Jp Morgan Jargon

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Accretion/Dilution

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Analysis that determines the change in a company's projected EPS due to a potential M&A or capital markets transaction. A transaction is "Accretive" when there is a positive change in EPS and "Dilutive" when there is a negative change.

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Accrued interest

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The interest earned on a loan or note between two interest payment dates.

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Acquisition

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The act of one corporation acquiring control of another corporation or asset.

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Agent

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The bank responsible for administering a project's financing

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American Depository Receipt (ADR)

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A certificate of ownership issued by a U.S. bank representing a claim on underlying foreign securities. ADRs may be traded in lieu of trading in the actual underlying shares.

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Amortization

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Writing off an intangible asset investment over the projected life of the assets. Also the spreading out of intangible costs over several years, such as amortization of stock option expense.

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Arbitrage

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Buying securities in one country/market and selling them in another, while taking advantage of dislocations/inefficiencies in the market.

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Arrangement fee

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A fee paid to a mandated bank or group of banks (lead arrangers) for arranging a transaction. It includes fees to be paid to participating banks.

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Arranger

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A bank or other financial institution responsible for originating and syndicating a loan transaction. The arranger always has a senior role, is often the agent, and usually participates in the transaction at the most senior level (it holds the largest share of the loan).

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Asset allocation

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The relative weightings of regions, sectors and types of investments (i.e. equities, bonds, etc) within a portfolio, determined by client's risk and return requirements and the market outlook. This is central to financial planning and investment management.

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Asset class breakdown

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Percentage of holdings in different types of investments (i.e. large stocks, international, bond, etc.).

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Asset swap

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The bond's swapped spread, in basis points. The asset swap spread, or gross spread, is derived by valuing a bond's cash flows via the swap curve's implied zero rates. This gross spread is the basis point amount added to the swap curve, which causes a bond's computed value to equal the market price of the bond.

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Audit

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Professional examination and verification of a company's accounting data.

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Balloon payment

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A final debt repayment that is substantially larger than the preceding repayments.

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Bank syndicate

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A group of banks that have been banded together to underwrite and sell a specific issue of securities/loans.

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Base currency

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The first currency quoted in a currency pair on the Foreign Exchange.

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Basis point

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A unit that is equal to a hundredth of a percent, a basis point is used to denote the change in a financial instrument. It's commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

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Bear

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An investor who has a negative view on the market.

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Bear market

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A market in which traders and investors are feeling negative and prices are falling or static.

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Beauty contest

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The informal term for the competitive process by which clients choose an investment bank to mandate for a deal.

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Benchmark index

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An index that correlates with a fund, used to measure a fund manager's performance.

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Best efforts

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Term used by banks in selling an entire new security issue by a certain date. They agree to make their best effort to sell an issue to the public. Instead of actually buying and reselling the issue (that would be called an underwrite), the banks leave the risk with the issuer by maintaining an option to buy and the authority to sell.

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Beta

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Mathematical measure of the sensitivity of rates of return on a portfolio or a given stock compared with rates of return on the market (a diversified portfolio) as a whole. A beta of 1.0 indicates that an asset closely follows the market; a beta greater (smaller) than 1.0 indicates greater (less) volatility than the market. Hence, beta is a measure of risk: the higher the beta, the higher the risk.

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Bill of Exchange

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A bill made out by one party addressed to another requiring the addressee to pay a fixed sum of money by a certain date. The bill is then traded on the money markets.

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Bid

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The price at which a market maker is willing to pay for a security.

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Bid Offer

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Bid Offer is the difference in price or spread between where one can buy a security and one can sell it at the same moment.

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Big Figure

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The whole dollar price of a quote often used to reference foreign currencies. For example, if a foreign currency (EUR/USD) was trading at 1.5520, the big figure would be 1.55.

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Bloomberg

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Computer terminals providing real time quotes, news and analytical tools, often used by traders and investment bankers.

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Bonds

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A debt security in which an investor loans money to an entity (corporate or government) that borrows the funds for a defined period of time at a fixed or floating interest rate. Principal is paid back at maturity.

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Book runner

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The investment bank that runs the debt or equity offering in the primary market.

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Book value

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The net-asset value of a company as determined by subtracting its liabilities from its assets.

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Brady bonds

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Bonds issued by developing countries under a debt-reduction plan.

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Bridge financing

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Interim or temporary financing - usually shorter than 12 months.

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Broker

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Someone who earns commission for providing the link between buyers and sellers. Brokers generally take little to no risk, as they match buyers with sellers.

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Bulge bracket

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The largest and most prestigious firms on Wall Street.

