Glossary of Terms

Standard and Poor's Ratings Services, a leading credit rating agency.

The UK State Second Pension.

Funds transfer. An agreement between an employer and an employee whereby the employee forgoes part of his or her salary (or bonus) in return for a corresponding, or enhanced contribution by the employer to a pension scheme. Such arrangements often benefit from tax advantages to the employer and/or the employee, although the cost to the employer can be high.

A sale and leaseback transaction takes place when an owner sells an asset and immediately re-acquires the right to use the asset by entering into a lease with the purchaser.

Accounting. The Sales Day Book records all invoices raised and credit notes issued.

Funds transfer. Money balances that the recipient has a right to transfer or withdraw from an account on the day of receipt.

A group of items selected from a population and used to estimate properties of the population.

The statistical technique involved in gathering a selection of items from an entire population in order to estimate properties for the entire population.

A selected period of time from which a representative sample of data is taken.
The selection of different sampling periods can have a substantial effect on the results of statistical analysis, for example of the returns on traded assets.

(SOX). The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act of 2002.
A United States federal law made in response to a number of widely publicised corporate and accounting scandals including Enron, Tyco and WorldCom.

The Sarbanes-Oxley Act.

Economics. The portion of household income not used in consumption expenditure.

Strategic Business Unit. A unit within a corporate entity serving a separately defined external market.
The strategic business unit may be organised as a subsidiary company, or as a division of a larger single company.

Economics. Referring to a resource (such as natural gas) which is limited in supply and from which demand must be satisfied.

A diagram showing the relation between two quantities. Each observation is represented by a dot or a cross.

A process of analysing possible future events by considering a number of different potential outcomes.
The different scenarios under analysis can involve changing more than one input simultaneously.

Tax. Under a schedular system taxable income is split into different categories known as schedules, each having their own rules as to the taxation of the income and deductibility of expenses.

Pensions. The named Actuary appointed by the trustees of an occupational pension scheme under the Pensions Act 2004 (in the UK). Sometimes the phrase ‘appointed actuary’ is encountered, although this does not always have precisely the same meaning.

Pensions. The auditor appointed (usually) by the trustees of an occupational pension scheme under the Pensions Act 2004 (in the UK).

Insolvency law. An agreeement between a financially distressed company and its creditors or members to effect a merger or a restructuring, which requires the sanction of the court.

Pensions. Traditionally, that part of a pension trust deed dealing with the detailed provisions concerning eligibility, benefits, transfers and similar issues. The main part of the trust deed generally defines the power and duties of the trustees and the sponsoring company.

(SSF). This was the name originally given to the pension scheme funding regime introduced in the UK Pensions Act 2004 whereby trustees and employers must agree a funding programme specific to the scheme concerned on the basis of actuarial and other advice. It replaced the previous regime (the Minimum Funding Requirement) introduced by the Pensions Act 1955. By the time the Pensions Act 2004 was passed this name had been dropped and was replaced by Statutory Funding Objective.

Sterling Commercial Paper.

An issue of bonus shares in proportion to existing shares held. A 'one-for-one' scrip issue would mean that one new share was issued for each share held. This would effectively halve the share price; each shareholder would still have the same share value.

Standard deviation.

Stamp Duty Land Tax. Duty payable in the UK on the acquisition of a chargeable interest in land.

The Stock Exchange Automated Quotations Service.

The Stock Exchange Alternative Trading Service.

The US Securities and Exchange Commission.

See State Second Pension.

UK National Insurance contributions paid by employers.

A market which trades financial assets/securities other than at their initial issue or offering.

(SSL). A predecessor to Transport Layer Security (TLS), SSL is a communications cryptographic protocol that uses PKI to provide secure communications on the internet for such things as web browsing, e-mail, Internet faxing, instant messaging and other data transfers.

A person who holds some security, such as a mortgage, for money that they have lent.

Debt backed by collateral in the form of real or monetary assets. The debt provider takes a legal charge or mortgage debenture against the asset pledged as security.

1. The trend for large companies to use less bank lending facilities and instead to issue their own securities direct to the markets.

