Understanding Shares

Types of Corporate Action

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ADR (American Depository Receipt)

Certificates that represent ownership of a given number of shares dealt separately from the underlying stock. They are issued by US banks and usually traded in US$. For example, British Airways, BG (British Gas) and all trade in the United States as ADRs.

After Hours Dealing

Dealing done after the mandatory quote period which is treated as dealing done on the following business day.


A Company's Annual General Meeting is normally held 21 days after the Annual Report is published. Shareholders attend and can vote to re-appoint the directors, pass resolutions, and question the Company's management.


The Alternative Investment Market - Exchange's market for smaller and growing companies which began trading in June 1995.

Allotment Letter

A legal document sent to shareholders during a Rights Issue. It represents the unconditional right to buy new shares. Shares should be paid for in advance. Allotment letters can be traded as renounceable documents, where the seller signs over the rights to a buyer.

Annual Report and Accounts

These set out the company's yearly financial performance. They comprise the Profit and Loss Account, Balance Sheet, Notes and a Statement of Cash Flow. All PLC companies are obliged to make these available to shareholders.


Association of Private Client Investment Managers and Stockbrokers - see KEY CONTACTS.


Buying securities in one country, currency or market and selling into another to take advantage of price differences.


Bank of England

Is the UK's central bank. It is used by all UK banks and decides on monetary policies and interest rates.


An investor who has sold a security in the hope of buying it back at a lower price as he thinks the market will go down.

Bear Market

A falling market in which bears would prosper.

Best Possible Result

Firms are required to take all reasonable steps to obtain the best possible result in the execution of an order for a customer.
The best possible result is not limited purely to execution price but also considers other factors such as costs, speed, likelihood of execution and settlement, size, nature and any other consideration which is considered relevant.


  1. The price at which the market maker will buy shares.
  2. An approach made by one company wishing to buy the majority of another company's shares.

Blue Chip

Term for the most highly regarded shares. Originally an American term, from the highest value poker chip.


A form of debt security issued by a Company or Government that earns interest for the investor. Bonds normally have a fixed life and are repaid at maturity after a set number of years. Also referred to as Loan Stock.

Bonus Issue

A benefit distribution in which additional shares are issued to qualifying shareholders (at no cost) in proportion to their existing holdings, as a result of a Re-arrangement of a Company's capital structure. No new funds are raised for the company. Also known as a Capitalisation Issue.

Book Building Process

Investors are asked to indicate, either on a firm or uncommitted basis, the best price that they will offer and the maximum number of shares that they will buy at particular times. This information will establish the most appropriate offer price for the issue.

Book Value

The value of a company's assets as shown in the Annual Report (which may, or may not, reflect current valuations).


A London Stock Exchange member firm, which provides advice and dealing services to the public and which can deal on its own account.


An investor who has bought a security in the hope of selling it at a higher price as he thinks the market will go up.

Bull Market

A rising market in which bulls would prosper.


Call Payment

A payment made for the Subscription for new securities, or in payment for sums outstanding to the issuer, in relation to existing Securities (commonly in the context of Rights Issues, Open Offers or partly paid securities).

Call Option

A contract giving the investor the right, but not the obligation, to buy shares at a fixed price (the Strike Price) within a certain time frame (up to the expiry date).

Capital Adequacy

Requirement for firms conducting investment business to have sufficient funds.

Capitalisation Issue

A benefit distribution in which additional shares are issued to qualifying shareholders (at no cost) in proportion to their existing holdings, as a result of a re-arrangement of a company's capital structure. No new funds are raised for the company. Also known as a Bonus Issue.

Cash dividend

A cash payment to all qualifying shareholders in proportion to their holdings, usually shown in pence per share held.


CREST Depository Interests are independent Securities, constituted under English Law, which may be held, transferred and settled within CREST. CDI holders will not be the legal owners of the shares to which they are entitled as a result of a Corporate Action. They will however, have an interest in the shares through their ownership of CDIs.


The fee that a broker may charge clients for dealing on their behalf.


