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Glossary of Offshore A - N
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| Glossary of Offshore A - N | | |||||||||||||
By: | | Offshore Institute | | ||||||||||||
Date: | | 05/16/2000 | | ||||||||||||
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Glossary of Offshore A - N After hours dealing: Dealing done at the end of the mandatory quote period. These are treated as dealings done on the following business day. Allotment letter: (see Renounceable Documents). APCIMS: Association of Private Client Investment Managers and Stockbrokers. Arbitrage: Buying securities in one country, currency or market and selling in another to take advantage of price differentials. Articles of association: The regulations for governing the rights and duties of members of a company among themselves. Articles deal with internal matters such as general meetings, appointment of directors, issue and transfer of shares, dividends, accounts and audits. Asset Protection Trust: A trust designed to accomplish a number of lifetime and deathtime estate planning goals of its settlor, including planning for the preservation of the settlor's estate from a variety of risks which would threaten to dissipate the estate if one or more of the risks materialised. An "APT" is typically established in a jurisdiction other than the settlor's home country. Authorised Agent: A bank or trust company authorised by regulatory authorities to deal in foreign currency securities. Authorised Dealer Bank: Banks permitted by their regulating authority to deal in precious metals and all foreign currencies. Back to Back Loan: A loan transaction coupled with a separate but related loan transaction (e.g., "A deposits a sum of money with a bank in country "X" on condition that a related branch, agency, Edge corporation or bank located in country "Y" will lead an equivalent sum to "A" or a designee in country "Y"). Bare Trusts: Also known as dry, formal, naked, passive or simple trusts. There are trusts where the trustees have no duties to perform other than to convey the trust property to the beneficiary(s) when called upon to do so. Bargain: A deal made on or otherwise subject to the rules of the Exchange is an Exchange bargain. No "special price" is implied. Bear: An investor who has sold a security in the hope of buying it back at a lower price. Bear Market: A market in which Bears prosper, that is, a falling market. Bearer Share Certificate: A negotiable share certificate filled out in the name of "bearer" and not to a particular person or organisation. Bearer Stocks / Shares: Securities for which no register of ownership is kept by the company. A bearer certificate has an intrinsic value. Dividends are not received automatically from the company but must be claimed by removing and returning "coupons" attached to the certificate. Bed and Breakfast Deal: Selling shares one day and buying them back the next for tax purposes at the end of the financial year. Beneficial Owner: The actual or economic owner of an interest as distinct from the registered or nominal owner. Besloten Vennootschap ("B.V."): A form of incorporation under Dutch company law which is broadly comparable to the private limited liability company in the United Kingdom. Bid: (1) The price at which a market maker will buy shares. (2) An approach made by one company wishing to purchase the entire share capital of another company. Big Bang: 27th October 1986, when the new Exchange introduced new regulations and the Automated Price Quotation System (SEAQ) Blind Trust: A trust in which the trustees are enjoined from providing any information to the beneficaries about the administration of assets of the trust. Blue Chip: Term for the most prestigious industrial shares. Originally an American term derived from the colour of the highest value poker chip. Bonus Issue: See Capitalisation Issue. Broker/dealer: A London Stock Exchange member firm which provides advice and dealing services to the public and which can deal on its own account. Bull: An investor who has bought a security in the hope of selling it at a higher price. Bull Market: One in which Bulls prosper, that is a rising market. Call: The amount due to be paid to a company by the purchase of new or partly-paid shares. Call Account: A deposit account with a financial institution without a fixed maturity date. The deposit can be "called" (withdrawn) at any time. Call account deposits are usually one to seven day placements, however, two parties can agree on different maturities. Call Option: The right to buy stock or shares at an agreed price at a future date. Capital Controls: Government restrictions on the acquisition of foreign assets or foreign liabilities by domestic citizens, or the acquisition of domestic assets or domestic liabilities by foreigners. Capitalisation Issue: The process whereby money from a company's reserves is converted into issued capital and then distributed to shareholders as new shares, in proportion to their original holdings, also known as bonus or scrip issue. Caps: An option-like contract for which the buyer pays a fee or premium to