Banking Terms - Set 31 (Unlisted, Underlying Option, Cabinet & Underlying Security)

Unlisted Security

A financial instrument that is not traded on an exchange, but through the over-the-counter (OTC) market. Unlisted securities are also called OTC securities. Market makers facilitate the buying and selling of unlisted securities in the OTC market. Because they are not exchange traded, unlisted securities can be less liquid than listed securities.

Securities must meet a number of requirements to be listed on an exchange. For example, to be listed on an exchange such as the NYSE or AMEX, a publicly traded stock must represent a company that surpasses an annual income or market capitalization threshold. The company also must have issued a specific number of shares and be able to afford the exchange's listing fee, which often exceeds $100,000. These requirements ensure that only the highest quality companies trade on exchanges. Thus, unlisted securities may be of lower quality and present a greater risk to investors.

Underlying Option Security

An underlying option security is the financial instrument on which a derivative's (i.e., an option's) value is based – it provides the price that is used to determine the value of the derivative. An option is classified as a derivative because its value is derived from the underlying security.

An option holder has the right, but not the obligation, to buy or sell a particular instrument at a specified price and date in the future.

Cabinet Security

A security that is listed under a major financial exchange, such as the NYSE, but is not actively traded. A cabinet security is traded by an inactive investment crowd, and is more likely to be a bond than a stock. 

The cabinets would typically hold limit orders, and the orders were kept on hand until they expired or were executed.

Underlying Security

The security on which a derivative derives its value. For example, a call option on Company X stock gives the holder the right, but not the obligation, to purchase Company X’s stock at the price specified in the option contract. In this case, Company X’s stock is the underlying security.

Generally, an underlying security's value should be independently observable by both parties, so that there is no potential for confusion regarding the value of the derivative. Investors dealing in derivatives must closely research the underlying security in order to ensure that they fully understand the factors affecting the value of the derivative.

Banking Terms - Set 30 (IDS, Security Deposit, Tax-Exempt Security, Authentication vs Authorization)

Income Deposit Security - IDS

A security that combines common stock and notes of the issuer to provide regular income payments to the holder of the security. The holder of the income deposit security receives dividends from the common stock, and fixed income from the debt instrument in the IDS.

These types of securities are traded on stock exchanges and can be purchased by any type of investor. The companies that use this form of security are usually very stable and mature businesses.

Security Deposit

A monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction. As the name implies, the deposit is intended as a measure of security for the recipient. 

Security deposits are not considered taxable income. Local laws often treat security deposits as trust funds. Security deposits that are used as final rent payments must be claimed as advance rent and are taxable when paid.

Tax-Exempt Security

A security in which the income produced is free from federal, state and local taxes. Most tax-exempt securities come in the form of municipal bonds, which represent obligations of a state, territory or municipality. For some investors, U.S. savings bond interest may also be free from federal income taxes.

A tax-exempt security will carry a tax-equivalent yield that is often higher than the current yield, as determined by the investor's tax bracket. The higher the tax bracket, the more beneficial tax-exempt securities can become in a taxable investment account. 

Authentication vs Authorization

Authentication is a process where a cardholder proves that they are the genuine cardholder.   Examples of authentication are - The credit card holder fills up his credit card details on a site where he is a payer and then the bank sends him a 'one time password (OTP)' on his registered mobile phone. The transaction is completed when the OTP is entered. OTP is valid for that one transaction and expires after the use. Every new transaction made on the credit card generates a new OTP. Alternatively the credit card holder is prompted to a 'Visa or Master verified' site and then he is expected to insert his password, which is known to him only. This ensures that even if one gets to know the credit card details of an individual one cannot misuse the credit card online. This is called double factor authentication.

While Authorizations are provided by card issuers and confirm that the card number is valid, that the funds are available at the time the transaction takes place and the card had not been reported as lost or stolen at the time of the transaction.  Authorizations are not a guarantee of payment.

Banking Terms - Set 29 (Taxable Preferred Securities, Senior Security, Chargeback, Convertible Security)

Taxable Preferred Securities

A type of preferred equity security that does not qualify for the dividends-received deduction for corporations of typical preferred securities, defined in Section 243 of the Internal Revenue Service (IRS) Code. Taxable preferred securities are usually junior level liabilities, and the coupons tied to them can either be fixed or variable, and for indefinite or specific maturities.

