Glossary

Looking for definitions of financial terms? Find the answers in our glossary.

Glossary

Looking for definitions of financial terms? Find the answers in our glossary.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

absolute return fund
It is essentially, an investment fund with a diversified portfolio that invests in shares, bonds, real estate and/or cash according to a particular strategy. The objective of a traditional asset manager is to manage their investments in such a way that the return on the investments is higher than a specific index. For instance, a manager of a Belgian equities portfolio will try to beat the BEL-20 index. On the other hand, an absolute return fund will usually try to achieve a predetermined return each year, regardless of the performance of a shares index.

acquisition
When a company is taken over by another company.

active management
Portfolio management in which the manager takes active positions based on their view of the market and expectations, with the aim of achieving a better investment result than their benchmark. As well as the chance of a better investment result, there is also a risk that the result will lag behind the benchmark. . It is the opposite of index-based management, passive management.

active position
A position that arises when the relative importance of some of the shares or bonds in an investment portfolio differs from their importance in the benchmark index of the portfolio.

active shares
Shares that are listed daily and that are the most often traded shares on the stock exchange.

activity rate
The working population divided by the working-age population. Indicates the proportion of the total potential supply of labour that is actually working. Synonym: 'employment rate'. It is the opposite of the unemployment rate.

administrator
Someone who manages another person's assets. The manager of an investment fund ensures that the investments are diversified.

ADR
Abbreviation of 'American Depositary Receipt/Asian Depositary Receipt'. Registered foreign shares that have been converted into bearer certificates that can be listed on the European stock exchanges.

advance levy
Tax levied on a pension savings account. This levy is usually payable when the holder of the pension savings account turns 60.

AEX light options
Options on the AEX that have a listed premium that is determined by dividing the AEX index by ten. The contract size (the volume) is the same as for the AEX options 100. With AEX light options, clients can invest in options on the AEX with a smaller amount of capital than usual.

AEX options exchange
The derivatives exchange of the Amsterdam Exchanges where trading in options on shares, gold and bonds occurs. Until 1983, AEX was known as the European Options Exchange.

AEX
The barometer for the local Dutch securities market, which is calculated and maintained by Euronext. The AEX index is a weighted index based on the share prices of the 25 most traded companies listed in the Netherlands on the Euronext stock exchange. The effective turnover in the previous year is one of the factors that determines whether a share is included in the AEX index. The weight of each share in the index is partially dependent on the market capitalisation of the freely negotiable shares, but can never amount to more than 10%. The AEX index is weighted each year on the first trading day in March. Options and futures are traded on the AEX index.

after trading hours
The period after the stock exchange is officially closed.

AGM
Abbreviation of: 'Annual General Meeting of Shareholders'. Listed companies are obligated to hold at least one Annual General Meeting of Shareholders per year. Due to the voting rights attained through share ownership, shareholders can exercise a certain level of influence at the Annual General Meeting of Shareholders.

AIW
Abbreviation of 'As, If and When'. It refers to securities that have been announced but not yet officially listed. AIW trading is also know as grey market trading . An example of an AIW share is a share in a rapidly growing company that is not yet fully in compliance with the stock exchange.

all or none order
An order to buy or sell securities that must be executed in full. If the order cannot be fully executed, it will not be executed at all and the order will remain in effect. A variant of this is the fill or kill order which is an order that is cancelled if it cannot be immediately executed.

all time high
The highest price ever reached by an index or security.

all time low
The lowest price ever reached by an index or security.

allocation
The distribution of securities to be issued among those who have registered, in accordance with the issue terms and conditions stated in the prospectus and sometimes also in an accompanying publication.

alpha
Volatility of a share price that can only be explained by company-specific factors and not by general market fluctuations. The relation between the share price and market trends is indicated by a beta. Together, the alpha and the beta determine the total investment result. A manager will create an alpha if the composition of their portfolio generates a better investment result than that of the benchmark index and if the superior performance cannot only be explained by market trends.

AMEX
Abbreviation of ''American Stock Exchange'. A US stock exchange, not to be confused with the NYSE.

Amsterdam All-Share Index
An index of all the shares listed in the Netherlands that are traded on the Euronext stock exchange, which is calculated and maintained by Euronext. The Amsterdam All-Share Index (AXX) is divided up into various economic sectors. The Amsterdam All-Share Index and the various partial indices give a very trustworthy picture of the performance of the entire Dutch stock exchange and the various sub-sectors. The AAX is a benchmark index.

Amsterdam Exchanges
The official name of the securities and options exchange in Amsterdam, the Netherlands.

annual general meeting
Legally required annual meeting of shareholders. Synonym: 'AGM', 'shareholder meeting'.

Annual General Meeting of Shareholders
Listed companies are obligated to hold at least one General Meeting of Shareholders per year. Due to the voting rights attained through share ownership, shareholders can exercise a certain level of influence at the Annual General Meeting of Shareholders.

annual meeting
Listed companies are obligated to hold at least one Annual General Meeting of Shareholders per year. Due to the voting rights attained through share ownership, shareholders can exercise a certain level of influence at the Annual General Meeting of Shareholders.

Annualized
The percentage change over a certain period (e.g., a month, a quarter, a period of five years). It is recalculated as if the underlying trend had occurred over a period of precisely one year. This makes it easier to compare percentage changes for unequal periods of time. Synonym: 'year-on-year'.

applicant of an insurance policy
Until the contract is drawn up, the term applicant is used. The acceptance is completed by the insurer.

As, if and when issued
It refers to securities that have been announced but not yet officially listed. AIW trading is also know as grey market trading. An example of an AIW share is a share in a rapidly growing company that is not yet fully in compliance with the stock exchange. Abbreviation: AIW.

Asian start
The initial value of the underlying basket or index of a fund with an Asian start is calculated as the average of various observations spread over the first period of the term. Using an average in this way avoids abrupt peaks in the initial value due to an overly short observation period (e.g., one day).

Asian tail
The closing value of the underlying basket or index of a fund with an Asian tail is calculated as the average of various observations spread over the last period of the term. Using an average in this way avoids abrupt peaks in the closing value due to an overly short observation period (e.g., one day).

ask price
The price that 'the market' wants to receive for the sale of a certain security.

asking
Giving the ask price of a security. 'Asking' is the opposite of 'bidding'.

asset allocation
The way the portfolio is invested. This allocation can relate to the choice of shares versus bonds, real estate and cash, interest rate products in the short or long term, or spreading the investments across different economic sectors, countries or regions. A distinction is made between strategic and tactical asset allocation. Strategic asset allocation refers to a model portfolio that is based on a long-term view, which takes into account the investor’s risk profile and the investment objectives. In a tactical asset allocation, the investor deliberately deviates from the model portfolio in order to follow their short-term expectations for certain assets. Synonym: 'spread of assets'

asset allocation
The way the portfolio is invested. This allocation can relate to the choice of shares versus bonds, real estate and cash, interest rate products in the short or long term, or spreading the investments across different economic sectors, countries or regions. A distinction is made between strategic and tactical asset allocation. Strategic asset allocation refers to a model portfolio that is based on a long-term view, which takes into account the investor’s risk profile and the investment objectives. In a tactical asset allocation, the investor deliberately deviates from the model portfolio in order to follow their short-term expectations for certain assets. Synonym: 'spread of assets'.

Asset Test (%) 
Test to determine whether more than 25% of the assets of a fund (or sub-fund) are invested directly or indirectly in debt instruments as defined in Article 19b of the 1992 Income Tax Code. If this is the case, definitive withholding tax will be payable at a rate of 27% on the income arising from these debt instruments on the purchase or transfer for a consideration of units in the fund, or in the event of full or partial distribution of the equity of the fund or the relevant sub-fund.

assignment
When an options investor with a short position is selected to fulfil the obligations of an options contract. The writer is therefore obliged to deliver (for call options) or to receive (for put options) the underlying asset at the exercise price.

assignment
When an options investor with a short position is selected to fulfil the obligations of an options contract. The writer is therefore obliged to deliver (for call options) or to receive (for put options) the underlying asset at the exercise price.

at the money
An option is at the money if the exercise price is close to the current price of the underlying asset. In other words, whether or not the option will be exercised still depends on future price movements.

authenticity check
In order to rule out fraud, all securities and coupons offered over the counter must be checked for authenticity.

automatic exercise
An automatic exercise is when option contracts are exercised at the end of the term, without an explicit order from the buyer. Opposite: individual exercise.

automatic savings facility
A system where the client gives the bank an order to automatically transfer a fixed or variable amount to their savings account at an arranged time.

B

balance of trade
The section of a country's current account balance that reflects the imports and exports.

balance of trade
The balance of trade is the net difference between a nation's imports and exports. It includes movable assets such as cars and food.

balanced
This term refers to the relative extent to which the upside potential and downside risk of ExpertEase funds is managed. In this case, twice as much attention is paid to downside risk as to upside potential. 

balanced insurance
An insurance policy that provides payment of the capital whether the policyholder is alive or deceased. It is the most common form of life insurance due to its double coverage; the premium is both a risk premium and a savings premium.

bancassurance
Bank-insurance (the preferred term at KBC). The sale of insurance products and services through the commercial banking network. The concept refers to the same phenomenon as 'insurance fund', but from the standpoint of the banker. See insurance fund.

bank-insurance
The sale of bank products and services through the commercial banking network. The term means the same as 'bancassurance'.

bare ownership
Possessing assets on a custody account without being able to profit from the return gained on these securities.

base rate
Interest paid on a regulated savings account is made up of a base rate of interest and a fidelity bonus. This base rate is calculated from the first calendar day following the date of deposit or transfer into the account and ends on the day of withdrawal/transfer from the account.

Basel agreement
An agreement concluded in 1987 between the ten richest countries (G10), Switzerland and the member states of the European Union regarding the solvency requirements that must be complied with by banks. The original agreement (Basel I) has been replaced by a new agreement (Basel II) and on 12 September 2010 the supervisory authorities and central banks reached an agreement for a new amendment (Basel III), which will be gradually implemented from 2013 onwards.

basis point
A unit of one hundredth of a percent. For example, if interest rates increase from 2% to 2.10%, ten basis points have been added. Synonym: 'percentage point'

basket
A package of different shares that are traded together. For example, a basket may consist of a package of shares that are part of an index.

basket trading
Trade in baskets of shares. Basket trading can be used to hedge positions in index options and futures.

bear
An investor who is pessimistic about a market. Literally: bear. 

bear market
A market in which the prices are falling and are expected to fall further.

bear rally
An extended period of time during which the price of a share continues to fall.

bear spread
An option combination that is employed if a limited fall in prices is expected. For example, an investor would buy a put option with a higher exercise price and write a put option with a lower exercise price. Another example would be writing a call with a lower exercise price and buying a call with a higher exercise price.

bearish
An investor is 'bearish' if they expect prices to fall.

before trading hours
The period in the morning before trading begins.

Beige Book
Information published by the Fed about the state of the economy in different districts.

BEL-20 index
The BEL-20 index was originally a stock market index of the 20 most important Belgian shares. Since 1 March 2005, the BEL-20 index consists of a variable number of shares, in order to guarantee sufficient liquidity. In addition to the established BEL-20 index, there are also the newer indices, the BEL Mid and the BEL Small.

BELFOX
Abbreviation of 'The Belgian Futures and Option Exchange'. It has now been merged with Euronext.

benchmark
A measure against which returns on a specific portfolio are tested, usually a certain shares or bonds index, or a bond with a specific term to maturity (e.g., 10 years) that acts as the benchmark for that term.

benchmark index
A barometer for market trends. For example, the BEL-20 index is the benchmark index for the Brussels stock exchange. It can also refer to a benchmark portfolio that is used as a foundation for building an investment portfolio. The results of the investment portfolio are then compared to the benchmark index. See also active management and index-based management.

Beneficiary
The person to whom the saved credit will be transferred on the release date of a third-party beneficiary clause. Context: third-party beneficiary clause.

The person to whom the insurer must pay the amount due. We make a distinction between the primary beneficiary and the contingent beneficiary: the primary beneficiary is a person who receives payment at the expiry date of the contract, while the insured person still is alive; the contingent beneficiary is a person to whom the insurer pays the capital, if the insured person dies before the expiry date of the contract. Context: insurance.

beta
A Greek letter that is a measure for systematic or market risk. The beta measures a security's sensitivity to market fluctuations. The beta of a share or portfolio provides an indication of the extent to which the price of the share or the value of a portfolio can be expected to increase or decrease, in the event of an increase or decrease in the benchmark, and is based on historical price trends. The beta of the benchmark is always equal to 1. A share with a beta of 1.1 will therefore be expected to increase by 11% if the benchmark increases by 10%, and decrease by 11% if the benchmark decreases by 10%.

bevak
Abbreviation of 'Beleggingsvennootschap met VAst Kapitaal' or 'closed-ended investment company' in English. The identifying feature of this fund is that the capital is essentially fixed. The capital may only be increased or decreased according to the rules that apply to an ordinary company, which includes an amendment to the articles of association. The shares are listed on the stock market. As a result of supply and demand, the stock market price may differ considerably from the net asset value. The most common bevaks invest in real estate, but there are also bevaks that invest in shares.

bevek
Beveks are open-ended investment companies (‘bevek’ – Beleggingsvennootschap met Veranderlijk Kapitaal in Dutch and sicav – Société d’Investissement à Capital Variable in French). A typical feature of these funds is that they can increase their capital at any time, without any formalities, by issuing new shares; conversely, they can decrease their capital by buying back existing shares. As a result, investors can enter or exit funds at any time, at the prevailing net asset value. 

Black Monday
A serious global fall in prices on the stock exchanges that occurred on Monday 21 October 1987.

bond fund
A fund that mainly invests in bonds and other fixed-income securities. The offering is very diverse. There are bond funds that are widely spread across different currencies and funds, funds that only invest in a limited number of currencies, funds that invest exclusively in government bonds or in convertible bonds and funds that either exclusively invest in long-term bonds or exclusively invest in short-term bonds, etc. The specific investment strategy of each fund is set out in a prospectus.

bond option
An options contract with an underlying asset of bonds.

bonus right
A right (coupon) that is granted to shareholders, with which they can acquire a certain proportion of new shares (for example bonus shares or share dividends).

bonus right
A right given to existing shareholders which entitles them to acquire a free share dividend. In many cases, several bonus rights may be required in order to obtain a share dividend. The right is represented by a coupon, often simply referred to as a dividend.

bookbuilding issue
A method of determining the issue price of a soon-to-be listed share or bond. The price and demand for the security is researched before it is issued in order to ensure sufficient sales of the issue. See also issue.

book-entry securities
Securities that are represented by a listing on an account in the name of the owner or holder of the securities, without the option of physical delivery.

booster
An umbrella term for structures that aim to strongly increase a fund's return. These structures often pay out several times the amount of the return on the underlying assets (shares, index, etc.) at maturity.

bottom
The moment when share prices reach their lowest point.

broad cliquet
Funds with a cliquet structure serve the needs of investors by not only protecting capital but also by exploiting interim fluctuations. Capital gains and losses may be locked in at predefined times. Funds with a cliquet structure not only take account of movements in the underlying stock market, recorded on the interim observation dates, they can also set a new starting value for the next interim period on the initial observation date for each period. These dates are set when the fund is launched. At maturity, investors receive the sum of all percentages locked in during the term of the fund. The term 'broad cliquet' denotes the maximum and minimum percentages set for each interim period. Investors know from the outset what percentage of the maximum increase or decrease will count towards the return at maturity. The maximum percentage is also referred to as the 'cap' and the minimum the 'floor'.

broker
A member of the stock exchange who trades exclusively on behalf of others. The broker takes orders from other parties such as private clients and institutional investors, such as pension funds. In their role as a broker, they connect buyers and sellers or execute large orders themselves on the stock exchange. A broker may work with all types of financial products such as shares, options and bonds. Brokers are strictly forbidden from trading on the stock exchange for their own gain. Brokers earn income from the transaction fees.

broker's fee
A fee that a broker or bank receives in exchange for the execution of an order or their intermediation in a transaction.

broking firm
The only type of company that is authorised to execute orders on the stock exchange by the Belgian Banking, Finance and Insurance Commission.

budget balance
The difference between the government's revenue and expenditure. If the balance is positive, it is called a budget surplus, if the balance is negative, it is called a budget deficit.

budgetary easing
When the government increases its spending or lowers taxes in order to stimulate the economy. Governments tend to ease their budgetary policies during periods of recession. In practice, budgetary easing often leads to a budget deficit.

budgetary tightening
The government decreases its spending or increases taxes in order to slow down the economy. Governments tend to tighten their budgetary policies during boom periods.

bull market
A long period of an uninterrupted increase in share prices.

bull market
An extended period of price rises of more than 20% on the stock exchanges.

bull rally
An extended period during which the price of a share continues to rise. Synonym: 'bull run'.

bull run
An extended period during which the price of a share continues to rise. Synonym: 'bull rally'.

bull spread
An options spread employed when a bull market is anticipated. A call spread means buying at a lower exercise price and selling at a higher exercise price. A put option spread means buying at a lower exercise price and selling at a higher exercise price.

bullish
An investor is bullish if they expect share prices to increase.

butterfly spread
An option combination where the options investor writes two options and buys two options, each with the same expiry month. This strategy is almost exclusively used by professionals and traders who have hardly any transaction costs to pay. There are two types: the 'long butterfly spread' and the 'short butterfly spread'.

buy stop order
A buy order that is retained until the trigger price is reached and then is executed, so the buyer can buy shares at the most favourable price. Synonym: 'suspended market order'.

Buyback
A share buyback programme. Companies buy back their own shares for many different reasons. The management may decide that the share is undervalued on the stock exchange. By buying back part of its shares at an exceedingly low price, the value of the remaining shares increases. Buyback programmes are announced in advance and are used to send a signal to the market. The company may have a strong cash position but have no concrete investment plans. For tax reasons, companies prefer to buy back shares instead of increasing the dividend.

C

calendar spread
A combination order where an option with a longer term is bought and an option with a shorter term is written. The underlying value, the type of option (call or put) and the exercise price are the same; only the expiry dates differ. Synonym: 'time spread', 'horizontal spread'. By using this type of spread, the options investor hopes to benefit from the fact that the expected value of the option over time will dissipate faster than that of the bought option, which has a longer term.

call (bonds)
In the context of bonds, a call is an issuer's right to repay a loan before maturity under certain circumstances ('callable bonds').

call (options)
In the context of options, a call is the right to buy or the obligation to deliver. The holder has the right, but not the obligation, to buy an underlying asset at a predetermined price. The writer of the call has the obligation to deliver the asset when the holder of the call requests it.

call spread
An option combination that is created by buying and writing calls with differing exercise prices and/or expiry dates at the same time.

callable
Funds with an investment policy that explicitly allows the counterparty of the structured products to wind the funds up early at 100% of their initial capital (before charges). The decision to 'call' these sub-funds (i.e. to wind them up early) is taken by the counterparty with which hedging occurred.

cap
By setting a cap for a fund, any increase in the value of the basket is 100% tracked up to a predefined maximum: the cap. This technique allows the fund manager to offer a 100% participation rate over what would otherwise be too short a term.

capital gain
Profit that is realised when a security or asset is sold.

capital guarantee
For UCIs. The term is reserved for UCIs whose value during the initial subscription period is integrally, irrevocably and unconditionally guaranteed at maturity by a third party which is subject to prudential supervision and is based in one of the member states of the European Economic Area. The guarantee applies to all investors in the UCI. The guarantee takes the form of a legally binding agreement between the UCI and the guarantor institution.

capital market
Together with the money market, they comprise the financial markets. The two concepts are not strictly defined. The capital market mainly relates to long-term financial assets, i.e. instruments that have a term to maturity of more than a year when they are issued. Both share and bond markets fall under this category.

capital protection
An undertaking for collective investment (UCI) may only use the terms 'capital protection' or 'protected capital' when the following criteria are met: During the initial subscription period, the subscription price of units in an undertaking for collective investment will be fully protected at maturity; To provide protection, an investment strategy must be established where investment is made in deposits, debt instruments issued by a company subject to prudential supervision and established in a Member State of the European Economic Area and/or debt instruments issued or guaranteed by a Member State of the European Economic Area, or where a similar structure applies with an identical counterparty risk; Protection is provided to all shareholders.

capitalisation
The yearly interest is added to the capital. This interest then generates more interest ('interest on interest'). The interest and the 'interest on interest' are paid out at maturity together with the invested capital. See: market capitalisation. Context: term investments.

capitalisation shares
An investment fund can issue distribution shares or capitalisation shares. In the case of distribution shares, certain income – usually dividends or interest collected by the investment company – is paid out at regular intervals in the form of a dividend. Capitalisation shares, by contrast, do not pay out this income but instead reinvest it. Both types of shares can coexist.

cash dividend
Profit distribution in cash to shareholders.

cash flow
The net profit plus the depreciation of a company. The cash flow is the amount that is available for use in investments, dividends and retained earnings. Synonym: 'cash flow'.

cash settlement
When a settlement in cash takes place, exercising the option does not lead to a physical delivery but rather to a settlement on the basis of the price difference between the exercise price of the option and the settlement price of the underlying asset.

certificate
Bearer shares. Context: term investments. The certificates are issued by an administration office. The administration office holds possession of the actual shares. They may either be exchangeable (i.e. they can be exchanged for the original shares), non-exchangeable or have limited exchangeability. They do not give the holder the right to vote at extraordinary or annual general meetings.

claim
1) Right of first refusal of existing shareholders during registration for new shares or securities. The issuing institution will issue a coupon to as proof of the right. This proof is usually the last number on the dividend sheet. Synonym: 'subscription right'. 2) Making a claim for loss in order to receive compensation. This term is used in the context of Class Actions.

claim issue
The difference between an ordinary issue and a claim issue is that the shares are only available to holders of existing shares because these holders poses claim rights. The aim of this is to ensure that share ownership, and therefore also voting rights, do not become too diluted. It also enables current shareholders to receive higher gains.

click fund
An investment fund with capital protection for which a return is determined (or 'clicked') in advance (usually once a year). They are funds with a fixed term to maturity that guarantee, at the very minimum, a repayment of the initial capital investment at maturity in the currency of issuance, minus the costs. The investment return you earn at maturity is linked to movements in a stock market index or a diversified basket of shares. The structures and calculation methods are very diverse. The simplest method is that the return is equal to the increase in the benchmark index during the fund's term. Interim evaluation data may also be inserted, maximums set or coefficients applied. (x% of the increase will be paid out). Other examples of structures are digital (the return is x% or y%, depending on whether or not the index has increased by at least z%) and 'best of' structures (the return is linked to the best performing index of an x number of indices). In some types of funds, there is a guaranteed minimum return in addition to the capital protection.

closed fund
An investment fund with a fixed amount of capital. In order for a new shareholder to enter, an existing shareholder must sell their shares.

closing buy
Transactions that end or reduce a short position.

closing price
The price of the last transaction carried out at the end of the trading day or the mid price of the last bid and ask prices.

closing purchase
Stock exchange: buying a share or bond to reverse an open short position. Options exchange buying an option or future to reverse an open short position. Through this action, the buyer of the option or future is released from their obligation to deliver or receive. Also known as a closing buy on the options market.

closing sale
Stock exchange: the sale of an open shares or bonds position. Options exchange the sale of an open options or futures position. Through this action, the seller waives the rights related to an options position or the obligations of a futures position. Also known as a closing sell on the options market.

closing sell
Transactions that end or reduce a long position.

CME
Abbreviation of 'Chicago Mercantile Exchange': a US company that runs the biggest derivatives exchange in the world. The CME Group facilitates trade in futures and options on financial products, commodities such as agricultural products and metals, currency and alternative investments such as weather or real estate. The company is currently listed on the NASDAQ.

combination order
Placing an order for options in different options series with the same underlying value, at the same time. The aim of a combination order is to take advantage of a specific market fluctuation. Spreads, straddles and tangles are examples of combination orders.

commission
The fees charged for placing orders and undertaking transactions. The method used to determine the fee varies per product (OTC market, securities or listed options).

commodity
Goods. The word commodity usually refers to raw materials such as metals and minerals ('hard commodities') or agricultural products ('soft commodities' or 'softs').

commodity market
Euronext's exchange for agricultural futures products. The agricultural futures market is part of the Commodity Market, which is part of Euronext's options exchange. Futures contracts in potatoes, pigs, eggs, rapeseed, grindable wheat, wine and corn, and options in pigs and potatoes are traded on Euronext's Commodity Market.

common stock
An ordinary share.

comparable sales
The turnover of shops that have been open for more than a year, not taking into account takeovers and expansion. The comparable sales are an important factor in estimating a company's turnover trend.

compensating
Undoing an obligation by undertaking an opposing transaction.

compound interest
Capitalising interest. The accumulated interest is not paid out, but rather added to the invested capital, which results in interest on interest.

confirmation
A process/document in which one party in a transaction shares the details of the transaction with the other party and in doing this, gives them the opportunity to confirm or respond.   

Constant Proportion Portfolio Insurance
An investment method that enables one to wholly or partially monitor capital without limiting the upside potential of the more risky assets in a portfolio. The CPPI protection mechanism periodically recalculates (on a daily, weekly or monthly basis) the ratio of the risky assets (e.g., shares) to the risk-free money market instruments. Abbreviation: 'CPPI'

consumer confidence
An indicator that shows the level of consumer confidence and consumer expectations with regard to the development of the economy in a certain country or region. Generally speaking, this information is gathered periodically, on a monthly basis, using standardised questionnaires and contains various sub-components that are aggregated using a specific method. Consumer confidence is used to predict future consumer spending and is therefore an important resource for companies and the financial markets in predicting developments in the economy.

Consumer Price Index
The level of change in consumer prices, calculated by the Central Bureau of Statistics through research carried out each month. The CPI includes: housing, food, transport and electricity costs. Abbreviation: 'CPI'.

Contango
'Contango' is a scenario on the futures market when the futures price surpasses the cash price and increases relative to the length of time to maturity remaining.

continuous issue
An issue of investments that can be subscribed to on a daily basis. There are no time limits on the issue period.

continuous listing
Securities listed on the stock exchange that can be traded at any moment during the entire trading day.

continuous market
A sub-market of Euronext; includes all securities which are traded daily in large volumes and require constant pricing. In practice, this means that a new price equilibrium between supply and demand is created every few seconds. The costs of being listed on this exchange are high. The stock exchange requires companies listed on this exchange to provide shareholders with regular reporting. Synonym: 'spot market'.

contract size
The quantity of underlying assets to which an options or futures contract relates. Share options generally consist of 100 shares and currency options of 10 000 euros or 10 000 dollars.

contract specifications
The terms and conditions of a contract. Certain specifications in options contracts (the expiry month, exercise price and underlying value) are standardised.

convertible bond
Bonds which can be exchanged (converted) periodically for shares under certain conditions. These bonds are actually an option to buy shares in the company during a certain period. The interest rate for these bonds is lower than for standard bonds. The investor is additionally always entitled to convert the bonds into shares. At maturity, non-converted bonds will be redeemed in cash at the nominal value. Convertible bonds should not be confused with reverse convertible bonds.

core inflation
An inflation figure which does not take into account product categories with strongly fluctuating prices such as energy and agricultural products. Since this measure of inflation is more stable than the total rate of inflation, it gives a better indication of overall price trends.

corporate action
Every transaction involving a security during its term, with the exception of the repayment at maturity or coupon payments. There are two types of corporate actions: 1) compulsory – the client has no other choice, e.g., splits and 2) non-compulsory – the client has a choice e.g., optional dividends.

corporate bond
Bonds that are issued by commercial companies.

correlation
A gauge between -1 and +1 that reflects the degree to which two variables, e.g., the prices of two shares, fluctuate over time. If the two variables always rise and fall at the same rate, this is referred to as positive correlation and the correlation coefficient is +1. If the variables are always perfectly opposed in movement, the coefficient is -1. If the variables show absolutely no correlation, the coefficient is 0. If the correlation between two shares is small, you can reduce risk by spreading an investment portfolio over both shares. The price movements of one share will be, to a certain extent, smoothed out by the price movements of the other share.

correspondent
A foreign bank that KBC collaborates with in the context of payment and securities traffic. Often, KBC effectively opens an account with the bank, in the currency of the country in which the bank is situated.

coupon
Proof of dividend for shares or proof of interest for bonds (savings certificates, etc.) which enables the holder to receive the dividend or interest. The coupon can also used as evidence of preference rights or regular rights for a corporate action. Each coupon has the same number as the corresponding corpus.

coupon interest
An interest percentage that indicates the rate of interest on the nominal value of the bond. The interest percentage is stated on the coupon.

coupon sheet
The part of a bond to which various coupons are linked and with which the interest on a bond can be redeemed.

coupon yield
The annualised return on the income of coupons.

cover requirement
A minimum cover is required for investors who sell options. This amount (or the counter value of it in other financial assets) creates a buffer against the risks taken by the investor by writing the options.

covered warrant
A warrant that, when exercised, gives the holder the right to buy existing securities (but no new shares).

covered warrant
A warrant written by a party other than the company to which the underlying asset relates. When the warrant is executed, the issuing party delivers shares that have previously been issued and are already being traded on the secondary market. In contrast, for 'not covered warrants' new shares are issued when the warrant is executed.

covered writing
Writing call options while owning and retaining the underlying asset. This minimises the risks taken by the writer.

CPI
Abbreviation of 'Consumer Price Index'. The level of change in consumer prices, calculated by the Central Bureau of Statistics through research carried out each month. The CPI includes: housing, food, transport and electricity costs.

CPPI
Abbreviation of 'Constant Proportion Portfolio Insurance'. An investment method that enables one to wholly or partially monitor capital without limiting the upside potential of the more risky assets in a portfolio. The CPPI protection mechanism periodically recalculates (on a daily, weekly or monthly basis) the ratio of the risky assets (e.g., shares) to the risk-free money market instruments.

crash
A sharp, unexpected decline in stock market prices that usually goes hand in hand with mass panic. Two infamous stock market crashes occurred in October of 1929 and October of 1987. Synonym: 'stock market crash'.

credit crunch

A deficit caused when the public capital market is inaccessible to many companies and the banks are not issuing credit, which means companies are either unable to or are choosing not to invest.

credit rating 
The credit worthiness rating of a bond or its issuer. This score indicates how likely it is that the investor will actually receive the predetermined interest and capital payments. Ratings comprise one or more letters and certain symbols or figures. AAA is considered the least risky investment rating. Investments with ratings below AAA have an increased risk. For more detailed information about ratings visit the ESMA website www.esma.europa.eu.

credit spread
The difference in interest rate between two investment instruments as a result of differing levels of credit worthiness. It is generally used to show the difference in interest rates between government bonds and corporate bonds. National governments are considered to offer the highest quality credit on the bond markets. All other issuers must pay higher interest rates for a loan with a comparable term. The higher the credit risk, the higher the interest rate.

cumulative preference share
If the preference share dividend was not – or only partially – paid out, this type of share takes precedence during repayments in the years that follow. The dividends on ordinary shares will only be paid out after all the overdue dividends for the cumulative preference shares have been paid out.

currency hedging
An investor investing in products that are listed in a foreign currency runs the risk that the exchange rate of the foreign currency will fluctuate against their own currency. This risk can be minimised through currency hedging.

currency option
An option where the underlying asset is a currency.

currency risk
The risk that a foreign currency will fluctuate in value compared to your own currency. Example: the exchange rate risk of an investment fund indicates whether or not the fluctuations in the exchange rates of the assets that the fund invests in have a strong influence on the net asset value of the fund. Structured investment funds use compo or quanto options. These are options where the currency of the underlying index or shares is different to the currency of the fund. Compo options are subject to exchange rate risk because the currency of the underlying index or shares is converted to the currency of the fund using the applicable exchange rate. The level of potential capital gains is determined by the development of both the underlying and the exchange rate. Quanto options are not converted and therefore there is no exchange rate risk. An increase in the underlying index or shares is settled without taking into account changes in the exchange rate.

current account balance
The component of the balance of payments which shows the trade in goods and services, income (from labour and investments) and transfer payments (gifts) for a certain period. There is a surplus in the current account if the export exceeds the import or, in other words, when the revenue from exported goods and services or transfer payments received from abroad is higher than the payments made to foreign countries as a result of trade or transfer payments.

custody
The bank can act as a custodian on behalf of the client/depositor of the financial instruments and investment currencies held in open custody on one or more custody accounts. In its role as a bank and custodian, the bank is tasked with certain activities such as the collection and payment of interest and dividends, the repayment of expired capital and exchanging and splitting securities, etc.

custody account
An account to which assets (securities and investment currencies) can be transferred which are held in escrow by the bank/custodian on behalf of the client/depositor.

custody fee
A fee charged by a bank to its clients for the safekeeping and administration of securities.

cyclical sectors
Sectors that are more sensitive than average to changes in the economic cycle. These sectors benefit more from economic growth than others, but are also hit harder when growth stabilises or contracts. We regard Information Technology, Industrials, Materials and Consumer Discretionary as cyclical sectors.  

cyclical shares
Shares in companies with activities that are sensitive to economic fluctuations and/or their profitability is subject to more fluctuations than usual. For example, the profit of steel or chemical companies can fluctuate widely because sales and the input and output prices can vary strongly and the manufacturing processes are very capital intensive, meaning the fixed costs are extremely high.

cyclical stocks
Shares in companies that are sensitive to economic fluctuations and/or operate in a cyclical sector, e.g., paper or shipping.

D

DAX
Abbreviation of 'Deutscher Aktien IndeX'. An index that consists of the thirty most traded equity funds that are listed on the German stock exchange (Deutsche Börse) in Frankfurt. The DAX is generally considered to be the most important German stock exchange barometer.

deep in the money
See in the money.

default
A term used when companies fail to fulfil their obligations and loan repayments.

defensive investor
If you are a defensive investor, you put an emphasis on playing it safe. You are also able to tie up your money for a longer period of time: three to five years. You opt mainly for interest-bearing investments. You have a modest proportion of your investments in shares. A healthy spread of investments remains an important factor.

defensive sectors
Sectors that are affected less than average or (almost) not at all by movements in the economic cycle. They usually hold up better when the economy performs less well, when economic growth stabilises or contracts. However, they also benefit less when growth picks up. Examples are Health Care, Telecommunication Services, Utilities and Consumer Staples (including food, beverage and tobacco companies). 

defensive shares
Shares in companies with activities that have fairly stable growth or that are less subject to economic fluctuations than other shares. For example, food manufacturers are characterised by a relatively steady increase in profit in comparison to many other companies. The growth in sales is relatively stable and predictable and any increases in the prices of raw materials can be factored into consumer prices quite easily.

deflation
A sustained drop in the general price level. Deflation has an adverse effect on the economy, partly because it causes spending to be postponed.

delivery charges
Costs charged by a bank or commission agent for the delivery of an asset.

delivery contract
An agreement between two parties regarding the delivery and settlement of an order. The agreement could be that certain items should be posted to a custody account at a given time.

delivery month
The months in which the underlying asset of a contract can be delivered. For agricultural futures trade, we refer to it as a 'delivery month' and for options, an 'expiry month'.

denomination
Securities such as shares and bonds can be issued in various denominations and each with a different nominal value. The nominal value of the denominations can vary from a few cents to thousands of euros. Smaller denominations may be more easily negotiable.

deposit
Securities deposited into a custody account. See custody account.

depositary receipts
Depository receipts (DR) are securities that represent a certain amount of shares. Mostly, these are shares in companies in emerging markets. Depository receipts are issued by a credit institution that holds the underlying shares in escrow on behalf of the holders of the depository receipts. The credit institution is located in a developed market (e.g., the US). Depository receipts are advantageous because they remove some of the inconveniences that are associated with emerging markets such as the potential limited accessibility to these markets, high transaction charges and limited liquidity. Depository receipts are denominated in an international currency, rather than the local currency of the share.

depreciation
A strong and persistent price decline over an extended period of time.

derivative
A financial instrument for which the value is derived from the value of another asset (the underlying asset). The value of the derivative is not only determined by the value of the underlying asset, but also by numerous other factors (for example, interest rate trends, the term to maturity and the volatility of the underlying asset, etc.). There are various types of derivatives (forwards, futures, swaps, options, etc.) on a number of different types of assets (raw materials, currencies, shares, etc.). Derivatives are useful because of their leverage effect. They can be used as a speculative instrument as well as to protect a portfolio against certain market risks (hedging), such as exchange rate and interest rate risks.

