The terms and abbreviations you need to knowSalvus Team
Professionals in all industries and sectors performing, offering or consulting on investment services, frequently come across terms and abbreviations, especially when reading items published by the European Securities and Markets Authority (ESMA), National Competent Authorities (NCAs) or other related bodies.
A good understanding and the ability to refer to all these, is critical to your swift understanding of the impact, essence and application of all news Directives, Circulars and so on.
We list in alphabetical orders all the terms and abbreviations used by our team at SALVUS in our articles and client communications, as a page to be bookmarked for quick reference.
This page will be updated as new terms and abbreviations enter the industry. If there is a term you would like us to elaborate on or it is missing, please send us an email at [email protected].
Stands for Asset Backed Security. An Asset Backed Security is a security whose value and income payments are derived from and collateralized, otherwise known as backed, by a specified pool of underlying assets which can be for instance mortgage or credit cards credits.
Stands for the Advisory Body on Financial Sanctions. It is chaired by the Ministry of Finance and deals with the examination of requests for the release of funds maintained in accounts of credit institutions, frozen pursuant to Sanctions and Restrictive measures. ABFS makes recommendations for the approval or rejection of their release pursuant to a final decision to be taken by the Minister of Finance.
Rules governing the decision of an operator of a financial market infrastructure, such as a stock exchange or clearing house, to allow third parties to do business on or through their systems.
Admission to trading
The decision for a financial instrument to be traded in an organised way, notably on the systems of a trading venue.
The Alternative Investment Fund Managers Directive is the law on the financial regulation of hedge funds, real estate, private equity and other Alternative Investment Fund Managers in the EU.
Stands for Account Information Service Providers. These are TPPs (see TPP) that do not hold payment accounts and can collect and consolidate balances and transaction information on the customer’s different payment accounts held with other institutions. An AISP aggregates a client’s transaction and balance information held with other banks to provide a holistic view of the client’s transactions.
An algorithm is a set of defined instructions for making a calculation. They can be used to automate decision making, for instance with regards to trading in financial instruments.
Algorithmic trading is trading done using computer programmes applying algorithms, which determine various aspects including price and quantity of orders, and most of the time placing them without human intervention.
Stands for Anti Money Laundering
Stands for Anti – Money Laundering Compliance Officer who is a person in senior management and has the ability, knowledge and expertise to perform the relevant duties.
Stands for Anti-Money Laundering Task Force. It is concerned combating money laundering and terrorist financing.
Stands for Anti-money Laundering and Combating the Financing of Terrorism. It is a department responsible for:
– The monitoring, evaluation and supervision of the implementation of the provisions of the Law and the Directive by the Regulated Entities.
– The supervision of the Regulated Entities with their continuous obligations through onsite and offsite inspections, for the purpose of assessing the adequacy and effectiveness of the measures and procedures applied.
– The participation in European Bodies which are responsible for the preparation of European Directives, Regulations, Standards and Directives.
– The participation in the “Advisory Authority for Combating Money Laundering” which is established under section 56 of the Law.
– The participation in committees composed of representatives of other relevant supervisory authorities in Cyprus and abroad, for the prevention of money laundering and terrorist financing.
– The participation in the evaluations conducted by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) of the Council of Europe.
– The drafting and publication of Directives, Guidelines and Circulars in accordance with the legislation governing the operation of the Regulated Entities.
– The educating of Regulated Entities on the prevention of money laundering activities and terrorist financing.
Stands for Anti Money Laundering Directive. See 4th AMLD and 5th AMLD.
It is the Directive 2015/849 of the European Parliament and of the Council of 20 May 2015 relating to the prevention of the use of the credit and financial system for ML and financing of terrorism, the amendment of regulation (EU) number 648/2012 of the European Parliament and of the Council, and repealing directive 2005/60/EC of the European Parliament and of the Council and directive 2006/70/EC of the Commission.
It is the Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of ML and TF.
The requirement for a financial firm to take the necessary steps to ascertain whether a financial product or service is suited to the needs of their client.
Stands for Approved Publication Arrangement. An Approved Publication Arrangement is a system that requires firms executing transactions to publish trade reports through a body that ensures timely and secure consolidation and publication of such data.
An arbitrage strategy is one that exploits differences in price that exist due to market inefficiencies, for example, buying an instrument on one market and simultaneously selling a similar instrument on another market.
