Glossary

A shares

Domestic shares of Mainland companies denominated and traded in RMB and exclusively by Mainland residents only.

AMS/3

The third generation of the Automatic Order Matching and Execution System, the trading system of the cash market in Hong Kong.

Annual general meeting

AGM in abbreviation, a shareholder meeting that is required by law to be held in each financial year.

Arbitrage

ArbitrageAn investment strategy to earn profit by capitalising on the price differences of an investment vehicle in two markets.

Ask

The price at which an investment product is to be sold.

At-auction limit orders

An order type that investor expects to be executed at a particular price or better during the pre-opening and closing auction sessions of the Stock Exchange of Hong Kong.

At-auction order

An order type that requires no input of price during the pre-opening and closing auction sessions of the Stock Exchange of Hong Kong.

At-the-money

When the underlying asset price is equal to the exercise price of a call or put warrant/option.

Average return warrant

An exotic warrant whose final payout is determined by comparing the average of all the periodic reference prices (which may be higher or lower than the exercise price) with the exercise price.

B shares

Domestic shares of Mainland companies denominated in RMB but traded in foreign currency like HK$ or US$ by foreign persons and Mainland residents holding legal foreign currency deposits.

Balanced fund

A type of fund which invests in stocks and bonds.

Bid

The price at which an investment product is to be bought.

Blue chips

Stocks of large, well-established companies and are generally of higher market capitalisation and constituents of a market index.

Board lot

The minimum no. or multiples of such no. of shares that a stock can be bought or sold in a stock exchange.

Boiler room

A financial fraud where cold callers adopt high pressure sale techniques to lure investors to buy worthless instruments.

Bond

A debt instrument that is issued for fund raising purpose by borrowing.

Bonus shares

Shares distributed by a listed company to its shareholders as dividend in proportion to their existing shareholdings.

Book-close date

A specific period when a share registrar stops processing the transfer of shares of a listed company.

Call options

Give holders the right to buy a given amount of the underlying asset at a predetermined exercise price within a certain period.

Call warrants

Give holders the right to buy a given amount of the underlying asset at a predetermined exercise price within a certain period.

Callable

A feature of an investment tool that allows the issuer to repay the principal to a holder before the tool expires.

Capital reorganisation/ restructuring

A change in the share capital of a listed company due to share reduction, share consolidation or share split.

Capped call warrant

An exotic warrant whose profit potential is “limited”, i.e. the profit is capped even when the underlying asset price moves beyond a pre-defined cap level.

CBBC

Callable bull bear contracts, a special form of derivatives that tracks the underlying asset on an almost one-to-one basis.

CCASS

Central Clearing And Settlement System, the clearing and settlement system of the cash market in Hong Kong.

Circularisation

An exercise in which an auditor asks the clients of a brokerage to confirm the balance of their stock accounts at the brokerage.

Class B funds

Funds that do not require upfront subscription fee.

Conversion ratio

This refers to the number of units of the underlying asset exchanged when exercising a unit of a warrant. For derivative warrants on stocks, the conversation ratio is normally one (i.e. one warrant for one share) or 0.1 (i.e. 10 warrants for one share).

Corporate action

Corporate actions are events initiated by a listed company that could affect the stock or bond issued by the company. Examples of corporate action include stock splits, dividend announcements and company name change.

Coupon

The interest that a bond issuer pays to its bondholders.

Coupon rate

The rate at which a bond issuer pays interest on the bond’s principal to its bond holders each year.

Credit risk

The risk that a bond issuer fails to repay the interest and/or principal to its bondholders.

Credit-linked note

A structured product whose returns are linked to the occurrence of credit events in a single or a group of companies.

CSRC

China Securities Regulatory Commission, the securities regulator in Mainland

Current yield

A bond’s rate of return derived by dividing its annual coupon by current price.

Custodian

A firm that safekeeps the assets of a mutual fund.

Dark pool

Dark pool refers to the crossing of trades off the order book. Brokers sometimes use a dark pool to move a large block of shares for institutional investors without revealing their actions to the open market. Such trades usually involve a mid-point reference price.

Day trading

Buying and selling a stock on the same day to profit from price movements.

Derivative warrants

Warrants issued by financial institutions which can be linked to a single stock, a basket of stocks, an index, a currency, a commodity or a futures contract.

Derivatives

Financial instruments whose value and returns depend on the performance of their underlying asset, such as a stock, an index, a commodity, etc.

Direct business transactions

A trade in which a brokerage acts for both the buyer and seller and does not input the order but “crosses” the trade and reports on the Stock Exchange’s trading system within 15 minutes.

