This handbook is a comprehensive and authoritative reference for both senior policymakers—those responsible for the development of government bond markets in their own countries—and all individuals responsible for guiding the market development process at the operational level—those who have a substantial need to understand the policy issues involved.



In the United States, a tax-exempt pension plan, similar to IRAs, available to self-employed persons and small businesses, covered in Section 401 (k) of the U.S. Internal Revenue Code. Employers may match amounts contributed by employees.

Accrual basis of tax calculation.

Tax system in which accrued gains or losses on a security (even if unrealized) are taken into account when computing the tax liability.

Accrual-based taxation.

Tax on income that is earned in an accounting sense, but not received in cash.


Additions to auctions of Treasury securities for monetary policy purposes rather than for fiscal policy purposes. The proceeds from addons are often placed in a blocked account at the central bank.


See asset-liability management.

Alternative trading systems (ATS).

See Electronic trading systems.

Amortization schedule.

Timetable for paying down outstanding debt.


Investments yielding a fixed periodic income during the holder’s lifetime.


See Asia-Pacific Economic Cooperation.

Arbitrage trading.

Exploitation of price or interest rate differences between markets.

Asia-Pacific Economic Cooperation (APEC).

Organization of Asia-Pacific countries established in 1989 as an informal dialogue group to advance Asia-Pacific economic dynamism and sense of community.

Asset-backed securities.

Securities that are secured by other assets. A well-developed asset-backed securities market is the mortgage-backed securities market. These securities are often in the form of certificates that channel, or pass through, the cash flow from mortgages to the certificate holder.

Asset-liability management (ALM).

Risk management approach that examines the combined risks of assets and liabilities over time under different possible future scenarios.


See Alternative trading systems.

Auction-agency market.

Form of order-driven market in which orders from traders are collected centrally in the order book of an auction agency, which traditionally has been an exchange.


The sale of securities through an open bidding.

Autonomous transactions affecting excess reserves.

Transactions affecting reserves held at the central bank over which the central bank has no immediate influence. Examples would be payments by the government from its account at the central bank and receipts by the government to its account at the central bank.

Back-office systems.

Systems supporting actions that follow securities sales and dealing, such as confirmation of orders and accounting.

Bank debenture.

Unsecured obligation of a bank.

Batch communication.

Message grouping payment orders for securities transactions.

Benchmark issue.

Issue of securities that is sufficiently large and actively traded that its price may serve as a reference point for other issues of similar maturity.

Benchmark yield curve.

Yield curve formed on the basis of yields on benchmark securities of selected maturities.

Best execution.

Fair execution of client orders of securities, so that no client has preference over another in terms of time of execution and price received.

Blind interdealer broker screens.

Computer terminals provided by interdealer brokers on which bids and offers are placed without the name of the party bidding or offering.

Blue List.

Service of Standard & Poor’s that quotes prices on municipal and corporate bond offerings.


See Bond Market Association.

Bond bank.

Conduit finance institution that issues a bond on the market equal to the sum of separate individual issues plus a reserve fund. It uses the proceeds to purchase bonds issued by participating localities.

Bond conversion (exchange).

Purchase by the government of a particular series of government bonds using another series of government bonds as payment.

Bond Market Association (BMA).

Founded in the United States, it represents securities firms and banks that underwrite, trade, and sell debt securities.

Bond pooling.

Combination of separate bonds for the purpose of financing through an overall issue. See bond bank.

Bond washing.

Conversion of interest income into capital gains by selling bonds just before a coupon payment date and repurchasing them immediately thereafter. This is done to avoid tax when capital gains are not taxed or are taxed at a lower rate than interest income.

Bond with equity warrant.

Bond with the option of purchasing a proportionate amount of equity shares at a specified date and price.

Bondholders’ committee.

Group established to defend the interests of bondholders.


Coupon-bearing securities, typically with a maturity of one year or more.

Bons du Trésor à taux fixe et à intérêts annuels.

BTANs or negotiable fixed-rate medium-term Treasury notes with annual interest.

Bons du Trésor à taux fixe et à intérêts précomptés.

BTFs or negotiable fixed-rate discount Treasury bills.

Book-reserve pension plans.

Reserves for pensions held on the financial accounts of sponsoring firms. Firms do not actually contribute to the plan, but each year charge prospective pension expenses against the firm’s financial accounts.

Book-entry securities.

See paperless securities.

Book-entry system.

System, often automated, for recording the ownership of securities.


See build-own-operate-transfer.


See build-own-operate-transfer.

Brady bonds.

Bonds of developing countries first issued in 1989 in exchange for restructured bank loans. Most are collateralized by U.S. Treasury zero-coupon bonds and interest collateral sufficient for one or two coupon (interest) payments. The bonds are usually settled through EURO-CLEAR or CEDEL. The bonds were named after former U.S. Treasury Secretary Nicholas Brady.

Build-operate-transfer (BOT).

Project in which an entity builds a facility, operates it temporarily, and then turns it over to the final owner.

Build-own-operate-transfer (BOOT).

Project in which an entity builds, owns and operates a facility for a specified period of time and then turns it over to the final owner.

