Financial Dictionary and Mortgage Terms Glossary

Glossary listings of the more common Financial Dictionary and Mortgage Terms in Australia

A
Absolute Return Funds
Absolute Return Funds (including Hedge Funds) aim to deliver returns in both rising and falling markets.
The investment techniques adopted may be different to methods employed by traditional fund managers as the funds have greater scope to use derivatives, short positions, and exotic securities.

Accounts Payable (AP)
Amounts owed by an entity as a result of the purchase of goods or services. See creditors, sundry creditors, trade creditors.

Accounts Receivable
Amounts owed to an entity as a result of the sale of goods or services. See debtors, sundry debtors, receivables, trade creditors.

Accredited Derivatives Advisers
Persons who have been accredited by ASX to advise or make a recommendation (including a recommendation in a research report) to clients in relation to ASX derivative products other than Futures and Futures Options
(ie; Warrants and all DTP Products other than Futures or Futures Options).

Accredited Futures Adviser
Persons who have been accredited by ASX to advise or make a recommendation (including a recommendation in a research report) to clients in relation to ASX Futures and Futures Options.

Accumulated Depreciation
The aggregate, at a given point of time, of the depreciation charges relating to a fixed asset made against revenue during the useful life of the fixed asset for the purpose of allocating the depreciable costs of the asset to the revenues the asset generates; when deducted from the historical cost or revalued amount of an asset it yields the book value.

ACH
See Australian Clearing House Pty Ltd (ACH)

Actively Managed
Where the fund manager has the discretion to select the securities in a fund and looks for opportunities to buy and sell to increase its performance.

Addressed Value Payment
If you hold deliverable warrants but do not exercise them before or at expiry you may be entitled to a cash payment, often called an 'Assessed Value Payment' (or AVP).

Adjustment to Options Contracts
Adjustments are made when certain events occur that may affect the underlying securities. Examples of adjustments include changing the number of shares per contract and/or the exercise price of options in the event of a new issue or a reorganisation of capital by the issuer of the underlying securities.

After-Balance-Date Events
Significant circumstances that occur or information that becomes available between the end of the accounting period ('reporting date') and the time of approval of the financial statements. Also referred to as 'Post Balance Sheet Events' or 'Events Occurring after Reporting Date'. See Accounting Standards AASB 1002, 'Events Occurring After Reporting Date'.

AGM (Annual General Meeting)
An annual meeting of shareholders required by law where directors inform shareholders of company performance and future prospects. Shareholders vote on board elections and significant company issues.

All Ordinaries (All Ords)
The index is made up of the weighted share prices of about 500 of the largest Australian companies. Established by ASX at 500 points in January 1980, it is the predominant measure of the overall performance of the Australian sharemarket. The companies are weighted according to their size in terms of market capitalization (total market value of a company's shares).

All Ordinaries Accumulation Index
Takes into account both capital appreciation and dividends as a return on the companies in the All Ordinaries index.

Allotment of Shares
The allocation of shares in a company by the directors, following an application or offer to take up the shares. Decisions as to the persons to whom shares are allotted, and the number allotted to each, are at the discretion of the directors, subject to compliance with the Corporations Law. If an issue of shares is over- subscribed, i.e. the number of shares applied for exceeds the number available for issue, the excess must be eliminated either by rejecting some applications altogether, or by reducing the number of shares allotted to some or all of the applicants.

American Depositary Receipts
Depositary Receipts are negotiable certificates that represent a non-U.S. company's publicly traded equity or debt. Depositary Receipts are legal, US. Securities that trade freely on a major exchange or in the over the counter (OTC) market in U.S. Dollars, pay dividends or interest in dollars, and settle, clear and transfer according to standard U.S. practices. The Depositary Receipt evidences the home market security which trades in a foreign country and it is custodised with a local bank, called the custodian.

American Exercise, American Style
A type of option or warrant contract which allows the holder to exercise at any time up to and including the expiry date. Most options listed on ASX are American Style.
See European Exercise, European Style.

Amortisation
The process of allocating acquisition cost or other value of assets either to periods as expenses or period costs, or to inventory accounts as product costs. The term is normally
used in conjunction with non-physical assets. Contrast depreciation.

