Definition of ISDA

ISDA

International Swap Dealers Association. Formed in 1985 to promote uniform practices in the writing,
trading, and settlement of swaps and other derivatives.

Accumulated Other Comprehensive Income

Cumulative gains or losses reported in shareholders'
equity that arise from changes in the fair value of available-for-sale securities, from the
effects of changes in foreign-currency exchange rates on consolidated foreign-currency financial
statements, certain gains and losses on financial derivatives, and from adjustments for underfunded
pension plans.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

Amortizing interest rate swap

Swap in which the principal or national amount rises (falls) as interest rates
rise (decline).

Asset for asset swap

Creditors exchange the debt of one defaulting borrower for the debt of another
defaulting borrower.

Asset swap

An interest rate Swap used to alter the cash flow characteristics of an institution's assets so as to
provide a better match with its iabilities.

Bank for International Settlements (BIS)

An International bank headquartered in Basel, Switzerland, which
serves as a forum for monetary cooperation among several European central banks, the Bank of Japan, and the
U.S. Federal Reserve System. Founded in 1930 to handle the German payment of World War I reparations, it
now monitors and collects data on International banking activity and promulgates rules concerning
International bank regulation.

Bill and Hold Practices

Products that have been sold with an explicit agreement that delivery
will occur at a later, often yet-to-be-determined, date.
Capitalize To report an expenditure or accrual as an asset as opposed to expensing it and charging it against earnings currently.

Call swaption

A Swaption in which the buyer has the right to enter into a Swap as a fixed-rate payer. The
writer therefore becomes the fixed-rate receiver/floating rate payer.

Canadian Life and Health Insurance Association (CLHIA)

An Association of most of the life and health insurance companies in Canada that conducts research and compiles information about the life and health insurance industry in Canada.

Cash settlement contracts

Futures contracts, such as stock index futures, that settle for cash, not involving
the delivery of the underlying.

Circus swap

A fixed rate currency Swap against floating U.S. dollar LIBOR payments.

Common stock/other equity

Value of outstanding common shares at par, plus accumulated retained
earnings. Also called shareholders' equity.

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor
owns in his or her portfolio. See covered or hedge option strategies.

Creative Accounting Practices

Any and all steps used to play the financial numbers game, including
the aggressive choice and application of accounting principles, both within and beyond
the boundaries of generally accepted accounting principles, and fraudulent financial reporting.
Also included are steps taken toward earnings management and income smoothing. See Financial
Numbers Game.

Currency swap

An agreement to Swap a series of specified payment obligations denominated in one currency
for a series of specified payment obligations denominated in a different currency.

Day trading

Refers to establishing and liquidating the same position or positions within one day's trading.

Debt swap

A set of transactions (also called a debt-equity Swap) in which a firm buys a country's dollar bank
debt at a discount and Swaps this debt with the central bank for local currency that it can use to acquire local
equity.

Differential swap

Swap between two LIBO rates of interest, e.g. yen LIBOR for dollar LIBOR. Payments are
in one currency.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Equity swap

A Swap in which the cash flows that are exchanged are based on the total return on some stock
market index and an interest rate (either a fixed rate or a floating rate). Related: interest rate Swap.

Extension swap

Extending maturity through a Swap, e.g. selling a 2-year note and buying one with a slightly
longer current maturity.

Firm commitment underwriting

An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

Foreign Corrupt Practices Act (FCPA)

a law passed by U.S. Congress in 1977 that makes it illegal for a U.S. company to engage in various “questionable” foreign payments and
makes it mandatory for a U.S. company to maintain accurate
accounting records and a reasonable system of internal
control

Foreign exchange swap

An agreement to exchange stipulated amounts of one currency for another currency
at one or more future dates.

Good delivery and settlement procedures

Refers to PSA uniform practices such as cutoff times on delivery
of securities and notification, allocation, and proper endorsement.

Government National Mortgage Association (Ginnie Mae)

A wholly owned U.S. government corporation
within the Department of Housing & Urban Development. Ginnie Mae guarantees the timely payment of
principal and interest on securities issued by approved servicers that are collateralized by FHA-issued, VAguaranteed,
or Farmers Home Administration (FmHA)-guaranteed mortgages.

Immediate settlement

Delivery and settlement of securities within five business days.

Insider trading

trading by officers, directors, major stockholders, or others who hold private inside
information allowing them to benefit from buying or selling stock.

Interest rate swap

A binding agreement between counterparties to exchange periodic interest payments on
some predetermined dollar principal, which is called the notional principal amount. For example, one party
will pay fixed and receive variable.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

International Bank for Reconstruction and Development - IBRD or World Bank

International Bank for Reconstruction and Development makes loans at nearly conventional terms to countries for projects of high
economic priority.

