ASSET CLASS INSTRUMENTS DEFINITION

Transcription

1 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Equity Ownership interest in a corporation in the form of common stock or preferred stock. Common Stock American Depositary Receipts (ADR) Goba Depositary Receipts (GDR) As a unit of ownership, common stock typicay carries voting rights that can be exercised in corporate decisions. A negotiabe certificate issued by a U.S. bank representing a specific number of shares of a foreign stock traded on a U.S. stock exchange. ADRs make it easier for Americans to invest in foreign companies, due to the widespread avaiabiity of doar-denominated price information, ower transaction costs, and timey dividend distributions. A negotiabe certificate hed in the bank of one country representing a specific number of shares traded on an exchange of another country. Prices of GDRs are often cose to vaues of reated shares, but they are traded and setted independenty of the underying share. The shares trade as domestic shares, but are offered for sae gobay through the various bank branches. These instruments are typicay used by companies from emerging markets. Exchange Traded Funds (ETF) An open-ended investment fund or trust that hods portfoios of securities, and it is designed to track certain indexes or baskets of stocks. Unike a unit trust, exchangetraded funds are bought and sod on an exchange, rather than through a fund manager or their distributors. Preferred Shares Preferred stock is a cass of share capita that carries a fixed return and ranks ahead of common stock in the order of priority for the distribution of earnings and assets. Hoders of preferred stock generay do not have voting rights or a caim on the residua earnings and assets of a corporation, in contrast to common stockhoders.

2 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Fixed Income Any type of investment that yieds a reguar (fixed) payment. Asset Backed Securities (ABS) Coateraized Mortgage Obigation (CMO) Factored Bonds A bond or note backed by oans that are not first ien mortgages. Typica oans backing these securities are credit card receivabes, auto oans manufactured-housing contracts and home-equity oans. A mortgage backed, investment-grade bond that separates mortgage poos into different maturity casses. CMOs are backed by mortgage backed securities with a fixed maturity. They can eiminate the risks associated with prepayment because each security is divided into maturity casses that are paid off in order. As a resut, they yied ess than other mortgage backed securities. The maturity casses are caed tranches, and they are differentiated by the type of return. For certain fixed income products that pay principa, ike mortgage-backed securities, factor is the number by which the origina face vaue of the product decreases over time. P Fixed Rate Bonds/ Notes A bond or note who s interest rate does not change during the entire term of the bond. U.S. Treasury Securities A United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Pubic Debt. Treasury securities are the debt financing instruments of the United States Federa government, and they are often referred to simpy as Treasuries. There are four types of marketabe treasury securities: Treasury bis, Treasury notes, Treasury bonds, and Treasury Infation Protected Securities (TIPS). Mortgage Backed Securities (MBS) Is an asset-backed security whose cash fows are backed by the principa and interest payments of a set of mortgage oans. Payments are typicay made monthy over the ifetime of the underying oans.

3 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. U.S. Government Sponsored Enterprises (GSE s) Agency Bonds - ex: FHLMC, FNMA, GNMA, SLMA. Agency debt is a security, usuay a bond, issued by a U.S. government-sponsored agency. The offerings of these agencies are backed by the government, but not guaranteed by the government since the agencies are private entities. Some prominent issuers of agency securities are Student Loan Marketing Association (Saie Mae), Federa Nationa Mortgage Association (Fannie Mae) and Federa Home Loan Mortgage Corporation (Freddie Mac). TBA (To be Announced) A TBA trade is a contract for the purchase or sae of mortgage-backed securities in which the poo number and security identifier are unknown at the time of the trade. Muni Bonds/US Municipa Bonds A bond issued by a state, city, or oca government. Municipaities issue bonds to raise capita for their day-to-day activities and for specific projects that they might be undertaking (usuay pertaining to deveopment of oca infrastructure such as roads, sewerage, hospitas etc). Perpetua/Undated Bonds A perpetua bond, which is aso known as a Perpetua or just a Perp, is a bond with no maturity date. Perpetua bonds pay coupons forever, and the issuer does not have to redeem them. Their cash fows are therefore that of a perpetuity. Exampes of perpetua bonds are consos issued by the UK Government. Corporate Bonds A type of bond issued by a corporation. Corporate bonds often pay higher rates than government or municipa bonds, because they tend to be riskier. The bondhoder receives interest payments (yied) and the principa, usuay $1000, is repaid on a fixed maturity date (bonds can mature anywhere between 1 to 30 years). Generay, changes in interest rates are refected in bond prices. Debenture In finance, a debenture is a ong-term debt instrument used by governments and arge companies to obtain funds. It is simiar to a bond except the securitization conditions are different. A debenture is usuay unsecured in the sense that there are no iens or pedges on specific assets.