AMV
Abbreviation for aggregate market value.

Annual Report
In the context of the Australian sharemarket, the annual report is a financial report or statement issued by a publicly listed company to its shareholders. The annual report contains a statement of financial performance, a statement of financial position, a statement of cash flow, as well as notice of the Annual General Meeting (AGM) and business resolutions to be discussed

Annual Yield
Also known as dividend yield. Annual yield represents the dividend return from an investment. It is calculated by dividing the dividend per share by the share price, converted to a percentage.
Yield = (Dividend per share / Last market price) x 100.

Annualised Return
The return or profit, expressed on an annual basis, the writer of the option contract receives for buying the shares and writing that particular contract. See buy and write.

Annuity
An annuity is a series of identical fixed payments to be made for a specified number of years

Approved Financial Products
The ASTC Settlement Rules state that an Approved Financial Product means a Financial Product which is approved under Section 8 of the ASTC Settlement Rules. ASTC is ASX Settlement and Transfer Corporation Pty Ltd (ABN 49 008 504 532) which is licences as a Clearing and Settlement Facility under the Corporations Act.

Arbitrage
The simultaneous buying and selling of the same or equivalent securities in different but related markets

Articles of Association
These were formerly the rules adopted by a company when it formed that governed the company's internal affairs and other matters affecting the shareholders and the company. These matters are now dealt with in the company constitution.

As At Date
Date upon which the relevant information is recorded.

ASIC
Australian Securities & Investments Commission.

Asset Allocation
The proportion of your total capital you invest in the different asset classes. This will be largely determined by your risk profile.

Asset Backing
Useful check for investors that can be related to the firm's earning capacity. Asset backing = net assets of a company (in $) / number of issued shares.

For example: XYZ Ltd with $100,000 net assets and 10,000 shares issued has an Asset Backing of $10.00 per share.

Assets
Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events affecting the entity. The essential characteristics of an asset are:

1. a probable future benefit exists involving a capacity to contribute directly or indirectly to future net cash inflows;

2. the entity can obtain the benefit and control the access of others to it;

3. the transaction or event giving rise to the entity's claim to or control of the benefit has already occurred.

Assignment
In the context of exchange traded options (ETOs), assignment is the random allocation of an exercise obligation to a writer. This is carried out by Australian Clearing House Pty Ltd (ACH).

Associate
For the purposes of Division 13A (ITAA), an associate of an employee includes a relative of the employee, or a company in which the employee holds shares. An associate of an employer company includes a majority shareholder, partner, or a related company within the employer group. An associate can be a person, a company or a trustee of a trust under which the employee or employer benefits.

Associated Company
One company may be associated with another company if certain types of arrangements exist between the two bodies. Companies may also be considered to be associated when one company has an equity interest in the other.

ASX (Australian Securities Exchange)
The main Australian market place for trading equities, government bonds and other fixed interest securities. Or Australian Stock Exchange

Australian Stock Exchange Limited (ACN 008 624 691).

ASX Code
A unique code used by the Australian Securities Exchange (ASX) to identify listed companies.
See listed company.

ASX International Services Pty Ltd
ASX International Services Pty Ltd (ABN 62 089 068 913) is a wholly owned subsidiary of the Australian Securities Exchange Limited. ASX International Services Pty Ltd is the entity that will execute and settle sales and purchases of Participating International Securities on behalf of the broker.

ASX World Link
ASX World Link is the brand name of the service provided by ASX International Services Pty Ltd. The service allows an investor to invest in Participating International Securities listed on
international markets in Australian dollars through an Australian broker.

At-The-Money
Term used to describe an option or a warrant with an exercise price equal to the current market price of the underlying asset.

Audit
A systematic examination of financial statements usually by an independent chartered accountant, with the objective of expressing an opinion on the truth and fairness with which the statements
present the financial position, the results of operations and on whether the statements are drawn up in accordance with the relevant law and accounting standards. The auditor's opinion is
customarily conveyed in the form of an audit report to those recipients of the financial statements for whose benefit he is appointed, usually the shareholders of a company.

Auditors
The company's auditors as reported in the annual report.