Stands for Approved Reporting Mechanism. An approved reporting mechanism is a platform that reports transactions on behalf of firms. This can also be done via the multi-lateral trading facility or regulated market on which the transaction was performed.
It is a process by which assets are converted into tokens that can then be moved, stored, recorded and traded on a blockchain (see Blockchain).
Stands for Administrative Service Providers
Stands for Account Servicing Payment Service Providers. It is a financial institution that offers payment accounts with online access. ASPSPs under PSD2 (see PSD2) are obliged to open their APIs to licensed TPPs (see PISP and AISP) to provide their services.
Stands for Assets Under Management. It is the market value of all the investments that an entity, such as an AIF or a RAIF, handles on behalf of its investors.
The use of computer programmes to enter trading orders where the computer algorithm decides on aspects of execution of the order such as the timing, quantity and price of the order. Those familiar with the trading platforms of MetaQuotes, MT4 and MT5, will understand that the Expert Advisors or Robo Advisors that can be added to these platforms are examples of automated trading.
Article 21 in MiFID requires that firms take all reasonable steps to obtain the best possible result for their clients when executing orders. The best possible result should be determined with regard to the following execution factors: price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of an order.
Any natural person who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction or activity is being conducted.
The bid-ask spread is the difference between the price at which a market maker is willing to buy an asset and the price it is willing to sell at.
It is a decentralised digital currency. Decentralised means that there is no central bank or single administrator to control Bitcoin. Its core component is Blockchain technology (see Blockchain) using cryptography, and thus Bitcoin and other digital currencies are also called crypto or cryptocurrency.
An order which is only discussed and disclosed to the counterparties to the trade.
It is the technology at the heart of Bitcoin. It is a growing list of records, called blocks, that are linked using cryptography, a chain. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By its design, a blockchain is resistant to modification of the data by being an open, distributed ledger that records transactions in a verifiable and permanent way.
Stands for Board of Directors
Broker crossing network
Several investment firms in the EU operate systems that match client order flow internally (think Credit Suisse, Deutsche Bank and the lines). These firms receive orders electronically, utilise algorithms to determine how they should best be executed (see Best Execution) and then pass the business through an internal system that will attempt to find matches. It is important to note that broker crossing networks do not show an order book, and simply aim to match orders; due this nature they are sometimes compared to Dark Pools, which have similar characteristics.
Stands for Capital Adequacy Ratio. It is expressed as a percentage of a bank’s, an investment firm’s or an electronic money institution’s available capital of a its risk-weighted exposures.
Stands for Cyprus Bar Association
Stands for Central Bank of Cyprus
Stands for Customer due diligence
Stands for Central Counterparty. A Central Counterparty is an entity that acts as an intermediary between trading counterparties and absorbs some of the settlement risk. In practice, the seller will sell the security to the central counterparty, which will simultaneously sell it on to the buyer (and vice versa). If one of the trading parties defaults, the central counterparty absorbs the loss.
Stands for Collateralized Debt Obligations.
Stands for Credit Default Swap. A credit default swap is a contract between a buyer and a seller of protection to pay out in the case that another party (not involved in the swap), defaults on its obligations. CDS can be described as a sort of insurance where the purchaser of the CDS owns the debt that the instrument protects; however, it is not necessary for the purchaser to own the underlying debt that is insured.
Stands for Common Foreign and Security Policy. It is the organised and agreed foreign policy of the European Union for security and defence diplomacy and actions.
The Commodity Futures Trading Commission. It is the independent agency of the US government that regulates derivatives markets, which includes futures, swaps, and certain kinds of options in the US.
Churning is where a broker conducts excessive trading on a client’s account in order to increase their commission.
Stands for Cyprus Investment Firm. An entity authorised by CySEC to perform and offer investment services under MiFID
A circuit breaker is a mechanism employed by a market in order to temporarily suspend trading in certain conditions, including sudden, deep price falls. One aim of the use of circuit breakers is to prevent mass panic selling and to prevent associated herd behaviours.
Classification of clients
Protection requirements are calibrated in MiFID to three different categories of clients, notably clients, professionals, and eligible counterparties. The high level principle to act honestly, fairly and professionally and the obligation to be fair, clear and not misleading apply irrespective of client categorization.
The process of establishing settlement positions, including the calculation of net positions, and the process of checking that securities, cash or both are available for the settlement of obligations. In other words it is the process used for managing the risk of open positions.
A guarantee that is used by the collateral provider to secure an obligation to the collateral taker. Collateral usually takes the form of cash or securities. It is also referred to as margin.