As with regular preferred stocks, these securities trade like bonds with regular denominations of $25 par and $1,000 par. The dividends paid are treated as regular income instead of dividends to the investor, but receive favorable tax treatment for the issuing company.

Senior Security

A security that ranks above another security in the event of the company's bankruptcy or liquidation. A senior security is called such, because it is considered "senior" to another in the company's hierarchy of capital providers. Should the company go bankrupt or face another liquidating event, holders of the senior-most security will be in line to receive repayment of their invested monies first, before other creditors receive any payment. Next in line would be holders of the second-most senior security. 

For an instance, debt is always considered senior to equity. In terms of debt, secured debt is considered senior to unsecured debt, such as debentures, while preferred securities are considered senior to common shares.

Chargeback

A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder and typically involve product delivery failure or product/service dissatisfaction.

Convertible Security

A convertible, sometimes called a CV, is either a convertible bond or a preferred stock convertible. A convertible bond is a bond that can be converted into the company's common stock. You can exercise the convertible bond and exchange the bond into a predetermined amount of shares in the company. The conversion ratio can vary from bond to bond. You can find the terms of the convertible, such as the exact number of shares or the method of determining how many shares the bond is converted into, in the indenture. For example, a conversion ratio of 40:1 means that every bond (with a $1,000 par value) you hold can be exchanged for 40 shares of stock. Occasionally, the indenture might have a provision that states the conversion ratio will change through the years, but this is rare.

Banking Terms - Set 28 (Hedge Fund, Brokerage Account, Floor Limit, Prime Brokerage)

Brokerage Account

An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he or she incurs from the account.

Brokerage accounts can also differ in terms of order execution speed, analysis tools used, scope of tradable assets, and the extent to which investors can trade on margin.

Floor Limit

An amount that Visa and MasterCard have established for single transactions at specific types of merchant outlets and branches, above which authorization is required.

Hedge Fund

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.

Prime Brokerage

A special group of services that many brokerages give to special clients. The services provided under prime brokering are securities lending, leveraged trade executions, and cash management, among other things. Prime brokerage services are provided by most of the large brokers, such as Goldman Sachs, Paine Webber, and Morgan Stanley Dean Witter.

Hedge funds were what started the prime brokerage option. Hedge funds place large trades and need special attention from brokerages.

Banking Terms - Set 27 (Closed Vs Open Loop Card, POP, Master Feeder Fund, Rehypothecation)

Closed loops Card vs Open Loop Card

General purpose and limited-purpose payments networks primarily operate under two different business models. Open-loop payments networks, such as Visa and MasterCard, are multi-party and operate through a system that connects two financial institutions—one that issues the card to the cardholder, known as the issuing financial institution or issuer, and one that has the banking relationship with the merchant, known as the acquiring financial institution or acquirer—and manages information and the flow of value between them. In a typical closed-loop payments network, the payment services are provided directly to merchants and cardholders by the owner of the network without involving third-party financial institution intermediaries. Closed-loop networks can range in size from networks such as American Express and Discover, which issue cards directly to consumers and serve merchants directly, to an individual merchant that issues limited-purpose private-label credit cards to its customers for use only in that merchant’s stores.

Prime of Prime - POP

A brokerage that provides service to traders (especially Forex traders) who need micro-contract trades. Prime of Prime (PoP) brokerages also often allow for trades of greater leverage and, as a result, more risk. Many of the brokers using PoP brokerages are small regional banks with clients that need smaller currency trade options.

One of the reasons that regular forex prime brokerages dont provide the services that PoPs do is that there is a smaller profit margin in the smaller trades. Additionally, their systems often dont support a cost-effective way to complete smaller trades. PoP brokerages are also equipped to deal with increasing regulatory requirements for highly leveraged trades.

Master Feeder Fund

A structure commonly used by hedge funds to pool investment capital raised by U.S. investors - both taxable and tax-exempt - and overseas investors into one central vehicle called the master fund, with separate investment vehicles or feeders created for each investor group. Investors invest in the feeder funds, which in turn invest their assets in the master fund. The master fund makes all the portfolio investments and conducts trading activity, while management and performance fees are payable at the feeder-funds level.

Rehypothecation

The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees. 

In a typical example of rehypothecation, securities that have been posted with a prime brokerage as collateral by a hedge fund are used by the brokerage to back its own transactions and trades. While rehypothecation was a common practice until 2007, hedge funds became much more wary about it in the wake of the Lehman Brothers collapse and subsequent credit crunch in 2008-09. 

