Chapter

Glossary

Author(s):
Jose Cartas, and Qi He
Published Date:
June 2015
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Acquisition: The purchase of newly issued securities from an issuer or the purchase of existing securities from the previous holder on the secondary market. Acquisitions are considered to have occurred when claims and obligations arise, usually in exchange for currency or transferable deposits. Net acquisitions are gross acquisitions minus disposals.

Aggregation: The summing of gross positions or flows. Data for a group of institutional units are equal to the sum of the gross positions or flows for all units in the group (BPM6, paragraph 3.110).

Allotment certificates: These are issued by a corporation to represent its shares and are traded on the stock exchange. Allotment certificates expire and are converted into shares on a one-to-one basis without any additional payment when the underlying issue is registered.

Asset-backed commercial paper (ABCP): Commercial paper, created through securitization, whose redemption value is dependent on a homogenous pool of assets, either purchased in the secondary market or from the balance sheet of an original asset owner, such as mortgages, residential mortgage-backed securities (RMBS), motor vehicle and equipment loans and leases, etc. (see also asset-backed security and commercial paper).

Asset-backed security (ABS): A bond, created through securitization, whose coupon payments and principal repayments are dependent on a homogeneous pool of assets, either purchased in the secondary market or from the balance sheet of an original asset owner, such as mortgages, credit card loans, motor vehicle loans, etc.

Asset price-linked security: A debt security linked to nonfinancial asset prices and indices, such as the gold price or a commodities price index; to financial asset prices and indices, such as a specific share price or share price index; or to other asset prices, such as property prices.

Bankers’ acceptance: A negotiable order to pay a specified amount of money on a future date, accepted and guaranteed by a bank and drawn on a deposit at a bank.

Bonds and notes: Debt securities with an original maturity of more than one year that are negotiable and usually traded in organized and other financial markets; they usually give the holder the unconditional right to fixed income or contractually determined variable money income.

Certificate of deposit: Usually a negotiable certificate issued by a bank acknowledging a deposit in that bank for a specified period of time at a specified interest rate.

Closed-ended investment fund shares or units: These are limited in number and sometimes have a specified maturity period (typically five to seven years). New shares or units are rarely issued once the fund has been launched, and shares or units are not normally redeemable until the fund is liquidated.

Collateralized debt obligation (CDO): A bond, created through securitization, whose coupon payments and principal repayments are dependent on a diversified pool of loan and bond instruments, either purchased in the secondary market or from the balance sheet of an original asset owner; similar instruments include collateralized mortgage obligations (CMO), collateralized loan obligations (CLO), and collateralized bond obligations (CBO) (External Debt Statistics Guide, Appendix I).

Commercial paper: A discounted and unsecured debt security issued by a corporation whose name appears on the front of the security and who promises to pay to the security holder a certain amount on a stated maturity date (see also promissory note and asset-backed commercial paper) (External Debt Statistics Guide, Appendix I).

Consolidation: The elimination of positions or flows between institutional units that are grouped together for statistical purposes (2008 SNA, paragraph 2.68). Institutional units can be consolidated at subsector, sector, or national level, or at the level of corporate groups.

Convertible bond: A fixed interest rate bond that the investor has the option of converting into the equity of the borrower or its parent (External Debt Statistics Guide, Appendix I).

Coordinated Portfolio Investment Survey (CPIS): Conducted on an semi-annual basis under the auspices of the IMF’s Statistics Department (STA). Participation in the CPIS is voluntary and 74 economies participated as of end-2013. Annual data are available from 2001. The CPIS provides information on individual economies’ holdings of portfolio investment securities (equity securities and debt securities) at market value, broken down by the country of residence of the issuer of the securities. Participants use the definitions and classification criteria set out in the Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6) and the second edition (2002) of the Coordinated Portfolio Investment Survey Guide.

Coupon payments: Payments covering part or all of the interest accrual during a period and payments that reduce the initial principal (BPM6, paragraph 11.49).

