debit the balance on a members stock account relating to a security for which it is the registrar. For example, a registrar may input a RUR instruction to bring the stock account balance into line with the register i.e. to correct an error or as a result of certain corporate actions where securities have been issued. The facility requires no system action by the individual CREST member.
The HM Revenue & Customs have agreed that no SDRT liability arises on the reporting and settlement of a RUR instruction.

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SCHEDULE D Income tax in the UK is charged on income falling within various categories, previously known as Schedules. The profits of professional businesses including brokers, investment managers, companies etc were, until 6 April 2005, subject to income tax under Schedule D of the Income and Corporation Taxes Act 1988. They are now taxable under Part 2 of the Income Tax (Trading and Other Income) Act 2005.
   
SCHEME OF ARRANGEMENT A scheme of arrangement is an arrangement between a company and its members or creditors under section 425 of the Companies Act 1985 in respect of a company reorganisation (for example, a merger or demerger). The Scheme requires consent by a majority in number representing three-quarters in value of the members or creditors (or class of members or creditors, as relevant) who vote at the meeting convened by the court for the purposes of considering the Scheme. It also requires court approval. If the Scheme includes a reduction of capital, a special resolution (requiring 75% member/creditor majority) is also required. Once approved by the members and the court, the arrangements are binding on all members and the company.
SCRIP DIVIDEND The offer by a company of shares in place of a cash dividend.
SCRIP ISSUE An issue of new shares to existing shareholders in proportion to their existing shareholdings. Also called a bonus issue or capitalisation issue.
SEAQ The Stock Exchange Automated Quotations system. A London Stock Exchange quote-driven system whereby market-makers are obliged to display to the market their buying and selling share prices. SEAQ is normally used for trading company shares that are outside of the FTSE 100 index.
SEASON TICKET A 1.5% Stamp Duty or SDRT charge may arise on the transfer/issue of securities to a depositary bank (or its nominee) or to a recognised clearance service (or its nominee). The 1.5% charge is often called a ‘season ticket’, the reason being that once securities are transferred to a depositary bank or recognised clearance service and the 1.5% ‘season ticket’ has been accounted for and paid, there are no further stamp implications when the securities are onward traded in depositary receipt form or within the clearance service.
SECONDARY MARKET A market where shares are traded once they have been issued.
SECTION 425 SCHEME See Scheme of Arrangement.
SECURED LOAN A debt guaranteed by the pledge of collateral.
SECURITIES ‘Securities’ is the stock exchange term for stocks and shares in general. There are two basic types; those that give the holder part-ownership of the company he/she has invested in (known as equities), and those that don’t, i.e. loan capital, gilts, bonds.
SEDOL A seven digit unique number used as an identifier for a security listed on the London Stock Exchange and on other smaller exchanges in the UK.
SELLING SHORT A sale of shares in a security not owned by the seller.
SETS The Stock Exchange Electronic Trading Service (SETS). An order-book system where buyers and sellers can indicate via brokers, the prices and quantities at which they wish to trade. SETS is used for trading in the top 100 companies listed on the exchange i.e. the FTSE 100 index.
SETTLEMENT The mechanism by which a purchase or sale is concluded, i.e. when a client pays a broker for securities purchased or delivers securities sold and receives from the broker the proceeds of a sale.
SETTLEMENT TRUST A trust for the benefit of different persons in succession.
SETTLEMENT DATE The date upon which a share transaction is agreed to be completed with consideration paid and securities transferred and delivered.
SETTLEMENT NETTING Netting of share delivery and payment obligations.
SFA Securities & Futures Authority. The regulatory organisation in the UK for financial securities firms. Since December 2001, all regulatory functions of the SFA have been taken over by the Financial Conduct Authority (FCA).
SHAPES Splitting up a bulk quantity of shares into smaller quantities.
SHARE BUY BACK A company purchases its own shares in the Market and cancels them. It is often used as a means of returning cash to shareholders.
SHARE CERTIFICATE A certificate issued by a company (or company registrar) confirming that a named person is the registered owner or that the bearer is the owner.
SHAREHOLDER The registered owner of a share in a company.
SHARE INCENTIVE PLAN A Share Incentive Plan (SIP) was formerly known as an All-Employee Share Ownership Plan (AESOP). Introduced by the Finance Act 2000, shares held by a trustee on behalf of an employee under the terms of a HM Revenue & Customs approved trust and all employees and executive directors must be eligible to participate in the Plan provided certain conditions are met. A SIP enables companies to undertake four types of share award: ‘free’ shares, ‘partnership’ shares (paid for by employees), ‘matching’ shares (that companies can give to employees who purchase partnership shares) and ‘dividend’ shares (purchased with dividends from other plan shares).
The provisions of Schedule 8, Paragraph 116A of Finance Act 2000 (as inserted by section 95 Finance Act 2001) that provide an exemption from Stamp Duty and SDRT to partnership and dividend shares transferred by the trustees of an AESOP to an employee, equally apply to a SIP.    
  SHARES Ordinary equities in companies. Holding a share represents part ownership of a company.
  SHARE SPLIT See Stock Split.
  SHARE TRANSFER The document which is executed to effect a transfer of shares.
  SHELL COMPANY A company that has no significant assets or investments often formed to obtain financing before commencing business activities.
  SHORT SALE The selling of securities not owned by the seller. Someone who sells financial securities he does not own in the hope of buying them back more cheaply later is said to go ‘short ‘or take a ‘short ‘position.
  SICAV Société d’investissement à capital variable (SICAV). A Luxembourg based SICAV is an open-ended collective investment scheme, similar to a unit trust. As with unit trusts, money invested into the fund is ‘pooled’ and then invested in the stock Markets by a professional fund manager appointed by the SICAV. The difference between an SICAV and a unit trust is that an SICAV (like an OEIC) is a company rather than a trust.
  SIP See Share Incentive Plan (SIP).
  SIS X-CLEAR AG SIS (SegaInterSettle) x-clear is a clearing house andcentral counterparty (CCP), clearing trades undertaken on the Virt-x Exchange. In essence, SIS x-clear acts as a central clearing counterparty for share transactions that have been effected using an exchange’s electronic ‘order book’ system. This means that once a trade is matched, SIS x-clear becomes the ‘buyer’ to every SIS x-clear member who sells and ‘seller’ to every SIS x-clear member who buys, ensuring the financial performance of transactions. SIS x-clear does not, however, hold principal positions for its own account, but simply acts as a central counterparty (or ‘middleman’) to ensure the seller delivers securities and the buyer accounts for the consideration payable.

