Glossary

Guiding you through the major terms and acronyms impacting the global capital markets today & tomorrow.

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A

ABCP - Asset backed commercial paper

Short-term debt collateralized by securities, such as mortgages or auto loans, typically issued with a maturity of 90-180 days.

ABS - Asset backed security

Asset backed securities are typically backed by loans (excluding mortgages and loans secured against commercial property), leases, credit card debt or a company's receivables or royalties.

ADV - Ave. daily volume

The total traded volume of a security or group of securities divided by the total number of trading days within a specific time period, typically calculated by quarter or month.

AFME - Association for Financial Markets in Europe

A trade body which represents the wholesale financial markets and its constituent financial service providers.

AIFMD - Alternative Investment Fund Managers Directive

The European Alternative Investment Fund Managers Directive AIFMD, intended to harmonise the framework for monitoring the risks posed by alternative investment funds and to strengthen the internal market in alternative funds, by regulating alternative investment fund managers. 

Algorithmic trading

A system of trading based on super-fast programmes based on pre-set rules that facilitates transactions in financial markets faster than by a human trader.  

All-to-all platform

A trading model which allows all market participants to trade directly with each other, as opposed to traditional client-to-dealer or client-to-client models, providing access to a broad range of liquidity.

APA - Approved publication arrangement

A requirement introduced under MiFID II intended to increase transparency in OTC markets. Firms executing transactions must publish trade reports through an APA, which checks trade reports for accuracy, before publishing to the wider market in a prescribed standard.
B

Basel III

The global regulatory response to the financial crisis intended to strengthen banks' capital and reduce the risk of system wide shocks. It contains a number of requirements intended to improve regulation, supervision and risk management in the banking sector.  

BCBS - Basel Committee on Banking Supervision

Established by the Bank of International Settlements, this global regulatory committee sets common regulatory standards that are implemented by local regulators.

BIC - Business Identifier Code

A unique code used to identify a specific business when making a payment.  

Bid-offer spread

The difference in prices quoted for an immediate sale bid and an immediate purchase offer of a security, commonly used as a measure of the liquidity of the market. Also known as bid–ask  spread (or buy–sell spread when quoted by a market maker).

BIS - Bank for International Settlements

Based in Basel, Switzerland, the Bank for International Settlements acts as a central bank for national central banks and aims to foster international monetary and financial cooperation.  

Broker-dealer

An individual or company that buys and sells securities for its clients - acting as a broker (or agent) - as well as for itself as a dealer (or principal). Services typically include providing investment advice to customers, supplying liquidity through market-making activities, facilitating trading activities, publishing research and raising capital for companies.
C

CBO - Collateralized bond obligation

Investment-grade bond backed by a pool of bonds with a lower credit quality.

CCP - Central counterparty

Central counterparty clearing houses help facilitate trading and reduce credit risk in European derivative and equity markets, replacing the bilateral contract between the buyer and seller with contracts between the buyer and the CCP and between the CCP and the seller.    

CDO - Collateralized debt obligation

Financial instrument that pools and repackages assets that generate a future cash flow into tranches that can be sold to investors.    

CDS - Credit default swap

Credit default swaps are designed to mitigate the buyer's risk if the issuer of the bonds defaults.

CEBS - Committee of European Banking Supervisors

The Committee of European Banking Supervisors, now replaced by the European Banking Authority, was responsible for certain aspects of pan-European banking supervision and rule-making.

CESR - Committee of European Securities Regulators

The Committee of European Securities Regulators, now replaced by the European Securities and Markets Authority, is responsible for certain aspects of pan-European oversight of securities markets and rule-making.

CFD - Contract for difference

A form of derivative where one counterparty agrees to pay the other counterparty the difference between the current value of an asset and its value at a specified time in the future.

CLO - Collateralized loan obligation

Collateralized loan obligations are backed by a pool of lower credit quality debt, typically issued by multiple small or medium sized corporates. 

CLOB - Central Limit Order Book

Central Limit order books match  buy and sell orders in a central, anonymous market place. Trades are executed if a new order can be matched against an existing order in the book. Unmatched orders are held until a new offsetting trade is entered.

CMBS - Commercial mortgage backed security

Commercial mortgage-backed securities are backed by the loan on a commercial property.    

CMU - Capital Markets Union

Proposed by the European Commission, the Capital Markets Union is a framework of regulation designed to create deeper and more integrated capital markets across Europe.  

COFIA - Classification of Financial Instruments

Classes of financial instruments approach, proposed by ESMA as a method of assessing whether a non-equity instrument is liquid enough to be subject to pre-trade transparency rules under MIFID II, by grouping instruments into broad classes.

Common Equity Tier 1

A measure of a bank's financial strength under Basel II that compares equity capital (excluding factors such as preferred shares or non-controlling interests) with total risk-weighted assets.