Deutscher Aktien IndeX
An index that consists of the thirty most traded equity funds that are listed on the German stock exchange (Deutsche Börse) in Frankfurt. The DAX is generally considered to be the most important German stock exchange barometer. Abbreviation: DAX.

devaluation
A reduction in the official value of a currency by the monetary authorities in a system of fixed exchange rates. As a result, the country's exports will be cheaper and the imports will be more expensive.

digital click
A structure where the capital gains are dependent on an all-or-nothing option. If a specific condition is met, there are handsome gains. if not, there is no (or only a minimal) return. The return investors receive at maturity is the sum of the digital percentages locked in per interim period.

digital cliquet
Funds with a cliquet structure serve the needs of investors by not only protecting capital but also by exploiting interim fluctuations. Capital gains and losses may be locked in at predefined times. Funds with a cliquet structure not only take account of movements in the underlying stock market recorded on the interim observation dates, they can also set a new starting value for the next interim period on the initial observation date for each period. These dates are set when the fund is launched. At maturity, investors receive the sum of all percentages locked in during the term of the fund. The term 'digital cliquet' refers to the fact that the capital gains are dependent on an all-or-nothing option. If a certain condition is met, a handsome gain is realised (or locked in); If not, there is no (or only a minimal) return.

direct debit
A direct debit is when the policyholder gives the insurer permission to periodically debit a certain amount of money from their current account. The initiative is therefore taken by the insurer: they ask the financial institution of the policyholder to debit a certain amount from the client's account. Context: insurance.

discounted cash flow
A method for determining the value of a security by calculating the estimated current value of future cash flows.

discretionary management
A contract in which the client gives a legally recognised intermediary a mandate to manage their securities portfolio on their behalf. The contract includes the objectives assigned to the manager by the client and the level of risk that the client is willing to take on. The manager is permitted to make any management decisions they consider necessary in order to achieve the objectives without consulting the client, as long as they are within the agreed limits.

disinflation
A persistent reduction in the rate of inflation, meaning the general prices continue to rise but at a slower rate than before.

disinvestment
The sale or closure of a company division.

distributable security
A security that a) has reached its maturity date and can be paid out, or b) can be paid out early as a result of an exercised call or put option or a lottery (repayment).

distribution shares
Funds can issue distribution shares or capitalisation shares. In the case of distribution shares, certain income – usually dividends or interest collected by the investment company – is paid out at regular intervals in the form of a dividend. Capitalisation shares, by contrast, do not pay out this income but instead reinvest it. Both types of shares can coexist.

distributor
A financial institution that is responsible for selling investment funds. The funds are sold via the branches of the distributor.

diversification
Investment often implies risk. Diversifying or spreading is a simple but highly effective way to limit investment risks. The capital to be invested is spread across different types of investments with differing values.

dividend
The part of the profit that is periodically (annually or quarterly) paid out by a company to its shareholders. The dividend is a recurring but uncertain income stream for the investor. The Annual General Meeting of Shareholders decides which how much of the profit will be paid out.

dividend payment
The designation of a coupon that entitles the holder to the payment of the dividend or to participate in a lottery draw for a bond, etc.

dividend yield
The annualised return on the income of dividends.

dollar satellites
Dollar currencies other than US dollars, primarily Canadian, Australian and New Zealand dollars.

dollar/euro option
An options contract with dollars as the underlying value.

Dow Jones
The shares index of the New York Stock Exchange.

Dow Jones Industrial Average Index
The stock exchange barometer for US securities trading, which is calculated and maintained by Dow Jones & Company. The 'Dow' consists of 30 large US companies and is generally considered as one of the most important stock exchange indicators.

draft prospectus
A prospectus published by the issuing institution if the price and quantity of the shares to be issued in an upcoming listing are not yet known. A supplement with the issue price and the quantity of shares is published at a later time. Synonym: pink herring.

duration
The duration is a measure of the impact of a change in interest rates on the price of a specific bond. If the relevant interest rate falls by 1%, it shows the percentage price increase of a bond. The longer the remaining term to maturity, the more sensitive prices are to fluctuations in interest rates. See interest rate sensitivity.

dynamic investor
As a dynamic investor, you hope that by taking bigger risks over a longer period of time (5 to 7 years) you can achieve higher returns. Your investments are divided roughly equally between shares and interest-bearing investments. Under normal market conditions, that translates into a good balance between risk and return. You are aware that falls in share prices can occur. 

E

earnings per share
The profit divided by the number of outstanding shares.

earnings yield
The earnings per share divided by the price of the share. It is therefore the inverse of the price/earnings ratio (P/E). The earnings yield is a theoretical concept for investors, because companies don't necessarily fully pay out their profit. The earnings yield makes it possible to compare the return on a share with the return on a fixed-income security such as a bond.

EASDAQ
The former counterpart of the US growth stock exchange, NASDAQ.

EBIT
Abbreviation of 'Earnings Before Interest and Taxes'. The revenue of a company minus the costs linked to business operations and before financial results and taxes.

EBITDA
Abbreviation of 'Earnings Before Interest Taxes Depreciation Appreciation'. A company's results before interest, taxes, depreciation and the amortisation of goodwill.

ECB
Abbreviation of ''European Central Bank'. Established in 1998 during the establishment of the European Monetary Union. Together with the national central banks of the EU member states, the ECB forms the European System of Central Banks (ESCB). The ECB determines the key rates in the euro area. The central bank uses the key rate to influence the price of money.

economic climate
The mood of the economy, or the current state of a national economy.

economic disability
Economic disability is the loss or diminution of the capacity to exercise a profession as a consequence of a physiological disability. Its degree is determined by taking into account: the ability of the insured person to take on another profession and the competitiveness of the insured person on the general labour market.

Economic Monetary Union
The member countries of the European Monetary Union use the euro as their currency. Abbreviation: 'EMU'.

embedded value (insurance policies)
The net asset value of an insurance company, divided by the current estimated value of the future profit which will be generated by the existing insurance contracts.

emerging markets
Countries or regions that are expected to rapidly catch up to the West in terms of economic development. That means that higher returns can be expected on the stock exchanges of these countries but the higher returns are accompanied by higher risks. Examples include countries in Southeast Asia (e.g., Thailand and China), Latin America (e.g., Brazil and Chile) and Central and Eastern European countries (e.g., Poland and the Czech Republic).

emerging markets
Countries or regions that are expected to rapidly catch up to the West in terms of economic development. That means that higher returns can be expected on the stock exchanges of these countries but the higher returns are accompanied by higher risks. Examples include countries in Southeast Asia (e.g., Thailand and China), Latin America (e.g., Brazil and Chile) and Central and Eastern European countries (e.g., Poland and the Czech Republic). 

employment rate
The working population divided by the working-age population. Indicates the proportion of the total potential supply of labour that is actually working. Synonym: 'activity rate'. It is the opposite of the unemployment rate.

EMU
Abbreviation of ''Economic Monetary Union'. Member countries of the EMU use the euro as their currency.

equity exposure
Equity exposure is the extent to which a portfolio tracks the stock markets. Individual equities and traditional equity funds track interim price movements very closely and have an equity exposure of 100%. Capital-protected equity investments generally track interim stock market movements less closely, so their equity exposure is dependent on the degree to which they track price movements on the stock exchange.

The KBC investment strategy determines the level of equity exposure (equity risk) that is permitted to be included in the portfolio, for each target portfolio.

equity fund
A fund that primarily invests in shares. There is an extensive range of options such as funds that invest worldwide, funds that are specialised in a certain country or region, or a particular sector or market niche, funds that are managed actively or are index-based and so on. The investment strategy is set out in the prospectus.

equity futures
A futures contract with shares as its underlying asset. There are futures in financial instruments (indices, shares, interest, currency) and in commodities such as agricultural products (grain, potatoes, soy beans, coffee beans, pigs), precious metals (gold, silver, palladium) and raw materials (oil, copper, lead).

equity linked notes
Structures that are tailored to the needs of the client and are linked to an index, an index combination, a share or baskets of shares. They are one of the products offered by KBC Financial Products.

ESMA
European Supervisory Authority for Financial Markets (formerly CESR).

ETF
ETF is an abbreviation of Exchange Traded Fund. They are UCIs that are listed on a stock exchange or a similar market. At least one party (called the market maker) ensures that trading can occur at a price that does not excessively deviate from the intrinsic value of the ETF.

ETN
ETN is an abbreviation of Exchange Traded Note. It is a debt instrument and therefore not a UCI. It is traded on a stock exchange or a similar market. The value of an ETN is dependent on the benchmark value, for example an index, and the credit worthiness of the issuer. An amount, which is dependent on the benchmark value, will be paid out on the final due date.

EURIBOR
Abbreviation of 'European Interbank Offered Rate'. An inter-bank rate that commercial banks in the euro area charge each other when lending each other money. The EURIBOR is calculated each day according to the average of the rates of dozens of commercial banks.

Euro satellites
Currencies of European countries that are not part of the euro area, such as in Switzerland, Denmark, the UK, Norway and Sweden.

EURO STOXX 50
A European stock market index calculated by Dow Jones. This index is based on the market capitalisation of the 50 shares that are considered the most relevant within the countries in the European Monetary Union.

euro/dollar option
An options contract with an underlying value of 10 000 euros.

Euroclear
An international clearing bank, situated in Brussels. Formerly known as the Corps d'Intervention (CIK).

Eurolist
The Euronext stock exchange is divided into sub-segments according to the characteristics of the listed securities and shares: Eurolist and Free Market. Eurolist consists of two sub-markets: the continuous market: includes all securities which are traded daily in large volumes and require constant pricing. the fixing market: includes securities that are traded in lower volumes but are nevertheless still traded in large numbers on a daily basis. The equilibrium price is determined twice a day. The free market is the second largest segment and contains securities of small listed companies. The volume is much lower and the listings can remain unchanged for several days.

Euronext
The trading platform for the Dutch, Belgian, French and Portuguese stock exchanges (and soon also the London Stock Exchange). Synonym: 'Euronext N.V.'.

Euronext 100
An index calculated by Euronext that is comprised of the 100 largest companies listed on Euronext. The Euronext 100 gives an indication of the prices of the most important companies in the Netherlands, France and Belgium.

Euronext N.V.
A holding company that was officially established on 22 September 2000 in Amsterdam as a company with limited liability, in accordance with Dutch law. It now has branches in Belgium, France, the Netherlands, Portugal and the United Kingdom. On 6 February 2002, the Lisbon stock exchange, BVLP (Bolsa de Valores de Lisboa e Porto), joined Euronext. In January 2002, Euronext acquired the London options and futures stock exchange, LIFFE (London International Financial Futures and Options Exchange). The trade in options and futures of the two stock exchanges was combined into one exchange called Euronext.liffe. On 2 September 2002, the Euronext Lisbon, Paris, Brussels and Amsterdam markets were integrated into one collective platform. Euronext aims to become the biggest European financial market. In April 2007, Euronext merged with NYSE, the New York Stock Exchange. The merger was aimed at creating the biggest stock exchange in the world. The new company was named NYSE Euronext.

Euronext.com
The domain name of the official Euronext website. The full URL is: http://www.euronext.com. The website offers news and information about Euronext and the listed and traded products as well as price information.

European Central Bank
Established in 1998 during the establishment of the European Monetary Union. Together with the national central banks of the EU member states, the ECB forms the European System of Central Banks (ESCB). The ECB determines the key rates in the euro area. The central bank uses the key rate to influence the price of money. Abbreviation: ECB.

European passport
A supervisory authority inspects the activities of investment funds in each of the EU member states. In Belgium, this supervisory authority is the Financial Services and Markets Authority (FSMA). The supervisory authority can grant a European passport to funds that satisfy European standards. The funds may be sold in other EU member states. The European standards mostly pertain to investment restrictions, which have the aim of preventing the creation of portfolios that consist of only an extremely limited number of assets. An individual share can occupy a maximum of 10% of the portfolio of an equity fund and all positions of more than 5% can only occupy a maximum of 40% of the portfolio.

European-style options
There are US-style and European-style options. They differ in when they can be exercised. US-style options can be exercised at any time during the term. In contrast, European-style options can only be exercised on the expiry date. See also option.

exchange rate
The price of the money of a country, expressed in the local monetary unit of another country. Exchange rates fluctuate as a result of other factors such as the differences in inflation and interest rates between the two countries, unless a fixed exchange rate system is used.

exchangeable
Can be exchanged for ordinary shares.

excluded risks
A cause of death that is not covered by the contract. Example: if the death of the insured person is deliberately caused by the policyholder or the beneficiary. If the insured person dies as a result of one of these causes, the insurer will not pay out the capital in the supplementary death cover. In that case, in the event of the insured person's death, the beneficiary will only receive the reserve.

exercise
An options contract gives the holder the right to buy or sell the underlying asset at specific price. When the holder exercises their option, they buy or sell the underlying asset at the exercise price. Exercising option contracts can only be done at the end of the term. Sometimes interim exercising is also possible.

exercise cut-off time
The last moment when an investor can give an order to exercise their option rights.

exercise limit
The maximum number of contracts that the holder of an option right may exercise, per period and per type. If the exercise limit is exceeded, the investor may only carry out closing transactions until the position has fallen under the limit set by Euronext.

exercise price
The price at which the holder of an option can buy or sell the underlying asset during the designated option period.

expiration cycle
A series of expiration months of three-month, six-month and nine-month options that apply to a certain option class. For example, index options are traded according to the cycle: January, April, July and October.

expiry
The end (expiry) of an options or a futures contract. An option always has a limited term to maturity. After reaching its expiry date, the option no longer exists. This usually occurs on the third Friday of the expiry month.

expiry date
The date on which an option or future matures or ceases to apply. As a rule, it is the Saturday after the third Friday of the applicable trading month. The investor may exercise their option rights until that date.

expiry month
The month in which the option or future matures or ceases to apply. Together, the various maturity or expiry months form a cycle.

Explanatory Memorandum (options/ futures)
A brochure outlining the possibilities and risks of trading in options or futures. The bank or commission agent is obligated to provide the investor with a copy of the Explanatory Memorandum when they enter into an options contract. By signing the options contract, the investor declares that they have familiarised themselves with the Explanatory Memorandum.

Extraordinary General Meeting
A specially convened General Meeting of Shareholders (in addition to the Annual General Meeting), held for the purpose of deciding on numerous extraordinary agenda items (such as a capital increase, amendments to the articles of association, a merger or takeover, etc.).

F

fair value
The theoretical value of an asset, calculated on the basis of a specific valuation model.

far out of the money
See out of the money option.

Fed
Abbreviation of 'Federal Reserve Board'. The highest management body of the US Central Bank consisting of twelve Federal Reserve Banks spread across the US.

Fed Funds Rate
US key rate. It is set by the Federal Reserve Board, the US system of central banks and the umbrella inspection body of the US banking sector. Abbreviation: FFR.

Federal Open Market Committee
The most important decision-making body of the Federal Reserve System in the United States, the US banking system. The committee consists of seven governors of the Fed and five chairmen of the twelve regional central banks. The committee meets every six weeks in Washington to discuss the monetary situation and to determine the key rate. Abbreviation: FOMC.

Federal Reserve Board
Abbreviation: Fed. The highest management body of the US Central Bank consisting of twelve Federal Reserve Banks spread across the US.

fidelity premium
Interest paid on a regulated savings account is made up of a base rate of interest and a fidelity bonus. The fidelity bonus is awarded for all funds that remain on your savings account without interruption for a period of 12 consecutive full months following the deposit or following the date you acquired the previous fidelity bonus. After each time a fidelity bonus is accrued, a new 12-month accrual period begins.

fill or kill order
Abbreviation: FOK. An order that must be executed in full immediately after it is given ('fill'). If this is not possible, the order is cancelled ('kill').

final dividend
If an interim dividend is paid out during the course of a financial year, a final dividend is usually also paid out at the end of the financial year, after the financial statements have been issued (representative of the remaining profit).

