CISI Introduction to Securities and Investment key terms

The UK regulator responsible for conduct supervision of financial firms and for prudential regulation of firms not supervised by the Prudential Regulation Authority, working within statutory objectives such as consumer protection and market integrity.

The Bank of England subsidiary that supervises the safety and soundness of banks, insurers and major investment firms, focusing on the harm a firm's failure could cause to the wider financial system.

EU legislation, applied in the UK through domestic rules, governing how investment firms are authorised, how client orders are executed and reported, and what information must be disclosed to clients before and after transactions.

Rules prohibiting insider dealing, unlawful disclosure of inside information and market manipulation, and requiring issuers to disclose inside information to the market as soon as possible.

Precise, non-public information relating directly or indirectly to one or more issuers or instruments that, if made public, would likely significantly affect the price of those instruments.

Trading, or encouraging another person to trade, on the basis of inside information, or disclosing such information outside the proper course of employment, business or duties.

The process of identifying a client, verifying identity using reliable independent evidence, and understanding the client's circumstances and expected activity before a business relationship begins.

The framework of law, regulation and firm procedures designed to detect, prevent and report the processing of criminal proceeds through the financial system, including monitoring and staff training obligations.

Ongoing checks a firm performs on a client, covering identification, beneficial ownership, source of funds and source of wealth, refreshed when risk changes or at set intervals.

A conduct principle requiring firms to deliver specified outcomes for retail customers, including fair treatment throughout the product lifecycle and clear communication rather than mere technical compliance.

A UK conduct standard requiring firms to act to deliver good outcomes for retail customers across four areas: products and services, price and value, consumer understanding, and consumer support.

The total market value of goods and services produced within a country over a period, used as the main measure of economic activity and of whether an economy is growing or contracting.

A sustained rise in the general level of prices, reducing the purchasing power of money and typically measured by changes in a consumer price index over twelve months.

The cost of borrowing or the reward for lending money, usually expressed as a percentage per year, and a primary tool central banks use to influence spending and inflation.

Central bank actions, chiefly setting the policy interest rate and adjusting asset purchases, aimed at controlling inflation and supporting stable economic growth.

A central bank policy of creating money to buy financial assets, such as government bonds, in order to lower longer-term yields and stimulate demand when interest rates are already low.

Government decisions on taxation and public spending used to influence demand, redistribute income and manage the public finances, distinct from central bank monetary policy.

A significant decline in economic activity, commonly defined in the UK as two consecutive quarters of negative growth in gross domestic product.

A graph plotting bond yields against maturity for a single issuer or market; its shape, whether upward sloping, flat or inverted, signals expectations for rates and growth.

A unit of ownership in a company that typically carries voting rights and a residual claim on profits and assets after all other obligations are met.

A class of share usually paying a fixed dividend ahead of ordinary shares and ranking higher on winding up, but normally carrying limited or no voting rights.

A distribution of company profits to shareholders, commonly paid in cash, declared by the board and often expressed as an amount per share.

Earnings per share divided by dividend per share, showing how many times profits could pay the current dividend; a low figure suggests the payout may be at risk.

The annual dividend per share divided by the share price, expressed as a percentage, showing the income return a buyer would receive at the current price.

A share's market price divided by its earnings per share, indicating how many years of current earnings the market is paying for and allowing comparison between companies.

A company's profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue, a key measure of profitability per unit of ownership.

The difference between the price at which a market maker buys (bid) and sells (offer) a security; it represents a trading cost to the investor and widens when liquidity is poor.

A bond issued by the UK government to borrow money, paying a fixed or index-linked coupon and redeemed at nominal value on a stated maturity date.

The fixed or index-linked interest payment on a bond, usually expressed as an annual percentage of the bond's nominal value and paid in set instalments.

The total annualised return from holding a bond to redemption, accounting for the purchase price, coupon payments and any capital gain or loss on maturity.

A bond's quoted price excluding accrued interest since the last coupon date; the buyer actually pays the clean price plus accrued interest, known as the dirty price.

An independent agency's opinion of an issuer's ability and willingness to meet debt obligations, expressed on a letter scale and used to gauge default risk.

A credit rating at or above the threshold denoting relatively low default risk, commonly BBB- or Baa3 and above; below this, bonds are classed as high yield.

The extra yield a corporate or other non-government bond offers over a comparable government bond, reflecting perceived credit risk and market liquidity.

An exchange-traded contract obliging both parties to buy or sell a standardised asset at a set price on a future date, settled through a clearing house.

A contract giving the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying asset at a stated price on or before expiry, in return for a premium.

The price paid by an option buyer to the seller for the rights granted by the contract; it is the buyer's maximum loss and the seller's initial income.

Cash or collateral a party to a derivative must deposit and maintain to cover potential losses, with variation margin settled as market prices move.

Using borrowed money, or a derivative with a small upfront outlay, to gain exposure larger than the capital committed, which magnifies both gains and losses.

A UK collective investment vehicle structured as a company whose share price is based on the value of its underlying assets, with investors able to buy and sell on most dealing days.

A UK collective scheme structured as a trust in which investors hold units; the manager creates and cancels units at prices based on the scheme's underlying asset value.

The total value of a fund's assets less its liabilities, divided by the number of shares or units in issue to give a per-unit valuation.

A fund whose shares trade on an exchange throughout the day, typically tracking an index, combining intraday dealing with the diversification of a collective investment.

A pooled vehicle, usually open only to professional or high-net-worth investors, that uses flexible strategies such as short selling and leverage and often charges performance fees.

A client's willingness and financial ability to accept fluctuations in the value of investments, established through fact-finding and used to set a suitable asset allocation.

The division of a portfolio among asset classes such as cash, bonds, equities and property, which largely determines the portfolio's expected return and volatility.

Spreading investments across assets, sectors and regions so that poor performance in one holding has a smaller effect on the overall portfolio.

Investment return after subtracting inflation, showing the change in purchasing power; a nominal gain below the inflation rate is a real loss.

The overall gain from an investment including both income received and capital growth, usually expressed as a percentage of the amount invested.

The requirement that a recommendation or discretionary decision matches a client's objectives, financial situation, knowledge, experience and attitude to risk, based on adequate information.

A check, used for non-advised sales of certain complex products, of whether a client has the knowledge and experience to understand the risks involved.

A firm's duty to take all sufficient steps to obtain the best possible result for clients when executing orders, considering price, cost, speed, likelihood of execution and settlement.

A client whose personal circumstances, such as health, bereavement, low financial resilience or limited understanding, make them especially susceptible to detriment and needing adjusted support.

Situations where a firm's or employee's own interests, or duties to another client, could improperly influence decisions taken for a client; these must be identified and managed or disclosed.

A fee, commission or non-monetary benefit paid or received in connection with an investment service, which is generally restricted unless it enhances the service and is disclosed to the client.

A firm that continuously quotes prices at which it will buy and sell a security, providing liquidity and earning the spread between its bid and offer.

The ease and speed with which an asset can be bought or sold in size without materially moving its price; illiquid assets typically trade at wider spreads.