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We believe a glossary is key for any client trying to navigate through the range of complex terms and jargon in our industry.

Our most frequently defined terms are defined below but if there's something you think we should add, please contact us.



A payment on a specified date on a partly paid stock, to be paid by the holder of the allotment letter. More generally, a requirement for an investor to make additional payments in order for an investment to be fully paid up.

Call Option

The purchaser of a call option has the right, but not the obligation, to buy an asset at a specified price on or before an agreed date. See also put option.

Cash flow matching

An asset-liability modelling technique that aims to create a portfolio with cash flows equal in timing and magnitude to the target liabilities.

Central clearing

The process by which a trade between two original counterparties is intermediated by a central counterparty.

Central counterparty (CCP) or clearing house

An entity that acts as an intermediary between two trading parties to mitigate against the risk of counterparty default. The CCP becomes the buyer to every seller and the seller to every buyer.

Certificate of Deposit (CD)

A deposit is made at a bank and the certificate that a deposit has been made is given in return to the lender. This is normally a bearer security. The Certificate of Deposit can then be sold in the secondary market whenever a firm needs cash.

Clean fees

Fund management fees that are all inclusive, to which there will be no extra charges added. Also known as transparent fees. See also dirty fee.

Clearing member

A member of a central counterparty that clears on its own behalf and on behalf of its customers.

Closed positions

A derivatives exposure which has been sold or otherwise offset is referred to as a ‘closed position’.

Closed-end fund

A collective investment scheme which issues a fixed number of shares. To buy shares there must also be an investor wishing to sell an equal number of shares. Shares in closed-end funds are often dealt on a stock exchange. Investment Trusts are examples of closed-end funds.

Collar hedge

A means of stabilising portfolio returns by obtaining protection against a major decline in portfolio value in exchange for the sacrifice of part of the portfolio’s appreciation in a major rally. A collar hedge can be achieved through a combination of put options and call options.


An asset that is accepted by a lender as security.

Collateralised Debt Obligation (CDO)

A general, inclusive term to describe securities backed by types of debt obligations such as loans or mortgages.

Collective investment scheme

Also known as a pooled fund. A vehicle in which a number of investors pool their assets so they can be managed on a collective basis. This usually suits small to medium sized investors wishing to invest in a broad spread of investments, or larger investors wishing to gain exposure to specialised sectors. Shares in a pooled fund are denominated in units that are re-priced regularly to reflect changes in the underlying assets. This allows investors to value their holdings and provides a basis upon which transactions in units can take place. Unit trusts are examples of pooled funds.

Commercial paper

Unsecured short-dated debt instrument issued by banks, corporations and other borrowers, usually issued at a discount.

Commercial paper estate loans (CRE)

Loans secured on commercial property such as offices, hotels, retail parks, industrial parks, leisure and mixed use.


Limits or restrictions imposed on an investment manager in relation to particular securities, sectors or markets. Constraints may be imposed for various reasons, for example, risk reduction or ethical considerations.

Contract note

Written record of an agreement to buy or sell securities.

Convertible security

Any security such as a bond that, under certain conditions, the owner can opt to convert into another security, such as an ordinary share.


Convexity measures how interest rate sensitivity changes with rates. An investor will prefer a bond with positive convexity to one with a negative convexity.

Corporate bond

A debt obligation issued by a private or public company.

Corporate governance

The means by which shareholders govern the management of a company through the use of voting powers.


One of the parties to a specific transaction – may be the buyer or seller.

Country allocation

Integral part of an asset allocation process that selects desired weightings in particular countries and regions.


Nominal interest rate payable (usually six-monthly) on a bond.

Covenant (bond)

Provisions within a borrowing agreement describing the obligations of a bond issuer to protect the interests of the bond holders. Affirmative covenants require the borrower to take certain actions (for example, retain a certain debt/equity ratio). Negative covenants prohibit the borrower from certain actions (for example, pay out too high dividends). The breach of a covenant might cause the default of the bond.

Covenant (pension scheme)

The ability and willingness of the sponsor to make good any shortfalls in a scheme’s funding. A strong covenant reflects a financially strong sponsoring company, who can be relied upon to rectify funding shortfalls in the pension fund should they emerge. This imparts a degree of investment flexibility and freedom lacking from a pension fund with a weaker covenant from their plan sponsor.

Credit default risk

The risk that a loss will be experienced due to a default by the issuer of a bond, or counterparty in a swap transaction.

Credit Default Swap (CDS)

A credit insurance contract where a premium is paid on a regular basis in return for protection from loss in the event of a default by a specified entity.

Credit enhancement

A measure of the amount of credit protection given to investors. The amount of credit enhancement depends on both the seniority or tranche of the security and the specific features written into the bond covenant. Credit enhancement is quoted in percentage or basis points and indicates the extent of losses that have to be achieved before there is impairment to the security holder. All things being equal, a larger credit enhancement indicates better protection to the security holder and lower credit risk.

Credit rating

A measure of the creditworthiness of a bond issue. Generally provided by one of the specialist commercial credit rating agencies (for example Standard and Poors). For example, the highest (most favourable) rating applied to long-term debt by Standard & Poors is AAA.

Credit risk

Exposure to loss as a result of counterparty default on a swap, debt or other instrument.

Credit spread

The difference in yield between a reference security and some benchmark yield (usually the government or swap yield) where the securities are identical in all respects except for credit quality. Credit spreads will generally be higher for companies with lower credit ratings to compensate investors for the additional risk undertaken.

Currency hedging/currency overlay

Reduction or elimination of exchange rate risk using forward contracts, futures contracts, options or by borrowing in the exposed currency.

Currency risk

The risk of incurring losses in the value of overseas investments as a result of movements in international exchange rates. Can also refer to the additional volatility caused by exposure to assets in foreign currencies.


A company that is responsible for the safekeeping of assets, income collection and settlement of trades.

Cyclical stock

Security that is particularly sensitive to movements in the business cycle, for example, financial stocks (that are generally interest rate sensitive) and capital goods. See also defensive stock.