Financial Services and Markets Authority
The Belgian supervisory authority for the financial sector and financial services. This institution plays an important role in implementing the statutory auditing of activities on the financial markets. Their tasks include supervising financial institutions and broking firms, and supervising the provision of financial information. As the supervisory authority, they are also partially responsible for protecting consumers of financial services. Abbreviation: 'FSMA'

financial services of an investment fund
The financial services of an investment fund encompass all the administrative tasks that must be carried out in order to set up and maintain an investment fund as well as the communication with the government and investors. These tasks include drawing up the issue prospectus, calculating the net asset value, drafting annual reports and maintaining relationships with the Banking, Finance and Insurance Commission.

first class counterparty
First class counterparties are counterparties that have been given good credit ratings by international rating agencies and trade in compliance with international standards and practices, including when exchanging securities.

fixed income
An investment with a fixed income is an investment where the return is fixed when the security is issued or registered and is guaranteed over the whole term.

fixed interest
Interest that is fixed for the duration of the term of the investment/loan.

fixed term insurance
Fixed term insurance can best be compared to a savings plan. The expiry date of the plan is determined in advance and is respected, regardless of whether the insured person is alive or not.

floor
If a fund has floor monitoring, the manager aims to ensure that the net asset value does not fall below the floor price over the course of a year. If the fund is at risk of reaching the floor price, the manager will reduce the amount of shares and switch to less risky investments. It should be remembered that this floor does not constitute a guarantee of either the return or the redemption price, which can be less than the floor price. The floor price is set once a year.

floor
The area within the stock exchange where trading occurs.

floor broker
A broker who works on the floor of the stock exchange. Floor brokers work for a bank, a commission agent or an independent broking firm. Their task is to execute orders for their employer's clients. When a client gives an order, it is the floor broker's job to go the appropriate trading post and trade with the market makers. They have a great deal of independence in their role. However, they are not allowed to trade for their own gain.

floor monitoring
If a fund has floor monitoring, the manager aims to ensure that the net asset value does not fall below the floor price over the course of a year. If the fund is at risk of reaching the floor price, the manager will reduce the amount of shares and switch to less risky investments. It should be remembered that this floor does not constitute a guarantee of either the return or the redemption price, which can be less than the floor price. The floor price is set once a year.

FOK
Abbreviation of 'Fill or kill'. An order that must be executed in full immediately after it is given ('fill'). If this is not possible, the order is cancelled ('kill').

FOMC
Abbreviation of 'Federal Open Market Committee'. The most important decision-making body of the Federal Reserve System in the United States, the US banking system. The committee consists of seven governors of the Fed and five chairmen of the twelve regional central banks. The committee meets every six weeks in Washington to discuss the monetary situation and to set the key rate.

founder's share
A special share, often with additional rights, that can only be held by the founders of a company. It sometimes refers to shares that are given in exchange for services provided during the establishment of the company. They have no nominal value.

free float
The percentage of shares in a company that are not restricted shares. Restricted shares, though not a strictly defined term, refers to shares held by shareholders who have the intention of exercising control over the company. Shareholders of restricted shares may be parent companies, holding companies or family shareholders.

FSMA
Abbreviation of 'Financial Services and Markets Authority'. The Belgian supervisory authority for the financial sector and financial services. This institution plays an important role in implementing the statutory auditing of activities on the financial markets. Their tasks include supervising financial institutions and the broking companies, and supervising the provision of financial information. As the supervisory authority, they are also partially responsible for protecting consumers of financial services.

FTSE 100 index
An index of the 100 most actively traded shares on the London Stock Exchange, developed by the leading financial newspaper, The Financial Times. FTSE is pronounced 'footsie'. The FTSE 100 index is currently maintained and calculated by FTSE International in London.

full asianing
The closing value of the underlying basket or index of a full asianing fund is calculated as the average of various values spread over the entire term.  Quarterly observations often form the basis for calculation: that means the value of the underlying basket of shares or index is recorded every three months. At maturity, the average of these quarterly observations is set against the initial value to calculate any final capital gain.

Fund
‘Fund’ is a common name for an Undertaking for Collective Investment (UCI). The term can refer to a sub-fund of an open-ended investment company under Belgian law (Bevek), a sub-fund of a Luxembourg Sicav, a collective investment fund or a sub-fund of a collective investment fund. 

fund manager
A manager of a securities portfolio   

fund of funds
A fund that does not invest directly in shares and bonds, but rather indirectly through other investment funds.

fundamental analysis
A technique used by financial analysts to evaluate and predict stock market price trends. In order to make these predictions, they study balance sheets, expected profits, economic developments and interest rates, etc.

futures
A futures contract is an agreement between two parties relating to the delivery of a standardised quantity of an asset specified in the contract (the underlying asset) at an agreed time and price. The underlying assets may be commodities, financial assets (bonds, deposits, etc.), indices and foreign currencies.

futures market
A market on which futures are traded.

futures market
A market where the supply and demand for goods and financial instruments meet. Amsterdam has the Financial Futures Market Amsterdam (FTA) and the Agricultural Futures Market Amsterdam (ATA).

G

GDP
Abbreviation of 'Gross Domestic Product'. The market value of all end goods and services that are produced in a country during a certain period (generally a year).

GDP gap
The difference between a country’s actual output and its potential output, i.e. the output that could be achieved if normal use was made of production capacity.

GDP per capita
The market value of all end goods and services that are produced in a country during a certain period (generally a year). The GDP per capita gives an indication of the relative wealth of a country in comparison with other countries. See: gross domestic product.

general terms and conditions
Collective terms and conditions that apply to all products of the same type. The general terms and conditions lay down, for example, the commencement date, the rights one can exercise and which risks are precluded.

gilt-edged shares
High-quality shares. An alternative term for 'blue chips'.

glamour stock
A share that is favoured by the public.

going short
Selling borrowed securities in order to take advantage of a fall in prices. An investor may go short for many reasons: because they want to take advantage of an expected fall in the price of a share; to cover the risks involved in an option position; or in order to attempt to profit from a price difference between related securities (such as the Dutch and US shares in Philips).

greenback
US dollar.

Greenshoe
An issuing institution can ask the syndicate to issue additional shares at the issue price; this option is called a 'greenshoe'. This means that if there is high demand for a share, undesirable price movements can be avoided.

grey market trading
As, if and when issued trading

gross domestic product
The market value of all end goods and services that are produced in a country during a certain period (generally a year).

gross margin
The operating result expressed as a percentage of the turnover.

Growth and Stability Pact
The pact aims to preserve the budgetary discipline of the member states of the euro area following the introduction of the euro. The pact was concluded in 2000 and replaced the agreements made in the 1992 Maastricht Treaty. The pact includes criteria for entry to the euro area and for permission to introduce the euro as a legal means of payment.

growth shares
Shares in companies with extremely high prospects for growth, meaning that the market expectations regarding future turnover and profits are also extremely high. They generally have a high price/earnings ratio but their value is extraordinarily difficult to estimate. Usually, this refers to shares in young companies or in activities that are still growing. In any case, there is an absence of a good frame of reference. Since the company is in the early stages of development and large investments are necessary, the profitability is usually low and is not representative of the company's future position, which makes valuation more difficult. The PEG ratio is sometimes used for comparing growth company valuations. These shares are the opposite of defensive shares and should not be confused with cyclical shares.

H

hedge fund
A fund whose manager has a great deal of freedom to invest. They can invest in any market and any investment instrument and can take short (borrowing investment instruments) and long positions (buying investment instruments). The manager will often have a stake in the fund or receive a performance-linked remuneration, which boosts their involvement and motivation. Unlike conventional investment funds, whose aim is generally to outperform a benchmark index, hedge funds seek to maximise return, regardless of market conditions.

high dividend yield
Profitable companies can pay dividends to their shareholders. If the dividend is higher than average in proportion to the share price, it is referred to as a high dividend yield.

historical volatility
The volatility of an underlying asset over a certain period of time, compared with the relative spread of prices relative to the average for this period. The use of historical volatility is based on the theory that future predictions can be made based on the level of volatility of an asset in the previous period.

I

IBAN
Abbreviation of 'International Bank Account Number'. This standardised international account number consists of two parts: The first part is the ISO country code of the country where the account is held (2 letters) and the check digit (2 numbers). the second part is the BBAN.

implicit volatility
The implicit volatility reflects the expected future degree of volatility and is calculated on the basis of options prices. The higher the expected volatility, the higher the options prices.

in the money option
An option is in the money if it has intrinsic value. Call options are in the money if the exercise price is lower than price of the underlying asset. Put options are in the money if the exercise price is higher than the price of the underlying asset. An option is deep in the money if the value is extremely high.

in the money
An call option is in the money if the exercise price is much lower than the current price of the underlying assets. The opposite applies to a put option. A put option is in the money if the exercise price is much higher than the current price of the underlying asset. The likelihood of exercise is very high, meaning the option strongly rises in value.

index tracker fund 
An index tracker fund is a UCI that aims to track the development of one or more indices. This can happen in two ways: through physical or synthetic replication.

index-based management
This is a form of portfolio management in which the manager tries to emulate a benchmark index at the lowest possible cost and as efficiently as possible. The aim is to achieve the same return as the standard portfolio. Synonym: 'passive management'. It is the opposite of active management.

inflation
A sustained rise in the general price level. Inflation causes monetary erosion. You can buy less than you could previously for the same amount of money. High inflation is a negative sign for the economy. A wage/price spiral can also occur if employees demand higher wages to take into account the rising inflation through wage negotiations. This also weakens the competitiveness of a country compared to other countries. However, a certain degree of inflation is desirable because it lubricates the economy. When prices gradually rise, there is no reason to postpone spending.

inflation-indexed bond
A bond where the coupon payments and the principal value are related to the developments of a specific consumer price index. The prices of inflation-indexed bonds are determined by the real rate of interest. This means the nominal rate is corrected to take into account inflationary expectations. If the level of the nominal rate and the inflationary expectations rise by the same amount, the price of the inflation-indexed bonds will be more or less stable. Investors with inflation-indexed bonds are better protected against a rise in interest rates than those with conventional bonds. Synonym: inflation-linked bond.

inflation-linked bonds
Bonds where the return is linked to inflation. Inflation-linked bonds give investors an advantage, in that the coupons are based on the real interest rate and the capital is valued daily to reflect changes in the underlying index.

initial public offering
The first issue of shares or bonds, which are then negotiable on the stock exchange. Abbreviation: IPO. Once the shares have been introduced, the company is listed on the stock exchange. The introduction of shares or bonds is also known as a primary offering. See also issue.

inside information
Inside information is any information that has not been made public, is precise in nature, that relates directly or indirectly to a listed financial instrument (or its issuer) and that, if it were made public, could have a significant impact on the price of these financial instruments.

institutional investor
A company that is professionally involved in investing assets, which are entrusted to it by third parties for diverse reasons. Examples: pension funds, investment institutions.

insurance fund

insurance in the event of death
Insurance that provides a payment of the capital to the contingent beneficiary stated in the contract, in the event of the death of the insured person.

insurance proposal
A document in which the special conditions of the insurance policy are determined. Signing the proposal does not obligate the policyholder to enter into the insurance policy. The insurer decides which conditions are required for accepting the risk and drafts the insurance contract, on the basis of the data in the insurance proposal. The insurance policy only becomes definitive after the policyholder has signed the contract. The insurer or intermediary is not allowed to demand payment for concluding the contract.

insured person
Life insurance is taken out on the life of the insured person. It is insurance that pays out a sum of money either on the death of the insured person or after a set period. The insured person is often the same person as the policyholder.

insurer
An insurance company that receives payments and guarantees the payment of the sums owed, as stated in the contract. For the life insurance policies sold by KBC, this is KBC Insurance.

interest
The costs of using money over a certain period of time, expressed as a percentage.

interest rate sensitivity (duration)
The duration is a measure of the impact of a change in interest rates on the price of a specific bond. If the relevant interest rate falls by 1%, it shows the percentage price increase of a bond. The longer the remaining term to maturity, the more sensitive prices are to fluctuations in interest rates.

interest rate spread
The difference between the actual yields of two different bonds, e.g. government versus corporate bonds, bonds from two different countries or short-term versus long-term loans.

interest-bearing investments
Investments generating interest.

The interest-bearing component of the portfolio, e.g., individual bonds and bond funds. Investments in capital-protected equities are also included, namely, the investments that provide capital protection.

interest-rate risk
The risk that your investment will fall in value because the interest rates on new investments with similar remaining terms to maturity are rising.

interim exercising
Exercising an option right, before the option has expired. Only US options can be exercised before the expiry date. Interim exercising can prove interesting in the case of call options, if they are exercised just before the underlying asset goes ex-dividend.

Intermediary
A person or insurer that connects the insurer and the policyholder. They are the point of contact for the client. The intermediary sells the contract, has it signed, modifies the contract at the client's request and mediates during the payment of the capital. For the life insurance policies sold by KBC Insurance, the intermediary is either the KBC Bank branches or the insurance agents.

intrinsic price
A price allocated to a certain security by the stock exchange authorities in order to gain a realistic equilibrium price on the market, for example, during a takeover bid or after a long period during which the share was not listed.

intrinsic value
The theoretical value of the share based on the value of a company's possessions minus any debts. Context: shares. The price of the underlying asset minus the exercise price. Context: call options. The exercise price minus the price of the underlying asset. The intrinsic value of shares and/or options can never be negative. Context: put options.

introduction
The first issue of shares or bonds, which are then negotiable on the stock exchange. Once the shares have been introduced, the company is listed on the stock exchange. The introduction of shares or bonds is also known as a primary offering. See also issue.

introduction by trading
Trading previously issued securities on the stock exchange, carried out with permission from the stock exchange.

inverse interest rate structure
A situation on the interest rate and capital markets when the short-term interest rates are higher than the long-term interest rates.

investment bank
A merchant bank that helps companies attract capital under the best possible conditions, usually by issuing shares or bonds.

investment company
The investment fund that is managed by professional managers. The company that invests in various securities and also issues shares.

investment fund
The usual name for a contractual UCI (Undertaking for Collective Investment). It basically refers to a diversified portfolio invested in shares, bonds, cash and/or real estate according to a previously outlined strategy. Investors can buy into or sell shares in the fund whenever they wish. An investment fund makes investing easy for investors. It is managed by specialists who track the market and take care of all the administrative aspects (like collecting interest and dividends).

investment grade
When assessing a bond, it is important to consider the quality of the debtor: it is important to know whether the borrower is able to meet their obligation to pay interest and repay the capital. Most bond issuers call upon rating agencies for this. After carrying out an evaluation of the company’s financial situation at that moment, the agency awards a rating that reflects the credit worthiness of the issuer or the risk that not all of the amount borrowed will be repaid. Such a rating is not a recommendation to buy, hold or sell a bond. Ratings comprise one or more letters and certain symbols or figures. Ratings with an investment grade rating are generally considered to be less risky investments, whereas a sub-investment grade rating reflects a higher degree of risk. For more detailed information about ratings visit the ESMA website www.esma.europa.eu.

investment horizon
The period during which an investor wishes to obtain a certain investment result, according to a specific level of risk. It is therefore also the period during which the investor is willing to tie up their money.

investment result
The annualised return on an investment product. The investment result in local currency is the return expressed in the currency in which the investment product is listed. For investors in the euro area, the return is also determined by fluctuations in the exchange rate of the currency of the investment fund against the euro.

investment style
Within a fund's investment strategy, additional restrictions may be placed on the fund manager. This means a fund may prefer to invest in companies that aim for rapid growth or, the opposite, invest in companies that aim for value creation. Other investment styles can include leaning more towards shares in larger companies (large caps) or shares in smaller companies (small caps).

IPO
Abbreviation of 'Initial Public Offering'. The first moment when shares in a company are issued. The aim is to increase the company's capital or to offer existing shareholders the opportunity to exit. The introduction price is determined by the issuing syndicate. After the introduction of the shares, the shares are traded on the stock exchange (secondary market) and the price is determined by supply and demand.

irregular security
The following types of documents are considered irregular securities: securities with stop payments, damaged documents, just the corpus or the coupon sheet, irregular coupon sheets (with valid coupons missing), irregular capitalisation (all the coupons cut out, the other coupons capitalised), an entry in the ledger and proof of secondary guarantees and gift inter vivos. All other documents are regular securities.

ISIN code
Abbreviation of 'International Securities IdentificatioN code'. The international administration code that is allocated to securities or investment funds. The ISIN code consists of a country code and a unique number, for example, the code for the Koninklijke Olie fund is NL0000009470. These codes can be consulted in the FET (first column of the price list).

issue
The issue of new shares, bonds or other securities. There are no time limits on the issue period. An issue takes place on the primary market. After the issue, the securities are negotiable on the secondary market. Synonym: 'issuance'.

issue consortium
A group of foreign or domestic banks that temporarily work together when setting up an issue. Their reason for collaborating can be because the risk is too high for a single bank or because of existing networks (for example, if the issuing institution has connections with several banks).

issue price
The price at which an issuing institution issues a security on the market, which is paid by investors that have registered for the security.

issue with a fixed price
The issue price is known in advance. Securities can be bought at this price until the issue is closed. See also issue.

issue with an optional dividend
The shareholder has the option to receive their dividend in cash or in new shares. See also issue.

issue with pre-emptive rights
An issue where a company gives preference to existing shareholders whenever they increase their capital by injecting new funds. See also issue.

issuer
The issuer of a bond loan, a share or an investment fund. This can be a government, a company or a financial institution.

issuing house
A bank that manages the issue of shares or bonds. An issuing house approaches institutional investors to notify them of the issue that is about to be released. Several banks can work together on an issue and form a syndicate or a consortium.

item
A share or bond.

J

jobless recovery
Economic recovery that is not accompanied by an increase in employment.

jumper
A fund with an investment strategy that dictates that if the underlying asset has reached a certain value on a given observation date, the structure is wound up early.  A predefined capital gain is then paid out.

jumper structure
An investment that is wound up early if the underlying asset has reached a certain value on a given observation date. A predefined capital gain is then paid out.

