Glossary

Accrued Interest
Interest that is earned on a security but not yet paid to the investor.

Annual Report
A comprehensive report that a company must provide to its shareholders every year. It provides information about the company’s financial condition and operations over the past year. (All reporting issuers are required to file an Annual Report with the Commission at the end of their financial year).

Annuity
A product sold by an insurance company that provides a guaranteed fixed stream of payments to the holder for a specified period of time. Annuity plans provide a way for individuals to receive regular income after retirement.

Asset
A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit.

Asset Allocation
An investment strategy in which an investor spreads his/her investments across different asset classes such as stocks, bonds and cash. This strategy aims to reduce the risk and maximise the returns from the investor’s investments.

Asset-backed security
Any security whose income payments and hence value is derived from and collateralized (or “backed”) by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets which are unable to be sold individually. Pooling the assets into financial instruments allows them to be sold to general investors, a process called securitization, and allows the risk of investing in the underlying assets to be diversified because each security will represent a fraction of the total value of the diverse pool of underlying assets.

Asset Class
A category of assets that share similar characteristics. The three main asset classes are stocks, bonds and cash.

Bear Market

A prolonged period of falling prices usually brought on by the anticipation of a decline in economic activity. It may also be characterised as a market where prices have fallen by 20% or more from their most recent high.

A bear market in securities is normally triggered when investors sell off securities, generally because they anticipate worsening economic conditions and falling corporate profits. As prices fall, widespread pessimism among investors causes the negative sentiment to be self-sustaining.

Beneficial Owner
(In relation to a security) this means a person who enjoys the benefits of ownership of the security although that person may not be the registered owner of the security;

Bid Price
This is the price that a buyer is willing to pay for a security.

Bond
A debt investment in which an investor loans money to an entity (corporate or governmental). The funds are borrowed for a defined period of time at an agreed interest rate. Bonds are traditionally used by companies and governments to finance a variety of projects and activities.

Broker-Dealer
A person engaging in, or holding himself out as engaging in, the business of—

(a) effecting transactions in securities for the account of others;

(b) buying or selling securities for his own account and who holds himself out at all normal times, as willing to buy and sell securities at prices specified by him; or

(c) such other activities as may be prescribed;

Bull market
A bull market is one in which prices are generally rising and investor confidence is high. The term is most often used to refer to the securities market but can be applied to anything that is traded such as bonds, currencies, and commodities.

In contrast to a bear market, a bull market is characterized by optimism, investor confidence and high expectations for a strong future.

Capital Gain
The profit made when a security is sold for more than the price that the investor paid for it.

Capital Market
A market in which securities are traded and includes the stock and bond markets. Companies and governments use capital markets to raise funds for their operations. Investors purchase securities in the capital markets in order to extract a return and earn profit on the securities.

Central Bank of Trinidad and Tobago (CBTT)
The Central Bank of Trinidad and Tobago’s responsibilities are:

Collective Investment Scheme (CIS)
A type of investment scheme that involves collecting money from different investors and then combining all the money collected to fund the investment. A collective investment scheme may also be called a mutual fund. A collective investment scheme provides almost absolute control of the investment to the company pooling and investing the money.

Common Share
A security that gives the holder an ownership interest in a company. Common shareholders have the right to elect the Board of Directors of a company and vote on major corporate issues at shareholder meetings. If a company becomes bankrupt, common shareholders have a claim on the company’s assets but only after creditors and preferred shareholders are paid.

Compound Interest
Interest that accrues from the principal and the accumulated interest from an investment.

Compounding
Compounding is the process by which an investment’s interest earnings are re-invested and added to the principal. The interest in the next period is determined based on the principal as well as on the previously re-invested interest. Therefore, the interest on the investment also earns interest.

Contravention
Defiance or violation of a rule, law, judicial order or other requirements of the Securities Act, 2012 or its consequent By-laws.

Coupon Payment
The dollar amount of interest paid to a bondholder. This dollar amount is calculated by multiplying the bond’s coupon rate by its face value.

Coupon Rate
The interest rate on a bond which is calculated by dividing the bond’s coupon payment by its face value.

