JP Morgan Jargon Buster

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Jargon Buster A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A Accretion/Dilution Analysis that determines the change in a company's projected EPS due to a potential M&A or capital markets transaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive" when there is a negative change. Accrued interest The interest earned on a loan or note between two interest payment dates. Acquisition The act of one corporation acquiring control of another corporation or asset. Agent The bank responsible for administering a project's financing. American Depositary Receipt (ADR) A certificate of ownership issued by a U.S. bank representing a claim on underlying foreign securities. ADRs may be traded in lieu of trading in the actual underlying shares. American Stock Exchange (AMEX) The second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE). In general, the listing rules are a little more lenient than those of the NYSE, and thus the AMEX has a larger representation of stocks and bonds issued by smaller companies than the NYSE. Amortization Writing off an intangible asset investment over the projected life of the assets. Also the spreading out of intangible costs over several years, such as amortization of stock option expense. Analyst Entry level position typically filled by graduates or lateral hires in a U.S. investment bank. Usually 2-3 years until promotion to Associate. Arbitrage Buying securities in one country/market and selling them in another. Arrangement fee A fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction. It includes fees to be 1/19/2011 J.P. Morgan | Jargon Buster careers.jpmorgan.com/…/jargonbuster 1/24

Transcript of JP Morgan Jargon Buster

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Jargon BusterA B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Accretion/DilutionAnalysis that determines the change in a company's projected EPS due to a potential M&A or capital marketstransaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive" when there is anegative change.

Accrued interestThe interest earned on a loan or note between two interest payment dates.

AcquisitionThe act of one corporation acquiring control of another corporation or asset.

AgentThe bank responsible for administering a project's financing.

American Depositary Receipt (ADR)A certificate of ownership issued by a U.S. bank representing a claim on underlying foreign securities. ADRs may betraded in lieu of trading in the actual underlying shares.

American Stock Exchange (AMEX)The second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE). In general, the listingrules are a little more lenient than those of the NYSE, and thus the AMEX has a larger representation of stocks andbonds issued by smaller companies than the NYSE.

AmortizationWriting off an intangible asset investment over the projected life of the assets. Also the spreading out of intangiblecosts over several years, such as amortization of stock option expense.

AnalystEntry level position typically filled by graduates or lateral hires in a U.S. investment bank. Usually 2-3 years untilpromotion to Associate.

ArbitrageBuying securities in one country/market and selling them in another.

Arrangement feeA fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction. It includes fees to be

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paid to participating banks.

ArrangerA bank or other financial institution responsible for originating and syndicating a loan transaction. The arranger alwayshas a senior role, is often the agent, and usually participates in the transaction at the most senior level (it holds thelargest share of the loan).

Asset allocationThe relative weightings of regions, sectors and types of investments (i.e. equities, bonds, etc) within a portfolio,determined by client's risk and return requirements and the market outlook. This is central to financial planning andinvestment management.

Asset class breakdown

Percentage of holdings in different types of investments (i.e. large stocks, international, bond, etc.).

Asset swapThe bond's swapped spread, in basis points. The asset swap spread, or gross spread, is derived by valuing a bond'scash flows via the swap curve's implied zero rates. This gross spread is the basis point amount added to the swapcurve, which causes a bond's computed value to equal the market price of the bond.

AssociatePosition above an Analyst and below a Vice President. Typically filled by Analysts promoted after 2-3 years ofexperience, lateral hires or MBA graduates.

AuditProfessional examination and verification of a company's accounting data.

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B

Balloon paymentA final debt repayment that is substantially larger than the preceeding repayments.

Bank syndicateA group of banks that have been banded together to underwrite and sell a specific issue of securities.

Base currency

The first currency quoted in a currency pair on the Foreign Exchange.

Basis pointA unit that is equal to a hundredth of a percent, a basis point is used to denote the change in a financial instrument.

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It's commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

BearAn investor who believes a market will fall.

Bear marketA market in which traders and investors are feeling negative and prices are falling or static.

Beauty contestThe informal term for the competitive process by which clients choose an investment bank to mandate for a deal.

Benchmark index

An index that correlates with a fund, used to measure a fund manager's performance.

Best effortsTerm used by banks in selling an entire new security issue by a certain date. They agree to make their best effort tosell an issue to the public. Instead of actually buying and reselling the issue (that would be called an underwrite), thebanks leave the risk with the issuer by maintaining an option to buy and the authority to sell.

BetaMathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared with rates of returnon the market (a diversified portfolio) as a whole. A beta of 1.0 indicates that an asset closely follows the market; abeta greater (smaller) than 1.0 indicates greater (less) volatility than the market. Hence, beta is a measure of risk: thehigher the beta, the higher the risk.

Bill of ExchangeA bill made out by one party addressed to another requiring the addressee to pay a fixed sum of money by a certaindate. The bill is then traded on the money markets.

Bid

The price at which a market maker is willing to pay for a security.

Bid Offer

Bid Offer is the difference in price or spread between where one can buy a currency and one can sell it at the samemoment.

Big Figure

The whole dollar price of a quote often used to reference foreign currencies. For example, if a foreign currency(EUR/USD) was trading at 1.5520, the big figure would be 1.55.

BloombergComputer terminals providing real time quotes, news and analytical tools, often used by traders and investment

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bankers.

BondsA long-term loan certificate issued by governments and organizations in order to raise capital. The capital is repaidwith interest. A bond issued by a foreign institution is known as a bulldog in the UK, a yankee in the USA, a samuraibond in Japan and so on.

Book runnerThe bank that extends invitations for syndication and is responsible for determining the composition of the lendinggroup and the final hold positions.

Book valueThe net-asset value of a company as determined by subtracting its liabilities from its assets.

Brady bondsBonds issued by developing countries under a debt-reduction plan.

Bridge financingInterim or temporary financing.

BrokerSomeone who earns commission for providing the link between buyers and sellers.

Bulge bracketThe largest and most prestigious firms on Wall Street.

BullAn investor who believes the market will go up.

Bull marketA market in which traders and investors are feeling positive and in which prices are rising.

Buy-side

1. Investor end of a capital markets transaction.2. M&A process when J.P. Morgan is working with a potential buyer.

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C

CalendarizationAct of adjusting company financials to a December 31 year-end in order to standardize financial performance acrosscompanies with different fiscal years.

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Call optionThe right to buy shares at an agreed price at a future date (see put option).

CapitalMoney put into a business by its shareholders.

Capital Asset Pricing Model (CAPM)An economic model for valuing stocks by relating risk and expected return. Based on the idea that investors demandadditional expected return (called the risk premium) if they are asked to accept additional risk.

Capital expendituresMoney spent to acquire or upgrade physical assets such as buildings and machinery. Also called capital spending orcapital expense.

Capital gainThe amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is aninvestment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet butwould result in a profit if sold. Capital gain is often used to mean realized capital gain.

Capital marketsAt J.P. Morgan, our capital markets teams are Equity Capital Markets and Debt Capital Markets. They're a part of ourCorporate Finance business and are responsible for issuing new securities.

Capitalization1. The sum of a corporation's long-term debt, stock and retained earnings. Also called Invested Capital.2. The market price of an entire company, calculated by multiplying the number of shares outstanding by the priceper share. Also called Market Cap or Market Capitalization.

CEOChief Executive Officer.

Certificate of Deposit (CD)A certificate given by a bank to a depositor that can be traded on the money market. The depositor is able to get highlevels of interest by putting their money in the bank for a fixed term but can sell the CD to someone else to get theircapital back at short notice.

CFAChartered Financial Analyst qualification. This is the industry qualification for research Analysts on the buy side(markets) and Analysts and fund managers on the sell side (investment management and private banking).

CFOChief Financial Officer.

Chinese wallThe physical and regulatory separation between the public and "inside" areas of a bank.

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ClearingThe process of matching, guaranteeing and registering transactions.

Clearing houseAn institution that practices clearing, which significantly reduces the number of inter-bank payments.