Banking Terms - Set 26 (UCommerce, Vantage Score, PSS Act, 2007, Prime Brokerage Fees)

UCommerce

Universal Commerce or UCommerce is the intersection of online, kiosk, and in-store payment enablement, incorporating social media and near-field communications..

Vantage Score

A credit score product launched in March 2006 by the three major credit bureaus (Equifax, Experian and TransUnion) as a competitor product to the FICO score. Like a FICO score, a Vantage Score is a three digit numeric value that assesses a borrower's credit risk. Vantage Scores range from 501 to 990, with a higher score representing a lower risk to the creditor.

Payment and Settlement Systems Act, 2007 (PSS Act, 2007)

The PSS Act, 2007 provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India. The Act also provides the legal basis for “netting” and “settlement finality”.

Prime Brokerage Fees

Prime brokers do not charge a fee for the bundled package of services they provide to hedge funds. Rather, revenues are typically derived from three sources: spreads on financing (including stock loan), trading commissions and fees for the settlement of transactions done away from the prime broker. The financing and lending spreads, which are charged in basis points on the value of client loans (debit balances), client deposits (credit balances), client short sales (short balances), and synthetic financing products such as swaps and CFDs (Contract for difference), make up the vast majority of prime brokerage revenue.

Therefore, clients who undertake substantial short selling or leverage represent more lucrative opportunity than clients who do less short selling and/or utilize minimal leverage. Clients whose market activities are principally fixed income-oriented will generally produce less prime brokerage revenue, but may still present significant economic opportunity in the repo, foreign exchange (fx), futures, and flow business areas of the investment bank.

Banking Terms - Set 25 (Smishing, TARGET2, Tiered Pricing, Token Based Authentication)

Smishing

Smishing is a technique used by criminals to steal bank or credit card information using text messages. In such an incident, the mobile device user receives a fake text message that appears to be from a bank. The text message may request that the consumer call a phone number to provide card or account information to a criminal posing as a bank employee.

TARGET2

TARGET2 is an interbank payment system for the real-time processing of cross-border transfers throughout the European Union and replaced TARGET in 2007. TARGET2 has to be used for all payments involving the Eurosystem, as well as for the settlement of operations of all large-value net settlement systems and securities settlement systems handling the euro and is operated on a single technical platform. The business relationships are established between the TARGET2 users and their National Central Bank.

It stands for Trans-European Automated Real-time Gross Settlement Express Transfer System 2.

Tiered Pricing

Tiered pricing is a merchant account rate structure that credit card processors use to assess charges. It is also referred to as bundled pricing because it allows processors to group interchange fees into general rate tiers of their choice. There are two types of Tier Pricing 3-Tier Pricing and 6-Tier Pricing.

Token Based Authentication

Allows cardholders to connect remotely to services by authenticating their identity through the use of a password that is not transmitted between the two parties. Often a password is generated by a device issued by the service provider, e.g., a bank or card issuer, to the customer or cardholder, and when prompted the password is entered by the customer and is recognised by the service provider.

Banking Terms - Set 24 (Upstairs, Sweetheart & Package Deal, Apple Pay)

Sweetheart Deal

A merger, a sale or an agreement in which one party in the deal presents the other party with very attractive terms and conditions. The terms of a sweetheart deal are usually so lucrative that it is difficult to justify turning the offer down.

This term can be used to describe a variety of deals, but in general, a sweetheart deal is a transaction that simply can't be passed up. For example, a merger may be a sweetheart deal for the top executives of the target firm because they get very healthy buyout packages. This kind of sweetheart deal is usually considered unethical, however, because it may not be in the best interests of shareholders.

Package Deal

An order that contains a number of exchange or deposit items that must be completed simultaneously, or not at all. Package deals allow traders to ensure specific prices or times to maturity for multiple assets.

A trader may want to participate in a package deal to properly execute an investment strategy. For example, let’s say an investor wants to enter into a long-short strategy, where he or she purchases one stock and short sells another. Making this order a package deal will protect the investor in case either stock is not immediately available for purchase or sale. The investor may not want the exposure of being only long or short for the period of time required to complete the second transaction.

Apple Pay

Apple Pay is a mobile payment service that lets certain Apple mobile devices make payments at retail and online checkout.  It intends to digitize and replace the credit or debit magnetic stripe card transaction at credit card terminals. The service lets Apple devices wirelessly communicate with point of sale systems using a near field communication (NFC) antenna, a "dedicated chip that stores encrypted payment information" (known as the Secure Element), and Apple's Touch ID and Passbook.

