Yield Spread

The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured between debt instruments of differing maturities, credit ratings and risk.

For example, if the five-year Treasury bond is at 5% and the 30-year Treasury bond is at 6%, the yield spread between the two debt instruments is 1% (6% - 5%). If the yield spread has historically been closer to 5%, the investor is much more likely to invest in the five-year bond compared to the 30-year bond (as it should be trading around 1% instead of 6%).

Banker's Acceptance - BA

A short-term debt instrument issued by a firm that is guaranteed by a commercial bank. Banker's acceptances are issued by firms as part of a commercial transaction. These instruments are similar to T-Bills and are frequently used in money market funds. Banker's acceptances are traded at a discount from face value on the secondary market, which can be an advantage because the banker's acceptance does not need to be held until maturity. Banker's acceptances are regularly used financial instruments in international trade.

Banker's acceptances vary in amount, according to the size of the commercial transaction. The date of maturity typically ranges between 30 and 180 days from the date of issue. However, banks or investors often trade the instruments on the secondary market before the acceptances reach maturity. Banker's acceptances are considered to be relatively safe investments, since the bank and the borrower are liable for the amount that is due when the instrument matures.

Offsetting Transaction

In trading, an activity that exactly cancels the risks and benefits of another instrument in the portfolio. An offsetting transaction is used when it is not possible to simply close the original transaction as desired. This frequently occurs with options and other more complex financial instruments. In this way, a trader does not have to agree to close the option contract with the party on the other side of the options trade, but can simply cancel the net affect by entering into an offsetting transaction.

The most basic example of an offsetting transaction occurs in options trading. Suppose you have sold a call option on 100 shares with a strike price of $35 and expiration in three months. To close this transaction before three months is over; you can buy a call option with exactly the same features, thus exactly offsetting the exposure to the original call option. 

Financial Instrument

A real or virtual document representing a legal agreement involving some sort of monetary value. In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity, for example.

Financial instruments can be thought of as easily tradable packages of capital, each having their own unique characteristics and structure. The wide array of financial instruments in today's marketplace allows for the efficient flow of capital amongst the world's investors.

Commercial Cards

Credit or charge Cards issued to businesses to cover expenses such as travel, entertainment, and procurement. Includes purchasing cards, business cards, corporate cards and multi-utility fleet cards. Visa and MasterCard have special procedures for passing billing information back to the card issuing bank for display on card holder statements.

Money Market Account Extra - MMAX

An account structure that provides depositors with the ability to secure FDIC insurance on large deposits that would otherwise exceed the normal insurance limit of $250,000. The MMAX structure allows banks to attract large depositors, including retail, commercial and public entities. Through the program, banks can accept deposits well above the FDIC-insurance limit from any one retail or commercial customer in money market deposits. The funds are then distributed into deposit accounts among multiple banks in IDC's Deposit Network. No more than $250,000 can be deposited in any one bank.

The advantage of MMAX accounts is that instead of being covered only up to the FDIC deposit-insurance amount, the individual can have more funds insured. For example, if Arthur had $500,000, he could use the MMAX structure to have two banks each hold $250,000; thus, the FDIC would insure the full $500,000.

Money Market Account

An interest-bearing account that typically pays a higher interest rate than a savings account, and which provides the account holder with limited check-writing ability. A money market account thus offers the account holder benefits typical of both savings and checking accounts. This type of account is likely to require a higher balance than a savings account, and is FDIC insured.

Money market accounts are widely available, and are offered by banks and other financial institutions. They are able to offer a higher interest rate by requiring a higher minimum balance, and by placing restrictions on the number of withdrawals the account holder may take over a given period of time. This restriction makes them less liquid than a checking account, but more liquid than bonds.

Retail Fund

A type of fund that is registered with the Securities and Exchange Commission (SEC) and is sold to individual investors through investment dealers and in open market transactions. Retail funds are often categorized as mutual funds, and carry lower initial investments and management expense ratios than non-retail funds.

Because retail funds are registered with the SEC, they are restricted in the amount of overall risk they can expose themselves to, such as option trading and short selling. These risks are considered as such due to the nature of their volatility and speculative nature.