Core Tier 1

A measure of high quality capital based on share capital and eligible reserves plus non-controlling equity interests, excluding factors such as intangible assets and losses above excess of regulatory impairment charges.

Corporate bonds

Securities issued by companies to raise capital, backed by the company's future earnings or physical assets.

CRD IV - Capital Requirements Directive IV

CRD is an EU legislation covering prudential rules for banks, building societies and investment firms. The latest version of this legislation, CRD IV, came into force in January 2014, aiming to minimise the negative effects of firms failing by ensuring that they hold enough financial resources to cover the risk associated with their business.

CRR - Capital Requirements Regulation

The European Capital Requirements Regulation implements the Basel III (and its predecessor) global capital requirements for banks, aimed at strengthening and stabilising the banking system.

CSD - Central Securities Depository

Central securities depositories provide registration, safekeeping, settlement of securities in exchange for cash and efficient processing of securities transactions in financial markets.

CSDR - Central Securities Depository Regulation

The European Central Securities Depositories Regulation intended to increase the stability, efficiency and safety of settlement by harmonising the authorisation and supervision of EU central securities.

CT - Consolidated tape

An electronic system that reports price and volume data on sales of shares listed on an exchange in real time.
D

DEA - Direct electronic access

An arrangement where a member, participant or client of a trading venue provides access to a third party to trade directly on the venue.

Delegated Acts

Rules made by the European Commission on behalf of the European Parliament and European Commission that implement minor elements of legislation.

Directive

A European legal requirement that allows national authorities some flexibility in how it is implemented into local law.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act introduced extensive reforms to U.S. financial markets. It aimed at enhancing regulation and improving financial stability and investor protection in response to the financial crisis.
E

EBA - European Banking Authority

An independent regulatory agency of the European Union, charged with maintaining financial stability in the EU safeguarding the integrity, efficiency and orderly functioning of the banking sector. Key responsibilities include setting the technical standards that implement relevant EU legislation and conducing EU-wide stress testing of bank capital.

EC - European Commission

The European Commission proposes legislation, enforces European law, manages the European budget and represents the EU externally, for example, in trade negotiations.

ECB - European Central Bank

The Eurozone's central bank which administers the monetary policy of the Eurozone. Its primary objective is maintain long-term Eurozone inflation below 2%.

EMIR - European Market Infrastructures Regulation

The European Markets Infrastructure Regulation was designed to increase the stability of the OTC derivative markets and is the European counterpart of the Dodd-Frank act in the US.

EP - European Parliament

The parliamentary institution of the European Union, it is composed of 751 members elected from member states and has legislative powers.

ESMA - European Securities and Markets Authority

ESMA is an independent EU authority, located in Paris, that contributes to safeguarding the stability of the EU's financial system by ensuring the integrity, transparency, efficiency and orderly functioning of securities markets. ESMA replaced the Committee of European Securities Regulators (CESR) in January 2011.

ETF - Exchange-traded fund

Exchange traded funds are investment funds that track indices, bonds, or commodities and can be traded like a stock on an exchange.

EU - European Union

The European Union is a politico-economic union of 28 member states. It established a single market, common legal standards and free movement of people within the participating countries. 

EU Regulation

A European legal requirement that does not allow national authorities any flexibility in how it is implemented into local law.

European Council

The European Council represents the national governments of European member states and sets policy direction, although it does not have formal legislative powers.
F

FINRA - Financial Industry Regulatory Authority

A U.S. regulatory body that assists the SEC in regulating securities markets, with some responsibility for making and enforcing rules, and providing training and licensing services.

FRB - Federal Reserve Board

The Federal Reserve Board is the governing body of the U.S. central banking Federal Reserve System  and implements U.S. monetary policy.

FSB - Financial Stability Board

The Financial Stability Board is an international regulatory body that monitors and makes policy recommendations on the global financial system. Its Secretariat is hosted by the Bank for International Settlements in Basel, Switzerland.
H

HFT - High frequency trading

A form of high speed algorithmic trading often with high turnover rates and high order-to-trade ratios.
I

IA - Investment Association

The Investment Association is a trade body that represents UK asset managers.

IBIA - Instrument by instrument approach

Instrument-by-instrument approach proposed by EMSA as a method of assessing whether a non-equity instrument is liquid enough to be subject to pre-trade transparency rules based on its individual characteristics under MiFID II.

ICMA - International Capital Markets Association

A trade body which represents the institutional capital markets community. Membership consists of issuers, primary and secondary market intermediaries, asset managers, investors and capital market participants.

Internalisation

When a brokerage firm decides to fill a buy order for shares with its own inventory of shares instead of  seeking a trade with the use of outside inventory.

