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ABCDS
A credit default swap based on an Asset-Backed Security itself based on relatively risky home equity loans (U.S.) In effect a type of insurance against default on the underlying ABS.
ABCP
Taiwan: Asset-Backed Commercial Paper
AICPA
American Institute of Certified Public Accountants
Alpha
Hedge Funds: the incremental return above the market that a manager generates.
American-Style Option
Option contract which can be excercised at any time between the purchase date and the expiration date. Most commonly exchange-traded option in the U.S.
Application Controls
A type of control activity. Typically involve controls over processing of individual applications, ensure transactions are valid, properly authorized, completely and accurately processed.
Arbitrage
Simultaneous sale and purchase of identical or equivalent financial instruments or commodity futures to benefit from a discrepancy in their prices.
Assignment
Receipt of an exercise notice by an option writer (seller) that obligates him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.
ATM
Automated Teller Machine
At-the-money
Occurs if the strike price of the option is equal to the market price of underlying security.
Back-months
Futures or options on futures months being traded that are furthest from expiration.
BaFin
Germany: financial regulator
Bear
Person who believes prices will move lower
Bear Market
Market in which prices are moving lower.
Beta
Hedge Funds: market exposure
Bull
Person who believes prices will move higher
Bull Market
Market in which prices are moving higher.
Call
An option contract giving the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CII
Council of Institutional Investors
CIO
Chief Investment Officer
Circular A-123
US Federal Government version of the Sarbanes-Oxley Act. From Oct 2006, agencies will have to provide annual reports on internal controls. Agency's controls will have to be documented and tested.
Closing Purchase
Transaction entered into to reduce or eliminate a short position in a given series of options.
Contract
1) Unit of trading for a financial or commodity future.
2) Bilateral agreement between buyer and seller (parties) of a futures or options on futures transaction. Defined by the exchange.
Control Activities
One of five components of internal control according to the COSO Internal Control Framework. Also known as Control procedures.
Control policies and procedures to ensure actions identified as necessary for risk assessment are carried out. They have to be both established and executed for their effectiveness to be established. Control activities are made up of two elements, policies and procedures.
Control Environment
One of five components of internal control according to the COSO Internal Control Framework
Senior management have to set the tone at the top, that positively influences the control consciousness of entity personnel. Discipline and structure are generated by the control environment and is the central building block for the other components of internal control.
COSO
Committee Of Sponsoring Organizations of the Treadway Commission
Covered Call Option Writing
Trading strategy involving simultaneously selling call options and owning an equivalent position in the underlying security. The reverse is to sells a put option and shorting the underlying security.
Cox, Christopher
Chairman of the Securities and Exchange Commission. Confirmed in 2005.
CPPI
Constant Proportion Portfolio Insurance
Day Trading
Within one day establishing and liquidating the same position or positions. No positions should be established at the days end.
Deferred Prosecution
U.S. legal deal where in response for public acknowledgement and/or payment of a fine/restitution and/or co-operate in ongoing investigations, corporations can escape prosecution. Should the corporation comply with the conditions in the agreement for a specified period, the indictment is dismissed.
Derivative Security
Financial security whose value is determined in part from an another security's (the underlying security) value and characteristic.
Disclaimed Opinion
Report by an auditor that it is unable to express an opinion regarding a company's internal control over financial reporting.
An example is from Deloitte And Touche at Cray "Because of the limitation on the scope of our audit described in the second paragraph of this report, the scope of our work was not sufficient to enable us to express, and we do not express an opinion o management's assessment referred to above."
Donaldson, William
Former chairman of the Securities and Exchange Commission
DTI
Department of Trade and Industry
Dynamo
A public Constant Proportion Portfolio Insurance product BNP
EAI
Enhanced Analytics Initiative
ECB
European Central Bank
Enhanced Analytics Initiative
Group set up to promote better sell-side research about extra-financial issues such as overall strategy, corporate governance, human capital management and environmental management. Members are large European institutional investors such as pension funds.
Entity Level
One of two levels at which internal controls can operate. Controls are implemented at the entity level if they have a pervasive effect on the control environment. An example is the recruitment and training policies of the company.