Dealer Market

A financial market mechanism wherein multiple dealers post prices at which they will buy or sell a specific security of instrument. In a dealer market, a dealer – who is designated as a “market maker” – provides liquidity and transparency by electronically displaying the prices at which it is willing to make a market in a security, indicating both the price at which it will buy the security (the “bid” price) and the price at which it will sell the security (the “offer” price). Bonds and foreign exchange trade primarily in dealer markets, while stock trading on the Nasdaq is a prime example of an equity dealer market.

Ghost authorization

An authorization that is approved but never cleared or settled, resulting in additional fees to the merchant. Visa and MasterCard claim these can adversely impact a cardholder’s open-to-buy credit availability, leading to increased declines and confusion at the point of sale. Visa calls the fee for this the Misuse of Authorization Fee while MasterCard calls it a Processing Integrity Fee.

Gate Provision

A restriction placed on a hedge fund limiting the amount of withdrawals from the fund during a redemption period. The implementation of a gate on a hedge fund is up to the hedge fund manager. The purpose of the provision is to prevent a run on the fund, which could cripple its operations, as a large number of withdrawals from the fund would force the manager to sell off a large number of positions.

 

This is a very common provision on a hedge fund and the exact percent of restriction can be found in the hedge fund prospectus. This is a less severe withdrawal restriction than an all-out redemption suspension, which doesn't allow for withdrawals at all. But a gate provision is still seen generally as a negative event.

War Chest

A colloquial term for the reserves of cash set aside or built up by a company to take advantage of an unexpected opportunity. While a war chest is typically used for acquisitions of other companies or businesses, it can also be used as a buffer against adverse events during uncertain times.

A war chest is often invested in liquid short-term investments, such as treasury bills and bank deposits, which can be accessed on demand. A war chest that has swelled up too much can sometimes be viewed as an inefficient way of deploying capital.

Counterparty risk

The risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. In most financial contracts, counterparty risk is also known as "default risk".

Because A is a counterparty to B and B is a counterparty to A both are exposed to this risk. For example if Joe agrees to lends funds to Mike up to a certain amount, there is an expectation that Joe will provide the cash, and Mike will pay those funds back. There is still the counterparty risk assumed by them both. Mike might default on the loan and not pay Joe back or Joe might stop providing the agreed upon funds.

Prime Rate

The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best customers consist of large corporations. The prime rate is also important for retail customers, as the prime rate directly affects the lending rates which are available for mortgage, small business and personal loans.

 

For example, if a bank is offering a home equity loan at "prime plus 5" and its prime rate is 6%, then the bank is essentially offering borrowers an 11% loan (6% + 5%) with an interest rate that will fluctuate along with the prime rate. It is important to remember that not everyone qualifies for a bank's prime rate - this rate is only for the customers least likely to default.

Charge-Off Rate

The charge-off rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer. Charge-off is actually an accounting term that means a company has decided it has no chance to collect a debt and charges it off its books. A rising charge-off rate is a sign of an economy under stress.

Securities Lending

Securities lending is process in which the owner of a stock (lender) lend the security to a borrower, on specified terms. Under a securities lending arrangement, the lender actually sells the stock to the borrower, who agrees to return (i.e. sell back to the lender) equivalent securities at the end of the loan period. To offer security to the lender the borrower transfers collateral to the lender for the duration of the loan. In addition the lender is not entitled to receive any dividends from the shareholding while it is on loan. However, it is usual for the agreement between the lender and the borrower to provide that the borrower must pay a manufactured dividend to the lender to compensate for this loss of income. Another consideration which may be important in some cases is that the lender does not have the right to vote in respect of the loaned stocks. Finally the lender cannot sell the stock while it is on loan.

 

Most markets mandate that the borrowing of securities be conducted only for specifically permitted purposes, which generally include

 

·         To facilitate settlement of a trade

·         To facilitate delivery of a short sale

·         To facilitate a loan to another borrower who is motivated by one of these permitted purposes.

Money Market

A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).

The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.

Prime Brokerage Fees

Prime brokers do not charge a fee for the bundled package of services they provide to hedge funds. Rather, revenues are typically derived from three sources: spreads on financing (including stock loan), trading commissions and fees for the settlement of transactions done away from the prime broker. The financing and lending spreads, which are charged in basis points on the value of client loans (debit balances), client deposits (credit balances), client short sales (short balances), and synthetic financing products such as swaps and CFDs (Contract for difference), make up the vast majority of prime brokerage revenue.