Buyback operation.

Repurchase of bonds by the issuer prior to their maturity.

Call option.

Contract allowing the holder to buy an asset at a preset price during the period the option remains valid.

Capital adequacy.

Provision, typically imposed through regulation, of capital sufficient to cover the risks of doing business.

Capital gains.

Increase in value of an asset between the time purchased and the time sold.

Capital grants.

Grants allocated by national governments to subnational entities for capital expenditure purposes.

Captive sources of government funding.

Purchases of government securities by banks or other financial institutions (e.g., insurance companies or pension funds) that are forced by law or regulation.

Cash management.

Service responsible for managing short-term outflows and inflows related to debt management.


Cedel International was established in 1970 to reduce the costs of settling transactions in the Eurobond market. It has expanded to deliver clearing, settlement, and custody services in selected markets around the world.

Central bank liquidity management policy.

Central bank policy regarding the management of the supply of bank reserves or settlement balance.

Central depository.

The depository where final settlements of a securities transaction are recorded.

Certificate of deposit (CD).

Certificate issued by a bank or thrift institution testifying that a specified sum of money has been deposited with that institution.

Chapter 9–type procedure.

Refers to Chapter 9 of the U.S. Bankruptcy Code, which deals with defaults by municipalities.


See collective investment fund.


See collective investment scheme or collective investment fund.


See comprehensive income tax.

Clean quotation.

Value of a fixed-income asset excluding accrued income.


Matching of orders prior to final settlement.

Closed funds.

Mutual funds whose shares are not redeemable, but are traded freely on the stock exchange.

Closed-end mutual fund.

Mutual fund that issues a fixed number, of shares, which are then traded on a stock exchange.

Collateralized mortgage obligation.

Security backed by a pool of pass-through mortgages, structured so there are several classes of bondholders with varying maturities. Principal payments from the pool retire the bonds on a priority basis as specified in the security’s prospectus.

Collective investment fund (CIF).

Publicly marketed, widely held portfolio investment fund investing in financial instruments. CIFs include authorized open-end funds and closed-end funds. Further, they include contractual investment trusts and unit investment trusts. Also called collective investment scheme.

Collective investment funds.

Publicly marketed, widely held portfolio investment funds investing in financial instruments. They include authorized open-ended funds, closed-end funds, contractual investment trusts and unit investment trusts. Also called collective investment scheme.

Collective investment scheme.

See Collective investment fund.

Commercial paper.

Short-term, unsecured promissory notes issued by a corporation.

Committee on Payment and Settlement Systems (CPSS).

Committee meeting under the auspices of the Bank for International Settlements to study problems and set standards relating to payment and settlement systems.

Compliance period for required reserves.

See reserve maintenance period.

Comprehensive income tax (CIT).

Income tax levied on all forms of income.

Comprehensive tax system.

Tax system that is applied to the total of all forms of income.

Conduit or “paper” company.

Company formed by an investor or group of investors as a vehicle for their placements.

Consumers’ surplus.

In the case of a sale of securities, excess between the price paid by purchasers and the (lower) price at which the issuer was willing to sell the securities.

Contingent liabilities.

Liabilities that are conditional upon predefined events or circumstances.

Contractual CIF.

Open-ended, noncorporate investment fund established by way of trust deed. In Britain, they are called unit trusts. Participating units in contractual CIFs may be bought and sold through the investment trust manager at proportionate underlying net asset value.

Contractual mutual fund.

Mutual fund that operates on a contractual basis by which an investor agrees to invest a fixed amount regularly for a specified number of years.

Contractual savings industry.

Insurance and pension funds that accept a variety of savings arrangements with a contractual payout commitment by an insurance company or pension fund.

Convertible bond.

Corporate bond with a provision for its exchange into a set number of equity shares of the corporation at a prestated conversion price.

Corporate CIF.

Investment fund that collects money from investors by selling shares in paper investment companies which are established solely to invest the pooled funds of small investors in financial assets. Corporate CIFs are divided into two types: (i) open end fund, or better known as a mutual fund, that will redeem their shares before the maturity on a continuous basis or periodically. (ii) closed-end fund whose fixed number of shares cannot be redeemed and are traded on the stock exchanges. Investors of closed-end funds have to sell them to retrieve the money before the maturity.

Corporate mutual funds.

Mutual funds established as a corporation selling shares to investors.


Make an institution act like a privately owned entity.

Counterpart payment.

Payment related to sale of a security.

Coupon washing trades.

Securities transactions to exploit different tax treatments, such as between domestic and foreign investors, for particular bonds that may be taxable in one jurisdiction and not in another.


See Committee on Payment and Settlement Systems.

Credit enhancement.

Improving the creditworthiness of an instrument by some form of guarantee or security backing.

Credit-rating agency.

A firm that rates the value of financial obligations or the creditworthiness of firms or countries.

Credit risk.

Risk that a counterparty will not honor an obligation when due.

Crowding out.

Causing issuance by non-government issuers to become more difficult due to a large issuing of government securities that absorb the bulk of national savings.


Central securities depository. See central depository.

