SIAA Securities & Managed Investments flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Primary market

The market where an issuer sells newly created securities to investors to raise capital. Proceeds go to the issuer, not to existing holders.

Bid-ask spread

The difference between the highest price a buyer will pay and the lowest price a seller will accept. It is an implicit trading cost and widens when liquidity is low.

Limit order

An instruction to buy or sell only at a specified price or better. It protects against adverse price movement but may never execute if the market does not reach the limit.

Short selling

Borrowing securities, selling them, and later repurchasing them to return to the lender. Profit arises if the price falls; losses are theoretically unlimited.

Broker versus dealer

A broker acts as agent, executing trades on a client's behalf for a commission. A dealer acts as principal, trading from its own inventory and earning the spread.

Fiduciary duty

A legal obligation to act in the client's best interest, placing the client's interests ahead of the firm's own. It is stricter than a mere suitability standard.

Custodian

A firm that safekeeps client assets, processes settlements and corporate actions, and keeps client property segregated from the firm's own assets.

Self-regulatory organization

A body, often an exchange or industry association, that writes and enforces rules for its members under oversight from a statutory regulator.

Preference shares

Equity that ranks ahead of ordinary shares for dividends and liquidation proceeds, usually with a fixed dividend, but typically carries limited or no voting rights.

Price-earnings ratio

The share price divided by earnings per share. A higher multiple generally reflects expected growth or lower perceived risk; a lower multiple may signal value or distress.

Rights issue

An offer of new shares to existing holders, usually at a discount to market price, in proportion to their holdings. It raises capital while limiting dilution.

Convertible bond

A bond paying a coupon that can be converted into a fixed number of the issuer's shares. It offers downside protection from the bond and upside participation from the equity.

Modified duration

A measure of a bond's price sensitivity to yield changes. Approximate percentage price change equals minus modified duration times the change in yield.

Credit spread

The yield difference between a corporate bond and a comparable government bond. Widening spreads indicate rising perceived credit risk or deteriorating market conditions.

Inverted yield curve

A curve in which short-term yields exceed long-term yields. It often reflects expectations of falling rates or weaker future economic growth.

Money market instruments

Short-term, highly liquid debt such as treasury bills, commercial paper, and certificates of deposit, typically maturing within one year and carrying low credit risk.

Net asset value

Total fund assets minus total liabilities, divided by units outstanding. Open-ended funds typically trade at NAV on each dealing day.

Open-ended fund

A pooled fund that issues and redeems units on demand at net asset value, so the number of units changes with investor flows.

Ongoing charges figure

An annual measure of a fund's operating costs, including management fees, expressed as a percentage of assets. It excludes one-off entry and exit charges.

Exchange-traded fund

A pooled fund whose shares trade intraday on an exchange. It tracks an index or basket, generally at low cost, and may trade near net asset value.

Option premium

The price an option buyer pays the writer for the right to exercise. It consists of intrinsic value plus time value, which decays as expiry approaches.

Put-call parity

For European options, call minus put equals the underlying price minus the present value of the strike. Violations permit arbitrage.

Futures contract

A standardized, exchange-traded agreement to buy or sell an asset at a set future date, marked to market daily with margin requirements and clearinghouse guarantee.

Capital-protected note

A structured product combining a deposit or bond with a derivative. It returns principal at maturity while offering limited upside linked to an underlying asset.

Portfolio beta

The weighted average of constituent betas, measuring the portfolio's sensitivity to market movements. A beta above one implies greater volatility than the market.

Sharpe ratio

Excess return above the risk-free rate divided by standard deviation. It measures return earned per unit of total risk taken.

Strategic asset allocation

Long-term target weights across asset classes set from the client's objectives, time horizon, and risk tolerance, then maintained through periodic rebalancing.

Diversification

Spreading investments across assets with imperfect correlation to reduce specific risk. It cannot remove systematic market risk, which affects all securities.

Suitability assessment

The process of matching a recommendation to a client's objectives, time horizon, risk tolerance, financial situation, knowledge, and experience before advising.

Risk tolerance

The degree of investment loss a client is willing and financially able to bear. The binding constraint is the lower of willingness and ability.

Know-your-client

The process of collecting and verifying a client's identity, financial circumstances, objectives, and experience, and updating it when circumstances change.

Inside information

Non-public information that, if disclosed, would likely materially affect a security's price. Trading or tipping on it is prohibited.

Suspicious activity report

A confidential filing to the financial intelligence unit when a firm suspects money laundering or terrorist financing. Tipping off the client is prohibited.