2. The process of converting non-tradable assets into tradable securities.

1. Assets pledged by a borrower, as additional protection for the lender's interest. For example a residential mortgage loan, for which the security is the residential property mortgaged to the lender.

2. Safety.

3. A tradable legal claim upon the assets of the issuer of the security. Examples of traded securities include shares and bonds.

An occupational pension scheme where the assets are invested with an internal or external investment manager (or managers) rather than by the purchase solely of an insurance policy to secure the benefits.

See Semi-annual rate.

The semi-annual rate is the simple annual interest quotation for compounding twice a year. For example if the semi-annual rate is quoted as 10%, then the periodic interest accruing is 5% (= 10% x 6/12) per six month period.

A semi-annual rate is an example of a nominal annual rate.

Not to be confused with the annual effective rate, which in this case would be = 1.05² - 1 = 10.25%.

A semi-fixed cost is where the cost is fixed within limited ranges of activity, but which increases when the level of activity becomes greater than this limited range.
An example of a semi-fixed cost is where extra supervision salaries have to be paid each time an extra shift is worked.
If the total semi-fixed cost were plotted on the y-axis of a graph, with the x-axis being the level of activity, the shape of the cost curve would be a series of steps.

One form of the Efficient Market Hypothesis (EMH). The EMH is the general hypothesis that markets operate efficiently. In other words that assets are fairly priced to incorporate available information.

There are three forms of potential efficiency: the weak form, the semi-strong form and the strong form.
The semi-strong form states that prices react to public information so that any form of analysis using publicly available information cannot be successful in consistently generating excess returns.

A semi-variable cost has a fixed element and a variable element.
An example of this would be a telephone bill with a fixed line rental plus a rate per unit used.
If the total semi-variable cost were plotted on the y-axis of a graph, with the x-axis being the level of activity, the shape of the cost curve would be a ramp.

See Semi-annual rate.

Funds transfer. An analytical rather than operational or legal term used to describe the point at which an unconditional obligation arises on the part of the initiating participant in a funds transfer system to make final payment to the receiving participant on the value date.

Debt which ranks ahead of other unsecured or subordinated debt in right of payment in a liquidation.

The degree of variability in a financial value or decision, associated with changes in one or more of the inputs.

The refinement of a financial valuation or decision making model. Sensitivity analysis quantifies the degree of change in the valuation, to changes in one or more of the inputs. It can also be used to identify the break even point or points, at which a financial decision would change.

Single Euro Payments Area.

An autonomous legal system. For example, European community law is created by community institutions and is therefore legally separate from the national law of any member state.

Company law. The concept that a company exists as a separate legal entity distinct from its members.

The former UK State Earnings Related Pension Scheme.

1. Debt. To make payments of interest and principal on a borrowing as they fall due.

2. Pensions. A period of employment by an employee with an employer which counts towards pension benefit accrual.

A contract specifying the service to be provided.

Pensions. The increase in Projected Benefit Obligation due to employee service in the current year.

(SLA). 1. The SLA formalises the relationship between a company and its service providers (for example banks), by covering the minimum standards of service expected by the company, including key performance indicators (KPIs) and agreed to by the service provider.

2. More generally, any similar agreement between a customer and a service provider.

Situation whereby a debtor may acknowledge the claimant’s demand but pleads his own claim in order to extinguish the claimant’s demands either in full or in part.

The Stock Exchange Electronic Trading Service.

1. An act that discharges obligation in respect of funds or securities transfers between two or more parties.

2. An irrevocable action that relieves the employer of the primary responsibility for a pension obligation, thus eliminating associated risks.

3. The disposal of assets via a trust arrangement.

See Final settlement.

Funds transfer. An institution across whose books transfer between participants take place in order to achieve settlement within a settlement system.

A general term used to designate the risk that settlement in a transfer system will not take place as expected. This risk may comprise both credit risk and liquidity risk.

A system used to facilitate the settlement of transfers of funds or financial instruments.

See Unwinding.

An individual that disposes of assets via a trust arrangement.

See Joint and several liability.

Statutory Funding Objective.

Statement of Funding Principles.

Company law. A person who is not a director of a company but who gives instructions (rather than professional advice) according to which the directors are accustomed to act.