Currency risk.

Risk that a change in foreign exchange rates will diminish profitability.

Custody accounts.

Accounts recording the holding of securities. See book-entry accounts.

Custody arrangements.

Facilities for the safekeeping of securities and a record of their ownership.

Cut-off price.

Lowest successful bid at an auction.

Dealer market.

Market where dealers quote bid and ask prices to potential counterparties on request.

Debt management office.

The government office that manages the public debt.

Deep-discount bond.

Bond issued with a reduced or zero rate of interest. It sells for a deep discount from its face value, and the yield of this bond is the difference between the purchase price and the par value. Deep-discount bonds with no coupons are called zero-coupon bonds.

Default risk.

Risk that the issuer will not pay principal or interest on schedule.

Deficit grants.

Grants allocated by the central government to subnational governments in deficit.

Delivery versus payment (DVP).

Link between the funds transfer system and the securities transfer system to ensure that securities will not be delivered until funds are received.

Dematerialized securities.

See paperless securities.

Demutualization of exchanges.

Shift of mutually owned exchanges to a publicly held, corporate form of ownership.

Depository system for securities.

System that holds securities in safekeeping and records their ownership.

Derivatives markets.

Markets for instruments whose value is derived from other underlying instruments.

Directed credit.

Regulations that require banks to direct lending to specific sectors that the authorities deem to be in the public interest.

Disclosure requirements.

Transparency requirements for entities issuing securities, to disclose information to the public related to the financial condition of issuing entities, terms of the securities, and other financial matters.

Discount window.

Central bank lending facility, typically part of an accommodation lending facility. Discount window may lend by actually discounting securities from the borrower, but more often lends on such securities as collateral.


Difference between the issuing or purchase price and the value at maturity of a fixed-income security.


See dual income tax.

Dividend deduction system.

System to avoid double taxation by allowing those receiving dividend income to exclude it from their taxable income.


See debt management office.

Double income tax (DIT).

System in which the profits of a corporation are taxed twice, once at the corporate level and again as income tax levied on dividends to shareholders.

Dual income tax.

Tax on income differentiated by two rates, used in Nordic countries, where there is a progressive tax for labor income and a flat tax on capital gains.

Dual-currency bonds.

Bonds that pay interest in one currency and the principal in another.


See delivery versus payment.


Exempt (contribution), exempt (investment income), tax (benefit). Tax regime allowing investment income to accumulate tax free, with benefits taxed in full upon withdrawal.

Electronic trading systems (ETS).

Computerized trading systems that centralize, match, cross, or otherwise execute trades.

Emerging market funds.

Funds that invest in the debt or equity of emerging-market countries.


Trading of securities via electronic means.


See electronic trading systems.


System founded in 1968 in Europe as a clearing and settlement system for internationally traded securities.

Ex-ante price information.

Price information available before a trade is made.

Excess reserves.

Deposits held at the central bank beyond those specified by reserve requirements.

Execution risk.

Risk that the price of a security may change between the time a quote is made and the time it is acted upon.

Ex-post price information.

Prices after a trade has been made.


See Financial Accounting Standards Board.


See Forum of European Securities Commissions.

Finality at payment.

Legal assurance that payment obligations/rights have been legally satisfied.

Financial Accounting Standards Board (FASB).

Private group relied upon by the U.S. Securities and Exchange Commission for establishing financial accounting and reporting standards for publicly held companies.

Financial intermediation.

Interaction of financial market participants, with a financial institution acquiring financial assets (savings) from individuals or businesses and making them available to other parties (investors—governments, businesses, individuals) at a fee (an interest rate).

Financial Stability Forum (FSF).

Convened in 1999, the Forum brings together on a regular basis national authorities responsible for financial stability in significant international financial centers, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

Fiscal illusion and tax-exempt bonds.

Illusion that lower borrowing costs associated with tax-exempt bonds also reflect overall or effective borrowing costs.

Fiscal responsibility laws.

Laws that define the responsibilities of different levels of government and the relationships among these levels.

Fit-and-proper tests.

Criteria that must be met by individuals or institutions before they are permitted to enter business (usually in the financial sector) as a market participant.

Fitch-IBCA, Duff & Phelps.

Global financial services company that rates credits.

Fixed-rate instrument.

Instrument bearing a coupon that is fixed over its life.

Flat tax.

Tax at the same rate on all forms of income, perhaps allowing for no deductions.

Floating-rate note.

Note on which the interest rate is periodically reset in accordance with market rates.

Floating-rate securities.

Securities on which the rate of return is periodically reset in line with market conditions at the time.

Floor-based exchange.

Exchange where traders physically meet to trade on the floor in a trading pit.

Foreign-currency-linked instruments.

Securities on which the return is indexed to the exchange rate of another currency.

Forum of European Securities Commissions (FESC).

Organization of European securities regulators.

Forward leg.

That part of a financial transaction scheduled to settle at a future time.

Forward transactions.

Transactions to be settled at a date in the future.

Fragmentation of market.

Presence in a market of too many instruments to support active trading of any one instrument.

Front-office systems.