SIS x-clear is a special clearing member (sub-CCP) of the London Clearing House (LCH) and has, depending on the nature of a trade, different functions as CCP or sub-CCP of LCH:

a) acts as CCP in all trades concluded between virt-x participants if both trading parties are members or non-members of SIS x-clear;

b) acts as a sub-CCP of LCH in securities trades concluded by virt-x participants if one of the virt-x participants is a member of LCH and the other a member of SIS x-clear.    
  SLO CREST Transaction type code : Stock Loan.
  SLR CREST Transaction type code : Stock Loan Return. After settlement of the stock loan, the CREST system automatically creates a pre-matched Stock Loan Return (SLR) for both parties with intended settlement being the following business day of the stock loan.
  SPDR Spider (SPDR). These are shares of a security designed to track the value of the Standard & Poors 500 index. Spiders trade on the American Stock Exchange.
  SPLITTING RIGHTS An entitlement to rights shares can be split by selling some nil paid rights whilst subscribing for the remaining.
  SPONSOR A person or organisation that advises and acts as a sponsor or agent for a company that wishes to list new shares on an exchange.
  SPREAD The difference between a securities dealer’s Bid (buy) and Offer (sell) share (& units in a unit trust) prices.
  SPREAD BETTING A Spread Bet is another form of derivative - a form of investing which is akin to betting.

Spread Betting is available for individual company shares and Market sectors (i.e. FTSE 100 securities index) as well as betting on other derivatives such as futures and options, currencies, bonds and commodities.

