capital markets terms

What are Capital Markets?

Markets where buyers and sellers engage in the trade of financial securities like stocks and bonds.

What is the Primary Market?

Where new securities are issued and sold for the first time, typically through Initial Public Offerings (IPOs).

What is the Secondary Market?

Where existing securities are traded among investors.

What is Equity?

Ownership interest in a company, typically represented by shares.

Debt

Borrowed money that must be repaid through loans or bonds

Securities

Tradable financial instruments, such as stocks, bonds, or derivatives.

IPO (Initial Public Offering):

The process by which a private company offers its shares to the public for the first time

Underwriting

The process by which investment banks raise capital for companies by issuing securities.

Prospectus

A legal document issued to potential investors with information about an investment offering

Market Capitalisation

The total market worth (value) of a company’s outstanding shares.

Bonds

Fixed-income securities representing a loan made by an investor to a borroweR

Shares

Units of ownership in a company, which can be ordinary or preference shares

Convertible Bonds

Bonds that can be converted into a specified number of shares.

Treasury Bills (T-BillS

Short-term debt securities issued by governments

Corporate Bonds

Bonds issued by companies to raise funds for business operations or expansion.

Preference Shares

A type of equity that has preferential rights to dividends or asset distribution over ordinary shares.

Fixed-Rate Bonds

Bonds that pay a fixed interest rate over their life.

Floating-Rate Notes (FRNs):

Bonds with variable interest rates tied to a benchmark.

Zero-Coupon Bonds

Bonds issued at a discount that do not pay periodic interest but are redeemed at face value.

Green Bonds

Bonds issued to finance environmentally friendly projects.

Stock Exchange

A marketplace where securities are bought and sold (e.g., LSE, NYSE, NASDAQ)

Order Book

A list of buy and sell orders for a particular security.

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.

Liquidity

The ease with which a security can be bought or sold without significantly affecting its price

Market Maker

An entity or individual that provides liquidity by quoting buy and sell prices (e.g, a brokerage firm).

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.

Margin Trading

Borrowing funds to purchase securities, using them as collateral.

Block Trade

A large-volume transaction of securities, typically executed off the open market.

Settlement

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

Clearing House

An intermediary that ensures the proper settlement of trades and reduces counterparty risk.

FCA (Financial Conduct Authority)

The UK regulator for financial markets.

SEC (Securities and Exchange Commission):

The US regulator for financial markets.

MiFID II (Markets in Financial Instruments Directive II)

EU legislation aimed at improving transparency in financial markets.

Insider Trading

Buying or selling securities with the aid of non-public information

AML (Anti-Money Laundering

Procedures aimed at preventing non-permissible money laundering through financial systems.

KYC (Know Your Customer)

process to verify the identity of clients and assess risks of non-permissible activities.

Basel III

International regulatory framework designed to strengthen banks' capital requirements and risk management. Formed following the financial crisis of 2008.

FTSE 100

An index of the 100 largest companies listed on the London Stock Exchange

S&P 500

An index of 500 leading companies on US stock exchanges.

Derivatives

Financial contracts whose value is based on an underlying asset (e.g., futures, options).

Equity Swaps

A derivative contract in which two parties exchange future cash flows based on equity returns.

Credit Default Swaps (CDS)

A financial derivative providing protection against credit risk.

Structured Products

Pre-packaged investments that typically combine derivatives with traditional assets