CISI Financial Markets key terms

The part of the capital market where new securities are issued and sold for the first time, raising fresh money for the issuer rather than transferring ownership between investors.

A marketplace where already-issued securities are bought and sold between investors, providing liquidity and price discovery without raising new capital for the original issuer.

The first sale of a company's shares to the general public, typically on a recognised exchange, converting a privately held firm into a publicly traded one.

The ease and speed with which an asset can be bought or sold in size without materially moving its price, often measured by trading volume and bid-offer spreads.

A firm that continuously quotes both buying and selling prices for a security, standing ready to trade with others and thereby supplying liquidity to the market.

The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (offer), representing a transaction cost and a gauge of market liquidity.

A statistical measure that tracks the performance of a defined basket of securities, used as a benchmark for investment performance and as a basis for index-tracking products.

A reference standard, such as a market index or interest rate, against which the performance of a portfolio or the level of a variable rate is measured.

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 that usually pays a fixed dividend ahead of ordinary shareholders and ranks higher on winding up, but often carries limited or no voting rights.

A distribution of part of a company's profits to its shareholders, commonly paid in cash and declared at the discretion of the board, subject to available distributable reserves.

A ratio showing annual dividend income as a percentage of the share's current market price, used to compare the income return of different shares.

A valuation measure calculated by dividing a company's share price by its earnings per share, showing how much investors pay for each unit of current earnings.

A debt security through which an issuer borrows money from investors, promising to pay periodic interest and to repay the principal amount on a specified maturity date.

The fixed or variable interest payment an issuer of a bond promises to pay holders, usually expressed as an annual percentage of the bond's nominal value.

The total annualised return an investor would earn by holding a bond to maturity, assuming all coupon and principal payments are made on schedule and reinvested at that same rate.

An independent assessment, expressed as a letter grade, of a borrower's ability and willingness to meet its debt obligations on time and in full.

The risk that a borrower or counterparty fails to make scheduled interest or principal payments, or that its perceived ability to do so deteriorates.

A pooled investment vehicle in which many investors' money is combined and managed by a professional firm according to a defined investment policy, with investors holding units or shares.

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

A pooled investment product whose units or shares are listed and traded on an exchange throughout the day, typically tracking an index and offering low costs and intraday liquidity.

A financial contract whose value is derived from the price or performance of an underlying asset, rate, index or event, rather than from the instrument itself.

A standardised, exchange-traded agreement to buy or sell a specified quantity of an underlying asset at a fixed price on a future date, 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 stated price on or before a specified date, in return for a premium.

The price paid by an option buyer to the seller for granting the rights contained in the option contract, reflecting factors such as time to expiry and volatility.

A private agreement between two parties to exchange a series of cash flows over a set period, commonly used to exchange fixed and floating interest payments or different currencies.

A customised, privately negotiated agreement to buy or sell an asset at a set price on a future date, traded off-exchange and carrying counterparty risk.

Collateral that a party to a derivative or leveraged position must deposit or maintain with a broker or clearing house to cover potential losses on the position.

An entity that sits between counterparties to a trade, guaranteeing settlement and managing default risk through novation, margining and default funds.

The level of future price fluctuation in an underlying asset that the market price of an option implies, derived from an option pricing model rather than observed directly.

The price at which one currency can be exchanged for another for immediate or near-immediate delivery, typically settling within two business days.

An agreed rate at which one currency can be exchanged for another on a specified future date, reflecting the spot rate adjusted for the interest rate differential between the two currencies.

The global decentralised market in which currencies are bought and sold, operating continuously across time zones and dominated by over-the-counter trading between financial institutions.

A theory stating that the difference between forward and spot exchange rates for two currencies equals the difference between their interest rates, preventing riskless arbitrage.

The practice of simultaneously buying and selling related assets or contracts in different markets to profit from price differences, with little or no net market risk.

The risk that the other party to a financial transaction defaults or fails to fulfil its obligations before the contract is finally settled.

A formal disclosure document issued when securities are offered to the public, describing the issuer, the securities, the risks and the use of proceeds.

The unlawful trading of securities while in possession of material, non-public information about the issuer, or the improper disclosure of such information to others.

Improper conduct that undermines market integrity, including insider dealing, unlawful disclosure of inside information and manipulative trading or misleading behaviour.

The regulatory requirement for firms to collect and verify information about a client's identity, circumstances and objectives before providing services or advice.

The obligation on firms to ensure that any recommendation or transaction is appropriate for a client's financial situation, investment experience and stated objectives.

A widely used interest rate benchmark, such as an interbank offered rate or a central bank policy rate, to which the payments on floating-rate instruments are linked.