The possibility provided for in bond conditions for the bonds to be redeemed (repayment) before maturity. The trigger or call of the bonds is permitted at the earliest after five years. When a bond is called, instead of the repayment through installments, the securities issued are redeemed.
Term used in interbank trading besides time deposit. Call money refers to unsecured loans or overnight cash deposits. The reference rate is the EONIA (Euro Overnight Index Average). The amount is repaid the following day (overnight), including interest. Apart from call money, there are tomorrow/next day (T/N) transactions. Money dealers agree today that one counterparty will provide the other counterparty with a sum of money from tomorrow to the day after tomorrow. On the day after tomorrow, the capital including interest is returned to the lender. In the case of spot/next transactions (spot-against-next day), borrowers and lenders agree on a cash loan that is paid to the borrower with a value date of two business days and repaid to the lender on the following business day including interest.
This is a term used in option business. A call option entitles the buyer to buy a certain quantity of underlying assets (e.g. one share) at a pre-determined price up to or at a certain point in time. The counterparty in this contract, the seller of the call option, is called the "writer" of the option and, in the event of the option being exercised, has to have the agreed underlying assets available. In return, the call buyer pays the seller a premium. The buyer of a call option expects the price of the underlying asset to rise, whereas the seller of a call option expects falling or at least stagnating prices. In the latter case, it is unlikely that the counterparty will exercise the option, which means that the option writer can book the premium received as profit. Opposite: Put option.
A cap is an agreed maximum amount up to which the investor can profit from a rise in the price of an underlying asset. In the case of an interest rate cap, if the contractually agreed interest rate ceiling is exceeded on the interest determination date by a reference interest rate, the seller only has to pay the buyer the difference between the interest rate ceiling and the reference interest rate.
Means of raising company financing by increasing its share capital. For a stock corporation (Aktiengesellschaft) the following methods are possible: 1. capital increase through the issue of new shares (pre-emptive rights); 2. capital increase from retained earnings (bonus shares). Furthermore, another means of financing is through "conditional" capital, which involves the issue of bonds with share subscription rights or convertible rights (bonds with warrants, convertible bonds). There is also "authorized" capital, which is a kind of pre-approved capital, i.e. the management board is authorized in the articles of association to increase the share capital up to a certain amount by issuing new shares for contributions (in cash or in kind) without requiring a separate resolution of the general meeting.
Capital investment companies are credit institutions that manage investment funds (Sondervermögen) and provide specific financial services as defined in Germany's Investment Act (InvG). Their business operations focus on investing the money deposited with them in the company's own name for the joint account of the unit shareholders, separately from the company's own assets, in diversified securities and real estate investments. They also issue unit share certificates to investors on the basis of these rights.
Long-term debt and equity capital is negotiated on the capital markets. Privately owned companies and public sector institutions use the capital markets to raise a significant portion of the capital they need to finance their investments and other expenditures. Those seeking capital procure long-term money by taking out long-term loans and borrower's note loans with banks and by issuing bonds, stocks, debentures, bonds with warrants and convertible bonds. The trading of securities on an organized capital market is regulated by government authorities. The issuing of securities is approved by government regulators and checked by the banks involved. This is to ensure that the organized capital markets offer a sufficent guarantee for solid investing opportunities.
Benefit payments paid by employers under the tariff agreement or as a salary component which the employer invests on the employee's behalf in accordance with the provisions of the 3. and 5. Capital Formation Act. For this investment, employees within certain income limits receive a state benefit, the employee savings allowance. Forms of investment sponsored are investment saving, i.e. investments in equity funds and investments in the employer's company, as well as building saving.
Abbreviation of Central Application for Settlement, Clearing and Depositary Expansion. This is the securities clearing system of Clearstream Banking AG, Frankfurt (CBF). The system comprises order placement, matching, settlement services and regulation for securities and cash settlement of OTC business as well as Eurex surplus deliveries in collective custody. Regulation in securities and cash for trades in spot trading (XETRA, floor trading) is also possible in the system.
Cash flow is a key acounting figure giving insight into a company's ability to pay. It is calculated on the basis of net income plus depreciation and amortization, changes in long-term provisions and income taxes. Conclusions about a company's financing potential can be drawn from the size of its cash flow and its development over time. An important key figure in equity analysis is P/CFR (price / cash flow ratio).
The statement of cash flows calculates and presents a company's incoming and outgoing payments during a financial year from ongoing operating, investing and financing activities. It also provides a reconciliation of the cash balances at the beginning and end of the financial year. This information should provide an indication of the company's capacity to earn positive cash flows, repay its liabilities and disburse dividends.
Buy order contract concluded on the stock exchange. Its features are immediate and short-term payment and delivery (in Gemany, no later than the second day of trading).
The sum of all payment transactions performed in a given economic area without the use of cash. They take the form of book money dispositions on bank accounts by means of credit cards, cheques, remittances, debit transfers and bills of exchange. One method of making cashless payments is by electronic banking. In this context, the term "voucherless payments" is also used if no vouchers are raised in cashless payments.
Abbreviation of Composite DAX®. It comprises all domestic companies in the Prime and General Standard market segments. The index represents the performance of the German stock market in its entire breadth, i.e. all companies listed on the Frankfurt Stock Exchange.
Abbreviation of Centrale de Livraison de Valeurs Mobilières S.A. An institution founded in 1970 by leading banks and financial institutions in Luxembourg for the custody, administration and settlement of bonds and shares, especially internationally traded issues. In January 2000, the company merged with Deutsche Börse Clearing AG to form Clearstream International, which today is a 100% subsidiary of Deutsche Börse AG.
Institution that injects money into the economy and is responsible for a country's or currency area's monetary policy. In Germany, the Deutsche Bundesbank. Since January 1, 1999, the Frankfurt-based European Central Bank (ECB) has taken on the responsibilities of the central banks. Policy instruments of a central bank are, among other things, interest rate policy (discount and Lombard rates), lending policy, minimum reserve policy (minimum reserve for banks), open market policy (buying and selling bonds) and intervention (foreign exchange market).
Established in 1957, the CCMC is a committee made up of representatives from the most important banks of issue, the Deutsche Bundesbank and the German federal government that makes recommendations on planned public and private-sector issues. The aim is to avoid straining the market's capacity to absorb new issues.
Abbreviation: CCP. On stock exchanges the CCP acts as a buyer for each seller and as a seller for each buyer. Splitting the transaction into two new transactions serves to keep trading anonymous and increase the efficiency of netting options. On the Frankfurt Stock Exchange, this service is provided by Eurex Clearing AG, a subsidiary of Deutsche Börse AG.
A committee comprised of representatives of the central associations of the banking industry. As a consultative committee, it represents the general interests of the banking industry.
Certifies participation in the performance of particular securities or securities products.
The holder of a certificate participates, for example, directly in the performance of an underlying instrument. In many cases, this may be indices (index certificates) or specially created baskets of shares (basket certificates)
This is a money market instrument issued by banks in the form of bearer paper. As a rule CDs have maturities of between 3 and 12 months, but in some cases up to 5 years. They can be traded without difficulty on secondary markets.
With respect to securities, primarily bank commissions, broker's fees and overdraft and securities account charges. Third-party fees arise primarily when foreign securities are bought or sold.
Part of so-called "technical analysis". Graphic representation of price fluctuations of individual securities or of industry and stock market indices. The chartist, an advocate of technical analysis, uses historical price curves to make price forecasts on the basis of characteristic and recurrent formations.
A bond that can be delivered to fulfil an interest rate future and which is deliverable at a price lower than any other. The difference between the invoice amount and the cost of delivering the cheapest-to-deliver is therefore the maximum profit or the smallest possible loss compared with the delivery of other bonds.
Instruction by an issuer to a bank to pay a certain amount for his account. A cheque is a security subject to certain formal restrictions and is by law an order instrument (order cheque). With the standard addendum "or bearer" the cheque becomes a bearer security. Cheques require the fulfillment of certain legal conditions. Cheques are distinguished depending on the type of payment as cash cheques and crossed cheques and, depending on the type of transfer of cheque rights, as order, bearer and registered cheques.
