Glossary

Active Management (top)

In Index Funds, management of the resources of funds for the purpose of exceeding their benchmark returns. Therefore the investment portfolio is not necessarily the same as the composition of the index of reference.

ADR (top)

Abbreviation for American Depositary Receipts. Receipt for stock of a company not based in the USA, issued by a bank and in custodianship at a North-American bank. Trading instrument created so that issuers of securities listed in other countries may comply with the North-American rules and regulations on securities registration and facilitate the receipt of dividends by US investors. It is traded on US organized markets. It is used to raise funds abroad and to strengthen the liquidity of company stock. Investors can convert their ADRs into company stocks and trade them in the company's country of origin.

Alpha (top)

This measures the return for the manager of the fund (or any other asset) in relation to its benchmark return. When the return of the fund is higher than its benchmark return, the alpha is positive, and when it is lower the alpha is negative.

ANBID (top)

Associação Nacional dos Bancos de Investimento (National Association of Investment Banks). The main representative of financial institutions that trade on the Brazilian equity market; its aim is to promote its strengthening as a tool for advancing the development of the country.

Besides representing the interests of its members, ANBID self-regulates its activities by adopting rules that are generally stricter than those imposed by legislation.

ANBID is also the main provider of equity market data in the country and promotes broad initiatives for the purpose of educating investors and professionals in that market. Its members are investment banks, multiple banks with investment portfolios that are active in the management and administration of investment funds, public offerings of securities, mergers and acquisitions, private banking, and custodianship, among other priority services relating to the equity market, asset management firms, and financial consulting.

ANDIMA (top)

Associação Nacional das Instituições do Mercado Financeiro (National Association of Financial Market Institutions). A private, non-profit organization that gathers financial institutions, including commercial, multiple, and investment banks, securities distributors and brokers, and asset managers.

Besides being a tool for representing the financial sector, the ANDIMA is also a provider of services, offering technical and operational support to institutions, promoting new markets, and working for the development of the National Financial System.

Arbitrage (top)

A transaction enabling profit to be made by taking advantage of momentary market anomalies and price distortions.

Asset (top)

1) Property, rights, credits and securities held by a company or individual.

2) Certificates, securities or other financial instruments of a public or private issuer.

Asset Allocation (top)

The process of distributing an investment among various classes of assets.

Asset Value (AV) (top)

The asset value of stock is the net worth of the company divided by its number of shares. A company that has 5 million shares of stock and a net worth of R$ 10 million will have an AV of R$ 2 (10/5 = 2).

Balance Sheet (top)

Accounting statement to show the Assets and Net Assets of a company in both quantitative and qualitative terms, as of a given date that coincides with the end of the financial year but does not necessarily coincide with the calendar year.

Basis Points (top)

A unit of measurement equivalent to 1/100 of 1%, 0.01%.

BDR (top)

Brazilian Depositary Receipt: A certificate representing securities issued by a company with open capital or similar, based abroad and issued by a depository institution in Brazil.

The certificate is in the custody of a custodian institution in the country of origin of the securities.

The custodian institution must be authorized by an organization similar to the CVM (Brazilian Securities Commission) to provide custodian services.

Benchmark (top)

1) Index used for comparing profitability among investments, products, services, and rates.

2) Standard indicator used to measure the comparative performance of an asset in a given length of time.

Beta (top)

1) Volatility coefficient for a stock.

2) Covariance of return for a stock in relation to the return of the market.

3) Measurement of expected risk levels on quotes for an asset in relation to the risk index of reference.

BM&FBovespa (top)

Abbreviation for Bolsa de Valores de São Paulo S.A. – BVSP (the Sao Paulo Securities Exchange). A joint stock company with closed capital, which as a company aim to execute transactions on securities exchanges and the organized over-the-counter market.

Broker (top)

1) The same as a Brazilian “corretora”: An intermediary in the purchase and sale of assets, certificates, and securities.

2) A broker or distributor of securities and certificates who is duly qualified and belongs to the securities distribution system.

Business Day (top)

A day that is not a Saturday, Sunday, or day on which financial institutions are required or authorized by applicable laws and regulations to remain closed.

