In equity research, the price/earnings ratio is calculated from the current market share price divided by the (estimated) profit per share. The P/E ratio is a variable for assessing the past and future earnings power of a stock corporation and is used to evaluate the relative trading level of a share. The calculated value first becomes relative by comparing it with the figure from other companies in the same sector and/or the figures from previous years.
Par means the price of a security corresponds to its nominal (face) value. If a security is issued at a price above (below) its face value, it is "above par" ("below par"). The difference is the agio (disagio). A security lists at par when it is trading at 100 percent of its nominal (face) value.
In general, the exchange rate between two currencies is called parity. On stock exchanges, parity is the price used for a foreign security as a result of converting the listing on its home exchange into the domestic currency.
Term referring to the division of the total amount of a debt instrument (bond) into separate parts. The total amount of the required loan is divided into separate amounts, securitized in standardized certificates (partial debentures) and sold to investors.
These securities guarantee a share in the profit generated by the issuer, but they do not come with voting rights. For participation certificates, no general standards apply, neither stipulated by law nor by the rules of the stock exchanges themselves. Each feature can be adapted to the individual financing needs of the issuer. The profit entitlement is securitized by means of a certificate (participation certificate). Participation certificates are negotiable, but are not considered as shares. (Also known as "Genüsse" in Germany stock exchange parlance.)
Security issued by Swiss stock corporations that is equipped with equity rights, but in contrast to shares does not certify shareholder's rights, in particular voting rights. The company thus protects itself from unwanted influences and an excessive level of third-party ownership with the simultaneous addition of new risk-weighted captial. From a legal perspective, participation certificates are comparable to participatory rights.
In a modern economy millions of payment transactions are processed each day. They are either cash-based - i.e. made with notes and coins - or cashless. The central banks (Bundesbank) and banks play a decisive role in domestic and cross-border payments, since they provide the economy and population with the necessary cash. Furthermore, they process cashless payments from account to account executed on the customer's behalf via transfer order, cheque or direct debit.
The price to cash flow ratio is derived by dividing the cash flow per share by the share price. As a variable that focuses on liquidity, the price/cash flow ratio helps to evaluate the development of a company's future earnings potential and compare different companies with one another. The increased significance of PCF can be traced back to, among other things, the fact that it is much less susceptible to accounting policy manipulations than the net income figure reported in the annual financial statements. This should considerably improve the quality of information relating to the predictability in the development of company revenues.
As a rule, these stocks are not traded on the exchanges and have a decidedly low market price, mostly less than a dollar. The shares are often sold only by a single brokerage firm. Penny stocks entail especially high risks for investors.
Legally independent pension plan entities that manage the money provided to them for their intended purpose and pay out this money upon a pension claim. The pension fund grants the employee a legal claim. Pension funds in Germany must be licensed by the German Federal Financial Supervisory Authority (BaFin) and are subject to its supervision. The assets of the pension fund are held separately from the company assets and are thus secure in the event of the company's bankruptcy. Contibutions to the pension fund can be made by the employer and/or employee and are usually variable in their amount. Pension commitments follow either the "defined benefit" principle or the "defined contribution" model. In defined benefit plans the employer makes a commitment to provide a specific, previously defined payment. Taking actuarial calculations into account, the contributions depend on the projected level of the benefit and previously achieved or expected yield on the invested capital. They are thus variable. In contrast, in the defined contribution plan only the amount of the contribution has a fixed definition, whereas the amount of the resulting later pension or capital payment is not specified.
In contrast to a unit price, a percentage quotation is the exchange price listed as a percentage of the nominal value of the security, for example, as is usually the case for bonds.
In the securities business, performance is a measurement to evaluate the success of a capital investment and indicates as a percentage the development of the value of an investment or a portfolio - usually on an annual basis.
In contrast to a price index, the performance index is adjusted for dividends and changes in capital or interest payments. Deutsche Börse calculates the important stock and bond indices as both price and performance indices. In the calculation of a stock performance index, dividends and other payments to the shareholders are reinvested in the ficticious portfolio. Bond price indices are calculated while taking into account the interest yield, i.e. the reinvestment of the discounted average annual coupon.
For futures, the actual (physical) delivery of the underlying upon exercising - in general, as a credit entry to the securities account at the specified price (exercise price). In a cash settlement, only a cash amount is paid out instead, in the amount corresponding to the difference between the value of the contract on the day before the maturity date ("settlement" day) and the value of the underlying on the settlement day.
With their Personal Identification Number, or PIN, customers can access cash at ATMs around the world using their bank card or credit card. Many retailers have installed electronic cash terminals where customers can make cashless payments with their bank card and PIN. Each card has its own unique PIN, which is known only to the cardholder. To prevent fraudulent use, the PIN should not be made accessible to other persons. (PIN and card should never be kept together, nor the number written down or divulged to anyone. The PIN should always be concealed from onlookers when keying in the code.)