Investment services firms are obliged to set up confidentiality areas separated by so-called "Chinese walls". These Chinese walls are intended to ensure that unpublicized and possibly price-relevant information cannot circulate freely from one division, department or group to other divisions, departments or groups (separation of, for example, proprietary trading in securities, order trading, research, origination and syndicate business). The aim is to avoid conflicts of interest.
Abbreviation of cost, insurance, freight. In the context of international goods trade, CIF is one way of splitting up the costs and risks between importer and exporter under the so-called "Incoterms". With CIF, the exporter bears all freight and insurance costs incurred until the goods reach the port of destination. The importer bears all costs as from that point in time at which the goods cross the ship's rail when the ship has arrived in port.
Centralized offsetting of amounts receivable and amounts payable with the result that only the balance(s) in favour or to the debit of each participant are credited or debited respectively. As a rule, the clearing work is handled by a central institution, the so-called "clearing house". In the case of futures trades, it states the size of margin payments that have to be made.
Within Deutsche Börse Group, Clearstream Banking Frankfurt handles the efficient and safe settlement of securities trades, securities custody and securities administration for domestic and foreign securities.
Closing prices for DAX® shares are fixed on the Frankfurt trading floor at 7.55 p.m. for the other shares at
7.30 p.m.; variable price fixing is no longer allowed after these times. In electronic Xetra trading, closing prices are fixed at 5.30 p.m. in a closing auction.
Combination of the purchase of a cap and the sale of a floor or vice versa. The aim of this strategy is to reduce the premium for the purchased option by the premium for the sold option. If, for example, a borrower wants to hedge the floating interest rate to be paid on a loan by purchsing a cap, the premium payable can be reduced by selling a floor. The disadvantage of this strategy is that the borrower does not profit fully from falling interest rates.
Collateral value is obtained by multiplying the loan-to-value ratio with the market value of an asset. The difference between 100 per cent and the loan-to-value ratio is the risk markdown which the lender works with. Collateral value is therefore the value which a lender assigns to an asset, e.g a plot of land, and which determines the size of a possible lending, e.g. for a land charge. As a rule, collateral value should not exceed the proceeds obtainable in a long-term perspective from a sale of the collateral asset on the market.
Collection of outstanding debts, such as bills of exchange, cheques and securities. This service is generally offered by banks; a well-known form is collection against documents.
In collective custody, securities owned by many different investors are held at a central securities depository. Each type of security is kept separately. Each individual securities accountholder is a joint owner of a certain proportion of the collective securities held.
Individual custody can be requested pursuant to Section 2, Sentence 1 of the German Securities Deposit Act.
Also known as a trade bill. It is used for the short-term financing of goods or service transactions. Pursuant to § 364 (2) of the German Civil Code, bills receivable exist alongside the original purchase price claim.
Commercial papers (CP) are used for the financing of companies' short-term capital requirements. CPs are issued mainly by first-class industrial borrowers. Placement and trading are conditional on the issuer having an excellent rating. As a rule, the securities have high nominal values, reduced by the discounted interest payments. Maturities are mostly under one year and are determined individually by the issuer.
Official register of all fully-qualified traders, as defined by the Commercial Code, in a local court district. The Commercial Register is filed with the respective local court and makes information about the legal structure of companies available to the public. The Register is divided into Sections A and B. While individual enterprises and commercial partnerships (OHG, KG) are listed in Section A, joint-stock companies (AG, GmbH) are entered in Section B. This registration procedure either validates a legal status (certifying what already existed prior to entry) or creates a new legal status (which comes into force by virtue of the entry).
A businessman who buys or sells goods or securities for the account of a third party but in his own name. A commission agent must observe a prudent businessman's professional obligations of due care and dilligence, notify the principal of the order's execution without delay and thus specify the name of the counterparty to the transaction. This obligation is waived when the agent transacts business in his own name.
