Glossary

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A rating is a qualitative evaluation of the default risk of a debtor, a credit or a bond issue. There is a distinction between short-term ratings and long-term ratings ? depending on the future period for which the repayment potential is assessed.

Ratings are expressed in letter codes; they are divided into various levels. Rating agencies determine their ratings on the basis of a systematic procedure. The largest agencies in this area are Standard & Poor?s, Moody?s and Fitch.

Rating codes vary from agency to agency or according to different time patterns. Moody's, for instance, uses letters and numbers in combination, such as in A1, A2, A3. Standard & Poor's, on the other hand, adds "+" or "-", such as in B+, B, B-. Thereby, AAA (triple A) stands for the highest level of creditworthiness and D indicates a looming insolvency.

A rating agency evaluates a company's ability to meet obligations related to interest and redemption payments - both short-term and long-term. On the basis of these criteria, companies receive a rating. The leading agencies in this field are Moody's and Standard & Poor's.

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The so-called creation/redemption file in Deutsche Börse's XTF® segment regularly updates the lists of purchases and sales made by a mutual fund, ensuring the transparency of the fund's portfolio structure.

Antonym: creation

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Registered shares can be made out to natural persons or legal entities. They are transferred by means of a written agreement, or endorsement.

Because the name of the new shareholder is entered in the company's stock ledger, registered shares are not highly fungible. For the most part, however, this obstacle can be circumvented with an endorsement in blank. Special regulations pertaining to the transfer of registered shares can be laid down in the company's charter.

Recently, there has been a clear trend toward registered shares, which have certain advantages over bearer shares. For one thing, issuers of registered shares know who their shareholders are, and thus can expect their shareholder structure to be more stable. Secondly, because the stock ledger contains current data on shareholders, it enables the company to communicate directly and more effectively with its shareholders. Furthermore, a company with a transparent shareholder structure will have more opportunities to utilize secondary market instruments such as listings on other market segments, share buybacks, or capital increases. In short, the issuance of registered shares facilitates all measures aimed at enhancing investor relations ? a convincing argument now that shareholder value is playing an increasingly important role in the capital markets.

Stock corporations that are planning a direct listing (listing of the original shares) on the New York Stock Exchange (NYSE) ? the world's largest stock exchange ? are required to issue registered shares.

A special type of registered share is a registered share with limited transferability.

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In addition to maintaining the shareholders' record, a registrar company supports issuers in organizing the Annual General Meeting, implementing IR campaigns, and undertaking changes to the capital stock.

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.

Repos are typically used by banks as a temporary source of liquid funds.

Repos are typically used by banks as a temporary source of liquid funds.

Issuers will often buy back their own bonds on the stock exchange when they have adequate funds available. A repurchase on the open market can also be a lucrative strategy if the bond is listed below par, i. e. if the current price is lower than the redemption price. By repurchasing its own bonds, an issuer lowers its debt/equity ratio, which in turn enhances its creditworthiness.

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Retained earnings are not distributed to shareholders, but instead ploughed back into the company for investment purposes. The capital continues to be under the control of the company. In the case of certain mutual funds, profits (interest, dividends, sales proceeds) are immediately reinvested in new securities.

Return indicates the relationship between profit and capital deployed (return on invested capital, or ROIC) or between profit and sales (return on sales). The return on an investment in securities is calculated by taking the current price of the security plus interest or dividend payments received, less the capital invested. If this value is positive, the investment is considered to be profitable.

Reverse convertibles are bonds that have fixed interest, the coupon, whose success is coupled to the price development of an underlying share. Although this product is also called an equity-linked bond, it actually deals with an investment in shares ? albeit with reduced risks and less chance for profit. The base value of a reverse convertible is a share or an index.

The principle behind the share-backed bond: Instead of paying out the bond at its nominal value, the issuer has the right to deliver instead a previously fixed number of the underlying shares. The issuer would decide to deliver the shares when their value is less than the nominal value of the mature bond.

More basics of reverse convertibles.

On the third Friday in the last month of the quarter (March, June, September, December), Deutsche Börse AG reviews its indices. In the review process, the variables used in calculating the index are adapted to the current composition of the index. For example, adjustment factors, changes to the capital stock, and dividend payments that took place between review dates are given a value of one in the index formula. To ensure consistency, the newly calculated index values are multiplied by a review factor. Reviews are conducted using the Xetra® closing prices on the review date.

REX ® expresses the value of a representative segment of the German bond market. It is calculated by Deutsche Börse on the basis of 30 domestic bonds once daily. It is based on cash prices determined on FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange). The index takes into account bonds with a time to maturity of one to ten years, expressed as an integer, and three interest rates (6, 7.5 and 9 percent). Each of the 30 bonds is weighted according to its market share, which is determined by the number of issues in each of the 30 maturity-/interest-rate categories over the past 25 years. Deutsche Börse reviews the weighting annually.

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The risk of total loss enables investors to select a warrant that matches their risk profile. It indicates the probability of a leverage product expiring without value on its maturity date.

The calulation is based on a theoretical value, which considers the time to maturity, the difference between the current price of the underlying and the strike price, the interest rate for risk-free investments and the historical volatility of the underlying.

Synonym: Probability of total loss

In floor trading at FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange), all stock orders are executed at the next possible opportunity. The minimum trading unit is one share.

Bond orders must have a par value of at least ?1 million to be eligible for continuous trading.

In the Xetra® electronic trading system, the minimum trading unit for all stocks is one share.

Synonym: Minimum trading unit

A runaway gap occurs when the general investing public recognizes an existing trend and believes it will continue.