Closing PositionA traders position at the end of the trading day. Equal to the Opening Position plus or minus any trades done on thattrading day.

ClubA group of underwriters who do not need to proceed to syndication as part of fund-raising.

CollateralAssets pledged as security under a loan to assure repayment of debt obligations.

Collateralized Bond Obligation (CBO)Securities issued against a portfolio of bonds with different degrees of credit quality.

Collateralized Loan Obligation (CLO)Securities issued against a portfolio of loans with different degrees of credit quality.

Commercial Paper (CP)Short term debt obligations issued by corporations and bought by money market funds in large quantities. Maturitiesrange from several days to 9 months.

Commitment FeeA per annum fee applied to undisbursed balances that lenders are committed to lend. The fee is charged until the endof the availability period.

CommoditiesPhysical items such as oil, gold or grain. Commodities are traded for spot (trade date plus two business days) andalso for future delivery. There also exist options to buy and sell commodities.

Common StockAlso called common equity, common stock represents an ownership interest in a company (as opposed to preferredstock). The vast majority of stock traded in the markets today is common, as common stock enables investors tovote on company matters. An individual with 51% or more of shares owned controls a company's decisions and canappoint anyone he/she wishes to the board of directors and/or to the management team.

Compound Annual Growth Rate (CAGR)The year over year growth rate applied to an investment or other part of a company's activities over a multiple-yearperiod. The formula for calculating CAGR is (Current Value/Base Value) (̂1/# of years) - 1.

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Comps or ComparablesAnalysis that uses ratios to compare company trading performance (trading comps) or previous M&A and capitalmarket transactions (transaction comps). Often used as part of a valuation analysis.

Conditions Precedent (CPs)A set of preconditions that must be satisfied before the borrower can request drawdown or other credit facilities bemade available under a lending agreement.

Convertible bondA bond that can be converted into shares in a company at a certain conversion price. Because convertible bondsprovide the option of converting debt into equity, their coupon rates are typically low.

ConvexityThe rate of change of duration as yields change. A security exhibits positive convexity when its price rises more for adownward move in its yield than its price declines for an equal upward move in its yield.

COOChief Operating Officer.

Cost of capitalThe opportunity cost of an investment. This is, the rate of return that a company would otherwise be able to earn atthe same risk level as the investment that has been selected. For example, when an investor purchases stock in acompany, he/she expects to see a return on that investment. Since the individual expects to get back more thanhis/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that thecompany misses out on by selling its stock.

Cost of carryThe cost of carry specifies the cost involved of carrying a security (i.e. bond) on the balance sheet. The cost of carryis calculated as difference between interest income (income generated by the security, e.g. coupon payment) and thecost of financing the purchase of the security (e.g. Libor).

CouponThe interest payment on a bond.

CovenantAn agreement by a borrower to undertake (a positive covenant) or not to undertake (a negative covenant) a specificaction. Breaching a covenant is considered an event of default.

Coverage ratioA measure of a corporation's ability to meet a particular expense.

Credit and RatesLoans and the interest charged on the loan.

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Credit Default Swap (CDS)A credit derivative transaction in which two parties enter into an agreement, whereby one party pays the other a fixedperiodic coupon for the specified life of the agreement. The other party makes no payment unless a credit event,relating to a predetermined reference asset, occurs. If such an event occurs, the party will then make a payment tothe first party, and the swap will terminate. The size of the payment is usually linked to the decline in the referenceasset's market value following the determination of the occurrence of a credit event. Thus it is a type of insurance. Ifyou go long CDS, you are a protection buyer and have to pay the premium (e.g. 100bp on notional) up-front to thecounterparty. In case of a credit event, leading to the default of the underlying security, the swap counterpartycompensates you for your losses and you are protected. The higher the risk, the higher the CDS level, the higher the"insurance" premium.

Cross-over tradingOffsetting buy and sell orders without recording the transaction on the exchange. This is prohibited as it may meanthe investor does not get the best price for the transaction.

Currency pair

The quotation and pricing structure of currencies traded on the Foreign Exchange (FX) market.