Systems that directly support the sales and dealing areas of a securities firm.

Front running.

Intermediary, learning about a customer order, may first execute transactions for his own account.


See Financial Stability Forum.

Fungibility of securities.

Substitutability between securities.

Futures contract.

Standardized contract, traded on an exchange, for the purchase or sale of an asset in the future.


See Governmental Accounting Standards Board.

General obligation bond.

Bond secured by general tax and borrowing power revenues.

Gilt-edged assets.

Financial assets of very high credit quality.

Government bonds.

Securities, usually of more than one-year maturity, issued by the central government on behalf of the nation for purposes of financing general or specific budget expenditures.

Government debt manager.

Principal official of the agency that manages government debt transactions. This responsibility is normally assigned to the Ministry of Finance, which may appoint an agent for implementing all or part of this duty, such as a separate debt management office, the central bank, or other entity.

Government securities market.

Market for tradable securities issued by a government.

Government securities.

Securities (bills and bonds) issued by the government.

Government-sponsored enterprise (GSE).

Private corporation with implicit government backing.

Governmental Accounting Standards Board (GASB).

U.S. group organized in 1984 by the Financial Accounting Foundation (FAF) to establish standards of financial accounting and reporting for state and local governmental entities.


GovPX, Inc., was founded in 1990 by major bond dealers and interdealer brokers to provide real-time prices of fixed-income securities.

Gross bilateral settlement.

Settlement of funds or securities transfers individually (without netting) between two institutions.


See government sponsored enterprise.


Percentage deduction from the market value of securities.

Hedge funds.

Funds that manage positions in currencies or securities with minimal capital by financing these through offsetting transactions.


Avoiding the possibility of loss in an asset or liability by a counterbalancing investment or borrowing.

Holding period tax.

Tax levied on income accrued by the securities seller and interest accrued by the cash provider during the period a repo is outstanding.

Horizontal equity in taxation.

Taxing of people in the same tax bracket at the same rate.


See International Accounting Standards Committee.


See interdealer broker.


See International Municipal Lawyers Association.

Immobilization of securities.

Storage of securities in a depository, with trade effected through a book-entry system.

Imputation system.

System to reduce double taxation by giving the shareholder full or partial credit against liability on overall income for taxes paid by the corporation.

Index-linked debt obligations.

Debt instruments on which the yield is linked to another rate, such as the inflation rate or the exchange rate.

Individual Retirement Account (IRA).

In the United States, a government-allowed retirement account to which a specified amount of personal earnings may be contributed annually, with earnings allowed to accumulate tax free until withdrawal.

Individual Savings Account (ISA).

In the United Kingdom, a government-allowed saving account on which taxes are deferred.

Inflation-indexed bond.

Bond on which the nominal return is adjusted with the inflation rate.

Insider trading.

Trading on the basis of information not available to the public.

Insured bond.

Bond backed by commercial insurance policy.

Integrated tax system.

See comprehensive tax system.

Interbank market.

Market for short-term borrowing and lending between banks.

Interbank money market.

Credit extended by one bank to another, usually on a short-term basis and often unsecured.

Interbank transactions.

Short-term borrowing by one bank from another.

Interdealer broker.

Broker that facilitates trading between dealers by providing information and matching orders.

Interest rate controls.

Regulations that impose ceilings on interest rates a bank may charge on its credits or pay on its liabilities.

Interest rate futures.

Futures contract on an interest-bearing security, such as a Treasury bill or Treasury bond.

Interest rate risk.

Risk that interest rates may change and thereby reduce the value of an asset or raise the value of a liability.

Interest rate swap.

Contract between two parties to exchange the cash flows from instruments held by each. Thus, one party holding a fixed-rate instrument might exchange the cash flows from it for the cash flows from a floating-rate instrument held by the other party.

International Accounting Standards Committee (IASC).

Independent, private sector body formed in 1973 with the objective of harmonizing the accounting principles used by businesses and other organizations for financial reporting.

International Accounting Standards.

Accounting standards developed by the International Accounting Standards Committee (IASC) and approved by the International Organization of Securities Commissions (IOSCO).

International central securities depository (ICSD).

See central depository.

International Municipal Lawyers Association (IMLA).

Nonprofit professional organization in the United States that has been an advocate and resource for local government attorneys since 1935.

International Organization of Securities Commissions (IOSCO).

International grouping of securities market regulators that cooperate to ensure better regulation of the securities markets.

International Securities Market Association (ISMA).

Self-regulatory organization that establishes rules and regulations for its member firms to observe when they deal with counterparties.

International Swaps and Derivatives Association.

Self-regulatory global trade association of participants in the privately negotiated derivatives industry that tries to identify and reduce sources of risk.

Intraday overdraft.

Withdrawals from an account greater than the amount of funds in the account that occur before the end of the business day.


See International Organization of Securities Commissions.


See Individual Retirement Account.


See Individual Savings Account.


See International Swaps and Derivatives Association.


See International Securities Market Association.

Issuing calendar.

Dates at which debt will be issued, the maturities, and possibly the terms and amounts of the issues.

IT systems.

