ACI Diploma key terms

Trading or tipping others to trade in securities while in possession of material, non-public information about the issuer or instrument. It undermines market fairness and is a criminal offence in most jurisdictions.

Conduct that damages market integrity, including insider dealing, unlawful disclosure of inside information and market manipulation. Regulators police it through surveillance, investigation and sanctions.

Actions intended to distort the price or supply of a financial instrument, such as wash trades, spoofing or disseminating false information. It misleads investors and breaches market conduct rules.

Placing orders with no intention of executing them in order to create a false impression of supply or demand, then cancelling before execution. It is a form of market manipulation.

Entering multiple non-genuine orders at different price levels to create apparent depth, often to help a genuine order trade at a better price. Regulators treat it as manipulative conduct.

A transaction in which buyer and seller act in concert, so no genuine change in ownership occurs. It can create misleading volume or price signals and is prohibited in most markets.

An internal information barrier separating teams that hold confidential client or deal information from those who trade or advise. It prevents conflicts of interest and the improper flow of inside information.

Situations where personal, team or firm interests could improperly influence decisions taken for a client or for the market. Firms must identify, disclose and manage them through policy and controls.

Information that a reasonable investor would likely consider important when deciding whether to buy or sell an instrument. It is the trigger for disclosure obligations and insider-dealing rules.

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

The process of identifying clients and verifying identity, business nature and source of funds before providing services. It underpins anti-money-laundering controls and client due diligence.

Laws, rules and procedures designed to detect and prevent the disguise of proceeds of crime as legitimate assets. Firms must monitor transactions, keep records and report suspicious activity.

A confidential filing made to the financial intelligence unit when a firm suspects money laundering, terrorist financing or other criminal conduct. Tipping off the client about the report is prohibited.

The requirement to ensure a product or recommendation fits a client's objectives, risk tolerance, knowledge, experience and financial situation. It protects clients from inappropriate sales or advice.

Ongoing checks on a client's identity, ownership, source of wealth and risk profile, refreshed at intervals or on trigger events. It is a core control against financial crime and mis-selling.

Trading ahead of a known client or firm order to profit from the expected price impact. It misuses confidential order information and breaches conduct and fiduciary standards.

A debt security in which the issuer borrows capital from investors and promises periodic interest and repayment of principal at maturity. Bonds vary by issuer, coupon, maturity and seniority.

The interest rate paid by a bond issuer to holders, expressed as a percentage of nominal value and usually paid annually or semi-annually. It may be fixed, floating or zero.

The total return an investor earns by holding a bond to maturity, assuming all coupons are reinvested at that same rate. It links the bond's price, coupon and remaining cash flows.

A measure of a bond's price sensitivity to changes in interest rates, expressed in years. Modified duration estimates the percentage price change for a one percentage point yield move.

The yield difference between a corporate or other non-government bond and a comparable government bond. It reflects perceived credit risk, liquidity and market conditions.

A financial contract whose value depends on an underlying asset, rate, index or event. Common forms are futures, forwards, options and swaps, used for hedging or speculation.

A standardised, exchange-traded agreement to buy or sell an asset at a set price on a future date. Positions are marked to market daily and settled through a clearing house.

A contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price before or on a set date. The buyer pays a premium.

An over-the-counter agreement to exchange cash flows or other financial variables between two parties over a set period. Interest rate and currency swaps are the most common types.

The price paid by an option buyer to the seller for the rights conveyed by the contract. It reflects intrinsic value, time value, volatility and prevailing interest rates.

The degree to which the price of an instrument or market fluctuates over time, often measured by standard deviation of returns. It drives option pricing and risk limits.

The potential loss from adverse movements in exchange rates affecting assets, liabilities, income or cash flows denominated in another currency. It is managed by hedging or matching exposures.

Taking an offsetting position or contract to reduce exposure to price, rate or currency movements. It aims to stabilise outcomes rather than generate profit.

The risk that a hedge and the exposure it protects do not move perfectly together, leaving residual loss. It arises from mismatches in timing, location, quality or instrument.

Simultaneously buying and selling related instruments or assets to profit from price differences. True risk-free arbitrage is rare; most strategies carry execution or model risk.

The risk that a position cannot be sold quickly at or near its fair value, or that funding cannot be obtained when needed. It can amplify losses in stressed markets.

The risk of loss from movements in market prices, interest rates, exchange rates or volatility. It is measured and limited through position limits, stress testing and value at risk.

The risk that a borrower or counterparty fails to meet its obligations in full or on time. It is assessed through ratings, credit analysis and collateral arrangements.

The risk that the other party to a derivative or securities transaction defaults before final settlement. It is managed by clearing, collateral and credit limits.

A statistical estimate of the maximum expected loss on a portfolio over a given horizon at a stated confidence level. It is widely used but can understate tail risk.

Analysing how a portfolio or firm would perform under severe but plausible adverse scenarios. It complements statistical measures such as value at risk by exploring tail outcomes.

Cash or collateral posted to support a trading position or derivative contract. Initial margin covers potential future exposure; variation margin settles daily mark-to-market moves.

Assets pledged to secure an obligation, which the lender may seize if the borrower defaults. Haircuts are applied to reflect the asset's price volatility and liquidity.

An entity that stands between trade counterparties, guaranteeing performance and managing settlement. It reduces counterparty risk through novation, margining and default funds.