Covered bond: A debt security, created through securitization and issued by the original asset owner, which is backed by assets remaining on the balance sheet of the original asset owner, but identified as belonging to a cover pool.

Cover pool: A package of assets, such as mortgages and credit card loans, which is used to back debt securities issuance.

Credit default swap (CDS): A financial derivative whose primary purpose is to trade credit default risk (2008 SNA, paragraph 11.123).

Credit-linked note (CLN): A debt security, created through securitization, with an embedded credit derivative used to hedge the credit risk of reference assets on the balance sheet of the original asset owner (External Debt Statistics Guide, Appendix I).

Debenture: An unsecured or uncollateralized debt security that is backed only by the creditworthiness of the issuer.

Debtor and creditor approach to recording accrued interest: Under the debtor approach, when debt securities are issued at a fixed rate, the rate of interest payable, and accruing, is fixed at the time the debt security is issued. Under the creditor approach, the prevailing market rate during the period is used to determine the interest paid on a debt security.

Debtor/creditor principle: See issuer/holder principle.

Debt security: A negotiable financial instrument serving as evidence of a debt (2008 SNA, paragraph 11.64).

Debt securities holdings: Ownership of debt securities (financial assets) by an institutional unit.

Deep-discount bond: A bond that has small or no coupon payments and is issued at a considerable discount to its face value (External Debt Statistics Guide, Appendix I).

Delisting: The removal of a listed equity security from the exchange on which it is traded. Delisting occurs when the corporation issuing the security no longer complies with the exchange’s listing requirements.

Depository receipt: A financial instrument that allows a nonresident to introduce securities into a market in a form more readily acceptable to the investors in that market. A deposit-taking corporation will purchase the underlying security and then issue receipts in a currency more acceptable to the investor (External Debt Statistics Guide, Appendix I).

Development capital certificate (CCD) (also “certificados de capital de desarrollo”): Issued by trusts to channel investment resources to specific sectors and activities. This is similar to financial instruments issued by special-purpose acquisition companies (SPAC) in the United States, income trusts in Canada, and infrastructure funds in Australia.

Dirty and clean price: The market price of a debt security is its dirty price, which includes accrued interest. In order to separate out the effect of the coupon payments, the accrued interest between coupon dates is subtracted from the dirty price to arrive at the clean price.

Disposal: The sale of securities to the issuer on maturity or on redemption at an earlier date, or the sale of securities to a new holder on the secondary market, usually in exchange for currency or transferable deposits. Disposal is considered to have occurred when an obligation ceases to exist, owing to one of these actions.

Domestic currency: The currency that is legal tender in an economy and is issued by the monetary authority for that economy—this could be the currency of an individual economy or, in a currency union, that of the common currency area to which the economy belongs (BPM6, paragraph 3.95).

Domestic-currency-denominated securities: Securities issued and settled in domestic currency.

Domestic market: Debt securities issued by a resident of the same economy in which the security is issued (“residence of issuer” residence of issuer approach) or debt securities issued by both a nonresident and a resident of the economy in which the security is issued (“location of issue” approach).

Dual-currency bond: A bond for which the interest or principal payments (or both) differ from the currency in which it was issued.

Duration: The weighted average term to maturity of a debt instrument. The time period until the receipt/ payment of each cash flow, such as six months, is weighted by the present value of that cash flow, as a proportion of the present value of total cash flows over the life of the instrument. Present value can be calculated using the yield-to-maturity or another interest rate. The more the cash flows are concentrated toward the early part of a debt instrument’s life, the shorter the duration relative to the time to maturity (External Debt Statistics Guide, Appendix 3).

Equity: All instruments and records acknowledging claims on the residual value of a corporation or quasi-corporation after the claims of all creditors have been met.

Equity securities: Negotiable financial instruments, comprising listed shares and unlisted shares.

Equity warrant bond: A debt security that incorporates a warrant, which gives the holder the option to purchase equity in the issuer, its parent company, or another company during a predetermined period or on one particular date at a fixed contract price.

Exchangeable bond: Similar to a convertible bond, but the holder has instead the option to exchange the debt security for an equity security in a corporation other than the issuer or its parent.