Capitalization (top)

1) Increase in capital posted with funds from company operating income, new fundraising or the sale of a portion of existing capital with positive arbitrage, which is incorporated as equity.

2) Method of capturing savings investment with a periodic allotment of premiums.

3) Process of reallocating funds based on the conversion of the income received into principal, to provide income in subsequent periods.

Capitalization Value (top)

With respect to a share of stock, the aggregate value of such share as results from multiplying the respective number of shares outstanding (free float) by the respective market price in force.

Capture (top)

A transaction for the purpose of raising funds by means of:

a) the sale of investments; and/or

b) the execution of a lending transaction, as borrower.

CBLC (top)

Companhia Brasileira de Liquidação e Custódia: a clearing house that performs activities relating to clearing, settlement, custody, and risk control for the financial market.

It has the company purpose of providing financial and physical settlement and clearing services for transactions executed on the spot and futures markets of the BM&FBovespa and of other markets as well as organizing systems of custodianship for certificates and securities in general.

It is the central depository for the stock market in Brazil, which it achieved when it assumed control of Câmara de Liquidação e Custódia (CLC) in April 2000. It participates in the clearing system of the Brazilian Payments System (SPB – Sistema de Pagamentos Brasileiro). CBLC operations are characterized by:

a) delivery against payment;

b) guarantied settlement;

c) settlement on reserve; and

d) same-day movement in available funds.

CETIP (top)

Câmara de Custódia e Liquidação. A financial settlement and custodianship company created to become an organized over-the-counter market for the registration and trading of fixed-income securities. It was created to guaranty the security and flexibility of transactions on the Brazilian financial market. It offers support for the whole chain of transactions, providing services comprised of:

a) custodianship;

b) on-line trading;

c) recording of trades; and

d) financial settlement.

It provides technological support and systems to the Interbank Payments Chamber (CIP – Câmara Interbancária de Pagamentos), a clearing house for payments of the Brazilian Federation of Banks (FEBRABAN – Federação Brasileira de Bancos).

Clearing House (top)

This refers to institutions that provide clearing and settlement services for transactions executed on organized markets and exchanges. They are responsible for calculating the obligations of market participants for the settlement of their transactions by means of an exchange of assets for their respective financial values, and may also be responsible for the transferring of securities and crediting of balances to their participants. They represent the counterparty in all transactions on futures markets (the buyer for sellers and the seller for buyers).

Commodity (top)

A term signifying a raw material produced on a worldwide scale and having homogeneous physical characteristics (coffee, sugar, soy, cotton, etc.), whose price is determined by international supply and demand.

Common Stock (top)

Stock that gives the holder the essential rights of a shareholder, especially participation in the income of that company and the right to vote in shareholders’ meetings. Each share of common stock is entitled to one vote in general shareholders’ meetings.

Company with Closed Capital (top)

Securities issued by this company (joint stock company) cannot be traded on the Stock Market or Over-the-Counter Market.

Company with Open Capital (top)

Securities issued by this company (joint stock company) are registered with the CVM for trading on the Stock Market or Over-the-Counter Market.

Correlation (top)

This is a ratio that defines the relative level between two different variables. A high correlation between two variables shows that they tend to vary in conjunction. If the correlation level is low, a change in one variable has little to do with a change in another.

Creation (top)

In Index Funds, the process of creating and increasing the number of shares issued. This process requires the authorized agent to deliver – to the administrator – assets from the fund basket in exchange for a minimum lot of fund shares.

Custodianship (top)

This is the service of safeguarding assets that is provided by an authorized institution. A custodian institution is responsible for reporting daily to the client on his positions by sending custodian statements. It is also responsible for reporting and distributing to the client proceeds that the asset may generate, such as dividends and bonuses, by sending statements of account.

CVM (top)

Abbreviation for the Brazilian Securities Commission (Comissão de Valores Mobiliários), an independent federal authority that governs and supervises the securities market, created by Law No. 6,385/76. Its function is to promote the development, governance, and oversight of markets for stocks, bonds, and other securities not issued by the National Treasury or by the financial system.