– the provision of banking services by one bank (the correspondent) to another bank (the respondent – see Respondent Bank), including providing a current or other liability account and related services, such as cash management, international funds transfers, cheque clearing, payable through accounts and foreign exchange services
– the relationships between and among credit institutions and obliged entities including where similar services are provided by a correspondent institution to a respondent institution, and including relationships established for securities transactions or funds transfers.
A financial instrument which is deemed to be sufficiently standardised in order to be cleared by a central counterparty.
Client assets are assets (cash, equities, bonds, etc) which belong to the client, but which are held by investment firms for investment purposes.
A financial instrument the value of which depends on that of a commodity, such as grains, energy or metals.
A financial product the structure of which includes different components, often made of derivatives and the valuation of which will evolve in a non-linear fashion. These notably include tailor-made products such as structured products, asset backed securities, and nonstandard OTC derivatives.
The Capital Requirements Directive. It is a supervisory framework which reflects the Basel II and Basel III rules on capital measurement (see CAR) and capital standards in the European Union.
Also typed as crypto currency. It is a digital currency which uses cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets via a blockchain (see Blockchain). See Bitcoin.
The MiFID Level 1 Directive (Art. 19(6)) defines and lists specific types of instruments/products that can always be treated as non-complex for investor protection purposes and notably information requirements. Under EU law, the complexity of an instrument is determined by the way it is structured and the ease with which the risk attached to the product can be understood.
Conflicts of interest
The term conflict of interest is widely used to identify behaviour or circumstances where a party involved in many interests finds that two or more of these interests’ conflict. Conflicts of interest are normally attributed to imperfections in the financial markets and asymmetric information. Due to the diverse nature of financial markets, there is no general definition of a conflict of interest; however, they are typically grouped into Firm/Client, Client/Client and Intra Group Conflicts. MiFID contains provisions for areas where conflicts of interest commonly arise and how they should be dealt with.
A consolidated tape is an electronic system which combines sales volume and price data from different exchanges and certain broker dealers. It consolidates these into a continuous live feed, providing summarised data by security across all markets. In the US, all registered exchanges and market centres that trade listed securities send their trades and quotes to a central consolidator. This system provides real-time trade and quote information.
Trading strategies which involve placing orders or executing trades in several markets.
Custodian wallet provider
In accordance with the 5th AMLD (see 5th AMLD), custodian wallet provider means an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies.
Stands for Cyprus Public Audit Oversight Board
Stands for Cyprus Securities Exchange Commission. Established and operating pursuant to the Cyprus Securities and Exchange Commission (Establishement and Responsibilities) Law.
Dark pools are trading systems where there is no pre-trade transparency of orders in the system (i.e. there is no display of prices or volumes of orders in the system). Dark pools can be split into two types: systems such as crossing networks that cross orders and are not subject to pre-trade transparency requirements, and trading venues such as regulated markets and MTFs that use waivers from pre-trade transparency not to display orders.
A dealer is an entity that will buy and sell securities on their own account, acting as principal to transactions.
A derivative is a type of financial instrument whose value is based on the change in value of an underlying asset.
A directive is a legislative act of the European Union, which requires Member States to achieve a particular result without dictating the means of achieving that result. A Directive therefore needs to be transposed into national law contrary to regulations that have direct applicability.
Dissemination refers to giving out information.
Distortion and misleading behaviour
Distortion and misleading behaviour refer to behaviour that gives a false or misleading impression of either the supply of, or demand for, an investment; or behaviour that otherwise distorts the market in an investment.
A financial firm’s internal guidelines as to how and under which conditions the firm and its personnel provide services for and offer products to its clients.
Stands for Direct market access. Participants require access to a market in order to trade on it. Direct market access refers to the practice of a firm who has access to the market allowing another 3rd party firm electronic access to the market via their own systems.
Stands for Designated non-financial businesses and professions
Stands for the European Banking Authority. A regulatory agency of the European Union headquartered in Paris. Its activities include conducting stress tests on European banks to increase transparency in the European financial system and identifying weaknesses in banks’ capital structures.
Stands for the European Central Bank. The European Central Bank is the central bank for the euro and administers monetary policy within the Eurozone, which comprises 19 member states of the European Union and is one of the largest monetary areas in the world
Stands for Enhanced due diligence
Stands for the Economic and Monetary Affairs Committee of the European Parliament. It is a committee of the European Parliament which is responsible for the regulation of financial services, the free movement of capital and payments, taxation and competition policies, oversight of the European Central Bank, and the international financial system.
Stands for the European Economic Area. It was established via the EEA Agreement in 1992, is an international agreement which enables the extension of the European Union’s single market to non-EU member parties. Countries included are all the EU Member States plus Iceland, Liechtenstein and Norway.
Stands for the European Financial Reporting Advisory Group. It is a private association established in 2001 with the encouragement of the European Commission to serve the public interest.
Electronic money issuer
It can be one of the following:
– Banks that have been granted license by competent authorities of other Member States,
– Cooperative credit institutions,
– Post office giro institutions which are entitled under national law to issue electronic money,
– The European Central Bank and national central banks when not acting in their capacity as monetary authorities or other public authorities,
– Member States or their regional or local authorities when acting in their capacity as public authorities,
– Electronic money institutions
Electronic order book trading
A system of transacting in financial instruments based on publicly available prices and sizes at which investors are willing to transact. It is distinguished from request for quote trading, where investors contact each other bilaterally in order to establish the prices which they can trade on.
Stands for Electronic Money Institution
Stands for European Market Infrastructure Regulation. It is a body of European legislation for the regulation of over-the-counter derivatives.
The process by which the European Commission gathers information and makes a decision with regards to whether or not the financial market rules and supervision of a third country are as strict and comprehensive as those in Europe.
Stands for EU Emission Allowance An allowance to emit one tonne of carbon dioxide equivalent during a specified period, as more specifically defined in Article 3(a) of Directive 2003/87/EC.
Stands for European Supervisory Authorities.
Stands for European System of Financial Supervision. A network centred around three ESAs, the ESRB and NCAs. Its main task is to ensure consistent and appropriate financial supervision throughout the EU.
Stands for European Securities and Markets Authority. ESMA is an independent EU Authority that contributes to safeguarding the stability of the European Union’s financial system by enhancing the protection of investors and promoting stable and orderly financial markets.
Stands for European Systemic Risk Board. It is tasked with the macro-prudential oversight of the financial system within the European Union in order to contribute to the prevention or mitigation of systemic risks to financial stability in the EU.
Stands for the European Union Emission Trading Scheme – a ‘cap and trade’ system: it caps the overall level of emissions allowed but, within that limit, allows participants in the system to buy and sell allowances as they require. These allowances are the common trading ‘currency’ at the heart of the system. One allowance gives the holder the right to emit one tonne of CO2 or the equivalent amount of another greenhouse gas. The cap on the total number of allowances creates scarcity in the market.
Investment firms may provide investors with a means to buy and sell certain financial instruments in the market without undergoing any assessment of the appropriateness of the given product – that is, the assessment against knowledge and experience of the investor. These execution-only services are only available when certain conditions are fulfilled, including the involvement of so-called non-complex financial instruments.
Stands for Financial Action Task Force. It is an inter-governmental body established in 1989 by the G7 (see G7) industrial nations to foster the establishment of national and global measures to combat ML. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating ML, TF and other related threats to the integrity of the international financial system. The FATF is therefore a policy-making body which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
Stands for Financial Intelligence Unit
Also known as sub-fund. Compartments in an investment fund function as independent funds within the same legal entity. The main advantages are flexibility to the investment strategies that can be applied at the same time and a more efficient operation of the fund.
Stands for the Group of Seven. A forum of the seven countries with the world’s largest developed economies—France, Germany, Italy, Japan, the United States, the United Kingdom, and Canada – whose government leaders meet annually on international economic and monetary issues. The European Union is sometimes considered an eighth member of the G7, since it holds all the rights and responsibilities of full members except to chair or host the meeting.
Stands for the Group of Eight. It is the G7 (see G7) group plus Russia. Russia was disinvited in 2014.
Stands for the Group of Twenty. It is an international forum for the governments and central bank governors from 19 countries and the European Union.
Hard position limit
A hard position limit is a strict pre-defined limit on the amount of a given instrument that an entity can hold.
Hedging is the practice of offsetting an entity’s exposure by taking out another opposite position, in order to minimise an unwanted risk. This can also be done by offsetting positions in different instruments and markets.
High frequency trading
High frequency trading is a type of electronic trading that is often characterised by holding positions very briefly in order to take advantage of short-term opportunities in terms of price rises and falls. High frequency traders use algorithmic trading to conduct their business.
