JSE Glossary

Name	Description
compounding	The ability to generate earnings from previous earnings which have been reinvested; generally refers to interest computed on both the principal and the accrued interest.
consideration	The price paid for a debt instrument, calculated by applying the yield-to-redemption figure to obtain the present value of future cash inflows.
convexity	Measures the rate of change in Bond duration (see Modified Duration) with respect to changes in interest rates. Positive convexity occurs when durations shorten as interest rates rise or lengthen as interest rates decrease. Negative convexity occurs when durations lengthen as interest rates rise or shorten as interest rates decrease. Mortgages typically have negative convexity because, as interest rates rise, the incentive to prepay is reduced, thus extending the duration of the mortgage.
corporate governance	The relationship between all stakeholders in a company. This includes the shareholders, directors and management of a company as defined by the corporate charter, bylaws, formal policy and rule of law. Ethical companies are said to have excellent corporate governance.
corporation	The most common form of business organisation, and one which is chartered by a state and given many legal rights as an entity separate from its owners.
correction	When a share price falls for a short period, but rises in the long run.
coupon	The annual rate of interest payable by the issuer on the face value of a debt instrument.
credit bureau	An agency which collects and sells information about the creditworthiness of individuals. A credit bureau or credit reporting agency does not make any decisions about whether a specific person should be extended credit or not. However, it does collect information that it considers relevant to a person’s credit habits and history, and uses this information to assign a credit score to indicate how creditworthy a person is. When a prospective creditor approaches a credit reporting agency to inquire about a particular person, they are sold a credit report which contains all the information relevant to the person and the credit score calculated by the agency (some creditors might have an ongoing subscription to credit bureau). The prospective creditor then uses that information to decide whether to extend the desired credit to the applicant or not. A credit bureau can also be called a consumer reporting agency.
cross rate	The exchange rate between two currencies that are not the official currencies of the country that the exchange was quoted in. Cross rates usually do not involve the US dollar. For example, an investor in the United States could get the cross rate of the euro to the Canadian dollar.
crude oil futures and options	Contracts that allow investors the right to buy or sell the underlying commodity at a fixed price on a future date. The underlying instrument is light sweet crude oil futures.
Currency Derivatives Market	Provides investors with exposure to the foreign currency market; offers currency futures and options, as well as exposure to the RAIN (Rand Index).
currency ETFs	Exchange Traded Funds (ETFs) invested in a single currency or basket of currencies. Currency ETFs aim to replicate movements in currency in the foreign exchange market by holding currencies either directly or through currency-denominated short-term debt instruments.
currency ETNs	These Exchange Traded Notes occur when an investor lends money to the issuer (bank). In return the investor will receive a return on the specific currency benchmark.
currency futures and options	Contracts that allow investors the right to trade the underlying exchange rate for a period in the future, or buy and sell an underlying foreign currency at a fixed price on a future date.
currency risk	The risk that the operations of a business or the value of an investment will be affected by changes in exchange rates. For example, if money must be converted into a different currency to make a certain investment, changes in the value of the currency will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments. It is also called exchange rate risk.
designated advisor	Someone who advises a company applying to list on the stock exchange, overseeing compliance and other regulations.
daily move	Refers to the difference between a given share’s high price and low price during one day of trade.
dark pool	This term defines a network that allows traders to buy or sell large or block orders without having significant market impact. The resulting efficient execution does, however, diminish transparency.
day trader	A trader who speculates on securities by buying and selling financial instruments during the course of one trading day.
debenture	A debt instrument that is not secured by collateral or any physical assets (unlike a corporate bond, which is secured by stated assets).
Debt	A financial obligation that one party owes a second party as a result of borrowing.
debt/equity ratio	A measure of a company’s financial leverage. The debt/equity ratio is equal to long-term debt divided by common shareholders’ equity. Typically the data from the prior fiscal year is used in the calculation. Investing in a company with a higher debt/equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt. For example, if a company has long-term debt of R3 000 and shareholders’ equity of R12 000, then the debt/equity ratio would be 3 000 divided by 12 000 = 0.25. It is important to realise that if the ratio is greater than 1, the majority of assets are financed through debt. If it is smaller than 1, assets are primarily financed through equity.
debt instrument	A formal, written undertaking, issued by a borrower, acknowledging a given debt and various aspects of it, notably the level and timing of interest payments and date(s) of redemption. Such an instrument is bought and sold, the beneficiary of the terms of the debt instrument being whoever is registered as its owner when one of its benefits becomes payable.
default	The inability of a trading firm to meet its trading commitments.