4 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Sovereign Bonds/Non U.S. Government Bonds A sovereign bond is a bond issued by a nationa government. The term usuay refers to bonds issued in foreign currencies, whie bonds issued by nationa governments in the country s own currency are referred to as government bonds. For exampe, Bunds (German), Buoni de Tesoro Poiennai (BTP - Itaian), Commonweath Bond (Austraian), Itaian Government Bonds, Japanese Government Bonds (JGBs). Internationa Bonds Bonds that are issued in a country by a non-u.s. entity. Internationa bonds incude Eurobonds, foreign bonds and goba bonds. Foreign Bonds A bond that is issued in a domestic market by a foreign entity, in the domestic market s currency. Types of foreign bonds incude budog bonds, matida bonds, and samurai bonds. Eurobonds A Eurobond is a bond that has been issued in one country s currency but is traded outside of that country and in a different monetary system and reguatory system. Eurobonds are named after the currency they are denominated in. For exampe, Euroyen and Eurodoar bonds are denominated in Japanese yen and American doars respectivey. Supranationa Bonds A debt security issued by a Supranationa organization - an organization owned by or spanning severa sovereign states and therefore is usuay outside the contro of any singe nationa government. Supranationa agencies ike the European Investment Bank or the Asian Deveopment Bank issue Supranationa bonds. Index Linked Bonds A bond in which payment of income on the principa is reated to a specific price index, often the Consumer Price Index. This feature provides protection to investors by shieding them from changes in the underying index. The bond s cash fows are adjusted to ensure that the hoder of the bond receives a known rea rate of return.

5 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Euro notes The short-term version of the Eurobond, issued with foating rates and usuay with maturities of ess than six months. Emerging Markets/ Brady Bonds Bonds that are issued by the governments of deveoping countries. Brady Bonds are some of the most iquid emerging market securities. They are named after former U.S. Treasury Secretary Nichoas Brady, who sponsored the effort to restructure emerging market debt instruments. Legacy Currency Bonds A bond sti traded in its origina currency of issue prior to moving to the Euro, setting in Euros today. Money Markets The money market is the goba financia market for short-term borrowing and ending. It provides short term iquid funding for the goba financia system. Bankers Acceptances (BA s) A short-term credit investment that is created by a non-financia firm and whose payment is guaranteed by a bank. Often used in importing and exporting, and as a money market fund investment. Cash Cash usuay refers to money in the form of iquid currency, such as banknotes or coins. Certificate of Deposit (CD) Commercia Paper (CP) Certificate of Deposit. Short- or medium-term, interest-bearing (payabe at maturity), FDIC-insured debt instrument offered by banks and savings and oans. CDs offer higher rates of return than most comparabe investments, in exchange for tying up invested money for the duration of the certificate s maturity. Commercia paper is a money market security issued by arge banks and corporations. It is generay not used to finance ong-term investments but rather for purchases of inventory or to manage working capita.

6 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Discounted Bonds A bond which is sod at a price beow its face vaue and returns its face vaue at maturity. Eurodoar Certificate of Deposit (ECD) A Eurodoar CD is basicay the same as a domestic CD, except that it s the iabiity of a non-us bank. Because Eurodoar CDs are typicay ess iquid, they tend to offer higher yieds. Euro Commercia Paper (Euro CP or ECP) Medium Term Notes Repurchase Agreements (Repos) An unsecured, short-term oan issued by a bank or corporation in the internationa money market, denominated in a currency that differs from the corporation s domestic currency. A Medium Term Note (MTN) is a debt note that usuay matures (is paid back) in 5-10 years, but the term may be as short as one year. They re normay issued on a foating basis such as Euribor +/- basis points. When they are issued in euro they are Euro Medium Term Notes. A repo (repurchase agreement) invoves a borrower seing securities to another party at a fixed price, with an agreement to repurchase the securities at an agreed future date and price. It is aso known as a repurchase agreement or an RP. Reverse Repos A purchase of securities with an agreement to rese them at a higher price at a specific future date. This is essentiay just a oan of the security at a specific rate. RVP/DVP Repos Receive vs. Payment and Deivery vs. Payment. Se/Buy Back Repos The spot sae and a forward repurchase of a security.