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Bull

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An investor who has a positive view on the market.

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Bull market

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A market in which traders and investors are feeling positive and in which prices are rising.

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Buy-side

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1. Investor end of a capital markets transaction.
2. M&A process when J.P. Morgan is working with a potential buyer. It refers to the entity acquiring the asset.

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Calendarization

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Act of adjusting company financials to a December 31 year-end in order to standardize financial performance across companies with different fiscal years.

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Call option

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The right to buy shares at an agreed price at a future date (see put option).

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Capital

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Money put into a business by its shareholders.

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Capital Asset Pricing Model (CAPM)

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An economic model for valuing stocks by relating risk and expected return. Based on the idea that investors demand additional expected return (called the risk premium) if they are asked to accept additional risk.

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Capital expenditures

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Money spent to acquire or upgrade physical assets such as buildings and machinery. Also called capital spending or capital expense.

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Capital gain

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The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.

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Capital markets

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At J.P. Morgan, our capital markets teams are Equity Capital Markets and Debt Capital Markets. They are responsible for the origination of equity and debt instruments respectively. They are private-side teams that report into investment banking.

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Capitalization

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1. The sum of a corporation's long-term debt, stock and retained earnings. Also called Invested Capital.

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Certificate of Deposit (CD)

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A certificate given by a bank to a depositor that can be traded on the money market. The depositor is able to get high levels of interest by putting their money in the bank for a fixed term but can sell the CD to someone else to get their capital back at short notice

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CFA

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Chartered Financial Analyst qualification. This is the industry qualification for research Analysts on the buy side (markets) and Analysts and fund managers on the sell side (investment management and private banking).

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Chinese wall

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The physical and regulatory separation between the public and private sides of a bank.

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Clearing

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The process of matching, guaranteeing and registering transactions.

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Clearing house

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An institution that practices clearing, which significantly reduces the number of inter-bank payments.

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Closing Position

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A traders position at the end of the trading day. Equal to the Opening Position plus or minus any trades done on that trading day.

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Club

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A group of underwriters who do not need to proceed to syndication as part of fund-raising.

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Collateral

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Assets pledged as security under a loan to assure repayment of debt obligations.

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Collateralized Bond Obligation (CBO)

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Securities issued against a portfolio of bonds with different degrees of credit quality.

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Collateralized Loan Obligation (CLO)

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Securities issued against a portfolio of loans with different degrees of credit quality.

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Commercial Paper (CP)

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Short term debt obligations issued by corporations and bought by money market funds in large quantities. Maturities range from several days to 9 months.

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Commitment Fee

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A per annum fee applied to undisbursed balances that lenders are committed to lend. The fee is charged until the end of the availability period.

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Commodities

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Physical items such as oil, gold or grain. Commodities are traded for spot (trade date plus two business days) and also for future delivery. There also exist options to buy and sell commodities.

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Common Stock

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Also called common equity, common stock represents an ownership interest in a company (as opposed to preferred stock). The vast majority of stock traded in the markets today is common, as common stock enables investors to vote on company matters. An individual with 51% or more of shares owned controls a company's decisions and can appoint anyone he/she wishes to the board of directors and/or to the management team.

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Compound Annual Growth Rate (CAGR)

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The year over year growth rate applied to an investment or other part of a company's activities over a multiple-year period. The formula for calculating CAGR is (Current Value/Base Value)^(1/# of years) - 1.

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Comps or Comparables

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Analysis that uses ratios to compare company trading performance (trading comps) or previous M&A and capital market transactions (transaction comps). Often used as part of a valuation analysis. Simply put, comps are used to compare different companies on price/ valuation to one another.

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Conditions Precedent (CPs)

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A set of preconditions that must be satisfied before the borrower can request drawdown or other credit facilities be made available under a lending agreement.

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Convertible bond

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A bond that can be converted into shares in a company at a certain conversion price. Because convertible bonds provide the option of converting debt into equity, their coupon rates are typically low.

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Convexity

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The rate of change of duration as yields change. A security exhibits positive convexity when its price rises more for a downward move in its yield than its price declines for an equal upward move in its yield.

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Cost of carry

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The cost of carry specifies the cost involved of carrying a security (i.e. bond) on the balance sheet. The cost of carry is calculated as difference between interest income (income generated by the security, e.g. coupon payment) and the cost of financing the purchase of the security (e.g. Libor).

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Cost of capital

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The opportunity cost of an investment. This is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.

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Coupon

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The interest payment on a bond.

