Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y ZA
- Annuity-type package
- A strip bond package that pays a fixed amount regularly during a specified period on a specified payment frequency (e.g., semi-annually) like an annuity. An annuity-type package does not have a lump-sum payment at maturity.
B
- Bearer bond
- A bond that is payable to the bearer. The holder of the bond clips the coupons from the bond as the coupons come due and presents them to a bank or other financial institution for payment. NOTE: Generally, bearer bonds are available in Canada only for bond issues that came to market prior to the early 1990's. Some other markets eliminated them much earlier.
- Beneficial owner (of a security)
- The person who actually owns a security. The person may be a registered holder of the security on the records of the issuer or may hold the security through a bank, trust company, investment dealer, securities depository, or other financial institution.
- BEO issue
- See Book-entry only issue.
- Bond-type package
- A strip bond package that pays interest at specified rates during a specified period on a specified frequency (e.g., semi-annually) and has a lump-sum payment at maturity. See Residual-only Package and Interest-only Package.
- Book-entry only issue
- A security for which certificates are not available to beneficial owners, or are available only under exceptional circumstances. Sometimes this term is used more restrictively, to mean only those securities for which the entire outstanding quantity is registered in the name of one or more securities depositories. In Canada, this is often abbreviated as "BEO".
- Book-entry stripping
- Separating an underlying security into strip components (e.g. interest and principal strip bonds) through the ledger records only (usually of a securities depository), while maintaining the underlying security in its original form.
C
- Callable residual
- Future-dated residual derived from bonds which may be redeemed by the issuer prior to the maturity date. Callable residuals include all interest payments (coupons) payable subsequent to the next call date.
- Canada yield call
- A call feature on a security that allows the issuer to redeem the security prior to the maturity date at a price determined by the current yields for Government of Canada securities of the same maturity.
- The Canadian Depository for Securities (CDS)
- Canada's national securities depository and clearing corporation. Web site: www.cds.ca.
- CDS
- See The Canadian Depository for Securities.
- CARs and PARs
- A marketing name developed for selling some corporate strip bonds in Canada. CARs are coupon and residual securities. PARs are a form of strip bond package where the coupon rate is reduced to current yields, thus allowing the package to be sold at par. The first prospectus for CARs and PARs was filed in November 2002. For further details, search for "CARS and PARS" on the SEDAR web site. These were the first corporate strip bonds to be made available to retail investors in Canada using a prospectus. (Corporate strip bonds had been sold to institutional investors in Canada since 1989.)
- CDS fractions account
- A ledger account used by CDS to hold strip bond fractions which have accumulated from rounding strip bond quantities. These positions are made available on request to CDS participants when reconstituting a bond or creating a strip bond package, within the limits established by CDS.
- Corpora
- Plural of "corpus".
- Corpus
- The legal term for the principal component.
- Coupons
- 1) Future-dated payments of interest on an underlying bond, held and traded separately from the underlying bond, the residual and other coupons from the same underlying bond. This term is used by CDS when the underlying bond has been stripped physically. See also Interest component.
- 2) The part of a bearer bond certificate that is presented for payment on each payment date.
- CUSIP numbers
- Uniform securities identification numbers used by the North American financial industry. See www.cusip.com for details. Some information on the Canadian use of CUSIP numbers is available on the CDS web site (www.cds.ca) (select Products and Services, then CUSIP Requests). NOTE: CUSIP is a registered trademark of the American Bankers Association. See also ISIN.
- Custodian
- A financial institution which holds securities and performs other custodial services for an individual or firm. These duties typically include safekeeping of securities, periodic statements of holdings, and collection of entitlements (e.g. dividends, interest payments, redemptions) related to securities.
D
- Depository Service
- A service offered by a securities depository under which the depository maintains book accounts recording the ownership of securities held on behalf of the depository's participants, for eligible securities.
E
- Entitlement
- A right or privilege associated with owning a security. Examples include maturity and redemption payments, interest and dividend payments, and mandatory exchanges. Optional privileges give the holder the option but not the obligation to exercise the privilege. Examples include voting rights, voluntary retraction privileges, and voluntary exchange privileges.
F
- Federal Reserve Bank of New York
- The regional bank of the U.S. Federal Reserve Bank that operates the clearing and settlement system for U.S. Treasury securities. Also operates a bond-stripping service for securities issued by the U.S. Treasury and certain other organizations. Web site: www.newyorkfed.org
- Fungible
- Interchangeable; considered to be equivalent in terms of specifications and can be substituted one for the other.
G
- Generic strip bonds
- Book-entry strip bonds having the same issuer, payment date, payment currency, and component type (interest, principal, or payment), and no distinguishing features, which are traded and held under a single security identification number. Canada is the only country that uses generic security numbers for principal and payment (blended interest and principal) strip bonds. Using generic strip bonds increases the amount available in each security number, thus enhancing the marketability of the strip bonds.
- Global issue
- A security which is issued simultaneously in multiple markets (e.g. Canada, U. S. and Europe).
I
- Interest component
- Future-dated payment of interest on an underlying bond, held and traded separately from the underlying bond and from the principal component. This term is used by CDS when the underlying bond has been stripped through the depository service, to distinguish the physical strip bonds from the book-entry strip bonds created through the depository. See also Coupons.
- Interest-only package
- A strip bond package which pays interest regularly during a specified period and has a lump-sum payment at maturity, with all payments funded by interest components. See Bond-Type Package and Residual-only Package.