Any item that can be bought and sold. Taken to refer to Exchange-traded items, including sugar, wheat, coffee, tin etc.


The money value of a transaction (number of shares multiplied by the price) before adding or deducting commission, stamp duty etc.


A company proportionally increases the Nominal Value of each security whilst decreasing the number of units of the security in issue. For example, every 5 x 10p share could be consolidated into 1 x 50p share.

Contract Note

A contract note is sent from a member firm to the client no later than the next working day after a transaction is made. Details on the contract note include full title of stock, price, stamp duty (if applicable), consideration, commission, time of deal etc.


An optional or compulsory event whereby the holder of a security converts the security into some other security, at a ratio set by the company. This is applicable to convertible debt securities and convertible Preference shares. The event may be continuous or at intervals or by reference to a single date.

Convertible Bond

A Bond that may be converted at the holder's option into a fixed number of ordinary shares. There is normally one conversation date a year. If the Bond has not been converted into Ordinary shares at maturity it will be redeemed for cash.


  1. On bearer stocks, the detachable part of the certificate exchangeable for dividends.
  2. Denotes the rate of interest on a fixed interest security - a 10% coupon pays interest of 10% a year on the face value of the stock.

Covered Warrants

Covered Warrants allow the buyer the right - but not the obligation - to buy or sell an asset at a specified price on, or before, a specified date.


CREST is the UK system for the paperless settlement of trades in securities and the holding of uncertified securities. It avoids the need for share certificates, which can delay trading and settlement.


A Consolidated Tax Voucher is sent out at the end of each Tax year, and details the income that a client has received on their portfolio. CTVs should be kept for income tax records. Also referred to as 'Composite Tax Vouchers'.


Latin for 'with'. Used to indicate that the buyer of a security is entitled to participate in the forthcoming event. So: 'Cum Dividend' or 'Cum Rights'.


Daily Official List

The Daily Official List is the register of listed securities and gives the prices at which all stocks were traded on the previous day. It is produced by Extel.


A loan raised by a company, paying a fixed rate of Interest to investors, and secured against the company assets.

Default conditions

When we notify clients of a Corporate Action, we will specify in our email if there is a choice of actions. If there is a choice to be made and we do not hear from the client for whatever reason, we will apply the default action, which will be specified in the email.

Depository Receipts

Marketed internationally to sophisticated investors, these are negotiable certificates that give evidence of ownership of a company's shares. They are a good medium for international investors because they may be more liquid and more easily traded than the shares they represent.


When the market price of a newly issued security is lower than the issue price.


The income payable to shareholders, normally shown in pence per share. Dividends are optional and at the company's discretion. They may be distributed as cash, Scrip or Enhanced Scrip Dividends payable in two half-yearly instalments known as interim and final payments. Also referred to as 'Income Events'.


Dividends Per Share, calculated as the total value of ordinary dividends paid in a specific period divided by the total number of outstanding ordinary shares. The number of shares often is determined by a weighted average of shares outstanding over the reporting term.


A company Redeems (buys back) specific Securities according to the terms of issue of the security. Not all the stock in issue is necessarily redeemed.



Electronic Data Services, an historical turnover information service representing trading on the London Stock Exchange.


Extraordinary General Meeting. Any meeting of a company's shareholders other than its AGM.


A non-optional event where a voting restriction is removed from a Security.

Enhanced Scrip Dividend

These are made available to persuade holders to take the cash Dividend in the form of shares. The holders can then sell the shares back to the company's broker, usually at a marginally better price than the market price. Any cash then received as a result will be paid as a Capital Payment, instead of income.


Earnings Per Share calculated as the net income attributable to ordinary shares for a specific period divided by the number of outstanding ordinary shares. Companies usually use a weighted average number of shares outstanding over reporting term.


The risk sharing part of a company's capital, usually referred to as ordinary shares.


A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.


The opposite of 'cum', literally 'without'. Used to indicate that the buyer is not entitled to participate in whatever forthcoming corporate actions are specified. Thus ex Dividend or ex Rights.

