- Sep 7, 2024
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Hey TCLA Community!
In this thread, I’ve complied a list of 50 Capital Markets terms and their respective definitions. This will be particularly useful for those of you drawn to transactional law and are keen to know more about how these bustling financial markets work!
The first step? You guessed it - getting to know the basics and what these terms actually mean in practice. It’s all part of that commercial awareness!
Hope you find this series useful and feel free to drop any questions (or any terms you feel are worth sharing!).
Broad Capital Markets Concepts:
1. Capital Markets: Markets where buyers and sellers engage in the trade of financial securities like stocks and bonds.
2. Primary Market: Where new securities are issued and sold for the first time, typically through Initial Public Offerings (IPOs).
3. Secondary Market: Where existing securities are traded among investors.
4. Equity: Ownership interest in a company, typically represented by shares.
5. Debt: Borrowed money that must be repaid, often in the form of bonds or loans.
6. Securities: Tradable financial instruments, such as stocks, bonds, or derivatives.
7. IPO (Initial Public Offering): The process by which a private company offers its shares to the public for the first time (remember we had briefly touched on this in the last definitions thread?).
8. Underwriting: The process by which investment banks raise capital for companies by issuing securities.
9. Prospectus: A legal document issued to potential investors with information about an investment offering.
10. Market Capitalisation: The total market worth (value) of a company’s outstanding shares.
The Types of Securities To Know About:
11. Bonds: Fixed-income securities representing a loan made by an investor to a borrower.
12. Shares: Units of ownership in a company, which can be ordinary or preference shares.
13. Convertible Bonds: Bonds that can be converted into a specified number of shares.
14. Treasury Bills (T-Bills): Short-term debt securities issued by governments.
15. Corporate Bonds: Bonds issued by companies to raise funds for business operations or expansion.
16. Preference Shares: A type of equity that has preferential rights to dividends or asset distribution over ordinary shares.
17. Fixed-Rate Bonds: Bonds that pay a fixed interest rate over their life.
18. Floating-Rate Notes (FRNs): Bonds with variable interest rates tied to a benchmark.
19. Zero-Coupon Bonds: Bonds issued at a discount that do not pay periodic interest but are redeemed at face value.
20. Green Bonds: Bonds issued to finance environmentally friendly projects.
Trading and Market Operations:
21. Stock Exchange: A marketplace where securities are bought and sold (e.g., LSE, NYSE, NASDAQ).
22. Order Book: A list of buy and sell orders for a particular security.
23. Bid-Ask Spread: The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
24. Liquidity: The ease with which a security can be bought or sold without significantly affecting its price.
25. Market Maker: An entity or individual that provides liquidity by quoting buy and sell prices (e.g, a brokerage firm).
26. Short Selling: Borrowing a security with the intention of repurchasing it later at a lower price. High risk is involved here as there is a presumption that a lower price will be on offer.
27. Margin Trading: Borrowing funds to purchase securities, using them as collateral.
28. Block Trade: A large-volume transaction of securities, typically executed off the open market.
29. Settlement: The process of transferring securities and payment between buyer and seller after a trade.
30. Clearing House: An intermediary that ensures the proper settlement of trades and reduces counterparty risk.
Ensuring Regulation and Compliance:
31. FCA (Financial Conduct Authority): The UK regulator for financial markets.
32. SEC (Securities and Exchange Commission): The US regulator for financial markets.
33. MiFID II (Markets in Financial Instruments Directive II): EU legislation aimed at improving transparency in financial markets.
34. Insider Trading: Buying or selling securities with the aid of non-public information.
35. AML (Anti-Money Laundering): Procedures aimed at preventing non-permissible money laundering through financial systems.
36. KYC (Know Your Customer): A process to verify the identity of clients and assess risks of non-permissible activities.
37. Basel III: International regulatory framework designed to strengthen banks' capital requirements and risk management. Formed following the financial crisis of 2008.
38. Dodd-Frank Act: A US law aimed at reforming financial regulation following the 2008 crisis.
39. Compliance: Adhering to laws, regulations, and internal policies in a given market.
40. Prospectus Regulation: Rules governing the disclosure requirements for offering securities to the public in the EU.
Key Indices and Benchmarks To Know:
41. FTSE 100: An index of the 100 largest companies listed on the London Stock Exchange.
42. S&P 500: An index of 500 leading companies on US stock exchanges.
43. LIBOR (London Interbank Offered Rate): A benchmark interest rate previously used for short-term loans, now largely replaced by alternatives like SONIA in the UK.
44. MSCI Index: A collection of indices that measure stock performance across global markets.
45. Dow Jones Industrial Average: An index of 30 significant publicly traded US companies.
Key Instruments/Elements To Know:
46. Derivatives: Financial contracts whose value is based on an underlying asset (e.g., futures, options).
47. Hedging: A risk management strategy to offset potential losses in investments.
48. Equity Swaps: A derivative contract in which two parties exchange future cash flows based on equity returns.
49. Credit Default Swaps (CDS): A financial derivative providing protection against credit risk.
50. Structured Products: Pre-packaged investments that typically combine derivatives with traditional assets.
In this thread, I’ve complied a list of 50 Capital Markets terms and their respective definitions. This will be particularly useful for those of you drawn to transactional law and are keen to know more about how these bustling financial markets work!