Therefore, clients who undertake substantial short selling or leverage represent more lucrative opportunity than clients who do less short selling and/or utilize minimal leverage. Clients whose market activities are principally fixed income-oriented will generally produce less prime brokerage revenue, but may still present significant economic opportunity in the repo, foreign exchange (fx), futures, and flow business areas of the investment bank.

Closed loops Card vs Open Loop Card

General purpose and limited-purpose payments networks primarily operate under two different business models. Open-loop payments networks, such as Visa and MasterCard, are multi-party and operate through a system that connects two financial institutions—one that issues the card to the cardholder, known as the issuing financial institution or issuer, and one that has the banking relationship with the merchant, known as the acquiring financial institution or acquirer—and manages information and the flow of value between them. In a typical closed-loop payments network, the payment services are provided directly to merchants and cardholders by the owner of the network without involving third-party financial institution intermediaries. Closed-loop networks can range in size from networks such as American Express and Discover, which issue cards directly to consumers and serve merchants directly, to an individual merchant that issues limited-purpose private-label credit cards to its customers for use only in that merchant’s stores.

Prime of Prime - POP

A brokerage that provides service to traders (especially Forex traders) who need micro-contract trades. Prime of Prime (PoP) brokerages also often allow for trades of greater leverage and, as a result, more risk. Many of the brokers using PoP brokerages are small regional banks with clients that need smaller currency trade options.

One of the reasons that regular forex prime brokerages dont provide the services that PoPs do is that there is a smaller profit margin in the smaller trades. Additionally, their systems often dont support a cost-effective way to complete smaller trades. PoP brokerages are also equipped to deal with increasing regulatory requirements for highly leveraged trades.

Master Feeder Fund

A structure commonly used by hedge funds to pool investment capital raised by U.S. investors - both taxable and tax-exempt - and overseas investors into one central vehicle called the master fund, with separate investment vehicles or feeders created for each investor group. Investors invest in the feeder funds, which in turn invest their assets in the master fund. The master fund makes all the portfolio investments and conducts trading activity, while management and performance fees are payable at the feeder-funds level.

Rehypothecation

The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees. 

In a typical example of rehypothecation, securities that have been posted with a prime brokerage as collateral by a hedge fund are used by the brokerage to back its own transactions and trades. While rehypothecation was a common practice until 2007, hedge funds became much more wary about it in the wake of the Lehman Brothers collapse and subsequent credit crunch in 2008-09. 

Brokerage Account

An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he or she incurs from the account.

 

Brokerage accounts can also differ in terms of order execution speed, analysis tools used, scope of tradable assets, and the extent to which investors can trade on margin.

Floor Limit

An amount that Visa and MasterCard have established for single transactions at specific types of merchant outlets and branches, above which authorization is required.

Hedge Fund

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.

Prime Brokerage

A special group of services that many brokerages give to special clients. The services provided under prime brokering are securities lending, leveraged trade executions, and cash management, among other things. Prime brokerage services are provided by most of the large brokers, such as Goldman Sachs, Paine Webber, and Morgan Stanley Dean Witter.

 

Hedge funds were what started the prime brokerage option. Hedge funds place large trades and need special attention from brokerages.

Taxable Preferred Securities

A type of preferred equity security that does not qualify for the dividends-received deduction for corporations of typical preferred securities, defined in Section 243 of the Internal Revenue Service (IRS) Code. Taxable preferred securities are usually junior level liabilities, and the coupons tied to them can either be fixed or variable, and for indefinite or specific maturities.

As with regular preferred stocks, these securities trade like bonds with regular denominations of $25 par and $1,000 par. The dividends paid are treated as regular income instead of dividends to the investor, but receive favorable tax treatment for the issuing company.

Senior Security

A security that ranks above another security in the event of the company's bankruptcy or liquidation. A senior security is called such, because it is considered "senior" to another in the company's hierarchy of capital providers. Should the company go bankrupt or face another liquidating event, holders of the senior-most security will be in line to receive repayment of their invested monies first, before other creditors receive any payment. Next in line would be holders of the second-most senior security. 