EPA
Environmental Protection Agency
EPS
Earnings Per Share
Equity Options
Options on shares of an individual common stock.
ETF
Exchange-Traded Fund
European-style Options
Option contracts that can only be exercised during a specified period of time just prior to their expiration.
Exercise Settlement Amount
Difference between the exercise price of the option and the exercise settlement value of the index on the day an exercise notice is tendered , multiplied by the index multiplier.
Expiration Cycle
The dates on which options on an underlying security expire. A given option is assigned to one of three cycles, January, February or March.
Expiration Date
Date on which an option and the right to exercise it, cease to exist.
FASAC
Financial Accounting Standards Advisory Council
FASB
Financial Accounting Standards Board
FFS
South Korea: Financial Supervisory Service
Financial Accounting Standards Advisory Council
Overseer of the Financial Accounting Standards Board.
Financial Reporting
Defined by the COSO Framework as:-
The preparation of reliable published financial statements, including interim and condensed financial statements and selected financial data derived from such statements, such as earnings releases, reported publicly.
Financial Supervisory Commission
Taiwan: financial regulator
Firm Infrastructure
Support activity in the value chain analysis. General management, planning, finance, accounting, legal, government affairs and quality management are all activities.
Floor Broker
Licensed member of an Exchange, who is paid a fee for executing orders for Clearing Members or their customers.
Floor Trader
Also known as a "local". Exchange member who only trades for his own account.
Futures
All contracts covering purchase and sale of financial instruments or physical commodities for future delivery on a commodity futures exchange.
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GAAP
Generally Accepted Accounting Principles.
GAO
Government Accountability Office
General Controls
A type of control activity. Typically involve controls over data center operations, system software acquisition, system maintenance and access security.
Grant Date
Stock Options:- "The date at which an employer and an employee reach a mutual understanding of the key terms and conditions of a share-based payment award." Defined in SFAS No 123 (Revised 2004) (123R)
Group-membership Access
Assignment to a group sharing similar access rights.
Hedge
Strategy to limit investment loss by effecting a transaction which offsets an existing position.
HMRC
Her Majestys Revenues and Customs
Holder
Purchaser of an option
IFRS
International Financial Reporting Standards
IFRS 3
Accounting standard for "business combinations" or Merger and Acquisitions transactions. First standard written jointly by International Accounting Standards Board and the U.S. Financial Accounting Standards Board.
Information and Communication
One of five components of internal control according to the COSO Internal Control Framework
Systems surrounding the control activities. The accounting system counts as information and communication. Information needed to manage, control and conduct operations are captured by the entity.
Information Processing
In the context of Control Activities and Sec 404, performed to check accuracy, completeness and authorization of transactions. Broadly break down into two groups:- Application controls and general controls.
Information Systems Audit and Control Association
Publisher with Information Technology Governance Institute of the IT Control Objectives for Sarbanes-Oxley.
Information Technology Governance Institute
Publisher with Information Systems Audit and Control Association of the IT Control Objectives for Sarbanes-Oxley.
Integrity and Ethics
Reside under the Control Environment. The senior management need to set the tone for the company. Whilst they might be considered "soft" and "intangible" concepts, they affect the design, administration and monitoring of other internal controls. According to COSO, the actions of management is more important than having them written down.
Negative examples of integrity and ethics are the infamous Enron and WorldCom scandals.
A positive example is BP which sets a high bar for ethical behaviour by employees. To back this policy up they make mention of it and its effectiveness in financial reports.
Internal Control - Integrated Framework
Formal name of the COSO Framework
Internal Control Deficiency
Occurs when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
In-the-money
Occurs if the strike price of a call option is less than the market price of the underlying security. For put options the strike price has to be higher than the market price of the underlying security for it to be in-the money.
Intrinsic Value
Amount by which an option is in-the-money.
ISACA
Information Systems Audit and Control Association
ISDA
International Swaps and Derivatives Association
ITGI
Information Technology Governance Institute
KKR
Kohlberg Kravis Roberts
LEAPS
Long-Term Equity Anticipation Securities
Limit Order
Order from a customer to a broker specifying a price; only if the if the market reaches or betters the price can the order be executed.