In general terms, an investor or punter will place an ‘up-bet’ (buy bet) or ‘down-bet’ (sell bet) for a specific stake at point or, in other words, profit.

Gains and losses are based on the ‘points’ difference between the closing out or settlement share and strike price set at the issue of the spread bet, multiplied by the stake at point. For every ‘point’ that the market or stock moves in the betters favour, the investor will win that multiple of the bet or stake placed. If the market moves in the opposite direction, the investor will lose his stake multiplied by the number of points of movement.    
  SRO A firm or organisation that is not a member of a recognised investment exchange can, nevertheless, be recognised and authorised to trade in securities if that firm becomes a member of a Self-Regulatory Organisation (SRO). A SRO is set up to provide regulation for particular areas of investment activity that includes investor’s protection. The Securities & Futures Authority (SFA), PIA (Personal Investment Authority), and the Investment Management Regulatory Organisation (IMRO) are three UK SRO’s. Typical SRO members will be non-exchange member firms such as Investment Banks, Solicitors, Insurance Companies, pension funds etc.
Since December 2001, all regulatory functions of SROs were taken over by the Financial Conduct Authority (FCA).    
  STAMP OVERRIDE A mechanism in CREST whereby exemptions input by CREST participants can be overridden, causing SDRT to be charged. This mechanism is in place for use where the HM Revenue & Customs consider a member or participant is incorrectly using the CREST Transaction Stamp Status (TSS) exemption values and avoiding SDRT charges.
  STAMPABLE CONSIDERATION The value of securities on which SDRT is to be paid. For agency trades, this can differ from the bargain consideration, as the stampable consideration will not include fees/commission etc, but should reflect only the value of the shares being transferred.
  STANDARD & POORS 500 INDEX The equivalent London FTSE index of the New York Stock Exchange. The index of 500 blue-chip company shares is considered to be a benchmark of the stock market.
  STATUTORY DECLARATION A statement in prescribed form made before a Commissioner for Oaths, Justice of the Peace or Notary Public.
  STOCK A fixed-interest security i.e. bonds, loan notes
Stamp Duty definition of chargeable ‘stocks’ : - any share in any stocks of funds transferable at the Bank of England, and any share in the stocks or funds of any foreign or colonial state or government, or in the capital stock or funded debt of any county council, corporation, company, or society in the UK, or of any colonial corporation, company or society.    
  STOCK ACCOUNT The stock account in CREST records a member’s/participant’s holdings of a particular security within a member’s /participant’s account as a result of settlement of any CREST Transaction type relating to a security.
  STOCK DIVIDEND Another name for a scrip dividend.
  STOCK EXCHANGE An organised and regulated market for the buying and selling of registered company securities (Secondary Market), and for companies and Governments to raise money by making available new shares that will be listed on the exchange (Primary Market).
  STOCK MARKET A stock market is a generic name for trading equities i.e. stocks and shares, also called the equity market.
  STOCK SITUATION NOTICE Notices issued by the London Stock Exchange that contain details of a corporate action i.e. a rights issue or company take-over bid.
  STOCK SPLIT A split of a class or description of a share into a number of shares with a smaller nominal value. For example, one 50p ordinary shares is replaced by two 25p ordinary shares to the same value. Stock splits are a good indicator that a company’s share price is performing well.
  STP CREST Transaction type code: Stamp Duty payments (STP).
  STRADDLE An option strategy involving one call and one put with the same strike price and same expiry date.
  STRATE STRATE is the electronic clearing and settlement service implemented for shares on the Johannesburg Stock Exchange (JSE).
  STRIKE PRICE The stated agreed price per share for which the underlying security may be purchased in the case of a call option, or sold in the case of a put option, by the option holder upon exercise of the option contract.
  STW Used by participants in CREST, a CREST transaction type ‘Stock Withdrawal’ (STW) instruction is the mechanism for withdrawing securities from CREST, to be re-certificated into paper form. The STW input can be used to account for SDRT and transaction reporting. There is no ‘NC’ option on this transaction type.
The STW record instructs CREST to remove securities from a member’s account, and the registrar to issue a share certificate in the name of the shareholder who wishes to hold his security outside of CREST.    
  SUBORDINATED DEBT Debt which is issued on terms that stipulate it will only be repaid once the claims of more senior creditors have been satisfied.
  SUBSCRIPTION The process of an investor paying for and taking up a new issue of shares.
  SWAP In general terms, a swap is an arrangement whereby two organisations lend to each other on different terms i.e. different currencies, different interest rates etc.
  SWIFT The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a computer network providing secure messaging services and interface software to financial institutions worldwide i.e. banks, brokers and investment managers.