Debt Security
Any debt issued by a government or corporation that may be traded. That is, the original buyer of the debt security effectively lends the issuer money in exchange for the security, which gives the holder the right to receive interest payments, and the principal, at maturity, The holder may, at his/her/its discretion, sell the security to someone else, who then gains the right to receive interest and principal from the issuer. In general, debt securities are less risky than stocks; their relative riskiness is determined by the credit worthiness of the issuer. A debt security is also called a fixed-income security.

Deposit Insurance Corporation (DIC)
The DIC’s main function is to manage a fund which provides insurance protection to depositors against the potential loss of their deposits should a member financial institution fail. The deposit insurance coverage limit is a maximum of TTD$125,000 per depositor in each capacity and right in each member institution licensed under the Financial Institutions Act 2008.

Depositary Receipts
A type of security that is traded on a local stock exchange but represents a security, usually in the form of equity that is issued by a foreign publicly listed company. The depositary receipt, which is a physical certificate, allows investors to hold shares in equity of other countries.

Disclosure
The submission of the facts and details concerning a situation or business operation. In general, security exchanges and the TTSEC require firms to disclose to the investment community the facts concerning issues which would be likely to be considered important to a reasonable investor in making an investment decision.

Distribution
The payment of a dividend or capital gain

Diversification
The strategy of spreading your investments across a variety of securities so that when some securities perform poorly, the others can make up for those losses. Diversification therefore reduces the overall risk to the investor. Diversification can be summed up by the popular saying “Don’t put all your eggs in one basket”

Dividend
Dividends are payments made by a company to its shareholders. When a company earns a profit or surplus, that money can be put to two uses; it can either be re-invested in the business (called retained earnings) or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

Dollar cost averaging
A method of accumulating assets by investing a fixed amount of dollars in securities at set intervals. The investor buys more shares when the price is low and fewer shares when the price is high; the overall cost is lower than would be had the investor bought a constant number of shares at set intervals.

Equity
Ownership interest in a corporation in the form of common stock or preferred stock. Equity gives you ownership in a company. If you own stocks or shares, you have equity in, or own a portion (however small) of the company. Alternatively total assets minus total liabilities are called shareholder’s equity or net worth.

Face Value
For a bond, the face value is the dollar amount to be repaid to the bondholder when the bond matures.

Financial Institution
A company licensed under the Financial Institutions Act, 2008.

Fixed-rate Bond
A bond with an interest rate that remains constant or fixed for the life of the bond

Floating-rate Bond
A bond with an interest rate that moves in tandem with some benchmark interest rate or reference rate. The interest rate is typically adjusted every six months.

Gross Domestic Product
The market value of all final goods and services produced within a country over a specified period, typically a year. Gross Domestic Product is one of the primary indicators used to gauge the health of a country’s economy.

Illiquid
A security is said to be illiquid if it cannot be converted into cash quickly or near prevailing market prices. Illiquid securities cannot be sold quickly without a substantial fall in price due to the absence of a ready market for the security. Illiquid securities therefore carry higher risks than liquid securities.

Inflation
A rise in the general level of prices of goods and services in an economy over a period of time.

Insider-trading
The trading of a corporation’s shares or other securities on the basis of non-public and price sensitive information

Institutional investor
An organisation which pools large sums of money and invests those sums in securities, real property and other investment assets. Types of institutional investors include banks, investment companies, mutual funds, insurance companies and pension funds.

Interest
The price paid for borrowing money. Alternatively, interest can be viewed as the compensation to lenders for the use of their funds. It is expressed as a percentage of the amount owed to the lender. Interest rates are typically calculated on an annual basis.

Investment
A security that is purchased with the hope that it will generate income or appreciate in the future. This return may take the form of interest or capital gains.

Investment Advice
Advice with respect to an investment in, or the purchase, sale or holding of, a security.

Investment Adviser
A person engaging in, or holding himself out as engaging in, the business of providing investment advice, and includes a person that provides investment advice to a manager of a collective investment scheme.