Dividend accumulator warrant

An exotic warrant which pays dividends distributed by its underlying stock during its life.

Dual filing

An arrangement where listing applicants and listed companies need to submit their disclosure and documents to both the SFC and the Stock Exchange of Hong Kong.

Effective gearing

Measures the expected rate of change in a warrant’s theoretical price with respect to 1% change in the underlying asset price.

Excess rights shares

Rights shares that are not taken up by other shareholders in a rights issue

Exchange Participant

A brokerage which holds the trading right of the Stock Exchange of Hong Kong or Hong Kong Futures Exchange.

Exchange traded funds

A fund normally tracking a market index and traded on a stock exchange.

Ex-dividend date

Two trading days before the first date of the book close date of a dividend declared by a listed company.

Executive officers

Individuals who oversees the daily operation of registered institutions.

Exercise price

Also called strike price, the predefined price at which a warrant or option holder trades the underlying asset.

Extraordinary general meeting

EGM in abbreviation, a shareholder meeting called by a directors or shareholders holding a certain amount of voting rights in aggregate to discuss a particular resolution.

Fair value

The price of a warrant calculated based on a pricing model, e.g. Black Scholes, which takes into account the price and expected volatility of the underlying asset, time to expiry, exercise price, dividends expected to be paid by the underlying share and the prevailing interest rate.

Final payout

The final payout of a locked-in return warrant is determined by
averaging the locked-in profits (including zero profits) on all the fixing
dates.

Forward pricing

Funds are priced based on the immediately subsequent net asset value.

Free float

The shares publicly owned and available for trading

Fund of Hedge Funds

A fund that invests in a number of hedge funds.

Fundamental analysis

An analysis method that looks into the financials and operations of a company.

Futures contract

A futures contract represents a commitment to buy or sell a predefined
amount of its underlying asset at a predetermined price on a specified future
date.

Gearing

Using a low-priced instrument to gain exposure to the price movement of
another instrument of a higher value.

Gearing ratios

Gearing ratios measure the sensitivity of a warrant price to any change
in the underlying asset price. Simple gearing measures how many times the
underlying asset costs more than the warrant you buy. Effective gearing
measures the expected rate of change in the theoretical warrant price with
respect to a 1% change in the underlying asset price.

General mandate

A resolution to be voted in an annual general meeting that grants the
right to a company listed on the SEHK to increase its share capital by up to
20%.

General meetings

Shareholder meetings convened by a listed company annually or for a
special purpose.

Growth Enterprise Market (GEM)

A market under the Stock Exchange of Hong Kong targeting growth
companies for listing.

Guaranteed funds

A type of funds that offers fund holders a guaranteed rate of return
barring certain pre-determined conditions.

H shares

Shares of Mainland-incorporated enterprises which are listed in Hong Kong and denominated in Hong Kong dollar.

Hedging

A defensive strategy to reduce the risk of unfavourable price movements
of a financial instrument by taking an opposite position in another related
instrument, usually a derivative like a futures or an options contract.

Hedge funds

Funds that adopt a variety of alternative investment strategies.

HIBOR

Hong Kong Interbank Offer Rate

HKSCC

Hong Kong Securities and Clearing Company Limited, the clearing house of
the cash market in Hong Kong.

Hong Kong Monetary Authority

The front-line regulator of banks in Hong Kong

Illustration document

The document that indicates the projected amounts of money that an
investor can get back at different time periods before the end of the term of
an investment-linked assurance scheme (ILAS).

Implied volatility

The volatility of the underlying asset price “implied” by the
market price of a warrant, calculated by working backwards through a certain
option pricing model from the warrant price.

Index-tracking fund

A fund whose investment return is linked to the performance of a
particular index.

INED

Independent non-executive directors

Insider dealing

Transactions in stocks or derivatives conducted based on insider
information in order to make profits or avoid losses.

In-the-money

When the underlying asset price is above the exercise price of a call warrant/option or below the exercise price of a put warrant/option.

Intrinsic value

For a call warrant, its intrinsic value is the higher of 0 or
(underlying asset price – exercise price). For a put warrant, it is the higher
of 0 or (exercise price – underlying asset price).

Investment-linked assurance scheme

A life insurance policy that combines with fund investments.

Investor Compensation Company

The company responsible for receiving, assessing and determining claims
against Investor Compensation Fund.

Investor Compensation Fund

The fund established for compensating investors for their losses in
their investment in products traded on Hong Kong Exchanges and Clearing due to
broker default.

Investor Compensation Fund

The fund established for compensating investors for their losses in
their investment in products traded on Hong Kong Exchanges and Clearing due to
broker default.