Australian Clearing House Pty Ltd (ACH)
The Australian Clearing House Pty Ltd, the subsidiary of ASX which clears options and futures traded on ASX.

Australian Securities and Investments Commission (ASIC)
The Government body responsible under the Corporations Law for regulating companies, company borrowings, and investment advisers and dealers.

Authorised Capital
The amount of share capital which a company is permitted to issue. Also called nominal capital.
See issued capital, uncalled capital, and paid-up capital.

Aware
An entity becomes aware of information if a director or executive officer (in the case of a trust, a director or executive officer of the responsible entity or management
company) has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity.
Introduced 01/07/96. Origin: Listing Rule 3A(1). Amended 01/07/98.

B
Board
The board of directors of a company.

Brokerage
Brokerage is usually paid to a stock broker as a commission or percentage of the value of the Shares traded on a stock exchange.

C
Capital
Capital may be used in a number of senses. For example, it may describe the issue of shares, or the value of all issued shares, reserves and undistributed profits that are retained in a company to fund its operations, or the cash, goods or infrastructure a business uses to generate income. The term capital is distinct from the terms capital gain or capital loss which are used in the context of capital gains tax.

CGT or Capital Gains Tax
A tax imposed on, amongst other things, the gain from the disposal or deemed disposal of an asset (including shares) which is owned by an Australian taxpayer. Any net capital gain that accrues to a taxpayer is included in the assessable income of the taxpayer, although certain concessions available to individuals and trusts who have held the relevant asset for more than 12 months may cause only half of any capital gain to be assessed.

Competitive Advantage / Disadvantage
Relates to an advantage or disadvantage to a company arising from the strength or weakness of their position in a given market when compared to their competitors.

Corporation / Company
Includes an entity bound by a constitution and registered (incorporated) under relevant governing legislation.

Corporations Act
Corporations Act 2001 (Commonwealth).

Cost base
In relation to shares held under an ESOP, includes the acquisition cost or deemed acquisition cost of the shares acquired for or by an employee participant.

D
Defer
Put off or delay to a later date.

Deferred Share Plan
A share plan designed to take advantage of the deferred share benefit provided for under Division 13A (ITAA). See Employee Share Ownership Plan Taxation Considerations – A Guide for Employers for further details.

Dilution
In relation to an ESOP, the reduction of the percentage of share ownership held by existing shareholders in a company by issuing shares or rights to shares under the ESOP.

Director
A director of a company.

Discount
In relation to an ESOP, a share will be acquired at a discount if it is acquired at less than the market value of that share.

Dividend
A distribution of part of a company’s profit, to shareholders. A dividend is usually expressed as cents per share. The directors of the company determine what proportion (if any) of the profits are to be distributed to shareholders as dividends.

Division 13A (ITAA)
A division of the Income Tax Assessment Act 1936 which applies to tax share benefits provided under an ESOP and which provides tax concessional treatment of shares and rights acquired under employee share schemes meeting certain specified conditions.

E
Eligible employee
An employee who is eligible to participate in an ESOP.

Employee Buyouts
An employee buyout describes the full or partial acquisition of an organisation by the employees of that organisation.

EBA or Enterprise Bargaining Agreement
An agreement reached between an employer and the employees regarding employment conditions and remuneration.

Equity
In general terms, equity is ownership in an organisation, usually in the form of shares. In an accounting environment, the total of assets minus liabilities is ‘shareholder’s equity’.

ESOP
Employee share ownership plan also referred to as ESS.

ESS
Employee share scheme also referred to as an ESOP.

Exempt Share Plan
A share plan designed to take advantage of the exempt share benefit provided for under Division 13A (ITAA). See Employee Share Ownership Taxation Considerations – A Guide for Employers for further information.

Exercise
In relation to an ESOP, to exercise an option means to take action to make use of your legal rights or privileges (provided under the option contract) to acquire a share in your employer including by paying the relevant exercise price under the option.

