I N M A R K E T T E R M S

Transcription

1 I N M A R K E T T E R M S After hours Means before the opening auction call period and after the end of the closing auction call period and any extensions thereto and any other time that the equities market is halted or closed. After hours Dealing Bear / Bear Sale Dealing done after the end of the mandatory quote period, which is treated as dealing done on the following business day. Someone that is negative on the market, thinks the market will fall than to rise. A bear sale is where an investor sells a security in the hope of buying it back at a lower price in the future (i.e. selling securities they do not own). Application program interface Means the electronic protocol and message structure used to provide a mechanism for a Member Trading Application to communicate the JSE trading system. Asset swap Means a transaction which complies with all the asset swap requirements of the South African Reserve Bank. pg. 1 Glossary Aluma Capital

2 Auction call period Means a period of time, during which orders for inclusion in an auction can be entered into and deleted from the order book and there is no automated trading. Auction matching Means the process of matching buy and sell orders according to a matching algorithm at the end of an auction call period. Auction price The price of transactions resulting from auction matching. Auction trade A transaction matched automatically in the JSE trading system during auction matching. A transaction matched automatically in the JSE trading system during continuous trading. Beneficial owner Bid The owner of the underlying security who has paid for the stock and is entitled to the benefits of ownership. The price at which a market participant indicates the level at which he wants to buy shares. Big Bang 1996, when the Exchange introduced new regulations and the new automated price automated system started. Block trade A transaction where a broking member (equities) trades as an agent or principal in a single security where the transaction: - has a minimum value of R5 million and comprises at least 20 times normal market size. Blue Chip Term for the equity shares of large and reputable companies. Originally and American term, from the colour of the highest value poker chip. Bond An interest-paying debt instrument with a redemption date of one year or more after its issuance. pg. 2 Glossary Aluma Capital

3 Broker JSE Securities Exchange member firm, providing advice and dealing services to the public. It can also deal in its own account which is referred to as a principal. Brokers note On the same day as a transaction takes place a member firm sends to the client a brokers note detailing the transaction, including full title of the stock, price, MST, consideration, commission etc. Broking member equities A person, including a partnership, admitted as a broking member (equities) in terms of the rules. Bull Someone that is positive on the market, thinks the market will rise than to fall. An investor who has bought a security in the hope of selling it later at a higher price. Business day Any day except a Saturday, Sunday, public holiday or any other day on which the JSE is closed. Buyer In relation to the settlement of transactions, the buying member. Call Option A contract giving the holder the right but no obligation to buy a good, or security on some future date at a pre-arranged price. A call will be exercised only if the spot price at the contract date exceeds the option price. Capital gains tax Tax payable by individuals on profit made on the disposal of assets. Capitalisation issue Contract for Difference Money from a company s reserves is converted into issued capital, which is then distributed to shareholders in place of a cash dividend. Also known as a bonus or scrip issue. (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer pg. 3 Glossary Aluma Capital

4 the difference between the current value of an asset and its value at contract time (if the difference is negative, then the buyer pays instead to the seller). In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets. Chief Executive Officer The person appointed by the Board as Chief Executive Officer in terms of the Constitution of the JSE Clearing The process by which trades between users of an exchange are confirmed and net positions of each user struck so as to determine the amounts of money each user owes to other users. Client Any person on whose behalf securities are bought, sold or held by a member. Close out A long position is closed out if the holding is sold; a short position is closed out if the holding is bought. The effect of a close out is that there is no exposure to the underlying share. Commercial paper Short-term unsecured promissory notes issued by a corporation. Consideration The price paid for a debt instrument, calculated by applying the yield-to redemption figure to obtain the present value of future cash inflows. Contra trade A transaction to correct an erroneous trade that is equal and opposite to a previously matched automated or auction trade that is entered on the same business day as the original trade. Controlled client A Client whose funds and uncertificated securities are under the control of a CSM or a CSA or whose settlements take place via the CSD participant of the ember as if the client s funds or uncertificated securities were under the control of a CSM or a CSA. pg. 4 Glossary Aluma Capital