See information technology systems.

Large-value payments.

Payments in large amounts, usually transferred between banks or other financial intermediaries.

Layered structure.

Settlement system where there is a central depository and one or more explicit or implicit subdepositories.

Letras hipotecarias.

Spanish for mortgage securities.

Life cycle of a benchmark issue.

Period between the issue date of a bond and the date it becomes off-the-run.

Limit order.

Order contingent on its meeting a specified price target.

Limited-recourse financing.

Financing in which the lender has limited recourse to the borrower’s parent in case the borrower has financial difficulties.

Liquid asset requirement.

Regulation that obliges banks to hold assets deemed as liquid. Such assets often include government securities and deposits at the central bank.

Liquid issue.

Issue that is actively traded.

Liquid market.

Market where buyers and sellers actively trade, so that individual trades are not likely to appreciably move securities prices.

Liquidity premium.

Reduction in interest rates achieved in a liquid securities market.

Liquidity risk.

Risk that a financial asset will not be able to be converted to cash quickly, and without a tangible loss of value.

Lock-in effect.

Owner of a fixed-income asset of which the market value has changed since its purchase may prefer to wait for its maturity rather than sell it, in order to avoid loss or a tax on profit.

Loss-sharing arrangement.

Agreement among participants in a clearing or settlement system regarding the allocation of any losses arising from the default of a participant in the system or of the system itself.

Manufactured payment.

In a repo transaction, amount, equal to the coupon or dividend paid on securities held by the cash provider, paid by the cash provider to the securities provider.

Margin requirement.

Contractual requirement to adjust for changes in market values. In a repo agreement, for example, if the market value of the securities held as collateral falls, the lender of the securities might be required to top-up the amount of collateral.

Marginal collateral.

Additional collateral required by a contract because the market value of the original collateral has declined.

Market maker.

Market maker quotes bid and asked prices for securities and normally is prepared to deal at those prices.

Market manipulation.

Noncompetitive behavior to gain a market advantage. An example would be cornering the market in a security by buying such a large part of an issue that not enough would be available to others, who would then be forced to bid up the price.

Market order.

Order to be filled at the best available price at the time of execution.

Market risk.

Risk that changes in market conditions will adversely affect profits or the ability to manage a financial position.

Mark-to-market accounting methods.

Accounting methods that regularly and frequently revalue securities or other assets in accordance with market prices.

Master Repurchase Agreement.

A master agreement which governs the commitment by the seller (dealer) to buy a security back from the purchaser (customer) at a specified price at a designated future date.


Comparison of trade or settlement details provided by counterparties to ensure that they agree.

Maturity transformation.

Borrowing at one maturity and lending at another, such as borrowing short and lending long.


See mortgage-backed securities.

Medium-term note (MTN).

Noncallable, unsecured senior security of 3-6 years’ maturity with fixed coupon rates and investment-grade credit ratings. MTNs have traditionally been sold on a best-efforts basis by investment banks and other broker-dealers acting as agents. Unlike corporate bonds, which are typically sold in large, discrete offerings, MTNs are usually sold in relatively small amounts either on a continuous or intermittent basis.

Merit system for securities.

System in which the regulatory authorities review the substantive merits of a proposed capital market issue in order to ensure that investors are protected and that the issue is compatible with the national development scheme.

Micro-market structure.

Structure of particular parts of markets, such as the issuing of government debt.

Middle office.

The office of a debt management operation that is responsible for risk management.

Minimum capital requirements.

Requirements to ensure capital adequacy of a financial institution by requiring the maintenance a certain degree of capital.


See multilateral net settlement.

Money market mutual fund.

Mutual fund that invests mainly in short-term, money market instruments.

Money market.

Market for short-term, near-cash-equivalent securities.

Moral hazard.

The risk that the existence of a contract will change the behavior of one or both parties to the contract, e.g., an insured firm will take fewer fire precautions.

Mortgage bonds.

Bonds secured by mortgages as indirect or direct collateral and containing embedded options giving the borrower the right to repay the bond at par before maturity.

Mortgage-backed securities (MBS).

Securities backed by a pool of mortgages.


See Municipal Securities Rulemaking Board.


MTS S.p.A., Società per il Mercato dei Titoli di Stato, and associated companies provide management and support for initiatives in Europe aimed at electronic trading for fixed-income securities.

Multilateral net basis.

Sum of the value of all transfers a participant in the settlement system has received during a certain period of time less the value of transfers made by the participant to all other participants.

Multilateral net settlement (MNS).

Settlement in which each participant settles the position that results from the sum of transfers made and received by it.

Multilateral trading.

Trading between market participants, where there is sufficient price discovery for transactions between participants to be possible.

Multiple pledging of securities.

Market malpractice of a market participant’s employing certain securities held by him in more than one transaction at the same time. The market participant might, for example, pledge the same securities in two separate repurchase agreements.

Multiple-price auctions.

Auctions in which each bidder pays the price it bid. Bids are placed in descending order, and the higher bids are accepted until the issue is exhausted.

Municipal bond.

Bond issued by a subnational borrower, which in U.S. usage could be a state, county, or municipality.