7 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Tri-Party Repos Treasury Bi A Repo where a custodian bank or internationa cearing organization acts as an intermediary between the two parties to the Repo. The tri-party agent is responsibe for the administration of the transaction incuding coatera aocation, marking to market and substitution of coatera. Both the ender and borrower of cash enter into these transactions to avoid the administrative burden of biatera Repos. Treasury bis (or T-bis) mature in one year or ess. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sod at a discount of the par vaue to create a positive yied to maturity. P Entitements A type of security associated with a security purchase or hoding that gives the priviege of further subscription to additiona shares under certain market conditions. Warrants Rights A warrant is a security that entites the hoder to buy stock of the company that issued it at a specified price, which is much higher than the stock price at time of issue. Warrants are frequenty attached to bonds or preferred stock as a sweetener, aowing the issuer to pay ower interest rates or dividends. Frequenty, these warrants are detachabe, and can be sod independenty of the bond or stock. The rights issue is a specia form of shef offering or shef registration. With the issued rights, existing sharehoders have the priviege to buy a specified number of new shares from the firm at a specified price within a specified time. Derivatives In finance, Derivatives are financia instruments whose price and vaue derive from the vaue of assets underying them. In other words, they are financia contracts whose vaue derive from the vaue of underying stocks, bonds, currencies, commodities, etc. Contracts for Difference (CFD) - Synthetic Equity Swaps A financia derivative contract invoving an exchange of cash fows based on the market price movements of an underying equity (or group of equities) in exchange for an agreed interest rate, thereby aowing an investor to take a position in a stock (or stocks) without taking physica ownership (or shorting) them. P

8 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Exchange Traded Options (isted options) An option traded on a reguated exchange where the terms of each option are standardized by the exchange. The contract is standardized so that underying asset, quantity, expiration date and strike price are known in advance. P Exchange Traded Futures Exchange-traded futures which are aso known as isted futures. This is a financia contract obigating the buyer to purchase an asset (or the seer to se an asset), such as a physica commodity or a financia instrument, at a predetermined future date and price. FX Forwards & NDFs An FX forward is a foreign exchange contract which buys one currency and ses a different currency for future deivery (T+2+n). An NDF is a foreign exchange contract in which counterparties sette the difference in USD or EUR between the NDF contract rate and the prevaiing spot rate on Fixing date (V-2). FX Swaps A set of 2 foreign exchange contracts, the first of which buys one currency and ses a different currency for immediate deivery whie the second ses back the bought currency and buys back the sod currency for future deivery. When the deat amounts in the 2 contracts are equa, the Swap is even; when they are not, the Swap is uneven. Foreign Exchange (FX) Instruments, such as paper currency, notes, and checks, used to make payments between countries. The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. FX Spot A foreign exchange contract which buys one currency and ses a different currency for immediate deivery (T+2). Other Financia instruments that do not meet other category standards as defined Equity Linked Note An Equity Linked Note (ELN) is a debt instrument, usuay a bond, that differs from a standard fixedincome security in that the fina payout is based on the return of the underying equity, which can be a singe stock, basket of stocks or an equity index. A typica ELN is principa-protected, i.e. the investor is guaranteed to receive 100% of the origina amount invested at maturity, but pays no interest.

9 Note: The information beow represents exampes of instruments that can be processed through the use of, CTM TM, OASYS TM, TradeSuite ID TM and. Private Pacements Participatory Notes A private pacement is a direct private offering of securities to a imited number of sophisticated investors. It is the opposite of a pubic offering. Investors in privatey paced securities incude insurance companies, pension funds, mezzanine funds, stock funds and trusts. Securities issued as private pacements incude debt, equity, and hybrid securities. Commony known as P-Notes or PNs are instruments issued by registered foreign institutiona investors (FII) to overseas investors, who wish to invest in the stock markets without registering themseves with the market reguator. Crest Depository Interest A CREST Depository Interest (CDI) is a UK security that represents a stock traded on an exchange outside the UK. They offer a straightforward, cost-effective way to trade in a number of overseas stocks and are the main means of foreign deaing provided by a number of UK internationa stock brokers. Given the arge number of Market/Country specific nuances, oca instruments have not been incuded in this document (i.e. Chinese A, B, H shares, Japanese Gov t bonds), however most can be supported by DTCC products. Copyright 2017 The Depository Trust & Cearing Corporation. A rights reserved. The services described above are provided under the DTCC brand name by certain affiiates of The Depository Trust & Cearing Corporation ( DTCC ). DTCC itsef does not provide such services. Each of these affiiates is a separate ega entity, subject to the aws and reguations of the particuar country or countries in which such entity operates. See for a detaied description of DTCC, its affiiates and the services they offer. Certain DTCC ITP LLC services are subject to reguation by the U.S. Securities and Exchange Commission ( SEC ) and are offered by DTCC ITP Matching (US) LLC ( DTCC Matching ), which is set out in SEC Reease No ; Fie No ; 66 FR (Apri 17, 2001). TradeSuite ID and CTM are services of DTCC Matching and are subject to SEC reguation when used for trades in which either the broker-deaer or its institutiona customer is a U.S. entity and the securities in the trade are issued by a U.S. issuer. No other services offered by DTCC ITP LLC are reguated TC