CustodianA bank or institution that holds securities for safe-keeping and handles administrative arrangements such ascollecting coupons and dividends.

CustodyThe retention of assets (e.g. stock certificates) on behalf of mutual funds, individuals and corporate clients. Thisinvovles lending of securities, collecting income, and the information of positions, and reporting this to clients.

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D

D&AAcronym for Depreciation & Amortization. Often combined into a single line item on financial statements due tothe non-cash nature of both items.

Data RoomCollection of documents (physical or virtual) used for due diligence surrounding potential M&A and capital marketstransactions.

DCMAcronym for Debt Capital Markets - the area of an investment bank responsible for the issuance and pricing of bondsand other debt securities.

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DebentureA debt obligation secured by the borrower's general credit rather than being backed by a specific line on property. Inother words, the debt obligation is not collateralized.

DebtMoney owed to creditors or lenders or buyers of debt securities.

Debt CapacityThe total amount of debt a company can prudently support given its earnings expectations, equity base, and assetliquidation value.

Debt Capital MarketsMarkets where capital funds (i.e. debt) are traded. This includes private placement as well as organized markets andexchanges.

DeliveryThe settlement of a futures contract.

Depreciation

1. A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence.Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end oftheir useful life is reached. Because it is a non-cash expense, depreciation lowers the company's reportedearnings while increasing free cash flow.

2. A decline in the value of a given currency in comparison with other currencies.

DerivativeAn instrument whose market price depends on the value of an underlying security such as a share or a bond. Aderivatives market is a market in which derivative securities are traded.

DerivativesCollective noun for financial contracts between buyers and sellers of commodities and capital. Includes futures,options and swaps.

Discount RateThe interest rate used in discounting future cash flows. Often determined using CAPM (see Capital Asset PriceModel) analysis, its intended to approximate the level of risk to the cash flows.

Discounted Cash Flow (DCF)A common means of valuing companies. This is done by forecasting the cash flows expected from a company in thefuture and discounting them back to today.

DivestitureWhen a company sells off a subsidiary or assets of the business to a buyer which acquires the subsidiary or assets.This differs from a spin-off arrangement under which a company establishes a subsidiary as a new and separatebusiness and distributes shares in the new company to its shareholders.

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DividendA payment by a company to shareholders of its stock, usually as a way to distribute profits to shareholders.

Dow Jones Industrial Average (DJIA)Price-weighted average of 30 actively traded shares of blue-chip US industrial corporations listed on the New YorkStock Exchange.

DurationA weighted average maturity of all future cash flows of a bond. In more practical terms when trading bonds, duration isused as a measure of a bond's sensitivity to changes in interest rates/yields (i.e. a bond's price volatility).

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E

EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operatingcash flow based on data from the company's income statement.

ECMAcronym for Equity Capital Markets - the area of an investment bank responsible for structuring and pricing the saleof equity.

EDSee Executive Director

Emerging marketsDeveloping countries with fledgling capital markets. Banks make loans to emerging markets nations and also assistthem in issuing bonds and other debt securities.

Enterprise valueA measure of what the market believes a company's ongoing operations are worth. Enterprise value is equal to thecompany's market capitalization minue cash and cash equivalents plus preferred stock plus debt and plus minorityinterest. The number is of importance both to individual investors and potential acquirers considering a takeoverattempt.

EPSAcronym for Earnings Per Share. Total earnings divided by the number of shares outstanding. Companies often use aweighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year ("trailingEPS"), for the current year ("current EPS"), or for the coming year ("forward EPS").

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EquitiesShares - certificates that represent a part ownership in a corporation.

EquityThe risk-sharing part of capital.

Equity Capital MarketsMarkets where capital funds (i.e. equity). This includes private placement as well as organized markets andexchanges.

Equity Default SwapsEquity Default Swaps are contracts structured to provide the buyer with protection (typically for five years) against asevere decline in the price of a company's stock.

EurobondA bond issued in the Euromarket.

EurocurrencyA currency held outside its country of origin, traded in the Euromarket.

