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Fungible and non-fungible securities. The terms «fungible» and «non-fungible» relate to the way in which securities are held. If an asset is fungible, when such an asset is placed with a custodian, the custodian at the end of the custody arrangement may return assets equivalent to the original asset, rather than the identical asset.

Stock split refers to a corporate action that increases the shares in a public company. The price of the shares are adjusted so that the before and after market capitalization of the company remains the same and dilution does not occur. 2-for-1, 3-for-1, and 3-for-2 splits are the most common but any ratio is possible. Sometimes investors will receive cash payments in lieu of fractional shares.

It is often claimed that stock splits in themselves lead to higher stock prices, however, research does not bear this out. What is true is that stock splits are usually initiated after a large run up in share price. Momentum investing would suggest that such a trend would continue regardless of the stock split.

Source: Wikepidea

1. mortgage (Mort) n – ипотека, закладная, ипотечный кредит

mortgage v – закладывать

2. repackaging n – «переупаковка» (разделение ценной бумаги на элементы для продажи в качестве самостоятельных финансовых инструментов)

repackage v – «переупаковывать»

3. special purpose vehicle (SPV) – компания специального назначения

4. securitization n – «секьюритизация» (повышение роли различных ценных бумаг как форм заимствования по сравнению с банковскими кредитами; трансформация банковских кредитов в ценные бумаги; стирание различий между рынками банковских кредитов и ценных бумаг)

5. investment bank – инвестиционный банк

6. security interest – право на обеспечение

7. collateral transfer – передача обеспечения

8. marketable security – рыночные (легко реализуемые) ценные бумаги

9. entitlement n – право на что-либо

entitle (to) v – давать право на что-либо

10. vote n – голос

vote v – голосовать

voting a – голосующий

11. cooperative society – кооператив

12.majority shareholder – основной акционер

13. legal person – юридическое лицо

14. full service broker – брокер полного профиля

15. discount broker – «дисконтный» брокер

16. investor’s relations department – департамент по отношениям с инвесторами

17. direct public offer – прямое публичное предложение акций

18. short selling – «короткая» продажа

19. trasaction fee – гонорар за операцию

20. capital gains tax – налог на приращение капитала

21. treasury stock – казначейские акции

22. dual class share – «двойная акция»

23. right of first refusal – право первого отказа

24. preference share – привилегированная акция

25. convertible bond – конвертируемая облигация

26. equity warrant – облигационный варрант, дающий право на покупку акций заемщика по оговоренной цене

27. detach v – отделять, отцеплять, разъединять

detachable a – отделяемый, съемный, отрывной

28. International Securities Market Association (ISMA) – Ассоциация международного рынка ценных бумаг

29. bearer security – ценная бумага на предъявителя

30. registered security – именная ценная бумага

31. registrar n – реестродержатель

32. fungible security – взаимозаменяемая ценная бумага

33. non-fungible security – невзаимозаменяемая ценная бумага

34. custodian n – попечитель, финансовый агент, хранитель

custodial a – попечительский

35. stock split – сплит или расщепление акций

36. momentum n – импульс, движущая сила, толчок, темп

Exercise 1. Answer the following questions.

1. How did the term «security» evolve over the years? 2. Who are the usual issuers of securities? 3. What does securitization mean? 4. Why are securities used as collateral? 5. What is equity? 6. What is the relationship between ownership and control in a corporation? 7. What rights do shareholders enjoy? 8. How can shares be bought and sold? 9. What are the most common types of shares? 10. What is the difference between the primary and secondary market? 11. What is the difference between bearer and registered securities? 12. What are the advantages of the stock split?

Exercise 2. You are a strategic consultant hired by a Russian company that wants to create corporate structure similar to the one adopted by the leading Western companies. Using the following briefing materials, you have to explain to the founder of the company what positions should be created in the company.

The Basics of Corporate Structure

In an attempt to create a corporation where stockholders’ interests are looked after, many firms have implemented a two-tier corporate hierarchy. On the first tier is the board of directors: these individuals are elected by the shareholders of the corporation. On the second tier is the upper management: these individuals are hired by the BoD.

Board of Directors

Elected by the shareholders, the BoD is made up of two types of representatives. The first type involves individuals chosen from within the company. This can be a CEO, CFO, manager or any other person who works for the company on a daily basis. The other type of representative is chosen externally and is considered to be independent from the company. The role of the board is to monitor the managers of a corporation, acting as an advocate for stockholders. In essence, the BoD tries to make sure that shareholders’ interests are well served.

Board members can be divided into three categories:

 Chairman – Technically the leader of the corporation, the chairman of the board is responsible for running the board smoothly and effectively. His or her duties typically include maintaining strong communication with the chief executive officer and high-level executives, formulating the company’s business strategy, representing management and the board to the general public and shareholders, and maintaining corporate integrity. A chairman is elected from the board of directors.