 

For an instance, debt is always considered senior to equity. In terms of debt, secured debt is considered senior to unsecured debt, such as debentures, while preferred securities are considered senior to common shares.

Chargeback

A credit card transaction that is billed back to the merchant after the sale has been settled. Chargebacks are initiated by the card issuer on behalf of the cardholder and typically involve product delivery failure or product/service dissatisfaction.

Convertible Security

A convertible, sometimes called a CV, is either a convertible bond or a preferred stock convertible. A convertible bond is a bond that can be converted into the company's common stock. You can exercise the convertible bond and exchange the bond into a predetermined amount of shares in the company. The conversion ratio can vary from bond to bond. You can find the terms of the convertible, such as the exact number of shares or the method of determining how many shares the bond is converted into, in the indenture. For example, a conversion ratio of 40:1 means that every bond (with a $1,000 par value) you hold can be exchanged for 40 shares of stock. Occasionally, the indenture might have a provision that states the conversion ratio will change through the years, but this is rare. 

Income Deposit Security - IDS

A security that combines common stock and notes of the issuer to provide regular income payments to the holder of the security. The holder of the income deposit security receives dividends from the common stock, and fixed income from the debt instrument in the IDS.

These types of securities are traded on stock exchanges and can be purchased by any type of investor. The companies that use this form of security are usually very stable and mature businesses.

Security Deposit

A monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction. As the name implies, the deposit is intended as a measure of security for the recipient. 

 

Security deposits are not considered taxable income. Local laws often treat security deposits as trust funds. Security deposits that are used as final rent payments must be claimed as advance rent and are taxable when paid.

Tax-Exempt Security

A security in which the income produced is free from federal, state and local taxes. Most tax-exempt securities come in the form of municipal bonds, which represent obligations of a state, territory or municipality. For some investors, U.S. savings bond interest may also be free from federal income taxes.

A tax-exempt security will carry a tax-equivalent yield that is often higher than the current yield, as determined by the investor's tax bracket. The higher the tax bracket, the more beneficial tax-exempt securities can become in a taxable investment account. 

Authentication Vs Authorization

Authentication is a process where a cardholder proves that they are the genuine cardholder.   Examples of authentication are - The credit card holder fills up his credit card details on a site where he is a payer and then the bank sends him a 'one time password (OTP)' on his registered mobile phone. The transaction is completed when the OTP is entered. OTP is valid for that one transaction and expires after the use. Every new transaction made on the credit card generates a new OTP. Alternatively the credit card holder is prompted to a 'Visa or Master verified' site and then he is expected to insert his password, which is known to him only. This ensures that even if one gets to know the credit card details of an individual one cannot misuse the credit card online. This is called double factor authentication.

 

While Authorizations are provided by card issuers and confirm that the card number is valid, that the funds are available at the time the transaction takes place and the card had not been reported as lost or stolen at the time of the transaction.  Authorizations are not a guarantee of payment.

Unlisted security

A financial instrument that is not traded on an exchange, but through the over-the-counter (OTC) market. Unlisted securities are also called OTC securities. Market makers facilitate the buying and selling of unlisted securities in the OTC market. Because they are not exchange traded, unlisted securities can be less liquid than listed securities.

Securities must meet a number of requirements to be listed on an exchange. For example, to be listed on an exchange such as the NYSE or AMEX, a publicly traded stock must represent a company that surpasses an annual income or market capitalization threshold. The company also must have issued a specific number of shares and be able to afford the exchange's listing fee, which often exceeds $100,000. These requirements ensure that only the highest quality companies trade on exchanges. Thus, unlisted securities may be of lower quality and present a greater risk to investors.

Underlying option security

An underlying option security is the financial instrument on which a derivative's (i.e., an option's) value is based – it provides the price that is used to determine the value of the derivative. An option is classified as a derivative because its value is derived from the underlying security.

An option holder has the right, but not the obligation, to buy or sell a particular instrument at a specified price and date in the future.

Cabinet Security

A security that is listed under a major financial exchange, such as the NYSE, but is not actively traded. A cabinet security is traded by an inactive investment crowd, and is more likely to be a bond than a stock.