obtain protection against a rise in a particular interest rate about a certain level. For example, an interest rate cap may cover a specified principle amount of a loan over a designated time period such as a calendar quarter. If the covered interest rate rises above the rate ceiling, the seller of the rate cap pays the purchaser an amount of money equal to the average rate differential times the principle amount times one quarter. Captive Insurance Company: A wholly owned or controlled subsidiary company established by a non-insurance parent for the purpose of participation in the insurance risks of the parent and its other affiliates or associates. Clearing System: A mechanism for calculation of mutual positions within a group of participants with a view to facilitating the settlement of their mutual obligations on a net basis. Collar: The simultaneous purchase of a cap and the sale of a floor with the aim of maintaining interest rates within a defined range. The premium income from the sale of the floor reduces or offsets the cost of buying the cap. Commission: The fee that a broker may charge clients for dealing on their behalf Commodity Options: A contract providing the purchaser the right but not the obligation to buy or sell a given quantity of a commodity at a strike price, on or before a given date. Commodity Swaps: A transaction that allows an investor to exchange payment streams which are based on commodity prices. Commodity swaps involve swaps of payment streams only and are usually settled in cash. However, physical delivery may also occur. Commodity swaps enable producers and consumers to hedge commodity price risk. Usually the consumer pays fixed, the producer floating. Company Limited by Guarantee: An incorporated entity without share capital Consideration: The money value of a transaction (number of shares multiplied by the price) before adding commission, stamp duty, etc. Contract Note: On the same day as a bargain takes place, a member of the firm must send the client a contract note detailing the transaction, including full title of the stock, price, consideration and stamp duty (if applicable). Coupon: (1) On bearer stocks, the detachable part of the certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security - 10 per cent coupon pays interest of 10 per cent a year. Cover: The total net profit a company has available for distribution as dividend, divided by the amount paid, gives the number of times that the dividend is covered. Credit Risk: The risk that a counter-party to a transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss. Credit Equivalent Value: Amount representing the credit risk exposure in off-balance sheet transactions. In the case of derivatives, credit equivalent value represents the potential cost at current market prices of replacing the contract's cash flows in the case of default by the counter-party. Cross-Currency Settlement Risk (or Herstatt risk): Risk relating to the settlement of foreign exchange contracts that arises when one of the counter-parties to a contract pays out one currency prior to receiving a payment of the other. Herstatt risk arises because the hours of operation of domestic inter-bank fund transfer systems often do not overlap due to time zone differences. In the interval between final settlements of each leg, counter-parties are exposed to credit risk and market risk. Cross-Currency Interest Rate Swaps: A transaction involving the exchange of streams of interest rate payments (but not necessarily principal payments) in different currencies and often on different interest bases e.g. fixed Deutsche Mark against floating dollar, but also fixed Deutsche Mark against fixed dollar. Cum: Latin for "with", used in the abbreviations Cum Cap, Cum Div, Cum Rights and so on, to indicate that the buyer of a security is entitled to participate in the forthcoming capitalisation issue, dividend or rights issue. Currency Swaps: A transaction involving the exchange of cash flows and principle in one currency for those in another with an agreement to reverse the principle swap at a future date. Current Exposure Method: Term used in the Basle Capital Accord to denote a method of assessing credit risk in off-balance sheet transactions, consisting of adding the marked-to-market replacement cost of all contracts with positive value and an add-on amount for potential credit exposure arising from future price or volatility changes. Debenture: A loan raised by a company paying a fixed rate of interest and secured on the assets of the company. Discount: When the market price of a newly issued security is lower than the issue price. If it is higher, the difference is called the premium. Discount Swaps: Also called off-market swaps, in which the fixed payments are low market rates. At the end of the swap, the shortfall is made up by one large payment. The credit risk taken on by the fixed rate recipient (usually the bank) increases with the discount applied to interest rates. Discretionary Trust: The form of trust usually established offshore. The "discretions" are vested in the trustee who can usually decide which of the beneficiaries is to