Inside directors – These directors are responsible for approving high-level budgets prepared by upper management, implementing and monitoring business strategy, and approving core corporate initiatives and projects. Inside directors are either shareholders or high-level management from within the company. Inside directors help provide internal perspectives for other board members. These individuals are also referred to as executive directors if they are part of company’s management team.

Outside directors. While having the same responsibilities as the inside directors in determining strategic direction and corporate policy, outside directors are different in that they are not directly part of the management team. The purpose of having outside directors is to provide unbiased and impartial perspectives on issues brought to the board.

Management team

As the other tier of the company, the management team is directly responsible for the day-to-day operations (and profitability) of the company.

Chief Executive Officer (CEO): As the top manager, the CEO is typically responsible for the entire operations of the corporation and reports directly to the chairman and Board of Directors. It is the CEO’s responsibility to implement board decisions and initiatives and to maintain the smooth operation of the firm, with the assistance of senior management. Often, the CEO will also be designated as the company’s president and therefore also be one of the inside directors on the BoD.

 Chief Operations Officer (COO): Responsible for the corporation’s operations, the COO looks after issues related to marketing, sales, production and personnel. More hands-on than the CEO, the COO looks after day-to-day activities while providing feedback to the CEO. The COO is often referred to as a senior vice president.

 Chief Finance Officer (CFO): Also reporting directly to the CEO, the CFO is responsible for analyzing and reviewing financial data, reporting financial performance, preparing budgets and monitoring expenditures and costs. The CFO is required to present this information to the board of directors at regular intervals and provide this information to shareholders and regulatory bodies such as SEC. The CFO routinely checks the corporation’s financial health and integrity.

Source: Investopedia, February 28, 2003

Exercise 3*. Find terms in the text that match definitions given below and make sentences of your own with each term.

1. something given to secure a loan or as a guarantee of performance

2. a party that has physical possession of a financial instrument

3. a market of debt and equity instruments that mature in more than 1 year

4. form of business ownership that is a legal entity on its own and puts stockholders and the Board of Directors in control. Owners have limited liability for its actions

5. the ownership interest in a business remaining after its liabilities are deducted

6. securities that are easily sold

7. an unregistered direct sale of securities by a company to limited institutional investors

8. a security registered in the name of an investor, who is the only party that can collect interest and principal or sell the security

9. securities trading market for previously issued financial instruments in the primary market

10. trading securities in organized exchanges and over the counter markets

11. сompany issued securities used for financing and backed by selected financial assets

12. ownership of a corporation through the purchase of shares

Exercise 4*. Fill in the blanks using terms given below.

Spotlight on American Depository Receipts

Until recently, participation in Russia’s lucrative but…… equity market remained a mystery to the international financial……… open to only the most……. emerging market investors. However, in 1995 the Russian electric……. Mosenergo issued the first Russian……. in conjunction with the Bank of New York, thus beginning a trend which has allowed a number of Russian firms to make their first foray into the American capital markets.

Issuing and Trading ADRs

An American Depository Receipt is issued by an American……. institution, denominated in dollars, and represents one or more shares of a foreign corporate……. which has been deposited with a local……. in the home country of the entity.

In the case of Russia, the ADR is created by the US depository institution and……. to the US purchaser. The…….. proceeds as follows. The purchaser’s broker buys the…….. Russian……. through a licensed Russian broker, and subsequently directs that the stock be deposited with a custodial……. of the ADR issuing bank. The broker…….. the transaction will…….. the USD received from the purchaser into rubles and pay the local broker for the shares. On the day that the shares are……. to the custodian, this institution…….. the depository bank. When notification is received, the ADRs are issued and delivered to the broker initiating the transaction, who in turn delivers the securities to the investor. Thus, one of the depository institution’s most crucial roles is that of stock…….. agent and………

Once an ADR is issued, it can be freely sold to other investors in the US in an…… transaction…… of an ADR works in a fashion similar to the purchase transaction. The owner’s broker may sell the ADR to another US investor in an intra-market transaction, or may sell the shares in Russia in a……. transaction.

Once again going through the local Russian broker, the US broker sells the shares and then…….. the ADRs to the depository bank. The depository institution……. the ADRs and instructs the custodian to deliver the shares held to the local broker who will arrange for the conversion of rubles into dollars to be returned to the ADR…..

Level 1 ADRs

As the quality of…… information disseminated by Russian firms is rudimentary and confusing, the majority of companies issuing ADRs utilize the Level 1 program, which is the simplest method for a foreign company to gain access to the American capital market.

Level 1 ADRs trade……. and consequently the issuing company is…….. from……. with many of the reporting and……… requirements set forth in the 1934 Securities Exchange Act. This exemption allows the foreign issuer to enjoy the benefits of a…… security while continuing to use the current financial reporting process. To issue a Level 1 ADR, a Russian company must do the following: