Glossary

Please click the terms to see the explanation.
Source: Deutsche Börse AG

Call (warrant)
If an investor expects the price of an underlying instrument to rise within a certain time frame, he will purchase a call warrant that grants him the right to acquire a particular quantity of the underlying instrument at an agreed-upon price, either at any time during the exercise period (American-style) or on the expiration date (European-style). The call writer is obligated to deliver the underlying instrument at this price, and in return receives a premium from the buyer. However, most warrants are settled in cash rather than through the physical delivery of the underlying instrument.
Cancelled order
The cancellation of an order takes effect as soon as the exchange has notified the depositary bank of the cancellation. Banks usually charge a fee for cancelled orders.
Cap (investment and leverage products)
As for discount certificates, the cap determines the upper limit on the extent to which the owner can participate in the price gain of the underlying.
Capital increase
Stock corporations typically effect a capital increase through the issue of new shares. A resolution authorizing the capital increase must be approved by the annual general meeting.

As provided for in the German Stock Corporation Act, stock corporations can undertake a capital increase in one of four ways (section 182):

 Ordinary capital increase (capital increase through contributions): the company expands its capital stock by issuing new shares. Existing shareholders are entitled to subscription rights that will enable them to buy new shares before they are offered to the public so that they can maintain a proportionate share of ownership in the company.

 Authorized capital increase: the annual general meeting can authorize the executive board to increase the capital stock by a certain amount within five years through the issue of shares or through contributions in kind. The executive board can decide to undertake the capital increase on any date within this period, enabling it to respond quickly to a sudden need for capital, or take advantage of a favorable situation in the capital markets so as to maximize the volume of funding or earn the highest possible premium on its shares.

 Contingent capital increase: the new shares issued as part of a contingent capital increase can only be used for certain purposes for example, so that holders of convertible and warrant-linked bonds can acquire the shares to which they are entitled. They can also lay the groundwork for a merger, or be issued as employee shares. The amount of the capital increase is usually based on the number of shares to be converted or purchased through subscription rights; however, it may under no circumstances exceed 50 percent of the existing capital stock as of the date when the increase was approved. Existing shareholders are not entitled to subscription rights.

 Capital increase out of retained earnings: open reserves that are created from retained profits are transformed into capital stock; i. e., there is no direct provision of equity capital from outside sources. This type of capital increase is similar in form to capital in exchange for contributions; however, the subscription price of the new shares is equivalent to zero. Existing shareholders receive so-called bonus shares.

The company's capital reserves can be converted into capital stock if, together with the statutory reserves, they account for more than 10 percent of the capital stock (or a higher percentage that is stipulated in the company's charter).
Capital market
Companies and the government can raise funds for long-term investments via the capital market. The capital market includes the stock market, the bond market, and the primary market. Securities trading on organized capital markets is monitored by the government; new issues are approved by official authorities and monitored by participating banks. Thus, organized capital markets are able to guarantee sound investment opportunities.

 
Capital reduction
A capital reduction is undertaken in order to pay back capital to shareholders, or to avoid showing a negative net worth position. It is indicated as a separate item in the profit-and-loss statement, and may take one of three different forms: an ordinary capital reduction, a simple capital reduction, or a capital reduction through calling in shares. An ordinary capital reduction involves reducing the nominal value of the shares or grouping shares when the amount of capital stock no longer meets the minimum requirement. The shares must be handed over to the company, where they are declared null and void. New shares are issued immediately at the official exchange price by an exchange broker. An ordinary capital reduction must be approved by a three-fourths majority at the annual general meeting. A simple capital reduction serves to compensate for a decrease in the value of the company, offset other losses, or allocate contributions to the company's reserves. Before a simple capital reduction can be effected, the revenue reserves must be reversed and the profit carried forward must be appropriated. The portion of the statutory and capital reserves that exceeds the remaining capital stock by more than 10 percent must also be reversed. The funds released through these measures cannot be distributed to the shareholders. A capital reduction through calling in shares takes place when shares are either bought back or called in by the company; in the latter case, it is mandatory for shareholders to hand over their shares. This type of capital reduction must be authorized by the company's charter or by the annual general meeting. Important regulations pertaining to reductions in the capital stock are contained in the German Stock Corporation Act in sections 222-240.
Capital stock
In Germany, the nominal or stated value of a company's capital stock must be at least €50,000. It is divided into par shares or no-par shares. If the company undertakes an ordinary or simple capital write-down, the value of the capital stock can temporarily drop below this minimum level. However, a capital write-down with this consequence will be approved only if the company plans to meet the minimum requirement through a subsequent capital increase.