A share in a company is a proportionate ownership right in the company.
Its main features normally include:
- A right to receive any dividends declared.
- A right to vote in general meetings of the company.
- An obligation to subscribe equity capital of a fixed amount per share.

Historically, shares were evidenced by paper certificates. More commonly, they are now recorded in electronic form.

The process of a company buying back its own shares. This reduces the number of shares in existence and, potentially, increases unit share price. National regulations determine how the shares bought in this way must be treated. The process is widely used to adjust capital structure by reducing the proportion of equity.

Accounting. The figure appearing on the balance sheet is the total nominal value of shares issued to date.

The exchange or swap of one shareholding for another usually on a takeover or merger.

UK law. An amount recorded in the Share premium account.

An accounting reserve under UK company law, representing the excess of the amount paid for issued share capital over the par value of the shares.

Similar to a scrip issue, a share split also results in the shareholder owning more shares in proportion to the initial holding. Under a share split each share is subdivided so that the par value is also subdivided; a 5 for 1 split would see the an initial par value of 25p reduced to 5p for each new share.

Literally the value accruing to shareholders.
Shareholder value takes account of (i) the market value of shares, (ii) dividends paid out to the shareholders, (iii) capital introduced by the shareholders, and (iv) capital returned to the shareholders.

Often the term is used as an abbreviation for the trend away from focussing on accounts-related measures of performance to value-related measures of performance.
Shareholder value management emphasises the consequences of management decision-making in terms of resulting market values rather than in terms of accounting measures such as earnings per share.

Owners of a company.

Cash flow available for distribution to shareholders, after debt servicing costs and taxation.

(SHF). Accounting. The item in a balance sheet which relates to equity capital and reserves. The book value of equity.

Shareholders' funds.

See short selling.

Tax. A chargeable accounting period of less than 12 months.

Tax. Interest on a loan made for a period of less than one year.

UK Tax. An asset which has an expected useful life of less than 4 years.

The short seller of an asset has a 'short position' in the asset. So they are short of the asset. They now need to obtain some of the asset, in order to fulfil their sale contract. They have obligations.

Short selling means selling an asset that one does not already own. (Compared with normal selling which means selling an asset that one does already own.)

Investments with maturities of less than one year.

Money owed within a year on bank debt, mortgages or vehicle payments.

Statutory Instrument.

Current accounts, overnight deposits and money at call.

A draft that demands payment immediately, ‘at sight’.

The Greek letter used to designate the standard deviation between two variables.

See Dividend irrelevancy theory.

The cards or electronic representations on file at a financial institution that contain the signatures of authorised cheque and document signers.

A statistical test which measures whether the null hypothesis remains likely to be true (at the chosen significance level) or whether it should now be rejected in favour of the alternate hypothesis.

A fixed periodic cash flow which usually continues for a defined number of periods only.

A method of calculating and quoting interest which takes no account of interest on interest. So the total interest for a given period is calculated simply by multiplying or dividing the simple annual interest rate by the relative length of the interest period.

Simple interest is the usual basis of quotation for periods up to and including one year.
For example, when the daily rate of GBP interest is quoted as 5.11%, this means that the amount of interest per day is given by the quoted simple annual rate of 5.11% multiplied by 1/365 (to reflect one day in a 365 day year):
= 5.11% x 1/365
= 0.014% per day.

Financial reporting. This is used by the parent company in its own accounts for all investments (ordinary investments).

Also known as Sole trader.

Statement of Investment Principles.

Système Interbancaire de Télécompensation.
An electronic clearing system used in France. It is France's retail system - for low value electronic payments - and it operates on a multilateral netting basis.

Statistics. A distribution which is not symmetrical.

Statistics. A measure of the symmetry of a distribution.
The greater the skewness, the less the degree of symmetry.

Service Level Agreement.

Stored value cards, plastic cards with embedded integrated computer chips capable of storing data, including monetary value that can be electronically replenished.

Small and Medium Sized Enterprises.

Banking. Standing Order.