Exchange Traded Fund/iShare

A fund that is traded on a liquid stock exchange like a share. iShares are index funds that trade like shares. Each share represents a portfolio of stocks designed to track closely one specific index. iShares is the brand name of the first ETF's to be launched in the UK.



Federation of European Stock Exchanges.


World Federation of Stock Exchanges.

Financial Conduct Authority

The Financial Conduct Authority. The Financial Conduct Authority regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

Final Dividend

The dividend paid by a company at the end of the financial year.

Fiscal year

This period runs between 6 Apr and 5 Apr the following year; used for assessment of Income Tax and Capital Gains Tax.

Fixed Interest

Loans issued by a company, the Government (gilts or gilt-edged) or a local authority, where the amount of interest to be paid each year is set on issue. Usually the date of repayment is included in the title.


The occasion on which a company's shares are offered on the market for the first time.

FTSE Indices

The FTSE indices are run by FTSE International Ltd. They are the:

  • FTSE 100
  • FTSE 250
  • FTSE Small Cap
  • FTSE 350 Yield
  • FTSE All-Share
  • FTSE Fledgling
  • FTSE Eurotrack 100
  • FTSE Eurotrack 200


Securities or goods bought or sold at a fixed price for future delivery. There may be no intention to take them up but to rely upon price changes in order to sell at a profit before delivery.



Global Depositary Receipts are negotiable certificates that give evidence of ownership of a company's shares. They are marketed internationally, mainly to financial institutions.


When a company's debts are expressed as a percentage of its equity capital. A high gearing would signify debts are high in relation to equity capital. Also known as leverage.


Gilt-edged market makers.


Another term for Government Stocks or Government Securities - Bonds issued by the Government. Gilts due for redemption within five years are called 'Short Gilts'; and those of longer maturates 'Long Gilts'.


The opposite of 'net'; i.e. before tax has been deducted.



ICAP Securities and Derivatives Exchange

Formally known as OFEX, the ICAP Securities and Derivatives Exchange is separate from the London Stock Exchange but authorised and recognised by the Financial Conduct Authority. The ICAP Securities and Derivatives Exchange provides a trading platform for primary and secondary equity market services.

Index Linked Gilt

A gilt, the interest and capital of which change in line with the retail price index.

Insider Dealing

The purchase or sale of shares by someone who possesses 'inside' information about the company. This is the information on the company's performance and prospects which has not yet been made available to the market as a whole, and which, if available, might affect the share price. In the UK such deals are a criminal offence.

Interest Payment

A benefit distribution in which a cash payment is made to holders of certain types of debt security.

Interim Dividend

A Company's payment of Dividends to shareholders halfway through its financial year.

Investment Trust

Company whose sole business consists of buying, selling and holding shares.


International Organisation of Securities Commissions.


A fund that is traded on a liquid stock exchange like a share. iShares are index funds that trade like shares. Each share represents a portfolio of stocks designed to track closely one specific index. iShares is the brand name of the first ETF's to be launched in the UK.

Issuing House

An organisation, usually a merchant bank, which arranges the details of an issue of stocks or shares. It will also make sure the listing of that issue complies with Exchange regulations.


Lapse nil paid shares

In a Rights Issue, when you decide not to take up the rights, the company will sell the rights to an agent and give you the value received less commission. This is called Lapsing.


Listed Companies Advisory Committee.

Letter of Renunciation

This applies to a rights issue and is the form attached to an allotment letter which is completed should the original holder wish to pass entitlement to someone else, or to renounce rights absolutely.


London International Financial Futures and Options Exchange.


Ease with which an item can be traded on the market.

Listed Company

A company whose shares have been admitted to the Daily Official List. It has had to comply with the Exchange's listing regulations.

Listing Particulars

The details a company must publish about itself and any securities it issues before these can be listed in the Daily Official List. Often called a prospectus.

Loan Stock

A Bond issued by a company which bears a fixed rate of Interest but which may not be secured against any assets.

London Market Information Link

The Exchange's new main source of UK financial data for market professionals and information vendors. It is part of the Exchange's Sequence programme.