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T + n The securities transaction will be settled n business days after the date of the agreement.
   
TAKEOVER A general term referring to the transfer of control of a firm from one group of shareholders to another group of shareholders. Change in the controlling interest of a company, either through a friendly acquisition or an unfriendly, hostile, bid.
TENDER To submit a formal bid to buy a security during an initial public offer.
TFE CREST Transaction type code: Transfers from escrow (TFE)
THIRD PARTY This relates to surrenders and transfers of units and shares
TRANSFER in an oeic i.e. collective investment schemes. There are two types of ‘third party transfer’:

a) where the manager or trustee of the fund is informed of the surrender/transfer and alters the unit/share fund register or other records of the legal and beneficial ownership of the unit/oeic share;

b) where the legal ownership of the unit/oeic share remains with the same person (for example, a nominee common to both parties) and so the manager is not called upon to change the unit/oeic share register or other records.    
  TITLE The right to legal ownership of property.
  TRACKER FUND A fund that aims to invest in all shares of companies that are listed in an index or market sector i.e. a fund may chose to invest in shares of all companies that comprise the FTSE 100 index. A tracker fund is very similar in terms to an ‘index fund’.
  TRADE A verbal (or electronic) transaction that involves one party buying a security from another party. Once a trade is agreed, it is considered valid and enforceable.
  TRADE DATE The date upon which a share transaction is undertaken. This is also the date on which a SDRT obligation can arise.
  TRADED OPTIONS Options on equities undertaken on exchange i.e. LSE Euronext.liffe. Traded options normally have a limited life span of up to 9 months and invariably involve contracts in multiples of 1000 quantity of underlying UK securities. Traded options can be secondary traded before option expiry.
  TRADE SYSTEM OF ORIGIN Used by participants in CREST to indicate the exchange upon which a transaction was undertaken. This CREST field is used for transaction reporting, and is used to determine whether a purchase of securities on that exchange on a principal purchase is eligible for SDRT intermediary relief (&/or SDRT stock borrowing/lending relief).
  TRADITIONAL OPTIONS Options are available on many share equities listed on stock exchanges i.e. LSE. Most traditional options are tailored to suit agreements between a single seller and a single buyer as distinct from traded options which have standardised contract conditions. The major difference between traded and traditional options is that the former can be freely bought and sold whereas the latter can not be sold on and traded through the secondary market.
  TRANSACTION An agreement between a willing buyer and seller for the transfer of property i.e. stocks and shares etc, for payment.
  TRANSACTION STAMP STATUS VALUE CREST Transaction Stamp Status (TSS) values determine the rate of SDRT charge and are applied at CREST member account level. In general terms, participants eligible for SDRT exemption signify the fact by using an appropriate TSS data lag.
  TRANSFER ON SALE For the purposes of Stamp Duty law, a ‘transfer on sale’ includes every instrument, and every decree or order of any court or of any commissioners, by which any property, or any estate or interest in any property, upon the sale thereof is transferred to or vested in a purchaser, or any other person on his behalf or by his direction.
  TREASURY SHARES Shares that are repurchased by a company, but not cancelled, to be held in the company’s treasury. Only qualifying shares may be held in treasury. These include shares listed on the London Stock Exchange, or traded on the Alternative Investment Market (AIM), or officially listed in a European Economic Area (EEA) state, or traded on a market in an EEA state that is a regulated market for the purposes of Article 16 of Council Directive 93/22/EEC on investment services in the securities field.
See also Form 169.    
  TRUSTEE A person who holds property on trust for another.
  TSO See Trade System of Origin.
  TTE CREST Transaction type code: Transfers to escrow (TTE).
  TURNOVER The volume of trading measured by the number of shares traded and the value of share transactions.
  TWO WAY PRICE The price upon which a dealer in securities is prepared to trade. It is usually quoted as ‘Bid’ and ‘Offer’ prices where ‘Bid’ is the price at which the dealer will purchase, and ‘Offer’ being the price upon which the dealer will sell shares.