5 Convexity Measures the rate of change in bond duration (see Modified Duration) with respect to changes in interest rates. Positive convexity occurs when duration shorten as interest rates rise or lengthen as interest rates decrease. Negative convexity occurs when duration lengthen as interest rates rise or shorten as interest rates decrease. Mortgages typically have negative convexity because, as interest rates rise, the incentive to prepay is reduced, thus extending the duration of the mortgage. Corporate action An action, taken by an issuer or any other entity or third party, which affects the registered owner and the beneficial owner of securities in terms of an entitlement. Corporate finance transaction A transaction which: - must be entered into a writing - requires public notification in the press - and complies with the requirements of transaction categories 1 or 2 or 3 of Section 9 of the Listing Requirements of the JSE. Counterparty A person that a broking member (equities) trades with as principal. Coupon The annual rate of interest payable by the issuer on the face value of a debt instrument. CSA A custody and settlement agent. CSD A public company registered as a central securities depository in terms of the Custody and Administration of Securities Act, 1992 (No. 85 of 1992). Debenture A loan raised by a company, paying a fixed rate of interest and secured on the assets of the company, with specific rights as to pg. 5 Glossary Aluma Capital

6 repayment of capital and interest. Interest must be paid regularly, whether there are sufficient profits or not. I interest is not paid, the debenture holder can enforce these rights by recourse to the law. Debt instrument A formal, written undertaking, issued by a borrower, acknowledging a given debt and various aspects of it, notably the level and timing of interest payment and date(s) of redemption. Such an instrument is bought and sold, the beneficiary of the terms of the debt instrument being whoever is registered as its owner when one of its benefits becomes payable. Default The inability of a trading firm to meet its trading commitments. Depository receipts Marketed internationally to sophisticated investors, they are negotiable certificates that give evidence of ownership of a company s shares. They are a good medium for international investors because they may be more liquid and are more easily traded than the shares they represent. Derivative a future contract, the terms of which are defined by and transacted through and exchange, to buy/sell a specific amount of a listed instrument at a specified price on a specific date; a forward contract, essentially the same as a future contract, but transacted over-the-counter (off-exchange); an option, which gives one person the right to buy or sell a security to another person at a future date at an agreed price; a swap, which involve the exchange of a certain debt instrument s guaranteed future cash flow, over a period of more than two years, for cash flow from another debt instrument that is not guaranteed, but is received over the same period; a forward rate agreement, which is the same as a swap, but the period over which the cash flows occur is less than two years. Derivative A financial instrument that derives it value from another instrument. SSF s are derivative instruments. Other Standard Bank derivative instruments include warrants and installment warrants. Trading pg. 6 Glossary Aluma Capital

7 SSF s, implies trading in futures; warrants are options on underlying shares. Direct market access The receipt of an order electronically by a broking member (equities) from a client or counterparty and the submission of the order to the JSE trading system by an order entry application operated by the member, without the intervention of a registered securities trader. Discount When the market price of a newly issued security is lower than the issue price. If it is higher, the difference is called the premium. Double The bid and offer prices provided by an inter-dealer broker on a given instrument at any given moment during trading hours. Equities The ordinary shares (UK) or common stocks (UK) of companies. The owners of these shares are entitled to the residual profits of companies after all claims of creditors, debentures holders, and preference shareholders have been satisfied. The risk sharing part of a company capital, usually referred to as ordinary shares. Fill or kill An order submitted to the order book which may only execute in full against eligible orders or otherwise is cancelled. Financial Services Board (FSB) Board Act to oversee the regulation of the Investment industry including SROs, investment managers and clearing houses. Fixed-income Describes a debt instrument that pays an unchanging amount of money to its holder (owner) at prescribed times. Fixed-interest See Fixed income. Floating-rate Describes the coupon rate of a security that, in terms of the instrument s tenor (qv), changes in line with another interest rate, such as JIBAR (qv). pg. 7 Glossary Aluma Capital