(SWIFT). A co-operative organisation created and owned by banks that operates a network which facilitates the exchange of payment and other financial messages between financial institutions (including broker-dealers and securities companies) throughout the world. It is a major international financial telecommunications network that transmits international payment instructions as well as other international financial instruments or messages. A SWIFT payment message is an instruction to transfer funds; the exchange of funds (settlement) subsequently takes place over a payment system or through correspondent banking relationships.

A weak currency.

A sole trader effectively entails an individual trading alone.

1. The ability of an entity to pay its liabilities as they fall due.

2. The extent to which the assets of a Defined Benefit pension scheme are sufficient to meet the liabilities and thus closely related to funding level. Liabilities, and thus solvency, may be calculated on a discontinuance or a going concern basis for the scheme concerned.

Statement of Recognised Income and Expense.

Financial reporting. Statement of Recommended Practice.

Sovereign risk is important, because it indicates the maximum creditworthiness of a counterparty – no organisation can be more creditworthy than its home country’s central bank.
Sovereign risk also includes concepts such as expropriation, war and civil unrest.

The Sarbanes-Oxley Act.

An endorsement of a negotiable instrument that names the party to whom the instrument is being transferred.

(SPV). A legal entity established to facilitate a single transaction or purpose.

In the Capital Asset Pricing Model specific risk is the component of total risk which is fully diversified away by rational investors by holding well-diversified portfolios of investments. Under the CAPM, there is therefore no additional reward to investors for accepting specific risk. Also known as Unsystematic risk, Diversifiable risk, or Idiosyncratic risk.

1. Any risk taking activity or decision which depends for its favourable result on market rates or prices. For example, a decision to leave a natural operational exposure unhedged, or a decision not to buy a relevant insurance contract.

2. Intentionallly creating market positions - for example by buying or selling securities or derivative contracts - in the hope of making profits from favourable changes in market rates or prices.

3. Similar risk-taking activity which depends for its favourable result on there being no material change in prevailing market rates, prices or conditions.
For example, selling straddle options (being one of the speculative activities undertaken by the Barings Bank ‘rogue trader’ Nick Leeson).
Another example would be a decision to operate without committed credit lines, or a decision Ride the yield curve.

A desire to hold money to allow an individual or firm to take advantage of potential investments which offer a higher rate of return.

Pensions. In relation to a pension scheme, an organisation (usually the employer or former employer of the members of the pension scheme) which establishes the scheme and which has obligations to fund the scheme.

A market in which a currency or commodity is traded for spot settlement, usually within two business days.

1. In interest rate markets, same as Zero coupon rate.

2. In foreign exchange markets, the foreign exchange rate for a transaction to be settled at the earliest possible date after the deal date.

Same as Zero coupon yield.

Same as Bid-offer spread.

The risk that loss may occur due to changes in the shape of the yield curve against the maturity profile of a firm's borrowings and investments.

Abbreviation for Special Purpose Vehicle.

Statement of Standard Accounting Practice.

Pronounced 'sap' when abbreviated.

UK Statement of Standard Accounting Practice 21, dealing with 'Accounting for leases and hire purchase contracts'.

SSAP 21 requires lessees to capitalise finance leases. This is because the transaction is the economic equivalent of borrowing to acquire an asset. So the lessee is required to record both the asset and (more importantly) the related liability to pay lease rentals in its balance sheet.

An operating lease is more closely akin to the hire of an asset. So the lessee under an operating lease is not required to capitalise the lease.

SSAP 21 also sets out the required accounting treatment to be followed by lessors.
SSAP 21 also sets out similar accounting rules for hire purchase contracts.

Pronounced 'sap 21' when abbreviated.

Shared service centre.

Pensions. Scheme Specific Funding.

Abbreviation for Secure Sockets Layer.

Pensions funding. A funding method is considered stable if it is not greatly affected by fluctuations in experience.

A situation in which rapid inflation is accompanied by stagnating or declining output and employment.

A type of Defined Contribution pension scheme (in the UK) able to accept contributions from 6th April 2002. Sometimes such schemes are based on employer contributions only.

A UK tax on documents usually involving the transfer of property or shares. Payable on - among other transactions - the acquisition of a chargeable interest in land.