The sale (placement) of securities on the exchange or directly to a group of investors. In an initial public offering, the securities are usually taken up completely by a syndicate of banks and subsequently sold on the market. The bank receives a fee for the risk that not all of the securities may be sold. A placement is usually said to be successful when the market has taken up most of the securities.
Procedure in the placement of securities. The most important placement procedures include bookbuilding, price fixing, private placement, auction procedure.
Also: portefeuille. Part or all of the asset items that a client or a company owns. Primarily, these are securities, but they can also include buildings or real estate. A securities portfolio thus comprises a securities account with equities, bonds, investment funds, etc.
Squaring a current market position by either buying back a short position or selling a long position. For example: an investor has sold 100 shares short, i.e. he has borrowed equity and then sold it. Up until the time he repurchases the 100 shares (in order to give them back to the original lender) he is faced with the risk of rising prices, which means that he would have to pay more to buy them back than the sales proceeds he received. That risk ceases to exist as soon as the 100 shares have been purchased. This is called squaring (or closing) an open position.
Power of an authorised person to conduct legal transactions on behalf of and for the account of the grantor of the power of attorney. Full power of representation authorizes the holder to conduct all legal or commercial transactions and legal acts the operation of a business entails, power of attorney to conduct all or certain transactions and legal transactions the operation of such a business normally entails.
An account holder has the possibility to grant a power of attorney to other people to operate his account. Differences are made in both the duration of the power of attorney as well as in the number of people who are authorized to issue legally binding instructions to the bank.
Shares evidencing special rights to shareholders, e.g. a preferential dividend. The purchase of preference shares, however, has the disadvantage that preference shares, unlike ordinary shares, do generally not, or only in exceptional cases, carry voting rights. The individual preferential rights of preference shares are set out in the stock company's articles of association.
This term designates the amount by which the issue price of new securities exceeds their nominal value. For example, to buy a security with a nominal value of € 1,000 and a premium of 3%, the investor would have to pay € 1,030, i.e. 103% of nominal. The premium which the investor often has to pay when buying mutual fund shares is called "front load". Used with reference to options and warrants, the term premium is understood to mean the percentage by which the purchase or sale of the underlying asset by purchasing the option or warrant and immediately exercising the option right is more expensive than buying or selling the underlying asset directly on the stock market. It is not permitted to issue shares at a price below their nominal value or for less than the amount of share capital attributable to each no par value share; on the contrary, it is customary to pay a premium. The share premium obtained from a capital increase for cash must be added to the capital reserve (share premium account) and forms part of reported shareholders' equity.
Present value, at a particular point in time, of one or several future positive or negative payments. The present value of a future payment flow is obtained arithmetically by discounting. Present value allows a comparison of investments with divergent payment series but the same maturity.
Price addenda and details specify to what extent the buy and sell orders could be carried out at the determined exchange price. In accordance with §33 of the Exchange Rules for the Frankfurt Stock Exchange, the following price addenda and details are used:
» b (or price without addendum) = bezahlt (paid): all orders were executed;
» bG = bezahlt Geld (paid, bids): the buy orders limited at the price determined were not necessarily executed in full; there were additional bids;
» bB = bezahlt Brief (paid, offers): the sell orders limited at the price determined were not necessarily executed in full; there were additional orders;
» ebG = etwas bezahlt Geld (partially paid, bids): only a small portion of the buy orders limited at the price determined could be executed;
» ebB = etwas bezahlt Brief (partially paid, offers): only a small portion of the sell orders limited at the price determined could be executed;
» ratG = rationiert Geld (rationed, bids): the buy orders limited at and above the price determined and the market sell orders could only be executed in part;
» ratB = rationiert Brief (rationed, offers): the sell orders limited at and below the price determined and the market sell orders could only be executed in part;
» * = asterisk: small amounts could not be traded in whole or in part.