Upstairs Deal

A business agreement that is made by upper management, and is generally unknown to lower-level employees until it is publicly announced. The deal is referred to as an "upstairs deal" because executives typically have their offices in the higher floors of an office building. In mergers and acquisitions, an upstairs deal between two companies is more likely to result in a friendly takeover, as opposed to a hostile takeover.

E.g. Keeping word of a potential merger quiet allows executives to operate with a reduced risk of outside parties profiting from the deal by driving up share prices. Once a takeover offer is announced, share prices will react by either moving up or down to the indicated target price. For example, a deal in which a company tenders an offer of $15 per share with shares currently trading at $10 per share will likely result, when announced, in shares adjusting to $15.

Banking Terms - Set 22 (Deal Blotter, Pre-Authorization, No Dealing Desk, Deal Slip)

Deal Slip

A record of the essential details of a transaction entered into by a forex dealer. It is the primary source of record-keeping for a dealer. Deal slips are generally required to be archived for a certain number of years stipulated by the regulatory authority where the deal is recorded. Also known as deal ticket.

A deal slip is generally time-stamped to record the date and time of the transaction. It contains all of the information pertinent to a transaction, including but not limited to the amount of the transaction, whether it was a purchase or sale, the counterparty to the transaction, settlement date, transfer price, customer price and so on.

Deal Blotter

A trader's record of all the transactions executed on a given day. The deal blotter contains basic information pertinent to a transaction, with additional information included on the deal slip. The deal blotter for a forex trader would include both opening and closing currency positions initiated by the trader.

In a forex trading firm with several traders, the sum of the positions on all the traders' deal blotters at the end of the trading day will indicate the change in the firm's net position at close. While deal blotters were paper-based before the advent of computerization, they are now increasingly computer-based, enabling traders to analyze and monitor their currency trades more rapidly and efficiently.

Pre-Authorization

Pre-authorization is a banking term describing a practice where money is not taken from the payee’s account at the moment the transaction is made. The amount charged is instead made unavailable on that customers’ account – this is also known as authorization hold. Pre-authorisation is normally valid for 1- 5 days on debit cards, while credit card pre-auth periods can be longer and vary between issuers. This pre-auth period is usually used by retailers to make additional security checks on the card and the cardholder, to make sure that the transaction is not fraudulent. It also allows them time to make sure that the item being sold is in stock and ready to be shipped. Consumers near their credit or debit limits need to watch their available balances carefully, or the hold amount could push them over the limit, triggering a fee. Holds, also called blocks, are usually released within minutes or hours, but can sometimes last days.

No Dealing Desk

A way of forex trading that provides immediate access to the interbank market. The interbank market is where foreign currencies are traded. This is different than trading through the dealing desks that are found in many banks and financial institutions. By using a dealing desk, a forex broker who is registered as a Futures Commission Merchant (FCM) and Retail Foreign Exchange Dealer (RFED) can offset trades. If a no dealing desk system is used, positions are automatically offset and then transmitted directly to the interbank.

Forex brokers who use this system work directly with market liquidity providers. When trading through a no dealing desk, instead of dealing with one liquidity provider, an investor is dealing with numerous providers in order to get the most competitive bid and ask prices. An investor using this method has access to instantly executable rates.

Banking Terms - Set 21 (VAR, Business Risk)

Value-at-risk (VAR)

A value-at-risk (VAR) model is a procedure for estimating the probability of portfolio losses exceeding some specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities. A loss which exceeds the VaR threshold is termed a "VaR break".

For example, if a portfolio of stocks has a one-day 5% VaR, there is a 0.05 probability that the portfolio will fall in value.

Business Risk

The risk that the cash flow of an issuer will be impaired because of adverse economic conditions, making it difficult for the issuer to meet the company’s operating expenses.

E.g. Manufacturer of a particular product, the consumption of which is declining because of adverse economic conditions will be finding it difficult to look at the expenses of the industry for further production/development.

Banking Terms - Set 20 (ICSD, Short Position, Capital Gain Tax, Book Building)

Announcement Date

The date at which a corporate actions event is officially announced. The announcement can either be made by the issuer or by the lead agent in the market.

For e.g. Company A announces a dividend of Rs. 10 per share on Apr 20, which means Apr 20 is the announcement date.