London Stock Exchange


Mandatory Quote Period

The period of time Monday to Friday when all registered market makers in a security must display their prices. For SEAQ the period is from 8.00am - 4.30pm.

Market Maker

An Exchange member firm which is obliged to offer to buy and sell securities in which it is registered throughout the mandatory quote period.

Market Order

An order to buy/sell a specific number of shares at the best available price once the order is received in the market-place. Normally a market order is executed at the quoted price given before the order was entered or at a price close to the quote. However if a security is volatile or the order is above market size, the execution price could be significantly better or worse than anticipated. Market Orders placed during normal market hours will be cancelled at the close of the market, if not executed.

Member Firm

A trading firm of the London Stock exchange which may deal in shares on behalf of its clients or on behalf of the firm itself.


A coming together of two or more organisations through mutual agreement. The companies join assets, liabilities and ongoing operations, etc. to form one entity.

Mid Price

The price half-way between the two prices shown in the Daily Official list under 'Quotation', or the average of both buying and selling prices offered by the market makers. The prices found in newspapers are normally the mid-price.

Minimum Quote Size (MQS)

The minimum number of shares in which market makers are obliged to display prices on SEAQ for securities in which they are registered.



The opposite of 'Gross' i.e. after the deduction of tax

Net Asset Value

The value of a company after all debts have been paid, expressed in pence per share.

New Issue

A company coming to the market for the first time or issuing extra shares.

Nil Value Shares

Shares newly issued by a company. These shares can usually be transferred on renounceable documents.

Nil Paid Shares

These are allocated during a Rights Issue. They give the holder the right to buy at a predetermined price some time in the future, usually at a discount to the market value.

Nominal Value

The value ascribed to a share when it is first authorised and issued by a company. The nominal value bears no relationship to a share's market value.

Nominated Adviser

A London Stock Exchange approved adviser for AIM companies.

Nominee Name

Name in which a security is registered and held in trust on behalf of the rightful owner.

Normal Market Size (NMS)

The SEAQ classification system that replaced the old alpha, beta, gamma system. NMS is a value expressed as a number of shares used to calculate the minimum quote size for each security.



See the ICAP Securities and Derivatives Exchange.


The price at which the market maker will sell shares to investors.

Offer for Sale

A method of bringing a company to the market. The public can apply for shares directly at a fixed price. A prospectus containing details of the sale must be printed in a national newspaper.

Open offer

These occur when the company wishes to raise extra finance. Shareholders are given the opportunity to purchase extra shares in proportion to their existing holdings. Unlike a Rights Issue, you cannot sell your entitlement in an Open Offer.


The right (but not the obligation) to buy or sell securities at a fixed price within a specified period.

Order Book

The Stock Exchange Electronic Trading Service for FTSE 100 shares. (See SETS)

Ordinary Shares

An Ordinary share gives the holder a share in the company. The holder of Ordinary shares becomes a part owner of the Company. Ordinary shares are the most common shares in issue and the basic trading counters of the stock market. Also referred to as 'Equities'.



The nominal value of a security.

Pari Passu

A new issue of shares which carry equal rights with existing shares they are said to rank Pari Passu.

PEP Personal Equity Plan

This allows investment in a number of shares. It carries various tax benefits including receiving dividends without paying income tax on the income, and sales free from capital gains tax on the profit.


Permanent Interest Bearing Shares are fixed interest securities issued by Building Societies to raise capital. PIBS are listed and traded on the London Stock Exchange.


A collection of securities owned by an investor.


Panel on Take-overs and Mergers. It regulates conduct of take-overs and is non-statutory.

Preference Shares

Preference shares are usually redeemed after a fixed life, and, typically, pay a fixed Dividend each year. In the event of a company's collapse or break-up, preference shareholders rank ahead of the Ordinary shareholders for repayment.

Preferential Form

The London Stock Exchange allows companies offering shares to the public to set aside up to 10% of the issue for application from employees and, where a parent company is floating off a subsidiary, from shareholders of the parent company. Separate application forms, usually pink (hence the nickname pink forms), are used for this.


