CISI Introduction to Securities and Investments Chapter 3

What is equity?

A share of ownership in a company that represents a claim on its assets and earnings.

What is a shareholder?

An individual or institution that owns shares in a company.

What are ordinary shares?

Shares that give holders voting rights and entitlement to dividends but are last to be repaid in liquidation.

What are preference shares?

Shares that receive fixed dividends before ordinary shareholders but usually have no voting rights.

What is a dividend?

A portion of a company's profits paid to shareholders, usually in cash or additional shares.

What is a dividend yield?

The annual dividend per share divided by the current share price, expressed as a percentage.

What is the dividend cover ratio?

The ratio of earnings per share to dividends per share, indicating how easily profits cover dividends.

What is capital growth?

The increase in the value of a share over time.

What is a public limited company (PLC)?

A company whose shares can be traded publicly on a stock exchange.

What is a private limited company (Ltd)?

A company whose shares are privately held and not traded on a public exchange.

What is the Companies Act 2006?

UK legislation governing company formation, operation, and management.

What is an IPO?

Initial Public Offering - when a company offers its shares to the public for the first time.

What is a prospectus?

A formal document issued to potential investors containing details about an investment offering.

What is a rights issue?

An offer to existing shareholders to buy additional shares at a discount to the market price.

What is a bonus issue?

The issue of free additional shares to existing shareholders, usually from retained earnings.

What is a stock split?

Dividing existing shares into multiple shares to make them more affordable without changing total value.

What is a stock exchange?

A regulated marketplace where securities such as shares are bought and sold.

What is the main UK stock exchange?

The London Stock Exchange (LSE).

What is the AIM?

Alternative Investment Market - a sub-market of the LSE for smaller, growing companies.

What is market capitalisation?

The total market value of a company's outstanding shares (share price x number of shares).

What is the FTSE 100?

An index representing the 100 largest UK-listed companies by market capitalisation.

What is a listed company?

A company whose shares are traded on an official stock exchange.

What is an unlisted company?

A company whose shares are not traded on a recognised exchange.

What is a trade order?

An instruction from an investor to buy or sell a security.

What is a market order?

An instruction to buy or sell immediately at the best available price.

What is a limit order?

An order to buy or sell a security at a specified price or better.

What is a stop order?

An order to buy or sell once the price reaches a specified level.

What is the primary market?

Where new securities are issued and sold to investors for the first time.

What is the secondary market?

Where existing securities are traded between investors.

What is settlement?

The process of transferring securities and payment between buyer and seller after a trade.

What is CREST?

The UK's electronic settlement system for shares and other securities.

What is T+2 settlement?

Settlement that occurs two business days after the trade date.

What is a nominee account?

An account where a broker holds shares on behalf of investors.

What is a registrar?

An organisation that maintains a company's shareholder register.

What is a company secretary?

A senior officer responsible for company administration and compliance.

What is corporate governance?

The system of rules and practices that direct and control a company.

What is a takeover?

When one company acquires control of another company.

What is a merger?

When two companies combine to form a single new company.

What is the Takeover Panel?

The UK body that regulates mergers and takeovers to ensure fairness.

What is insider dealing?

The illegal use of confidential information to trade securities for profit.

What is market abuse?

Improper behaviour such as insider dealing or manipulation that undermines market integrity.

What is the FCA?

The Financial Conduct Authority - the UK regulator ensuring fair and transparent markets.

What is voting right?

The right of shareholders to vote on company matters, such as electing directors.

What is a dividend policy?

A company's approach to distributing profits between dividends and retained earnings.

What is EPS?

Earnings Per Share - a measure of company profit divided by the number of shares.

What is a share buyback?

When a company repurchases its own shares from the market to reduce supply.

What are blue-chip shares?

Shares in large, well-established companies with a history of stability and reliable dividends.

What are growth shares?

Shares in companies expected to grow earnings faster than the market average.

What are income shares?

Shares that offer high and regular dividends rather than capital growth.