(SDLT). Duty payable in the UK on the acquisition of a chargeable interest in land.

Pensions. Same as Normal contribution rate.

A pre-determined cost of a unit of production or service on the basis of a specification of all the factors affecting costs given normal efficiency.

(SD). Standard deviation measures the spread of data around their mean. The standard deviation is the square root of the variance.

Standard deviation is used widely as a measure of risk, because it is relatively easy to calculate, compare and combine with the standard deviations of other variables.

UK VAT currently at a rate of 17.5%.

A normal frequency distribution whose mean is zero and whose standard deviation is 1.0.

The normal distributions set out in standard tabulations are standardised normal distributions.
The related Excel function is =NORMSDIST()

A type of letter of credit issued to ensure the financial performance of a bank’s customer to a third party beneficiary and is drawn upon only in the event of non-performance.

(SO). An instruction from a customer to a bank to make a regular payment of a fixed amount to a named creditor.

Law. Latin for 'let the decision stand,' a doctrine requiring that judges apply the same reasoning to cases as has been used in prior similar cases.

(SERPS). The second tier of the state pension scheme (in the UK) until April 2001.

(S2P). The second tier of the UK state pension scheme from April 2001.

Insolvency law. A document that must be prepared in the UK by the directors of an insolvent company setting out details of the assets (at their expected realisable values) and liabilities (in order of ranking for payment) as at the date of insolvency.

Accounting. A primary financial statement required by IAS 1.

(SFP). Pensions. The written statement of principles governing the level of funding and contributions for a UK occupational pension scheme that must be prepared and maintained by the trustees, having had advice from a suitable qualified advisor and in consultation with the employer.

(SIP). Pensions. In the UK, the written statement of the principles governing investment decisions for an occupational pension scheme, originally required under the Pensions Act 1995, that must be prepared and, now, regularly reviewed by the trustees, having had advice from a suitable qualified advisor and in consultation with the employer.

UK tax. A statement issued by HMRC in order to clarify the application of some legislation.

(SORIE). In international accounting terms, roughly the equivalent of the Statement of Total Recognised Gains and Losses under UK GAAP.

Sometimes pronounced 'sorry'.

(SORP). Recommendations for accounting practices for specialised industries or sectors issued by industry or sectoral bodies recognised by the UK Accounting Standards Board for this purpose.

Under US accounting, a statement which explains the total net change in shareholders’ equity for the reporting period. It includes the net earnings (or net loss) for the reporting period, gains or losses not reported in the net earnings figure, and dividends.

Comparable statements under UK accounting and international accounting are the Statement of Total Recognised Gains and Losses and the Statement of Recognised Income and Expense.

(SSAP). An older mandatory statement of accounting practice for the UK, issued by the Accounting Standards Board. Being replaced over time by Financial Reporting Standards.

(STRGL). In UK accounting, the STRGL presents a summary of the elements making up an entity’s total gains and losses for the reporting period including those not reported in the profit and loss account or income statement.

Sometimes pronounced 'struggle'.

Same as frequency distribution.

The process of using observations of a sample to estimate the properties of a population.

A measure of the likelihood that observed statistical data under review might have arisen randomly (rather than as a result of the proposed statistical relationship).

If the data under review are NOT statistically significant, then they should not normally be used as a basis for important decisions.
It is less likely, for example, that a very small sample of data would produce a statistically significant result.

The collection of techniques to describe data and provide a means of making inferences about a total group, based on a sample of observations from that group.

A law established by an act of the legislature.

A law which sets the maximum period which a person can wait before filing a claim, depending on the type of case or claim.

A type of company incorporated by private act of parliament.

1. Pensions. Same as Debt on the employer.

2. More generally, an enforceable debt arising by operation of law.

(SFO). Pensions. The is the name given to the pension scheme funding regime introduced for the UK in the Pensions Act 2004 whereby trustees and employers must agree a funding programme specific to the scheme concerned on the basis of actuarial and other advice. According to the relevant Code of Practice, “… full funding in relation to technical provisions is the statutory funding objective”. It replaced the previous regime (the Minimum Funding Requirement) introduced by the Pensions Act 1995.

