Accretion/Dilution

Analysis that determines the change in a company's projected EPS due to a potential M&A or
capital markets transaction. A transaction is "Accretive" when there is a positive change in
EPS and "Dilutive" when there is a negative change.

Accrued interest
The interest earned on a loan or note between two interest payment dates.

Acquisition
The act of one corporation acquiring control of another corporation or asset.

Agent
The bank responsible for administering a project's financing.

American Depository Receipt (ADR)

A certificate of ownership issued by a U.S. bank representing a claim on underlying foreign
securities. ADRs may be traded in lieu of trading in the actual underlying shares.

American Stock Exchange (AMEX)

The second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE).
In general, the listing rules are a little more lenient than those of the NYSE, and thus the
AMEX has a larger representation of stocks and bonds issued by smaller companies than the
NYSE.

Amortization
Writing off an intangible asset investment over the projected life of the assets. Also the
spreading out of intangible costs over several years, such as amortization of stock option
expense.

Analyst
Entry level position typically filled by graduates or lateral hires in a U.S. investment bank.
Usually 2-3 years until promotion to Associate.

Arbitrage
Buying securities in one country/market and selling them in another.

Arrangement fee
A fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction.
It includes fees to be paid to participating banks.

Arranger
A bank or other financial institution responsible for originating and syndicating a loan
transaction. The arranger always has a senior role, is often the agent, and usually participates
in the transaction at the most senior level (it holds the largest share of the loan).

Asset allocation
The relative weightings of regions, sectors and types of investments (i.e. equities, bonds, etc)
within a portfolio, determined by client's risk and return requirements and the market outlook.
This is central to financial planning and investment management.
Asset class breakdown

Percentage of holdings in different types of investments (i.e. large stocks, international, bond,
etc.).

Asset swap
The bond's swapped spread, in basis points. The asset swap spread, or gross spread, is derived
by valuing a bond's cash flows via the swap curve's implied zero rates. This gross spread is
the basis point amount added to the swap curve, which causes a bond's computed value to
equal the market price of the bond.

Associate
Position above an Analyst and below a Vice President. Typically filled by Analysts promoted
after 2-3 years of experience, lateral hires or MBA graduates.

Audit
Professional examination and verification of a company's accounting data.

Balloon payment
A final debt repayment that is substantially larger than the preceeding repayments.

Bank syndicate
A group of banks that have been banded together to underwrite and sell a specific issue of
securities.

Base currency

The first currency quoted in a currency pair on the Foreign Exchange.

Basis point
A unit that is equal to a hundredth of a percent, a basis point is used to denote the change in a
financial instrument. It's commonly used for calculating changes in interest rates, equity
indexes and the yield of a fixed-income security.

Bear
An investor who believes a market will fall.

Bear market
A market in which traders and investors are feeling negative and prices are falling or static.

Beauty contest
The informal term for the competitive process by which clients choose an investment bank to
mandate for a deal.

Benchmark index

An index that correlates with a fund, used to measure a fund manager's performance.
Best efforts
Term used by banks in selling an entire new security issue by a certain date. They agree to
make their best effort to sell an issue to the public. Instead of actually buying and reselling
the issue (that would be called an underwrite), the banks leave the risk with the issuer by
maintaining an option to buy and the authority to sell.

Beta
Mathematical measure of the sensitivity of rates of return on a portfolio or a given stock
compared with rates of return on the market (a diversified portfolio) as a whole. A beta of 1.0
indicates that an asset closely follows the market; a beta greater (smaller) than 1.0 indicates
greater (less) volatility than the market. Hence, beta is a measure of risk: the higher the beta,
the higher the risk.

Bill of Exchange
A bill made out by one party addressed to another requiring the addressee to pay a fixed sum
of money by a certain date. The bill is then traded on the money markets.

Bid

The price at which a market maker is willing to pay for a security.

Bid Offer

Bid Offer is the difference in price or spread between where one can buy a currency and one
can sell it at the same moment.