The capital stock of a company may only be increased or reduced upon approval by the annual general meeting.
Cash dividend
Companies must pay corporate tax on distributed profits. This tax is subtracted from the gross dividend before it is paid out to shareholders. The resulting amount – i.e. the gross dividend minus corporate tax – is called a cash dividend.

For example:

 Gross dividend: €3

 Corporate tax (25%): €0.75

 Cash dividend: €2.25

Synonyms: net dividend
Cash market
In Germany, the settlement period is two trading days. Cash market transactions on FWB® Frankfurter Wertpapierbörse are settled both on the floor and in the Xetra electronic trading system.

Antonym: derivatives market

Synonym: spot market

 
Cash settlement (warrants)
If the underlying instrument cannot be physically delivered to the warrant holder (e.g., in the case of index warrants), the contract is settled in cash. The difference between the strike price stipulated in the contract and the current market value of the underlying instrument is calculated and paid to the warrant holder.
Cash settlement price
Technically speaking, the "cash settlement price" refers to both the variable price and the single cash price; in practice, however, the term is used in a narrower sense as a synonym for single cash price. This price is no longer published for equities.

Antonym: forward price
Cashflow
Cash flow is a balance sheet ratio that indicates a company's financial strength. It is calculated by taking into account the net profit for the year, depreciations, changes to long-term reserves, and taxes on profit and income.
CDAX
"Composite DAX®" ( CDAX ®) started on 17 September 1993 and is calculated as a price and performance index by Deutsche Börse. The base date for the index is 30 December 1987 = 1,000 points.

Historical data have been calculated as far back as 1970.
Central bank
The objectives of a central bank include stabilizing the value of money, eliminating unemployment, and achieving balanced economic growth. On 1 January 1999, the central banks of the individual Euroland countries were superseded by the European Central Bank, which is located in Frankfurt.
Certificate
The holder of a certificate participates, for example, directly in the price development of an index (index certificate) or in that of a specially created basket of shares (basket certificate). Even though certificates are mostly based on equities or equity indices, from a legal standpoint they are considered bonds and do not in any way certify the right of ownership or shareholder privileges. The investor receives a law of contract from the issuer, to whom he temporarily lends his money.

Certificates are freely tradable on each exchange trading day and can have limited or unlimited maturity. They do not entail regular earnings payouts and usually have a variable repayment amount. Their price development is coupled to that of the underlying security. Aside from equities and equity indices, currencies, interest rates and resources are other possible underlyings for certificates.

Certificates are investment products. In contrast to leverage products, investment products enable the investor to participate one-to-one in the performance of the underlying security. Thus, these products are best suited for conservative investment strategies. Discount, basket and index certificates, as well as reverse convertibles belong to this category.

Important provisions that govern the actions of certificate issuers are covered by the German law for capital investment firms, known as KAGG.
Certificate of renewal
A renewal coupon is the last segment of the coupon sheet. When all dividend or interest coupons have been redeemed, the bearer of the security submits the renewal coupon to receive a new coupon sheet. For securities held in safe custody, this procedure is performed automatically by the bank where the investor maintains his or her securities account.
Changes to the composition of an index
Indices reflect the development of a sector or a market. Their composition is therefore adjusted on a regular basis to account for current developments within the given frame of reference. For example, stocks may be incorporated into an index whose market capitalization and trading volume have increased, based on the number of shares in free float, which means that other companies will have to be removed. Exceptional events, such as a suspension of trading, debt composition proceedings, bankruptcy, and new listings also result in changes to the composition of an index.

Changes to the composition of the DAX® index are made only in September; changes to MDAX® and TecDAX® are also made in March. The composition of SDAX® can change on every review date, i.e. in March, June, September and December.