- ISIN
- International Security Identification Number. A security numbering system consisting of a two character country code, followed by a nine-character security number assigned by the local security numbering agency (e.g. CUSIP number, in Canada and the U.S.), and then a check digit. For additional details, see the Association of National Numbering Agencies web site (http://www.anna-web.com). See also CUSIP number.
- Issuer
- A government or corporation that sells securities to others, representing either ownership (in a corporation) or debt obligations of the government or corporation.
L
- Ledger system
- An accounting system maintained by a securities depository to record the ownership interests in securities held by the depository for its participants.
- Long coupon
- An interest payment due on a bond that is for a longer period than the normal payment interval. For example, if a bond paying semi-annual interest was issued on March 15, with the first payment due on November 15 (instead of September 15), the first interest payment is a "long coupon". Also see short coupon.
N
- Non-generic strip bonds
- Strip bonds derived from an underlying security which are kept separate from other strip bonds having the same issuer, payment date, payment currency and component type (interest or principal). Examples include strip bonds from global bonds, callable residuals and real return bonds.
P
- Package
- See Strip bond package.
- PARS
- See CARS and PARS.
- Participant
- A financial institution (e.g. investment dealer, bank, trust company) or other legal entity which 1) meets the qualifications and standards for using the services of a securities depository, and 2) uses the services of the securities depository directly, not through an intermediary.
- Physical strip bonds
- Future-dated interest coupons and residuals from bearer bonds that have been separated from each other, to create securities which are traded and held separately.
- Principal component
- Future-dated payment of the principal on an underlying bond, held and traded separately from the underlying bond and from the interest components. In Canada, this term is used when the underlying security has been stripped through the depository, to distinguish them from the physical strip bond Residuals.
R
- Real return bonds
- Bonds issued by the Government of Canada that are indexed to the rate of inflation in Canada. Similar to the inflation-indexed bonds issued in the United States.
- Reconstituting (an underlying security)
- Exchanging the strip components related to a security for the security itself. (This is the reverse of stripping.) Note that, in Canada only, a security may be reconstituted even if it was not previously stripped by using the strip bond packaging service.
- Reconstitution
- See Reconstituting an underlying security.
- Receipt security strips
- Securities representing future interest or principal payments on an underlying security, which are issued by a custodian who holds the underlying security or the coupons and residuals from the underlying security. Examples of receipt security strips include Sentinels, TIGRs, Cougars, and non-branded coupon and residue receipts from corporate bonds.
- Reserving for reconstitution (of a security)
- Requesting a securities depository to hold aside the required position in an underlying security, to allow reconstitution of the position on a future date. This process is available only in Canada, for bonds that have been stripped through CDS but are not eligible for other depository and clearing services.
- Residual (Residue)
- 1) Future-dated payment of the principal on an underlying bond, held and traded separately from the underlying bond and from the coupons. See also Principal component.
- 2) In Canada, this term is sometimes used when the underlying security has been stripped physically.
- Residue-only package
- A strip bond package that pays interest regularly during a specified period, at specified rates and specified frequencies, and has a lump-sum payment at maturity, with all payments funded by principal components (residuals). See Bond-Type Package and Interest-only Package.
- Retirement Savings Bond
- A form of strip bond package sold by some investment dealers in Canada. Usually these consisted of the principal amount plus the normal interest payments until maturity, except that the first few years of interest payments would be stripped and sold separately.
- RSB
- See Retirement Savings Bond.
S
- Securities depository
- An organization that holds securities for all financial institutions within a market. The depository usually also processes the settlement of securities trades.
- Separation (of a package)
- Division of a strip bond package into strip components.
- Short coupon
- An interest payment due on a bond that is for a shorter period than the normal payment interval. For example, if a bond paying semi-annual interest was issued on March 15, with the first payment due on July 15 (instead of September 15), the first interest payment is a "short coupon". Also see short coupon.
- Strip bond package
- A collection of book-entry strip bonds. The package may make:
- regular payments during a specified period (annuity-type);
- regular interest payments during a specified period, with a lump-sum payment at maturity (bond-type); or
- irregular payments, as specified in the Strip Component listing.
See also Bond-Type Package and Annuity-type Package
- Strip bonds
- Future-dated coupons (interest components) and residuals (principal components) which are derived from an underlying bond and are traded separately from the underlying bond. These may be in the form of depository book-entry strip bonds, receipt securities, or in specie (physical strip bonds).
- Strip components
- Interest and principal components (strip bonds), or other securities representing divisions of ownership rights and/or privileges associated with a security, derived from an underlying security.
- Strip component listing
- A listing of the strip components and rates associated with an underlying security or a strip bond package, as published by a securities depository. CDS is the only securities depository that routinely publishes these listings.
- Stripped securities
- Underlying securities which have been separated into strip components.
- Stripping (a security)
- Separating the cash flows, ownership rights, and/or privileges associated with a security into strip components, which are then traded and held separately from the original security.
U
- Underlying bond
- A bond which has been separated into strip components (e.g. interest and principal components). See also Underlying security.
- Underlying security
- A security which has been separated into strip components. See also Underlying bond.
W
- Withholding tax call
- A call feature that allows the issuer to redeem the bond prior to maturity if there is a change in withholding taxes that adversely affects one or more holders of a security and these holder request additional compensation. Typically, this feature is found only on bonds that were issued in the Euro market.
Z
- Zero coupon bonds
- Bonds which are issued at a discount to face value and bear no interest. Original issue zero coupon bonds are issued directly by the issuer. The term is sometimes used interchangeably with strip bonds, particularly in the United States.
NextCopyright Keith Campbell ©2002-2005. All rights reserved.