Knowledge

We hope this section gives some basic insight into the terminology around the OTC and capital markets. If you have your own explanations you'd like to add here, just get in touch. Most of these are short explanations, but some have longer articles behind them.

  • Primers
  • A
  • B
  • C
  • D
  • E
  • F
  • GH
  • I
  • JKL
  • M
  • N
  • O
  • PQ
  • R
  • S
  • T
  • UV
  • WXYZ
  • Accordian Swap (or Concertina or NPV Swap)
    An interest rate swap in which the swap tenor can be shortened or lengthened at the direction of the user. The notional size and/or swap rate is also adjusted such that the net present value of the transaction remains the same after the adjustments.
  • Accreting Swap
    An interest rate swap in which the underlying principal increases over the life of the swap. This allows an investor to match swap payments with its cash flow.
  • Accrual Factor
    Represents the fraction of a year in a given period. There are two components that make up an accrual factor. The first component uses a day count convention to determine how many days fall in the accrual period, which will be the numerator in the calculation of the accrual factor. The second component is a day count convention to determine the number of days that make up a full period, which will be the denominator in the calculation of the accrual factor.
  • Accrual Method
    See Day Count Convention.
  • Accrued Interest
    The current value of the earned portion of the next coupon payment due (but not yet paid) on a transaction or, in other words, the interest that has accumulated on a bond since the last coupon payment at any point up to but not including the valuation date.
  • Accruing Curve
    The interest rate curve used to determine expected coupon rates.
  • Acknowledgment ('ACK')
    Confirmation from market infrastructures that an activity or message has been successfully received and processed.
  • AFB Agreement (Federation Bancaire Francais) (AFBA, FBF)
    French market master agreement for over-the-counter derivative transactions. Similar to the German Rahmenvertrag or ISDA Master Agreement, which cover the German based agreements and global agreements respectively.
  • Affirmation
    The process by which two counterparties verify that they agree the primary economics of a trade. The affirmation process is where one party sends information to another party and the second party confirms whether or not the information is correct. This may be done by telephone, voice recording, email or an electronic affirmation platform.
  • Agency for the Cooperation of Energy Regulators (ACER)
    Assists National Regulatory Authorities in exercising, at community level, the regulatory tasks that they perform in the Member States and, where necessary, to coordinate their action and work towards the completion of the single European Union energy market for electricity and natural gas.
  • All-to-Default Basket Default Swap
    A basket default swap on which a credit event occurs on a credit event of any of the entities in the basket. At that point the buyer receives from the seller the difference of the principal amount of the defaulted entity and the recovered value. The buyer continues paying the premium as long as there are undefaulted entities in the basket and the counterparty does not default.
  • Alternative Instrument Identifier (Aii)
    Used where the ISIN is not the industry method of identification of a security such as options, shares, equities or derivatives. Consists of six separate mandatory elements which are collectively known as the Aii. The Aii is one method being used in Europe to categorise trades being reported under EMIR.
  • American Style Options
    Call or put options that may be exercised anytime prior to the date of expiry. See also European style options.
  • Amortizing swap
    An interest rate swap where the notional decreases during the life of the swap.
  • Approved Reporting Mechanism (ARM)
    The systems set up by the FCA through which all reportable transactions have to be reported. The systems have to comply with specific requirements detailed in Article 12 of the MiFID Level 2 regulation.
  • Arbitrage
    The simultaneous purchase and sale of related products in two different markets in order to profit from a discrepancy between the purchase price (undervalued) and the sale price (overvalued), i.e. riskless profit.
  • Assignment Date (or Step-in Date)
    The date on which a party assumes ownership of a trade side.
  • At-the-money Option
    An option with strike price equal or very close to the current price of the underlying asset. These options have the most time value.
  • Attachment/Detachment Point
    The lower bound of the risk level of a structured credit product (e.g., collateralized debt obligation) tranche is the attachment point and the upper bound a detachment point.
  • Average Price (Asian) Option
    Options that allow the buyer to buy (or sell) the underlying asset at the average price instead of the spot price. The payoff is the difference between the strike price and the average price of the underlying asset over a certain time period.
  • Average Rate Cap/Floor
    Consists of a string of caplets (floorlets). The additional feature is that instead of the rate being based on one single reset rate, the caplet rate is the average of two or more reset rates.
  • Average Strike Option
    Options that can assure that the average price paid (or received) for an asset over a certain time period is not greater than the final price. These are path dependent because the payoff is based on the difference between the spot price at expiration and an average strike price determined over the life of the option.
  • AVOX
    A wholly-owned subsidiary of DTCC which validates, corrects, enriches and maintains business entity reference data. This includes data such as corporate hierarchies, registered address information, industry sector codes and company identifiers.