ICSD

The letters are standing for "International Central Securities Depository". It is in fact a Central Securities Depository through which securities from other countries can be held and that settles trades in international securities such as Eurobonds although many also settle trades in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs.

Most well-known ICSD's are: DTC [it’s a national CSD of USA but it holds a good amount of non-US securities too], Clear stream, Euro clear.

Short position

Short positions happen when a client sells more shares than he actually owns (he could do this for example when he expects the share price of the stock he is short selling to go down). At the end of each day, however, he needs to make sure he covers these short positions. He could do this by borrowing the shares from another party in the market in return for a fee.

E.g. A person trades/sells 1000 shares of company A, but his portfolio says he doesn’t possess any single share of this particular company to his name in his account. In this case, it is termed as a short position, which means he has to buy the same amount of shares before the end of that particular trading session.

Capital Gains Tax

The tax that needs to be paid over profits that were made for the securities that a person holds - i.e. a percentage has to be paid over the difference between the price at which a security was sold and the price at which it was bought. Several Corporate Action events result in profits over which capital gains tax needs to be paid.

E.g. For the Financial Period considered for tax calculation, consider, a person has earned a profit of Rs.1,00,000 including the trading gains, dividends received etc. Then, the person has to pay Capital Gains tax for the above amount which also depends on his/her tax terms for that particular year.

Book Building

Book building is a type in which the investors are asked to indicate the price on a firm, i.e. the best price that they will offer and the maximum number of shares that they will buy at particular time. This information will establish the most appropriate offer price for the issue.

For example in a rights issue event. the price at which shareholders can subscribe to new shares is being established by calculating the weighted average of share prices and trading volumes over a certain period of time. This method of calculation is called book building.

Banking Terms - Set 19 (Gearing, Call payment, CDI, Fractions)

Futures

A future is a contract between a buyer and a seller whereby the buyer agrees to buy a predetermined amount of a product at a predetermined price at a predetermined date in the future. Please note the difference between a future and an option: with a future, there is an obligation to buy/sell, whereas with an option there is a right to buy/sell.

Gearing

Gearing describes the level of a company's net debt compared with its equity capital, and usually it is expressed as a percentage. So, a company with gearing of 60 per cent has levels of debt that are 60 per cent of its equity capital.

The gearing ratio shows how encumbered a company is with debt. Depending on the industry, a gearing ratio of 15% would be considered prudent while anything over 100% would be considered risky or 'highly geared'.

Call Payment

A payment made for the Subscription of new securities, or in payment for sums outstanding to the issuer, in relation to existing Securities (commonly in the context of Rights Issues, Open Offers or partly paid securities).

For instance, if you subscribe to an offer on floatation, the terms may require you to pay in two installments – first one at the time of your subscription and the second six months later. Issuing companies use this as a device to attract shareholders, and it was widely used when the UK government privatized state-owned industries during 1980s and 1990s.

CDI [Crest Depository Interests]

Crest Depository Interests are independent Securities constituted under English Law, which may be held, transferred and settled within CREST. CDI holders will not be the legal owners of the shares to which they are entitled as a result of a Corporate Action. They will however, have an interest in the shares through their ownership of CDIs.
CREST issues a CDI to each holder of the security. This is similar to depositary receipts issued in other countries.

Fractions

In several corporate actions events, ratios are involved that will lead to entitlements that are less than one share.

For e.g. Consider a reverse stock split (ratio being 10:1), i.e.  Every 10 shares entitle to receive one new share, shareholders who hold let's say 9 shares before the reverse split will be entitled to 0.9 shares after the reverse split. Securities are generally not trade able in quantity less than 1, so the lead agent can chose to round up or down, or cash compensate the shareholders for fractions.

Banking Terms - Set 18 (At the money, Data vendor, SEDOL, Default Option)

Default Option

Some Corporate Actions require response/instruction from the shareholder to decide the course of action. So, in this case there is a Default option that refers to the course of action that will be taken in case no instruction is received from the shareholder as to what decision will be made.

For e.g. In a dividend issue, company is willing to issue the same either in CASH or as ADDITIONAL SHARES and it needs an instruction from the shareholder to proceed further. In case, if there is no response from the shareholder, it says dividend will be distributed as CASH by default.