International Banking Facility (IBF)

International Banking Facility. A branch that an American bank
establishes in the United States to do Eurocurrency business.

International bonds

A collective term that refers to global bonds, Eurobonds, and foreign bonds.

International Depository Receipt (IDR)

A receipt issued by a bank as evidence of ownership of one or more
shares of the underlying stock of a foreign corporation that the bank holds in trust. The advantage of the IDR
structure is that the corporation does not have to comply with all the regulatory issuing requirements of the
foreign country where the stock is to be traded. The U.S. version of the IDR is the American Depository
Receipt (ADR).

International diversification

The attempt to reduce risk by investing in the more than one nation. By
diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce
the variability of their returns.

International finance subsidiary

A subsidiary incorporated in the U.S., usually in Delaware, whose sole
purpose was to issue debentures overseas and invest the proceeds in foreign operations, with the interest paid
to foreign bondholders not subject to U.S. withholding tax. The elimination of the corporate withholding tax
has ended the need for this type of subsidiary.

International Fisher effect

States that the interest rate differential between two countries should be an
unbiased predictor of the future change in the spot rate.

international Fisher effect

Theory that real interest rates in all countries should be equal, with differences in nominal rates reflecting differences in expected inflation.

International fund

A mutual fund that can invest only outside the United States.

international fund

A mutual fund that can invest in securities issued anywhere outside of Canada.

International market

Related: See external market.

International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.

International Monetary Fund (IMF)

Organization originally established to manage the postwar fixed exchange rate system.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

International Reserves

See foreign exchange reserves.

Last trading day

The final day under an exchange's rules during which trading may take place in a particular
futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery
of underlying physical commodities or financial instruments, or by agreement for monetary settlement
depending upon futures contract specifications.

Liability swap

An interest rate Swap used to alter the cash flow characteristics of an institution's liabilities so
as to provide a better match with its assets.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

National Futures Association (NFA)

The futures industry self regulatory organization established in 1982.

Official Settlements Account

An account within the balance of payments accounts showing the change in a country's official foreign exchange reserves. It is used to measure a balance of payments deficit or surplus.

Other assets

A cluster of accounts that are listed after fixed assets on the balance sheet,
and which contain minor assets that cannot be reasonably fit into any of the other
main asset categories.

Other capital

In the balance of payments, other capital is a residual category that groups all the capital
transactions that have not been included in direct investment, portfolio investment, and reserves categories. It
is divided into long-term capital and short-term capital and, because of its residual status, can differ from
country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a
year or more like bank loans and mortgages. other short-term capital includes financial assets of less than a
year such as currency, deposits, and bills.

Other current assets

Value of non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Other sources

Amount of funds generated during the period from operations by sources other than
depreciation or deferred taxes. Part of Free cash flow calculation.

Other-than-Temporary Decline in Market Value

The standard used to describe a decline in market value that is not expected to recover. The use of the other-than-temporary description as
opposed to describing a loss as permanent stresses the fact that the burden of proof is on the
investor who believes a decline is only temporary. That investor must have the intent and financial
ability to hold the investment until its market value recovers. In the absence of an ability to
demonstrate that a decline is temporary, the conclusion must be that a decline in value is other
than temporary, in which case the decline in value must be recognized in income.

Program trading

Trades based on signals from computer programs, usually entered directly from the trader's
computer to the market's computer system and executed automatically.

Pure yield pickup swap

Moving to higher yield bonds.

Put swaption

A financial tool in which the buyer has the right, or option, to enter into a Swap as a floatingrate
payer. The writer of the Swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Quanto swap

See: differential Swap.

Rate anticipation swaps

An exchange of bonds in a portfolio for new bonds that will achieve the target
portfolio duration, based on the investor's assumptions about future changes in interest rates.

Regular way settlement

In the money and bond markets, the regular basis on which some security trades are
settled is that the delivery of the securities purchased is made against payment in Fed funds on the day
following the transaction.

Savings and Loan association

National- or state-chartered institution that accepts savings deposits and
invests the bulk of the funds thus received in mortgages.

Settlement

When payment is made for a trade.

Settlement date

The date on which payment is made to settle a trade. For stocks traded on US exchanges,
settlement is currently 3 business days after the trade. For mutual funds, settlement usually occurs in the
U.S.the day following the trade. In some regional markets, foreign shares may require months to settle.

Settlement date

The date when money first changes hands; i.e., when a buyer
actually pays for a security. It need not coincide with the issue date.