K

key rate
Short-term interest rates that are set by central banks for their transactions with commercial banks. It is used as a monetary instrument to achieve a specific objective. In the euro area, the key rate is set by the European Central Bank (ECB). The central bank uses the key rate to influence the price of money, i.e. the cost of borrowing and the return on savings. Therefore, raising or lowering this rate curbs or stimulates demand, which in turn is reflected in price movements. Synonym: 'official interest rate'.

L

labour market report
A report that contains an wealth of information about temporary labour trends, the average number of working hours per week and labour costs and so on. The publication of the US labour market report is eagerly awaited by investors and analysts on the first Friday of each month because employment growth is an integral part of sustainable economic growth.

large cap
A listed company with a large market value or stock exchange value.

last in first out
In the context of a savings account: the most recent transfers to the savings account, which have spent the least amount of time in the holding period for the fidelity bonus, are the first funds to be withdrawn. Abbreviation: LIFO.

lead manager
The lead manager receives a mandate from the issuer and is the leader of the issue syndicate. They have full administrative and commercial responsibility and the most important financial responsibility. A co-lead is the second ranking leader after the lead manager and has less financial responsibility than the lead manager.

leading indicators
Leading indicators are calculated by giving each sub-indicator a weight and creating a total sum. The leading indicators give an indication of the state of the whole economy (and usually start moving before there is a change in the general economy). 

legal risk indicator
The legally required risk score of a sub-fund of an Undertaking for Collective Investment (UCI). The score is calculated on the basis of the standard deviation of the annualised return in euros, thereby taking into account the volatility of the market. The rating is recalculated every six months and may be higher or lower, depending on whether the market volatility is increasing or decreasing.

leverage effect
A phenomenon during which a movement in the share prices of the underlying asset of a derivative product sparks off a much greater movement in the price of the derivative.

LIFFE
Abbreviation of: 'London International Financial Futures Exchange'. A stock exchange in London where investors trade predominantly in financial futures and options on interest rate futures. The LIFFE merged with the London options market LTOM (London Traded Options Market) in 1991. It is now part of NYSE Euronext.

LIFO
Abbreviation of 'Last in first out'.  In the context of a savings account: the most recent transfers to the savings account, which have spent the least amount of time in the holding period for the fidelity bonus, are the first funds to be withdrawn.

light futures
Futures that relate to an underlying asset that is 1/10 of an index. Light futures are traded on the Euronext Amsterdam options exchange, on the AEX index and the Midkap index.

light options
Options that relate to an underlying asset that is 1/10 of an index. Due to the smaller investment required, light options are particularly appealing to investors with modest financial means. Light options are traded on the Euronext Amsterdam options exchange on the AEX index and the Midkap index.

limit
The maximum purchase price or minimum purchase price. Buy and sell orders can be given with or without a limit.

limit order
An order with a maximum buy price or a minimum sell price that is determined by the requester. A limit order can only be executed according to the defined limit.

limit order book
An administrative system in which limit orders that are outside the current market prices are managed until execution is possible due to a change in the market prices.

limit price
The highest price at which someone wants to buy, or the lowest price at which someone wants to sell.

limit price order
A price order with the following characteristic: if a partial execution takes place, the rest of the order remains in the market as a limit order. For the purpose of the limit, the price of the first execution is used. Limit price orders can be placed at opening price (called 'at opening price' orders), during the main trading hours. They can either be used for securities that are traded continuously or for securities that are traded via fixing procedures. Synonym: 'market price order'.

limited order
An order given to a bank or commission agent not to buy above a certain price or sell below a certain price.

liquid market
A market with lots of supply and demand. In a liquid market, buy and sell orders can be easily executed. Investors benefit from markets with higher degrees of liquidity.

liquidate
Reducing securities (out of necessity) by, for example, selling them.

liquidity
The available cash.

liquidity (of a company)
The degree to which a company can meet their payment obligations in the short term.

liquidity (of assets)
The degree to which an asset is negotiable, without affecting its price. In a non-liquid market, buyers and sellers risk 'setting their own prices', i.e. the buy or sell order has a noticeable influence on the prices. Buying or selling shares that are actively traded can be done quickly and easily without having any effect on the pricing. In contrast, real estate is a non-liquid asset. If you want to sell a house it can take months before you find a seller and complete the all the administration relating to the transaction.

local market
The part of a stock exchange on which shares in smaller companies are traded.

lock-up
A contractual caveat that defines a period (usually 6 months) during which existing shareholders of newly listed companies are not permitted to sell their shares.

long position
An investor takes a long position if they possess a certain asset or have an option to acquire the asset. They will therefore achieve a positive investment result if the underlying security rises in value. The opposite of long position is a short position.

long-term option
Options with a term to maturity of more than a year. On Euronext's options exchange, options with a maximum term to maturity of 5 years are traded.

lottery
Lotteries are used to decide which bondholders will receive repayment of part of the principal or a premium (for premium bonds) in a certain year. A lottery system to decide which writer of an option will be nominated to deliver or buy the underlying asset when exercising the option.

lottery loan
A bond loan with a regular lottery (the bond is paid back). There is usually a handsome extra premium.

M

Macroeconomics
The study of an economic system as a whole. It mainly focuses on cash flows, the growth in the gross domestic product, inflation and other general factors.

management fee
A fee paid by the investor for the tasks carried out by the manager of a fund. This fee is a certain percentage of the value of the fund. A portion of these costs are charged on a daily basis.

margin
The amount of money or shares that an investor must deposit to cover a short position.

margin
The difference between the stock exchange or trading price and the price that the client is charged.

margin call
Extra cover that a bank or commission agent may require from their clients for entering into a position. This occurs when prices start to move in a direction that is unfavourable for the position. If the margin call is not fulfilled, the client may be forced to reduce their position.

margin requirements
The minimum coverage requirements of the AEX options exchange that must be satisfied by investors writing options. This amount (or the counter value of it in other securities) creates a buffer against the risks taken by the investor by writing the options.

market
Parties that trade in certain products, e.g., commodities such as potatoes or bricks, or financial products such as shares, bonds, options or futures. The market for shares, bonds, options and futures is called the stock exchange.

market capitalisation
The market value of a company or of all the companies in an index. The market value of a company is equal to the market price of its share multiplied by the number of outstanding shares. Companies are categorised on the basis of their market capitalisation, either as 'small cap' (up to 1 billion US dollars), 'mid cap' (between 1 and 10 billion US dollars) or 'large cap' (over 10 billion US dollars).

market maker
A broker or bank that ensures that there is always an bid/ask price available for a certain security and is prepared to trade at these prices. Market makers trade on their own behalf and play a role in increasing liquidity.

market order
An order to buy or sell securities as soon as possible with no price limit, i.e. no maximum price for a buy order or no minimum price for a sell order. Synonym: 'price order'.

market order
An order that is immediately executed at the market price. It is executed at the price prevailing when it is that order’s turn to be processed. 

market performer
A share with a price that is expected to match the price of the share index of the stock exchange on which it is traded, during the next 12 months.

market risk
The market risk is an investment's risk level, which is determined by market fluctuations. An investor choosing to invest in shares rather than bonds accepts the risk associated with the shares market, which is completely inescapable. There are also specific risks associated with individual investments.

market supervision
A department responsible for supervising trade and compliance with the trading rules set by the stock exchange and the options exchange. The Market Supervision department has a important role in protecting the integrity of the market. Trading Floor Officials are part of the Market Supervision Department.

market-to-limit order
A price order with the following characteristic: if a partial execution takes place, the rest of the order remains in the market as a limit order. For the purpose of the limit, the price of the first execution is used. Market price orders can be placed at opening price (called 'at opening price' orders) and during the main trading hours. They can either be used for securities that are traded continuously or for securities that are traded via fixing procedures. Synonym: 'limit price order'.

marking price
A price calculated daily by Euronext Amsterdam Clearing & Depository which is equal to the halfway point between the last bid and ask prices of an option series. In the Netherlands, the 'marking price' is used in the margin calculation.

Marking
An activity carried out by options traders at closing where they attempt to influence the option premium in order to create a favourable closing price and position for themselves in comparison to the daily valuation of positions.

Maturity
Date on which an investment matures and the capital and interest owing is paid.

mid price
The halfway point between the bid and ask prices.

MiFID
A collection of European legal principles for the harmonisation and integration of the financial and capital markets. MiFID aims to promote greater competition and transparency on the financial markets by facilitating the cross-border movement of securities and by abolishing the monopoly of regulated stock exchanges, also known as the 'concentration rule'. It also aims to further expand the protection rules for clients trading in financial instruments.

mini
A derivative negotiable on the Euronext Brussels stock exchange that tracks an index precisely. The BEL-20 index and the Dow Jones EURO STOXX 50 are used as the underlying. A mini relates to 1/100th of the underlying asset. Mini holders receive a dividend payout every three months. A mini is actually a very long-term option (the maturity date is 31 December 2049!).

mix fund
An investment fund that invests in a wide variety of investment categories such as shares, bonds, real estate and deposits.

model portfolio
An investment portfolio that is used as a model for the investment vision and strategy of an investment adviser or expert.

modified duration
A figure that indicates to what degree the value of a bond will increase if the interest rate decreases (or vice versa).

momentum
A period during which a clear movement in prices or profit (price momentum or profit momentum) is perceptible, either upwards or downwards.

monetary easing
When the key rate is reduced or the money supply (M3) is increased by the central bank. This results in reduced borrowing costs for loans provided by commercial banks. The idea is that companies and families will be encouraged to increase their spending as a result of reduced interest charges, thereby supporting economic growth.

monetary tightening
When the key rate is increased or the money supply (M3) is limited by the central bank. This translates to higher borrowing costs for loans provided by commercial banks, The idea is that companies and families will be encouraged to limit their spending as a result of increased interest charges and help slow down the economy.

money market funds
Money market funds are funds that invest in interest-bearing securities for a short period of time and therefore comply with the standards laid down by the European Securities and Markets Authority (ESMA, formerly the CESR). These standards are drafted in such a manner that money market funds must make very short-term investments and are therefore not very market-sensitive. The standards also have the aim of ensuring that the funds only invest in securities with a higher degree of credit worthiness, are diversified and sufficiently liquid.

money market instruments
Money market instruments are debt instruments that meet the following conditions: they have a remaining term to maturity of no more than 397 days or if they have a longer term to maturity, the return is regularly (at least every 397 days) adjusted according to the market interest rates;  they can be bought/sold and delivered/paid within a short period of time (e.g., 7 business days) and with limited costs; their value can be accurately calculated at any moment.

money market rates
Interest rates on the money market. Interest rates on loans with a relatively short duration (1 to 12 months). The central bank has a large influence over the interest rates. There is not just one interest rate, but rather a totality of many interest rates that are applied to money market instruments. Synonym: 'short-term interest rates'.

mortality table
The mortality table shows the probability of a person's death at each age. It is used to calculate the cost of 'death' cover.

MSCI sectors
Morgan Stanley Capital International (MSCI) is an independent US investment institution that calculates an index for each of the world’s major investment regions. KBC funds are not supported, recommended or promoted by MSCI and MSCI assumes no liability regarding these funds or regarding those indexes on which these funds are based. The prospectus contains a more detailed description of the limits on MSCI’s relationship with KBC Asset Management and all the associated funds. 

mutual investment fund 
Mutual fund is the prevailing name for a contractual Undertaking for Collective Investment (UCI). A mutual fund has no legal personality and consists of an undivided body of assets that are managed on behalf of the unit holders. Economically speaking, mutual funds and investment companies are closely related. They differ in terms of law and taxes.

N

naked writing
Writing an option or selling a future when you do not possess the underlying asset. This poses a significant financial risk. Synonym: 'short selling'.

NASDAQ
Abbreviation of 'National Association of Security Dealers of Automated Quotations'. A US stock exchange on which young and fast-growing companies are listed.

NBB
Abbreviation of 'National Bank of Belgium'. The Belgian central bank. It determines the monetary policy of the country (when necessary, in consultation with the Minister of Finance). It is the bank that financial institutions can go to for the refinancing of assets (the central bank acts as a lender or a 'last resort' for banks). The central bank is also responsible for issuing bank notes. They determine how much money should be in circulation and set the discount facility. Usually this occurs in consultation with the government.

Net assets
The total value of all securities (shares/bonds/cash etc.) present in the portfolio at that moment, plus accrued interest and dividends and minus costs.

net asset value (of an investment fund)
The net asset value is equal to the market value of the net assets of the portfolio, divided by the number of units. The net asset value is calculated and published periodically – generally daily – in the financial press. This publication is always subject to a slight time lag because the calculations of the portfolio value on any given day can only occur after all the stock market prices are known. Shares are always bought and sold at the net asset value of that particular day. Synonym: 'intrinsic value'.

net dividend
The dividend of a share after deducting the withholding tax.

net interest margin
A margin that expresses the difference between the interest earned by banks and the interest paid to the client.

net return
The costs and any taxes that must be paid are deducted from the result and the difference between this result and the money invested is the net return.

Next 150
An index developed and calculated by Euronext that comprises the 150 companies that directly follow the Euronext 100 in terms of the size of their market capitalisation. It is the mid cap segment of the Euronext stock exchange. The Next 150 is weighted in February, May, August and November of each year; the weight of each individual share cannot equal more than 10%. Currently, the Next 150 is only used as a benchmark.

NextTrack
A market segment of Euronext created in 2001, on which trackers are traded.

nifty fifty
US jargon for the fifty shares that appear most often in the share portfolios of large institutional investors.

nil paid share
When subscribing, part of the price is paid immediately and the rest is paid at a later date. These shares are called 'nil paid shares'.

nominal
Has several meanings depending on the context. In the context of the value of a security, it is the stated value of the security. The security can be traded at a different price, depending on the supply and demand. The nominal return (for example, the nominal interest rate) is the return including inflation. In order to see the actual return, the inflation must be deducted from the nominal return.

nominal value
The stated value of a security such as a share or a bond. The current stock exchange value of shares is usually considerably higher than the nominal value.

no-part value share
A bearer share issued without specifying the nominal value.

not officially listed
Securities that do not fully comply with the rules of the Amsterdam stock exchange. They are subject to a 'listing measure' and are categorised under the label 'not officially listed'.

NSC
Abbreviation of 'Nouveau Système de Cotation'. An electronic trading system that is used for Euronext's securities trading.

NTS
Abbreviation of 'New Trading System' on Euronext. A computer system used by stockbrokers for trading in shares. The NTS is the successor to the CATS (Computer Assisted Trading System), which was previously used on the futures market. On the spot market, the NTS replaced traditional floor trading.

NYSE
Abbreviation  of 'New York Stock Exchange'. Synonym: 'big board'..

O

OBO
Abbreviation of 'Order Book Official'. An employee of the Euronext options exchange who is responsible for supervising trade in a specific option. In addition, the Order Book Official manages the order book of the fund.

odd lot
A group of shares that is smaller than a hundred. In the US and Canada, shares are usually traded in 'round lots' (units of one hundred).

off-floor trader
A trader in options; in contrast to market makers, they do not trade on the floor of the stock exchange, but rather from an office space elsewhere.

official listing
The price of a security admitted to the official market or a parallel market, as determined at a specific point in time and in accordance with the applicable regulations. The price remains in force until the next official price is established.

OMS
Abbreviation of 'Order Management System'. A system that stores orders, keeps an overview and links the order to the execution.

ongoing charges
Ongoing charges are charges paid by the fund in the course of a year. They include all annual costs and other payments made from the fund’s assets. The ongoing charges are expressed as a single percentage expressing the ratio of the costs to the fund’s average invested assets. In the case of funds that have not yet been in operation for a full year, this percentage is merely an estimate of the costs.

open buy
A transaction during which a security is sold or a position is opened that gives the investor the right to buy or sell a security. The sale of the same security is then referred to as a 'closing sale' and the previously opened position has been reversed or 'closed'.

Open interest
The total number of open option contracts at a given moment. The open interest is considered to be an indicator of the liquidity of the market.

open outcry
A traditional method of trading that involved announcing orders and prices loudly, for all to hear, on the floor of the stock exchange. Trading on the Euronext options exchange is now carried out completely electronically.

open sell
An opening transaction during which an investor 'goes short'. They take a position that gives them the obligation to deliver or buy a security. A closing purchase reverses the obligation previously entered into, or closes the position.

open-ended fund
An investment fund that does not have any construction to protect the capital invested. A fund can be open irrespective of the assets it invests in, i.e. there are open share funds and open bond funds.

opening price
The first price of a security on a trading day.

opening price order
An order with no limit that can only be placed before trading hours so it can be executed at the opening price.

opening sale
An opening transaction during which an investor 'goes short'. They take a position that gives them the obligation to deliver or buy a security. A closing purchase reverses the obligation previously entered into, or closes the position.

operating cash flow
The result of the activities of a company, multiplied by the depreciation and the reduction in value. It is a measure of the profit realised by a company through its activities, without including financing costs and funds.

operational risk
The risk that a mistake will be made when a transaction is executed.

opportunity loss
In the context of a covered written call option, it is the risk that the shares must be delivered at a price or exercise price that is lower than the price of the share on the AEX stock exchange. By writing the call, the investor loses the opportunity to sell the shares at a better price.

option
A contract where the seller (or writer) gives the buyer (or holder) the right to buy (for calls) or sell (for puts) a specific quantity of an asset (the underlying asset) at a price predetermined in the contract and during a predetermined period (the term to maturity) or at a specific time. The seller is then obliged to deliver the call option or to receive the put option. The writer receives compensation, the option premium, for accepting this obligation. The obligation will lapse if the buyer does not exercise their right. Option contracts can be on individual shares, stock exchange indices, bonds, currencies, gold, oil, etc.

option agreement
Before an investor can trade in options, they must enter into an agreement with a bank or commission agent. The rights and obligations of the investor and the bank or commission agent are set out in the agreement. The investor also declares that they have familiarised themselves with the Explanatory Memorandum.

option class
A collection of all calls and puts relating to the same underlying asset.

option contract
An agreement between two parties which establishes the underlying asset, the exercise price and the term to maturity. Contracts for share options usually relate to an underlying asset of 100 shares.

option position
A right or obligation gained as a result of an options transaction carried out by an investor.

option premium
The price of an option. This price comprises the intrinsic value plus the time value premium. Option premiums are variable.

option series
All options with the same underlying asset, expiry month, exercise price and type (call or put). The KBC September /70 call is an example of an option series.

optional dividend
A dividend payout where the recipient can choose between payment in money or shares.

options exchange
A regulated marketplace where options and futures are traded. Options on shares, indices, bonds, dollars, financial futures and agricultural futures and options are traded on the Euronext options exchange.

order book
An administrative system which manages limit orders that cannot yet be executed at the current market price and executes them, when possible. On the Euronext Amsterdam stock exchange, the order book is managed by the market maker, on the Euronext Amsterdam options exchange, the order book is managed by the Order Book Official and, for certain shares, by the Floor Broker Specialist.