Example:
In May, Matt was given an option to buy a share for a fixed price of $2 in his employer company any time within the next 2 years. In November, the price of the company’s share (market value) rose to $4. Matt decided to exercise his option then, paid the exercise price of $2 and bought a share in his employer company. If he sold that share immediately for its market value of $4 he would therefore make a profit of $2. If the shares had fallen below $2, it is likely that Matt would simply retain (not exercise) his option. Matt is not required to pay any money until he ‘exercises’ the option.

Exercise Price
The amount payable to exercise an option to acquire a share.

F
Financial Year
An accounting period usually consisting of 12 months commencing on 1 July and ending on 30 June. Income tax is generally payable on a financial rather than a calendar year.

Forfeiture
A term included in ESOPs designed to provide deferred share benefits. A share subject to forfeiture means that it may not vest to (that is, may be forfeited by) a participant in certain circumstances, including in the event of gross misconduct.

FBT or Fringe Benefit and Fringe Benefits Tax
A benefit provided to an employee or an employee’s associate by the employer, by an associate of the employer, or by another person under an arrangement with the employer or associate of the employer, in respect of the employment of the employee. A fringe benefit is taxed and the payment of FBT is made by the employer. Fringe benefits exclude such payments as salary and wages, benefits provided under employee share schemes, superannuation, and eligible termination payments, etc.

Fully Paid Plans
Fully paid shares are either bought on market or issued and paid for by loans from the company to the individual employee participant or funded out of a share of profits or salary sacrifice arrangements. Deferred share plans, exempt share plans, loan plans, salary sacrifice plans are all in this category.

G
GST
Goods and Services Tax

H
Holding Lock
A restriction imposed by a listed public company, preventing a share being sold or transferred.

Holding Statement
A statement issued by the share registry of a company to shareholders.

HR
Human Resources

I
ITAA
Income Tax Assessment Act 1936, as amended

J
Joint Venture
An association of persons to jointly explore, finance or direct a particular development with a view to mutual profit. May be in various forms, that is, 50/50, 75/25 with the right to increase to 60/40 etc.

K
KLCE
Kuala Lumpur Commodity Exchange (Malaysia)

KSE
Korea Stock Exchange

L
Listed public companies
A company listed on a recognised stock exchange.

Listing
Admission of a company to the official List of a recognised stock exchange so that trading in the shares may occur in the market operated by that stock exchange.

Liquidity
Refers to the ready ability to buy and sell shares on a market.

Listing Rules
The Listing Rules of the recognised stock exchange, as amended from time to time. For instance the Listing Rules of the ASX.

Loan plan
Loan plans allow fully paid shares to be provided to employees and the shares are paid for by the use of a loan. Restrictions are often placed on the shares while loans are being repaid.

M
Market price
The price agreed to in transferring ownership of a share between a buyer and a seller.

Market Value
Market value has a specific meaning for tax purposes, and in relation to ESOPs is worked out under Division 13A (ITAA).

N
Net Profit
The excess of all revenues and gains for a period over all expenses and losses of the period.

O
Offer
In relation to an ESOP, an offer contained in the ESOP offer documents to participate in the plan

Official List
The list of companies, the shares of which have been approved for official quotation on a recognised stock exchange. Admission to the official List depends upon the company complying with the Listing Rules of that recognised stock exchange.

Options and Option Plans
An option is a contractual right to acquire a share in the future at a set cost. Fully paid shares are issued or transferred on ‘exercise’ of the right, the fulfilment of any specified conditions and the payment of any set exercise price. ESOP plans which provide options to employees are called option plans.
See ‘Exercise’ for an example.

P
Partly Paid Plans
Participants in partly paid plans are issued shares at a market or predetermined price (eg: $2) but are only required to pay up a small portion of their value (usually 1 cent). The participants remain liable for any unpaid amount (i.e. $1.99) on the shares, even if the Market Price of the shares falls below the value at the date of issue. Partly paid plans are no longer commonly used in Australia.

Payroll tax
Payroll tax is a tax imposed by state governments on employers. The tax levied is based on a percentage of the total of salaries and other benefits paid to or for employees. ESOP benefits provided to employees are not generally subject to payroll tax.

Performance Condition
A condition imposed by a company in offering shares or options which must be met before a participant becomes entitled to the share or option. See also Vesting condition.

Plan or Plans
A collective term referring to an ESS or an ESOP.

Plan Rules or Rules
The formal document under which the Plan operates. These rules are specific to each plan.

Professional Investor
This term is defined in full in section 9 of the Corporations Act. In general terms, it refers to a special type of investor (shareholder) in a company and has relevance for the purposes of prospectus exemptions under provisions of the Corporations Act. For instance, this investor may be a superannuation fund or other investment fund operating in and regulated under the financial services sector (with certain minimum net assets) or the investor may be a listed public company or hold a financial services license.

Profit Sharing
Profit sharing entitlements are calculated based on a percentage of profits achieved by the company above a set level. These entitlements are placed in a pool which is then divided up and distributed to employees. In relation to an ESOP, the pool is used to fund the acquisition of shares in the employer company for the participating employees.

Proprietary Company
A proprietary company is a company with less than fifty non-employee shareholders. Its ability to offer shares is limited. The transfer of ownership of shares is often restricted. Many small to medium sized enterprises are owned by proprietary company structures. Proprietary companies are often referred to as private companies. Proprietary companies have limited reporting and audit requirements to fulfil. Proprietary companies must change their registration status if they wish to have more than 50 non-employee shareholders.

Public Company
A public company is permitted to have more than 50 non-employee shareholders. Its ability to offer shares is less limited than a proprietary company. Public companies may also apply for listing on a recognised stock exchange where they meet certain criteria. Shares can usually be transferred to different or new owners more easily. Most medium to large businesses are owned by public companies. Public companies have significantly greater reporting requirements to fulfil.

Q
Qualifying / Not Qualifying
In relation to an ESOP, shares (or rights to such shares) are either ‘qualifying’ or ‘not-qualifying’ for the purposes of accessing the tax concessions available under Division 13A ITAA. Plans providing qualifying shares or rights to employees will access the tax concessions and plans using not-qualifying shares or rights will miss out.

R
Remuneration
A generic term to describe any payment or benefit received in respect of employment, including salary, benefits, short-term incentives, bonuses and long term incentives, including shares and options

Replicator Plan
A replicator plan gets its name because the plan tries to ‘replicate’ a real employee share plan, but does so without issuing real shares or options. A replicator plan usually offers participants, for no or nominal cost, an entitlement to receive a cash payment in the future subject to satisfying predetermined performance and/or vesting conditions. A replicator plan may be supported by a set of plan rules, an offer letter, a plan booklet and even a ‘Certificate of Entitlement’. Replicator plans are often used where the company does not want to use “real” shares, for reasons including control, minority interest problems or lack of a market. Replicator plans are also known as “phantom” plans, ‘synthetic’ plans or ‘shadow’ plans. There are many complex taxation, Corporations Act and accounting issues to consider for these types of plans.

Reverse Mortgage
A type of loan that allows seniors homeowner to use the funds from their built-up equity. There are no payments due until the borrower moves, dies, or the property is sold. The final payment will not exceed the proceeds from the sale of the home.

Rights Plan
A plan conferring on the participant a right to acquire a share (or other security) in the future on pre-determined conditions.

S
Salary Sacrifice
A term used to describe an election made by an employee to forego salary in exchange for another benefit. Salary sacrifice must be made in advance of an employee being entitled to the salary or bonus.

Section 139E Election
A written election that may be made by participants receiving qualifying shares or rights under an ESOP. This election must be made (in addition to other conditions being satisfied) to obtain the exempt share benefit under Division 13A (ITAA). The election is to be made before the time the participant submits his or her tax return for the year that the qualifying shares or rights are received (although in certain limited circumstances the Commissioner of Taxation may grant an extension of time to make the election). The ESOP administrator will assist employees where this is required or appropriate.

Share
A fully paid share in a company usually entitles the holders to attend and vote at shareholders meetings, participate in the distribution of the company’s profits and, when the company is wound up, participate in its surplus assets, if any. A shareholder may only participate in accordance with the rights specifically laid out in the company’s constitution. For instance a holder of ‘ordinary shares’ may have different rights to the holders of special ‘class’ of shares or of ‘preference’ shares.