Settlement price

A figure determined by the closing range which is used to calculate gains and losses in
futures market accounts. settlement prices are used to determine gains, losses, margin calls, and invoice
prices for deliveries. Related: closing range.

Settlement rate

The rate suggested in Financial Accounting Standard Board (FASB) 87 for discounting the
obligations of a pension plan. The rate at which the pension benefits could be effectively settled off the
pension plan wished to terminate its pension obligation.

SIMEX (Singapore International Monetary Exchange)

A leading futures and options exchange in Singapore.

Skip-day settlement

The trade is settled one business day beyond what is normal.

Structured settlement

An agreement in settlement of a lawsuit involving specific payments made over a
period of time. Property and casualty insurance companies often buy life insurance products to pay the costs
of such settlements.

Structured Settlement

Historically, damages paid out during settlement of personal physical injury cases were distributed in the form of a lump-sum cash payment to the plaintiff. This windfall was intended to provide for a lifetime of medical and income needs. The claimant or his/her family was then forced into the position of becoming the manager of a large sum of money.
In an effort to create a more financially stable arrangement for the claimant, the Structured settlement was developed. A Structured settlement is an alternative to a lump sum cash payment in the resolution of personal physical injury, wrongful death, or workers’ compensation cases. The settlement usually consists of two components: an up-front cash payment to provide for immediate needs and a series of future periodic payments which are funded by the defendant’s purchase of one or more annuity policies. Those payors make payments directly to the claimant. In the unfortunate event of the claimant’s death, a guaranteed portion of the settlement may be directed to a beneficiary or his/her estate.
A Structured settlement is a guaranteed source of funds paid to the claimant or his/her family on a tax-free basis.

Substitution swap

A Swap in which a money manager exchanges one bond for another bond that is similar in
terms of coupon, maturity, and credit quality, but offers a higher yield.

Swap

An arrangement whereby two companies lend to each other on different terms, e.g. in different
currencies, and/or at different interest rates, fixed or floating.

Swap

An exchange of cash flows between two counterparties. The
counterparties may exchange flows in different currencies
(currency Swap) or exchange floating interest rate payments for
fixed rate payments (interest rate Swap).

Swap

A contract between two parties to exchange cash flows in the future
according to some formula.

swap

Arrangement by two counterparties to exchange one stream of cash flows for another.

Swap assignment

Related: Swap sale.

Swap buy-back

The sale of an interest rate Swap by one counterparty to the other, effectively ending the Swap.

Swap optio

See: Swaption.
Related: Quality option.

Swap rate

The difference between spot and forward rates expressed in points, e.g., $0.0001 per pound sterling.

Swap reversal

An interest rate Swap designed to end a counterparty's role in another interest rate Swap,
accomplished by counterbalancing the original Swap in maturity, reference rate, and notional amount.

Swap sale

Also called a Swap assignment, a transaction that ends one counterparty's role in an interest rate
Swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swaption

Options on interest rate Swaps. The buyer of a Swaption has the right to enter into an interest rate
Swap agreement by some specified date in the future. The Swaption agreement will specify whether the buyer
of the Swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the Swaption becomes the
counterparty to the Swap if the buyer exercises.

Swaption

A Swap option; an option on an interest-rate Swap. The option gives
the holder the right to enter into a contracted interest-rate Swap at a specified
future date. See Swap.

Tax swap

Swapping two similar bonds to receive a tax benefit.

Trading

Buying and selling securities.

Trading costs

Costs of buying and selling marketable securities and borrowing. trading costs include
commissions, slippage, and the bid/ask spread. See: transaction costs.

Trading halt

trading of a stock, bond, option or futures contract can be halted by an exchange while news is
being broadcast about the security.

Trading paper

CDs purchased by accounts that are likely to resell them. The term is commonly used in the Euromarket.

Trading posts

The posts on the floor of a stock exchange where the specialists stand and securities are traded.

Trading range

The difference between the high and low prices traded during a period of time;
with commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading.

Trading Security

A debt or equity security bought and held for sale in the near term to generate income on short-term price changes.

Underwriting

Acting as the underwriter in a purchase and sale.

Underwriting

Evaluating and classifying potential risk of a client.

Underwriting fee

The portion of the gross underwriting spread that compensates the securities firms that
underwrite a public offering for their underwriting risk.

Underwriting income

For an insurance company, the difference between the premiums earned and the costs
of settling claims.

Underwriting syndicate

A group of investment banks that work together to sell new security offerings to
investors. The underwriting syndicate is led by the lead underwriter. See also: lead underwriter.
Underwritten offering
A purchase and sale.

Uniform Interstate Family Support Act

A federal Act specifying which jurisdiction
shall issue family support-related garnishment orders.

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