8 Foreign client or foreign counterparty A person who does not reside in South Africa. Foreign dealer A person or corporate body who does not reside in South Africa and whose regular business in such country is the buying and selling of securities. Foreign professional market participant A person who does not reside in South Africa and whose regular business is the buying and selling of securities. Forward contract See Derivative Forward rate agreement See Derivative Future contract See Derivative Futures Securities bought or sold at a fixed price for future delivery and traded on the JSE Securities Exchange South Africa. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery. Gearing A company s debts expressed as a percentage of its equity capital. High gearing means debts are high in relation to equity capital. Index A relative expression of the value of a group of weighted securities used as a performance indicator. pg. 8 Glossary Aluma Capital

9 Index A weighted aggregate of a particular set of data, such as the prices, yields, etc of a group of bonds. An index may be updated from moment to moment as trading in the underlying securities proceeds, at the end of each day, or less frequently. Indices are useful in several ways: eg, read over time, they indicate broad trends in a market or economy; they provide benchmarks for asset managers to measure their investment performance. Initial margin The initial deposit required prior to trading an SSF. Also referred to as a good faith deposit. Calculated to cover the highest possible loss that a position can incur in one trading day. OST requires an additional percentage over and above the JSE's initial margin requirement. This additional percentage assists OST in managing client s risk. Inter-dealer broker A central counterparty (see Counterparty) in the bond market. Interim dividend A dividend payment based on interim profit figures for part of a company s financial year. Payment of an interim dividend normally carries a suggestion, but no guarantee, that a final dividend payment will follow. Intraday profit/loss The sum of the profit or loss of each SSF in a portfolio at any point in time during the day (intraday). Issuer Any company, any class of whose securities has been admitted, or is the subject of an application for admission, in terms of the Listing Requirements. Issuing house An organisation, usually a merchant bank, which arranges the details of an issue of shares. It will also make sure the listing of that issue complies with Exchange regulations. JSE The JSE Securities Exchange South Africa. pg. 9 Glossary Aluma Capital

10 JSE Executive The Chief Executive Officer and such other officials of the JSE as the Chief Executive Officer and Chairman may from time to time decide. JSE SETS security All securities traded on the JSE SETS system. JSE systems Any system, device or network which is operated by or on behalf of the JSE for the purpose of providing an equities market. JSE trading system The computer system or systems and associated network or networks operated or used by the JSE for the purpose of providing a market for the trading of listed products. Late trade A transaction where a broking member (equities) trades after hours with a professional market participant, as agent or principal, in fulfilment of - an order already entered into the JSE trading system which reflects a reasonable price as which a client wishes to trade; - an order received prior to the end of the closing auction call period, the price of which could only be established after the closing auction call period; or - an order received after hours. Limit order An order submitted to the order book, which is held on the order book and may execute either in full or in part against eligible orders. Limited company A company whose ordinary shareholders have limited liability. Liquidity Ease with which an item can be traded at a fairly predictable price. This is contrasted with such illiquidity. Some assets are illiquid because there are no markets on which they ca be traded e.g. unsecured loans to bank customers. Liquid markets are described as deep. pg. 10 Glossary Aluma Capital

11 Liquidity The amount of trading in a given financial instrument or range of instruments over a given period of time. The greater it is, the more easily holders of instruments can convert them into cash, an important factor in determining what the market will pay for the securities. Liquidity is improved by an exchange that facilitates trading in securities. Listed A security that has met an exchange s various requirements, designed to protect investors, is given formal approval by being added to its list of securities. Listed company A company whose shares have been admitted to the JSE Securities Exchange s Official List. It has had to comply with the Exchange s listing requirements. Listing Agreement by a stock exchange to allow company s shares to be traded. This is conditional on the company complying with the exchange s requirements as regards the information provided to investors. A listed share is included in the exchange s physical and electronic displays of information on dealings. Loan stock Stock bearing a fixed rate of interest. Unlike a debenture, loan stocks may be unsecured. Long position A long position exists when a trader buys and holds any security in the belief that it will increase in value. A long SSF position implies that the holder wants the price of the underlying share to increase. Market controller The person appointed by the JSE to supervise, administer and control the daily operation of the JSE trading system. Market Maker A broker/dealer who is prepared/obliged to buy and sell specified securities. pg. 11 Glossary Aluma Capital

