Financial Times

Monday - since there has been no previous day trading, more background information is given
give Fridays close and the change over the week.

This is followed by the net dividend, dividend cover, the dates when the dividend was last paid and the last date the shares were declared ex-dividend.

Indices - FTSE All Share - is the most representative of all, reflecting the full 900 plus companies

FTSE SmallCap - measure performance of 500 companies market cap £40m - £250m

FTSE Fledgling - very small companies under £40m.

FT quotes 2 yields for each guilt-edged security
First is the income yield and the second is the redemption yield.

There are also traded options on futures contracts
The FT shows the cash and 3 months prices for the LME metals and movement on the day.
Usually the 3 months price is higher than the cash price (contango) because the buyer is avoiding fianancing costs for 3 months.

Books - greenspans bubble / bill flaker stein
Trillion Dollar Meltdown - charles morns
Crash Proof - peter schift

Additional Notes


Cash Bond - where the leverage is typically obtained either through repo financing or a margin loan.

Mio - abbreviation in Markets to mean million

Equity hedge fund managers will buy shares of companies they hope will appreciate and sell short shares they think will decline.

Short selling involves borrowing as asset that is not currently held in your portfolio and then selling this borrowed asset. You then hope to buy the asset back later at a lower price.
Finding shares to short sell can be quite difficult.
Selling short is very risky as the asset could appreciate by an unlimited amount.

GMRA - Global Master Repurchase Agreement (used for repo trading)

If money is borrowed, the borrower is "liable" to repay it, hence it is a liability
The liabilities show us where the money comes from and represent claims against the bank (ie money owed or borrowed)

FRA - They enable traders and their clients either to take a view on future price movements with less capital than actually buying/selling the underlying instruments or to hedge their risk.

The banks do not guarantee to find lenders but if lenders are scarce, they may buy the CP themselves as a matter of goodwill. The effect of borrowing from the lenders directly, instead of borrowing from the bank, means that the rate may be less than the interbank rate.

At original issue, bonds may be sold as an open "offer for sale" or sold directly to a smaller number of prefessional investors called a "private placing"

In an "offer for sale" a syndicate of banks with one bank as leas manager will buy the bonds en bloc from the issuer and resell them to investors. In this way they underwrite the issue since, if the investors don't buy, the banks will be forced to keep them, They obviously charge for this risk.

Forward Rates
(hedging against transaction risk)
Forward rates arise from the difference in interest rates in two currencies

Forward Dated Option Contract not to be confused with Options

Breakforward - the bank offers a "floor" rate and a "break" rate.
The firm can get almost complete downside protection but can benefit from a forward rate to a large extent

Participating Forward - A floor rate is agreed
The client has substantial downside protection but can also benefit to a large extent from an improvement in the rate

Cylinder / Collar
This technique is identical to the "collar" technique used in interest rate futures
The client gets some downside protection and also some upside gain
Depending on the rates chosen the cost may be small or even none at all

Sterling is the exception, typically quoted as an amount of dollars for the pound sterling.
From the dollar point of view, the bid/offer is now sell/buy

NMS - Normal Market Size
SuperDOT - is an electronic, order, execution system, dealing system used in New York
DOT - Designated Order Turnaround

An alternative to buying the stock is to borrow if from institutions who will lend stock for a commission.
Typically the stock is paid for and the money returned when the dealer actually buys the stock and returns it.
This facility greatly assists the liquidity of the market.

On the other hand dealers have to fund their "long positions". One way of doing this is to lend the stock which isn't needed and use the money to help funding.

Stock lending may be done by institutions merely to enhance income or may be done by dealers as a means of financing their position.

Although everyone calls this "stock lending" it is actually a sale and repurchase agreement (repo)
The repo market is especially applicable to bonds, although there is some lending of equities as well.

As usual the language used is loose. In general "stock lending" is used when dealers want to cover short positions, driven by borrow demand. Repo is used when the transaction is more for financing.

Very large share deals are called block trades.

Share buy-back companies buy back their own shares. The idea is to cancel the shares so that profit and devidiend per remaining share are then enhanced. They can sometimes be seen as a defensive move, to support price or prevent takeover.