The cabinets would typically hold limit orders, and the orders were kept on hand until they expired or were executed.

Underlying Security

The security on which a derivative derives its value. For example, a call option on Company X stock gives the holder the right, but not the obligation, to purchase Company X’s stock at the price specified in the option contract. In this case, Company X’s stock is the underlying security.

Generally, an underlying security's value should be independently observable by both parties, so that there is no potential for confusion regarding the value of the derivative. Investors dealing in derivatives must closely research the underlying security in order to ensure that they fully understand the factors affecting the value of the derivative.

VisaNet

VisaNet is part of Visa’s retail electronic payment system. It is a collection of systems that includes:

• An authorization service through which card issuers can approve or decline individual Visa card transactions.

• A clearing and settlement service that processes transactions electronically between acquirers and card issuers to ensure that:

  – Payment for Visa transactions moves from card issuers to acquirers to be credited to the merchant accounts.

– Payment for Visa transactions moves from card issuers to acquirers to be credited to the merchant accounts.

Generic Securities

A security backed by recently issued loans or mortgages. Its value is less than that of a security whose backing is over one year old. Securities over a year old are called seasoned securities.

A generic security does not yet have a history that potential investors can look to for past performance rating as a seasoned security does. However, as they are valued less by investors, generic securities are less expensive to purchase.

Fixed Income Security

An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance.

An example of a fixed-income security would be a 5% fixed-rate government bond where a $1,000 investment would result in an annual $50 payment until maturity when the investor would receive the $1,000 back.

Residential Mortgage-Backed Security (RMBS)

A type of mortgage-backed debt obligation whose cash flows come from residential debt, such as mortgages, home-equity loans and subprime mortgages. A residential mortgage-backed security is comprised of a pool of mortgage loans created by banks and other financial institutions. The cash flows from each of the pooled mortgages is packaged by a special purpose entity into classes and tranches, which then issues securities  and can be purchased by investors.

Employee Retirement Income Security Act

The Employee Retirement Income Security Act of 1974 (ERISA) protects the retirement assets of Americans by implementing rules that qualified plans must follow to ensure that plan fiduciaries do not misuse plan assets.

It also:

1. Gives participants the right to sue for benefits and breaches of fiduciary duty. 

2. Guarantees payment of certain benefits if a defined plan is terminated through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

3. Protects the plan from mismanagement and misuse of assets through its fiduciary provisions. 

Point-To-Point Encryption(P2PE)

Encryption technology that ensures cardholder data is protected from card swipe all the way through to the issuing banks. The purpose of P2PE is to address the risk of unauthorized interception associated with cardholder data-in-motion during the transmission from the POS terminal to the payment processor/banks. The current modern algorithms are divided into two categories based on the encryption key method -symmetric (same secret key on both ends) and asymmetric or public key (combination of public key and a unique private key).

Marketable Security

Marketable securities are financial instruments that can be readily bought and sold in a public market.  The key feature is the ease with which it can be sold and converted into cash.  Usually, marketable securities are in the form of equity or government bonds.  The equity can be shares in a corporation or other type of business entity like a master limited partnership or real estate investment trust. 

For the securities issuers, the fact that the securities have an available market is a big advantage.  If they need to raise money, they can quickly and easily sell securities in the market for cash. 

Pass - Through Security

A pool of fixed-income securities backed by a package of assets. A servicing intermediary collects the monthly payments from issuers, and, after deducting a fee, remits or passes them through to the holders of the pass-through security. Also known as a "pass-through certificate" or "pay-through security."

The most common type of pass-through is a mortgage-backed certificate, where homeowners' payments pass from the original bank through a government agency or investment bank to investors. 

Mega Deal

From the Greek megas, meaning great, this expression refers to a business deal that entails a great deal of money. Mergers and acquisitions that involve substantial amounts of money are examples of mega deals that occur with frequency in the business world. Although much merger activity happens on an ongoing basis, mega deals involve well known, established companies.

 

Oracles acquisition of Sun Microsystems in a deal valued at more than $7 billion is an example of a mega deal. Such deals usually create a dominant player in the industry, or are intended to create a well-situated conglomerate.

