"A" Shares - Are a special type of Ordinary Shares. The dividends are the same, but the owners are unable to vote at company meetings.
Accrued Interest - This is the interest due on a bond or other fixed income securities that must be paid by the buyer to the seller. This amount is worked out at the coupon rate of interest multiplied by the days from the previous payment date, up to but not including the settlement date.
Advisory Service - This is where a company advises the client, but the investment decision is made by the client.
AGM (Annual General Meeting) - These are held by companies once a year and shareholders are invited to attend and vote on important issues. The purpose of the meeting is to approve dividends and the annual financial statements, and to appoint or remove directors and auditors. Decisions made at company meetings are carried out by the passing of resolutions.
AIM (Alternative Investment Market) - This was set up for smaller and newer companies who perhaps can't, or choose not to, apply for the Official List. The companies apply directly to the London Stock Exchange to become "quoted" on the AIM. Listing requirements differ from the official list, and AIM believes self-regulation is pivotal to the low regulatory burden.
American Depository Receipts(ADRs) - A negotiable certificate issued by a US bank representing a specific number of shares of a foreign stock which can be traded on a US stock exchange. ADRs make it easier for investors to invest in foreign companies; they do not carry high transaction costs, and still allow the investor to receive dividends.
Amortisation - This is an accounting procedure that reduces the cost value of a limited life asset or intangible asset through periodic changes to income. The purpose of this is to reflect the resale or redemption value of the asset.
Articles of Association - When companies are set up, part of the process is to register a Memorandum and Articles of Association with the Registrar of Companies. The Articles of Association set out the company's internal procedures. For example, what happens at meetings, voting rights, powers of Directors etc. Any changes to them have to be agreed by shareholder votes.
Ask Price - Please see Offer Price.
At Best Order - This specifies the number of shares to be bought or sold, but not the worst price the investor is prepared to trade at. Anyone selling shares just asks for the highest price available at the time, and anyone buying shares asks for the lowest.
Authorised Share Capital - The maximum number of shares a company is allowed to issue. This amount is stated in the company's Memorandum, and can only be changed if the shareholders agree.
Backwardation - A situation where the offer price of one market maker is lower than the bid price of another.
Balance Sheet - A statement showing at a specific point in time the assets and liabilities of a company.
Bargain - This is another word for a transaction or a deal. It is not to be confused with obtaining a particularly favourable price.
Bearish Views - This is a term commonly used by investors who believe share prices will fall. This is opposite to a bullish view.
Bearer Securities - These do not show the owner's name, and there is no register kept of all the current owners. If you physically hold the document, then you're the owner.
Beneficial Owner - The underlying owner of a security, who has paid for the stock and is therefore entitled to the benefits of ownership.
Best Execution - This considers various characteristics of the financial instrument concerned: price, costs, speed and likelihood of execution and settlement, the size of the order, the possible execution venues available, liquidity, the settlement currency and any other consideration relevant to the execution of the order. We will then decide which execution venue will provide the best possible result for you. For retail clients we are required to balance these factors so that we are able to deliver the best possible result in terms of the total amount payable or receivable (i.e. both the price of the instrument and any execution costs payable by the client).
Bid - The rate at which the market or a particular trader is willing to buy the stock from you.
Bonds - Investors agree to lend companies money for a certain period of time. The company agrees to pay this amount back on a certain date, and may also pay interest while the money is owed. There are many types of bonds, each with differing terms, giving variable amounts of risk. Examples would include undated (also known as perpetual) or convertible bonds.
Bonus Issue - Also known as a "scrip" or "capitalisation" issue. New shares are given to existing shareholders, free of charge, in proportion to their current holding. It helps a company increase the number of shares available for trading, and reduce the current market price per share. For example, if a shareholder is given one share for every three they own:
- Their original three shares were trading at about £10 each, therefore were worth £30.
- The new share is given to the holder free of charge, making a total of four altogether.
- This means the shareholder now has four shares, worth £30.
- Each share can then theoretically trade at £7.50 (£30 divided by four).
The £7.50 is known as the theoretical Ex-Bonus Price.
There could be many reasons behind the issuing of these types of shares, some of which include making the share price more attractive, as shares with too high a price may put investors off. Along with this, a company may be changing the structure of its balance sheet. As an investor, you can see this in the company's annual accounts.
Book Cost - The original cost of an investment, generally used to compare against the current market value.
Bullish View - This is a term commonly used by investors who believe share prices will rise. This is opposite to a bearish view.
Capital Gains Tax (CGT) - This is a tax on the profit or gain you make when you sell or "dispose of" an asset. You have an annual tax-free allowance for Capital Gains Tax, known as the "Annual Exempt Amount". At the time of writing the Annual Exempt Amount for each individual is £10,100.
Capitalisation Issue - Please see Bonus Issue.
Cash Balance - This is the balance in your account after all outstanding transactions have settled, and may not be the current balance, or the amount available to withdraw or invest. Outstanding transactions can include imminent charges, as well as trades that have not yet settled.
CDIs (Crest Depository Interests) - These are UK securities representing an underlying interest in an overseas security. A good example of this would be Banco Santander Shares, which are issued on a one-for-one basis, enabling investors to receive dividends in sterling, also making the buying and selling of the securities easier.
Choice Price - The "touch" bid and offer prices for a stock are identical.
Clean Price - The price of a bond before any adjustment has been made.
Closing Bargain - This is where the settlement date of a sale matches the settlement date of the purchase. This just leaves the loss to be paid for or the profit realised, without the need to pay for the purchase.
Collective Investment Schemes - These offer investors the ability to spread their risk by investing into just one product along with lots of other investors; the capital generated is then pooled together and invested into a wide variety of equities, bonds, gilts, property etc. One benefit is greater buying power, because all investors' money is pooled together, which helps lower any potential costs. Examples of these types of investments are Unit Trusts , OEICS and ICVCs (Investment Companies with Variable Capital).
Commission - This is the fee charged by stockbrokers for buying and selling shares for customers. When buying shares, commission is added to the total cost, and when selling shares it's deducted from the amount raised.
Consideration - This is the number of shares multiplied by the price. It's the value of the deal before Commission is added or subtracted, and before Stamp Duty or the PTM Levy.
Consolidations - The number of issued shares decreases and the Nominal Value increases. This is basically the opposite of a Subdivision. If 100 ordinary 1p shares are consolidated to become one ordinary £1 share, it may make the shares more attractive to investors, as it may appear less risky.
Contract Notes - These are sent out to you after you've bought or sold any shares. It's important that you check that all the details are correct, and then keep them for your records.
Convertible Bond - These are bonds that can be converted, at the choice of the bondholder, into the shares of the issuer.
Convertible Preference Shares - These are Preference Shares, which allow the holder to convert them into Ordinary Shares at some date in the future.
Corporate Actions - Sometimes companies choose to offer their shareholders cash, shares or a combination of both, or to change the nature or type of their shares. These offers are normally in proportion to the number of shares the shareholder owns. There are many different types, but the most common ones are listed below, and explained in detail in the relevant section:
Coupon - The annual interest rate paid on a Bond. The coupon rate is expressed as a percentage of the nominal (par) value.
Covered Warrants - Warrants give the owner the "right but not the obligation" to buy new shares at a fixed price on a future date. The fixed price is known as the "exercise" price, and the future date is known as the "expiry" date. Covered warrants are issued by financial institutions and are "covered" because the institution buys the underlying shares in the market.
CREST - Once a buy or sale has been agreed, the behind the scenes Settlement has to be arranged. CREST is an electronic settlement and registration system, which organises delivery of cash and shares to the right parties, as well as transferring legal ownership of the shares.
Crest Transfer Form - This needs to be signed and returned with the share certificate to settle certificated sales. Also, if shareholders decide they'd prefer to have their certificated shares held electronically, then the Crest Transfer Form and share certificate need to be sent to their broker, who will transfer them into an electronic account.
Cum Dividend (>D) - The purchaser of the share is entitled to receive the next dividend payment. The alternative is Ex-Dividend, where the seller retains the right to receive the next dividend payment.