Liquidation
Transaction offsetting or closing out a long or short futures or options position.
Long Hedge
Purchase of a futures contract in anticipation of an actual purchase in the cash market.
Long Position
An investor holds more contracts than he has sold.
Marketing and Sales
Element in primary activities dealing with providing a mechanism for attracting buyers and enabling them to purchase the products or service. Included are, advertising, promotion, sales force, quoting and pricing. Fourth in the value chain of primary activities for business process activities, lying between outbound logistics and service.
Material Weakness
A significant deficiency that, by itself, or in combination with other significant deficiencies, results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
MD&A
Management's Disclosure and Analysis
Mezzanine
When applied to finance refers to moderate risk or mid level.
Monitoring
One of five components of internal control according to the COSO Internal Control Framework
The means through which the control process is monitored and improved via modification.
NASPP
National Association of Stock Plan Professionals
NIAP
National Information Assurance Partnership
NNSP
National Nuclear Security Administration
Nonrepudiation
Reducing an end-users ability to deny he was the one who authorized an action or sent a message.
NYSE
New York Stock Exchange
Office Of Economic Analysis
Department of the SEC.
OMB
Office of Management and Budget.
PCAOB
Public Company Accounting Oversight Board
Portable Alpha
Hedge fund strategy seeking to invest in a manager who can generate alpha, while using derivatives such as index futures or swaps to hedge the beta.
Private Equity Intelligence
Research group specialising in the private equity arena.
Public Company Accounting Oversight Board
Organization set up under Sarbanes-Oxley Act 2002 to regulate auditing of public companies and auditors.
Regulation FD
Regulation Fair Disclosure
Rule enforced by the SEC requiring U.S. to make available to the public that they make to securities analysts. If the disclosure is intentional the release has to be simultaneous. Unintentional disclosure has to be made available to the public within 24 hours.
Risk Assessment
One of five components of internal control according to the COSO Internal Control Framework
Risks faced by the company have to be recognized. Objectives have to be set, integrated into the value-chain. To achieve the objectives, risks have to be identified, analyzed and develop methods to manage them.
Rule 13a-15 (e)
SEC rule which defines Disclosure Controls and Procedures.
Rule 13a-15 (f)
SEC rule which defines Internal Control over Financial Reporting
SCSE
Society of Corporate Compliance and Ethics
SEC
Securities and Exchange Commission.
Section 104
Section of the Sarbanes-Oxley Act requiring the PCAOB to inspect registered public accounting firms on a regular basis
Section 302
Section of the Sarbanes-Oxley Act of 2002 requiring a certification to accompany each quarterly and annual report filed with the SEC.
Section 404
Section of the Sarbanes-Oxley Act of 2002 mandating CEOs and CFOs of public companies to evaluate and report on the effectiveness of an entity's internal control over financial reporting.
Segregation of Duties
A type of control activity. Different people are assigned responsibilities for authorizing transactions, recording transactions and maintaining custody of assets. The purpose is to inhibit the perpetration and concealment errors or irregularities, by reducing the opportunity to do so in the course of people's everyday work.
SFAS 123R
FASB Statement of Financial Accounting Standards No. 123, Share-Based Payment. Requires companies to recognize compensation paid in the form of employee stock options as a cost in their financial statements.
SOX
Shorthand for Sarbanes-Oxley.
SPI
Synthetic Portfolio Insurance
Statement No. 123R
FASB Statement of Financial Accounting Standards No. 123, Share-Based Payment. Requires companies to recognize compensation paid in the form of employee stock options as a cost in their financial statements.
Structured Notes
Derivatives-linked bonds designed to deliver high returns over a fixed period.
Support Activities
Part of business process activities support the primary activities in the value chain. Providing purchased inputs, human resources, technology and entity wide functions. Under value chain analysis support activities include firm infrastructure, human resource management, technology development and procurement.
Synthetic Collateralised Debt Obligations
Repackaged portfolios of credit derivatives.
TOCOM
Tokyo Commodity Exchange
Trichet, Jean-Claude
President of the European Central Bank
TSE
Tokyo Stock Exchange
WKSI
Well-Known Seasoned Issuers
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