Investor Participant account

An account opened in an investor’s own name at CCASS to keep his own
shares.

Leverage

Using a low-priced instrument to gain exposure to the price movement of
another instrument of a higher value.

Licensed corporations

Companies that hold SFC licences for conducting regulated activities in
Hong Kong.

Limit order

An order type to buy/sell a security at a specified or a better price.

Liquidity provider

The designated brokerage responsible for providing liquidity for a derivative
warrant by either responding to quote requests or inputting quotes
continuously.

Listing document

There are two types of listing documents for derivative warrants. The
base listing document sets out the background and financial strength of the issuer
or the guarantor (if there is one). The supplemental listing document carries
specific information about a derivative warrant’s features and terms.

Locked-in return warrant

An exotic warrant that locks in the profits on periodic fixing dates
when the warrant is in-the-money. Zero profits are locked in when the warrant
is at-the-money or out-of-the-money.

Mainboard

A market under the Stock Exchange of Hong Kong that targets established
companies for listing.

Margin call

A demand to a margin account holder to deposit cash or securities when
the account holder’s equity in a margin account falls below the maintenance
requirement set by a brokerage.

Market order

An order type to buy/sell a security at the current market price.

Maturity knock-in warrant

An exotic warrant that has a “knock-in price” in addition to
the exercise price. It will gain a profit only if it is in-the-money with
respect to the “knock-in price”, but the amount of the profit is
determined by reference to the exercise price instead of the
“knock-in” price.

Mutual fund

A collective investment scheme that is established as a limited
liability company.

NAV

Net asset value, which is equal to the total assets value minus
liabilities of a fund and then divided by the number of units of a fund.

NED

Non-executive directors

Non-registered shareholder

A shareholder whose shares are usually held through a brokerage or bank
and the shares are normally registered in the name of nominee.

Option

An option is a contract that gives the buyer the right, but not the
obligation, to buy or sell a predetermined quantity of the specified underlying
asset at a particular price in the future.

OTC market

Over-the-counter market

Out-of-the-money

When the underlying asset price is below the exercise price of a call
warrant/option or above the exercise price of a put warrant/option.

Offering documents

Document that lists out the investment objectives, asset mix and trading mechanism of a fund.

Document that lists out the features and risks, trading mechanism of a structured product.

P/E ratio

Share price divided by the earning per shares of a stock.

Par value

The value shown on the face of a stock, bond, note which is set by the
issuer

Penny stocks

Stocks of lower price

Periodic cash settlement amount

This is the profit locked-in by comparing the periodic reference price
with the exercise price of a locked-in return warrant on each fixing date.

Periodic reference price

It refers to the average of the closing prices of the underlying
(usually a stock) on the five trading days immediately before the fixing date.

Placees

Persons to whom new shares are issued in a placing.

Placing

A fund raising method where shares of a listed company are issued to selected persons.

Pooling risk

A broker firm may re-pledge margin clients’ stocks to its banker for
loan facilities. If a broker firm is in financial difficulties, the bank may
sell the re-pledged stocks to pay off the loans. In such a case, a margin
client may not be able to get back all his shares. This is known as pooling
risk.

Principal

The par or face value of a bond

Principle brochure

The document that explains the objectives of the fund options available
under investment-linked assurance scheme (ILAS), return calculations, etc.

Privatisation

A listed company withdraws its listing on a stock exchange.

Put options

Give holders the right to sell a given amount of the underlying asset at a predetermined exercise price within a certain period.

Put warrants

Give holders the right to sell a given amount of the underlying asset at
a predetermined exercise price within a certain period.

Prospectus

Document that provides details of an imminent offer of shares or bonds by a company.

Also called offering document, which lists out the investment objectives, asset mix and trading mechanism of a fund.

Premium

The percentage by which a warrant price exceeds its intrinsic value. Normally expressed as a percentage of the underlying asset price

The price of an option contract

A futures contract is at a premium if the contract’s going price is higher than that of the underlying asset.

Real estate investment trusts

Called REIT in abbreviation, a fund that invests in a portfolio of
income-generating real estates.

Red chips

Shares of companies incorporated outside Mainland but their business,
assets, markets and ownership have a strong Mainland orientation.

Registered institutions

Banks registered with the SFC for conducting regulated activities in
Hong Kong

Registered shareholder

A shareholder of a company whose shares are registered in his own name

Registrar

A private company that updates the share register of a listed company.

Regulated activities

The term refers to 10 types of business activities regulated by the SFC,
including dealing in securities, dealing in futures contracts, asset
management, advising on corporate finance among others.