Order Book Official
An employee of the Euronext options exchange who is responsible for supervising trade in a specific option. In addition, the Order Book Official manages the order book of the fund. Abbreviation: OBO.

order driven
Pricing that occurs on the basis of current orders.

ordinary net profit
The total net profit without taking into account extraordinary income (for example, capital gains) and costs. The ordinary net profit published by a company is therefore of greater relevance than the total net profit.

organic turnover growth
The internal growth of a company without taking into account growth as a result of mergers and acquisitions.

OTC
Abbreviation of 'over the counter'. Transactions carried out between market parties which are not offered and traded on a central marketplace, i.e. on the stock exchange. Also, the settlement of the transaction (clearing) can be agreed between the two parties.

out of the money option
An option with no intrinsic value. A call option is 'out-of-the-money' when its exercise price is higher than the price of the underlying security. A put option is ‘out-of-the-money’ when its exercise price is lower than the price of the underlying security. The premium for an out of the money option consists solely of a time value premium. A strong price movement can cause an out of the money option to develop intrinsic value and to therefore become 'at the money' or even 'in the money'. Extreme cases are labelled 'far out of the money'.

outperformance
An investment result that is better than the result of the benchmark index. It is the opposite of underperformance.

outperformer
A share that experiences a higher price increase than the AEX. An share that is doing worse than the AEX is referred to as an underperformer.

outsourcing
Handing over activities that are not part of the core business activities of a company to an external service provider e.g., staff administration, cleaning, catering or computer systems and software maintenance.

over the counter
Transactions carried out between market parties which are not offered and traded on a central marketplace, i.e. on the stock exchange. Also, the settlement of the transaction (clearing) can be agreed between the two parties. Abbreviation: OTC.

overbought
A situation on the market when there is high demand for a certain security and the price rises quickly and dramatically.

oversubscription
When publicly subscribing to an issued share, investors can subscribe to more shares than they actually want to buy, even if they do not have sufficient financial means to do so. In the event of oversubscription, the investor will likely receive the amount of shares they actually wanted. If the share garners little interest, the subscriber may be forced to take on the full amount of shares they have registered for. This is poses an enormous financial risk! Oversubscription is not permitted by Euronext. An issue with demand that exceeds the number of units is referred to as 'oversubscribed'.

overvaluation
The valuation gives the ratio of the current stock market price to the expected earnings per share. If the price is high in proportion to the actual earnings per share, it is referred to as an 'overvaluation'.

overweighting
A conscious decision (an active position) to include a larger weight of a security, sector, country or currency in an investment portfolio compared to its weight in the benchmark index. It expresses an expectation that the security will perform better than the market average in the near future. It is the opposite of underweighting.

own funds
The share capital plus the reserves of a company.

P

P/E ratio
Abbreviation of 'price/earnings ratio'. The ratio of the share price to the earnings per share (price divided by the earnings per share or the expected earnings per share). The higher or lower the P/E ratio, the more expensive or cheap the share is. (also Price/Earning ratio)

paper loss
This occurs when the current stock market price or price of a security is lower than the price it was bought for and the security is still owned by the investor. Synonym: 'unrealised loss'.

Parity
When the prices for the same shares are the same on different stock exchanges The central rate or mid price The number of warrants required to exercise the underlying asset

partial execution
When an order is not completely executed, it is referred to as a partial execution. Orders can be executed as multiple partial executions.

participation certificate
A security issued by a fund. It represents the part of the total assets that you, as an investor, have a right to.

passive management
See index-based management. This is a form of portfolio management in which the manager tries to emulate a benchmark index at the lowest possible cost and as efficiently as possible. The aim is to achieve the same return as the standard portfolio. It is the opposite of active management.

payout ratio
The ratio of the profit that is paid out, to the net profit for the financial year. The ratio is usually calculated on the basis of the consolidated net profit (including the subsidiaries).

Payout
The part of the net profit that is paid out to shareholders as a dividend.

PEG ratio
Abbreviation of 'Price/Earnings To Growth ratio'. The price/earnings ratio (P/E) of a share is compared to the expected long-term growth of the earnings per share. Since the price/earnings ratio is corrected for long-term growth, it is primarily used to compare the valuations of growth shares. For companies with high growth forecasts, the price/earnings ratio is higher, since investors are prepared to pay more for the shares.

penny stock
A share that is traded for less than one dollar. These shares are often very volatile and are subject to strong fluctuations. They are considered to be highly speculative and unsuitable for conservative investors.

percentage point
A unit of one percent. For example, if interest rates increase from 2% to 3%, one percentage point is added. Percentage points should not be confused with percentages. In the previous example, the interest rose by 50%. See basis point.

performance
Investment result.

physical replication
Physical replication means replicating the composition of the underlying index by buying instruments in the index. The word 'physical' relates to the fact that the instruments will be owned by the fund. For example, shares are posted to the custody account of the fund, similar to how commodities such as gold are stored in safes in a fund's name. In this case, derivative products are not systematically used. Physical replication may involve buying all the instruments in an index with the exact same weights as the index. This is called full replication. On the other hand, the manager may buy a more limited, but balanced, set of instruments that ensure that the index is closely tracked (for example, so transaction charges can be limited). In this case, it is referred to as optimised sampling or stratified sampling.

Pink Sheet
A daily publication of the bid and ask prices of thousands of over the counter shares. Many of these shares are not included in the daily publication of stock market prices in the newspapers.

plain vanilla (investment funds)
Besides offering protection at maturity, investment funds with a plain vanilla payoff structure offer a fixed percentage of any increase in the value of the underlying asset. The underlying asset could be (1) a stock market index or a basket of stock market indices, (2) a basket of individual shares, (3) another type of value e.g., a currency. Any capital gain is determined at maturity. However, when the fund is launched, the extent of participation in the performance of the underlying asset is clearly specified as a percentage (e.g., 100%).

POCM
Abbreviation of 'Public Order Correspondent Member'. An institution within Euronext Amsterdam that trades in options and takes on risk on behalf of third parties through the intermediation of Public Order Members. A POCM can also trade on their own behalf. Foreign parties have a POCM status.

policyholder
The person who concludes the contract with the insurer.

POM
Abbreviation of 'Public Order Member'. An institution that trades in options and takes on risk on behalf of third parties, and which has been approved by Euronext Amsterdam. The orders are executed by a Floor Broker. POMs are authorised to trade in options on their own behalf. Private investors give orders via a Public Order Member. KBC is an example of a POM.

position limit
The maximum number of options or futures within the same class that an investor may have in their possession at a specific time. The position limits differ for private and professional investors. If an investor has exceeded the position limit, they are not permitted to carry out any more opening transactions.

power of attorney
A legal act or document in which the proxy holder authorises a third party, the proxy, to carry out legal acts in the name of and on behalf of the proxy holder.

preference right
The right of first refusal of existing shareholders when new shares are issued. Holders of preference rights or shareholders that can claim priority when new shares are allocated. Synonym: 'subscription right', 'claim right'.

preference share
A share linked to a benefit such as a guaranteed minimum dividend, a higher dividend than for ordinary shares or preference over ordinary shareholders during repayment.

preference shares
Shares for which shareholders receive a fixed percentage dividend before ordinary shareholders receive their dividends. Preference shares are occasionally also referred to as 'prefs'. There are also cumulative preference shares, 'cumprefs'.

premium
1. The deviation of the stock market price in relation to the nominal value, or the deviation of the issue price in relation to the intrinsic value. For repayments with a premium, the bond repayment will be higher than the nominal value. For example if the nominal value is 50 euros and the current price is 55 euros, the premium is 5 euros.

2. In the context of a forward foreign exchange contract, it is the difference between the spot rate and the forward rate of a particular currency.

pre-signed contract
A contract that has been signed in advance by the insurer. In this case, concluding the contract is not preceded by the signing of a proposal; when the policyholder signs a pre-signed contract, the policyholder and the insurer are immediately contractually bound. After signing the contract, the first payment can occur immediately. The policyholder, however, may cancel the contract within 30 days after signing the contract. In such a case, the insurer refunds the payments the policyholder has made after deducting the costs for the supplementary death cover.

price
The value of a security at a given moment. Prices of securities are variable. For listed securities, the price is determined on the stock exchange.

price interval
The minimum difference by which the price of a security can change. The price interval for shares is 0.01 euros and for share options, 0.05 euros.

price movement
A rise or fall in the value of a security. If the price increases, the security is worth more. If the price decreases, the security is worth less. Price movements are caused by changes in supply and demand on the financial markets and by domestic or international economic developments, among other things.

price order
An order to buy or sell securities as soon as possible with no price limit, i.e. no maximum price for a buy order or no minimum price for a sell order. Synonym: 'market order'.

price risk
The risk that the price of an investor's security will fall below their position.

price spread
Buying and writing options that have the same class and expiry month but different exercise prices, at the same time. In the case of combinations of calls, the purchased call option has a lower exercise price than the written price; In the case of combinations of puts, the purchased put option has a higher exercise price than the written price.

price/earnings ratio (P/E)
The ratio of the share price to the earnings per share (price divided by the earnings per share or the expected earnings per share). The higher or lower the P/E ratio, the more expensive or cheap the share is.

price/earnings ratio
The ratio of the share price to the earnings per share (price divided by the earnings per share or the expected earnings per share). The higher or lower the P/E ratio, the more expensive or cheap the share is. (also Price/Earning ratio). Abbreviation: 'P/E ratio'.

price-sensitive information
See inside information.

price-to-book ratio
The ratio between the price of the share and the equity per share. If a company does not pay out profit to the shareholders, the equity per share increases.

pricing unit
The minimum pricing unit used for trading in securities. The pricing unit for shares is 0.01 euros and for share options, 0.05 euros.

primary issue
An issue on the primary market.

primary market
Issue market. A money or capital market on which a new security is issued and offered to investors. The price of the new security is determined by the issuing syndicate. After the issue, the security is traded on the secondary market and the price is determined through supply and demand.

priority share
A share that offers certain benefits compared to an ordinary share, for example, a higher dividend or greater influence through voting rights at the Annual General Meeting of Shareholders. The equity stake of the founders or directors of a company often consists of priority shares. Synonym: 'oligarch shares'.

privak
A bevak that primarily invests in shares of unlisted companies and, in particular, in venture capital. A privak (Private Equity Bevak/Sicav) invests in shares in young and promising companies that are in need of venture capital and want to hand over part of their shares to private investors in anticipation of going public. Investors hope to realise important capital gains after a successful initial public offering or through a pre-agreed withdrawal arrangement. In order to increase the liquidity of the portfolio, a privak can partially invest in shares of companies already listed on the stock exchange.

private equity
Shares in unlisted companies. They are usually associated with venture capital.

private placement
For this kind of issue, potential investors are approached directly. Subscription is not open to the public. If an issue is a private placement, it means that securities are exclusively issued to institutional investors.

private placement
When a party places shares in the hands of less than 50 investors. Strictly speaking it also refers to custom investment.

private sale
During a private sale, the seller and buyer come to a mutual agreement on the sale of an investment or real estate. They agree on the price and the conditions that will apply to the sale. It is not necessary for a financial institution or (for real estate) a notary public or an estate agent to act as an intermediary. For real estate sales, it it sometimes called a 'sale by private contract'.

producer confidence
An indicator that reflects producer confidence and expectations with regard to the development of the economy of a certain country or region. Generally speaking, this information is gathered periodically, on a monthly basis, using standardised questionnaires and contains sub-components that are aggregated using a specific method. Producer confidence is used as a predictor of future company investments and their plans to recruit new employees. That is why it is an important resource used by companies and the financial market in predicting developments in the economy. Important indicators of producer confidence are the German IFO and the US ISM.

Product rating
KBC has developed a product rating method so that its various savings and investment products can be compared with each other. We calculate a rating for each savings and investment product using the same method in each case. That way, you know whether a product is inherently more defensive or more dynamic. The rating is number between one and seven. In addition to the product rating, we also list and describe important factors on the product fact sheet. The product rating is calculated on a regular basis since changing market conditions can affect the features of the savings and investment products. The rating method may also be revised in our aim to achieve a high degree transparency and consistency or so we can continue to comply with amended or new regulations. That makes the product rating an important tool both when choosing the right investment, and when monitoring it afterwards.

profile fund
An investment fund that aims for a broad diversification across shares, bonds, real estate and cash products. Depending on the investor's risk profile they can opt for a fund with more bonds or cash products (and therefore fewer shares) or funds that are heavily weighted towards shares. The underlying shares and bond portfolios are just as diversified. The fund gives the investor an all-in-one solution that fits their risk profile. The investment strategy is explained in the prospectus.

profit dilution
Issuing new shares can lead to a temporary or permanent dilution of the current earnings per share. The profit is divided among a larger number of outstanding shares.

profit margin
The profit expressed as a percentage of the turnover.

profit on death
If a smaller number of insured persons die than expected compared to the mortality table used for the premium in the portfolio of death insurance policies, KBC Insurance obtains a 'profit on death'.

profitless recovery
Economic recovery without a significant improvement in operating profits.

profit-sharing
The client can receive a share of the interest gains, on top of the guaranteed interest. The profit-sharing rate is dependent on KBC Insurance's operating results and developments in the market interest rates. In other words, this rate is not guaranteed and varies per year. The profit-sharing percentage is determined after the end of the financial year.

promoter
A financial institution that is responsible for selling funds.

prospectus
A publication in which the issuer of an issue or a stock exchange listing reveals some of their company data and provides a detailed description of the terms and conditions of the issue. The prospectus includes information about the shareholders' equity, the financial position, the company's performance and its outlook.

protest
If bearer securities are lost, stolen or damaged, the investor can submit a protest. This means that they protest against the trading of the securities or against the exercising of the rights associated with the securities. In doing this, they hope to secure their rights to the lost or stolen securities. Protesting is a safeguarding measure. In submitting a protest, the investor has not yet proved their rightful ownership of the securities.

public auction
Unlisted shares are traded on a public auction. Euronext Brussels organises an auction two times a week where unlisted securities can be traded. Examples of auctioned securities are: shares, real estate certificates, bonds and savings certificates.

public exchange offer
In contrast to public takeover bids, payment is settled by exchanging other securities (often, but not always, shares in the buyer company), and is potentially supplemented by cash payments. The potential premium amount, relative to the stock market price, is determined by the exchange ratio of the securities and, in many cases, the payment amount. See also, public takeover bid.

public issue
See issue.

Public Limit Order Book
An administrative system of the Euronext Amsterdam options exchange on which limit orders from clients that have not yet been executed are stored until they can be executed at the limit price. The Public Limit Order Book is managed by the Order Book Official.

Public Order Book
An electronic stock exchange system in which orders are, somewhat automatically, gathered, sorted and executed per security.

Public Order Correspondent Member
An institution within Euronext Amsterdam that trades in options and takes on risk on behalf of third parties through the intermediation of Public Order Members. A POCM can also trade on their own behalf. Foreign parties have a POCM status. Abbreviation: 'POCM'.

Public Order Member
Abbreviation: 'POM'. An institution that trades in options and takes on risk on behalf of third parties, and which has been approved by Euronext Amsterdam. The orders are executed by a Floor Broker. POMs are authorised to trade in options on their own behalf. Private investors give orders via a Public Order Member. KBC is an example of a POM.

public takeover bid
A transaction during which a company that wishes to gain control over another listed company, proposes to buy the shareholders' shares (and any other securities) in exchange for cash, or to buy within a defined period and at a higher price than the stock market price. By virtue of the legal provisions that ensure the equal treatment of all shareholders of a listed company, the company instigating this kind of transaction must make an offer to buy all the securities that are offered within the bid: they cannot just buy enough securities to give them a majority stake in the capital of the company. See also public exchange offer.   

pure endowment
Insurance that provides a payment of the capital to a beneficiary, if the insured person is still alive at a specific moment in time (a specific age).

put
A right. In the context of bonds, a put is the holder's right to repay a loan before maturity, under certain circumstances. In the context of options and warrants, a put is a option to sell. The holder has the right, but not the obligation, to sell an underlying asset at a predetermined price. The writer of the put has the obligation to deliver the asset when the holder of the put requests it. The holder of a put option will exercise their right if the market price is lower than the exercise price. If that scenario does not manifest, the option expires and is valueless. Put options can be used to protect the value of a share or a portfolio against a drop in stock exchange prices.

put option
A negotiable right to sell an agreed amount of underlying assets at a pre-agreed price, at a specific moment in the future.

put spread
An option combination where one put is bought and another put (with a different exercise price and/or expiry month) is sold.

put-call ratio
The ratio of the number of traded call options to put options. The put-call ratio can give an indication of the short-term expectations of options investors. For example, imagine that on a certain day, the put-call ratio is 1.56. That means that approximately 50% more call options than put options were traded. A put-call ratio of more than than 1 often indicates a positive sentiment among investors.