Shareholders
A shareholder is a person or organisation that owns shares in a company and whose name appears in the register of members as being the owner of the shares. Depending on what type of shares they own, the owner may have certain rights in the company, for example, they may have voting rights when the company makes important decisions.

Share Market or Stock Market or Stock Exchange
Shares in listed public companies are quoted and traded on a recognised stock exchange. There are a number of stock exchanges throughout the world and in Australia there is the ASX. In relation to an ESOP, ASIC recognises certain stock exchanges and these are listed in Class Order 03/184. See also ASX.

Sophisticated Investor
This term refers to a special type of investor (shareholder) in a company and has relevance for the purposes of prospectus exemptions under provisions of the Corporations Act. This investor usually subscribes large amounts of funds and is considered to be fully informed from private information made available to him/her by the company at the time of making that investment. This investor must satisfy certain prescribed minimum assets and income levels to be classified as a Sophisticated Investor.

Staff Turnover
Refers to the frequency of staff change in an organisation.

Stamp Duty
A tax imposed by Australian states on, amongst other things, documents or transactions including those that affect or record the transfer of the ownership of assets or the creation of rights in respect of assets.

T
Tax Event
Any event which requires income to be recognised or a benefit to be valued and recognised in a person’s tax return thus giving rise to taxation. See Employee Share Ownership Taxation Considerations – A Guide for Employers for more information.

Trust
Means a trust established under a deed. A trust is often used to hold shares on behalf of employee participants in an ESOP. Trusts are used for a variety of reasons. See Planning and Developing an ESOP - A Guide for Employers for more information.

Trustee
Means the designated trustee under the Trust. The trustees role may include managing the beneficiaries' (i.e. employee ESOP participants) interests in the trust (eg. shares) in accordance with the rules of the plan (trust deed)

U
Unlisted Public Companies
A public company that is not listed on a recognised stock exchange.

V
Vest or Vesting
Vest means to become available. In relation to an ESOP, shares or options which vest or have vested (and are not subject to any performance conditions) may be dealt with, sold or otherwise disposed of by the employee participant. The shares or options may also continue to be held within the ESOP. Where a vesting condition has not yet been satisfied then such shares or options are referred to as ‘unvested shares/options’.

Vesting Condition
A time based service condition or other condition imposed on employee participants by a company when offering shares or options under its ESOP. The vesting condition must be satisfied before a participant becomes entitled to deal with the share or option. See also Performance condition.

Volatility
The short term up and down (fluctuations) in share prices is termed volatility.

W
Winding Up
The process by which the business activities of a company are brought to an end. The process is akin to the administration of a deceased estate and to bankruptcy, however, a company may not be declared bankrupt under the Bankruptcy Act but must be wound up in accordance with the Corporations Law. Liquidation is sometimes synonymous with winding up.

X
X is a Price Supplement. X is the English abbreviation for ex, exclusive (without, exclusively).

XETRA (German Electronic Trading Exchange)

Y
Yield
The return earned on an investment taking into account the annual income and its present capital value.

Z
Zero sum game
An outcome in which any advantage gained by one side is matched by a disadvantage on the other.

Zero-Cost Collar
A type of collar where a borrower arranges with his or her bank to buy a cap and sell a floor.

Zero-Coupon Bonds Top
Bonds issued without a coupon

Zero-coupon Euro-Sterling Bearer
A member of the UK menagerie of securities

Common Mortgage Terms

Accrued Interest, Amortisation, Application Fees, Arrears, Assets, Bridging Finance, Capped Rate Loan, Certificate of Compliance, Certificate of Title, Community Title, Company Title, Covenant, Credit Bureau, Establishment Fee, Equity, Equity Loan (or Line of Credit), Fixed Interest, Garnishee, Gearing, Guarantee, Interest Only Loan, Joint Tenants, Liabilities, Loan Stamp Duty, Loan to Valuation Ratio, Mortgagee, Mortgagor, Negative Gearing, Old System Title, Overdraft, Principal, Principal & Interest, Strata Title, Security, Settlement Date, Stamp Duty on Transfer, Survey, Tenants in Common, Torrens Title, Valuation, Variable Interest Rate, Zone Certificates