Investment Goal
This describes an objective or target which arises from some specific future financial need. Some common investment goals are saving for retirement, providing for your children’s education or saving for a major purchase such as a home. Determining your investment goals is the first step in the investment planning process. The second step involves determining how much you need to set aside to invest as well as the appropriate mix of investments that will enable you to achieve your financial goals. These in turn will depend on a number of factors such as your investment time horizon, your income and expenses as well as your risk tolerance.

Investor
A person or organization that invests money in order to make a profit.

Investor Education Programme
A programme conducted by regulators such as the TTSEC to provide investor education information to the general public.

IOSCO
The International Organisation of Securities Commissions (IOSCO), is the recognized international standard setter for securities markets. This Organization’s membership regulates more than 90% of the world’s securities markets and is the world’s most important international cooperative forum for securities regulatory agencies.

IPO
Initial Public Offering (IPO) is also referred to as an “offering” or “flotation.” It relates to the first sale of shares in a company. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

Issuer
A person that has securities outstanding or issues, or proposes to issue or distribute a security.

Liquidity
The liquidity of an asset is measured by the ease with which it can be converted into cash. Your current account, for example, is more liquid than your house. If you needed to sell your house quickly to pay bills you would have to drop the price substantially to get a sale.

Market Actor
Market Actor means –

(a) a registrant;
(b) a person exempted under the Securities Act, 2012 from the requirement to be registered;
(c) senior officer, or promoter of a reporting issuer;
(d) a custodian of assets, shares or units of a collective investment scheme;
(e) a self-regulatory organisation;
(f) a designated rating organisation;
(g) a transfer agent for securities of a reporting issuer;
(h) a registrar for securities of a reporting issuer;
(i) the partner of a market actor;
(j) a contingency fund required under Part III of the Securities Act, 2012;
(k) a settlement assurance fund required under Part III of the Securities Act, 2012;
(l) a securities market;
(m) a clearing agency; or
(n) any other person or member of a class of persons prescribed to be a market actor.

Material Change
When used in relation to an issuer other than a collective investment scheme, a material change is a change in the business, operations, assets or ownership of an issuer, the disclosure of which would be considered important to a reasonable investor in making an investment decision and includes a decision to implement such a change made by the directors of the issuer or other persons acting in a similar capacity; or

when used in relation to an issuer that is a collective investment scheme, a material change in the business, operations or affairs of the issuer, the disclosure of which would be considered important by a reasonable investor in determining whether to purchase, sell or transfer or continue to hold securities of the issuer, and includes a decision to implement such a change made by the directors of the issuer or the directors of the manager of the issuer or other persons acting in a similar capacity.

Material Fact
When used in relation to the affairs of an issuer or its securities, it is a fact or a series of facts, the disclosure of which would be considered important to a reasonable investor in making an investment decision.

Material non-public information
In relation to the securities of a reporting issuer, any material fact or material change that has not been published.

Misrepresentation
(a) an untrue statement of a material fact or material change; or (b) an omission to state a material fact or material change that is required to be stated or is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it is made.

Money Market
The market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term. Money market securities include certificates of deposit (CDs), bankers’ acceptances, treasury bills and commercial paper.

Mortgage-backed securities
A sub-category of Asset Backed Securities. Mortgage Backed Securities are based on or represent an interest in an underlying pool of mortgages. Investors receive interest and principal payments derived from the underlying mortgages.

Mutual Fund
An investment vehicle which pools money from investors and purchases various types of securities such as shares, bonds or money market securities based on stated investment objectives. See: Collective Investment Schemes

Net Asset Value
For a mutual fund, the Net Asset Value (NAV) is the price per share or unit in the fund. It is calculated as the total value of the securities held in a mutual fund less any liabilities, divided by the number of shares outstanding in the fund. When you buy or sell shares in a mutual fund you do so at the current NAV. The NAV rises and falls as the value of the underlying investments in the fund changes. The NAV is computed daily at the close of each business day.

Offer to Acquire
An offer to acquire includes—-

an offer to purchase or a solicitation of an offer to sell securities;

an acceptance of an offer to sell securities, whether or not such offer to sell has been solicited.

or any combination thereof, and the person accepting an offer to sell shall be deemed to be making an offer to acquire from the person that made the offer to sell.