12 Market order An order submitted to the order book during an auction call period with no price limit, which is held on the order book and may execute either in full or in part against eligible orders, at the price of a new order entered into the order book or at the reference price. Market order extension period An extension to an auction call period which occurs when there would be unexecuted market orders on the order book following auction matching. Market regulator A body appointed by government to regulate one or several markets so as to ensure their integrity. The regulator of South Africa s bond market is the Financial Services board. Mark-tomarket (MTM) Variation margin The daily process whereby the value of a SSF position is compared to the previous day s close and the daily profit or loss is calculated. The change in the MTM each day (either up or down) has a cash value and is referred to as variation margin. Variation-margin profits are added to the trading balance and variation-margin losses are deducted. Member An entity admitted to membership of the JSE under the rules. Member application Any system, software or program (excluding the JSE systems) operated by a broking member (equities) which submits data to and/or receives data from any client application or JSE systems. Member Trading Application Any system, software or program operated by a member which submits data to and receives data from the JSE trading system. Modified duration A value given to a fixed-income instrument (or portfolio of them) from which can be approximately calculated the change in the instrument s price resulting from a 100 basis points change in interest rates. The higher the duration value, the greater the change in the instrument s price. pg. 12 Glossary Aluma Capital

13 Net asset value The value of a company after all debts have been paid, expressed in cents per share. New issue A company coming to the market for the first time or issuing extra shares. Noncontrolled client A client other than a controlled client who has appointed his own CSD participant. Normal market size A quantity of a security as specified by the Market Controller from time to time. Notes Debt instruments with initial maturities of more than one year but less than ten years. off order book principal trade A transaction where a broking member (equities) trades as a principal in a single security where the transaction; - has a minimum value of R500,000; and - comprises at least six times the normal market size; - except where the transaction is with a foreign professional market participant in which case no minimum value or quantity of securities will apply. Offer The price at which the market participant will sell shares. Option See Derivative option delta trade A transaction where a broking member (equities) trades as a principal with another broking member (equities) in a single security where the transaction transfers the delta hedge from one broking member (equities) to another broking member (equities) in respect of an option transaction which is required to be reported to either the pg. 13 Glossary Aluma Capital

14 JSE derivative automated trading system or the derivative trade recording system on the same day as the delta trade. order An instruction from a client or counter party to buy or sell securities or an instruction to amend or cancel a prior instruction to buy or sell securities. order book The order book operated by the JSE in which automated trades occur according to price then time priority. order entry application Any system, software or program operated by a broking member (equities) which facilitates electronic submission of orders to a member trading application which complies with such requirements as the JSE may from time to time prescribe. Ordinary shares The most common form of share. Holders receive dividends which vary in amount in line with the profitability of the company and recommendation of directors. The holders are the owners of the company. Over the counter Describes trading that is transacted directly between counterparties, rather than through facilities provided by an exchange. Par value The price at which a security is due to be redeemed. A safe security which is considered to be redeemed will stand below par if current interest rates are above its coupon yield, and above par if current interest rates are below the coupon yield. Platform A software program, designed from the provision of a specific service by an exchange to its members, its continuous use made possible by telecommunication. Portfolio A collection of securities owned by an investor. pg. 14 Glossary Aluma Capital

15 portfolio transaction or portfolio trade A transaction where a broking member (equities) trades as agent or principal in a list of investments which - has a minimum value of R15 million; and - comprises at least 10 different securities none of which exceeds 25% of the total value of the portfolio. post contra trade A transaction to correct an erroneous trade that is equal and opposite to a previously matched automated or auction trade that is entered on the business day following the original trade. Preference shares These are normally fixed-income shares whose holders have the right to receive dividends before ordinary shareholders but after debentures and loan stock holders have received their interest. pre-issued securities Entitlements to securities the listing of which on the JSE has been approved but where the listing becomes effective only after a number of conditions have been fulfilled on or before the commencement date of official trading. pre-issued trading Transaction effected in pre-issued securities in accordance with these rules. Premium It the market price of a new security is high than the issue price, the difference is the premium. If it is lower, the difference is called the discount. Price discovery The provision by one of more sources of real-time prices obtaining in a given market. price monitoring extension period An extension to an auction call period which occurs when the indicative auction price is a specified percentage or more away from the reference price. pg. 15 Glossary Aluma Capital