Moreover, a company can be taken out of an index outside the regularly scheduled chaining date if it no longer ranks among the top 45 companies in terms of market capitalization or stock-exchange turnover. Respectively, a company can be included in an index if it becomes one of the 25 largest companies in terms of market capitalization or stock-exchange turnover. A changeover within the index would take place as of the next chaining date.
Chart
Charts track the movements of securities prices over a given period of time, using easy-to-read diagrams to depict trends and developments. Charts are used as the basis for technical analysis and for predicting future price developments. Important types of charts include line, bar, candlestick, anchor, and point & figure charts.
Chart analysis
Chart analysis attempts to predict the future price development of securities on the basis of historical price trends. Typical patterns in the price charts (e.g., double tops, V formations, head-and-shoulders) are used to identify short-term trends. Support and resistance lines, which are of particular importance in chart analysis, are derived using historical price charts. A new trend is signaled by a breakout, in which a price drops below its support level or rises above its resistance level.
Classic All Share
Factsheet Classic All Share
Clearing
Clearing is typically performed by a central institution, the so-called clearinghouse. The clearinghouse determines the bilateral net debt of buyers and sellers involved in exchange transactions, and, at the end of the trading day, provides its members with a summary of their transactions, as well as the resulting net claims and liabilities. In the case of derivatives transactions, the clearinghouse will inform its members of the funds they must put up to meet their margin requirements.

To become a member of a clearinghouse, an institution must have a license, a securities account and a money settlement account with the clearinghouse. Moreover, it must furnish material, organizational and financial collateral as specified in the licensing agreements.

In its capacity as the central settlement institution for stock exchange transactions, the clearinghouse functions as a counterparty to trades, thereby guaranteeing the proper execution of trades as well as the settlement of the net debt. Eurex Clearing AG is the clearinghouse affiliated with Deutsche Börse AG.
Closed-end fund
A closed-end fund, issued by an investment firm, has a predetermined fixed number of shares and a limited investment volume. As soon as the planned volume is reached, the fund is closed and shares are no longer issued.

In some countries, such as the USA, the shares of such funds can be traded on an exchange. In Germany, however, only the investment company can buy back the shares. However, investors do not have a right to sell their shares, i.e. the investment company is not obliged to buy them back. If investors want to sell before the shares mature, they often must pay a high premium.

The resale value of a share during the fund's maturity is not based on the share's representative value of the fund's current total assets. Instead, it underlies the market value determined by supply and demand. Therefore, the shares are often traded at a high premium or discount relative to their actual inventory value. Closed investment funds are not subject to the investor-protection regulations outlined by the German Capital Investment Companies Act (KAGG).

Antonym: open fund
Closing Price
Until now lead brokers at FWB® Frankfurter Wertpapierbörse fixed closing prices as the last price of the trading day, when their order books allowed that to be done. Since 3 November 2003 the fixing of closing prices for stocks in the DAX® index starts on the Frankfurt trading floor at 7.55 p.m. and for remaining stocks already at 7.30 p.m.. From that time on, variable price determination is not allowed.

On the electronic trading platform Xetra®, closing prices are fixed from 5.30 p.m. in a closing auction.

Cash settlements of warrants are calculated from the individual closing prices of the underlying instruments.
Collective custody
In collective custody, securities owned by many different investors are held at a central securities clearing and deposit bank (in Germany, Clearstream Banking AG, Frankfurt). The securities are separated by category. Each individual securities account holder is a joint owner of the collective holdings in the respective securities category.
Commercial paper
Highly creditworthy institutions issue commercial paper to finance their short-term capital requirements. Commercial paper is usually discounted – i.e., its face value is high in relation to its market price, with the difference representing the "interest" earned on the investment. The maturity of commercial paper is determined individually by the respective issuer, and is typically less than a year.
Commission
Investors pay banks and financial service companies a fee for each order placed. This fee covers order routing, processing, and settlement, as well as costs associated with operating trading desks on the exchange floor.

In Germany, commissions on stock and warrant trades, in general, amount to 1 percent of the total price of the order; for bonds, the commission is around 0.5 percent of the par value or the market value, whichever is higher. Investors can negotiate with their bank to receive a better deal. In some cases, the bank will stipulate a certain minimum fee.