(SI). A type of delegated legislation in the UK, usually written by a Government minister, exercising legislative powers delegated to him by Act of Parliament.

Pensions. See Statutory surplus basis.

Pensions. Sometimes known as the ‘Government Actuary’s Basis’, this was the statutory liability valuation basis specified under the Income and Corporation Taxes Act 1988 for the purposes of determining whether a scheme’s assets exceeded 105% of past service liabilities and therefore whether a proposal to reduce the surplus was required. The prescribed basis was considerably more stringent than a typical valuation basis. Under the Pensions Act 2004, this requirement has been discontinued.

(SCP). Sterling commercial paper is normally issued on a discount basis. However, it can also be issued in interest bearing form.
In either case, it is conventionally quoted in the market on a yield basis.

The fundamental fiduciary duty of company directors, to safeguard and administer the property belonging to a company, on behalf of its shareholders.

Abbreviation for Short Term Interest Rate.
For example STIR futures are short term interest rate futures.

Random.

1. Inventories of raw materials, work in progress and finished goods.

2. A financial asset which may be a common share, a corporate debt security or a government debt security.

The same as inventory management.

The same as inventory turnover ratio.

A trigger point for a market position to be closed out, by leaving in the market an order to buy or to sell when a specified price is reached or passed.

Straight-Through Processing.

Options speculation. A composite speculative deal in two options which results in profits from large changes in the underlying asset price, either up or down.
The straddle’s profit/loss profile is ‘V’ shaped. It is also sometimes known as a bottom straddle or a long straddle.

A long straddle is constructed by simultaneously buying a call option and a put option with identical strike prices.

The opposite composite transaction - which is a mirror image of the ‘V’ shaped long straddle - is known as a top straddle or a short straddle. This is the position taken by the seller of a conventional long straddle.

A bond which has no conversion rights, nor any other special features.

See Straight bond.

(STP). The automated processing of transactions and any related payment transfers including the automated completion of confirmation and settlement instructions.

(SBU). A unit within a business serving a separately defined external market.

A statistical sampling technique which divides the data into non-overlapping areas based on a particular condition. A random sample is then taken from each divided area.

Statement of Total Recognised Gains and Losses.

Options. The price at which an option holder has the right to require the option writer to deal.
Also known as the Exercise price.

Options. In relation to foreign exchange options, the foreign exchange rate at which the option holder has the right to require the option writer to deal.
In relation to interest rate options, the interest rate at which the option holder has the right to require the option writer to deal.

Also known as the Exercise rate.

One form of the Efficient Market Hypothesis (EMH). The EMH is the general hypothesis that markets operate efficiently. In other words that assets are fairly priced to incorporate available information. There are three forms of potential efficiency: the weak form, the semi-strong form and the strong form. The strong form states that analysis of public knowledge and even insider information cannot generate consistent excess returns.

An arrangement between two banks whereby in return for the sub-participant bank depositing with the lending bank the principal amount of a loan made by the latter, the lending bank will pass to the sub-participant bank its relevant share of any payments received from the borrower. As a legal matter sub-participation is solely between the lending and sub-participant banks, giving the latter no contractual link with the borrower.

A form of debt where the rights of the lender are ranked AFTER either senior debt or after another form of claim on the resources of the borrower.

See Subordinated debt.

Accounting. A parent undertaking has a subsidiary for accounting purposes if it has control over the other entity.
The subsidiary is the entity (usually a company) which is controlled by the parent undertaking (also known as the group holding company).

Accounting. This replaced the term 'subsidiary' following its introduction in the UK Companies Act 1989. It is a wider definition in that a parent/subsidiary relationship is based more on control rather than ownership.

Accounting. The accounting principle that financial transactions and financial relationships are dealt with and presented in accordance with their commercial substance. (Even if this differs from the legal form of the transaction.)

UK Tax. A holding of 10% or more of the share capital of the company.

Economics. A product which may be used instead of another product. For example tea in place of coffee.

The law concerning the passing of property from one person to others after death or bankruptcy.

A negotiable instrument representing a proportionate share of an underlying capital asset, financed by the cash raised from the issue of the sukuk.
Sometimes referred to (incorrectly) as an 'Islamic bond'.