Ordinary Stocks
Ordinary or Common Stocks are stocks that represent ownership in a company and give the stockholder a vote in the selection of management and a proportionate but unspecified claim on profits. These profits may be distributed to stockholders as dividends declared by the company’s directors from time to time and paid out of earnings.

Over-the-Counter market
The market in which securities are traded via a network of dealers rather than through a stock exchange.

Ponzi schemes
An investment scam which promises exceptionally high rates of returns in a short period of time. A Ponzi schemer will only ask you to invest in something. You won’t be asked to take any more action other than handing over your money. He or she will claim to take care of the rest and give you your returns later. The scheme uses new investors’ monies to repay previous investors. The scheme inevitably collapses when the promoter runs out of new investors to repay the previous investors.

Portfolio
A collection of investments held by an individual or an institution. A portfolio includes financial instruments such as bonds, stocks, cash or mutual funds. The portfolio may be held directly by an investor or it can be managed by a financial professional.

Preference shares
A class of shares that usually does not give the investor voting rights. Preference shares take priority over ordinary shares in the payment of dividends and in the event of a liquidation (selling off of the company’s assets).

Principal
The amount that is borrowed or lent; the amount of funds originally invested in a security; the Face Value of a bond

Prospectus
A formal document that provides details about an investment offering for sale to the public. This information would allow an investor to make an informed investment decision.

Public Company
A company, any of whose issued shares are or were part of a distribution, or an offer, to the public.

Pump and Dump
This is a form of market manipulation. The perpetrators of Pump and Dump schemes attempt to drive up the price of a stock by spreading false and misleading information about the company. Once the stock price has been driven up (‘pumped’) the perpetrators seek to profit by selling off their shares (“dump’ ) at the higher price which typically causes the stock price to collapse, leading to significant losses for investors.

Pyramid Scheme
An investment scam which promises exceptionally high rates of returns in a short period of time. New investors are usually asked to bring in new investors into the fold. The scheme uses new investors’ monies to repay previous investors. These schemes are sometimes erroneously referred to as pyramid schemes because they start off with a promoter and add successively broader levels, giving the scheme a triangular or pyramid shape. However there is a subtle difference between the two. The scheme inevitably collapses when the promoter runs out of new investors to repay the previous investors.

Rate of Return
The rate of return on an investment is the gain or loss on an investment expressed as a percentage of the total amount invested. The return on an investment consists of any income received from the security (interest or dividend income), plus any increases in the security’s value (capital gains)

Recession
A downturn in economic activity defined by many economists as “at least two consecutive quarters of decline in a country’s GDP”.

Registrant
A person registered or required to be registered under Part IV of the Securities Act, 2012

Repurchase Agreement/Repo
The sale of a security with a commitment by the seller to buy the same security back from the purchaser at a specified price at a designated date in the future. See: Policy Framework for Repurchase Agreements pdf (175KB)

Retail investor
An individual who purchases small amounts of securities for him/herself as opposed to an institutional investor. Also called individual investor or small investor.

Rights issue
This occurs when a public company issues new shares to its existing shareholders to raise cash.

Risk
In finance, risk refers to the degree of uncertainty about the return an investor would earn on an investment. It relates to the possibility of an investor incurring a loss on his or her investments. A fundamental tenet in investing is the relationship between risk and return. In general, investments that have higher levels of risk offer higher rates of return to compensate investors for taking on the additional risk.

Risk Aversion
Risk aversion refers to the reluctance of an investor to take on risk. Risk-averse investors are very conservative and prefer to invest in relatively ‘safe’ investment instruments such as government bonds and treasury bills.

Risk Tolerance
An investor’s ability and willingness to take on risk. It also relates to the capacity of an investor to absorb declines in the value of his/her investments

Securities
Stock certificates, bonds or other evidence of a secured indebtedness or of a right created in the holder to participate in the profits or assets distribution of a profit making enterprise.

Securities Exchange
An entity that maintains or provides (a) physical facilities where persons may meet to execute trades in securities; or (b) a mechanical, electronic or other system that facilitates execution of trades in securities by matching offers of purchase and sale; and includes the Stock Exchange.

