This class of share does not normally allow the holder to vote on any resolutions.

Advisory Stockbroker

A kindly soul who offers advice on the vagaries of the stock-market.

Alternative Investment Market (AIM)

The AIM market was launched in 1995 for small and growing companies and is effectively a cheaper and less restrictive means of a company going public. Companies listed on AIM need not supply as much information as those on the main market.

Since its launch in 1995, over 2,500 companies have chosen to join AIM.

For tax purposes, shares in AIM quoted companies are treated as "unquoted investments", which affords various capital gains reliefs. The AIM market is growing rapidly.

It is currently not permitted by the Inland Revenue to hold AIM stocks in a PEP or ISA, although recent budget announcements by Gordon Brown have left the door open for the Treasury to recognise AIM as a ‘Recognised Exchange’ and hence alter the tax status of this market.

Averaging

The method by which an investor lowers their original investment price per share through the process of buying cheaper shares after a price fall.

Bargain

Another name for a trade transacted on a stock exchange.

Bear

A not particularly cuddly harbinger of doom.  This person expects the markets (or an individual stock) to fall.

Bid

This is the price at which a market-maker is prepared to buy stock, as opposed to the offer price, which is where he is willing to sell stock.  This forms the bid-offer spread.

Blue Chips

Named after the highest denomination ‘chips’ on a casino table, these stocks are regarded as the least volatile of equities and are generally the largest companies by market capitalisation, such as those in the FTSE 100.

Bond

Generally a bond is a loan to a government, company or organisation, given over a fixed period of time, for which the holder will receive a rate of interest.  Bonds are afforded a risk rating by specialist credit agencies.  This rating can range from ‘Gilt Edged’ and ‘AAA’ ratings, associated with issues from ‘safe’ organisations and institutions such as the British Treasury Stocks, to ‘Junk’ status whereby there appears little hope of a lender getting their money back.  The competitive nature and efficiency of the market usually leads bond prices to converge at a level where average market participant risk has an associated level of return.  Whatever an investor's appetite towards risk and return, the bond market will usually have an instrument that might be of interest.  It is also possible to provide currency exposure through overseas issues in Europe, USA and Japan as well as Sterling issues.  Investors can use a variety of micro and macro-economic factors in determining a suitable bond investment.

Bonds are usually repaid at a set future date at ‘par’ (the original loan amount), although some might have special options to repay earlier – such bonds are said to have a call available to them.  Other lenders may repay the capital loan amount with an element of gain linked in line with inflation, thus protecting the investor’s capital investment from erosion by inflation.   An example of these are the British Government ‘Index-Linked’ Treasury Stocks.

Bonus Issue

A company may decide to issue additional shares to existing shareholders at no extra cost.  For example, if a company did a 1 for 10 bonus issue, the shareholders would receive 1 new share for every 10 held.

Also known as scrip or capitalisation issues.

Book Cost

The total cost, including stamp duty and commission, of the purchase of a new holding.

Bottom Fishing

When value investors believe that stocks have been oversold, they will buy some in the hope that the stocks have reached their lows.

Bull

The opposite of a Bear, someone with a rosier outlook on the stock market (or individual stock).  The glass is half full, not half empty.

Capital Gain/Capital Gains Tax

The government grants investors an allowance of gain before which tax is payable. This allowance varies between entities and individuals. Allowances are altered from time to time and currently an individual is allowed to realise £9,200 of 'pure gain' in any one tax year (tax year 2007/2008) before becoming liable to Capital Gains Tax. (CGT). Conversely, if an investor establishes a loss, it is possible to carry this forward to more profitable years where this loss can be offset against future capital gains. In order to calculate CGT, the government has introduced various schemes of relief, including 'Indexation' and 'Taper Relief'. These boggling schemes are best left to your Tax Adviser to calculate!

Consolidated Tax Voucher

When an investor elects to use the Nominee Service, rather than hold shares registered in their own name, we will produce a tax voucher for all of the dividend and interest payments that are received for the whole year.  This document is known as a ‘Consolidated Tax Voucher’ and usually accompanies the year-end valuations despatched in April.  This system saves investors and accountants an awful lot of time (and money!).

Convertibles

A company may issue a convertible share to raise funds.  These can be ‘converted’ into another instrument at a future date.

Corporate Actions

Any actions undertaken by a company that might alter the status, denomination, capitalisation or listing of that company's shares

Corporate Bond

A debt issuance by a company. See Bond.

Coupon

The rate of interest paid on a Fixed Income Security, usually paid half yearly.  For example, the coupon on Treasury 5% Stock 2008 is 5% paid in two instalments of approximately 2.5% and usually separated by 6 months.  (The precise calculation of interest payments can differ between issuers, but this system provides a good estimation for guidance purposes.)