The first step? You guessed it - getting to know the basics and what these terms actually mean in practice. It’s all part of that commercial awareness!
Hope you find this series useful and feel free to drop any questions (or any terms you feel are worth sharing!).
Broad Capital Markets Concepts:
1. Capital Markets: Markets where buyers and sellers engage in the trade of financial securities like stocks and bonds.
2. Primary Market: Where new securities are issued and sold for the first time, typically through Initial Public Offerings (IPOs).
3. Secondary Market: Where existing securities are traded among investors.
4. Equity: Ownership interest in a company, typically represented by shares.
5. Debt: Borrowed money that must be repaid, often in the form of bonds or loans.
6. Securities: Tradable financial instruments, such as stocks, bonds, or derivatives.
7. IPO (Initial Public Offering): The process by which a private company offers its shares to the public for the first time (remember we had briefly touched on this in the last definitions thread?).
8. Underwriting: The process by which investment banks raise capital for companies by issuing securities.
9. Prospectus: A legal document issued to potential investors with information about an investment offering.
10. Market Capitalisation: The total market worth (value) of a company’s outstanding shares.
The Types of Securities To Know About:
11. Bonds: Fixed-income securities representing a loan made by an investor to a borrower.
12. Shares: Units of ownership in a company, which can be ordinary or preference shares.
13. Convertible Bonds: Bonds that can be converted into a specified number of shares.
14. Treasury Bills (T-Bills): Short-term debt securities issued by governments.
15. Corporate Bonds: Bonds issued by companies to raise funds for business operations or expansion.
16. Preference Shares: A type of equity that has preferential rights to dividends or asset distribution over ordinary shares.
17. Fixed-Rate Bonds: Bonds that pay a fixed interest rate over their life.
18. Floating-Rate Notes (FRNs): Bonds with variable interest rates tied to a benchmark.
19. Zero-Coupon Bonds: Bonds issued at a discount that do not pay periodic interest but are redeemed at face value.
20. Green Bonds: Bonds issued to finance environmentally friendly projects.
Trading and Market Operations:
21. Stock Exchange: A marketplace where securities are bought and sold (e.g., LSE, NYSE, NASDAQ).
22. Order Book: A list of buy and sell orders for a particular security.
23. Bid-Ask Spread: The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
24. Liquidity: The ease with which a security can be bought or sold without significantly affecting its price.
25. Market Maker: An entity or individual that provides liquidity by quoting buy and sell prices (e.g, a brokerage firm).
26. Short Selling: Borrowing a security with the intention of repurchasing it later at a lower price. High risk is involved here as there is a presumption that a lower price will be on offer.
27. Margin Trading: Borrowing funds to purchase securities, using them as collateral.
28. Block Trade: A large-volume transaction of securities, typically executed off the open market.
29. Settlement: The process of transferring securities and payment between buyer and seller after a trade.
30. Clearing House: An intermediary that ensures the proper settlement of trades and reduces counterparty risk.
Ensuring Regulation and Compliance:
31. FCA (Financial Conduct Authority): The UK regulator for financial markets.
32. SEC (Securities and Exchange Commission): The US regulator for financial markets.
33. MiFID II (Markets in Financial Instruments Directive II): EU legislation aimed at improving transparency in financial markets.
34. Insider Trading: Buying or selling securities with the aid of non-public information.
35. AML (Anti-Money Laundering): Procedures aimed at preventing non-permissible money laundering through financial systems.
36. KYC (Know Your Customer): A process to verify the identity of clients and assess risks of non-permissible activities.
37. Basel III: International regulatory framework designed to strengthen banks' capital requirements and risk management. Formed following the financial crisis of 2008.
38. Dodd-Frank Act: A US law aimed at reforming financial regulation following the 2008 crisis.
39. Compliance: Adhering to laws, regulations, and internal policies in a given market.
40. Prospectus Regulation: Rules governing the disclosure requirements for offering securities to the public in the EU.
Key Indices and Benchmarks To Know:
41. FTSE 100: An index of the 100 largest companies listed on the London Stock Exchange.
42. S&P 500: An index of 500 leading companies on US stock exchanges.
43. LIBOR (London Interbank Offered Rate): A benchmark interest rate previously used for short-term loans, now largely replaced by alternatives like SONIA in the UK.
44. MSCI Index: A collection of indices that measure stock performance across global markets.
45. Dow Jones Industrial Average: An index of 30 significant publicly traded US companies.
Key Instruments/Elements To Know:
46. Derivatives: Financial contracts whose value is based on an underlying asset (e.g., futures, options).
47. Hedging: A risk management strategy to offset potential losses in investments.
48. Equity Swaps: A derivative contract in which two parties exchange future cash flows based on equity returns.
49. Credit Default Swaps (CDS): A financial derivative providing protection against credit risk.
50. Structured Products: Pre-packaged investments that typically combine derivatives with traditional assets.