Big Figure

The whole dollar price of a quote often used to reference foreign currencies. For example, if a
foreign currency (EUR/USD) was trading at 1.5520, the big figure would be 1.55.

Bloomberg
Computer terminals providing real time quotes, news and analytical tools, often used by
traders and investment bankers.

Bonds
A long-term loan certificate issued by governments and organizations in order to raise capital.
The capital is repaid with interest. A bond issued by a foreign institution is known as a
bulldog in the UK, a yankee in the USA, a samurai bond in Japan and so on.

Book runner
The bank that extends invitations for syndication and is responsible for determining the
composition of the lending group and the final hold positions.

Book value
The net-asset value of a company as determined by subtracting its liabilities from its assets.

Brady bonds
Bonds issued by developing countries under a debt-reduction plan.
Bridge financing
Interim or temporary financing.

Broker
Someone who earns commission for providing the link between buyers and sellers.

Bulge bracket
The largest and most prestigious firms on Wall Street.

Bull
An investor who believes the market will go up.

Bull market
A market in which traders and investors are feeling positive and in which prices are rising.

Buy-side

1. Investor end of a capital markets transaction.

2. M&A process when J.P. Morgan is working with a potential buyer.

Calendarization
Act of adjusting company financials to a December 31 year-end in order to standardize
financial performance across companies with different fiscal years.

Call option
The right to buy shares at an agreed price at a future date (see put option).

Capital
Money put into a business by its shareholders.

Capital Asset Pricing Model (CAPM)

An economic model for valuing stocks by relating risk and expected return. Based on the idea
that investors demand additional expected return (called the risk premium) if they are asked
to accept additional risk.

Capital expenditures
Money spent to acquire or upgrade physical assets such as buildings and machinery. Also
called capital spending or capital expense.

Capital gain
The amount by which an asset's selling price exceeds its initial purchase price. A realized
capital gain is an investment that has been sold at a profit. An unrealized capital gain is an
investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often
used to mean realized capital gain.
Capital markets
At J.P. Morgan, our capital markets teams are Equity Capital Markets and Debt Capital
Markets. They're a part of our Corporate Finance business and are responsible for issuing
new securities.

Capitalization
1.      The sum of a corporation's long-term debt, stock and retained earnings. Also called
Invested Capital.
2.      The market price of an entire company, calculated by multiplying the number of shares
outstanding by the price per share. Also called Market Cap or Market Capitalization.

CEO
Chief Executive Officer.

Certificate of Deposit (CD)

A certificate given by a bank to a depositor that can be traded on the money market. The
depositor is able to get high levels of interest by putting their money in the bank for a fixed
term but can sell the CD to someone else to get their capital back at short notice.

CFA
Chartered Financial Analyst qualification. This is the industry qualification for research
Analysts on the buy side (markets) and Analysts and fund managers on the sell side
(investment management and private banking).

CFO
Chief Financial Officer.

Chinese wall
The physical and regulatory separation between the public and "inside" areas of a bank.

Clearing
The process of matching, guaranteeing and registering transactions.

Clearing house
An institution that practices clearing, which significantly reduces the number of inter-bank
payments.

Closing Position
A traders position at the end of the trading day. Equal to the Opening Position plus or minus
any trades done on that trading day.

Club
A group of underwriters who do not need to proceed to syndication as part of fund-raising.

Collateral
Assets pledged as security under a loan to assure repayment of debt obligations.
Collateralized Bond Obligation (CBO)
Securities issued against a portfolio of bonds with different degrees of credit quality.

Collateralized Loan Obligation (CLO)

Securities issued against a portfolio of loans with different degrees of credit quality.

Commercial Paper (CP)

Short term debt obligations issued by corporations and bought by money market funds in
large quantities. Maturities range from several days to 9 months.

Commitment Fee
A per annum fee applied to undisbursed balances that lenders are committed to lend. The fee
is charged until the end of the availability period.

Commodities
Physical items such as oil, gold or grain. Commodities are traded for spot (trade date plus two
business days) and also for future delivery. There also exist options to buy and sell
commodities.