  1. If the market price of a new security is higher than the usual price, the difference is the premium. If it is lower, the difference is called the discount.
  2. The cost of purchasing a trading option.

Pre-tax profits

Usually Gross profits after deducting operating costs and Interest payments but before tax.

Price/Earnings Ratio (P/E Ratio)

The P/E ratio is a measure of the level of confidence investors have in a company (rightly or wrongly). Generally, the higher the figure, the higher the confidence. It is worked out by dividing the current share price by the last published earnings per share which is net profit divided by the number of ordinary shares.

Price Sensitive Information

Information that has to be reported to the Exchange's Regulatory News Service, that may have an effect on a company's share price.

Primary Market

The function of a stock exchange in bringing securities to the market for the first time. Money is being raised either for the founders of the company or to fund future growth.


Conversion of a state run company to a public limited company status often accompanied by a sale of its shares to the public.

Private Company

A company which is not a public company and which is not allowed to offer its shares to the general public.


An independent organisation which promotes share ownership among individual investors, including employees.


Document giving the details that a company is required to make public to support a new issue of shares. See Listing Particulars.


A form, which allows shareholders to vote without attending the meeting. The shareholder can nominate an individual or the Chairman to vote on their behalf.

Public Limited Company (plc)

A company whose shares may be purchased by the public and traded freely on the open market and whose share capital is not less than a statutory minimum.

Put Option

The right but not the obligation to sell at an agreed price at or within a stated future time.


Quote Vendors

Screen-based computer system providing instant information on prices of shares, foreign exchange and commodities.


Record date

The date when the Registrar reviews which shareholders are entitled to benefits, e.g. an Open Offer.

Redemption Date

The date on which a security (usually a fixed interest stock) is due to be repaid by the issuer at its full face value. The year is included in the title of the security; the actual redemption date being that on which the last interest is due to be paid.


Whereby the Company Redenominates its share capital into another currency. For example existing IEP0.25 become EURO0.32


The Registrar maintains and updates the company registers held by them.


The stock Par Value is Renominalised. For example GBP0.10 Shares go to GBP0.25 Shares.

Renounceable Documents

Temporary evidence of ownership, of which there are three main types:

  • when a company offers shares to the public, it sends an allotment letter to the successful applicants
  • if it makes a rights issue, it sends a provisional allotment letter to its shareholders
  • in the case of a capitalisation issue, it sends a renounceable certificate

All of these are in effect bearer securities, and are valuable. Each includes full instructions on what should happen if the holder wishes to have the newly issued shares registered in their own name, or if they wish to renounce them in favour of somebody else.


Recognised Investment Exchange. An investment exchange which meets Financial Conduct Authority requirements for recognition.

Rights Issue

An issue of new shares by a Company in the market to raise funds. Current shareholders will be allotted rights (Nil Paid shares) in accordance with the ratio set by the company. Thus, an 11 for 10 rights issue gives the existing holder the chance to buy eleven new shares for every ten held. The price of the new shares is set at a price between the Nominal Value and the market value of the existing shares. It will generally be at a lower price than the existing market price so the issue is attractive to shareholders. The right to subscribe allows shareholders to retain their percentage holding in the company. The Nil Paid shares trade for a certain period of time, allowing shareholders the opportunity to sell their entitlement in the market rather than paying the Call Price.


Regulatory News Service. A service operated by the Exchange, in its role as competent authority for listing, which ensures that price-sensitive information from listed companies is collected and then disseminated to all RNS subscribers at the same time.



The SEAQ Automated Execution Facility. This enables small trades in UK shares to be carried out automatically at a computer terminal instead of over the telephone.

Scrip Issue

See Capitalisation Issue.


The Stock Exchange Automated Quotations system for UK securities.
This is a continuously updated computer database containing price quotations and trade reports in UK securities. SEAQ carries the market makers' bids and offers for the UK securities and is part of the Exchange's Sequence programme.

SEAQ International

The Exchange's electronic price quotation system for non-UK equities. Similar to SEAQ, it is part of the Exchange's Sequence programme.