SEDOL

SEDOL stands for Stock Exchange Daily Official List, and serves as the National Securities Identifying Number for all securities issued in the United Kingdom and are therefore part of the security's ISIN as well. The numbers are assigned by the London Stock Exchange on request by the security issuer.
The SEDOL Master file (SMF) provides reference data on millions of global multi-asset securities each uniquely identified at the market level using a universal SEDOL code.

Data Vendor

A company that sells information about corporate actions event to the financial services industry.

e.g. DTCC is a vendor agency which passes on information about the corporate action happening across to the servicing industries like JP Morgan, BNYM etc.

At the Money

One of the three forms of moneyness of a derivative (in-the-money, at-the-money and out-of-the-money).
When "at-the-money", the price of the underlying security is exactly same as the strike price of the derivative.
Also said as, a situation where the exercise price of a call/put option/a warrant is equal to the current market price of the underlying instrument.

Cum (Ex)

Cum stands for "with" in Latin. When one is trading shares "cum", it means that one is trading the shares "along with" the entitlements to a certain corporate action event.

When one is trading shares "ex", it means that one is trading the shares "without" the entitlements to a certain corporate action event.
It can be associated with Ex-Date. For example, in a normal cash dividend, if the ex-date is 01.08.2013 then the stock will trade without the right to the cash dividend from the 01.08.2013 onwards.

Banking Terms - Set 17 (Tax and loan acc, TAB, Exchange rate risk, Hard call protection, Corporate sector securities)

Corporate Sector Securities

Securities issued by U.S. corporations and non-U.S. corporations in the United States which excludes the general government, private households, and non-profit organizations serving individuals. The corporate sector is divided into investment grade and non-investment grade sectors by rating agencies such as Moody’s and S&P.

E.g. Includes bonds, MTNs, structured notes and commercial paper issued by those organizations.

Hard call protection

Hard call protection usually refers to callable bonds. The protection is the period of time when the bond cannot be called, no matter what the interest rate is. That is, if the interest rate falls sharply, most callable bonds will be called. Hard call protection ensures that the holder of the bond can benefit when rates fall.

E.g. Company A has issued 1000000 bonds which has a protection period of 4yrs. from the date when the bond/security is being issued. This assures the holder that the company will not be able to call back the bonds that are outstanding before this period.

Exchange Rate Risk

A foreign currency nominated bond has unknown domestic currency cash flows. The domestic currency cash flows are dependent on the exchange rate at the time when the payments are received. In Simple terms, it can be referred as the risk that an investor faces when he/she invests on a foreign currency bonds.

For example, suppose that a German investor purchases a bond whose payments are in British pounds (GBP). If pounds depreciate relative to euros (EUR), fewer euros will be received and vice versa. This risk is also referred to as currency risk.

Tax Anticipation Bill (TAB)

Short-term obligation issued by the U.S. Treasury to raise funds during a period when tax receipts are not large enough to cover current disbursements. TABs mature approximately one week after quarterly corporate tax payments are due. The attractiveness of TABs is that the government will accept them in payment for taxes at their face value.

Tax and loan account

Account in a private-sector depository institution, held in the name of the district Federal Reserve Bank as fiscal agent of the United States that serves as a repository for operating cash available to the U.S. Treasury. Withheld income taxes, employers' contributions to the Social Security fund, and payments for U.S. government securities routinely go into a tax and loan account.

Banking Terms - Set 16 (Call risk, Default risk & Reinvestment risk on bond, Accrual bond, Irredeemable bonds)

Reinvestment Risk on bonds

When the yield of a bond is calculated, it is assumed that the coupons received before maturity is being reinvested. That additional income [received from such reinvestment] is sometimes referred to as interest-on-interest which depends on the prevailing interest-rate levels at the time of reinvestment. Volatility in this reinvestment rate because of changes in market interest rates is called reinvestment risk.

Accrual Bond

A bond on which interest amount accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at the time of maturity. We can simply say it to be like Cumulative Deposits kind of.

Irredeemable bonds

Bonds with a fixed maturity but not subject to prior redemption; bonds that cannot be called for redemption by the issuer (payer or obligor) before maturity. They should not be confused with perpetual bonds or intermediate bonds. UK Irredeemable (undated) bonds have no final maturity date. They are callable by the government at any time within 3 months. As their coupons range between 2.5% and 4% they are unlikely to be called. War loan, issued by the UK government during the First World War, is the best known of this kind.