Settlement is either paying money and receiving an asset or receiving money and delivering the asset.

Rolling settlement - means that a deal on Tuesday might settle next Tuesday, a deal on Wednesday on settles a week later, this is called (T + 5) (Trade Date + 5).

New Issues - "public offer for sale" - UK
"initial public offering" - US
The offer receives wide publicity and investors are invited to submit applications for shares. If oversubscribed some form of rationing or allocation must take place.
The issue is brought to market by a bank and they advice on the pricing and arrange underwriting.

In a placing, the broker converned contacts investment clients with the details of the offer and sells the shares without any public offering. The number of shareholders for a given sum raised is usually set at a minimum by local stock exchange rules.

The placing is much easier and cheaper from the administrative point of view and also saves underwriting fees

Speculators are exposed to unlimited risk but hedgers can offset losses with profits on their physical positions

Long Only - Indexed Portfolios mean that when large companies luanches on the stock market many institutions are bound to buys its shares in large quantities simply to maintain the balance of their portfolios.

Balance Sheet Gearing - The borrowings as a percentage of shareholders funds ratio.
Whether worked out on the gross borrowings or the net borrowings is referred to as the "balance sheet gearing" to distinguish it from Income Gearing
This is the relationship between profits and interest charges in context of the P&L account.

Both can be useful in estimating whether a company is over-geared or over-borrowed.
High balance sheet gearing is less important if a company is exceptionally profitable or if the borrowings are at a very low fixed rate of interest.

Golden Hellos - were the lump sum cash inducements paid to attract top staff

Golden Handcuffs - financial agreements made to lock them into their jobds

Cash settlement - 10 days rolling settlement which meant that an investor normally paid or was paid 10 days after he bought or sold ?

Bear Sale = Short Sale

Stale Bull - is somebody who buys shares in the hope of the price rising and has not seen the rise and is tired of waiting.

Touch - the difference between the lowest offered price and the highest bid price

Suppose that companies on average pay out half of their earnings as dividends and the average yield on ordinary shares is 4% and the average PE ratio is around 17.
Suppose also that on average companies are increasing their earnings and dividends by 10% a year.
Share prices might be expected to rise 10% a year to reflect the underlying growth in profits and dividends.

Different Values put on Earnings
The shares in a company are 100p offer a yield of 4% and stand on a PE ratio of 17.
If its earnings and dividends gow at 10% a year a buyer of the shares can expect a 14% a year overall return, 4% of income and 10% of capital gains from the rise in the share price.

But suppose something happens to change the outlook of the company's profits, it comes up with a new product that should help raise the future growth rate from 10% to 12%. Earnings will now rise faster in the future than had been expected. And all else being equal, investors will be prepared to pay a higher price for the shares today because they are buying a more rapidly rising flow of future earnings. The share price might rise from 100p to 110p, where the yield drops 3.7% and the PE Ratio rises to 18.7. The shares have been re-rated.

When interest rate changes
A company at 100p yields 4% a year growth in earnings, the overall return is 14% if the share price rises in line. An expected overall return of 14% might look about right if, at this time investors could get a redemption yield of 11% on long-dated gilt-edged securities. It would not look nearly so good if interest rates rose so that gilt edged stocks offered a risk-free 14%. Investors would want a higher return on the ordinary share, so its price would have to fall.

Nothing has necessarily happened to alter the outlook for the company's profits. But the price falls because the returns available on other forms of investment have increased.

If evidence emerges to suggest that inflationary pressures will be higher than expected over the coming years, the market expects that long-term returns will have to rise to compensate investors for the higher inflation, or that interest rates will need to be higher to restain inflation. All else being equal this will mean the price of long-dates bonds must fall until they provide the returns that investors now expect.

Margin Call - You will be asked to meet the margin call, ie provide further cash margin when the position moves against you. If you are unable to meet this margin call the position will be closed out.

Residual - a positive or negative number which is the difference between 2 numbers.

Equity Fund Managers - looking for growth stocks
Bond Fund Manager - looking for companies that will not default

Contracts for Difference - a contract between 2 parties stipulating that the seller will pay the buyer the difference between the current value of an asset and its value at contract time.

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