A service which supports the trading of listed UK equities in which turnover is insufficient for the market making system. It is distributed via a number of screen-based information services. It shows current orders, company information, historical trading activity for each stock and the sole market maker, where only one is registered. It is part of the Exchange's Sequence programme.

Secondary Market

Marketplace for trading in securities that are not new issues.


The general name given to stocks and shares issued by a Company to its investors.

Scheme of Arrangement

Stock, cash or a combination of both may be distributed or replace some or all of one (or more) lines of security.

Scrip Dividend

A mandatory benefit distribution whereby shareholders may receive Dividends as shares.

SEPON (The Stock Exchange Pool Nominee)

An account into which stock is registered during the course of settlement.


An integrated, reliable computer system developed by the Exchange to deliver a wider range of better quality trading and information services to market participants. The SEAQ, SEATS and SEAQ international trading service operate on the new system.


Stock Exchange Electronic Trading Service (See Order Book)


Once a deal has been made, the settlement process transfers stock from seller to buyer and arranges the corresponding movement of money between buyer and seller (see Talisman and CREST).

Settlement Day

Day on which bought stock is due for delivery to the buyer and the appropriate payment to the seller.


A share represents part ownership in a company.


See Gilts or Gilt-Edged Securities.


Self Regulating Organisation. An organisation recognised by the Financial Conduct Authority and responsible for monitoring the conduct of business by, and capital adequacy of investment firms.


One who applies for a new issue in the hope of being able to sell the shares allotted to him/her at a profit as soon as dealing starts.

Stamp Duty

A UK tax currently levied on the purchase of shares.


Stock is ownership, or equity, in a company. Investors buy stock in the form of shares, which represent a portion of the company's assets and earnings (capital).


The exercise of a right to subscribe for Securities. If not exercised by a certain date, the right Lapses.


The opposite of Consolidation. For example, the Ordinary share nominal value is 50p per share and this is subdivided into 10p per share. The shareholder will then hold 5 x 10p shares for every 1 x 50p shares previously held. Subdividing will have the effect of increasing the number of shares in the market; decreasing the Nominal Value and decreasing the market price per share. The actual value of shares held will still be an equal proportion to the market total.



A bidding company seeks to obtain a controlling interest (more than 50% of the shares) in the target company.


The computerised settlement system used by the Exchange until April 1997, which acted as a central clearing house for transactions in equities (see CREST).

Tender Offer

An Offer where the company offers to buy back shares. Shareholders are asked to stipulate the price that they are willing to sell their shares for or they can elect for the Strike Price (a price not known until after the Tender Offer has occurred). Occasionally, the Company may announce the price at which they will purchase the shares at, but only for a certain percentage of a client's individual holding.


The best buying and selling prices available from a market maker on SEAQ and SEAQ International in a given security at any one time.

Traded Options

Transferable options with the right to buy and sell a standardised amount of a security at a fixed price within a specified period.


A deal made on the Exchange or subject to the rules of the Exchange.


The form signed by the seller of a security authorising the company to remove his/her name from the register, and substitute that of the buyer.



An arrangement by which a company is guaranteed that an issue of shares will raise a given amount of cash. The underwriters undertake to subscribe for any of the issue not taken up by the public. They charge commission for this service.

Unit Trust

A portfolio of holdings in various companies, divided into units and managed by professionals.


A Company may issue Warrants, which entitle the holder to a right to take up Ordinary shares at a set price within a defined time period. The company does not pay Dividends on Warrants. Warrants can be traded on the market.

White Knight

A company which rescues another company which is in financial difficulty, especially one which saves a company from an unwelcome take-over bid.


The return earned on an investment taking into account the annual income and its present capital value. There are a number of different types of yield, and in some cases different methods of calculating each type.


  • CAPITAL AT RISK: The value of your investments can go down as well as up. You may not get back all the funds that you invest.
  • WARRANTS: Warrants are not suitable for everyone. You should not deal in warrants unless you understand their nature and the extent of your exposure to risk.  You should be satisfied that they are suitable for you in the light of your circumstances and financial position.

The value of your investments can go down as well as up. You may not get back all the funds you invest.

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