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Investment Bank

Investment Bank

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Our guide to some of the most important terms and phrases used within capital markets.

Balance sheet - A statement produced by a company detailing a breakdown of assets, capital and current liabilities.

Bond - Commonly called fixed-income securities, bonds allow companies, institutions and governments to borrow money from investors, typically for fixed periods and with an agreed rate of return, followed by the repayment of the initial capital.

Book runner - The book runner is the main underwriter or lead manager in the issuance of new equity, debt or securities instruments. In investment banking, the book runner is the underwriting firm that runs, or is in charge of, the books.

Buy-side - On the ‘buy-side’, investors provide the capital to purchase equity or debt securities, seeking a return on invested funds.

Capital markets - Capital markets are the means by which investors can own, exchange and value assets such as bonds and stocks. Capital markets match the demand for funding from companies, governments, and institutions, with the investors who have funds and are seeking a return on these funds.

Corporate broking - Corporate brokers act as intermediaries between companies and the market, constantly assess market conditions, investors’ sentiment or demand for the company’s shares, and actively engage with investors on a company’s behalf.

Coupon - A term used to describe the annual rate of interest paid on a bond.

Debt capital markets (DCM) - Debt capital markets involve the issuing and trading of debt instruments, such as government and corporate bonds. These let companies, institutions and governments borrow money from investors – usually for fixed periods and with an agreed rate of return.

Derivative - A security whose price moves in relation to the price of single or multiple underlying assets. These assets include market indices, stocks, bonds, commodities or currencies.
 

Earnings - Earnings are a company’s net profits after tax.

Equity capital markets (ECM) - Equity capital markets let corporations sell shares in their business to raise capital, giving investors partial ownership of their assets and earnings.

Equity research - Equity research teams develop insights regarding the value, risk and volatility of a security or sector to inform the investment decision-making of investors.

Financial instrument - A tradeable financial asset.

Fintech - Technological innovation within the financial services sector.

Initial public offering (IPO) - An initial public offering is the first time shares in a privately owned company are offered to the public, via the primary market.

Liquidity - The degree to which an asset or security can be sold or bought in a market without the transaction affecting an asset’s price; also the extent to which an organisation has the cash to meet immediate obligations, or assets that can be quickly converted for this purpose.
 

Mandated lead arranger (MLA) - The mandated lead arranger is the investment bank that facilitates and leads a group of investors in a syndicated loan for major financing. The MLA will assign parts of the new issue to other underwriters for placement in the market, as well as doing so itself.

Mergers and acquisitions (M&A) - M&A is a generic term that describes the consolidation of companies or assets. A merger involves a combination of two companies to form a new company. An acquisition involves one company taking a controlling interest in another.

MiFID II - The Markets in Financial Instruments Directive (MiFID) is a European Union law that provides harmonised regulation for investment services across the European Economic Area. It aims to increase competition and consumer protection in investment services. MiFID II, an update to this, is due to take effect from 1 January 2018.

Primary markets - Primary markets are where securities, whether stocks or bonds, are created and sold for the first time.

Private equity (PE) - Private equity involves specialist funds and investors directly investing in private companies, or engaging in buyouts of listed companies to take them private.

Private placement - The private sale of securities to a smaller number of investors, rather than a public issue on the open market.

Ratings adviser - The ratings adviser will advise a company raising capital on dealing with ratings agencies, their procedure and requirements. They will also help assess the effects of a company’s financial and business decisions on an existing credit rating.

Risk - For investors, risk is a measure of the uncertainty of an investment achieving the expected return. Investors need to be compensated for taking on additional risk, so typically the greater the amount of risk an investor is willing to take, the greater the potential return.

Secondary markets - The secondary markets are where investors trade the securities created in the primary market.

Security - A financial instrument holding monetary value, such as a share, bond or option.

Sell-side - On the ‘sell-side’, issuers seek to raise funds by issuing securities on the primary market. On the secondary market, those on the sell-side can include investors, looking to sell on securities they already own.

Senior notes - A senior note is a debt security that takes priority over other unsecured or junior notes in the event of an issuer's bankruptcy.

Share - An equity security which provides a unit of ownership in a company, and represents a claim on part of the corporation's assets and earnings. Also called stock.

Stock exchange - A market in which securities are issued and traded.

Transaction agent - The transaction agent acts as client adviser during a deal.

Venture capital (VC) - Funding provided by individuals or institutions for new or developing businesses, where the capital is typically provided in exchange for partial ownership of a business.

Volatility - The scale of variation in the returns of a security or market index over a set period. Typically, the higher the volatility, the riskier the security or market index is perceived to be.

Yield - The income from an investment, typically expressed as annualised percentage, based on the investment's initial cost or current value.

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