Club Deal

A private equity buyout or the assumption of a controlling interest in a company that involves several different private equity firms. This group of firms pools its assets together and makes the acquisition collectively. The practice has historically allowed private equity to purchase much more expensive companies together than they could alone. Also, with each company taking a smaller position, risk can be reduced.

While club deals have grown in popularity in recent years, there are many issues that can arise related to regulatory practices, conflicts of interest and market-cornering. For example, there are concerns that club deals decrease the amount of money that shareholders receive, as a group of private equity firms has fewer parties to bid against.

Card not Present

A transaction that occurs without a physical card being present at the time of transaction. The most common examples of card not present transactions are e-commerce transaction, some other examples include mail order and telephone order transactions which have been prevalent in the cards industry since a long time now. Some of the recent examples include digital and mobile wallet transactions. Card Not Present transactions may or may not require the manual entry of credit card data based on the type of Card not present transaction.

Bed-and-Breakfast Deal

In the United Kingdom, the practice whereby the holder of a security sells it at the end of the day on the last day of the financial year and buys it back the next morning. Arrangements are made between the holder of the security and the broker to accommodate the sale and repurchase.

 

A bed and breakfast deal is carried out to maintain an investment portfolio while minimizing capital gains taxes. Positions are closed out at the end of the year and immediately reopened on the first day of the new financial year. Because this practice intentionally seeks to limit capital gains taxes, tax authorities work to minimize the occurrence of bed and breakfast deals.

Drive-By Deal

Slang referring to a deal in which a venture capitalist invests in a startup with the goal of a quick exit strategy. The VC takes little to no role in the management and monitoring of the startup.

 

A "drive-by VC" is a venture capitalist who does this type of deal. Critics say a drive-by deal results in companies which are pushed towards an IPO even though they aren’t ready. All because the VC wants to get its money out.

 

Note: Venture capital is a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks.

Upstairs Deal

A business agreement that is made by upper management, and is generally unknown to lower-level employees until it is publicly announced. The deal is referred to as an "upstairs deal" because executives typically have their offices in the higher floors of an office building. In mergers and acquisitions, an upstairs deal between two companies is more likely to result in a friendly takeover, as opposed to a hostile takeover.

 

Keeping word of a potential merger quiet allows executives to operate with a reduced risk of outside parties profiting from the deal by driving up share prices. Once a takeover offer is announced, share prices will react by either moving up or down to the indicated target price. For example, a deal in which a company tenders an offer of $15 per share with shares currently trading at $10 per share will likely result, when announced, in shares adjusting to $15.

Apple Pay

Apple Pay is a mobile payment service that lets certain Apple mobile devices make payments at retail and online checkout.  It intends to digitize and replace the credit or debit magnetic stripe card transaction at credit card terminals. The service lets Apple devices wirelessly communicate with point of sale systems using a near field communication (NFC) antenna, a "dedicated chip that stores encrypted payment information" (known as the Secure Element), and Apple's Touch ID and Passbook.

Package Deal

An order that contains a number of exchange or deposit items that must be completed simultaneously, or not at all. Package deals allow traders to ensure specific prices or times to maturity for multiple assets.

 

A trader may want to participate in a package deal to properly execute an investment strategy. For example, let’s say an investor wants to enter into a long-short strategy, where he or she purchases one stock and short sells another. Making this order a package deal will protect the investor in case either stock is not immediately available for purchase or sale. The investor may not want the exposure of being only long or short for the period of time required to complete the second transaction.

Sweetheart Deal

A merger, a sale or an agreement in which one party in the deal presents the other party with very attractive terms and conditions. The terms of a sweetheart deal are usually so lucrative that it is difficult to justify turning the offer down.

 

This term can be used to describe a variety of deals, but in general, a sweetheart deal is a transaction that simply can't be passed up. For example, a merger may be a sweetheart deal for the top executives of the target firm because they get very healthy buyout packages. This kind of sweetheart deal is usually considered unethical, however, because it may not be in the best interests of shareholders.