Common Stock
Also called common equity, common stock represents an ownership interest in a company (as
opposed to preferred stock). The vast majority of stock traded in the markets today is
common, as common stock enables investors to vote on company matters. An individual with
51% or more of shares owned controls a company's decisions and can appoint anyone he/she
wishes to the board of directors and/or to the management team.

Compound Annual Growth Rate (CAGR)

The year over year growth rate applied to an investment or other part of a company's
activities over a multiple-year period. The formula for calculating CAGR is (Current
Value/Base Value)^(1/# of years) - 1.

Comps or Comparables
Analysis that uses ratios to compare company trading performance (trading comps) or
previous M&A and capital market transactions (transaction comps). Often used as part of a
valuation analysis.

Conditions Precedent (CPs)

A set of preconditions that must be satisfied before the borrower can request drawdown or
other credit facilities be made available under a lending agreement.
Convertible bond
A bond that can be converted into shares in a company at a certain conversion price. Because
convertible bonds provide the option of converting debt into equity, their coupon rates are
typically low.

Convexity
The rate of change of duration as yields change. A security exhibits positive convexity when
its price rises more for a downward move in its yield than its price declines for an equal
upward move in its yield.

COO
Chief Operating Officer.

Cost of capital
The opportunity cost of an investment. This is, the rate of return that a company would
otherwise be able to earn at the same risk level as the investment that has been selected. For
example, when an investor purchases stock in a company, he/she expects to see a return on
that investment. Since the individual expects to get back more than his/her initial investment,
the cost of capital is equal to this return that the investor receives, or the money that the
company misses out on by selling its stock.

Cost of carry
The cost of carry specifies the cost involved of carrying a security (i.e. bond) on the balance
sheet. The cost of carry is calculated as difference between interest income (income generated
by the security, e.g. coupon payment) and the cost of financing the purchase of the security
(e.g. Libor).

Coupon
The interest payment on a bond.

Covenant
An agreement by a borrower to undertake (a positive covenant) or not to undertake (a
negative covenant) a specific action. Breaching a covenant is considered an event of default.

Coverage ratio
A measure of a corporation's ability to meet a particular expense.

Credit and Rates

Loans and the interest charged on the loan.
Credit Default Swap (CDS)
A credit derivative transaction in which two parties enter into an agreement, whereby one
party pays the other a fixed periodic coupon for the specified life of the agreement. The other
party makes no payment unless a credit event, relating to a predetermined reference asset,
occurs. If such an event occurs, the party will then make a payment to the first party, and the
swap will terminate. The size of the payment is usually linked to the decline in the reference
asset's market value following the determination of the occurrence of a credit event. Thus it is
a type of insurance. If you go long CDS, you are a protection buyer and have to pay the
premium (e.g. 100bp on notional) up-front to the counterparty. In case of a credit event,
leading to the default of the underlying security, the swap counterparty compensates you for
your losses and you are protected. The higher the risk, the higher the CDS level, the higher
the "insurance" premium.

Cross-over trading
Offsetting buy and sell orders without recording the transaction on the exchange. This is
prohibited as it may mean the investor does not get the best price for the transaction.

Currency pair :-The quotation and pricing structure of currencies traded on the Foreign

Exchange (FX) market.

Custodian
A bank or institution that holds securities for safe-keeping and handles administrative
arrangements such as collecting coupons and dividends.

Custody
The retention of assets (e.g. stock certificates) on behalf of mutual funds, individuals and
corporate clients. This invovles lending of securities, collecting income, and the information
of positions, and reporting this to clients.

D&A
Acronym for Depreciation & Amortization. Often combined into a single line item on
financial statements due to the non-cash nature of both items.

Data Room
Collection of documents (physical or virtual) used for due diligence surrounding potential
M&A and capital markets transactions.

DCM
Acronym for Debt Capital Markets - the area of an investment bank responsible for the
issuance and pricing of bonds and other debt securities.
Debenture
A debt obligation secured by the borrower's general credit rather than being backed by a
specific line on property. In other words, the debt obligation is not collateralized.