Reinvestment risk

The risk that a bond holder will get lesser return when he re-invests
the proceeds from a callable bond being called by the issuer

Relevant individuals

Bank staff who can perform regulated activities defined under Securities
and Futures Ordinance

Responsible officers

Individuals who oversees the daily operation of an SFC-licensed
corporation

Right issues

A rights issue allows existing shareholders to subscribe for new shares
in proportion of their existing shareholding by exercising the rights allotted
to them.

Second/ third liner stocks

Stocks of relatively smaller listed companies and are generally of lower
market capitalisation.

Settlement instruction

An instruction to CCASS where an investor can transfer his stockholding
from one broker’s account at CCASS to another broker’s account at CCASS without
involving physical scrip.

Share consolidation

A number of existing shares is combined to become a new share.

Share splits

Also called share subdivision in which an existing share is divided into
a number of new shares.

Sharpe ratio

A risk-adjusted return indicator defined as the annual return of an
investment tool divided by its annualised standard deviation.

Short selling

A trading strategy by which an investor attempts to gain profits by
first selling a security that he borrows from a brokerage/third party and then
buying it back at a lower price.

Sortino ratio

A risk-adjusted return indicator defined as the annual return of an
investment tool divided by its downside deviation of its return.

Special general meeting

SGM in abbreviation, a shareholder meeting called by a directors or
shareholders holding a certain amount of voting rights in aggregate to discuss
a particular resolution.

Sponsor

A company that conducts due diligence and facilitates a company to list
on the Stock Exchange of Hong Kong.

Spread

The difference between bid and offer quotes.

Stock Segregated Account

A sub-account under a broker’s account at CCASS to keep the stocks of a
designated client only

Stop order

An order type to buy a price above or sell at a price below a specified
price

Straddle warrant

An exotic warrant which combines a call warrant and a put warrant with
the same underlying asset, exercise price and expiry date. It is suitable for
those investors who anticipate a significant upward or downward movement in the
underlying asset price.

Strike price

Also called exercise price, the predefined price at which a warrant or
an option holder trades the underlying asset.

Subscription warrants

Warrants issued by a listed company, giving holders the rights to buy
the underlying shares of the company.

Suspension

Trading in the shares of a listed company is stopped.

Structured products

Synthetic products whose returns are linked with their underlying
assets.

Takeover

Take control over a corporation by another corporation, through
acquisition or merger.

Technical analysis

An analysis method that uses chartings on price, volume to predict
future price movement of an investment tool.

The number of that warrant outstanding in the market

Total number of units issued minus amount held by issuer and its group
companies.

Time value

The amount the price of a warrant exceeds its intrinsic value. For a
call warrant, its intrinsic value is the higher of 0 or (underlying asset price
– exercise price). For a put warrant, it is the higher of 0 or (exercise price
– underlying asset price).

Top-up placing

A fund raising method where existing major shareholders first place their
shares to independent persons and then subscribe for the new shares issued by a
listed company

Trustee

A company safekeeps the assets of a unit trust.

UCITS III

EU Commission regulations which govern funds domiciled in the EU member
states. They allow investments in financial derivative instruments (FDIs).

Unauthorised fund

A fund that has not been authorised by the SFC.

Unit trust

A collective investment scheme operates under a trust system.

Unlisted retail structured products

Unlisted retail structured products include equity-linked deposits,
equity-linked notes, equity-linked investments, credit-linked notes,
fund-linked notes, commodity-linked notes and index-linked notes.

Volatility

An indicator of the extent of the price fluctuation of a financial
instrument, usually expressed by the annualised standard deviation of the daily
price change. A high volatility indicates that the instrument’s price moves up
and down by a large extent over a period of time.

Voting by poll

A voting method where the number of votes a shareholder has is equal to
the number of shares he holds.

Voting on a show of hands

A voting method where each shareholder attending a general meeting has
one vote only.

Warrants

An instrument that gives investors the right, but not the obligation, to
buy or sell the underlying asset, usually a stock, at a pre-set price on or
before a specified date.

Window barrier warrant

An exotic warrant that will cease trading and pay the holders a fixed
rebate if it is “knocked” out during a predefined “window
period” by reference to a pre-set “barrier price” (i.e. For a
window barrier call warrant, the closing price of the underlying asset is equal
to or lower than the barrier price on any trading day during the window period.
For a window barrier put warrant, the closing price of the underlying asset is
equal to or higher than the barrier price on any trading day during the window
period.).

Yield to call

A callable bond’s rate of return derived by dividing the total coupon
and principal to be received before the bond is called by its current price.

Yield to maturity

A bond’s rate of return derived by dividing the total coupon and
principal an investor receives for holding the bond until its maturity by the
bond’s current price.