Cumulative Preference Shares - Sometimes a company may not be able to pay a dividend, for example if profits haven't been great. Cumulative preference shareholders are able to roll over their right to their payment to the next dividend date. Ordinary Shares would simply miss a payment. Also, ordinary dividends can't be paid until all cumulative preference dividends (including rolled-over ones) have been paid.
Custodian - An organisation which holds client's assets in safe custody, ensures that they are not released without authorisation, and ensures that timely and accurate collection of dividends, and other actions concerning your stock, are undertaken.
Dealing Limit - The amount you can trade up to without having to make a payment until the settlement date.
Debt - Companies are able to raise money by issuing shares. They're also able to borrow money from investors, and promise to pay them back on an agreed date. For the period of time whilst the money is owed, the company will also pay interest to the investor. These agreements are known as Bonds, or if they're issued by the Government then they're known as Gilts.
Deferred Shares - These are a special type of Ordinary Shares, but owners are only given a dividend after all the ordinary dividends have been paid.
Derivatives - A financial contract between two parties or people, with a value linked to the expected future price movements of the asset it is linked to - such as a share or a currency.
Dirty Price - The price in a Bond or Gilt transaction which includes accrued interest. Prices are quoted "clean", with accrued interest added on.
Diversification - This is an investment strategy of spreading risk by investing the total available into a range of investments, as opposed to just one or two stocks.
Dividend Claim - If somebody buys some shares in a company the day before their Ex-Div Date, they are legally entitled to the next dividend payment. However, the shareholder register won't be updated to show this until after the Record Date. This means the dividend payment won't be automatically sent to the rightful owner; it will be sent to someone else who sold their shares, and therefore isn't entitled to it. The money has to be "claimed" from the person who received it, and forwarded on to the right person.
Dividend - The way a shareholder receives their share in profits made by the company. The official dividend amount is worked out per share, therefore the more shares you own, the larger your dividend payment will be. They are usually paid twice a year; the first one is known as the interim dividend, and the second is known as the final dividend. A basic rate of tax is deducted before the money is sent out. There are important dates involved in deciding who is entitled to the dividend and who is not:
- The Ex-Div Date (XD) - Any shareholder who owns or buys their shares before this date will be entitled to the next dividend payment. Before this date, shares are described as "cum" dividend ("cum" is Latin for "with"). Any shares bought on or after this date are "ex" dividend; without the right to the payment.
- The Record Date - Also known as the register date or books closed date; the company captures how their shareholder register stands on that date, and then sends dividend payments to everyone on that list. Sometimes dividends are sent to people who aren't actually entitled to them, and then a Dividend Claim occurs.
Dividend Re-Investment Plan (DRIP) - Cash dividends are reinvested into additional shares, normally commission-free.
Dividend Yield - The percentage of a company's share price that it pays out as dividends over the course of a year. The Dividend Yield is calculated as: (Total Dividend÷Share Price)x100. Dividend Yield is displayed as a percentage.
Extraordinary General Meeting (EGM) - These are called as and when special matters arise, which need to be discussed and voted upon by shareholders.
Euroclear - This is a clearing house for securities traded in the Euromarket. Euroclear specialises in verifying information supplied by two brokers in a securities transaction, and in the settlement of securities. Banco Santander shares held in our nominee accounts are all held in Euroclear.
Ex-Bonus Price - The theoretical value of each share after there's been a Bonus Issue.
Ex-Dividend Date - Any shareholder who owns or buys their shares before this date will be entitled to the next dividend payment. Before this date, shares are described as "cum" dividend ("cum" is Latin for "with"). Any shares bought on or after this date are "ex" dividend; without the right to the payment.
Exchange Rate - The rate at which one currency trades against another.
Exchange Traded Funds (ETFs) - A passively-managed basket of stocks that mirrors a particular index, and that can be traded like Ordinary Shares. They trade intraday on stock exchanges, like securities, at market-determined prices.
Execution Only - This is a service where brokers buy or sell shares when told to by their clients; they are unable to give any advice.