No Dealing Desk

A way of forex trading that provides immediate access to the interbank market. The interbank market is where foreign currencies are traded. This is different than trading through the dealing desks that are found in many banks and financial institutions. By using a dealing desk, a forex broker who is registered as a Futures Commission Merchant (FCM) and Retail Foreign Exchange Dealer (RFED) can offset trades. If a no dealing desk system is used, positions are automatically offset and then transmitted directly to the interbank.

Forex brokers who use this system work directly with market liquidity providers. When trading through a no dealing desk, instead of dealing with one liquidity provider, an investor is dealing with numerous providers in order to get the most competitive bid and ask prices. An investor using this method has access to instantly executable rates.

Pre-Authorization

Pre-authorization is a banking term describing a practice where money is not taken from the payee’s account at the moment the transaction is made. The amount charged is instead made unavailable on that customers’ account – this is also known as authorization hold. Pre-authorisation is normally valid for 1- 5 days on debit cards, while credit card pre-auth periods can be longer and vary between issuers. This pre-auth period is usually used by retailers to make additional security checks on the card and the cardholder, to make sure that the transaction is not fraudulent. It also allows them time to make sure that the item being sold is in stock and ready to be shipped. Consumers near their credit or debit limits need to watch their available balances carefully, or the hold amount could push them over the limit, triggering a fee. Holds, also called blocks, are usually released within minutes or hours, but can sometimes last days.

Deal Blotter

A trader's record of all the transactions executed on a given day. The deal blotter contains basic information pertinent to a transaction, with additional information included on the deal slip. The deal blotter for a forex trader would include both opening and closing currency positions initiated by the trader.

 

In a forex trading firm with several traders, the sum of the positions on all the traders' deal blotters at the end of the trading day will indicate the change in the firm's net position at close. While deal blotters were paper-based before the advent of computerization, they are now increasingly computer-based, enabling traders to analyze and monitor their currency trades more rapidly and efficiently.

Deal Slip

A record of the essential details of a transaction entered into by a forex dealer. It is the primary source of record-keeping for a dealer. Deal slips are generally required to be archived for a certain number of years stipulated by the regulatory authority where the deal is recorded. Also known as deal ticket.

 

A deal slip is generally time-stamped to record the date and time of the transaction. It contains all of the information pertinent to a transaction, including but not limited to the amount of the transaction, whether it was a purchase or sale, the counterparty to the transaction, settlement date, transfer price, customer price and so on.

Host Card Emulation(HCE)

Host card emulation(HCE) enables NFC devices to perform contactless transactions in card emulation mode when the payment, other credentials and related card applications are stored somewhere other than the Secure element e.g., in the cloud, in a trusted execution environment on the mobile device, or in a virtual, software-based infrastructure on the mobile device. Currently, NFC-based applications that use the card emulation mode (i.e., where the reading terminal effectively sees the mobile phone mimicking a traditional contactless smart card and no change to the reading infrastructure is required) require the card application (e.g., payments, ticketing, access control) and its credentials (e.g., account information, ticket, access identifier and tokens) to be stored inside a hardware-based secure element on the mobile device itself.

Deal Breaker

An issue that, if left unresolved, prompts one party to discontinue discussions. A deal breaker may involve the presence of a particular requirement in a contract, or the lack of a certain provision. 

For negotiations that are non-iterative, meaning that there is no further interaction once terms are satisfied, the parties involved can be unwilling to budge over certain issues because they know that this is their only chance at getting what they want. The presence of a deal breaker, however, helps both parties in a negotiation know how to maneuver and help determine each other's pain points.

For example, a company attempting to merge with a competitor may discover that the competitor will only let the merger proceed if a certain number of its employees are kept on board with the new venture. This may be a deal breaker for the acquiring company.

Dealing Desk

In foreign currency markets, the location of a financial institution's forex dealers. Since the forex market is open around-the-clock, many institutions have dealing desks around the world. Dealing desks can also be found outside the foreign exchange markets, such as in banks and finance companies, to execute trades in securities.

 

The term "desk" may be a bit of a misnomer, given its connotation of a table shared by a couple of traders. Large financial institutions often have dealing facilities that are staffed by hundreds of dealers. In a large institution, major currencies, such as the euro and yen, may have several dealing desks staffed by dozens of traders who specialize in these currencies.