Debt
Money owed to creditors or lenders or buyers of debt securities.

Debt Capacity
The total amount of debt a company can prudently support given its earnings expectations,
equity base, and asset liquidation value.

Debt Capital Markets

Markets where capital funds (i.e. debt) are traded. This includes private placement as well as
organized markets and exchanges.

Delivery
The settlement of a futures contract.

Depreciation

1. A non-cash expense that reduces the value of an asset as a result of wear and tear, age,
or obsolescence. Most assets lose their value over time (in other words, they
depreciate), and must be replaced once the end of their useful life is reached. Because
it is a non-cash expense, depreciation lowers the company's reported earnings while
increasing free cash flow.
2. A decline in the value of a given currency in comparison with other currencies.

Derivative
An instrument whose market price depends on the value of an underlying security such as a
share or a bond. A derivatives market is a market in which derivative securities are traded.

Derivatives
Collective noun for financial contracts between buyers and sellers of commodities and
capital. Includes futures, options and swaps.

Discount Rate
The interest rate used in discounting future cash flows. Often determined using CAPM (see
Capital Asset Price Model) analysis, its intended to approximate the level of risk to the cash
flows.

Discounted Cash Flow (DCF)

A common means of valuing companies. This is done by forecasting the cash flows expected
from a company in the future and discounting them back to today.

Divestiture
When a company sells off a subsidiary or assets of the business to a buyer which acquires the
subsidiary or assets. This differs from a spin-off arrangement under which a company
establishes a subsidiary as a new and separate business and distributes shares in the new
company to its shareholders.
Dividend
A payment by a company to shareholders of its stock, usually as a way to distribute profits to
shareholders.

Dow Jones Industrial Average (DUIFG)

Price-weighted average of 30 actively traded shares of blue-chip US industrial corporations
listed on the New York Stock Exchange.

Duration
A weighted average maturity of all future cash flows of a bond. In more practical terms when
trading bonds, duration is used as a measure of a bond's sensitivity to changes in interest
rates/yields (i.e. a bond's price volatility).

EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of
a company's operating cash flow based on data from the company's income statement.

ECM
Acronym for Equity Capital Markets - the area of an investment bank responsible for
structuring and pricing the sale of equity.

ED
See Executive Director

Emerging markets
Developing countries with fledgling capital markets. Banks make loans to emerging markets
nations and also assist them in issuing bonds and other debt securities.

Enterprise value
A measure of what the market believes a company's ongoing operations are worth. Enterprise
value is equal to the company's market capitalization minue cash and cash equivalents plus
preferred stock plus debt and plus minority interest. The number is of importance both to
individual investors and potential acquirers considering a takeover attempt.

EPS
Acronym for Earnings Per Share. Total earnings divided by the number of shares
outstanding. Companies often use a weighted average of shares outstanding over the
reporting term. EPS can be calculated for the previous year ("trailing EPS"), for the current
year ("current EPS"), or for the coming year ("forward EPS").

Equities
Shares - certificates that represent a part ownership in a corporation.

Equity
The risk-sharing part of capital.
Equity Capital Markets
Markets where capital funds (i.e. equity). This includes private placement as well as
organized markets and exchanges.

Equity Default Swaps

Equity Default Swaps are contracts structured to provide the buyer with protection (typically
for five years) against a severe decline in the price of a company's stock.

Eurobond
A bond issued in the Euromarket.

Eurocurrency
A currency held outside its country of origin, traded in the Euromarket.

Eurodollar
U.S. Dollars deposited in foreign banks or foreign branches of U.S. banks.

Euromarket
The offshore international financial market.

Exchange-traded fund (ETF)

An index fund which is traded on the stock market.

Executive Director (ED)

Title given by the Investment Bank when promoted from Vice President.

Face amount
The quantity purchased. Also called notional.

Fairness Opinion
The professional opinion of an investment bank, provided for a fee, regarding the fairness of
a price offered in a merger or takeover.