Municipal Securities Rulemaking Board (MSRB).

In the United States, board of 15 members, equally divided among public representatives, broker-dealer representatives, and bank representatives, which regulates municipal securities’ dealers.


Fax-on-demand service provided to members of the International Municipal Lawyers Association (IMLA) that covers ordinances, cases, regulations, articles and papers related to local government financing.

Mutual fund.

Fund that manages a portfolio usually composed of a specific class of assets, such as money market securities, bonds, or equities.

Negative-binding theory.

Governments can only do what the law explicitly allows them to do.

Net credit to banks and other financial institutions.

Central bank claims on banks and other financial institutions less the central bank’s liabilities to these institutions.

Net domestic credit to government.

Sum of all credits extended by domestic entities to the government, in national and foreign currencies, less government deposits with the banking system.

Net present value.

The present value of the expected future cash flows minus the cost.


Arrangement among two or more parties to net their obligations.

Nominal interest.

Interest received or accrued without reference to inflation.

Nonbank financial institutions.

Financial institutions other than commercial banks. These would include such institutions as savings banks, investment banks, insurance companies, mutual funds, and pension funds.

Noncompetitive auction bid.

Auction tender, usually by retail investors or the central bank, that is not part of the competitive bidding process. Awards to noncompetitive bidders are usually at the average auction price of successful competitive bids or at the cut-off price.

Non-negotiable securities.

Securities that cannot be traded.

Obligations assimilables du Trésor.

OATs, or fungible Treasury bonds.

Off-off-the-run issue.

Issue that is well seasoned.

Off-the-run issue.

Issue that has been in the market, seasoned, or replaced by a new bond of similar original term-to-maturity.

On-the-run issue.

Most recently issued bond for a certain term-to-maturity.

Open market operations.

Central bank transactions with market intermediaries to affect general market conditions to meet monetary policy objectives. Such transactions may be outright sales or purchases of securities or repurchase agreements.

Open-end mutual fund.

Mutual fund that may issue an unlimited number of shares to investors and that agrees to redeem its shares on investor request.

Open-outcry trading.

Trading by oral cries or hand signals by traders meeting together, as in a trading pit.

Operational risk.

Risk that breakdowns in internal controls, corporate governance, or computer systems and events such as major fires or other disasters could cause losses in securities transactions.

Opportunistic issuers.

Irregular issuers of securities who await favorable market conditions or special needs to borrow.

Option-adjusted spread.

The spread over an issuer’s spot rate curve, developed as a measure of the yield spread that can be used to convert differences between theoretical value and market prices.


Contracts that give the holder the right, but not the obligation, to undertake a specified transaction during a specified time.

Order taking.

Response of a financial intermediary to a customer order. This is distinguished from market making, where the intermediary assumes a more active stance by quoting bid and asked prices to which a customer may respond.

Order-driven market.

Market dominated by the placing of orders by customers.


see Over-the-counter market.

Over-the-counter market.

Market for the trading of assets outside a formal exchange.

Paperless securities.

Securities that are issued in the form of securities accounts, rather than as definitive pieces of paper.

Paris Club.

International group of official creditors which lend to governments. The Paris Club may grant debt reorganization or other relief, usually associated with conditions for reform.

Pass through.

No tax is levied at the source on dividends, interest, and capital gains passed on by a collective investment fund to its shareholders and taxed at shareholders’ tax rates.

Penalty rate.

A rate higher than that set for usual borrowing.

Perpetual bond.

Bond that is not redeemable, has no maturity date, and pays interest indefinitely.


Mortgage in German, but can also be debt obligations issued by state or local governments.

Position limit.

Limit on the number of contracts or share of a contract’s open interest that a single entity may hold.

Positive carry.

Financing a long-term security with a high interest rate by borrowing at a lower, short-term interest rate.

Price discovery.

Process by which current market prices for securities become known.

Price risk.

Risk that the market value of a security may decline below that of its purchase price.

Price taker.

Seller who accepts the price offered for the amount of securities he is selling.

Primary dealers.

A group of dealers in government securities designated by the authorities to play a role as specialist intermediaries between the authorities and the market, in government securities markets. Primary dealers usually have special rights to deal with the central bank in the open market operations and/or privileges in bidding at primary auctions of government securities. In exchange, primary dealers are usually obliged to participate in the primary market (which see) and perform market-making functions in the secondary market (which see), in addition to maintaining minimum capital and staff proficiency standards.

Primary market.

Asset market where securities—government, subnational, and private sector—are first issued and sold, typically through some form of tender or auction process.

Principle of equality.

Requirement for the government to give equal treatment to every potential bondholder, or at a minimum, every potential national bondholder.

Principle of generality.

Requirement for a common set of rules to ensure equal access and fair competition in government contract tendering processes, including government securities issuance.

Principle of publicity.

Requirement for the government to properly announce when and how it will open the tender process for securities.

Private placement.

Direct sale of securities by the issuer to particular purchasers.


Sell government-owned entity to private interests.

Progressive tax.

Tax of which the rate rises with the amount of income.