EurodollarU.S. Dollars deposited in foreign banks or foreign branches of U.S. banks.

EuromarketThe offshore international financial market.

Exchange-traded fund (ETF)

An index fund which is traded on the stock market.

Executive Director (ED)Title given by the Investment Bank when promoted from Vice President.

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F

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Face amountThe quantity purchased. Also called notional.

Fairness OpinionThe professional opinion of an investment bank, provided for a fee, regarding the fairness of a price offered in a mergeror takeover.

Fallen AngelA bond which was investment-grade when issued, but which is now of significantly lower quality.

Fed (The)The Federal Reserve, which manages the country's economy by setting interest rates.

Financial instrumentsCollective noun for established financial contracts (securities and derivatives).

Fixed IncomeDebt securities or bonds.

FloatThe number of shares available for trade in the market times the price. Generally speaking, the bigger the float, thegreater the stock's liquidity.

Floating rateAn interest rate that is benchmarked to other rates (such as the rate paid on U.S. Treasuries) that allows the interestrate to change with market conditions.

FOREX or FXThe Foreign Exchange Market. This market deals in foreign currency, specifically the exchange of one currency foranother. In global markets, the underlying reference currency is generally the US Dollar, but "crosses" may be tradedwith different currencies.

Form 10KAudited document required by the SEC and sent to a public company's or mutual fund's shareholders at the end ofeach fiscal year, reporting the financial results for the year (including the balance sheet, income statement, cash flowstatement and description of company operations).

Form 10QUnaudited document required by the SEC for all U.S. public companies, reporting the financial results for the quarterand noting any significant changes or events in the quarter. The Form 10Q contains financial statements, adiscussion from the management, and a list of "material events" that have occurred with the company (such as astock split or acquisition).

Form 8KA document required by the SEC to announce certain significant changes in a public company, such as a merger or

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acquisition, a name or address change, bankruptcy, change of auditors, or any other information which a potentialinvestor should know about.

Free Cash FlowOperating cash flow (net income plus amortization and depreciation less increases in net working capital) minuscapital expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it haspaid all of its expenses, including investments. Future free cash flows are the discounted cash flows in a DCF (seeDiscounted Cash Flow) valuation.

FutureThe right and the obligation to enter into a security transaction at a date in the future and at a price fixed now.

Futures contractA contractual agreement transacted through an organized exchange to buy or sell a security or commodity at anagreed price for delivery at some data in the future. Futures contracts can be freely traded on the exchange. Somecontracts such as index futures are cash settled and no actual physical delivery takes place.

FTSE

The Financial Times Stock Exchange 100 stock index, a market cap weighted index of stocks traded on the LondonStock Exchange.

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G

Global CustodyRetention of client's assets for worldwide firms. Their assets can be monitored regardless of currency andgeographical location.

GoodwillAn intangible asset which provides a competitive advantage, such as a strong brand, reputation, or high employeemorale. In an acquisition, goodwill appears on the balance sheet of the acquirer in the amount by which the purchaseprice exceeds the net tangible assets of the acquired company.

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H

Hedge

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Holding two contrary positions in two or more financial instruments in order to offset a loss in one by a gain in theother.

HedgingA strategy that eliminates a risk through the post sale of the risk or through a transaction in an instrument thatrepresents an obligation to sell the risk in the future. The goal is to ensure that any profit or loss on the current sale orpurchase will be offset by the loss or profit on the future purchase or sale.

High GradeDescribes bonds rated "AAA" or "AA" by Moody's or Standards & Poor's rating services.

High YieldDescription of investments with high rates of return. Generally, a high yield bond will be ranked very low by a ratingagency, because these are bonds which have a relatively high chance of default, and therefore have to offer higherreturns.

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I

Index fund

An index fund is a mutual fund that mirrors as closely as possible the performance of a stock market index. Forexample, many mutual fund companies have since established S&P 500 index funds to mirror that index bypurchasing all 500 stocks in the same percentages as the index.