Transactions in goods or securities are executed in one's own name, but at the instructions of a third party, called the principal. The executor of these transactions is called the commission agent. Banks receive orders from their clients to conduct transactions on the stock exchanges; these are in the form of commission business.
Exchange at which futures contracts are entered into in standardized units, in terms of quantity and quality, of widely used natural products. The Chicago Board of Trade, founded in 1848, is the oldest futures exchange for commodities and financial contracts and also has the highest trading volume. Trading at the German commodity futures exchange, which is located in Hanover, commenced in 1998.
The purpose of "compliance" is to ensure that all banking activities accord with law, regulations, custom and practice and internal policies. Banks' compliance departments are also intended to avoid disadvantages to customers and conflicts of interest between transactions for customers, for the investment services firm or staff members and infringements of insider rules.
Additional increase in the value of an investment due to the reinvestment of regular income ("interest on interest"). The positive effect becomes particularly pronounced over longer investment periods.
This is a form of stock exchange featuring the end-to-end computerization and automation of the entire transaction process. This includes computer-based order input (securities orders) with subsequent automatic transmission to the computerized stock exchange, the automated forwarding of delivery and payment obligations from exchange trades and the automatic dissemination of trading informaion to market participants. An example of such extensive automation is the XETRA electronic trading system of Deutsche Börse AG.
This term is used to describe issuers who issue securities on a regular basis owing to ongoing financing requirements (e.g. mortgage banks, central savings banks, public sector).
Ability to conduct legal transactions on the basis of effective statements of volition. A distinction is made between full contractual capacity, limited contractual capacity (in which the declarations of intent are ineffective pending confirmation) and contractual incapacity (in which the statements of volition are null and void). As a rule, individuals obtain full contractual capacity on their 18th birthday.
When the conditions on the capital markets change, a bond may, under specific circumstances, be adjusted fully or partially, with regard to its individual conditions, to the changes in the capital markets. A conversion is possible in connection with the interest rate, maturity and/or repayment.
Also: share conversion. Invitation to convert old securities into new ones or securities of another company. A company planning a takeover, for instance, offers a share conversion to the shareholders of the target company to avoid having to finance the (entire) purchase price. Share conversions can also take place in the context of mergers and, occasionally, company restructurings.
Transform a debt instrument, for example, a public sector loan, into another instrument, mostly with a lower interest rate, after previous announcement.
The possibility to exchange a country's currency for foreign currencies without restrictions. The opposite of convertibility is foreign exchange control. Currencies that can be converted freely everywhere, such as the euro or U.S. dollar, are called "hard" currencies.
Debt securities where the holder, in addition to the fixed interest rate, under certain circumstances has the right to convert the bond into shares of the respective company. The converted convertible bond becomes a share. Non- converted debt securuties are redeemed upon maturity.
Credit institutions as defined by § 1 of the German Banking Act. Cooperatives are associations, with an indeterminate number of members, endeavouring to promote its members’economic advancement by way of a joint business operation. Along with cooperative banks, savings banks and credit banks also form part of Germany's 'universal' banking sector.
Corporate bonds are debt securities issued by companies to raise debt on capital markets. The bond terms and conditions, such as maturity, coupon and issue volume are detailed in the issue prospectus. The interest rate payable to investors by the company is determined above all by its credit rating: the weaker the issuer's credit standing, the higher the bond yield. The issuer's credit standing is indicated through the rating.
Corporate governance (CG) designates responsible company management and company control oriented to sustainable value creation. The topics covered under this heading range from the company's ownership and capital structures, the rights and obligations of shareholders, the personnel composition and effectiveness of management bodies, to the executive management and control of the company including questions of employee co-determination, reporting and transparency as well as change of control due to a takeover.
German tax on the income of corporations and personal associations (Körperschaftsteuer, KöSt). These include capital corporations, cooperatives and trade associations as well as other legal entities pursuant to civil law. Stock corporations (as capital corporations) pay the tax from their profits.