Day Trade (top)

A term that signifies a pair of purchase and sale transactions executed on the same day and for the same assets, whether commodities or securities, for the same client, the settlement for which is exclusively financial.

Derivative (top)

This is an asset that has derived from another asset, i.e., with a value based on the other asset. The main types of derivatives are futures, options, and swaps. It can be used to leverage the profitability of the fund, to execute arbitrage transactions on the market, or to protect investment funds from losses.

Dividends (top)

The amount distributed to the shareholder as a participant in the income of a company.

EGSM (top)

Extraordinary General Shareholders’ Meeting: Meeting of the shareholders of a company called to debate and resolve on matters of company interest with the exception of those pertaining to the RGSM (Regular General Shareholders’ Meeting).

ETF - Exchange Traded Fund (top)

Known in Brazil as Index Funds. An Index Fund is a community of resources meant to be applied to a portfolio of securities and certificates with the purpose of reflecting the changes and profitability of a reference index for an undetermined period of time.

Fees (top)

These are fees paid for the services provided by securities markets to investors in each transaction. It is a fee paid on the financial total transacted by the investor on the day, and charged by the broker. Disbursement takes place three days after such transactions, in conjunction with the financial settlement of the transactions.

Financing Order (top)

The investor gives instruction for a purchase order (or sales order) for a security on the market along with a sales order (or purchase order) at the same time for the same security and on the same or on another market, which orders have different maturities.

Free Float (top)

The quantity of shares of stock of a company available for trading on organized markets.

Grouping (top)

A reduction in the quantity of shares of stock of a company without change in the participation of the partners. By extension, a reduction in the quantity of certificates and securities, without change in the participation of the partners, investors, or holders of rights. In the case of stocks or shares of funds, the decision to effect grouping requires approval from the general shareholders’ meeting. This is referred to as “split down” or “reverse split".

Hedge (top)

A financial transaction executed in order to reduce the risk of an investment. The term “hedge” conveys the idea of protection. For example, one thinks of a common investor doing a hedge when investing both in a stock investment fund and, at the same time, a fixed-income investment fund. Another good example is the hedge carried out by an exporter when he buys dollars on the futures market to protect himself against hikes in the dollar.

Holding Company (top)

1) A company that, as its main business activity, holds a majority stake in one or more other companies.

2) A company that holds a majority of the shares of stock or partnership shares in other companies and holds or controls the management and business policies thereof.

Ibovespa (top)

The Bovespa Index (Ibovespa) measures the performance of the most traded companies among those listed on the BM&FBovespa. The component stocks are selected and weighted according to their liquidity, measured by means of an index of marketability. The Bovespa Index was created in 1968 and has maintained its historical consistency without changes of methodology since it was established.

IBrX (top)

Brazil Index. An index of stocks calculated and published by BM&FBovespa. It measures the return of a theoretical portfolio comprised of 100 (one hundred) stocks selected from among those most traded on the BM&FBovespa classified in descending order by liquidity in terms of their marketability index (number of trades and financial volume measured during the last twelve months).

These stocks are weighted in the index portfolio by the respective number of shares of stock available for trading on the market.

Independent/Local Authority (top)

Agency of autonomous government organized as a legal entity under public law with its own assets and income, performing typical activities of public administration in a decentralized manner.

Index Fund (top)

An Index Fund is a community of resources meant to be applied to a portfolio of securities and certificates with the purpose of reflecting the changes and profitability of a reference index for an undetermined period of time.

Initial Public Offering (IPO) (top)

This is the first offering of shares of stock by a given company on the securities market.

Investment (top)

This is any capital expenditure that has the purpose of obtaining a value greater than such capital at a future time. In other words, an investment aims to obtain a yield on the amount expended.

Investment Fund (top)

A community of resources constituted in co-ownership form for the purpose of obtaining capital gains by means of trading securities and certificates. They may be specialized in certain types of investment, such as fixed-income or variable-income. They are regulated by the CVM. The application of investments to an investment fund is done by purchasing shares issued by it. They are administered only by institutions that are so authorized.

iShares (top)

iShares are a family of Index Funds (Market Index Investment Funds), known in other countries as ETFs (Exchange Traded Funds). In Brazil, the iShares Index Funds are managed by BGI Brasil Gestora de Investimentos Ltda.