Fallen Angel
A bond which was investment-grade when issued, but which is now of significantly lower
quality.

Fed (The)
The Federal Reserve, which manages the country's economy by setting interest rates.

Financial instruments
Collective noun for established financial contracts (securities and derivatives).

Fixed Income
Debt securities or bonds.
Float
The number of shares available for trade in the market times the price. Generally speaking,
the bigger the float, the greater the stock's liquidity.

Floating rate
An interest rate that is benchmarked to other rates (such as the rate paid on U.S. Treasuries)
that allows the interest rate to change with market conditions.

FOREX or FX
The Foreign Exchange Market. This market deals in foreign currency, specifically the
exchange of one currency for another. In global markets, the underlying reference currency is
generally the US Dollar, but "crosses" may be traded with different currencies.

Form 10K
Audited document required by the SEC and sent to a public company's or mutual fund's
shareholders at the end of each fiscal year, reporting the financial results for the year
(including the balance sheet, income statement, cash flow statement and description of
company operations).

Form 10Q
Unaudited document required by the SEC for all U.S. public companies, reporting the
financial results for the quarter and noting any significant changes or events in the quarter.
The Form 10Q contains financial statements, a discussion from the management, and a list of
"material events" that have occurred with the company (such as a stock split or acquisition).

Form 8K
A document required by the SEC to announce certain significant changes in a public
company, such as a merger or acquisition, a name or address change, bankruptcy, change of
auditors, or any other information which a potential investor should know about.

Free Cash Flow

Operating cash flow (net income plus amortization and depreciation less increases in net
working capital) minus capital expenditures and dividends. Free cash flow is the amount of
cash that a company has left over after it has paid all of its expenses, including investments.
Future free cash flows are the discounted cash flows in a DCF (see Discounted Cash
Flow) valuation.

Future
The right and the obligation to enter into a security transaction at a date in the future and at a
price fixed now.

Futures contract
A contractual agreement transacted through an organized exchange to buy or sell a security or
commodity at an agreed price for delivery at some data in the future. Futures contracts can be
freely traded on the exchange. Some contracts such as index futures are cash settled and no
actual physical delivery takes place.

FTSE :- The Financial Times Stock Exchange 100 stock index, a market cap weighted index
of stocks traded on the London Stock Exchange.
G

Global Custody
Retention of client's assets for worldwide firms. Their assets can be monitored regardless of
currency and geographical location.

Goodwill
An intangible asset which provides a competitive advantage, such as a strong brand,
reputation, or high employee morale. In an acquisition, goodwill appears on the balance sheet
of the acquirer in the amount by which the purchase price exceeds the net tangible assets of
the acquired company.

Hedge
Holding two contrary positions in two or more financial instruments in order to offset a loss
in one by a gain in the other.

Hedging
A strategy that eliminates a risk through the post sale of the risk or through a transaction in an
instrument that represents an obligation to sell the risk in the future. The goal is to ensure that
any profit or loss on the current sale or purchase will be offset by the loss or profit on the
future purchase or sale.

High Grade
Describes bonds rated "AAA" or "AA" by Moody's or Standards & Poor's rating services.

High Yield
Description of investments with high rates of return. Generally, a high yield bond will be
ranked very low by a rating agency, because these are bonds which have a relatively high
chance of default, and therefore have to offer higher returns.

Index fund

An index fund is a mutual fund that mirrors as closely as possible the performance of a stock
market index. For example, many mutual fund companies have since established S&P 500
index funds to mirror that index by purchasing all 500 stocks in the same percentages as the
index.

Information Memorandum (IM)

A document that describes a potential M&A or capital markets transaction (including project
descriptions and financing details). It is used during the marketing and due diligence phase of
a transaction and is also referred to as Offering Memorandum (OM) and Descriptive
Memorandum (DM).
Institutional clients
Organizations with large amounts of assets, who together make up well over half of the assets
traded in the stock markets. Examples include: governments, banks, insurance companies,
central banks, and pension funds.

Intangible Asset
Something of value that cannot be physically touched, such as a brand, franchise, trademark,
or patent. Goodwill created during an M&A transaction is an intangible asset.

Investment Grade
An investment rating level of "BBB" or better from Standard & Poor's Corporation, or
"Baa3" or better from Moody's Corporation.

IPO
Initial Public Offering - a company's first issuance of shares in the market.

IRR
Internal Rate of Return. The rate of return that would make the present value of future cash
flows plus the final market value of an investment or business opportunity equal the current
market price of the investment or opportunity. Used as a measure of return on equity in an
LBO scenario.

Junk Bond
High risk, high yielding bonds.

Last trading day

The final day on which trading is allowed in a futures contract.

League tables
Tables that rank investment banks based on underwriting volume in numerous categories,
such as stocks, bonds, high yield debt, convertible debt, etc. High rankings in league tables
are key selling points used by investment banks when trying to land a client engagement.

Leverage
A company's debts relative to its equity capital. Usually expressed as a percentage.

Leveraged buy-out (LBO)

Using debt in the form of junk bonds or bank loans to take over a company.

LIBOR
London Inter-bank Offered Rate. A widely used short-term interest rate. LIBOR represents
the rate banks in England charge one another on overnight loans or on loans of up to five
years. LIBOR is often used by banks to quote floating rate loan interest rates. Typically the
benchmark LIBOR is the three-month rate.
Lien
A legal security interest on property to secure the repayment of debt and the performance of
related obligations.

Liquidity
The ease with which a financial asset can be exchanged for good without the holder incurring
financial loss. A currency like sterling is liquid; a life-insurance policy is not.

Long

When you have bought securities you are said to be long of the market and hope that prices
will rise.

Lot

A quantity of the financial instrument being traded determined by an exchange or regulatory

body.

LTM
Acronym for Last Twelve Months. Can be calculated for any income statement line item.
LTM= Last full year statement - previous year quarter + current year quarter.

M&A
Acronym for Mergers and Acquisitions, also known as Advisory. This is the department of an
investment bank which provides transaction advice and its execution to large corporatations.

Management fee

The annual fee charged to investors in a fund.

Managing Director
Title given by the Investment Bank when promoted from Executive Director.

Mandate

1. The portfolio given to investment managers by clients to be managed within their risk

control requirements.
2. A contract to work with a corporate client on an M&A or capital markets transaction.

Market capitalization
The value of shares in a public company at a certain point in time. This value is equivalent to
the number of shares issued multiplied by their current market price.

Market maker
A firm or individual who sets a price at which they're willing to sell or buy stock, providing a
stable price against which to judge any rise or fall.
Material Adverse Change (MAC)
Prior to closing, an event or occurrence that allows the lender to adjust the terms (i.e. rate) of
a loan agreement. After closing, a MAC is an event that gives lenders the right to refuse
further drawings or to require immediate debt repayment.

MD
See Managing Director.

Modified duration
The percentage price change of a security for a given change in yield. The higher the
modified duration of a security, the higher its risk.

Moody's
One of the most prominent credit rating agencies in the U.S.

Multiples
A typical valuation technique in corporate finance (see Price Earnings and Comps). What
multiple is a company's market value of its earnings, employees, sales or other measure =
trading multiple. What multiple of earnings, employees, sale or other measure was paid in a
recent similar deal = transaction multiple.

Municipal bonds (Munis)

Bonds issued by local and state governments (a.k.a. municipalities). Municipal bonds are
structured as tax-free for the investor, which means investors in muni's earn interest payments
without having to pay federal taxes. Sometimes investors are exempt from state and local
taxes, as well. Consequently, municipalities can pay lower interest rates on muni bonds than
other bonds of similar risk.

Nasdaq
A computerized system established by the NASD to facilitate trading by providing
broker/dealers with current bid and ask price quotes on over-the-counter stocks and some
listed stocks. Unlike the Amex and the NYSE, the Nasdaq (once an acronym for the National
Association of Securities Dealers Automated Quotation system) does not have a physical
trading floor to bring together buyers and sellers.