16 Price/earnings ratio (P/E ratio) The P/E ratio is a measure of the level of confidence investors have in a company. Generally, the higher the figure, the higher the confidence. It is worked out by dividing the current share price by the last published earning per share (EPS), where EPS is net profit divided by the numbers of shares. Primary market The function of a stock exchange in bringing securities to the market, generally for the first time. The issuing of new securities is intended to raise funds for future growth. Private company Proxy vote A company which is not a public company and which isn t allowed to offer its shares to the general public. A person empowered by a shareholder to vote on his behalf at company meetings. professional market participant An investment manager approved in terms of the Act, the Financial Markets Control Act 1989 or any equivalent or replacement act or acts. publication In relation to a transaction, the disclosure of the price and quantity of securities traded to the equities market via the JSE systems. Put option The right but not the obligation to sell security, good currency on some future date at a price fixed when the contract is taken out. A put option will only be exercised when the date arrives if the spot market price is below the option price; if the market price is higher than the option price it will pay better to sell on the spot market. Redemption Repayment of the face value of a debt instrument by its issuer (the borrower). reference price The last auction or automated trade price, whichever is the most recent, or in the absence of a last auction and automated trade price a price as determined by the JSE. pg. 16 Glossary Aluma Capital

17 registered securities trader An employee or sole proprietor, or partner of a broking member (equities) registered with the JSE and who is authorised by such member to enter an execute orders through, and report trades to the JSE trading system on behalf of such member. reported transactions A transaction executed off the order book by a single broking member (equities) but excluding exercise of warrants, exercise of options and exercise of traded options and option delta trades which may be two member trades. Retransaction Repeating the sale or purchase of a debt instrument because on of the parties to the original trade has been financially unable to carry out its part of the trade. In South Africa s listed debt-instrument market, the loss which may be suffered by the non-defaulting party through such re-transaction (its terms being less advantageous that those of the original trade) is covered by BESA s Guarantee Fund. Rights issue An issue of new shares in a company which are first offered to existing shareholders in proportion to their present holdings. If rights are not taken up, the shares are sold in the market and shareholders receive the excess if the shares fetch more than the issue price. Rolling of a position The process whereby a holder replaces a soon-to-be-expiring SSF with a new SSF that has a later expiry date. The holder closes out the position in the nearer dated SSF and purchases a longer dated position on the same underlying instrument, thus keeping the same exposure without having to exercise the contract. Rolling settlement The intended system of settling share transactions in South Africa whereby deals are settled a set umber of days after being transacted. Secondary market The trading of existing shares on an exchange. This is a resale of shares. A part of ownership of a company. Shares may be held by individuals or other companies. pg. 17 Glossary Aluma Capital

18 securities Shall mean those securities as defined in section 1 of the Act which are listed securities and where applicable, shall include documents of title thereto. securities trader An employee of a a member authorised by such member to enter on and to execute orders through the JSE trading system o behalf of such members. Securitization Turning future cash inflows into present cash by issuing a debt instrument, the interest on which, and its redemption, will be met by those inflows. Security In the fixed-income market, a debt instrument (qv). Settlement The daily payment of net sums of money by and exchange s users to each other, after the clearing process has been completed. It is usually carried out by banks acting as settlement agents on behalf of users. Shares See securities. Short position If the belief is that the price of an underlying share is likely to fall, then sell an SSF, thus going short. Selling short is the term for selling shares that the trader does not possess, intending to buy them at the lower price on or before the delivery date. It is the opposite of going long (buying a share). Short sellers make money when the price of the underlying share falls. Single Stock Future (SSF) A standardised derivative instrument listed on the JSE, based on shares listed on the JSE, in which two parties agree to transact for future delivery of the underlying share at a specified price. Spread pg. 18 Glossary Aluma Capital The difference in yield between a government benchmark bond and another fixed-income instrument with the same coupon rate and redemption date, due to a difference in the perceived creditworthiness of the issuers. Also used to describe the gap between a