Information Memorandum (IM)A document that describes a potential M&A or capital markets transaction (including project descriptions andfinancing details). It is used during the marketing and due diligence phase of a transaction and is also referred to asOffering Memorandum (OM) and Descriptive Memorandum (DM).

Institutional clientsOrganizations with large amounts of assets, who together make up well over half of the assets traded in the stockmarkets. Examples include: governments, banks, insurance companies, central banks, and pension funds.

Intangible AssetSomething of value that cannot be physically touched, such as a brand, franchise, trademark, or patent. Goodwillcreated during an M&A transaction is an intangible asset.

Investment GradeAn investment rating level of "BBB" or better from Standard & Poor's Corporation, or "Baa3" or better from Moody'sCorporation.

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IPOInitial Public Offering - a company's first issuance of shares in the market.

IRRInternal Rate of Return. The rate of return that would make the present value of future cash flows plus the final marketvalue of an investment or business opportunity equal the current market price of the investment or opportunity. Usedas a measure of return on equity in an LBO scenario.

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J

Junk BondHigh risk, high yielding bonds.

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L

Last trading dayThe final day on which trading is allowed in a futures contract.

League tablesTables that rank investment banks based on underwriting volume in numerous categories, such as stocks, bonds,high yield debt, convertible debt, etc. High rankings in league tables are key selling points used by investment bankswhen trying to land a client engagement.

LeverageA company's debts relative to its equity capital. Usually expressed as a percentage.

Leveraged buy-out (LBO)Using debt in the form of junk bonds or bank loans to take over a company.

LIBORLondon Inter-bank Offered Rate. A widely used short-term interest rate. LIBOR represents the rate banks in Englandcharge one another on overnight loans or on loans of up to five years. LIBOR is often used by banks to quote floatingrate loan interest rates. Typically the benchmark LIBOR is the three-month rate.

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LienA legal security interest on property to secure the repayment of debt and the performance of related obligations.

LiquidityThe ease with which a financial asset can be exchanged for good without the holder incurring financial loss. Acurrency like sterling is liquid; a life-insurance policy is not.

Long

When you have bought securities you are said to be long of the market and hope that prices will rise.

Lot

A quantity of the financial instrument being traded determined by an exchange or regulatory body.

LTMAcronym for Last Twelve Months. Can be calculated for any income statement line item. LTM= Last full yearstatement - previous year quarter + current year quarter.

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M

M&AAcronym for Mergers and Acquisitions, also known as Advisory. This is the department of an investment bank whichprovides transaction advice and its execution to large corporatations.

Management fee

The annual fee charged to investors in a fund.

Managing DirectorTitle given by the Investment Bank when promoted from Executive Director.

Mandate

1. The portfolio given to investment managers by clients to be managed within their risk control requirements.2. A contract to work with a corporate client on an M&A or capital markets transaction.

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Market capitalizationThe value of shares in a public company at a certain point in time. This value is equivalent to the number of sharesissued multiplied by their current market price.

Market makerA firm or individual who sets a price at which they're willing to sell or buy stock, providing a stable price against whichto judge any rise or fall.

Material Adverse Change (MAC)Prior to closing, an event or occurrence that allows the lender to adjust the terms (i.e. rate) of a loan agreement. Afterclosing, a MAC is an event that gives lenders the right to refuse further drawings or to require immediate debtrepayment.

MDSee Managing Director.

Modified durationThe percentage price change of a security for a given change in yield. The higher the modified duration of a security,the higher its risk.

Moody'sOne of the most prominent credit rating agencies in the U.S.

MultiplesA typical valuation technique in corporate finance (see Price Earnings and Comps). What multiple is a company'smarket value of its earnings, employees, sales or other measure = trading multiple. What multiple of earnings,employees, sale or other measure was paid in a recent similar deal = transaction multiple.

Municipal bonds (Munis)Bonds issued by local and state governments (a.k.a. municipalities). Municipal bonds are structured as tax-free forthe investor, which means investors in muni's earn interest payments without having to pay federal taxes. Sometimesinvestors are exempt from state and local taxes, as well. Consequently, municipalities can pay lower interest rates onmuni bonds than other bonds of similar risk.