Delisting	A listed security’s removal from the stock exchange on which it has been traded.
derivative	A type of security or financial instrument whose value or price is derived from its underlying asset; in effect a contract between parties. The main derivatives on the JSE are futures and options.
discount warrants	These allow investors to gain exposure to an underlying asset at a lower cost than that of vanilla warrants. Investors are able to pay less for these warrants because with discount warrants the potential profit is limited compared to that of the more conventional call and put warrants.
disposable income	The amount of after-tax income that is available for an individual or household to divide between spending and personal savings.
Dividend	When company profits are good, the company pays a dividend to people who hold shares in that company.
dividend ETFs	Any Exchange Traded Fund that seeks to provide high yields by investing in a basket of high-dividend-paying common stocks, preferred stocks or REITs.
dividend futures	Derivative contracts that are used to hedge against any dividend risk accompanying trade in Single Stock Futures (SSFs). They can be traded without offering exposure to an underlying equity.
dividend policy	A policy that determines the dividends to be paid out to shareholders by a company.
dividends tax	A tax levied against shareholders when they receive company dividends.
dividend yield	A way to measure how much cash (dividend) you are getting for each rand invested in a company’s share, i.e. your dividend received as a percentage of the company’s share price.
double	The bid and offer prices provided by an inter-dealer broker on a given instrument at any given moment during trading hours.
dual listed	A company is dual listed when its securities are listed on more than one stock exchange.
Dutch disease	The deindustrialisation of a nation’s economy that occurs when the discovery of a natural resource raises the value of that nation’s currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports. The term originated in the Netherlands after the discovery of North Sea gas.
earnings per share	Total earnings divided by the number of shares outstanding. Companies often use a weighted average of shares outstanding over the reporting term. EPS can be calculated for the previous year (“trailing EPS”), for the current year (“current EPS”), or for the coming year (“forward EPS”). Note that last year’s EPS would be actual, while current year and forward year EPS would be estimates.
Exchange traded Contract For Difference	A Contract For Difference (CFD) can be defined as an agreement (contract) to exchange the difference in value of a particular asset between the time at which a contract is opened and the time at which it is closed. An eCFD is an exchange traded CFD that is listed and traded on the exchange and cleared by JSE Clearing.
equity index futures	Contracts that expose investors to the price movements of a basket of equities without having to trade the individual equities; they give the investor the right to buy or sell an underlying listed financial instrument at a fixed price on a future date.
enterprise value	A measure of what the market believes a company’s ongoing operations are worth. Enterprise value is equal to the company’s market capitalisation minus cash and cash equivalents plus preferred stock plus debt). The number is of importance to individual investors and to potential acquirers considering a takeover attempt.
Exchange Traded Funds	An Exchange Traded Fund is a fund made up of a portfolio of shares that reflect the composition of an index. The fund is listed on a recognised exchange and trades like a normal security. An important feature of an ETF is that investors have a delivery right to the underlying shares comprising the index as mirrored by the portfolio holding. Because ETFs can be redeemed for their underlying shares, the fund will trade close to its net asset value. Otherwise, arbitrage opportunities will exist.
Exchange Traded Notes	These are contractual obligations whereby issuers agree to pay the holders a return linked to an agreed-upon financial instrument, like shares, the interest rate, an index, and so on.
Exchange Traded Products	Securities that are traded on the stock exchange, the value of which is derived from underlying investment instruments like commodities, currencies, share prices or the interest rate.
equity derivatives market	A class of derivatives whose value is at least partly derived from one or more underlying equity securities. Options and futures are by far the most common equity derivatives, but there are many other types of equity derivatives that are actively traded.
equity ETNs	The purpose of Exchange Traded Notes (ETNs) is to create a type of security that combines features of bonds and Exchange Traded Funds (ETF). Similar to ETFs, ETNs are traded on major exchanges.
equity index futures	Contracts that expose investors to the price movements of a basket of equities without having to trade the individual equities; they give the investor the right to buy or sell an underlying listed financial instrument at a fixed price on a future date.
equity options	Contracts that allow investors the right to buy or sell shares at a fixed price on a future date.
exchange control	A type of control that governments put in place to restrict the amount of local or foreign currency being purchased. Sometimes a ban on currencies is also put in place.
exposure	The degree to which a portfolio or other investment is susceptible to risk from certain factors. For example, a share in a company whose main business is importing would be highly exposed to the rand/dollar exchange rate.

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