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Covenant

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An agreement by a borrower to undertake (a positive covenant) or not to undertake (a negative covenant) a specific action. Breaching a covenant is considered an event of default. Breaching a covenant can be a pre-cursor to an event of default.

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Coverage ratio

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A measure of a corporation's ability to meet a particular expense.

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Credit Default Swap (CDS)

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CDS is an insurance contract in which the buyer of CDS pays a quarterly fee in return for the insurance contract which protects them in the case of default by the reference entity. Buying CDS represents a bearish view on a credit, selling CDS represents a bullish view.

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Cross-over trading

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Offsetting buy and sell orders without recording the transaction on the exchange. This is prohibited as it may mean the investor does not get the best price for the transaction.

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Currency pair

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The quotation and pricing structure of currencies traded on the Foreign Exchange (FX) market.

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Custodian

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A bank or institution that holds securities for safe-keeping and handles administrative arrangements such as collecting coupons and dividends.

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D&A

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Acronym for Depreciation & Amortization. Often combined into a single line item on financial statements due to the non-cash nature of both items.

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Data Room

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Collection of documents (physical or virtual) used for due diligence surrounding potential M&A and capital markets transactions.

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DCM

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Acronym for Debt Capital Markets - the area of an investment bank responsible for the issuance and pricing of bonds and other debt securities.

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Debenture

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A debt obligation secured by the borrower's general credit rather than being backed by a specific line on property. In other words, the debt obligation is not collateralized.

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Debt

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Money owed to creditors or lenders or buyers of debt securities.

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Debt Capacity

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The total amount of debt a company can prudently support given its earnings expectations, equity base, and asset liquidation value.

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Debt Capital Markets

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Markets where capital funds (i.e. debt) are traded. This includes private placement as well as organized markets and exchanges.

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Delivery

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The settlement of a futures contract, or upon settlement of a trade, securities are delivered.

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Depreciation

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1. A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached. Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.
2. A decline in the value of a given currency in comparison with other currencies.

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Derivative

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A synthetic instrument whose market price depends on the value of an underlying security such as a share or a bond. A derivatives market is a market in which derivative securities are traded.

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Discount Rate

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The interest rate used in discounting future cash flows. Often determined using CAPM (see Capital Asset Price Model) analysis, its intended to approximate the level of risk to the cash flows.

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Discounted Cash Flow (DCF)

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A common means of valuing companies. This is done by forecasting the cash flows expected from a company in the future and discounting them back to today.

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Divestiture

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When a company sells off a subsidiary or assets of the business to a buyer which acquires the subsidiary or assets. This differs from a spin-off arrangement under which a company establishes a subsidiary as a new and separate business and distributes shares in the new company to its shareholders.

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Dividend

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A payment by a company to shareholders of its stock, usually as a way to distribute profits to shareholders.

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Dow Jones Industrial Average (DJIA)

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Price-weighted average of 30 actively traded shares of blue-chip US industrial corporations listed on the New York Stock Exchange.

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Duration

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A weighted average maturity of all future cash flows of a bond. In more practical terms when trading bonds, duration is used as a measure of a bond's sensitivity to changes in interest rates/yields (i.e. a bond's price volatility).

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EBITDA

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Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company's operating cash flow based on data from the company's income statement.

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ECM

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Acronym for Equity Capital Markets - the area of an investment bank responsible for structuring and pricing the sale of equity.

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Emerging markets

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Developing countries with underdevelped capital markets. Banks make loans to emerging markets nations and also assist them in issuing bonds and other debt securities.

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Enterprise value

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A measure of what the market believes a company's ongoing operations are worth. Enterprise value is equal to the company's market capitalization minus cash and cash equivalents plus preferred stock plus debt and plus minority interest. The number is of importance both to individual investors and potential acquirers considering a takeover attempt.

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EPS

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Acronym for Earnings Per Share. Total earnings divided by the number of shares outstanding. Companies often use a weighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year ("trailing EPS"), for the current year ("current EPS"), or for the coming year ("forward EPS").

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Equities

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Shares - certificates that represent a part ownership in a corporation.

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Equity

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The risk-sharing part of capital.

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Equity Capital Markets

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Markets where capital funds (i.e. equity). This includes private placement as well as organized markets and exchanges.

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Equity Default Swaps

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Equity Default Swaps are contracts structured to provide the buyer with protection (typically for five years) against a severe decline in the price of a company's stock.

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Eurobond

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A bond issued in the Euromarket.

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Eurocurrency

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A currency held outside its country of origin, traded in the Euromarket.

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Eurodollar

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U.S. Dollars deposited in foreign banks or foreign branches of U.S. banks.

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Euromarket

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The offshore international financial market.