Face value: The amount of principal to be repaid (2008 SNA, paragraph 3.154 (d)); also known as “par value,” or simply “par.”

Financial corporations sector: Sector consisting of all resident corporations that are engaged principally in the provision of financial services (including insurance and pension funding services) to other institutional units (2008 SNA, paragraph 4.98).

Financial derivatives: Negotiable financial instruments linked to specific financial or nonfinancial assets or indices, which allow financial risks to be traded in financial markets in their own right. They are not classified as securities.

Fixed interest rate debt security: A debt security whose coupon payments are set for the life of the security or for a certain number of years (see also variable interest rate debt security).

Flow: Economic actions and the effects of events within a given accounting period (BPM6, paragraph 3.2).

Foreign currencies: All currencies other than the domestic currency (BPM6, paragraph 3.95).

Foreign-currency-denominated securities: Securities issued and settled in foreign currencies.

Foreign direct investor: An entity or group of related entities that is able to exercise control or a significant degree of influence over another entity that is a resident of a different economy (BPM6, paragraph 6.11).

“From-whom-to-whom” framework: The presentation of debt securities holdings broken down by debtor/creditor. This is identical to the flow-of-funds presentation (2008 SNA, Chapter 27).

General government sector: Sector consisting of legal entities established by political processes that exercise legislative, judicial, or executive authority over other institutional units within a given area (2008 SNA, paragraph 4.117).

Global aggregates: Debt and equity securities aggregates for the world as a whole and for different areas and countries.

Group of corporations: A parent corporation that controls several subsidiaries (some of which may control subsidiaries of their own, and so on).

Household sector: Sector consisting of groups of persons who share the same accommodation, pool some or all of their income and wealth, and consume certain types of goods and services (mainly housing and food) collectively. This also covers unincorporated enterprises (2008 SNA, paragraph 4.149).

Inflation-linked security: A debt security whose principal amount or coupon (or both) is indexed to inflation, for example to a consumer price index; as the principal amount increases with inflation, the interest rate that is applied to this increased amount raises coupon payments over time.

Institutional investors: Major holders of debt and equity securities. Institutional investors include investment funds (both money market funds (MMFs) and non-MMFs), insurance corporations, and pension funds (Organisation for Economic Co-operation and Development (OECD), Institutional investors’ assets database).

Interest payments: Periodic payments of the interest costs that the borrower incurs and that primarily take the form of coupons.

Interest-rate-linked security: A debt security linked to a specific interest rate or interest rate index.

International markets: All markets other than the domestic market (applicable only to the “location of issuer” approach).

Investment funds: Collective investment schemes that raise funds by issuing shares or units to the public. The proceeds are invested in financial and nonfinancial assets (usually real estate).

Investment fund shares or units: These represent a claim on part of the value of an established investment fund.

Issuer/holder (debtor/creditor) principle: This captures a transaction between two institutional units in the accounts of the two transactors and allows the change in holder (creditor) to be recorded in the financial account of the issuer (debtor). Alternatively, in the case, for example, of the assumption of equity or debt, it allows the change in issuer (debtor) to be recorded in the financial account of the holder (creditor).

Listing: The entry of a corporation in the share register of a given marketplace or stock exchange, allowing its shares to be traded.

Location of issue: The presentation of statistics based on a geographic breakdown of debt securities markets.

Long-term maturity: Maturity of more than one year, or no stated maturity (BPM6, paragraph 5.103 (b)).

Market value: The price at which debt securities are acquired or disposed of in transactions between willing parties, excluding commissions, fees, and taxes (2008 SNA, paragraph 3.122), but including accrued interest.

Money market funds (MMFs): Investment funds that invest only or primarily in short-term money market securities, such as treasury bills, certificates of deposit, and commercial paper.

Money market fund shares or units: These represent a claim on part of the value of an established money market fund.

Negotiable: This refers to the fact that legal ownership can be readily transferred from one party to another by means of delivery or endorsement (BPM6, paragraph 5.15).

Nominal value: The nominal value of a debt instrument is the amount that at any moment in time the debtor owes to the creditor; this value is typically established by reference to the terms of a contract between the debtor and creditor. The nominal value of a debt instrument reflects the value of the debt at creation, and any subsequent economic flows, such as transactions (e.g., repayment of principal), valuation changes (independent of changes in its market price), and other changes. Conceptually, the nominal value of a debt instrument can be calculated by discounting future interest and principal payments at the existing contractual interest rate(s) on the instrument; the latter may be a fixed or a variable rate. (External Debt Statistics Guide: Guide for Compilers and Users 2013, Appendix 3).

Nominee account: A legal device for holding assets, which may be used for reasons of confidentiality or convenience. The assets held in nominee accounts should be attributed to the beneficial owner, not the nominee.

Nonfinancial corporations sector: Sector consisting of corporations whose principal activity is the production of market goods or nonfinancial services (2008 SNA, paragraph 4.94).

Non-participating preferred share: A type of preferred share in which the payment of a “dividend” (usually at a fixed interest rate) is calculated according to a predetermined formula and not determined by the earnings of the issuer.

Nonprofit institutions serving households (NPISHs): Legal entities engaged principally in the provision of nonmarket services for households or the community in general, whose main resources are voluntary contributions (2008 SNA, paragraph 2.17 (e)).

Note issuance facility (NIF): A note issued under a NIF is a short-term debt security issued under a legally binding medium-term facility—a form of revolving credit.

Open-ended investment fund shares or units: These are issued and redeemed on a continuous basis, or at certain predefined (short-term) intervals. The most popular types of open-ended investment fund are exchange-traded funds (ETF) and money market funds. An open-ended investment fund is divided equally into shares or units, which vary in price in direct proportion to variations in the fund’s net asset value (NAV).

Original maturity: The period from the date of issue of a debt security until the final contractually scheduled payment (BPM6, paragraph 5.104 (a)).

Original owner: An institutional unit that is an originator or purchases assets from an originator in the secondary market.

Originator: An institutional unit that originates assets as part of its regular business activities.

Other change in the volume of assets: A change in the quantity or physical characteristics of debt or equity securities, or a change in classification.

Other financial corporations: Financial corporations other than the central bank, other money-issuing corporations and securitization corporations.

Other money-issuing corporations: Deposit-taking corporations and money market funds that issue liabilities included in the national definition of broad money.

Ownership structure: The type and composition of shareholders in a corporation. This can be identified using observable measures of ownership concentration or the extent of direct/indirect ownership.

Portfolio investment: Cross-border transactions and positions involving debt or equity securities, other than those included in direct investment or reserve assets (BPM6, paragraph 6.54).

Position: The level of assets or liabilities at a particular point in time (BPM6, paragraph 3.2).

Principal (original): The amount borrowed and to be repaid excluding interest due or accrued (MFSCG, paragraph 2.46).

Principal (outstanding): The provision of economic value by the creditor, or the creation of debt liabilities through other means, establishes a principal liability for the debtor, which, until extinguished, may change in value over time. For debt instruments alone, for the use of the principal, interest can, and usually does, accrue on the principal amount, increasing its value (External Debt Statistics: Guide for Compilers and Users 2013, Appendix 3).

Private placement: A debt security that is issued by an issuer directly to a small number of investors and which is typically not rated by credit rating agencies.

Promissory note: An unconditional promise to pay a certain sum on demand on a specified date (see also commercial paper).

Protection buyer: An institutional unit in synthetic securitization that makes payments to a protection seller in exchange for credit risk protection for reference assets.

Protection seller: An institutional unit in synthetic securitization that sells protection against the credit risk on a premium buyer’s reference assets.

Public sector: Sector comprising general government and public financial and nonfinancial corporations, including the central bank.

Redemption value (redemption price): The amount to be paid by the issuer to the holder at maturity (External Debt Statistics: Guide for Compilers and Users 2013, Appendix 3).

Remaining maturity: The period from the reference date of a debt security until the final contractually scheduled payment; also referred to as residual maturity (BPM6, paragraph 5.104 (b)).

Repurchase agreement: An arrangement involving the provision of securities in exchange for cash with a commitment to repurchase the same or similar securities at a fixed price, either on a specified future date or with an “open” maturity (BPM6, paragraph 5.52).

Residence: The place of residence of an institutional unit is the economic territory with which it has the strongest connection—that is, its “center of predominant economic interest” (2008 SNA, paragraph 4.10).

“Residence of holder” approach: The presentation of statistics based on a breakdown of holders of equity securities by place of residence.

“Residence of issuer” approach: The presentation of statistics based on a breakdown of issuers of equity securities by place of residence.

Revaluation: This reflects changes in the prices of equity securities holdings. It also includes changes in the value of foreign-currency-denominated equity securities holdings, which are due to changes in exchange rates.

Reverse transactions: Arrangements that involve a sale (and a change of legal ownership) of securities with a commitment to repurchase the same or similar securities, either on a specified date or with open maturity, at a pre-agreed price.

Securities lending: Involves the temporary transfer of securities by the lender (the seller of the securities or cash receiver) to the borrower, and may require the securities borrower to provide assets as collateral in the form of cash or securities. Legal title passes on both sides of the transaction so that the borrowed securities and collateral can be sold or on-lent. No transaction in the securities exchanged is recorded.

Securitization: The creation and issuance of debt securities for which coupon or principal payments (or both) are backed by specified financial assets or income streams.

Securitization corporation: A financial corporation that specializes in issuing securitization debt securities (BPM6, paragraph 4.77 (a)).

Securitization debt securities: Debt securities created through securitization, such as covered bonds, asset-backed securities (ABS), credit-linked notes (CLN), or collateralized debt obligations (CDO).

Security: A negotiable financial instrument (BPM6, paragraph 5.15).

Security-by-security (SBS) database: A micro-level database that stores statistics at the level of individual debt securities.

Separate trading of registered interest and principal of securities (STRIPS): Securities that have been transformed from a principal amount with periodic interest coupons into a series of zero-coupon bonds, whose range of maturities matches the coupon payment dates and the redemption date of the principal amount.

Shares: Negotiable financial instruments representing claims on the residual value of a corporation after the claims of all creditors have been met. These comprise listed and unlisted shares.

Short selling: The practice of selling assets, usually securities, that have been borrowed from a third party, with the intention of buying identical assets back at a later date to return to the lender.

Short-term maturity: A maturity of one year or less or a security payable on demand (BPM6, paragraph 5.103 (a)).

Sinking fund provision: A stipulation in the terms of issue of a bond that the borrower retire (set aside) a certain proportion of the debt annually.

Transactor principle: This captures a change in the ownership of a financial asset in the accounts of the two creditors involved (i.e., the transactors), but not in the account of the debtor. Alternatively, in cases where one institutional unit assumes the liability of another, it captures the change of debtor in the accounts of those two units, but not in that of the creditor.

Treasury bill: A common form of sovereign short-term debt security that many governments issue. It gives the holder the unconditional right to receive stated fixed sums on a specified date, and is issued at a discount to face value that depends on the rate of interest and the time to maturity (BPM6, paragraph 5.44).

Variable interest rate debt security: A debt security with a coupon linked with a fixed spread to a reference index, such as an interbank interest rate, the price of a specific commodity, or the price of a specific financial instrument, which usually changes continuously in response to market conditions (BPM6, paragraph 5.110).

Variable rate note (VRN): A debt security that is similar to a variable interest rate debt security, but the spread of which in relation to the reference index varies over time depending on changes in the perceived credit risk of the issuer.

Warrants: Negotiable financial instruments giving the holder the right to buy, subject to specific conditions and for a specified period of time, a certain number of shares or bonds from the issuer of the warrant (usually a corporation). They are classified as financial derivatives.

Zero-coupon bond: A single-payment debt security that has no coupon payments during its life; it is issued at a discount to its face value and the full return is paid at maturity.

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