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UCITS Undertakings for Collective Investments in Transferable Securities. A UCIT can be a unit trust or OEIC that can be marketed in any European Economic Country.
   
ULTRA VIRES Beyond the power. For example, a company’s action is ultra vires, and therefore void, if it goes beyond the objects detailed in its Memorandum of Association.
UMBRELLA FUND A collective investment scheme fund that contains several ub-funds, each of which invests in a different securities product.
UNCOVERED CALL A short call option position whereby the writer of the option does not own an equivalent number of shares in the underlying security represented by the option contract.
UNDERLYING SECURITY The security over which the option or warrant is issued.
UNDERTAKING (1) A promise, usually resulting in a legal obligation, or
(2) The business, trade or enterprise of a company (in particular with regard to section 75 and 76, Finance Act 1986).  
UNDERWRITER An organisation that arranges an issue of new securities by agreeing to buy an entire new securities issue from an issuer (i.e. company) and distribute it to the public.
UNIT TRUST A Collective Investment Scheme whereby investors can ‘pool’ together their funds for investment in securities through a professional fund manager, thus spreading their risk. Unit trusts are open-ended which means that the trust can issue new units in response to demand. Holders of units in a unit trust can also surrender or redeem their units to the fund manager of the unit trust at any time. This means that unit trusts trade at their Net Asset Value (NAV) - that is the value of their underlying investments divided by the number of units in issue.
UNLISTED SECURITIES Shares (generally in small companies) that are not listed on a Recognised Investment Exchange. A limited number of unlisted company securities trade on the Alternative Investment Market (AIM).
UNSECURED LOAN A debt obligation not backed by the pledge of collateral.
USE CREST Transaction type code : Unmatched Stock Event Transaction.
No SDRT liability arises on transactions input for settlement in CREST where Transaction type code ‘USE’ is reported.    
  UUT A unit trust established in the UK that is not authorised by the Financial Conduct Authority (FCA) is called an Unauthorised Unit Trust (UUT).

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VENDOR One who disposes of a thing by sale. A seller, i.e. of shares.
   
VENTURE CAPITAL TRUST A venture capital trust is an investment vehicle, similar to an investment trust, enabling investors to invest in a portfolio of shares in a number of smaller growing companies that are unlisted or with its shares dealt on the Alternative Investment Market (AIM).
VIRT-X Formerly called Tradepoint, virt-X is a UK Recognised Investment Exchange (RIE) for trading UK listed stocks and shares. It is a direct competitor with the London Stock Exchange and is an alternative way of trading UK securities.

Trading is via an electronic order driven market accessible through a standard PC where brokers, market makers and investing organisations buy or sell shares anonymously.

Trades are cleared and guaranteed by the London Clearing House (LCH) and settlement is via CREST.    
  VOLUNTARY DISPOSITION A transfer of ownership without valuable consideration i.e. a gift of shares.
  VOLUNTARY LIQUIDATION The winding up of a company so it and its creditors may settle their affairs out of court.

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WAIVER Forgoing repayment of a loan, or other amount legally due to you.
   
WARRANT The right to purchase a specific share, at some future date or dates, at the exercise price. Warrants are like call options, but with much longer time spans. Unlike options which are generally issued by third party organisations, Warrants are issued by a company giving the holder the right (but not the obligation) to subscribe direct for new shares in the company.
Warrants carry no right to a dividend and no voting rights.    
  WINDING UP A process that entails selling all the assets of a business entity, paying off creditors and distributing any remaining assets and proceeds to the shareholders, and then dissolving the business.

X

XDL CREST Transaction type code: Cross border delivery (XDL).