Prudential regulations.

Regulations that are designed as precautions against loss in financial activities.

Public debt management.

The process of establishing a strategy for managing the government’s debt in order to raise the required amount of funding, achieve its risk and cost objectives, and meet any other sovereign debt management goals the government may have set, such as developing and maintaining an efficient market for government securities.

Public debt.

Stock of outstanding government debt obligations resulting from cumulative issuance of government securities.

Put option.

Contract allowing the holder to sell an asset at a preset price during the period the option remains valid.

Quote-driven market.

Market dominated by the reaction of customers to bid/ask quotations by dealers.

Real interest rate.

The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms of constant-purchasing-power currency.

Real-time gross settlement (RTGS).

Continuous settlement of funds or securities transfers individually on an order-by-order basis (without netting).

Recourse loans.

Type of loan in which the lender has a general claim against the parent if the collateral is insufficient to repay the loan.

Redemption profile.

The schedule of government securities likely to be redeemed because of maturity or other reasons.

Refunded bond.

Bond originally issued as a general obligation or revenue bond, but subsequently collateralized, either by direct obligation guaranteed by the central government or by another type of security.

Registered securities.

Securities registered in the name of the owner.

Reinvestment risk.

Risk that returns from a fixed-income investment cannot be invested at the same rate as the original investment.

Reopening operation.

Issuance on more than one occasion of bonds with the same maturity and coupon of previously issued bonds in order to build the outstanding volume of the bonds to a desired level.


See repurchase agreement.

Repurchase agreement.

Transaction recorded as the combination of an immediate securities sale with simultaneous agreement to reverse the transaction in the future. This combination is normally treated in practice as a lending of cash against securities collateral.

Reserve maintenance period.

Period set by the central bank over which reserve requirements must be met.

Reserve money.

Deposits held by banks at the central bank and cash in circulation.

Reserve requirement.

The percentage of different types of deposits that banks are required to hold on deposit at the central bank.

Residence principle.

In the taxation of international capital flows, principle that taxation rights belong to the capital holder’s country of residence.

Retail investors.

Smaller, usually individual, investors in securities.

Retail market.

Market dominated by investors, often individuals, making small-size transactions.

Revenue bond.

Bond issued for a specific project or enterprise and secured by revenues generated by that activity.

Reverse auction.

Auction for the purchase, rather than for the sale, of bonds.

Reverse dual-currency bond.

Bond that pays principal in the base currency, which is usually that of the investor, and interest in another.

Reverse tap purchase.

Purchase by an authority of bonds from primary dealers or brokers in the secondary market by directly contacting them.

Risk management system.

System to manage the various risks entailed in doing business.

Risk premium.

Extra return demanded by investors because of risks associated with an issue.

Rollover risk.

Risk that the issuer will have difficulty renewing an issue upon maturity.


See real-time gross settlement.

Safety net.

Possibility of official credit extensions to allay financial crises.

Same-day settlement.

Settlement of a securities transaction on the same day that it is initiated.

Schedular tax system.

Income tax regime in which each of various categories of income of the same taxpayer is assessed under different schedules (e.g., schedule A: income from land, schedule B: income from employment, schedule C: income from securities, etc.) and taxed separately. This compartmentalized income tax system is in contrast to a global income tax system under which all incomes, from whatever source derived, that belong to the same taxpayer are treated as a single set of income and taxed at a single rate.


See Securities and Exchange Commission.

Secondary market.

Asset market where securities—government, subnational, and private sector—are traded after they have been issued or sold on primary markets.

Securities accounts.

Accounts denominating the holding of securities, usually in automated book-entry form. See paperless securities.

Securities and Exchange Commission (SEC).

In the United States, government agency that protects investors and maintains the integrity of the securities markets, primarily by requiring disclosure of financial information.

Securities lending.

Temporary provision of securities by a securities creditor to a securities borrower.

Securities transaction tax.

Tax on securities trading.


The process of creating a pass-through, such as the mortgage pass-through security, by which the pooled assets become standard securities backed by those assets. Also, refers to the replacement of non-marketable loans and/or cash flows provided by financial intermediaries with negotiable securities issued in the public capital markets.

Self-regulatory associations (SRAs).

Groups of financial service entities, such as accountants and auditors, for self-policing.

Self-regulatory organization (SRO).

Autonomous nonpublic body that regulates or oversees and monitors the behavior of affiliated participants in financial markets. Self-regulatory organizations may have formal powers delegated to them by public financial agencies, and often have some form of relationship with these agencies.

Senior debt securities.

Debt securities that, in case of bankruptcy or other financial difficulty, would be given priority in payment of principal and interest.

Settlement cash.

Cash balances held at the central bank that are available to meet settlement claims. See excess reserves.

Settlement risk.

Risk that one party to a transaction performs, but the other party does not.

Shelf registration.

Once an issue has been registered and approved, it may be sold on a delayed or continuous basis over a period of time.

Short selling.

Sale of securities not in the seller’s possession.

Short the currency.

Sale of currency that is not held, in the expectation that it can be purchased at a lower price.

Single register.