A form of legal entity that makes it possible for investors to hold a stake in the capital of the company without being personally involved in company management. The investment is in the foreground, not one's own entrepreneurial activities. Another typical charactaristic is that the shareholders are only liable for the corporation's obligations up to the amount of their capital investment; they are not liable with their private wealth. In Germany, corporations include: "Aktiengesellschaft" (AG, stock corporation), "Kommanditgesellschaft auf Aktien" (KGaA, partnership limited by shares) and "Gesellschaft mit beschränkter Haftung" (GmbH, limited liability company).
With investment plans entailing regular fixed inpayments, the result for the investor is that more fund units are purchased when prices fall, and correspondingly fewer when prices rise. The regular investment of constant amounts over a longer period has the advantage for the investor that, taken in total, he buys the units, which have different issue prices, at a more favourable average price.
Securities transactions conducted at the bank counter where physical securities are handed to the customer against immediate payment in cash. In this case the investor himself is responsible for the safekeeping and administration of the securities and for redeeming attached interest and dividend coupons. Upon presentation of the interest or dividend coupons, the amount is paid out to the investor in cash.
The meaning of the term "covered warrant" has changed over the years. When the warrants market came into being, and this is still the case today, covered warrants were equities warrants embodying the right to the physical purchase of shares which, during the lifetime of the warrant, were held in a separate cover stock by the warrants issuer, who was not at the same time the issuer of the underlying shares. In more recent times, the cover stock as an instrument has been dispensed with to an increasing extent. Instead, issuers ensure with the help of other financial transactions that warrant holders' delivery rights are fulfilled when the option right is exercised. Over and above that, the term covered warrants also includes warrants for which cash settlement is possible instead of physical delivery.
Collateral backing is required by law for certain types of covered bonds (Pfandbriefe). Mortgage loans, known as covering loans, typically serve as collateral. It is mandatory that the total amount of the covering loan at all times be at least as high, and yield the same interest income, as the total amount of the issued Pfandbriefe (principle of equilibrium). Local authority bonds are covered by local authority loans, i.e. bank claims on public-law entities and corporations.
Entails the borrowing of a specific sum of money subject to certain conditions relating, in particular, to the interest rate, repayment and, possibly, pieces of collateral. Generally speaking, the word loan is used for long-term borrowing, whereas the term credit refers to the short, medium and long-term lending of money and capital. Examples of the various forms of credit are current account overdrafts, which are payable daily, bills of exchange and mortgages.
Bank payment card that enables the cardholder make cashless payments around the world, in the respective national currencies, by signing payment vouchers in establishments associated as merchant partners of the card company or the card system. The transactions are collected and invoiced to the cardholder once a month. The cardholder receives a clear statement of the transactions. The merchant companies (businesses, hotels, restaurants, travel agencies, filling stations, etc.) are each identified as such by the respective credit card symbol. Furthermore, a credit card together with a PIN can also be used to obtain cash from ATMs at participating banks around the world. The most well known credit card organizations are Mastercard (Eurocard), Visa, Diners Club and American Express.
Financial instruments that make it possible to value and separately trade the credit risks (risks of default) associated with loans, bonds and other credit instruments without having to liquidate the original products. As a result, certain credit risks in a portfolio can be reduced, diversified or spread according to requirements. The buyer of the credit derivative acquires the right to receive a specific payment from the seller upon the occurrence of a specified default event (e.g. impairment of a loan). This assumption of risk customarily takes place versus payment of premiums. Credit derivatives are mostly traded as over-the-counter (OTC) transactions. The most well known credit derivate products are credit default swaps, total return swaps and credit linked notes.
Capacity to conclude legally-binding loan agreements. Natural persons of full legal capacity, legal entities pursuant to civil and public law and commercial partnerships are all eligible for credit. The term credit eligibility is often confused with creditworthiness.
Also referred to as an overdraft facility. This is a flexible and simple form of borrowing, enabling customers to overdraw their current account up to an agreed limit (credit line). Debit interest is charged for days on which customers have overdrawn their account. Additional interest is charged for exceeding the agreed overdraft limit. The interest amounts are generally debited to current account on a quarterly basis. Overdraft interest rates vary according to current market conditions.