» G = Geld (bids): there were no trades; only bids existed at this price;
» B = Brief (offers): there were no trades; only offers existed at this price;
» - = gestrichen (quotation cancelled): no price could be determined;
» -G = gestrichen Geld (quotation cancelled, bids): no price could be determined; non-limit bids existed;
» -B = gestrichen Brief (quotation cancelled, offers): no price could be determined; non-limit offers existed;
» -T = gestrichen Taxe (quotation cancelled, estimated): a price could not be determined; the price is estimated;
» -GT = gestrichen Geld/Taxe (quotation cancelled, bids/estimated): a price could not be determined because the price is estimated on the bid side;
» -BT = gestrichen Brief/Taxe (quotation cancelled, offers/estimated): a price could not be determined because the price is estimated on the offer side;
» ex D = nach Dividende (ex dividend): first quotation net of the dividend;
» ex A = nach Ausschüttung (ex distribution): first quotation net of the distribution;
» ex BR = nach Bezugsrecht (ex rights): first quotation after separation of the subscription right;
» ex BA = nach Berichtigungsaktien (ex bonus shares): first quotation after change of the price quotation to the share capital adjusted from the issuer’s funds;
» ex SP = nach Splitting (after share split): first quotation after adjustment of the price quotation to reflect a share split;
» ex ZS = nach Zinsen (ex interest): first quotation net of interest;
» ex AZ = nach Ausgleichszahlung (ex settlement payment): first quotation net of a settlement payment;
» ex BO = nach Bonusrecht (ex bonus right): first quotation after separation of a bonus right;
» ex abc = ohne verschiedene Rechte (without various rights): first quotation after separation of various rights;
» ausg = ausgesetzt (suspended): the price quotation is suspended; an open outcry is not permitted;
» -Z = gestrichen Ziehung (quotation cancelled, redemption): the quotation of the debt security has been suspended due to a date for a drawing for redemption. The suspension begins two exchange days before the date fixed for the drawing and ends at the end of the following exchange day;
» C = Kompensationsgeschäft (compensating transaction): only those orders with respect to which purchaser and seller were identical were executed at this price;
» H = Hinweis (note): separate reference is made to special matters.
The fixing of market prices for all securities listed on the stock exchange. Exchange prices in floor trading on the Frankfurt Stock Exchange are determined by the official brokers. The process is governed by the Exchange Rules. The trade is concluded at the price at which most orders (purchases and sales) can be executed (principle of maximum possible execution). The market price of securities can be quoted once during a trading day on the stock exchange (standard quotation) or more than once a day on a continuous basis (variable quotation).
In contrast to a performance index, this index is not adjusted for dividends and capital increases or decreases or interest payments. As a result, the price index reflects only the development of the prices of a specific portolio of shares or bonds. Examples of such calculated price indexes are the Dow Jones and Nikkei.
Price addendum in official as well as pre and post-exchange trading that indicates the exchange price has moved down at least 5%, for stocks, convertible bonds and warrants. A doubled price markdown (--) signalizes a decline of at least 10%. Opposite: price markup.
Price addendum of the Frankfurt Stock Exchange in preliminary, exchange or after-hours trading that indicates a significant upwards change in the price of a security. Depending on the extent of the price increase, a distinction is made between a simple (+), double (++) or triple (+++) price markup. Opposite: price markdown
Special interventions in the capital market or stock exchange - mostly with the involvement of syndicate banks - to regulate and support the prices of the securities. The holders of the securities should be offered the possibility to buy and sell through the exchange at any time. Price smoothing increases a security's fungibility. It is carried out flexibly and not rigidly while taking the market situation into account.
The prime rate is the interest rate large American banks charge for short-term loans to top commercial clients. It represents a kind of key interest rate upon which all of the other lending rates are based. The term "prime rate" has also come into use in Germany for the interest rate charged for loans to the best customers.
At the Frankfurt Stock Exchange, prime standard is the listing segment for companies that fulfil especially high international standards on transparency. Admission to the prime standard segment requires the fulfilment of the following transparency criteria: quarterly reports, international accounting standards according to IAS or U.S. GAAP, submission of a company calendar and ad hoc disclosures also in English. Companies that want to be listed in this segment must apply for admission. A prime standard listing is a prerequisite for inclusion in the "selection indices" of the Frankfurt Stock Exchange.
Priority notice to safeguard a claim to change of registration of ownership in the Land Register. It is based upon § 883 German Civil Code and is generally incorporated into real estate purchase agreements, in favour of the buyer. If other arrangements are made after a priority notice has been entered, they will be invalid with respect to the person entitled to the priority notice if they frustrate or adversely affect the claim to be protected. That is why the owner can no longer dispose over the property. The priority notice of conveyance is entered in Section II (Encumbrances and Restrictions) of the Land Register.
Applicable in Germany up to 1978. As a result, an owner's right of lien could be prevented. The priority notice of right to deletion has been replaced by the claim for deletion, which is regulated in § 1179 German Civil Code (BGB) and which is part of the legal content of every real property lien. Accordingly, the property owner can demand the deletion of priority or equal-ranking real property liens from the land register as soon as the property owner has acquired such claims, for example, by complete repayment of the underlying loan.
