CISI Securities– Study Notes
Equities separate securities; stripped government bonds are
Preference shares do not generally carry pre-emption zero coupon
rights. US use the Dutch Auction method to issue T-Bonds.
The lender should recall the stock in good time if they However, the price of the issue is assessed tender-
wish to cast their vote on special resolution style, with investors paying a common strike price.
Growth companies: High P/E ratio: low dividend yield TENDER OFFER = STRIKE PRICE PAID
Why issue warrants? To delay the payment of Tender bond issuance – ensuring bond purchases are
dividends until sometime in the future at the highest price could be sold
Stake building is used when an investor wishes to bring Eurobonds are bearer securities which pay interest
about an acquisition GROSS AND ANNUALLY. They settle through Euroclear
or Clearstream. However, they are bearer documents
Debt Types & Features
so no register is maintained.
Trustee role in debenture stock is to ensure the issuer
Eurobond trades must be reported into the TRAX
adheres to the terms of the indenture
system within 30 minutes for publication and the
If US Treasury cash balances is low, Treasury may sell
transaction reported by 10pm on the day of the trade.
Cash Management Bills. Are sold at a discount and by
During a period of zero inflation the coupon will remain
auction. Difference: irregular amount; term (often less
unadjusted from the previous period.
than 21 days), issuance, and maturity.
Capital and income shares are types of ordinary share.
Most bonds are quoted clean but will settle dirty.
An exchangeable bond is like a convertible bond;
Generally, settlement is T+2 and pay annually,
however, instead of receiving shares in the issuing
exceptions are US, UK and Japan at T+1
company, you receive other shares instead.
Settlement for UK corporate debt AND Eurobonds is
Debt Valuation
T+2
Market price = Nominal value x (Price/£100n.v.)
UK T bills are issued by tender - through a competitive
Flat Yield = Coupon/Bond Price
auction. The investor will pay the price they bid if they
Gross Redemption Yield = Flat Yield + Profit/Loss at
are successful
Redemption
Gilts bought during the 7-day 'ex-coupon' period. Buyer
would not be entitled to receive any of the coupon.
US and JGBs pay interest semi-annually YTM (yield to maturity) = GRY = IRR
Price paid by Investor = clean price + accrued interest
Bobl = Medium- OATs Japanese super-longs = Conversion Premium (%) = (Price Shares Trading at / No
3-5 term notes maturities life of 20 years of Shares to be exchanged) – Current Price per Share
years generally 2-50 years If Bond Price > Nominal Value, then the Coupon > Flat
have a life to Japanese bonds = 10 Yield > Gross Redemption Yield
Schatz = maturity of 2 years are called longs and If Bond Price < Nominal Value, then the Coupon < Flat
less – 10 years are most common
Yield < Gross Redemption Yield
than 5
Bond Price = Nominal Value, (trading at par) – Coupon
US T bonds – are all registered, are not issued as zero-
= Flat Yield = Gross Redemption Yield
coupon bonds, although they may subsequently be
Ex-coupon period - If traded before coupon pay date,
stripped into zero-coupon bonds
seller would receive the coupon payment
Both the coupon AND the capital value of the gilt are
Dirty Price – includes the interest that belongs to the
linked to the RPI (the measure of inflation in the
seller, as the seller held the bond during the cum
economy). Therefore, principal paid at redemption is
coupon period.
not fixed but varies, like the coupon, with inflation.
Inflation would be expected to be lower than interest To calculate Dirty Price you need Accrued Interest. This is
rates calculated by - Number of days accrued interest = 68 days.
MTN – coupon rate and maturity are set according to The annual coupon is £1,000. Accrued interest = 68/365 x
market demand £1000 = £186.30
Mezzanine debt = unsecured high-yield, subordinated Clean Price - clean price is £102.75/£100 x £10,000 =
debt; Mezz. debt can be issued using payment in kind £10,275.
notes (PIK) Dirty price = £10,275 + £186.30 = £10,461.30
PIK is the lowest form of debt Dirty Price in the Cum Coupon Period always higher
Common security for Debentures - Fixed charges over than the Clean Price. While, in the Ex-Coupon Period –
property is the MORE common although a Floating Dirty price becomes lower than clean price, buyer does
charge over stock is also possible not see few days of interest
GEMMS, Treasury and BoE can strip a UK government Bond Dirty Price = Clean price when the settlement
bond – stripped and income streams are treated as date is the same as the coupon date. So there is no
accrued interest
Equities separate securities; stripped government bonds are
Preference shares do not generally carry pre-emption zero coupon
rights. US use the Dutch Auction method to issue T-Bonds.