Financial Ombudsman Service - Settles disputes between financial businesses and their clients. The Financial Ombudsman was set up by law to do this, as independent experts, and their service is free to consumers.
The Financial Services Authority (FSA) - The regulator of the financial services industry in the UK.
FTSE 100 - Commonly known as the "Footsie", it is a weighted arithmetic index, based on the Market Capitalisation of the top 100 UK companies. It helps give everyone a general idea on how the market is doing.
FTSE 250 - It is again a weighted arithmetic index of the Market Capitalisation for the next 250 UK companies after the FTSE 100.
Futures - Are a type of Derivative, and are agreements between two parties; one agrees to buy something on a specific date in the future, and the other agrees to sell. The price and size of the future transaction is agreed now.
- The person buying the future hopes that the price of the item they're buying will rise. For example, someone may agree to buy one tonne of coffee, in six months' time, for £500. After six months has passed, one tonne of coffee is now worth £800, but the lucky Futures owner can still buy their tonne for £500.
- The person selling the future is worried that something they own may drop in value soon. For example, if someone owns some sugar, they may agree to sell one tonne, in three months' time, for £100. After three months have passed, the value of sugar has dropped to £70 per tonne, but they're still able to sell their tonne for £100.
- Futures are used for hedging or speculation.
Gearing - Is a measure of financial leverage, which shows how much of the company's normal operations are funded by owners" funds against creditors" funds.
The greater the leverage the more vulnerable the company is to a downturn in the normal business cycle. Likewise, a company having little leverage could be a sign of financial strength, with the company having a useful cushion should the business go through a sticky patch.
Gilts - Are a UK Government liability, issued by HM Treasury and listed on the London Stock Exchange. 99% of Gilts in issue are comprised of two different types of securities - conventional Gilts and Index-Linked Gilts.
Conventional Gilt is a liability of the Government which guarantees to pay the holder of the Gilt a fixed cash payment (coupon) every six months until the maturity date, at which point the holder receives a final coupon payment and the return of the principal. Prices of conventional Gilts are quoted in terms of £100 nominal.
Please see Index-Linked Gilts for their definition.
Global Depositary Receipts - These work in the same way as American Depository Receipts, but can be bought and sold in several different countries.
Hedge - Protect against the risks arising from potential market movements in exchange rates, interest rates or other variables.
ICVCs (Investment Companies with Variable Capital) - These are very similar to Unit Trusts, but they are set up as a company rather than as a trust. They are also known as Open Ended Investment Companies (OEICs).
Income - Is the dividend or interest received from an investment.
Index-Linked Gilts and Bonds - These are instruments which pay coupons which are initially set in line with market interest rates. Their semi-annual coupons, however, are adjusted in line with movements in the RPI. The nominal value of the stock does not increase with inflation. They are traded on the market in the same way as other Gilts.
Insider Dealing - Is buying or selling shares based on specific, unpublished information, which would be likely to affect the share price if it were made public knowledge. An "insider" can't deal based on the information, can't encourage others to deal, or give the information to anyone else. It is a criminal offence to do any of these things.
Investment Trusts - Invest their money into shares and bonds of other companies. Their shares are listed on the London Stock Exchange, and are therefore closed-ended, unlike unit trusts and OEICS, which have the ability to create new units should there be further investments in the product.
Irredeemable Gilt - A Gilt with no fixed date for redemption, and whose interest payments are received indefinitely.
ISA (Individual Savings Account) - Investments held in these accounts are not liable for certain types of Income or Capital Gains Tax. They are said to be held within a "tax-free wrapper". There are certain limits as to how much you can invest in ISAs within a fiscal year (6 April one year to 5 April the next year).
Issued share capital - The number of shares a company has made available for shareholders. The company's issued share capital can never be greater than their Authorised Share Capital.
Junk Bonds - These are High Risk Bonds that have low ratings or are in default.
Know Your Customer (KYC)- The FSA Conduct of Business Rules requiring financial institutions to take sufficient steps, before taking on a customer, to determine the financial position, investment objectives of the client and sources of their funds.