Capital held by private and institutional investors in unlisted (publicly) traded companies. Private equity investors provide equity capital and management expertise temporarily. After five to seven years they sell their shareholding once again. Private equity firms draw their profit from the increase in value the company experiences during the period of the holding. A distinction is made between buyout capital and venture capital. Buyout funds usually acquire significant, that is, majority shareholdings in mature, established companies in the industrial and services sectors, which they finance with equity and debt capital. These include typical small and mid-sized companies as well as business units of large corporations that are spun off for strategic reasons. Venture capital funds, in contrast, hold stakes in young technology companies in an early phase of development (called start-ups).
A private placement is understood to be the private sale (not a public offering) of specific assets. In a private placement, the issuing bank is responsible for contacting financially strong investors, such as institutional investors or capital investment companies, and to place large blocks (tranches) of the issue with these investors without the involvement of an exchange. The advantage of a private placement is in avoiding the costs for the production of a prospectus and initial public offering as well as in enabling a quick raising of funds.
Stock market term used to describe the action taken by investors to sell their securities when prices are rising in order to secure gains. This enables market participants to realize profits before prices possibly start to fall again.
Use of computer-based market analyses programs for a computerized specification of buy and sell decisions based on mathematical models. The necessity and advantageousness of this computerized operation results from its capacity to rapidly and efficiently process large amounts of data (spot and futures market prices, interest rates, dividends, taxes, transaction costs). Thus it provides the possibility to monitor and evaluate price developments in different markets and thus, if appropriate, to act or react quickly. Program trading is used for the purposes of arbitrage between the spot and futures markets.
Loan certified in the form of a promissory note (document in which the borrower undertakes to make a specific payment, generally for the payment of interest and repayment of a specified sum of money). Promissory notes are issued by companies, but also by the public sector, special credit institutions and supranational borrowers. Principal lenders are insurance companies, mortgage banks and savings banks. The advantage for both sides is the ease of handling; a further advantage is that companies not eligible to issue shares can access the capital market. An additional positive aspect for lenders is that there are no write-off requirements if capital market rates rise. With usual terms of two to ten years, repayments are made in equal installments.
For the admission of securities to trading on the official or regulated market, the Stock Exchange Act and the Securities Prospectus Act, among other things, impose a general duty to write a prospectus and to file it with the stock exchange listing office. The prospectus contains all important information about the security, the issuer, the company's structure, its financial situation, business activities and all bodies and companies involved in the issue. It should allow the formation of an accurate judgement of the issuer's assets and liabilities, financial situation, profits and losses and future prospects. The Federal Financial Supervisory Authority checks the prospectus for formal, but not material, correctness. The issuer and issuing syndicate are responsible and liable for the correctness of the content.
Issuers and syndicates of banks are liable for the correctness of the information in the sales prospectus. Accordingly, a buyer of a security has the right to return the security to the issuer or syndicate of banks if the prospectus contains verifiably untrue or misleading information. The issue price plus the costs the buyer incurs for the purchase are refunded to him. If he acquired the securities at a later date, he receives repayment of the amount for the purchase. For securities that have already been sold, he is refunded the loss incurred. The buyer's claim to damages is subject to the statute of limitation of six months after he determined the faulty information, at the latest, however, three years following the publication of the sales prospectus.
Provisions are formed to cover company liabilities of uncertain cause or amount which are to be allocated to the current reporting period. These may, in principle, be all types of liabilities.
Every shareholder can authorize a bank, a professional shareholder representative or another third party to exercise his voting rights at the general meeting. For practical reasons, shareholders frequently authorize their depository bank to exercise their voting rights, giving rise to the inaccurate term 'depository voting rights'.
Interest-bearing debentures issued by private mortgage banks and public sector banks to finance public sector loans (loans to public sector institutions - the federal and state authorities, as well as towns and cities - to implement public sector investments. Also referred to as public sector mortgage bonds (Pfandbriefe).
Borrowing by towns and cities, local authorities and associations of local authorities. Public sector loans are provided by commercial banks, savings banks (Sparkassen) and mortgage banks.
A term from the options business. A put option entitles the buyer to sell a certain number of units in the underlying (e.g. a stock) at a specified price by or at a certain time. The counterparty to this contract, the seller of the put option, is called the option writer (bid), as he must have the agreed purchase price in the event the option is excercised. In exchange, he receives a premium from the buyer of the put. The buyer of a put expects the underlying's price to fall. The seller of a put, in contrast, expects increasing or at least stagnating prices; in this case, his counterparty will hardly exercise the option, so he can book the option premium received as profit. Opposite: buy option, call option
An investment scam whereby pay-outs and redemptions are financed not from investment income but out of the funds invested by newly acquired customers. The scheme collapses if sufficient stream of new customers cannot be found.