Q

quote driven
Pricing that occurs on the basis of current orders.

R

random selection
A method of drawing lots that guarantees a fair distribution of chance; used for 'assignments'.

range
The highest and lowest price of a security on the stock exchange over a given period of time, or the highest and lowest price at which you can register for an issue.

rating
The rating of a bond shows the likelihood that the investor will actually receive the expected interest and capital payments. Standard and Poor's uses a rating system of letters ranging from AAA to D. A bond with a AAA rating indicates that the investor has the highest probability of receiving the expected interest and capital payments.

rating agency
A company specialised in evaluating the credit worthiness of bond issuers. They give the investor an indication of the risks associated with a company or an investment product.

real estate bevak
A bevak that invests in a diversified and varied portfolio of real estate. Real estate bevaks are traded on the stock exchange, almost always in the form of distribution shares. Real estate bevaks are obliged to distribute at least 80% of their profit. The dividends are subject to the withholding tax applicable to shares. Real estate bevaks which invest at least 60% of their assets in residential property are exempt from withholding tax. They should not be confused with real estate certificates.

real estate certificate
Real estate certificates are issued to fund commercial premises or office buildings. In contrast to real estate bevaks, they always relate to a specific project, so the spread of risk is limited. The holder of the certificate is not a co-owner of the real estate, but rather they only possess a debt claim against the institution that issued the certificate. The certificate entitles the holder to a share in the net income generated by the lease and, when the certificate matures, a share in the residual value on sale of the property. Coupons on real estate certificates are directly linked to the net result of the operation of the building. In tax terms, part of the coupon income is usually considered as a repayment of the capital initially invested and is therefore not subject to withholding tax.

real interest rate
The nominal interest rate minus inflation.

real time
Prices that directly appear on the screen, as soon as trading begins.

recession
A period of negative economic growth. Generally, the negative growth has to persist for two consecutive quarters in order for the situation to be considered a recession.

reconciliation
Evaluating a certain activity by comparing many different sources with the aim of gaining a complete and accurate picture of the activity.

recurring earnings
Earnings that are repeated (excluding extraordinary results).

redenomination
The change in the nominal value of a share or bond. This occurs almost exclusively when an issuing institution is in financial difficulty. Synonym: 'stamping'.

registered certificate
A document in the name of a client which represents the original share (= the underlying asset). It is a confirmation of the entry in the company register but it cannot be used as proof of ownership. Since the only genuine proof of ownership is the entry in the register of the company, a new certificate can be requested at any time. The old certificate is then considered worthless in the register of the company.

registered share
A share that is recorded in the register of shareholders of the company in the name of the buyer. The shareholder is therefore publicly known.

registered share
A share that is registered in the name of the shareholder. The names of the shareholders are listed in a register that is kept by the company issuing the shares.

registration order
An order for new issues of bonds, shares, warrants, etc. Conditions: the order must be registered within the subscription period and settled according to the issue conditions. Registration orders are accepted until there are no more securities available or until the end of the subscription period.

regular standing order
An automated transfer which is periodically executed, after a one-off registration and on a fixed due date, on behalf of the person requesting the order.

regulated market  
A regulated market is a location (often a stock exchange) where all kinds of investment instruments are bought and sold on a regular basis. Trading is carried out according to the rules that have been laid down for that specific stock exchange and is open to the general public. Developments in the results of this trading (stock market prices) are regularly published. A famous example of a regulated market is Euronext in Brussels.

regulated savings account
A savings account that complies with the provisions of article 2 of the Royal Decree implementing the Income Tax Code regarding exemption from withholding tax. The key points are: – there is a first bracket of interest over which no withholding tax is owed; see also 'tax-free interest'; – there is a legal limitation on the transactions that may be carried out on this savings account; for example, payments are not permitted; – it has an interest rate that consists of a base rate and a fidelity bonus, which must be set according to the legal minimum and maximum limits.

repurchase
When a term investment is settled before maturity, it is referred to as a repurchase.

residual yield
The residual yield is the ongoing return that a bond will continue to receive up until the maturity date, on the basis of the current value. The residual yield facilitates accurate comparisons of the yields of bonds with similar remaining terms to maturity but with different coupons. When bond prices rise, the residual yield falls and vice versa.

return
The percentage change in the value of an investment in shares over a specific period, assuming that the dividend will be reinvested. It is therefore the total return, consisting of the direct return on the coupon payment and the indirect return on the capital gains.

return on equity
The return on equity comprises two components: any potential increase in the value of the share, and the portion of the company's profit that is periodically paid out: the dividend. See also dividend yield. In order to actually profit from the return on the increase in the value of the shares, one must first sell the shares.

return on equity
A measure of profitability that gives an indication of the profitability of the equity. The return on equity is calculated by expressing the profit as a percentage of the equity. This shows the extent to which the risk was worth taking. See yield to maturity.

reverse cliquet
A structure used for building investment funds with capital protection. In addition to capital protection, the main feature of the 'reverse cliquet' structure is its high potential gain (predetermined maximum gain) and short to very short maturity. The gain at maturity depends not so much on the increase as on monthly fluctuations (volatility) in the underlying index.

rise
A rising trend on the stock exchange over an extended period of time.

risk aversion
A reluctance to take risks or the need for above-average remuneration in order to accept risk.

risk class of a fund
Indicates the extent to which the return on an investment in that fund can fluctuate. This classification was set up by the Belgian Asset Managers Association (BEAMA). The basis for determining the risk indicator is the volatility, determined by calculating the standard deviation of the monthly returns, in euros, over five years.

risk premium
An extra return that is obtained or demanded in advance as a result of accepting risk. Risk can refer to many different factors. The extra return is always calculated against the risk-free return on the same investment horizon. Long-term investments usually have a higher risk premium. Investors demand higher premiums because they have to tie their money up for a longer period of time and due to the fact that the future is uncertain. The risk premium on shares (as opposed to bonds) is linked to long-term growth forecasts and their level of uncertainty. The technical aspects of investing are also grounds for demanding risk premiums. The risk premium is higher for markets that are difficult to access, have limited trading volumes, a limited flow of information and unsophisticated investment instruments than for extremely liquid markets.

risk profile of an investment fund
Indicates, based on the risk category of the fund, the risk profile of investors for which that fund is a suitable investment. A fund's risk profile may change due to developments on the financial markets.

risk profile of the investor
Not every investor has the same needs. One investor will be happy to take on more risk in exchange for the chance of a higher return, while another investor will prefer to play safe and be satisfied with a lower return.

risk spectrum
A visual representation of the return that can be expected on a specific investment product compared to other types of investments. Investors can used the risk spectrum to compare the risk levels of different types of investment, see the extent to which the investment horizon has an influence on the risk levels of different types of investment and check if a certain type of investment is suited to their investment portfolio.

ROE
Abbreviation of 'return on equity'. A measure of profitability that gives an indication of the profitability of the equity. The return on equity is calculated by expressing the profit as a percentage of the equity. This shows the extent to which the risk was worth taking.

rolling
Replacing an option position with a position with a later expiry month or a different exercise price.

Rollover
Replacing an option position with a position with a later expiry month or a different exercise price.

S

S&P 500 index
An index developed and calculated by Standard & Poor's that is comprised of 500 US companies. The S&P 500 index uses the sector classification system. The S&P 500 index was first calculated in 1926 and has included 500 companies since 1957. Along with the 'Dow Jones Industrial Average Index', the S&P 500 index is one of the most consulted stock exchange barometers in the world. The futures on the S&P 500 index are some of the most traded futures in the world.

savings ratio
The part of the national income that is saved.

screen trade
An electronic trading floor.

secondary market
A money or capital market on which existing securities are traded after their initial issue (on the primary market). The price of a security is not determined by the issuer (who is not involved in the trading), but is instead determined through supply and demand. Trading on a secondary market makes an investment liquid. The investor does not need to wait until the maturity date of a security or until the dissolution of the company to cash in on their investment. For example, stock exchanges are secondary markets for shares.

securities broker
A person authorised to execute orders on the stock exchange (formerly known as an exchange agent).

securities firm
See broking firm.

securities portfolio
The securities owned by an investor.

security
An umbrella term for a financial product negotiable on the stock exchange such as shares, bonds, certificates, savings certificates, options, financial futures, agricultural futures, trackers, warrants and special products.

settlement
The completion of a transaction, both in terms of administration and money.

settlement contract
A contract where delivery of the underlying asset is not possible and the contract is settled in cash on the expiry date. The amount is determined according to the difference between the closing price and the price at which the investor opened their position on the futures market. Index contracts are often settlement contracts.

settlement price
The price of the underlying asset, which is used to settle options and futures on the final maturity date. For options and futures on the AEX index, it is the average price of the 31 listings that are generated every 60 seconds between 15:30 and 16:00 on the previous trading day.

share
Proof of shareholding in the capital of a company.

share analysis
An umbrella term for a number of methods and techniques used to evaluate the future price of a share. The most common are: fundamental analysis, technical analysis and macroeconomic analysis.

share capital
The total nominal value of the shares issued by a company, which is laid down in the articles of association.

share dividend
Payment in shares. Shareholders receive one or more bonus rights, free of charge.

share index
The weighted average of the share prices of a group of shares; using this index we can measure developments in the prices of these shares. Share indices are used as stock exchange barometers.

share issue
See: issue.

share premium
The difference received by a company due to a capital increase; the difference between the issue price of new shares and their nominal book value.

share splits
When shares are divided into several equal parts, causing the nominal value of individual shares to fall. Splitting can increase the negotiability of shares.

shareholder
A holder of one or more shares and therefore a co-owner of a company.

shareholder's value
The value of the company for the shareholders.

shares issued
The number of shares offered to investors.

Sharpe ratio
A measure of the return, adjusted to take into account the risk taken. Indicates the extra return (in addition to the risk-free interest) earned for each unit of risk taken. It is calculated by dividing the difference between the return and the risk-free interest by the standard deviation of the return on the investment. The Sharpe ratio shows whether the return was achieved through good management or by accepting extra risk. A higher ratio means the balance between risk and return is considered positive.

short combination
Writing a call option and a put option with the same expiry date at the same time. However, the exercises prices of the options are different.

short covering
Buying back previously borrowed and sold securities (going short).

short position
Depending on the context, the term short position either refers to an underweighting in a portfolio or the consequences of writing an option. The writer of an option runs the risk of exercising the option, meaning they have to deliver or accept the underlying asset at the predetermined price. The investor aims to buy the securities at a lower price, later on. The investor hopes to gain extra profit as a result of the return on the sale. The opposite of this a long position.

short selling
Writing an option or selling a future when you do not possess the underlying asset, e.g., shares or a currency. This poses a significant financial risk. Synonym: 'naked writing'.

short straddle
A straddle where both call and put options are written with the same expiry month and the same exercise price.

short-term interest rate
Interest rates on the money market. Interest rates on loans with a relatively short duration (1 to 12 months). The central bank has a large influence over the interest rates. There is not just one interest rate, but rather a totality of many interest rates that are applied to money market instruments. Synonym: 'money market rates'.

SICAV
Abbreviation of 'Société d'Investissement à Capital Variable'. Dutch: bevek.

single premium
A one-off amount deposited into an insurance policy or life insurance policy.

small caps
Companies with limited market capitalisation. However, each country defines the concept differently.

SMI
Abbreviation of 'Swiss Market Index'. A Swiss stock market indicator.

socially responsible investment
It combines traditional financial values with social, governance and environmental criteria by incorporating them into the investment management process in a structural, voluntary and transparent way, an approach that is also adopted when the associated rights are being exercised. Dialogue with relevant stakeholders is another part of this process. Several strategies can be used to assist in drafting the policy.

solvency
The equity of a company expressed as a percentage of the total capital. It is a measure of a company's financial health.

special conditions
Conditions that apply specifically to an individual contract. They include the start and end date of the contract, the names of the parties entering into the contract and the capital to be insured, etc. If the special conditions deviate from the general terms and conditions, the special conditions apply.

speculate
Taking certain risks with the aim of achieving relatively high gains, often in the short term.

split
The division of a share by a certain number in order to make the share less heavy and more negotiable. For example, a share that has grown to a price of 200 euros as the result of accumulated earnings, is often split into ten shares, each priced at 20 euros or five shares, each priced at 40 euros. See also corporate action.

sponsor
An issuing institution that submits the request for a listing on the stock exchange and actively supports the issuing company. Several sponsors can form a syndicate or a consortium.

spot market
A sub-market of Euronext; includes all securities which are traded daily in large volumes and require constant pricing. In practice, this means that a new price equilibrium between supply and demand is created every few seconds. The costs of being listed on this exchange are high. The stock exchange requires companies listed on this exchange to provide shareholders with regular reporting. Synonym: 'continuous market'.

spot price
The price on the spot market.

SPV
Abbreviation of 'Special Purpose Vehicle'. A company that establishes financial institutions in order to issue or acquire certain assets. It is usually an independent legal entity. With an SPV, a company can finance activities without affecting the balance sheet of the company. This removes certain financial risks from the balance sheet. They are also established by financial institutions as a counterparty for swaps and other credit-related derivatives.

SRI
Abbreviation of 'Socially Responsible Investments'.

standard deviation
The result of an investment is annualised within a specific band of the average long-term result. Standard deviation is a mathematical concept that describes the width of this fluctuation band. The greater the standard deviation, the wider the margin and the greater the risks associated with this type of investment.

standardisation
Through standardisation, the negotiability of options contracts is improved. On the AEX options exchange, options are standardised according to the amount of the underlying asset, the exercise price and the term to maturity.

standing order
A standing order is when the policyholder asks their financial institution to periodically transfer a certain amount of money to their insurer. The initiative is therefore taken by the policyholder: they give their financial institution the order to periodically transfer a certain amount from their account.

step-up
A bond or term investment where the interest rate of each period is higher than in the previous period.

stipulator
A person who enters into a contract with a third-party beneficiary clause and therefore saves on behalf of a third party. Context: third-party beneficiary clause.

stock exchange
A central regulated marketplace where shares, bonds, investment funds, etc. are traded. The marketplace for these products in the Netherlands, Belgium, France and Portugal (and soon also London) is the Euronext stock exchange. Derivatives such as options and futures are traded on an options exchange.

stock exchange commission
A panel of elected stockbrokers who manage the organisation and day-to-day operations of the stock exchange.

stock exchange costs
The transaction costs paid by an investor for the execution of a stock exchange order.

stock exchange guru
An influential investment expert.

stock exchange listing
A company has a stock exchange listing if shares in their company are traded on a stock exchange. By issuing shares on a stock exchange, a company can expand its capital, sell the shares of an existing major shareholder and change its status from a private company to a stock exchange listed company. When listed on a stock exchange, companies must fulfil certain obligations in terms of reporting and behaviour.

stock exchange order
An order to buy or sell on the stock exchange.

stock market crash
A sharp, unexpected decline in stock market prices that usually goes hand in hand with mass panic.

stock market index
An index that shows the average price trends of a group of securities. Shares do not increase and decrease all at the same time. Creating a stock exchange index involves adding up the prices of all the different underlying shares and dividing them by a conversion factor in order to get a workable statistic. If we compare this index price with prices at other moments in time, it provides an insight into stock market trends.

stock market price
The price at which a security is valued and traded on the stock exchange. The price is determined by supply and demand.

stock market tax
Tax that the government levies on buying and selling securities (shares, bonds, investment funds, etc.).

stock market value
The number of a company's shares that are traded, multiplied by the current stock market price for that share. Synonym: 'market capitalisation'.

stock option
A negotiable right to sell a group of shares or to sell at a predetermined price or at a certain moment in the future. See also option.

stock option certificate
A certificate that allows you to exercise the right to receive certain shares. These certificates cannot be kept on a custody account.

stock picking
Selecting shares that are expected to bring good returns.

stop order
An order given to a securities trader to buy or sell at the market price when the share surpasses a specific price, called the stop price. A 'stop order' can be a day order but it can also be a good 'til cancelled order.

stop/loss order
A stop/loss order remains valid for just one day. The stop/loss order is executed if the stop/loss price is reached. The market maker then attempts to execute the order as quickly as possible and tries to avoid partial execution. If the full execution has not been carried out by the end of trading hours, the balance that has not been executed will be automatically cancelled. A new order will be submitted for the balance that was not executed.

stop-limit order
An order type in which the order isn't executed until the price specified by the investor is reached: the trigger price. The order does go immediately to the stock exchange, but it becomes visible there only when the market price reaches the set trigger price. When the order is at the top of the queue at the stock exchange, it is executed at the specified limit price. In other words: a stop-limit order is a limit order that's capitalised once a trigger price is reached.

stop-market order
An order type in which the order isn't executed until the price specified by the investor is reached: the trigger price. The order does go immediately to the stock exchange, but it becomes visible there only when the market price reaches the set trigger price. When the order is at the top of the queue at the stock exchange it is executed at the next market price. In other words: a stop-market order is a market order that is activated after reaching a trigger price.