National Association of Securities Dealers (NASD)

A self-regulatory organization operating under the supervision of the SEC. Its purpose is to
standardize practices, establish high ethical standards, and enforce fair and equitable rules.

Net asset value (NAV)

The total value of an ETF's (or mutual fund’s) portfolio at any given time - the sum of the
value of its holdings less any liabilities. Usually quoted on a per-share basis.
NYSE
New York Stock Exchange. The oldest and largest stock exchange in the U.S., located on
Wall Street in New York City. The NYSE is responsible for setting policy, supervising
member activities, listing securities, overseeing the transfer of member seats, and evaluating
applicants.

Offer

The price at which a market maker is willing to sell a security.

OPEC
Organization of Petroleum Exporting Countries - an organization which tries to control the
price and production of oil.

Opening Position

A trader’s position in each contract at the start of the trading day. Equal to the Closing
Position from the previous day.

Option

The right, but not the obligation, to buy (a call option) or sell (a put option) a given stock,
security or commodity at a fixed price (known as the strike price or exercise price) on a
specified date in the future (the expiry date). Includes traded options, currency options and
interest rate options. Similar to a Future (see Future), however, the purchaser pays a premium
to gain the option, rather than the obligation, to complete the contract.

Pitchbook
The book of exhibits, graphs, and initial recommendations presented by bankers to a
prospective client when trying to land an engagement or mandate.

Portfolio
A collection of investments (can be shares, bonds, convertibles, cash, convertibles,
derivatives, property, art, etc) held by an individual or institutional investor. The purpose of a
portfolio is to reduce risk by diversifying investments (i.e. holding many and spreading out
the risk.)

Position

A long position is the amount of a security owned by an individual or dealer. A short position
is the amount of a security borrowed by an individual or dealer.
Premium

1. The price of an option determined by traders on the Exchange float.

2. The difference between the issued price and market price of a new security if it rises
in value immediately after it is issued.

Price/earning ratio
A figure indicating the investor confidence a company enjoys. This is calculated by the
current share price divided by the most recent figure for the earnings per share. Typically, the
higher the figure, the more confident the investors.

Price spread

The difference between the "bid" and "ask" price on a stock or ETF.

Principal
An investor who buys or sells on their own account at their own risk as opposed to a broker
acting on behalf of someone else.

Private clients
People with significant personal assets (cash, company stock, art, shares) requiring
professional investment management.

Private Equity
Sometimes known as merchant banking or venture capital. Investment in illiquid shares in
new companies - high risk, high return.

Proprietary trading
Trading of the firm's own assets (as opposed to trading client assets).

Prospectus
A report issued by a company (filed with and approved by the SEC) that wishes to sell
securities to investors. Distributed to prospective investors, the prospectus discloses the
company's financial position, business description, and risk factors.

Put option
The right to sell shares at an agreed price on a future date (see call option.)

Quote

The most current price (and quantity) a buyer and seller agree to trade a security.
R

Rating agency
A company that publishes ratings for securities such as preferred stock and debt issues based
on the likelihood of consistent and timely payments. These rankings are arrived at by looking
at a variety of balance sheet data. Some rating services are very influential, and an upgrade or
downgrade can affect their borrowing costs significantly. The major US rating agencies are
Moody's, S&P and Fitch.

Red herring
Also known as a preliminary prospectus. A financial report printed by the issuer of a security
that can be used to generate interest from prospective investors before the securities are
legally available to be sold. Based on final SEC comments, the information reported in a red
herring may change slightly by the time the securities are actually issued.

Reserve Bank
A country's lender of last resort.

Retail clients
Individuals who buy investments on their own behalf, not for an organization. Typically these
investments are much smaller than those by institutional clients and therefore fees are higher.

Return on equity (ROE)

The ratio of a firm's profits to the value of its equity. Return on equity is a commonly used
measure of how well an investment bank is doing because it measures how efficiently and
profitably the firm is using its capital.