19 broker s bid and offer price for an instrument, and the yield difference between two government bond having different redemption dates. Stag To subscribe to new issues of shares in the hope of selling immediately at a profit. A stag is an investor who acts in this way. Stock exchange transactions Any transaction entered into by a member- a) with another member; or b) on behalf of a client with another member or foreign dealer; or c) with another person, form the purchase, sale, borrowing, lending or hypothecation of securities or other items that may be traded in terms of these rules, or for the borrowing, lending or payment of money; Stockbroker A member of the South African Institute of Stockbrokers who is a sole proprietor, a partner in a partnership or an executive director of a corporate entity or who is an employee of a member. Stop loss The price, set by the holder, at which the position is to be automatically closed out. It limits potential losses on any single trade. OST s stop-loss functionality is designed to assist the holders to decide at what point a position will be closed out. Setting a stoploss order at 10% below the entry point sets the minimum loss (excluding trading costs) to 10% of the value of the underlying shares. OST automatically closes out all SSF positions without the holder s intervention if the cash in the trading account becomes insufficient to cover the potential losses of the positions. STRATE Share Transactions Totally Electronic South Africa s new paperless share settlement system, introduced in it is the dematerialisation of JSE listed equities. pg. 19 Glossary Aluma Capital

20 Surveillance Oversight of a market by a regulatory authority to protect its stability by ensuring that its rules are observed and that traders are always financially able to meet their trading commitments. Swap See Derivative Tenor The terms of a debt instrument, such as its coupon rate, the frequency of coupon payments and the date of its redemption. TOP 40 Is the FTSE/JSE Africa All-Share Index consisting of the top 40 JSE listed shares weighted according to their market capitalisation. Trade date In respect of a transaction in uncertificated securities, the date reflected as such on the contract note or an electronic confirmation thereof. Traded option An option on a security, traded on the JSE. Traded option Underwriting Transferable options with the right to buy or sell a standardised amount of a security at a fixed price within a specified period. An arrangement by which a company is guaranteed that an issue of shares will raise a given amount of cash. The underwriters undertake to subscribe for any of the issue not taken up by the public. They charge commission for this service. Trading Entering into contracts to buy/selling listed or unlisted securities, or derivative contracts based on those securities. Transaction A stock exchange transaction unless otherwise required by the context. Transaction correction A message sent to the JSE trading system to correct a previously reported transaction that was reported on that or the previous business day. pg. 20 Glossary Aluma Capital

21 Uncertificated securities Securities which in terms of section 91A of the Companies Act, 1973, are transferable without a written instrument and are not evidenced by a certificate. Underlying instrument SSF s are derivatives that derive their value from the share that underlies the SSF - the share that has to be delivered if the contract is allowed to expire. The underlying asset is the base for the price determination of the SSF. Volatility auction period The auction call period which occurs during automated trading when an order is entered that would execute at a price that is a percentage, as specified by the JSE Executive from time to time, or more away from the reference price. Warrant A warrant as defined in the Listing requirements of the JSE. Warrants A security giving the holder the right but not obligation to buy shares in a companion some future date at pre-arranged price. A warrant will be valuable if, when the date arrives, the market price is above the exercise price. Warrants can be traded; a warrant is thus a traded option. White knight A purchaser for a company, willing to rescue it from an unwanted takeover bid by another buyer. It is a party that rescues another which is in financial difficulty. Yield The return earned on an investment taking into account the annual income and its present capital value. Yield to redemption The annual discount rate applied by South Africa s fixed-income market to future interest and redemption cash flows payable on a particular debt instrument in order to price the instrument. The rate is determined primarily by interest rates offered in the spot-cash market for loans of various durations (one-ear, two-year, etc). pg. 21 Glossary Aluma Capital