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.