Covered Warrants

These are issued by a third party financial institution to an investor.  They differ from ordinary warrants in that the issuer will cover the position by buying the underlying shares. The issuing third party will also make a two-way market in the warrants.

CREST

The system predominately used by the London Stock Exchange to settle and register transactions electronically.

Dead-Cat Bounce

Not a particularly nice term, but one used to describe the situation where a stock falls heavily and then recovers (bounces) a little, before falling again to new lows.

Deferred Shares

These shares will not receive a dividend until pre-specified criteria have been met by the company, for example certain profit levels.

Dematerialisation

The process of transferring paper share certificates onto an electronic register, such as CREST in the UK.  The majority of shareholdings are now held this way, as we move towards shorter settlement periods.  Many companies charge additional fees for handling share certificates in respect of sales and many investors are now choosing to hold ‘dematerialised’ stock in a nominee account.

Discretionary Portfolio Management

A client may wish to leave all the investment decisions up to the stockbroker/investment manager.  The client’s objectives will be set out clearly beforehand and adhered to by the manager.  The client will receive regular updates of any transactions and the current valuation of the portfolio.

Diversification

The process of balancing a portfolio of investments to reduce exposure to particular sectors, currencies, investment types or trends, whilst at the same time adhering to the investment criteria and objectives set by the client.  Portfolio Diversification follows the rule of ‘not keeping all of one’s eggs in the same basket!’

Dividend

The return of cash to a shareholder on a periodic basis.  Some companies allow the shareholder to receive a dividend in the form of additional shares.  This is known as a scrip dividend.

UK companies often pay two dividends a year; an interim dividend (usually paid half-way through a company’s financial year) and a final dividend (usually paid at the end of a company’s financial year).  The final dividend tends to be the larger of the two.

Dividend Yield

This is the dividend expressed in percentage terms against the share price, i.e. company X pays a 10p dividend and its current share price is 200p.  Therefore the dividend yield is 5%.

Earnings

The annual profits of a company after the deduction of tax and dividends paid to holders of preference shares or bonds.

Earnings Per Share (EPS)

This is calculated by dividing the earnings of a company by the weighted number of shares in issue of that company, e.g. if a company has earnings of £50m and has 500m shares in issue, then its EPS would be 10p.

Ethical Investment

An investor may choose not to hold a company or sector of companies in their portfolio if they feel strongly about the practices of the companies in question on ethical or environmental grounds.

Equity

Ordinary shareholders of a company are said to own a slice of that company.  This part ownership often entitles them to rights, such as voting and a share of the company’s distributed profits in the form of dividends.  The shares they hold are known as the equity they have in that company.  Although equity holders are privileged with these extra rights, their status as ‘part owners’ places them at the bottom of the creditor list if a company is unfortunate enough to go into administration.  Although many shareholders do not exercise their voting rights, part of the reasoning behind their low repayment status in the event of a company being ‘wound-up’ is the fact that, collectively, it may have been possible for shareholders to have steered the company in a different direction via these rights. 

Ex-Dividend/Ex Dividend Date (XD)

The purchase of a share in a quoted company which does not entitle the buyer to the current dividend.  The buyer will receive any future dividends for as long as they hold the shares.  The date at which a company ‘freezes’ its shareholder register and the date upon which dividends are actually paid to shareholders may differ.  This can lead to some investors receiving dividends from companies to which they have already sold the entitlement (as well as vice-versa).  To be eligible to receive a dividend a shareholder must have held the shares at midnight preceding the ex date.

Ex-Rights (XR)

In the same manner as a share goes ‘Ex-Dividend’, a company undergoing a rights issue will set a date at which the shares go ‘Ex-Rights’.  Purchase transactions after this date are effected without entitlement to the rights issue. Shareholders must hold the shares at midnight prior to the XR date in order to be eligible to receive the rights issue.

Execution Only Broker / Execution Only Transaction

A firm which purely executes transactions on behalf of an investor and offers no advice on what to buy or sell.  A transaction which has been conducted without advice is said to have been done so on an ‘Execution Only’ basis.

Fixed Income Security

Attractive to investors who are looking for a fixed return on their investment.  These instruments pay out income at regular intervals, normally half yearly, at a fixed rate of interest.

Full Listing

A company that is quoted on the main market of the London Stock Exchange, as opposed to the Alternative Investment Market, is said to have a ‘Full Listing’.

Gilt Edged Stock (Gilts)

These are fixed income securities issued by the UK Government which pay a pre-specified rate of interest at regular intervals and repay the nominal value at a pre-determined date in the future, e.g. Treasury 5% Stock 2008 does exactly what it says on the box – it pays 5% income and is redeemable in 2008.  Some fixed income stocks are ‘index-linked’ so that the capital amount invested increases in line with changes in the Retail Price Index (RPI) and capital values are not eroded by inflation.

The nominal value is usually 100p, which is known as ‘par’ value.