Securities Industry Act, 1995
The Act by which the Trinidad and Tobago Securities and Exchange Commission was established and which has been replaced by the Securities Act, 2012 which governs the regulation of the securities market in Trinidad and Tobago. Among other things, the law requires market actors to register with the TTSEC

Securities Market
The general term for markets in which securities are traded including both organized securities exchanges and Over the counter (OTC) markets.

Self-Regulatory Organization
This is (a) a clearing agency; (b) a securities exchange; (c) an association of market actors registered or required to be registered under the Securities Act, 2012; or (d) such other entity, that sets standards for or monitors the conduct of its members or participants relating to, trading in, or advising on securities.

Settlement assurance fund
A fund established by a self-regulatory organization under Section 47 of the Securities Act, 2012 to ensure continuity in securities clearing and settlement in the event of the failure to settle a transaction by a participant of a clearing agency.

Share
A security that represents ownership in a corporation. There are two main types of shares- Common Shares and Preference Shares.

Shareholder
A person who purchases one or more shares in a company. Shareholders are the owners of a company. They have the potential to profit if the company does well, but also the potential to lose if the company does poorly.

Stagflation
A prolonged period of slow economic growth coupled with high levels of unemployment and rising prices.

Stakeholders
Persons who have an interest (financial or otherwise) in a firm.

Stock certificate
A document establishing shareholder ownership in a company’s stock. It specifies the number of shares owned by the individual, the type of stock, whether common or preferred, as well as the shareholder’s voting rights.

Stock Exchange
The Stock Exchange is the nation’s centralised market place for buying and selling stocks. In addition to increasing the investment options available to individuals, it also provides a mechanism through which companies can raise capital for expansion purposes by selling and issuing securities (stocks and bonds).

Stock Market Index
A Stock Market Index is a statistical measure of the performance of a particular “basket” of stocks which may represent the stock market or a segment of the stock market. The Trinidad and Tobago Composite Index, is a local example of a Stock Market Index; it measures the performance of the local stock market.

Subsidiary
A company of which more than fifty percent of the voting shares are owned by another corporation, called the parent company

Take-over bid
A type of corporate action in which an acquiring company makes an offer to the target company’s shareholders to buy the target company’s shares in order to gain control of the business. Takeover bids can be in the form of a friendly acquisition or merger. Alternatively the takeover can be hostile.

Time Horizon
The number of years you need to invest in order to achieve your investment goal.

Trade
The sale or purchase of a security.

Trinidad and Tobago Central Depository (TTCD)
The TTCD is a company established by the Trinidad and Tobago Stock Exchange Limited to enable investors buying and selling securities on the Exchange to settle such transactions through a computerized book entry system i.e. an accounting system which aids the change of ownership of securities electronically between buyers and sellers without the need for the exchange of the physical share certificates.

Trinidad and Tobago Securities and Exchange Commission (TTSEC)
The local regulatory body charged with the responsibility of ensuring that market participants comply with the regulations set forth in the Securities Act, 2012. Among its main functions are to:-

  • advise the Minister on all matters relating to the securities industry;
  • maintain surveillance over the securities industry and to ensure orderly, fair and equitable dealings in securities;
  • register, authorize or regulate, in accordance with the Securities Act, 2012, self-regulatory organizations, broker-dealers, registered representatives , underwriters, issuers and investment advisers, and control and supervise their activities with a view to maintaining proper standards of conduct and professionalism in the securities industry;
  • educate and promote an understanding by the public of the securities industry and the benefits, risks, and liabilities associated with investing in securities;

Trinidad and Tobago Stock Exchange (TTSE)
See Stock Exchange

Underwriter
A securities underwriter is an individual, investment bank or corporation who undertakes the task of raising capital from investors on behalf of corporations or governments that are issuing securities.

Unpublished price sensitive information
In relation to securities of a reporting issuer, any material fact or material change that has not been published.

Yield
The rate of return earned on an investment. For a bond, the yield is computed by dividing the coupon payment by the price of the bond

Disclaimer:
This glossary is not intended to be exhaustive, nor is it intended to cover all investor education terms.
For a more detailed glossary, please visit http://www.ttsec.org.tt/investor_resources.php?mid=115