Limit Order - Includes the number of shares, and the worst price at which the person is prepared to trade them. For example, if someone has 100 shares and the current indication price for selling them is £1.15 per share, the seller may want to say that they don't want to sell their shares at anything less than £1.15.
Liquidity - This represents how easily a share can be traded on the market. It's in the company's best interest to have as many people buying and selling their shares as possible.
London Stock Exchange - Is a marketplace for buying and selling shares. It manages two different markets; the main one, known as The Official List, and a smaller one called the Alternative Investments Market.
Market Abuse - Is a civil offence (unlike Insider Dealing, which is a criminal offence). It is defined as a failure of a person(s) to behave in a way expected of a regular user of a market. It may include acting based on information not widely available to the market, creating a false or misleading impression, or distorting prices. For example, spreading rumours, submitting incorrect trade details, buying lots of shares to increase a price and then reversing the purchases.
Market Capitalisation - The number of shares in circulation multiplied by their current market value.
Market Makers - These provide buy and sell prices for certain companies' shares. Once they're registered as market makers for a particular company, they have to provide continuous buy and sale prices throughout the day (the Mandatory Quote Period). They help to maintain Liquidity in the market, and this is who we transact our clients' orders with.
Market Value - The price at which a security is trading.
Maturity Date - The date on which the principal or nominal value of a Bond or a Gilt becomes due, and is payable in full to the holder.
Memorandum - When companies are set up, part of the process is to register a Memorandum and Articles of Association with the Registrar of Companies. The memorandum includes the company name, country of domicile, Plc status, objects (what their business does) and their Authorised Share Capital.
Merger - This is very similar to a takeover, but "Merger" is more often used to describe the situation when two similar size companies agree to go forward as a single new company.
Money Laundering - This is the process by which criminals hide the fact that they've gained their money from illegal activities. For example, if someone has raised £150,000 from drug dealing, the first step is to physically dispose of the cash. This first stage is called "placement", and may include depositing the money into a bank account. The second stage is called "layering", and this involves separating the cash from its illegal source. For example, the person may buy some shares and pay by cheque. The last stage is known as "integration", because it involves disguising where the money's come from even further. Other investments can be made, and it now looks as if the money is coming from legitimate sources; it becomes more and more difficult to trace the money back to its illegal beginnings.
Net Asset Value (NAV) - This is an accounting ratio, which defines net assets divided by the number of shares in issue. The share price will either be at a premium to net asset value, or a discount.
Nominee - An organisation in whose name a security is registered; however the true ownership is held by the underlying shareholder. This is usually described as a non-trading company, to ensure there is no risk to the client's assets.
Nominal Value - Is also known as the "par" or "face" value, and is mainly used for book-keeping purposes by the company. For example, ordinary 50p share or preference £1 share. It is not the same as the Market Value of the share.
Non-Cumulative Preference Share - If the company fails to pay a preference dividend, the entitlement to that dividend is simply lost. There is no accumulation of the dividends that have not been paid.
Normal Market Size - This is the minimum size in which market makers must quote a price on the London Stock Exchange.
OEICs (Open Ended Investment Companies) - Also known as ICVCs.
Offer Price - This is the price in which a market maker would sell stock (providing it does not exceed the size quoted on the screen). It is also referred to as the ask price.
Official List - Is the main market of the London Stock Exchange. To become listed, companies have to apply to the UK Listing Authority, which is operated by the FSA.
Open Offer - This is an offer to existing shareholders, giving them the option to subscribe for further shares, pro-rata to their holding, usually at a discount to the current market price. Shareholders are sometimes able to apply for more shares than their initial option, but this is all dependent on the terms of the offer.
Options - Are a type of Derivative. It's probably best to read the Futures definition first, because Options are a more complicated version. With Futures, both the buyer and the seller have to keep to their side of the bargain. With Options, the buyer has the choice of whether to buy or sell the asset (cocoa, coffee etc) at the fixed price on the given date. The buyer of the future pays the seller a certain amount (a premium) for the privilege of having the choice. If the buyer of the future chooses to buy or sell the underlying asset, then the seller has completed the trade - and vice versa.
Ordinary Shares - Are the most common type, and they normally allow the owner to vote at company meetings. Ordinary Shares carry no guarantees, and reflect the success (or failure) of the company. Special types include A Shares and Deferred Shares.
Participating Preference Shares - Normally the fixed rate dividend paid to Preference Shareholders is worked out as a percentage of their Nominal Value. For example, a 1% £1 preference share will entitle the owner to a fixed Dividend of 1p per share held. Sometimes a company's Articles of Association may give "participating rights" to the Preference Share owner. This means that if the company has a particularly profitable period, it may offer to pay the Participating Preference Shareholder even more than their fixed dividend offers.
Permanent Interest Bearing Shares (PIBS) - These are issued by building societies, and pay a fixed rate of interest for an indefinite period. They are irredeemable, but can be liquidated by trading on the London Stock Exchange. PIBS will sometimes have minimum dealing sizes (e.g. 1,000 units) but each PIB is different. Should you have any queries regarding the minimum dealing sizes, please call our dealers on 0800 389 2642.
Plus Markets - Is a small and mid-cap stock exchange for London. It is a recognised investment exchange (RIE) in the UK, authorised to operate both secondary (trading) and primary (listing/quotation) markets.
Preference Shares - Pay a fixed rate Dividend, which is paid before ordinary Dividends. A company cannot pay any Ordinary Shareholders until they've paid all their preference shareholders. They don't normally allow the owner to vote at company meetings (apart from Zero Dividend Preference Shareholders who are normally allowed to vote). Cumulative Preference Shares, Participating Preference Shares, Convertible Preference Shares and Redeemable Preference Shares are some examples.
Price-to-Earnings ratio (P/E Ratio) - Is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share.
PTM Levy - Is used to fund the Panel on Takeovers and Mergers. Currently £1 PTM Levy is charged on all trades worth over £10,000.
Quarter Up Price - The quarter up price is the lower of the two prices shown in the quotations for the shares in The Stock Exchange Daily Official List on the relevant date plus one-quarter of the difference between those two figures
Record Date - Is also known as the register date, or books closed date. The company captures how its shareholder register stands on that date, and will send Dividend payments to everyone on that list. Sometimes, Dividends are sent to people who are not actually entitled to them, as they have sold their shares before the Ex-Dividend Date, but their name still appears on the share register. A Dividend Claim occurs in this instance, claiming back the Dividend amount from their sale proceeds.
Redeemable Preference Shares - These are Preference Shares with an end to their life. They are issued with a specific redemption date, on which the company will refund the owner with the Nominal Value of the shares.
Registrar - An organisation that looks after a company's shareholder Register. They also issue the Dividend payments.
Register - The legal record of a company's shareholders.
Residual Shares - These can't be settled through the usual CREST system, therefore the exchange of shares and cash has to take place outside of CREST. An extra charge may be made to help cover the extra administration involved.
Resolutions - At company meetings, decisions are made by the passing of Resolutions. There are three types:
- Ordinary Resolutions - These just need the majority of votes to be passed, i.e. more than 50%. Decisions that need to be made at AGMs are reached after Ordinary Resolutions.
- Special Resolutions - These need at least 75% to be passed. Changing the company's name, or anything in the Memorandum or Articles, can only happen after the passing of a Special Resolution.
- Extraordinary Resolutions - These also require at least 75% to be passed. This is needed for a voluntary winding up of the company. This allows a company to formally close down, sell everything and pay off anyone they owe.
Retail Price Index (RPI) - A monthly index that shows the movement in the prices of goods and services purchased by most households in the UK.
Rights Issues - Existing shareholders are always given first refusal on new shares. With a rights issue, shareholders are offered the chance to buy new shares, in proportion to the shares they hold already. An added incentive is that the new shares are usually offered at a lower cost than the current market buy price. The rights offer has to stay open to shareholders for a minimum of 10 business days. Shareholders can:
- Take up the rights - Pay for the new shares and receive them
- Sell the rights - To someone else, who can take them up
- Split the rights - Sell some and take up the rest
- Let them "lapse" - The shareholder doesn't do anything, and may receive a cash payment known as "lapsed proceeds".
