Any investor or an issuer looking to discover more about the financial markets and how they work faces a jungle of arcane terminology and acronyms.

So let our jargon busters help you find your path…

Issuer

An issuer is a legal entity that develops, registers, and sells securities to finance its operations.

Issuers may be corporations, investment trusts, or domestic or foreign governments.

Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions.

Alternative Trading System (ATS)

As the name implies, an alternative trading system (ATS) operates and is regulated slightly differently to an exchange.

Such platforms are often used to match large buy and sell orders among its subscribers.

The most widely used type of ATS in the United States is electronic communication networks (ECNs) – computerized systems that automatically match buy and sell orders for securities in the market.

Unlike some national exchanges, an ATS does not set rules governing the conduct of subscribers or discipline subscribers, other than by excluding them from trading. They are important in providing alternative access to liquidity.

Secondary Market

In the primary market, companies sell new stocks and bonds to the public for the first time, such as with an initial public offering (IPO).

The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market”, though stocks are also sold on the primary market when they are first issued.

National exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, are secondary markets.

In secondary markets, investors exchange with each other rather than with the issuing entity.

Through massive series of independent yet interconnected trades, the secondary market drives the price of securities toward their actual value.

Market Inefficiencies

According to economic theory, an inefficient market is one in which:

• an asset’s prices do not accurately reflect its true value
• fails to incorporate all available information into a true reflection of an asset’s fair price.

Traditional and Digital Securities

Digital securities, also known as security tokens are digital representations of ownership interests in an underlying asset or company.

For traditional securities issuance, the biggest obstacle is the time, money, and energy put into a mostly manual and paper-based system. It is a slow and cumbersome process.

Primary Offerings v. Secondary Offerings

The main difference between a primary investment offering and a secondary investment offering is how the shares (stocks) are acquired.

In a primary investment offering, investors are purchasing shares (stocks) directly from the issuer. However, in a secondary investment offering, investors are purchasing shares (stocks) from sources other than the issuer such employees, former employees, or other investors.

Secondary Trading of Private Placements

A private placement is a sale of stocks, shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a company seeking to raise capital for expansion.

Investors invited to participate in private placement programs include wealthy individual investors, banks and other financial institutions, mutual funds, insurance companies, and pension funds.

One advantage of a private placement is its relatively few regulatory requirements.

Scalable Investment

Scalability is a characteristic of an organization, system, model, or function that describes its ability to cope and perform well under an increased or expanding workload or scope.

A system that scales well will be able to maintain or even increase its level of performance or efficiency even as it is tested by growing operational demands.

In financial markets, scalability refers to financial institutions’ ability to handle increased market demands; in the corporate environment, a scalable company is one that can maintain or improve profit margins while sales volume increases.

Investment structures terms

Mutual Fund

A mutual fund is a pooled portfolio. The fund itself holds the individual stocks, like equity funds, or bonds. Mutual funds may offer access to groups of stocks or bonds, but care must be taken as many have high fees that can chip away at your returns.

Index Fund

An index fund is a mutual fund, that allows an individual to “invest” in an index, such as the S&P 500. Index funds work similarly to mutual funds, but typically have lower fees than mutual funds.  

Hedge Fund

A hedge fund is a type of investment partnership where partners pool money from investors and engage in a wide range of investing activities, managing where investors’ money goes. It can carry a slightly higher level of risk for investors.

ETFs (Exchange-Traded Funds)

ETFs are similar to mutual funds, except that they trade throughout the day on stock exchanges as if they were individual stocks. These ETFs can hold various assets like stocks, commodities, or bonds.

REITs (Real Estate Investment Trust)

Instead of dealing with the actual buying and renting of properties, you can invest through real estate investment trusts or REITs. They trade as if they were stocks and have special tax treatment.

There are all different types of REITs specializing in all types of real estate. REITs often trade on major exchanges like other stocks, so they move with the market.

Real Estate Crowdfunding

A relatively new way to invest in real estate. This gives individual investors the opportunity to invest in certain real estate markets previously off-limits, such as commercial real estate. These do not necessarily follow the stock market and are more illiquid, meaning you don’t always have immediate access to cash invested.

Types of investments

Bond

A bond is a fixed income device through which an investor loans money to a borrower – typically governments, civic entities or states, and companies – for a defined period of time at a variable or fixed interest rate and often to finance specific projects or programs.

Stocks

A stock (also known as shares or equity) is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred.

Penny Stocks

Penny stocks used to be those that traded for less than a dollar per share, but now refers to stocks that trade below $5 per share. There are risks associated with penny stocks, as they are typically volatile and may deter many investors.

Real Estate

Real estate refers to all types of property, such as land, houses, buildings, or garages that the owner can use or allow others to use in exchange for payment in rent. These properties can also be bought, sold, and traded for profit.

IMPORTANT NOTICE

Investors should recognize and accept the risks associated with investing.

Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.

You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.

Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.

The Knowledge Hub does not constitute financial advice whatsoever, but rather provides basic general industry information.