The German Banking Act (KWG) defines credit institutions as enterprises that conduct banking business commercially or on a scale that requires commercially organized business operations. Accordingly, at least one of the banking businesses listed in § 1 of the German Banking Act (KWG) must be carried out, for example, the deposit, lending, investment or payments (giro) businesses.
Reference figure on the credit risk (risk-weighted assets) for regulatory purposes that must be backed by capital, namely equal to the amount derived by multiplying the risk-weighted assets by a credit conversion factor for these assets.
Credit standing means creditworthiness. A person's or a company's creditworthiness is determined by the lender (e.g. based on so-called "credit scoring models") or by a third party (e.g. a rating agency) acting on behalf of the lender. In securities business, credit standing designates the issuer's ability to perform debt service on an issue and to repay it.
Under the law of obligations a creditor is a party who has a claim on another party, the debtor. The statutory relationship between creditor and debtor is known as a debt relationship.
Criterion for granting credit. A borrower is creditworthy if he can be expected to fulfill the obligations of his loan agreement. There are two types of creditworthiness: personal and material. While for personal creditworthiness the borrower's personal reliability, as well as vocational and entrepreneurial qualifications are examined, for material creditworthiness financial aspects are considered, such as the borrower's financial situation, income, etc. Creditworthiness is frequently confused with credit eligibility.
Abbreviation of Cash Return On Capital Invested. CROCI is a key figure that describes the return generated by a company on its entire invested capital. A comparison between CROCI and a company's capital costs can be used to determine the company's value. CROCI is based solely on financial statements and annual reports, i.e. on verifiable quantitative historical data. Forecasts and analysts' estimates are not incorporated into the model.
Cheque marked 'A/c payee only' on the front which, in contrast to cash cheques, may not be redeemed in cash by the drawee bank specified on the cheque but can only be credited to the bearer's account.
Abbreviation for Central Securities Depositary. This is a central depositary that handles the custody and transfer of securities in effective form or as book entries (dematerialized securities). Clearstream, for example, serves as central depositary for the German and Luxembourg stock markets.
A country's valid legal tender. Currency is also a description of a country's monetary structure which is formulated by legislators in its monetary policy.
When it instals a currency board, a country pegs its currency's exchange rate to an anchor currency. The entire domestic money supply must be covered by the foreign currency. Monetary policy independence is forfeited because the disposable money supply can only increase to the extent that reserves are available in the anchor currency.
Bonds issued domestically in foreign currency, i.e. not in domestic currency. Accordingly, interest and redemption payments are made in foreign currency.
The reorganization of a country's monetary system. This happens whenever the currency of an economy ceases to function as a unit of account, means of payment or store of value. Currency reforms are often preceded by inflation and excessive national debt. Currency reforms generally lead to a strong depreciation of existing assets. On June 20, 1948, for example, a currency reform was implemented in Germany in which the D-Mark replaced the Reichsmark. It is important to distinguish between currency reform and monetary union. Whilst currency reforms involve the replacement of one currency by another currency - usually involving major depreciation - a monetary union (e.g. European Monetary Union) is a situation where several currencies are merged, with no loss of value, into a new, common currency.
An account (also referred to as a giro account or personal account) maintained with a bank that can be used, in principle, at any time for deposits, withdrawals, transfers or cheques and that serves as the primary means of payments. In many cases, it is possible to arrange an overdraft facility for the current account. The account holder usually receives a bank customer card enabling him to make use of self-service facilities, such as ATMs and bank statement printers.
A bank loan the borrower can draw upon within a precisely defined credit line. The customer can make withdrawals against this credit line either fully or partially at any time without any further arrangements or agreements with the bank. Advances on current account are often granted in the form of an overdraft facility to private clients.
Realizable proceeds from the sale of a property, such as a house, under normal circumstances. In addition to the property yield, it is an important indicator used for financing, assessing and determining the mortage value of construction properties.