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N

NasdaqA computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid andask price quotes on over-the-counter stocks and some listed stocks. Unlike the Amex and the NYSE, the Nasdaq(once an acronym for the National Association of Securities Dealers Automated Quotation system) does not have a

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physical trading floor to bring together buyers and sellers.

National Association of Securities Dealers (NASD)A self-regulatory organization operating under the supervision of the SEC. Its purpose is to standardize practices,establish high ethical standards, and enforce fair and equitable rules.

Net asset value (NAV)

The total value of an ETF's (or mutual fund’s) portfolio at any given time - the sum of the value of its holdings less anyliabilities. Usually quoted on a per-share basis.

NYSENew York Stock Exchange. The oldest and largest stock exchange in the U.S., located on Wall Street in New YorkCity. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing thetransfer of member seats, and evaluating applicants.

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O

Offer

The price at which a market maker is willing to sell a security.

OPECOrganization of Petroleum Exporting Countries - an organization which tries to control the price and production of oil.

Opening Position

A trader’s position in each contract at the start of the trading day. Equal to the Closing Position from the previousday.

Option

The right, but not the obligation, to buy (a call option) or sell (a put option) a given stock, security or commodity at afixed price (known as the strike price or exercise price) on a specified date in the future (the expiry date). Includestraded options, currency options and interest rate options. Similar to a Future (see Future), however, the purchaserpays a premium to gain the option, rather than the obligation, to complete the contract.

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P

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PitchbookThe book of exhibits, graphs, and initial recommendations presented by bankers to a prospective client when trying toland an engagement or mandate.

PortfolioA collection of investments (can be shares, bonds, convertibles, cash, convertibles, derivatives, property, art, etc)held by an individual or institutional investor. The purpose of a portfolio is to reduce risk by diversifying investments(i.e. holding many and spreading out the risk.)

Position

A long position is the amount of a security owned by an individual or dealer. A short position is the amount of asecurity borrowed by an individual or dealer.

Premium

1. The price of an option determined by traders on the Exchange float.2. The difference between the issued price and market price of a new security if it rises in value immediately after

it is issued.

Price/earning ratioA figure indicating the investor confidence a company enjoys. This is calculated by the current share price divided bythe most recent figure for the earnings per share. Typically, the higher the figure, the more confident the investors.

Price spread

The difference between the "bid" and "ask" price on a stock or ETF.

PrincipalAn investor who buys or sells on their own account at their own risk as opposed to a broker acting on behalf ofsomeone else.

Private clientsPeople with significant personal assets (cash, company stock, art, shares) requiring professional investmentmanagement.

Private EquitySometimes known as merchant banking or venture capital. Investment in illiquid shares in new companies - high risk,high return.

Proprietary tradingTrading of the firm's own assets (as opposed to trading client assets).

Prospectus

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A report issued by a company (filed with and approved by the SEC) that wishes to sell securities to investors.Distributed to prospective investors, the prospectus discloses the company's financial position, business description,and risk factors.

Put optionThe right to sell shares at an agreed price on a future date (see call option.)

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Q

Quote

The most current price (and quantity) a buyer and seller agree to trade a security.

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R

Rating agencyA company that publishes ratings for securities such as preferred stock and debt issues based on the likelihood ofconsistent and timely payments. These rankings are arrived at by looking at a variety of balance sheet data. Somerating services are very influential, and an upgrade or downgrade can affect their borrowing costs significantly. Themajor US rating agencies are Moody's, S&P and Fitch.

Red herringAlso known as a preliminary prospectus. A financial report printed by the issuer of a security that can be used togenerate interest from prospective investors before the securities are legally available to be sold. Based on final SECcomments, the information reported in a red herring may change slightly by the time the securities are actuallyissued.

Reserve BankA country's lender of last resort.

Retail clientsIndividuals who buy investments on their own behalf, not for an organization. Typically these investments are muchsmaller than those by institutional clients and therefore fees are higher.