Good Till Cancelled Order (GTC)

An investor may instruct a broker to buy or sell shares at a particular price, which remains live until the broker is instructed otherwise by the investor or the order is satisfied.

Grey Market

The unofficial trading of shares before they are formally admitted to the market.  It is possible to sell shares that you anticipate receiving in a new issue.  However, you should be aware that you may not be allocated as many shares as you applied for.

Illiquid Stock

A stock that is not actively traded.  The lack of liquidity can lead to difficulty in dealing.

Income

Income can be received from cash deposits, bonds and dividends from shares and, as such, is liable to income tax.

Individual Savings Account (ISA)

An ISA provides a tax-efficient wrapper in which an investor can hold certain investments (as determined by the Inland Revenue). ISAs replaced the previous tax-wrappers called PEPs. ISAs are only allowed for individuals. Investors can currently subscribe a maximum of £7,000 per annum into the Maxi ISA scheme operated by Havelock Hunter Stockbrokers Ltd (Tax Year 2007/2008). Investors can also subscribe to a MINI Equity ISA into which they can subscribe the lower limit of £4,000. (2007/2008). MINI Equity ISAs can be used in conjunction with MINI Cash ISAs for the same tax period.

Although the government has recently abolished the tax credit benefits by which investors had tax reclaimed directly by the ISA manager,  ISAs still provide a shelter from Capital Gains Tax and shield higher rate tax payers from the 40% taxation that would otherwise apply to income received.

Initial Public Offering (IPO)

The American term for a new issue or flotation.

Investment Trust

Investment Trusts are quoted companies run by Fund Managers.  The funds looked after by the company are invested across a range of stocks, industries or countries. This allows an investor the opportunity to invest in a broad range of securities cost effectively and achieves a greater diversification.

Limit Order

An investor may stipulate a price at which they wish to buy or sell shares, which a broker will endeavour to execute when that limit is attainable.

Market Capitalisation

This is the market value of a quoted company.  It is measured by the basic calculation of multiplying the number of shares in issue by the current share price, e.g. a company has 150 million shares in issue and is trading at 50 pence per share.  Thus the market capitalisation is £75 million.

Market Maker

Market Makers create a two-way market by committing their firm’s capital.  They provide the liquidity to the market.  In large companies there can be many Market Makers competing to provide the best prices and increasing liquidity.  Market Makers are obliged to deal in the shares of the company they are quoting and at the price they are advertising, as long as the transaction is within the ‘size’ (see Normal Market Size) limits they have set.  Today, with the advent of SETS (See SETS) small investors can fulfil a similar role to Market Makers by becoming one side of the ‘Yellow Strip’ (See Yellow Strip).

Middle Market Price (Mid)

The mean average of the current bid and offer of a security, e.g. a stock is trading at 250p (bid) – 255p (offer), then the mid price will be 252.5p.  The closing mid-price is quoted in national newspapers the following day.

Net Asset Value (NAV)

The NAV of a company is calculated by subtracting the total value of its liabilities from the total of its assets.

New Issue

The issuing of new shares by a company to increase its share capital and, generally, the opportunity for new investors to subscribe to become shareholders.  An initial public offering (IPO) is when a company is first admitted to a stockmarket and shares are issued to the public.

Nil Paid Shares

The product of a rights issue requiring a later payment to take up the issue in full. Prior to this payment the rights may still be able to be traded. At this time they are said to be "Nil Paid"

Nominee Account

The favoured way for a client to hold securities is in a Nominee Account.  There are many benefits of this service, including greatly reduced client administration, quicker settlement periods, eliminated risk of lost certificates and accurate record keeping, together with cost benefits.  The underlying client still retains beneficial ownership of the security.

Normal Market Size (NMS)

The quantity of shares in which a Market Maker is obliged to deal.  Smaller companies will have often have a much smaller NMS than large capitalisation ‘blue chips’.

Offer

The price at which a market-maker/seller is prepared to sell stock.

Open Offer

A company may offer additional shares to existing shareholders, usually at a discount to the current price, in order to raise new capital.  A shareholder is not obliged to buy these shares and may let the offer lapse.

PEP

Originally introduced by the government in 1987, these tax free wrappers are now closed to new investment, having been replaced by ISAs in 1999.  Like ISAs, the rules relating to tax credit reclaims in PEPs have recently changed.  PEPs still do provide investors who originally subscribed to the schemes with protection from capital gains tax and higher rate income tax.  Havelock Hunter Stockbrokers Ltd is happy to administer PEP accounts and transfer these from other managers at no cost.

Preference Shares

These entitle shareholders to a fixed annual dividend in priority to ordinary shareholders but do not normally give the holder voting rights.  If the company is wound up, preference shareholders are given priority ahead of ordinary shareholders in terms of any liquidation payments.