benefit, when and to what extent. Discretions are exercised under advice of, or suggestions from the settlor or protector. Dividend: That part of a company's post-tax profits distributed to shareholders, usually expressed in pence per share. Domicile: Under English common law, domicile is the place of your permanent home and the means by which you are connected with a certain system of law for certain legal purposes such as marriage, divorce, succession of estate and taxation. Double Exit: Use of two passports for the purpose of confusion or convenience. Dutch Sandwich: A tax structure using companies from two Dutch jurisdictions to reduce the US tax obligation on royalty and patent income flowing from the United States. ECU: European Currency Unit EMS: European Monetary Unit End-User (swap-market): In contrast to a swap-trading institution, a counter-party which engages in a swap to change its interest rate or currency exposure. End-users may be non-financial corporations, financial institutions or governments. Equity: The risk-sharing part of a company's capital, usually referred to as ordinary shares. Equity Options: Encompass a class of options giving the purchaser the right but not the obligation to buy or sell an individual share, a basket of shares, or an equity index at a predetermined price on or before a fixed date. Equity Swaps: A transaction that allows an investor to exchange the rate of return (or a component thereof) on an equity investment (an individual share, a basket or index) for the rate of return on another non-equity or equity investment. Eurobond: A bond issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax. Ex: Latin for "without", the opposite of Cum. Used to indicate that the buyer is not entitled to participate in whatever forthcoming event is specified, for example Ex Cap, Ex Dividend, Ex Rights. Exchange Control or Restrictions: Limits on free dealings in foreign exchange or on free transfers of funds into other currencies and other countries. Exercise Price: The fixed price at which an option holder has the right to buy, in the case of a call option, or to sell, in the case of a put option, the financial instrument covered by the option. Expatriation: The removal of ones legal residence or citizenship from one country to another in anticipation of future restrictions on capital movements or to avoid estate taxes. FIBV: World Federation of Stock Exchanges Fiduciary Account: An amount typically deposited with a Swiss Bank which will redeposit the sum with a third party bank outside Switzerland in its own name (to overcome Swiss withholding tax on interest). Final Dividend: The dividend paid by a company at the end of its financial year, recommended by the directors not authorised by the shareholders at the Company's Annual General Meeting. Fixed Interest: Loans issued by a company, the government (gilts or gilt-edged) or local authority, where the amount of interest to be paid each year is set on issue. Usually the date of repayment is also included in the title. Flight Capital: The movement of large sums of money from one country to another to escape political or economic turmoil, aggressive taxation or to seek higher rates of interest. Floor: A contract whereby the seller agrees to pay to the purchaser in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount should interest rates fall below the agreed rate. A floor contract is effectively a string of interest rate guarantees. Flotation: The occasion on which a company's shares are offered on the market for the first time. Foreign Currency Account: An account maintained in a foreign bank in the currency of the country in which the bank is located. Foreign currency accounts are also maintained for depositors by banks in the United States. Such accounts usually represent that portion of the carrying bank's foreign currency account that exceeds its contractual requirements. FSC (Foreign Sales Corporations): A corporation that provides US businesses which export with tax benefit. Exporters can establish a Foreign Sales Corporation ("FSC") in a specially designated foreign country), or one of several designated US possessions. The statute providing for the establishment of FSCs was part of the Deficit Reduction Act of 1984. FT 30: Index Owned and calculated by the Financial Times, this index is based on the prices of 30 leading industrial and commercial shares and is calculated hourly during the day with a closing index at 4.30 p.m. FT-SE 100: Share Index Popularly known as the "Footsie", this is an index of 100 leading shares listed on the London Stock Exchange. It provides a minute by minute picture of how share prices are moving and is the basis of futures and traded options listed on the London International Financial Futures and Options Exchange (LIFFE). FT-SE Mid 250: The real time benchmark for medium-sized companies consisting of the 250 next largest companies after those on the FT-SE 100. The FT-SE Actuaries 350 is a combination of the FT-SE 100 and the Mid 250 indices - this is an index of the more actively traded shares in large and medium sized UK companies. The FT-SE SmallCap, launched in January 1993 provides investors with a daily measure of the performance of around 500 smaller companies. FT-SE Actuaries All-Share Index: The principle index for UK portfolio performance - covering large, medium and smaller companies. FT-SE Eurotrack 200: Index Denominated in ECUs this comprises the stocks on the FT-SE 100 Share Index plus the constituents of the FT-SE Eurotrack 100 Index. The UK component is weighted to ensure that the 200 index closely tracks the major benchmark indices. Fully Paid: Applied to new issues when the total amount payable in relation to the new shares has been paid to the company. Futures: Securities or goods bought or sold for future delivery. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery. Gearing: A company's debts expressed as a percentage of its equity capital. High gearing means that debts are high in relation to assets. GEMMs: Gilt-Edged Markets Makers Gilts or Gilt Edged Securities: Loans issued on behalf of the government to fund its spending. "Longs" have a redemption date greater than 15 years, "mediums" between 7 - 15 years and "shorts" within 7 years. GMBH (Ger. Gesellschaft mit Beschrankter Haftung): In Germany, Switzerland and Austria, a limited liability company in which the liability of the members is limited to amounts of agreed contributions or as stipulated in the Articles of Association. Grantor Trust: Under US tax law, income of the trust is taxed as the income of the grantor. Gross: Before deduction of tax. Grossing Up: Calculating the amount that would be required in the case of an investment subject to tax, to equal the income from that investment as if it were not subject to tax. Hard Currency: The term "hard currency" is a carry-over from the days when sound currency was freely convertible into "hard" metal i.e. gold. It is used today to describe a currency which is sufficiently sound so that it is generally accepted internationally at face value. Hedge Funds: Speculative funds managing investments for private investors (in the US, such funds are unregulated if the number of investors does not exceed one hundred). Hot Money: (1) Large quantities of money that move quickly in international currency exchanges due to speculative activity. (2) Foreign funds temporarily transferred to a financial centre and subject to withdrawal at any moment. Index Linked Gilt: A gilt, the interest and capital of which change in line with the Retail Price index. Insider Dealing: A criminal offence involving the purchase or sale of shares by someone who possesses "inside" information about a company's performance and prospects which is not yet available to the market as a whole, and which if available might affect the share price. Institutional Net Settlement (INS) Service: A central service for institutional investors which enables them to make or receive one net payment each day to the London Stock Exchange for settled transactions and other cash distributions. Interim Dividend: A dividend declared part way through a company's financial year, authorised solely by the directors. International Business Company ("IBC"): A term used to define a variety of offshore corporate structures. Common to all IBC's are its dedication to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation and minimal filing and reporting requirements. An increasing number of offshore jurisdictions are permitting the use of bearer shares, nominee shareholders, directors and officers. Interbank Rate of Exchange: The rate at which banks deal with each other in the market. Interest Rate Swap: A transaction in which two counter-parties exchange interest payment streams of differing character based on an underlying notional principle amount. The three main types are coupon swaps (fixed rate to floating rate in the same currency), basis swaps (one floating rate index to another floating rate index in the same currency) and cross-currency interest rate swaps (fixed rate in one currency to floating rate in another). Intermediary (Swap Market): A counter-party who enters into a swap in order to earn fees or trading profits. Most intermediaries or swap dealers are major US money-centre banks, major US and UK investment and merchant banks and major Japanese securities companies. Investment Trust: A company whose sole business consists of buying, selling and holding shares. IOSCO: International Organisation of Securities Commissions. Issuing House: An organisation, usually a merchant bank, which arranges the details of an issue of stocks and shares and the necessary compliance with the London Stock Exchange regulations in connection with the listing of that issue. Laundering: Laundering is the process of cleaning illicitly gained money so that it appears to others to have come from, or to be going to a legitimate source. LCAC Listed Companies Advisory Committee: An independent consultative committee which advises the Exchange as the Competent Authority for Listing on general issues concerning listed companies. Letter of Renunciation: This applies to a rights issue and is the form attached to an allotment letter which is completed should the original holder wish to pass his entitlement to someone