Default Risk on Bonds

Issuers could potentially run into cash flow problems, simultaneously attaches default risk to their bonds if there is uncertainty whether they can afford to pay coupons and principals. Bonds with default risk trade in the market at a price that is lower than comparable U.S. Treasury securities, which are considered free of default risk. Default risk is gauged by quality ratings assigned by recognized rating companies such as Moody’s Investor Service, Standard & Poor’s corporation, Morningstar and Fitch IBCA. Also referred to as credit risk.

Call risk on bonds

Usually bonds include a call feature that allows the issuer to redeem (call) all or part of the bonds issued before the maturity date. The issuer usually retains this right in order to have flexibility to re-finance the bond in the future, if the market interest rate drops below the coupon rate.

Banking Terms - Set 15 (Exchage rate risk, Inflation risk & Put provision on bond, Unsystematic risk, Call premium)

Call premium

Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date.

Put Provision on Bond

A put provision grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. Here the advantage to the investor is that if interest rates rise after the issue date, thereby reducing a bond’s price, the investor can force the issuer to redeem the bond at par value.

Unsystematic risk

It is also called as the diversifiable risk or residual risk. The risk that is unique to a company such as a strike, the outcome of unfavorable litigation, or a natural catastrophe that can be eliminated through diversification.

Inflation risk on bonds

If investors purchase a bond on which they can realize a coupon rate of 5% but the rate of inflation is 6%, the purchasing power of the cash flow actually has declined. Inflation risk arises because of the variation in the value of cash flows from a security due to inflation, as measured in terms of purchasing Power.

Exchange-rate risk on bonds

A non-domestic-currency nominated bond has unknown domestic currency cash flows. The domestic currency cash flows are dependent on the exchange rate at the time the payments are received.

For example, suppose that a German investor purchases a bond whose payments are in British pounds (GBP). If pounds depreciate relative to euros (EUR), fewer euros will be received and vice versa. This risk is also referred to currency risk.

Banking Terms - Set 14 (Rights issue, Acceptance period, Bearer shares, Compensation, Book value)

Book Value

The value of a company's assets as shown in the Annual Report and Accounts. It stands to the net assets of the company [total assets - total liabilities].

For E.g. Company A has $24 billion in assets and $19.3 billion in liabilities, then the company’s book value would be the difference between above two i.e. $4.7 billion.
This value divided by the total number of outstanding shares will give the book value per share of a company. If this value is greater than company's market value, then it is considered as undervalued.

Compensation

Compensation is the amount of money (or) additional securities a purchaser receives from the seller, if he had bought the shares before the ex-date of a corporate action and the shares gets settled in his account only after the ex-date.

For E.g. Person A buys 100 shares from Person B before the ex-date of a cash dividend. Shares and the price he pays for them however settle after the ex-date. This means that, the seller will receive the cash proceeds as a result of cash dividend, while the buyer is entitled to them. The buyer has to CLAIM the cash proceeds from the seller.

Bearer Shares

Securities can either have "bearer" or "registered" form. For E.g. In the past, when securities were in paper form, a shareholder would go to his bank and take the paper with him to collect for example a dividend. As proof that the dividend was paid out, the bank employee would tear off one of the many coupons from the share. The name of the shareholder was not registered anywhere by the issuer of the security. The bank could go to the issuer and exchange the coupon for the dividend payment.

Acceptance Period

The acceptance period is the period in which shareholder can accept the offer. They would usually do so by sending an instruction to their broker or custodian.

E.g. Company A has announced a tender offer, it has announced a period of 7 days to accept the tenders/bids which has been allocated to them, such a period is called a Acceptance Period.

Entitlement Calculation for Rights Issue

If a Rights Issue or an Open Offer is announced, the ratio and Call Cost will be used to calculate the entitlement of a particular person.

Company X announces a Rights Issue offering 2 new shares for every 5 held, at 1USD and person A has 1000 Ordinary shares on the EX-Date, then A's entitlement would be as follows,
2 new shares for every 5 held on the Ex-date means, that person A will be able to buy 400 new shares & Call cost of 1USD per new share purchased = 400x1USD = 400USD.

Banking Terms - Set 13 (Foreign housing, CIBIL, Cambist, Bill buying rate, FIE)

Foreign invested enterprise (FIE)

A legal structure that permits a company to set up business in a foreign country. Various types of foreign invested enterprises exist in different countries. They tend to be highly regulated, especially in China. Deep regulation tends to limit avenues the enterprise may pursue to make a profit. Limitations on control of the enterprise by the parent company are common.

