Tuesday, 26 June 2012

Bearer securities

Bearer securities

         Bearer securities are completely negotiable and entitle the holder to the rights under the security (e.g. to payment if it is a debt security, and voting if it is an equity security). They are transferred by delivering the instrument from person to person. In some cases, transfer is by endorsement, or signing the back of the instrument, and delivery.
         Regulatory and fiscal authorities sometimes regard bearer securities negatively, as they may be used to facilitate the evasion of regulatory restrictions and tax. In the United Kingdom, for example, the issue of bearer securities was heavily restricted firstly by the Exchange Control Act 1947 until 1953. Bearer securities are very rare in the United States because of the negative tax implications they may have to the issuer and holder.

        A bond or share that is considered to be owned by the person who has it in their possession, rather than by a named person.
Bonds may be registered or they may be issued in the form of bearer securities.

Monday, 25 June 2012

Arbitration Definition

Arbitration Definition

            If a client and a broker have a disagreement they are not able to settle amicably, they can take the case to Arbitration. The process is started when a client files a statement of claim using a form provided on the FINRA website. It details the circumstances surrounding the dispute and what type of monetary award the client is hoping to obtain. 

       If the disputed dollar amount is under $25,000, it is resolved through written statements. For amounts over $25,000, in-person Arbitration is used. This requires the selection of a venue and the formation of an arbitration panel. 

          The claimant signs the "uniform submission agreement" stating they will abide by the panel's decision and they pay filing and hearing fees.


By their nature, the subject matter of some disputes is not capable of arbitration. In general, two groups of legal procedures cannot be subjected to arbitration:
  • Procedures which necessarily lead to a determination which the parties to the dispute may not enter into an agreement upon:Some court procedures lead to judgments which bind all members of the general public, or public authorities in their capacity as such, or third parties, or which are being conducted in the public interest. For example, until the 1980s, antitrust matters were not arbitrable in the United States. Matters relating to crimes, status and family law are generally not considered to be arbitrable, as the power of the parties to enter into an agreement upon these matters is at least restricted. 
  • However, most other disputes that involve private rights between two parties can be resolved using arbitration. In some disputes, parts of claims may be arbitrable and other parts not. For example, in a dispute over patent infringement, a determination of whether a patent has been infringed could be adjudicated upon by an arbitration tribunal, but the validity of a patent could not: As patents are subject to a system of public registration, an arbitral panel would have no power to order the relevant body to rectify any patent registration based upon its determination.
  • Some legal orders exclude or restrict the possibility of arbitration for reasons of the protection of weaker members of the public, e.g. consumers. 
  • Examples: German law excludes disputes over the rental of living space from any form of arbitration, while arbitration agreements with consumers are only considered valid if they are signed by either party, and if the signed document does not bear any other content than the arbitration agreement.

Averaging Meaning


Averaging Up Definition

          Averaging Up is an investment strategy in which additional amounts are invested in an asset as its price rises. This will raise the average price paid for all of the shares, but that average cost is still lower than the security's current market price. The profit is the difference between the average cost and the current price and protecting it necessitates selling while the stock is rising or shortly after it has peaked.

Averaging Down Definition

          Averaging Down is an investment strategy in which additional amounts are invested in an asset if there is a substantial drop in its price after the original investment is made. This course of action is used by investors who plan to hold the assets for an extended period of time, have long-term investment goals and typically invest against the current investment trend.

American Depository Share (ADS)

American Depository Share (ADS)

        An American Depositary Share ("ADS") is a U.S. dollar denominated form of equity ownership in a non-U.S. company. It represents the foreign shares of the company held on deposit by a custodian bank in the company¹s home country and carries the corporate and economic rights of the foreign shares, subject to the terms specified on the ADR certificate.
      An American Depositary Receipt ("ADR") is a physical certificate evidencing ownership in one or several ADSs. The terms ADR and ADS are often used interchangeably.

Convenient way to invest internationally

       ADRs provide U.S. investors with a convenient way to invest in non-U.S. securities without having to worry about the complex details of cross-border transactions; they offer the same economic benefits enjoyed by the domestic shareholders of the non-U.S. company. ADRs are issued by a U.S. bank, such as J.P. Morgan, that functions as a depositary. Each ADR is backed by a specific number or fraction of shares in the non-U.S. company. The relationship between the number of ADRs and the number for foreign shares is typically referred to as the ADR ratio.

Listed and traded in the U.S.

        ADRs can be listed on any of the U.S. exchanges, such as the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX), and may be quoted for trading on the National Association of Securities Dealers Automated Quotation System (Nasdaq), the NASD's over-the-counter market, or the pink sheets. They can also be privately placed and traded as Rule 144A securities. Finally, the concept of the ADR has been extended to other geographical markets, resulting in structures known as global depositary receipts (GDRs), international depositary receipts (IDRs), and European depositary receipts (EDRs), which are generally traded or listed in one or more international markets.

Currency risk

      Although ADRs are U.S. dollar denominated securities and pay dividends in U.S. dollars, they do not eliminate the currency risk associated with an investment in a non-U.S. company.

ADR - American Depository Receipt Definition

ADR - American Depository Receipt Definition

        ADRs trade on major global exchanges such as the LSE and NYSE. They are issued by a US depository bank and can be a fraction of a share, a single share, or multiple shares of a foreign stock.ADRs permit investors to buy foreign shares locally without the need to change currency or access a foreign exchange. 

        In addition, US ADRs pay dividends in US dollars, and can be traded like any other shares on the exchange. The price of an ADR reflects the price of the stock in its country, adjusted for the ratio of ADRs to foreign company shares.

        ADRs give local North American investors (in the case of US listed ADRs) the ability to buy companies that would otherwise be difficult, if not impossible to access. Do your research as some ADRs may not track their foreign listed equivalent stocks perfectly.

Arbitrage Definition

Arbitrage Definition

      Arbitrage is also referred to as 'Arb'. It is the activity or process of taking advantage / exploiting a price difference on the same or simlar products but on different markets. One example could be arbitrage of an interlisted stock - buying it on one exchange and selling it on another where there is a price difference and opportunity to make a profit. 

      In theory true arbitrage is considered risk free although in reality - like most investments there is usually some element of risk. It is very hard for the retail investor to identify opportunities for good arbitrage as it requires very quick and effective trade execution and more importantly deep analysis. Typically large institutions will be able to exploit Arb opportunities better than the public as their technical expertise and resources of larger capital pools give them an edge on these opportunities. 

     Arbitrage activity is significant as it ensures prices and markets operate more efficiently. If there are discrepencies between prices on similar financial instruments across markets they are typically identified quickly and arbitrage opportunists will 'push' prices back in line.

All or None (AON Order) Definition

All or None (AON Order) Definition

              All or None is an instruction from a client to the broker that is included in a buy/sell order to fill the complete order or disregard it. In essence “Get me the entire quantity or don’t get me any.”

             Keep in mind different brokers and exchanges will handle this order differently - if accepting AON orders at all. This order is used most commonly on stocks that trade on low average volumes. Low volume stocks are characterized by wider bid and offer prices and partial fills can be expensive. 

           Time and time again novices will try and place these AON terms on liquid stocks when it is not necessary. Often AON orders get routed into a special 'terms book' that requires manual entry by someone at the exchange level which is not efficient.

          Ask your broker when unsure about order types or exchange rules.