else, or to renounce his rights absolutely. Letter of Wishes / Memorandum of Wishes: A document prepared by the settlor or grantor of a trust providing guidance on how trustees should exercise their discretions. LIFFE: London International Financial Futures and Options Exchange. Limit: In relation to dealing instructions, a restriction set on an order to buy or sell, specifying the minimum selling or maximum buying price. Listed Company: A company that has obtained permission for its shares to be admitted to the London Stock Exchange's Official List. Listing Particulars: The details a company must publish about itself and any securities it issues before these can be listed on the Official List. Often called a prospectus. Loan Stock: Stock bearing a fixed interest rate. Unlike a debenture, loan stocks may be unsecured. London Market Information Link: A new digital information feed which went live in 1995. It provides the replacement for the Exchange's CRS services and is intended to be the primary source of UK financial data for market professionals and information vendors. Managed Bank: An offshore bank also known as a Class "B" or Cubicle Bank. The Managed Bank is not required to maintain a physical presence in the licensing jurisdiction. Its presence in the licensing jurisdiction is passive with nominee directors and officers provided by a managing trust company with a physical presence. The Managed Bank is not permitted to transact business within the licensing jurisdiction but may maintain its books, records etc. to assure secrecy of operations. Mandatory Quote Period: Time of the day during which market makers in equities are obliged to quote prices under London Stock Exchange rules: SEAQ 8.30 a.m.-4.30 p.m., SEAQ International 9.30 a.m. - 4.00 p.m. Man of Straw: Effectively a nominee settlor or grantor who creates an offshore trust but often has no further connection with the trust once it is created. Market Maker: An Exchange member firm which is obliged to make a continuous two-way price, that is to offer to buy and sell securities in which it is registered throughout the Mandatory Quote Period. Member Firm: A trading firm of the London Stock Exchange may act as an agency broker on behalf of clients or on behalf of the firm itself. Memorandum of Association: The charter of a company which indicates nationality, the nature of it's business and the share capital it is authorised to issue. It is a statutory document which effectively governs the company's relations with the outside world. Merchant Bank: A European form of an investment bank. Mid Price: The price half-way between the two prices shown in the London Stock Exchange's Official List under "Quotation" or the average of both buying and selling prices offered by the market makers. The prices found in newspapers are normally estimates of the mid-price. Minimum Quote Size: The minimum number of shares in which market makers are obliged to display prices on SEAQ for securities in which they are registered. Mini Trust: A short (usually pre-printed) form of trust, often used as a confidentiality enhancer, to bridge the ownership and management of an International Business Company. The Mini-Trust is intended only to pass assets on the death of the settlor, i.e. a will substitute. Mutual Legal Assistance Treaty: A treaty which provides for mutual legal assistance, including the exchange of information, etc., in cases where criminal offences have been committed. Naamioza Vennootschap (N.V.): In Dutch Company law, the N.V. is the form of incorporation favoured by larger companies. It can be compared to the American corporation. Net Asset Value: The value of a company after all debts have been paid, expressed in pence per share. New Issue: A company coming to the market for the first time or issuing additional shares. New Shares: Shares newly issued by a company; these shares can usually be transferred on renounceable documents. Nil Paid: A new issue of shares, usually as the result of a rights issue on which no payment to the company has yet been made. Nominee Company: A company formed for the express purpose of holding securities and other assets in its name or to provide nominee directors and / or officers on behalf of clients of its parent bank or trust company. Nominee Director: A director whose function is passive in nature. The director receives a fee for lending his or her name to the organisation. Nominee directors are subject to director responsibilities. Nominee Name: Name in which security is registered and held in trust on behalf of the beneficial owner. Non-Active Company: A company which is either in voluntary liquidation or wishes to protect a name which includes the word bank or trust company in it even though the company is not carrying on any banking or trust business. Normal Market Size: The SEAQ classification system that replaced the old alpha, beta, gamma system. NMS is a value expressed as a number of shares used to calculate that minimum quote size for each security. Source: http://www.offshoreinstitute.com/terms.html Document information: | | | ||||||||||||
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