Return on equity (ROE)The ratio of a firm's profits to the value of its equity. Return on equity is a commonly used measure of how well aninvestment bank is doing because it measures how efficiently and profitably the firm is using its capital.

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Revolver or Revolving Credit LineAn agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again onceit has been repaid.

Rights issueSelling new shares to existing shareholders to raise capital.

Risk managementThe measurement of the possibility of losing or not gaining value.

RoadshowThe series of presentations to investors that a company undergoing an IPO usually gives in the weeks preceding theoffering. Here's how it works: several weeks before the IPO is issued, the company and its investment bank will travelto major cities throughout the country. In each city, the company's top executives make a presentation to analysts,mutual fund managers, and others attendees and also answer questions.

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S

S&P 500Standard & Poor's 500. A basket of 500 stocks that are considered to be widely held. The S&P 500 index is weightedby market value, and its performance is thought to be representative of the stock market as a whole.

SECAcronym for Securities and Exchange Commission. The U.S. government agency that supervises the exchange ofsecurities to protect investors against malpractice.

SecuritiesCollective noun for bonds and shares.

SecuritizationThe replacement of conventional ways of raising finance (e.g. loans) by instruments like Euronotes; the processwhereby untradable assets become tradable.

Sell side

1. Issuing end of a capital markets transaction.2. M&A process when J.P. Morgan is working with a potential seller.

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SharesA certificate issued by a company for general purchase entitling the holder to dividends from any profits the companymay make.

Short

When you have sold securities you are said to be short of the market and will benefit if prices fall.

Short squeezeA situation in which a lack of supply forces prices upwards.

Spot priceThe current value of an asset.

Spread

1. The difference between the price at which a financial institution will buy a security and the price at which it willsell.

2. The difference between the yield of a corporate bond and U.S. Treasury security of a similar maturity.

StockbrokerMember of the Stock Exchange advising those buying/selling securities.

StocksAlso known as equities or shares, stocks represent ownership of a corporation and claims to its assets and earnings.

SwapsA contract between two parties to make a cash flow exchange now or at a point in the future. The two borrowersagree to pay the interest on each other's debt; under a currency swap, they may also repay the capital.

SweepTypically a covenant that requires all or a specified fraction of available cash flow to be used for debt service, includingprepayments of principal.

Syndicated loanA loan which several banks have clubbed together to make.

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T

Tenor

The length of a deal. Or the time period over which money is borrowed or lent.

Tick

1 tick = 1 basis point.

Terminal valueThe value of any item at the end of a specified time period. Examples include the maturity value of a bond and thevalue of a fully depreciated asset.

TombstoneThe advertisements that appear in publications like Financial Times or The Wall Street Journal announcing theissuance of a new security. The tombstone ad is typically placed by the investment bank to publicize that it hascompleted a major deal.

Trading a 'book'An individual trader's total positions in the market bounded by specific risk limits.

TreasuryThe section of a bank or business involved in the financial management of the organization's liquidity through dealingand borrowing.

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U

UnderwritingThe function performed by investment banks when they help companies issue securities to investors. Technically, theinvestment bank buys the securities from the company and immediately resells the securities to investors for aslightly higher price, making money on the spread.

USPPAcronym for US Private Placement. A negotiated sale in which the securities are sold directly to institutional orprivate investors, rather than through a public offering. These placements are not registered with the Securities andExchange Commission.

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V

Vice President (VP)Title given when promoted from Associate. Usally after 2-5 years as an Associate.

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W

Weighted Average Cost of Capital (WACC)Weighted Average Cost of Capital. An average representing the expected return on all of a company's securities.Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then theserequired rates of return are weighted in proportion to the share each source of capital contributes to the company'scapital structure. The resulting rate is what the firm would use as a minimum for evaluating a capital project orinvestment.

Working CapitalWorking capital measures how much in liquid assets a company has available to build its business. This value,measured in liquid assets, is derived by subtracting a company’s current liabilities form their current assets.

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Y

YieldThe annual return on investment. A high yield bond, for example, pays a high rate of interest.

YTDAcronym for Year to Date.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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