Revolver or Revolving Credit Line

An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to
be borrowed again once it has been repaid.

Rights issue
Selling new shares to existing shareholders to raise capital.

Risk management
The measurement of the possibility of losing or not gaining value.

Roadshow
The series of presentations to investors that a company undergoing an IPO usually gives in
the weeks preceding the offering. Here's how it works: several weeks before the IPO is
issued, the company and its investment bank will travel to major cities throughout the
country. In each city, the company's top executives make a presentation to analysts, mutual
fund managers, and others attendees and also answer questions.

S&P 500
Standard & Poor's 500. A basket of 500 stocks that are considered to be widely held. The
S&P 500 index is weighted by market value, and its performance is thought to be
representative of the stock market as a whole.
SEC
Acronym for Securities and Exchange Commission. The U.S. government agency that
supervises the exchange of securities to protect investors against malpractice.

Securities
Collective noun for bonds and shares.

Securitization
The replacement of conventional ways of raising finance (e.g. loans) by instruments like
Euronotes; the process whereby untradable assets become tradable.

Sell side

1. Issuing end of a capital markets transaction.

2. M&A process when J.P. Morgan is working with a potential seller.

Shares
A certificate issued by a company for general purchase entitling the holder to dividends from
any profits the company may make.

Short

When you have sold securities you are said to be short of the market and will benefit if prices
fall.

Short squeeze
A situation in which a lack of supply forces prices upwards.

Spot price
The current value of an asset.

Spread

1. The difference between the price at which a financial institution will buy a security
and the price at which it will sell.
2. The difference between the yield of a corporate bond and U.S. Treasury security of a
similar maturity.

Stockbroker
Member of the Stock Exchange advising those buying/selling securities.

Stocks
Also known as equities or shares, stocks represent ownership of a corporation and claims to
its assets and earnings.

Swaps
A contract between two parties to make a cash flow exchange now or at a point in the future.
The two borrowers agree to pay the interest on each other's debt; under a currency swap, they
may also repay the capital.
Sweep
Typically a covenant that requires all or a specified fraction of available cash flow to be used
for debt service, including prepayments of principal.

Syndicated loan
A loan which several banks have clubbed together to make.

Tenor

The length of a deal. Or the time period over which money is borrowed or lent.

Tick

1 tick = 1 basis point.

Terminal value
The value of any item at the end of a specified time period. Examples include the maturity
value of a bond and the value of a fully depreciated asset.

Tombstone
The advertisements that appear in publications like Financial Times or The Wall Street
Journal announcing the issuance of a new security. The tombstone ad is typically placed by
the investment bank to publicize that it has completed a major deal.

Trading a 'book'
An individual trader's total positions in the market bounded by specific risk limits.

Treasury
The section of a bank or business involved in the financial management of the organization's
liquidity through dealing and borrowing.

Underwriting
The function performed by investment banks when they help companies issue securities to
investors. Technically, the investment bank buys the securities from the company and
immediately resells the securities to investors for a slightly higher price, making money on
the spread.

USPP
Acronym for US Private Placement. A negotiated sale in which the securities are sold directly
to institutional or private investors, rather than through a public offering. These placements
are not registered with the Securities and Exchange Commission.

Vice President (VP)

Title given when promoted from Associate. Usally after 2-5 years as an Associate.
W

Weighted Average Cost of Capital (WACC)

Weighted Average Cost of Capital. An average representing the expected return on all of a
company's securities. Each source of capital, such as stocks, bonds, and other debt, is
assigned a required rate of return, and then these required rates of return are weighted in
proportion to the share each source of capital contributes to the company's capital structure.
The resulting rate is what the firm would use as a minimum for evaluating a capital project or
investment.

Working Capital
Working capital measures how much in liquid assets a company has available to build its
business. This value, measured in liquid assets, is derived by subtracting a company’s current
liabilities form their current assets.

Yield
The annual return on investment. A high yield bond, for example, pays a high rate of interest.

YTD
Acronym for Year to Date.