Scheme of Arrangement - The Company replaces one of its types of shares with other shares, cash or a mixture of both.
Scrip Dividends - This is where companies offer their shareholders additional shares, replacing the cash Dividend which they would have received.
Scrip Issue - Please see Bonus Issue.
Securities - Trade able financial instruments such as, for example equities and bonds.
SETS (The Stock Exchange Electronic Trading Service) - Is the way in which FTSE 100 and other highly rated shares are bought and sold. Firms need to be authorised to place orders on the SETS order book, where buy orders are automatically matched to sale orders. If there's no match available immediately, then the trade stays on the order book until it can be completed. The SETS system is fully switched on between 8am and 4:30pm, so continuous matching happens during these times.
SETSmm - Is a hybrid electronic trading system, which gives the options of trading through market makers, or directly entering orders on the order book. The introduction of SETSmm has revolutionised the trading of FTSE mid and small cap companies, due to tighter spreads, greater liquidity and a growth in the overall size of the market.
SETSqx - Is a trading platform for securities that are less liquid than those which trade on SETS.
Settlement Date - Once a sale or purchase of shares has been agreed, arrangements need to be made for it to settle. This process involves organising payment for purchases, or receiving shares for sales and delivering them to the respective parties.
Share - The unit of ownership of a company
Shareholder - The owner of a share in a company - the part-owner of a company
Stamp Duty - Is a type of UK tax paid when buying certificated shares. It's currently 0.5% of the Consideration for UK shares, and 1% for Irish shares. This charge is rounded up to the nearest £5 when you buy Residual Shares.
Stamp Duty Reserve Tax (SDRT) - Is charged when there's no physical transfer document; when shares are traded electronically. When buying certificated shares this tax is known as Stamp Duty instead. Like Stamp Duty, SDRT is worked out as 0.5% of the Consideration for UK shares, and 1% for Irish shares. Certain investments are exempt from Stamp Duty and SDRT; these include:
Structured Products - These are products based on derivatives that are linked to the performance of an index, or an asset class, for a fixed period. Depending on the provider of the product, your initial investment may be partly or fully protected if held till maturity.
Subdivision - The number of issued shares increases, and the Nominal Value decreases. For example, one ordinary £1 share is split into five ordinary 20p shares. A company may decide to do this if their shares were quite expensive, and they wanted to increase their liquidity. The subdivision will reduce the price at which the shares can be bought or sold, and may therefore encourage trading.
Takeovers - Once a shareholder owns more than 50% of a company, they are seen as the legal owner. If anyone tries to buy more than 50% of the company's shares, this is seen as a takeover bid.
Tender Offer - An offer to purchase some or all of shareholders shares in the company in which they have a holding. The price offered is usually at a premium to the market price.
The "Touch" - The best available buy and sell price available for a stock, looking at all the prices quoted by Market Makers.
Trade Date - The date on which an order to buy or sell a security is executed.
Unit Trusts - Are a type of Collective Investment Scheme. Investors can buy and sell units, which each represent an identical part of the overall portfolio of shares.
Venture Capital Trust (VCTs) - A listed company which invests in small unlisted and AIM companies. VCTs have generous tax reliefs, but numerous tax regulations have to be complied with.
Warrants - Give the owner the "right but not the obligation" to buy new shares at a fixed price on a future date. The fixed price is known as the "exercise" price, and the future date is known as the "expiry" date. They differ from covered warrants as they are issued by the company direct, rather than by a separate financial institution.
Weighted - Describes an average in which some values count for more than others. Most indices use weighted averages, so that lower valued shares do not affect the index excessively.
Yield - The percentage return paid on a stock in the form of Dividends, or the effective rate of interest paid on a Bond or note. Yield is usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.
Zero Dividend Preference Shares - Are a special type of Preference Share which do not pay dividends during the life of the share - the total return to the investor being the premium on redemption.