In the UK, public companies listed on the Stock Exchange are no longer required to send their members a full set of detailed accounts each year. Instead shareholders may be offered the option of receiving summary accounts, which disclose selected information in a more digestible form for the reader to assess the company's position.

The profit over and above the return which the owners of a company could have earned by investing their money elsewhere.

See Deed of amendment.

An unconditional guarantee from the ECGD to a UK bank which enables that bank to finance an exporter's medium term credit to an export customer without recourse.

Economics. The quantity of a good or service a producer is willing and able to sell at any given market price.

Economics. A graphical illustration of the quantity of a specified good or service that the producer would be prepared to sell at a given price per unit of time.

Policy aimed at stimulating the level of production in the economy by creating incentives for individuals and firms to increase their productivity, for example policies which encourage competition between firms or policies which encourage more people to work. The aggregate supply curve is moved to the right. Tends to be associated with monetarism.

1. An excess of assets over liabilities in a pension scheme; also known as over-funding.

2. More generally, any excess of financial assets over related liabilities.

UK tax. Advance Corporation Tax brought forward which has yet to be offset against a company’s Corporation Tax liability.

In the context of UK group tax relief, the company which passes a trading loss to another group company under group relief provisions.

1. A capital market swap is a longer-term derivative instrument. It is an agreement to exchange a series of cashflows at pre-determined future dates, usually settled for difference.
Examples of capital market swaps include interest rate swaps, basis swaps, and cross currency interest rate swaps.

2. A foreign exchange swap is a shorter term instrument. It is an agreement to exchange currencies at a fixed future date (known as the near leg date) and then to re-exchange the same currencies at a later fixed future date (the far leg date).

Risk management. A method for increasing the duration of fixed income portfolios, usually with a view to matching the duration of the underlying liabilities, by entering into long dated swap agreements (paying floating rates and receiving fixed rates).

Same as Par rate and Par Yield.

1. The difference between the swap rate (also known as the par rate) and the risk free rate of return - for example the government bill rate - for fixed rate funds of the same maturity. The size of the swap spread is driven by the size of general credit spreads and by the supply and demand for fixed rate funds. The swap spread usually increases when interest rates are lower, as borrowers demand more fixed rate funds in an attempt to fix their borrowing costs, so driving up the price of fixed rate funds.

2. Swap spread can also refer to a market maker’s bid-offer spread for swaps of a given maturity. In other words the difference between the market maker’s buying and selling prices.

A cash-settled futures contract, whose settlement is calculated by reference to interbank swap rates.

An option to enter an agreed swap at a specified rate.

A bank account that automatically transfers excess balances into an overnight interest-earning investment with the same bank.

See Zero balancing.

Abbreviation for Society For Worldwide International Financial Telecommunications.

Funds transfer. The next generation messaging network currently being introduced by SWIFT.

A facility in domestic US dollars providing same day availability of funds, normally used as a back-stop facility to commmercial paper.

A systematic assessment of the Strengths, Weaknesses, Opportunities and Threats of an enterprise.

Statistics. A distribution where the halves on either side of a particular line are mirror images of each other. For example a Normal distribution.

A loan from a number of different banks acting collectively through an 'agent bank'.

A potential cost saving or revenue improvement, expected to result from the combination of one or more previously separate business activities.

A synthetic financial instrument is a combination of two or more instruments, designed to replicate the cashflows from another instrument.

For example, a synthetic forward foreign exchange contract can be built from a simultaneous combination of:
i. A spot foreign exchange contract;
ii. A borrowing in one of the currencies; and
iii. A deposit of equal maturity in the other currency.

In the Capital Asset Pricing Model, same as Market risk.

A sampling technique where the population is ordered in some way - for example alphabetically - and then every nth item is chosen.

The risk that the failure of one participant in a transfer system, or in financial markets generally, to meet its required obligations will cause other participants or financial institutions to be unable to meet their obligations (including settlement obligations in a transfer system) when due. Such a failure may cause significant liquidity or credit problems and, as a result, might threaten the stability of financial markets.