Bill Buying Rate

Bill Buying Rate is to be applied when a foreign bill is purchased. When a bill is purchased, the rupee equivalent of the bill value is paid to the exporter immediately. However, the proceeds will be realized by the bank after the bill is presented to the drawee at the overseas centre. In case of a usance bill, the proceeds will be realized on the due date of the bill which includes the transit period and the usance period of the bill.

Cambist

An individual or broker considered to be an expert in foreign exchange rates. Cambist may also refer to book providing information such as exchange rates on world currencies and other medium of exchange.

CIBIL [Credit Information Bureau (India) Limited]

Credit Information Bureau (India) Limited or CIBIL is a Credit Information Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual‘s payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to lenders in order to help evaluate and approve loan applications.

Foreign housing exclusion and deduction

An IRS deduction that allows a taxpayer to exclude payment from an employer to cover foreign housing expenses when filing annual income tax forms. The payment is not considered income, whether the employer pays on the employee's behalf or pays directly to the employee.

Banking Terms - Set 12 (Allotment Letter, Transformation, Basket Trading, BIN, CDPD)

Cellular Digital Packet Data (CDPD)

A method of sending data through cellular networks. CDPD is used with wireless credit card terminals to transmit transactions and deposits in mobile environments.

Bank Identification Number (BIN)

A unique series of numbers assigned by Visa/MasterCard to a member institution, which identifies that institution in transaction processing. The BIN comprises the first six digits of a standard credit card number.

Basket Trading

A group of securities that can be traded, managed and tracked as one entity. One of the aims of creating a basket is to spread risk. Basket trading is common for institutional investors and investment funds who wish to hold a large number of securities in certain proportions.

Index Funds are good example, which holds all kinds of securities at certain proportions

Transformation

Transformation are the second type of claims [similar to compensation discussed on Tuesday]. They occur in corporate actions events where the ISIN/Nominal Value changes. All trades instructed before the ex-date have to be cancelled on the ex-date and they have to be replaced by new trades in which new ISIN or ratio getting applied.

For E.g. :  10:1 stock split takes place with ex-date July 30, 2013. "A" instructs to buy 100 shares from "B" with trade date July 29, 2013 and contractual settlement date of Aug 01, 2013 at Rs. 10000 (the price per share = Rs. 100). On the ex-date, the pending trade will have to be reversed and replaced with a new trade for 1000 shares at Rs. 10000 (the price per share post-split = Rs. 10).

Allotment Letter

A legal document sent to shareholders during a Rights Issue. It represents the unconditional right to buy new shares. Shares should be paid for in advance. Allotment letters can be traded as renounceable documents, where the seller signs over the rights to a buyer.

Banking Terms - Set 11 (CRA, Mobile terminated SMS billing, Payment Gateway, Point to Point Encryption)

Point to Point Encryption

Point-to-point encryption ensures cardholder data is protected from card swipe all the way through to the processing banks. State of the art encrypted magnetic card readers scan and encrypt cardholder information prior to performing an electronic payment transaction.

Payment Gateway

A system of technologies and processes that allow merchants to electronically submit payment transactions to the payment processing networks. Payment Gateways help other Processors conduct secure business on the internet using Secure Socket Layer (SSL) technology. They provide a system that passes credit card data, authorization requests, and authorization responses over the Internet using encryption technology.

Non-Qualified Transaction Fees

Bankcard sales transactions that do not meet set Visa/MasterCard criteria for that particular merchant and are processed at a higher interchange rate. An example of this is a merchant that is retail (card present) that processes a card-not-present transaction (or manually enters card data rather than swiping the magnetic stripe). The merchant will pay the difference between what they should have paid on retail and what they actually qualified for (card not present).

Mobile terminated SMS billing

Payment method via SMS where the intended payee closes the payment by receiving one or more SMS messages. A consumer takes part in a reverse billing service by sending an SMS containing a keyword to the number (usually a four or five digit short code number) advertised in the media. This first message will be charged normally, and will signal the start of the reverse billing service. The user will then receive the reverse billed message at intervals specified in the advertised material.

CRA [Credit Rating Agency]

An organization licensed under the Consumer Credit Act 1974 that holds information about the borrowing habits of people. Financial institutions may contact these agencies for information to help them make various decisions, for example, whether or not to open an account or provide loans or grant credit. Financial institutions share information with the agencies to improve the overall quality of lending decisions.