One set of accounts for all holdings of securities.

Sinking fund.

Fund established for the purpose of paying interest and principal on a debt as these come due.


See state-owned enterprise.

Source principle.

In the taxation of international capital flows, principle that taxation rights belong to the country in which the capital resides.

Sovereign bond.

Bond governed by other than the national law of the issuer.

Special-purpose bond.

Bond issued to finance specific projects.

Split-rate tax system.

Tax system applying a lower tax rate for distributed earnings of a corporation than for retained earnings.

Spot transaction.

Immediate purchase or sale of securities or other assets for cash.

Spread trading.

Simultaneous purchase and sale of two related instruments, perhaps for different maturities.


See self-regulatory associations.


See self-regulatory organization.

Stamp duty or tax.

Transactions tax on securities transaction paid by affixing a stamp to transaction documents.

Standby lending facilities.

Central bank lending facilities available in case of necessity. A discount window could be one form.

Standing instructions.

Agreed procedures for the handling of transactions that may occur in the future.

State-owned enterprise (SOE).

Firm owned and controlled by the government.

Sterilized accounts.

Accounts that cannot be drawn upon.


See straight-through processing.

Straight bond.

Bond with no special features.

Straight-through processing.

Capture of trade details directly from front-end trading systems and complete automated processing of confirmations and settlement instructions without the need for rekeying or reformatting data.


Separation of the interest payments from the principal of securities into two separately tradable instruments.

Stripped bond.

Bond that can be subdivided into a series of zero-coupon bonds.

Structured bond.

Bond tailored to the needs of the purchaser.


Depositories for a group of financial institutions that do not qualify to be served directly by a central depository, which are in turn members of a central depository.


Governments, such as states and municipalities, below the national government level.

Subnational government agencies.

Government entities below the national level. These might include state and municipal governments and government corporations.

Subordinated debt securities.

Debt securities that, in case of bankruptcy or other financial difficulty, would be less favored in payment of principal and interest than more senior securities.

Sunset clause.

Clause in legislation for expiry of a program after a certain period. If deadline expires, legislation becomes automatically inoperative.

Swaps of securities.

Trading of one security for another.


Sale of securities through a group with which the issuer negotiates the price of the securities.

Systemic risk.

Risk that the failure of one participant may lead to more general financial problems that could affect the stability of the financial system.

Tap sales of bonds.

Sale of securities by the issuer over a specified period, the issuer fixing the price or setting a minimum price.

Tax avoidance.

Escape from taxes by legal means.

Tax fragmentation.

Multiple taxes on the same asset or type of transaction.

Tax loophole.

Gap in tax law that allows taxes to be avoided.

Tax neutrality.

Tax treatment that affects different transaction forms with the same economic consequences in the same way.


Special securities issued by the Mexican government.

Tobin tax.

Professor James Tobin’s proposal to tax international currency transactions. This transaction tax, originally 1 percent uniform tax on all spot conversions of one currency into another, was an effective means to mitigate excessive short-term international capital flows.

Trading and information system.

System designed to disseminate price information and support transactions.

Transaction tax.

Tax levied on transactions of securities.

Transactional liquidity.

Availability of sufficient cash for market participants to trade securities. Refers to ease of trading in a market.

Transfer intercept.

Arrangement under which subnational borrowings are serviced directly by the central government or under which a lender can seek payment from the central government for an overdue obligation of a subnational borrower.

Transfer of securities without payment.

Shift of securities from one party to another without a cash counterpart.

Transfer risk.

Risk that legal or regulatory barriers may prevent or inhibit transactions.


Provision of the objectives of policy decisions and their rationale, data, and information related to monetary and financial policies, and the terms of agencies’ accountability to the public in a comprehensible and timely manner.

Treasury bills.

Securities issued by a Treasury, usually on a discount basis and for maturities of not longer than one year.

Treasury capacity in banks.

Ability of banks to manage short-term cash and investment flows as well as attendant market and operational risks.


Form of syndication in which a selling group purchases securities from the issuer.

Uniform price auction.

Auction in which each winning bidder pays the price of the lowest successful bid, which is the cut-off price.

Unitized pension fund.

Pension fund for which monthly contributions are invested at a net asset value-based price and accumulated contributions are transferred at the same price.

Vertical equity.

A tax fairness principle stating that those with a greater ability to pay should bear a greater tax burden, requiring the tax system to be progressive and instrumental in causing income redistribution.

When-issued security.

Issue that has yet to be auctioned, but trades between the official announcement of a forthcoming auction and the date at which it is actually delivered to the market.

Wholesale investor.

Larger, usually institutional investor in financial instruments.

Wholesale market.

Market dominated by financial intermediaries typically making large investments in financial instruments.

Winner’s curse.

Problem faced by uninformed bidders. For example, in an initial public offering, uninformed participants are likely to receive larger allotments of issues that informed participants know are overpriced.

Withholding tax.

Tax deducted from income as it is earned.

Yield curve.

Relationship between the time to maturity of security issues and their yield to maturity.

Zero-coupon bond.

Bond issued on a discount basis, so that all payment is deferred until maturity.