IOSCO - International Organisation of Securities Commissions

The International Organisation of Securities Commission is the global standard setting body for securities regulation.

ISIN - International Securities Identification Number

A unique code that identifies a security, set by the ISO.

ISO - International Organization for Standardization

European regulatory standards set by ESMA, the EBA or other relevant bodies, and set minor European regulations as delegated by the European Parliament and European Commission.

ITS - Implementing Technical Standards

European regulatory standards set by ESMA, the EBA or other relevant bodies, and set minor European regulations as delegated by the European Parliament and European Commission.
L

LEI - Legal entity identifier

A unique code that identifies a single corporate entity involved in a financial transaction.

Liquidity

Although liquidity can be defined in many ways, it generally refers to the ease with which a market participant can enter the market and buy or sell a security without influencing the market in a timely fashion.
M

MAD - Market Abuse Directive

The European Market Abuse Directive, intended to harmonise core concepts and rules on market abuse and strengthen cooperation between regulators.

MAR - Market Abuse Regulation

European regulation intended to increase the integrity of the financial markets by providing greater investor protection and ensuring there is a single rulebook and level playing field across the EU. It updates and strengthens the  framework provided by the Market Abuse Directive.

Market maker

Securities dealer that agrees to buy or sell at specified prices at all times.

MiFID I - Markets in Financial Instruments Directive

The European Markets in Financial Instruments Directive that provided a ‘passport’ for trading venues and investment firms to operate throughout Europe and aimed to improve the way markets function including measures to improve investor protection and transparency.

MiFID II - Markets in Financial Instruments Directive II

An update to European regulation of financial instruments in response to the financial crisis intended to enhance investor protection, with some scope for interpretation as national authorities implement these requirements in local law.

MiFIR - Markets in Financial Instruments Regulation

European regulation that complements the measures in MiFID II but be applied in local law as drafted, with no scope for interpretation.

MTF - Multilateral trading facility

European off-exchange trading venue defined in legislation as a system operated by an investment firm or a market operator which brings together multiple buying and selling interests in financial instruments to execute a transaction (subject to certain rules). 
N

Net stable funding ratio

Liquidity requirements for banks set out under Basel III that sets out the ratio of available funding to required funding (as defined in the Basel II requirements) over one year. 
O

OCC - Office of the Comptroller of the Currency

The Office of the Comptroller of the Currency regulates U.S. banks and the U.S. agencies operated by non-U.S.  banks.

Option

A form of derivative that offers the right, but not the obligation, to buy or sell a security at an agreed price at a specific date.

OTC - Over the counter

Bilateral transactions between two counterparties conducted off an exchange.

OTF - Organised trading facility

Mandated in Europe under MiFID II, organised trading facilities are systems designed to bring together buying and selling interests in non-equities that allow discretion in trading behaviour. OTFs only represent non-equity markets while MTFs represent all securities markets.
P

Price transparency

The ability to see bid and ask prices and trading quantities for a given security at any point in time.
R

RMBS - Residential mortgage backed securities

Securities backed by a pool of loans secured on residential property.

RTS - Regulatory Technical Standards

European regulatory standards set by ESMA, the EBA or other relevant bodies, that detail how legislation should be apply in local law.
S

SEC - Securities and Exchange Commission

The Securities and Exchanges Commission regulates U.S. securities markets and aims to maintain fair, orderly and efficient markets and facilitate capital formation.

SEF - Swap execution facility

Mandated by the U.S. Dodd-Frank Act, swap execution facilities provide transparency and execution services for derivatives transactions.

SI - Systematic internaliser

Defined under European regulation as investment firm that executes client orders on its own account or through an MTF outside a regulated market on an organised, frequent and systematic basis.

SMSG - Securities and Markets Stakeholder Group

ESMA's Securities and Markets Stakeholder Group gathers feedback from market stakeholders stakeholders in the development of technical standards and guidelines.
T

Tick size

The minimum price movement of a tradeable financial instrument.

TR - Trade repository

Trade repositories collect and centrally maintain records of OTC derivatives.
U

U.S. CFTC - Commodities Futures Trading Commission

The Commodity Futures Trading Commission regulates U.S. commodity futures and option markets. It aims to promote competitive and efficient futures markets, as well as protect investors against manipulation, trade abuse and fraud.

UPI - Unique product identifier

A unique code used to describe a financial product for the purpose of regulatory reporting.

UTC - Coordinated Universal Time

The standard time zone most widely used across the world.
V

Volcker Rule

U.S. Federal regulation prohibiting banks from carrying out certain investment activities with their own accounts, this affects their ownership of and relationship with hedge funds and private equity funds, also known as covered funds.
W

WMBA - Wholesale Markets Brokers Association

The Wholesale Market Broker Association is a trade body that represents inter-dealer brokers.