The lender should recall the stock in good time if they However, the price of the issue is assessed tender-
wish to cast their vote on special resolution style, with investors paying a common strike price.
Growth companies: High P/E ratio: low dividend yield TENDER OFFER = STRIKE PRICE PAID
Why issue warrants? To delay the payment of Tender bond issuance – ensuring bond purchases are
dividends until sometime in the future at the highest price could be sold
Stake building is used when an investor wishes to bring Eurobonds are bearer securities which pay interest
about an acquisition GROSS AND ANNUALLY. They settle through Euroclear
or Clearstream. However, they are bearer documents
Debt Types & Features
so no register is maintained.
Trustee role in debenture stock is to ensure the issuer
Eurobond trades must be reported into the TRAX
adheres to the terms of the indenture
system within 30 minutes for publication and the
If US Treasury cash balances is low, Treasury may sell
transaction reported by 10pm on the day of the trade.
Cash Management Bills. Are sold at a discount and by
During a period of zero inflation the coupon will remain
auction. Difference: irregular amount; term (often less
unadjusted from the previous period.
than 21 days), issuance, and maturity.
Capital and income shares are types of ordinary share.
Most bonds are quoted clean but will settle dirty.
An exchangeable bond is like a convertible bond;
Generally, settlement is T+2 and pay annually,
however, instead of receiving shares in the issuing
exceptions are US, UK and Japan at T+1
company, you receive other shares instead.
Settlement for UK corporate debt AND Eurobonds is
Debt Valuation
T+2
Market price = Nominal value x (Price/£100n.v.)
UK T bills are issued by tender - through a competitive
Flat Yield = Coupon/Bond Price
auction. The investor will pay the price they bid if they
Gross Redemption Yield = Flat Yield + Profit/Loss at
are successful
Redemption
Gilts bought during the 7-day 'ex-coupon' period. Buyer
would not be entitled to receive any of the coupon.
US and JGBs pay interest semi-annually YTM (yield to maturity) = GRY = IRR
Price paid by Investor = clean price + accrued interest
Bobl = Medium- OATs Japanese super-longs = Conversion Premium (%) = (Price Shares Trading at / No
3-5 term notes maturities life of 20 years of Shares to be exchanged) – Current Price per Share
years generally 2-50 years If Bond Price > Nominal Value, then the Coupon > Flat
have a life to Japanese bonds = 10 Yield > Gross Redemption Yield
Schatz = maturity of 2 years are called longs and If Bond Price < Nominal Value, then the Coupon < Flat
less – 10 years are most common
Yield < Gross Redemption Yield
than 5
Bond Price = Nominal Value, (trading at par) – Coupon
US T bonds – are all registered, are not issued as zero-
= Flat Yield = Gross Redemption Yield
coupon bonds, although they may subsequently be
Ex-coupon period - If traded before coupon pay date,
stripped into zero-coupon bonds
seller would receive the coupon payment
Both the coupon AND the capital value of the gilt are
Dirty Price – includes the interest that belongs to the
linked to the RPI (the measure of inflation in the
seller, as the seller held the bond during the cum
economy). Therefore, principal paid at redemption is
coupon period.
not fixed but varies, like the coupon, with inflation.
Inflation would be expected to be lower than interest To calculate Dirty Price you need Accrued Interest. This is
rates calculated by - Number of days accrued interest = 68 days.
MTN – coupon rate and maturity are set according to The annual coupon is £1,000. Accrued interest = 68/365 x
market demand £1000 = £186.30
Mezzanine debt = unsecured high-yield, subordinated Clean Price - clean price is £102.75/£100 x £10,000 =
debt; Mezz. debt can be issued using payment in kind £10,275.
notes (PIK) Dirty price = £10,275 + £186.30 = £10,461.30
PIK is the lowest form of debt Dirty Price in the Cum Coupon Period always higher
Common security for Debentures - Fixed charges over than the Clean Price. While, in the Ex-Coupon Period –
property is the MORE common although a Floating Dirty price becomes lower than clean price, buyer does
charge over stock is also possible not see few days of interest
GEMMS, Treasury and BoE can strip a UK government Bond Dirty Price = Clean price when the settlement
bond – stripped and income streams are treated as date is the same as the coupon date. So there is no
accrued interest