J (top)

No items listed.

K (top)

No items listed.

Large Cap (top)

This is a term used on the financial market as an abbreviation of the term “large market capitalization,” referring to companies with high market capitalization.

Leveraging (top)

1) The use of the assets or funds of third parties in combining the capital structure so as to increase the final return for investors such as business owners, shareholders, investors on investment markets, and others.

2) The acquisition of assets, certificates, or securities with the funds of third parties.

3) Purchase and sale transactions in assets, certificates, and securities for settlement in the future with the prior depositing of security margins.

4) Relative importance of loans in the capital structure.

Leveraging (in investment funds) (top)

A fund is considered to be leveraged if a possibility exists (other than zero) for loss greater than the fund assets, ignoring eventualities of default in the assets that comprise the fund portfolio.

Limit Order (top)

The investor establishes the maximum or minimum price at which he desires to purchase or sell a stock. The transaction is only to be executed at a price equal to or more favorable than the one indicated by the investor.

Long Investor (top)

An investor who keeps positive asset amounts on the spot market.

Majority Shareholder (top)

The same as a controlling shareholder: an individual, organization, or group of entities bound by a voting agreement or under common control, which:

a) is the holder of partnership rights that permanently provide it a majority of the votes in general shareholders’ meetings and the power to elect a majority of the directors of the company; and

b) effectively makes use of its power to direct company activities and orient the functioning of the organizational bodies of the company.

Market Capitalization (top)

The price of a stock multiplied by the inventory of shares.

Market Order (top)

The investor only tells the broker the quantity and the characteristics of the securities that he desires to purchase or sell.

Marketability Index (top)

This is the degree of representation of a given security on the spot market calculated in terms of the number of trades and financial volume, adjusted per the size of the sample.

Matched Order (top)

The investor gives an order to purchase a security and to sell another, with one depending on the execution of the other.

Mid Cap (top)

This is a term used on the financial market as an abbreviation of the term “middle market capitalization,” referring to companies with medium market capitalization.

Minority Shareholder (top)

An owner of stock with the right to vote, the total of which does not enable him to participate in control of the company.

Negative Arbitrage (top)

This is when a price is paid for an asset (certificate, stock, or any property) that is lower than the face amount, the price set or the reference price. It is the negative difference between the nominal value and the purchase price of a security.

Over-the-counter (OTC) (top)

A market where trading is done in assets, financial instruments, certificates and securities that are not traded on securities exchanges, pursuant to the legal rules provided for in the law and regulations, without coordination by private self-regulatory organizations.

Over-the-Counter Market (top)

A market where trading is done in assets, financial instruments, certificates and securities that are not traded on securities exchanges, pursuant to the legal rules provided for in the applicable laws and regulations, without coordination by private self-regulatory organizations.

It may or may not be organized. An organized over-the-counter market is a system for trading securities that is supervised by a self-regulatory organization authorized by the CVM. On the other hand, an unorganized one is where financial assets and securities are traded among financial institutions, institutional investors, and other investors, and where no self-regulatory organization exists to coordinate the activities of purchase and sale.

Passive Management (top)

In Index Funds, management where the resources of funds aim to achieve the same profitability as their benchmark. Therefore the investment portfolio must be similar in composition to the index of reference.

Portfolio (top)

1) The same as a Brazilian “carteira”.

2) The combined certificates, stocks, and contracts of one investor.

3) In funds, this is the collection of stocks, securities, and assets that comprise the portfolio of a fund. It may also be referred to as an investment portfolio.

Positive Arbitrage (top)

1) Premium obtained in the exchange of one asset for another.

2) The difference between the market value and the nominal value of certificates and securities.

3) The value added to the book value or asset value, in the purchase of stocks.

Preferred Stock (top)

Stock that gives the holder:

a) priority in the distribution of dividends, whether fixed or minimum;

b) priority in capital reimbursement, with or without premium;

c) an accumulation of such preferences and advantages. Independent of having or not having the right to receive the capital reimbursement value with or without premium, preferred shares without the right to vote or with a restriction on the exercise of such right are only admitted to trading on the securities market if they have been attributed at least one of the following preferences or advantages:

i) the right to participate in the dividend to be distributed, corresponding to at least 25% (twenty-five percent) of the net profit of the fiscal year, according to the following criterion:

1. priority in the receipt of dividends corresponding to at least 3% (three percent) of the net asset value of the stock;

2. the right to participate in distributed profits under equal conditions with the common stock after the dividend assured to the latter equaling the minimum priority established, or

ii) the right of preferred stock to receive dividends at least 10% (ten percent) greater than that attributed to each common share of stock, or

iii) the right to be included in a public offering of disposal of control, ensuring a dividend at least equal to that for common stock. The number of preferred shares of stock without the right to vote or subject to a restriction in the exercise of such right cannot exceed 50% (fifty percent) of the total shares of stock issued. The company charter must set forth other preferences or advantages, in detail and with specifics, that are attributed to shareholders lacking the right to vote or having restricted voting besides those mentioned above.

Primary Market (top)

In Index Funds, the primary market is where a creation order for new shares or a redemption of existing shares is done directly with the fund administrator.

Qualified Investor (top)

The following are considered to be qualified investors:

1) Financial institutions.

2) Insurance companies and capitalization firms.

3) Open and closed supplementary pension organizations.

4) Individuals or legal entities that possess financial investments with a value greater than R$ 300,000.00 (three hundred thousand Brazilian reais) and that, in addition, substantiate their status as qualified investor in writing by means of the appropriate record pursuant to Appendix I of Instruction No. 409 issued by the CVM on August 18, 2004, as amended.

5) Investment funds meant exclusively for qualified investors.

6) Portfolio administrators and securities advisors authorized by the CVM, with respect to their own resources.

7) Social security and pension funds created by the Union of States of Brazil, by the States, by the Federal District, or by Municipalities.

Redemption (top)

In Index Funds, the process of redeeming and reducing the number of shares issued. This process requires the authorized agent to deliver a minimum lot of fund shares in exchange for a basket of fund assets.

Reference Index (top)

The same as the benchmark:

1) The index used for comparing profitability among investments, products, services, and rates.

2) Standard indicator used to measure the comparative performance of an asset in a given time period.

RGSM – Regular General Shareholders’ Meeting (top)

A mandatory meeting of the shareholders of a company called annually in order to:

a) receive reports from the directors;

b) examine and vote on financial statements;

c) apply profits;

d) distribute dividends;

e) elect directors and members of the audit board, as the case may be.

Secondary Market (top)

In Index Funds, this refers to transactions for the purchase and sale of shares executed on the stock market.

Securities Brokerage Firm (top)

A company created in the form of a joint stock company or limited company. It works to bring together the buyers and sellers of securities and certificates, providing them adequate marketability by the use of transactions executed at a prescribed venue (the floor of securities exchanges) that provides safety for the system and liquidity for the securities traded.

Securities and Exchange Commission (SEC) (top)

An agency created in 1934 in the United States as a result of the passing of the Securities Act of 1933 and of the Securities Exchange Act of 1934 to protect investors and maintain the integrity of securities markets.

Its scope of activity encompasses securities exchanges, brokers and dealers on the financial and equity markets, investment advisors, mutual funds, and companies with stocks owned by the public.

Share (top)

This represents a theoretical fraction of the assets of a fund. When one wants to invest in an investment fund, one purchases shares of the fund. The value of the share evolves as the assets that comprise the fund develop in value. By multiplying the number of shares held by the value of the share, an investor obtains the updated value of his original investment in the shares of the fund.

Shareholders' Meeting (top)

1) Meeting of the owners of shares of investment funds.

2) Meeting of partners of a limited company.

Small Cap (top)

This is a term used on the financial market as an abbreviation of the term “small market capitalization,” referring to companies with low market capitalization.