STP
Abbreviation of 'Straight Through Processing'.

straddle
A combination where a call option and a put option with the same expiry months and exercise prices are bought or written at the same time. A long straddle (buy straddle) offers the opportunity to take advantage of a strong anticipated upwards or downwards movement in prices. A short straddle (written straddle) offers maximum profit when the prices have levelled off. The writer of a straddle does run some risk: if there is a strong increase or decrease in the prices, the loss can rise to an amount that cannot be offset by the premium received.

strike price
The price at which the buyer of an option can buy or deliver the underlying asset. Synonym: exercise price

stripping
An action during which the corpus and the coupon sheet (strip) of a traditional moveable asset (share or bond) are separated so each document is independently negotiable. In Belgium, many companies have 'stripped' their VVPR shares (see VVPR shares) in order to increase liquidity. See also GNMA.

STRIPS
Abbreviation of 'Separate Trading of Registered Interest and Principal Securities'. VVPR shares were originally fully-fledged shares with the suffix VVPR. Many companies therefore had two types of shares: ordinary shares that were issued before 1994 and VVPR shares that were issued after 1994. This had a negative effect on the negotiability of the shares, so the Belgian government made it possible to strip these shares of their right to reduced withholding tax. This led to the creation of Strip VVPR shares. As of today, all Belgian companies have stripped their VVPR rights, with the exception of Recticel.

structured product
A product that is sold to the client as a single product/solution but actually comprises a number of foundation products (also known as 'building blocks'). These structured products are often one-off customised solutions but may also be offered to the wider market.

sub-fund
A bevek (open-ended investment company) may be made up of various sub-funds, which means that it is split into separate portfolios, each with its own investment policy. A prospectus providing details of the specific investment policy is issued whenever a sub-fund is launched. The advantage to investors is that they can switch from one sub-fund to another at lower cost, hence benefiting from changing market conditions.

subordinated bonds
Subordinated bonds are bonds that, if the company in question goes bankrupt or is liquidated, will only be repaid after the other creditors have been repaid (but before the shareholders are repaid). In the event of bankruptcy, there is a high probability that holders of this type of asset will not be repaid at all or will be repaid less than holders of non-subordinated bonds. The risk is therefore higher and requires higher compensation.

subordinated term investment
A term investment that, in the event that the financial institution issuing the investment goes bankrupt or is liquidated, will only be repaid (both the capital and the interest yet to be paid) after all other creditors have been repaid. However, the shareholders will be reimbursed after the owners of subordinated term investments.

subprime
Literally 'less than first class'. Mortgage loans with a lower credit worthiness. These loans are sometimes referred to as 'junk mortgages' as per the 'junk bonds' analogy. If an American wants to buy a house and take out a mortgage, they receive a 'credit score' on the basis of their repayment records. Borrowers that score under a certain threshold, receive the label 'subprime'.

subscription amount
The amount that is paid by contributing capital to the internal investment fund.

subscription right
Preferential subscription rights (coupons) granted to existing shareholders, which allow them to subscribe to a specific proportion of new shares. Synonym: 'preference right'.

surrender
If the policyholder calls up their reserve, at any time before the end date of their contract, it is known as a full or partial surrender.

suspension
When trading in a certain security is temporarily paused. It usually occurs when an important announcement is made by the company in question.

Sustainable and Socially Responsible Investment
It combines traditional financial values with social, governance and environmental criteria by incorporating them into the investment management process in a structural, voluntary and transparent way, an approach that is also adopted when the associated rights are being exercised. Dialogue with relevant stakeholders is another part of this process. Several strategies can be used to assist in drafting the policy.

swap
A swap is an agreement between two parties where one party exchanges a certain cash flow, currency or risk for the cash flow, currency or risk of another party. Different types of swaps include: interest rate swaps, currency swaps, credit default swaps, total return swaps and equity swaps.

Swiss Market Index
A Swiss stock market indicator. Abbreviation: SMI.

syndicate
A temporary framework agreement between two or more trading banks during an introduction or a later issue. One of the participating syndicate members acts as the syndicate leader or lead manager. Synonym: 'consortium'.

synthetic replication 
Synthetic replication means tracking the index by using derivative products.

synthetic risk indicator
See legal risk indicator

T

T+3
The transaction date plus three days. That means that the securities are delivered or settled three days after the transaction.

take profit
Selling securities with the aim of cashing in profit.

takeover bid
A public bid to takeover the share capital (or part of the share capital) of a company. A takeover bid can be friendly or hostile, i.e. with or without approval from the board of directors or the supervisory board of the company. The shareholders must also be in agreement with the takeover bid and register their shares to the bidding party.

target
A fund with an investment strategy that dictates that, if the sum of the annual coupons has reached or surpassed a certain percentage, the sub-fund is wound up early.

target contribution
When taking out certain types of life insurance, for example, KBC Life Plan, the client endeavours to transfer premiums at certain specified times, without committing to actually paying this total amount each year. The target amount can also be defined in the context of taxes. There are two possible definitions: target amount = fiscal maximum; target amount = the amount determined by the client.

target portfolio
A KBC Target Portfolio is a frame of reference with which a client portfolio can be optimally built according to the risk profile of a client (from highly defensive to highly dynamic). Each month, the target portfolios are adjusted according to KBC's investment strategy. In the portfolio, we include various asset classes (bonds, shares, etc.) that should offer the best long-term risk/return ratio for the associated risk profile.

tax on dividends
Tax on dividend payments which is deducted from the dividend (this includes withholding tax, etc.).

technical interest rate
The interest on the theoretical surrender value of each policy, which KBC Insurance guarantees its clients.

tender issue
The subscriber determines which amount and quantity they wish to register for and the maximum price they are prepared to pay. The other conditions are determined in advance. The issuer determines the issue price on the basis of the offers submitted after the issue period. See also issue.

term
The duration of time between the start and expiry date of an investment. Bonds have a wide range of terms to maturity. Most options classes have a maximum term to maturity of nine months, however some have a maximum term of five years. Futures have a maximum term to maturity of twelve months. Synonym: 'duration'.

TFO
Abbreviation of 'Trading Floor Official'. An employee of Euronext who is responsible for supervising trade on the floor of the options exchange. In contrast with the Order Book Official, the Trading Floor Official works on the floor of the options exchange and is not involved in managing the order book. A Trading Floor Options maintains order, plays an important role in protecting the integrity of the options market and is authorised to hand out fines to traders who break the rules.

third-party beneficiary clause
An agreement in which the stipulator agrees to save on behalf of a third party, the beneficiary. The saved credit will be transferred to the beneficiary on a pre-agreed release date, provided the beneficiary accepts the transfer. The stipulator has access to the credit until the release date is reached. A third-party beneficiary clause is often entered into for the benefit of children, grandchildren or godchildren.

tick
The smallest unit by which a price moves.

ticker symbol
A symbol used to designate a security on a stock exchange.

tier-1 ratio
The equity of a financial institution expressed as a percentage of the credit granted. The ratio gives an indication of the degree to which the company is capable of fulfilling its obligations to its clients. The amount of credit granted is based on a risk weighting. Credit granted to risk-bearing companies weighs heavier than credit granted to national governments. The core tier-1 ratio is the share capital, multiplied by the reserves of the company.

tiger
A rising Asian market. The tigers are Singapore, Hong Kong, South Korea and Taiwan.

time spread
A combination order where call or put options with the same underlying asset and exercise price, but with different expiry months, are bought and written. For example, the investor buys a long-term call option as a cover for a written call option with a shorter term.

time value premium
The difference between the option price and the intrinsic value of the option. This value is determined by six factors: (1) the relationship between the exercise price and the price of the underlying asset, (2) the volatility of the underlying asset, (3) the remaining term to maturity, (4) the dividend, (5) the interest rates and (6) the market sentiment.

TINA
There is no alternative. Investors sometimes choose shares because there are no other interesting alternatives. If liquid assets generate low gains, the real interest on government loans is low and corporate bonds offer only slightly higher returns, money starts to flow towards the stock exchange because there are simply no other alternatives.

total expense ratio
The European guideline, UCITS III, requires funds to report the total expense ratio (TER) in the simplified prospectus. All annually recurring costs are included in the TER. In addition to the management fee, other costs such as administration and marketing costs are also taken into account. The publication of the TER improves the level of comparability of the costs of different funds. Abbreviation: TER.

tracker
A share on an index. A tracker closely follows the price of an index, including the dividend payout. Investing in a tracker offers clear advantages for investors over investing in all the individual components of the index. Euronext lists trackers on the AEX index, the CAC40, the Eurotop 100 and the Dow Jones Euro STOXX 50.

tracking error
A measure of the level of risk that a fund manager is permitted to run as part of their investment strategy. It gives the theoretical maximum deviation from the return on the investments compared to the benchmark index.

trader
An investor trying to achieve gains from quick buy and sell transactions.

trading
1. A general term for transactions which have the aim of achieving a positive result within a relatively short period of time after they are settled. 2. (Belgium) In the context of derivatives transactions, the term refers to transactions that cannot be considered as hedging, according to the Royal Decree of 23 September 1992.

Trading Floor Official
An employee of Euronext who is responsible for supervising trade on the floor of the options exchange. In contrast with the Order Book Official, the Trading Floor Official works on the floor of the options exchange and is not involved in managing the order book. A Trading Floor Options maintains order, plays an important role in protecting the integrity of the options market and is authorised to hand out fines to traders who break the rules. Abbreviation: TFO.

trading hours
Trading in shares, bonds, options, financial futures, agricultural futures, warrants, trackers and special products can only take place during fixed hours, which are set by the stock exchange authorities.

trading jacket
Traders and stock exchange officials on the floor of the Euronext Amsterdam options exchange wear bright-coloured jackets in order to increase their visibility.

transaction
Buying or selling an underlying, a share, a bond, a fund, etc.

transaction costs
The costs associated with buying or selling securities, charged to the client by a bank or commission agent.

treasury certificate
A short-term certificate of debt from the treasury. In Belgium, they are denominated in euros, have a term of 3, 6, or 12 months and are issued weekly at an auction. These financial instruments are traded on the money market and are aimed at professional market players.

trend
If a market price moves in a specific and clear direction over a longer period of time, it is referred to as a trend. Investors try to discover trends in order to take advantage of them.

turnaround
A company that was making a loss but has succeeded in becoming profitable again.

type
Indicates whether an option is a call or a put.

U

UCI
The term ‘undertaking for collective investment’ (UCI) is the overarching name used for all types of investment fund, regardless of their legal status. Depending on their legal status, a distinction is made between UCIs with a contractual structure (mutual funds) and UCIs with a separate legal personality (investment companies). For UCIs that are made up of different sub-funds, the term ‘UCI’ is also occasionally used to refer to a sub-fund. The investor participates directly in a diversified portfolio that invests, for instance, in equities, bonds, cash and/or real estate in accordance with the investment policy laid down in the prospectus. UCIs are managed in the exclusive interests of the unit holders by specialists who track the market closely. Another term often used for a UCI is ‘fund’ or ‘investment fund’. 

uncovered option
When a client writes call options for which they do not possess the underlying assets.

uncovered warrant
Uncovered warrants are issued by companies on their own shares (with the aim of attracting extra capital), in contrast, covered warrants are issued by financial institutions and are exercisable for shares in another company.

under par
Less than 100% of the nominal value. Context: mainly bonds.

underlying asset
The product on which a derivative is traded, e.g., shares, an index, currencies, precious metals or commodities such as potatoes, grain or gold.

underperformance
An investment result that is worse than the result of the benchmark index. It is the opposite of outperformance.

undervaluation
The amount by which the price of a share is lower than the nominal value of the share. In theory, an investor can profit from buying an undervalued share or derivative. Synonym: 'backwardation'.

underweighting
A conscious decision (an active position) to include a smaller weight of a security, sector, country or currency in an investment portfolio compared to its weight in the benchmark index of a portfolio. It expresses an expectation that the security will perform worse than the market average in the near future. The opposite concept is overweighting.

underwritten issue
An issue for which the risk of placing the issue has been underwritten by the banking syndicate on behalf of the issuing institution. If the share subsequently garners little interest, the syndicate members can suffer a substantial financial loss. Synonym: underwriting.

unemployment rate
The unemployed population divided by the working-age population. Indicates what proportion of the total potential supply of labour is not working. It is the opposite of the activity rate and the employment rate.

upside potential
An investment's potential for profit.

utility company
A utility company is a company considered to be a 'public undertaking' because it provides an important product or service in a sector that is in the interests of the general public. This mostly refers to producers and/or distributors of water and electricity.

V

value at risk
A risk model that estimates the probability of a negative investment result, on top of the previously determined risk level, based on the probability and the term to maturity. The 'value at risk' is calculated using statistical analyses that are based on historical market trends, correlations and price fluctuations. Abbreviation: 'VAR'.

value date
The date on which money begins to earn interest or the date up to which money in an account earns interest.

VAR
Abbreviation of 'value at risk'. A risk model that estimates the probability of a negative investment result, on top of the previously determined risk level, based on the probability and the term to maturity. The 'value at risk' is calculated using statistical analyses that are based on historical market trends, correlations and price fluctuations.

variable interest
Interest that is adjusted at certain moments (for example, in the context of a bond loan).

VIX index
The VIX index is a measure of the implicit volatility of the S&P 500 index. The index somewhat reflects to what extent the market expects the index to be volatile during the next 30 days. The VIX index is therefore sometimes also referred to as the fear index or the fear barometer.

volatility
The extent to which the price of a share or other financial product fluctuates over time, or to which a share index or exchange rate moves up or down over time.

voluntary life insurance

Insurance that is not linked to credit (home loan, commercial credit or an instalment loan).

voluntary payment with a payment request
In this case, KBC Insurance periodically delivers a payment request to the policyholder for their contract (at an interval chosen by the policyholder). A transfer form will be attached to the payment request on which the target amount per fraction and the personal reference number of the client (in the information area) are printed.

voting rights
Share ownership gives the shareholder voting rights during the mandatory Annual General Meeting of Shareholders. Holders of share certificates do not have voting rights.

VV strip
An exceptional coupon sheet that represents the right to reduced withholding tax. Only 15% withholding tax is deducted from the coupon of a share, if the investor also hands in the corresponding coupon on the VV strip. Part of the VV shares have been dissolved into ordinary shares and VV strips.

VVPR share
VV: 'verminderde voorheffing' –  Dutch for reduced withholding tax, PR: 'précompte réduite' – French for reduced withholding tax. A share with reduced withholding tax or a share with a more favourable tax system. They may be issued by companies following a capital increase, under strict conditions. VVPR shares are shares that were issued after 1 January 1994 where only 15% withholding tax is owed on the dividends.

W

Wall Street
The street in New York where the New York Stock Exchange is based.

warrant bond
A security that gives the buyer the right to buy (call) or sell (put) securities (shares, indices, etc.) during a predetermined term. There are two types of warrants: (1) the European type: can only be exercised at the end of the term to maturity; (2) the US type: can be exercised at any time. Warrants are traded on the stock exchange during the term. Benefits of warrants: only a small investment is required; large profits can be made (through the leverage effect); put warrants can protect (a large portion of) the shares portfolio; the potential loss can be more more than the invested amount.

WHT
Abbreviation of 'withholding tax'.

withholding tax
Abbreviation: 'WHT'.

write
Gaining a short position in an option. When writing (selling) options, the investor is obligated to deliver a call option or buy a put option at a predetermined price and during a specific period.

writer
The writer is obliged to deliver (for call options) or buy (for put options) the underlying asset at the exercise price.

X

Xetra
An electronic trading system used by the Frankfurt stock exchange.

Y

year on year
The percentage change with regard to the same period in the previous year For example, the first quarter of 2010 is compared with the first quarter of 2009.

yield
The revenue or income of an investment as a financial result, usually over a specific period. If it is expressed as a percentage of the value of the investment or the amount invested, we usually refer to it as the profitability.

yield curve
A graph showing the interest rates over various periods of time for a specific currency and at specific moments. The yield curve is 'normal' when the short-term interest rates are lower than the long-term interest rates: the lender will receive less compensation if they lend the liquid assets for a shorter period of time; the borrower is prepared to pay a higher price in exchange for having access to the liquid assets for a longer period of time. An inverted yield curve (the short-term interest rates are temporarily higher than long-term interest rates) traditionally reflects the anticipation of a fall in interest rates: holders of liquid assets try to invest them for as long a period of time as possible, while potential borrowers try to commit to as short a period of time as possible, in order to be able to take advantage of the expected fall in interest rates.

yield to maturity
A calculation of the annualised return that does not only take into account coupon payments, but also other factors such as the issue price, coupon frequency, coupon data, the redemption price and final maturity date. It is the only way to objectively compare investments where the income and expenditure are unequally spread over time.

Z

zero bond
A bond without annual interest, but which has an issue price that is much lower than the nominal value that will be paid out at maturity. The issue price is the nominal value, discounted on the basis of the issue date and the fixed interest rate. For example: a zero coupon bond with a nominal value of 1 000 euros, an interest rate of 10% and a term of 10 years, will have an issue price of 38.55% or 385.50 euros. Conversely, an investment of 385.50 euros bought today, with a compound interest of 10% and a term of 10 years would be worth 1 000 euros at maturity. Synonym: 'zero-coupon bond'.

zero coupon bond
A bond without annual interest, but which has an issue price that is much lower than the nominal value that will be paid out at maturity. The issue price is the nominal value, discounted on the basis of the issue date and the fixed interest rate. For example: a zero coupon bond with a nominal value of 1 000 euros, an interest rate of 10% and a term of 10 years, will have an issue price of 38.55% or 385.50 euros. Conversely, an investment of 385.50 euros bought today, with a compound interest rate of 10% and a term of 10 years would be worth 1 000 euros at maturity. Synonym: 'zero bond'.

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