Deal Flow

The rate at which business proposals and investment pitches are being received by financiers such as investment bankers and venture capitalists. Rather than a rigid quantitative measure, the rate of deal flow is somewhat qualitative and is meant to provide an indication of whether business is good or bad. The state of the economy has a significant influence on the level of deal flow. Economic expansion and robust equity markets will usually generate healthy deal flow for most financiers, while a recession and/or sluggish equity markets may generate some deal flow for only the most established players.

 

Deal flow can comprise many different types of proposals: venture funding, private placements, syndications, initial public offerings (IPO), mergers and acquisitions. While large investment banks can handle most of these activities, specialist financiers such as venture capitalists and angel investors will generally focus on deal flow only in their area of expertise.

Point to Point Encryption

Point-to-point encryption ensures cardholder data is protected from card swipe all the way through to the processing banks. State of the art encrypted magnetic card readers scan and encrypt cardholder information prior to performing an electronic payment transaction.

Lump-Sum Amount

A one-time payment for the total or partial value of an asset. A lump-sum payment is usually taken in lieu of recurring payments that would otherwise be received over a period of time. The value of a lump-sum payment is generally less than the sum of all payments that the party would otherwise receive, since the party paying the lump-sum payment is being asked to provide more funds up front than it otherwise would have been required to.

Lump-sum payments are often used in structured products that typically provide payouts over a series of times, such as annuities or other retirement vehicles. This type of payment is also used in structured settlements, and in some corporate retirement packages, in which the company will incentivize employees to retire early by providing all retirement funds up front.

Payment-In-Kind PIK

A financial instrument that pays interest or dividends to investors of bonds, notes or preferred stock with additional debt or equity instead of cash. Payment-in-kind securities are attractive to companies who would prefer not to make cash outlays. They are often used in leveraged buyouts. Payment-in-kind securities are a type of mezzanine financing, where they have characteristics indicative of debt and equities. They tend to pay a relatively high rate of interest but are considered risky. Investors who can afford to take above-average risks, such as private equity investors and hedge funds, are most likely to invest in payment-in-kind securities.  

Also, the use of a good or service as payment instead of cash. A farmhand who is given "free" room and board instead of receiving an hourly wage in exchange for helping out on the farm is an example of payment-in-kind. 

Mobile Payment

Money rendered for a product or service through a portable electronic device such as a cell phone, smartphone or PDA. Mobile payment technology can also be used to send money to friends or family members.

Mobile payments first became popular in Asia and Europe before becoming more common in the United States and Canada. They can be sent (most popularly) by text message, by passing a smartphone screen displaying a special barcode under a stores barcode scanner or by using a phone to take a photo of a check and sending it. The cost of the purchase may be added to the consumers phone bill or paid by credit or debit card.

Digital Cash

Digital cash aims to mimic the functionality of paper cash, by providing such properties of anonymity and transferability of payment. Digital cash is intended to be implemented data which can be copied, stored, or given as payment (for example, attached to an email message, or via a USB stick, Bluetooth, etc.).  Just like paper currency and coins, digital cash is intended to represent value because it is backed by a trusted third party (namely, the government and the banking industry).

Alimony Payment

A periodic pre-determined sum awarded to a spouse or former spouse following a separation or divorce. Alimony is an obligation to make payments for support or maintenance; an alimony payment is the actual sum paid to fulfill the obligation. A decree or court order outlines the alimony payment structure and requirements.

 

When a married couple becomes legally separated or divorced, a court may determine the legal obligation of one of the individuals to provide money to the other to provide the type of financial support to which he or she has become accustomed to throughout the life of the marriage. In the United States, the Internal Revenue Service permits alimony payments to be deductible by the payer, and requires the recipient to include the alimony payments as income. Child support payments are separate from alimony payments.

Electronic Payments Network - EPN

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An electronic automated clearing house (ACH) that serves as the sole ACH for the private sector in the United States. The Electronic Payments Network handles numerous types of credit transfers, such as payroll payments, dividends, etc., as well as debit transfers, such as loan payments and insurance premiums.   In the modern financial marketplace, the EPNs use of electronic transfers of money has increased the efficiency and timeliness of business transactions. If you are paid by direct deposit by your employer, chances are the EPN is involved in the transaction.