Commissions on securities transactions on the Regulated Market are indicated explicitly on the trade confirmation. In Freiverkehr, they appear either as a mark-up (when the security is purchased) or a mark-down (when the security is sold).
Commission trading
Trading in commodities or securities conducted by a commission agent not for own account but for the account of another. Examples are the exchange transactions of banks acting on behalf of their clients.

The specifics of commission trading are governed by the German Commercial Code (HGB), article 383, para. 1.

Synonym: factorage
Commodity futures
A commodity future obligates the buyer to purchase, and the seller to deliver, a good such as a raw material for an agreed-upon price on a specified settlement date. The earliest derivatives transactions were commodity futures. Long ago, farmers wished to protect themselves against fluctuations in the price of their crops. To do so, they entered into futures contracts to ensure that they would be able to sell their products at a favorable price the following year.
Commodity futures exchange
A commodities futures exchange enables traders and investors to hedge against the risks created by fluctuations in the prices of raw materials and commodities. Some of the world’s most prominent commodities futures exchanges are in Chicago, New York, Kansas City, Minneapolis, Winnipeg and London. The German commodities futures exchange, which commenced trading in 1998, is located in Hannover.
Common gap
Common gaps occur when the value of a stock is perceived differently by various investors. In the context of technical analysis, ordinary gaps are not relevant when it comes to predicting trends. They are usually closed soon after they occur; in other words, the prices determined subsequently fall within the range of the gap.
Compliance guidelines
Companies and their staff who have access to inside information must observe certain regulations with regard to securities trading. The Securities Trading Act stipulates that a compliance system must be established – among other things, the company must set up a Chinese Wall, appoint a compliance officer, and maintain an observation log as well as a list of blocked securities. The observation log lists securities with respect to which the company has insider information. In principle, the company or its employees can trade these securities – however, all trades are scrutinized to determine if the transacting parties took advantage of inside information. Blocked securities are those which the company has information about that could greatly impact the price of the security. The company and its employees are not permitted to trade in these securities. In addition, the company is obligated to establish a Chinese Wall to prevent inside information from being leaked to the outside.
Consumer Confidence
The American Consumer Confidence Index, which is published by the Conference Board, reflects the private households’ evaluation of their current and future economic situation. For this purpose, 5,000 questionnaires are sent out in the US. An average of 3,500 households actually return their answers.   The participants are asked to give their evaluations on five components:

the economic conditions in the area the participant lives in an assessment of these conditions in six months the current availability of jobs in the area the availability of jobs in six months the family income in six months.

A partial index is calculated for each one of those components; together, they make up the total index. Furthermore, the participants’ consumption intent for the following six months is tracked. This includes information on cars, houses, holidays and larger purchases. In good economic times, or with good prospects looming, more investments in durable economic goods are made than in bad times.   There are only few days between the surveying of the households and the publication of the data. If consumer confidence is too high, this points to a good economic development and perhaps even to its overheating.   The American Consumer Confidence Index is published on the last Tuesday of the month.
Continuous trading
In continuous trading, securities prices are determined on an ongoing basis as the order situation permits. Because of the minimum lot size of one, orders can be executed for even one single share in continuous trading.

The Exchange Operating Board is in charge of admitting actively traded securities to continuous trading. Being quoted in continuous trading is a prerequisite for an equity to be admitted to any of the selection indices of Deutsche Börse. In order to be admitted to continuous trading the appointment of at least one Designated Sponsor may be required if the liquidity of an equity is deemed unsufficient.
Convertible bond
Like other bonds, convertible bonds bear interest, and their face value is repaid in full upon maturity. However, the owner of a convertible bond also has option rights. During a specified period, the convertible bond can be exchanged for shares in the issuing company at a pre-determined price, which is usually higher than the price of the stock at the time the bond was issued. Because option rights are attached to it, a convertible bond bears interest at a lower rate than other comparable bonds. The issue of a convertible bond must be approved at the Annual General Meeting by a three-fourths majority vote. The company usually undertakes a capital increase to ensure that there will be enough shares for conversion. Existing shareholders are given subscription rights to the new shares.
Cooperative stock exchanges
The goal of the agreement between the stock exchanges in Berlin, Dusseldorf, Frankfurt and Munich was to enhance price quality and reduce operating costs. To this end, the IBIS electronic trading system was replaced with Xetra, and umbrella order books were introduced so that a single price can be calculated for the same security at the various exchanges.
Corporate bond
In addition to bank credits, companies may acquire equity capital via the capital market by issuing corporate bonds. Its conditions and characteristics, such as maturity, coupon and issue volume, are stated in the sales prospectus.

The interest rate payable by a company to the investors depends on the company’s credit rating, which expresses its creditworthiness: the more fragile the latter, the higher the coupon.
Correlation coefficient
The value of the correlation coefficient ranges between -1 and +1. If the correlation coefficient of a stock to an index is +1, then the price of the stock always changes by the same percentage as the index; i.e., the development of the two variables is exactly parallel. In this special case, the stock has a beta factor of 1. The smaller the coefficient, the weaker the correlation. A correlation coefficient of zero indicates that movements in the price of the stock are completely unrelated to those of the index. If the correlation coefficient is negative, then the stock price and the index move in opposite directions.

Deutsche Börse AG calculates the correlation coefficients of the shares in DAX® and MDAX® in relation to their respective index. The correlation of sector indices to CDAX® are also calculated.
Counter transaction
The investor is responsible for holding the securities and redeeming the attached interest or dividend coupons at the bank.
Country risk
Political risks are a consequence of an internal political situation in a given country, or of that country's foreign policy. Internal risks result from ideological clashes among the political parties in a country, social tensions, and incompetent or passive government. Risks relating to foreign policy stem from a country's membership in political alliances and/or from the hostile behavior of other countries toward the country in question. For the investor, such political risks are manifested as discrimination against foreign capital (to varying degrees) and, in the extreme case, in the danger of expropriation (with or without compensation). Economic risks are primarily macroeconomic and cannot be considered separate from political risks. In particular, they result from the structure of the economy in question, and how it is tied into the global economy. The financial repercussions of economic risks are manifested above all in exchange rate risks (also known as currency risk) and transfer risks that can impede or completely break down international payment transactions and movements of capital. The latter are counteracted by means of currency management, by monitoring the movement of capital, and, in extreme cases, by "freezing" the accounts of foreign business partners. Country risks are assessed on a regular basis by so-called country indices using scoring models. The best-known index is the Business Environment Risk Index (BERI), which assesses the country risk of around 50 countries on the basis of quality criteria (determined through surveys of experts) and quantitative economic data.
Coupon
The coupon sheet, which consists of individual coupons and a renewal certificate, is attached to the stock or bond certificate. The bondholder submits the individual coupons to a bank to receive dividend or interest payments. It has become standard procedure for the bank handling the customer's portfolio to collect the coupons and transfer the dividend or interest payment to the respective account. Coupons expire after four years.
Covered warrant
Covered warrants are a sub-category of naked warrants. They are typically issued by an underwriting bank rather than by the stock corporation itself. The exercise of covered warrants does not alter the company's capital stock.
Creation
The so-called creation/redemption file regularly updates the lists of purchases and sales made by a mutual fund, ensuring the transparency of the fund's portfolio structure. Antonym: redemption
Creditworthiness
Creditworthiness provides an indication of a borrower's quality. For example, a bond issuer receives a high credit rating when it fulfills its obligations with respect to making interest payments, and when there is a high probability that it will be able to repay the face value of the bond. Assessing the creditworthiness of bond issuers is often undertaken by rating agencies, the most prominent of which are Moody's and Standard & Poor's.
Cum
Latin for “with”; indicates securities with interest, dividend or other coupons
Currency bond
Currency bonds are typically issued by European institutions outside of Europe, or by foreign institutions in Europe. Unlike bonds denominated in euros, currency bonds involve a foreign exchange risk.
Cyclical stocks
The return on a cyclical stock fluctuates considerably over relatively short periods of time because it is tied to the state of a sector or an economy. Thus, it is difficult to predict how cyclical stocks will perform over the long term. An example of a cyclical stock is a company that produces consumer goods. A downturn in the economy, which goes hand in hand with a lower demand for consumer goods, will impact the earnings situation of this company.