Rights Issue

If a quoted company wished to raise funds, one way of doing this might be to offer existing shareholders the opportunity to buy new shares at a discount to the current share price.  Shareholders are usually offered new shares in proportion to their existing holding, e.g. a one for four rights issue would entitle existing shareholders to take up one new share for every four currently held.  Shareholders do not have to take up their rights.  If they allow their rights to lapse, they may be entitled to a payment from the company. (See also Nil Paid Shares).

SSAS/SIPP

Small Self-Administered Schemes (SSAS) and Self-Invested Pension Plans (SIPPs) allow individuals and companies to take greater control of their pension funds and retirement plans.

Scrip Dividend

Shareholders of certain companies may elect to take dividends in the form of additional shares rather than cash.  The equivalent cash payment is used to distribute shares at a price and time determined by the company.  Where a fractional payment exists, shareholders may receive an additional sum in cash, although sometimes this can be kept as a ‘rolling balance’ and be added to the next scrip dividend distribution amount.

Securities

Any tradeable financial asset.

SETS

The advent of the Stock Exchange Electronic Trading Service (SETS) created a more competitive dimension to the market.  Unlike companies which are traded by a group of identified market makers, the prices shown on the Yellow Strip for a SETS traded stock are anonymous.  A buyer of stock on a SETS screen has two options: either to choose to buy the shares advertised for sale on the ‘Offer’ side of the strip, or to advertise as a buyer by joining the ‘Bid’ side of the strip. 

For example, if the Yellow Strip price advertised a price of 100p – 105p, a buyer could either select to purchase the stock on offer at 105p, or could advertise as a buyer by joining the other buyers on the bid side.  The buyer need not join the bid side at 100p, but can position the order at a price suited to them.  Any new participants join the others at a position firstly determined by price, i.e. if you are willing to pay more than the other buyers (and hence increase the bid – say, 101p) a buyer will become the ‘top of the pile’.  If the buyer is only willing to match the other participants bids at 100p, then the new potential buyer would join the other participants bidding 100p in order of time (i.e. the bottom of the 100p group, but above any buyers only hoping to pay 99p). 

As prices move throughout the day, in accordance with supply and demand, investors trading on SETS may find that their bid or offer is no longer at the active trading range.  In these instances, investors may withdraw their orders and place them back at a more hopeful level.  Alternatively, an investor whose price seemed far-fetched when joining the orders on SETS (say a potential buyer at 80p) may find that their order has been ‘hit’ if a large movement has occurred. 

Investors using SETS need to be wary, as such movements might occur very quickly.  Negative news might dramatically reduce the price of a company.  Such news could result in a far off bid being hit very quickly.  The same news might have changed the aspirations of the buyer whose bid was hit, but who might not have withdrawn their order in time!  Like other transactions conducted in the stockmarket, all SETS orders are binding.  Not all companies are SETS tradeable.  Securities traded on SETS include all the FTSE 100 constituents, the most liquid FTSE 250 securities, those with a LIFFE traded equity option and some euro-denominated Irish stocks.

Settlement Date/Proceeds/Delivery

Transactions conducted are allocated a day on which a shareholder delivers shares in return for receipt of the sale proceeds.  This date is usually ten working days for certificated holdings (T+10), but can be as quick as one day for Nominee Account stock (T+1).  Conversely, this is also the date upon which a new investor must pay for the securities they have purchased.

Share Certificate

A piece of paper denoting title of ownership.  Most investors now hold their shares in Nominee Accounts, thus expediting settlement periods and creating less paperwork. A fee is incurred to issue new certificates in respect of lost ones.

Spread

The difference between the bid and offer prices.  Spreads are generally wider on less liquid stocks, such as smaller companies.

Stamp Duty/Stamp Duty Reserve Tax

A taxation levied on the purchase of shares and other securities, but not on some fixed income products. The current rate is 0.5% and is rounded up to nearest £5 in the case of Stamp Duty.

Stockbroker

See Advisory Stockbroker

Unit Trust

Similar to an Investment Trust, this is a collective fund professionally managed by specialist fund managers. Investors are allowed the opportunity to hold fractional amounts of a diverse portfolio of stocks within each issued unit of the fund.  This facility enables investors to diversify their holdings, or gain specific sectoral or geographic exposure to an extent that might not have been efficiently available to them in an individual equity investment portfolio.

One of the main differences between investment trusts and unit trusts is their legal status.  The method through which the two instruments are traded also differs. Whereas a ‘market’ comprised of several competing market makers might exist with an investment trust, units in a unit trust usually have to be bought or sold directly through the unit trust manager.  Unit trusts can issue fractions of a unit, whereas investment trusts are traded in whole shares.

Yellow Strip

This is also known as the Bid/Offer Spread.  It describes the best selling and the best buying price available throughout the entire market.  The name is derived from the colour of the banner on the trading screens where this price is displayed.

Yield

See Dividend Yield.