SOMA (top)

An abbreviation for an over-the-counter stock market operator (Sociedade Operadora de Mercado de Acesso). The market is organized for the trading of paper with low liquidity, of companies with too little capital to be traded on the exchange. The costs and the requirements on this market are lower than those of the BM&FBovespa.

Speculation (top)

A strategy of trading on markets where assets and securities are quoted, an activity necessary on the markets for financial instruments, commodities, certificates and securities, characterized by the purchase and sale of positions in order to obtain high gain on the short term as a result of fluctuation in the quotes.

Spread (top)

The difference between the offer to purchase and the offer to sell an asset. In credit transactions, the spread is the difference between the rate paid by the bank for raising funds and the rate that it charges the customer when granting a loan.

Stock (top)

1) Securities issued by companies (joint stock companies) representing a portion of their capital stock. A share of stock is the smallest portion into which the capital stock of a company is divided.

2) Securities negotiable on organized markets.

Stock Lending (top)

The same as Stock Loans: The service of lending stocks that is provided by settlement, registration, and depository services organizations by means of prior authorization from the holders of stocks, with intermediation by securities and certificate distribution or brokerage firms.

As security, the borrower must pledge securities at a value equivalent to 100% (one hundred percent) of the price of the block of shares that is being lent, augmented by supplements depending on the volatility of the price of the stocks.

The shareholder remains the owner of the stocks, receives the dividends, and exercises the other rights pertaining to the stock.

Lending is of interest to the treasury areas of banks, market makers, and other qualified investors.

The transactions are registered with CBLC (Companhia Brasileira de Liquidação e Custódia).

Stock Loans (top)

The service of lending stocks that is provided by settlement, registration, and depository services organizations by means of prior authorization from the holders of stocks, with intermediation by securities distribution or brokerage firms.

As security, the borrower must pledge securities at a value equivalent to 100% (one hundred percent) of the price of the block of shares that is being lent, augmented by supplements depending on the volatility of the price of the stocks.

The shareholder remains the owner of the stocks, receives the dividends and exercises the other rights pertaining to the stock.

Lending is of interest to the treasury areas of banks, market makers, and other qualified investors.

The transactions are registered with CBLC (Companhia Brasileira de Liquidação e Custódia).

Stock Market (top)

An institution created to organize the trading of securities. It facilitates the communications of market agents through its terminals, making trading easier and pricing more efficient, as well as eliminating the need for buyers and sellers to meet.

Tracking Error (top)

This consists of calculating the populational standard deviation of the differences between the daily percentage change in the asset value of the shares of the fund and the daily percentage change in the closing value of the reference index.

Trading Day (top)

Any day on which the BM&FBovespa is open for trading.

Trading Session (top)

Session in which trades are done in assets registered with a securities exchange, directly on the trading floor and/or using electronic trading systems.

U (top)

No items listed.

Volatility (top)

This is the level of fluctuation in the prices of an asset. If the price of an asset fluctuates a lot, having abrupt changes in a short span of time, it is referred to as having high volatility. It is usually calculated as the standard deviation of a sampling of prices for the asset, and is expressed as a percentage.

W (top)

No items listed.

X (top)

No items listed.

Yield (top)

1) Rate of return on an investment.

2) Adjusted percentage of income on original investment.

3) Profitability.

Z (top)

No items listed.

Conditions of use: this Glossary is made available under the express condition that no obligation or liability is to be attributed to the author by virtue of legal, tax, or financial decisions made by neither the reader, nor for any losses or damages that may arise from errors, omissions, and/or opinions contained in it. None of the information provided in this Glossary is to be interpreted as an offering, solicitation or recommendation for the acquisition of any product or service. In the case of decisions that involve advice on investments, and legal, regulatory, and tax rules, the reader should consult professionals specialized in such areas. The information on the terms listed here was obtained from official sources or sources recognized on the Brazilian financial market. However, we do not guaranty that such information is current or accurate, and we are not liable for any errors and/or omissions. Sources of law have been provided without commitment and they only serve as reference, not replacing the official texts published in the journal of record of Brazil, Diário Oficial da União. Certain terms relate to investment strategies that are only appropriate for a certain segment of investors.