High risk third country
(i) a third country, designated by the European Commission pursuant to the provisions of article 9 (2) of the 4th EU Directive by the issuance of acts by way of derogation, which presents strategical shortcomings in its national system for combating ML and TF which are considered as important threats for the financial system of the European Union, and
(ii) a third country, which is categorised by the obliged entities as high risk in accordance with the risk assessment foreseen by article 58A of the AML/CFT Law.
Stands for International Bank Account Number. It is an internationally agreed system of identifying bank accounts across countries to facilitate the communication and processing of cross border transactions.
Stands for Internal Capital Adequacy Assessment Process. The purpose of an ICAAP is to determine the adequate capitalisation of the investment firm or bank, given the risks endured as well as future risks arising from growth, new markets and expansion of the product portfolio. A full ICAAP is performed as often as required, but at least once a year.
Stands for Initial Coin Offering. It is an unregulated, and thus high-risk, crowdfunding mechanism for early-stage digital asset ventures commonly based on Ethereum. In ICOs, funds are raised by offering cryptocurrency tokens called Coins which act as a voucher that may be traded for some resource or feature of the venture in the future.
Stands for Institute of Certified Public accountants of Cyprus
Stands for Investment Firm
Improper disclosure is where an insider improperly discloses inside information to another person.
Inducement is a general notion referring to various types of incentives provided to financial intermediaries in exchange for the promotion/ sale of specific products to their clients.
An information asymmetry occurs where one party to a trade or transaction has more or better information than another party to that trade or transaction, giving it an advantage in that trade or transaction.
Insider dealing is when an insider deals, or tries to deal, because of inside information.
Interest rate swap
An interest rate swap is a financial product through which two parties exchange flows; for instance, one party pays a fixed interest rate on a notional amount, while receiving an interest rate that fluctuates with an underlying benchmark from the other party. These swaps can be structured in various ways negotiated by the counterparties involved.
International Convention for the Suppression of the Financing of Terrorism
It is also known as the Terrorist Financing Convention, a 1999 United Nations treaty designed to criminalize acts of financing acts of terrorism. The convention also seeks to promote police and judicial co-operation to prevent, investigate and punish the financing of such acts.
A person or firm who acts to bring together supply and demand from two other firms or persons. In the context of MiFID, intermediary are investment firms.
Interpositioning is where a broker adds another intermediary in a trade, even if not required. This increases commissions of the intermediary for which the original broker will generally also gain some form of benefit – e.g. through mutual interpositioning or other benefits. The client ultimately loses out by not receiving best execution.
Investment services are legally defined MiFID (article 4 and Annex I), and covers various activities from reception of orders, portfolio management, underwriting or operation of MTFs.
Stands for Indication of interest. An indication of interest is where a buyer discloses that he wishes to purchase an instrument, often made before an initial public offering. This can also be called an expression of interest. An IOI does not force the party expressing an interest to act on it i.e. to trade on it.
Stands for the International Organisation of Securities Commissions. It is the international body that brings together the world’s securities regulators and is recognized as the global standard setter for the securities sector.
Stands for Initial Public Offering. It refers to the process by which a private company offers shares of its assets to the public.
Stands for Know Your Customer. AML (see AML) policies and procedures used to determine the true identity of a customer and the type of activity that is normal and expected, and to detect activity that is unusual for a particular customer. These processes and procedures assist in ensuring that the Obliged Entity’s services are not misused.
The time an order entered into a trading system stays in it before being executed or withdrawn.
Liquidity is a complex concept that is used to qualify the markets and the instruments traded on these markets. It aims at reflecting how easy or difficult it is to buy or sell an asset, usually without affecting the price significantly. Liquidity is a function of both volume and volatility. Liquidity is positively correlated to volume and negatively correlated to volatility. A stock is said to be liquid if an investor can move a high volume in or out of the market without materially moving the price of that stock. If the stock price moves in response to investment or disinvestments, the stock becomes more volatile.
A lit market is one where orders are displayed on order books and are therefore pre trade transparent. On the contrary, orders in dark pools or dark orders are not pre trade transparent. This is the case for orders in broker crossing networks.
Lit and Dark orders
A lit order is one which can be seen by other market counterparts. A dark order is one which cannot be seen by other market counterparts. Matching dark orders are automatically executed by the trading venue without each counterpart knowing details of the other.
Stands for the Market Abuse Directive, a measure aimed at reducing market abuse (see Market abuse). It applies to any financial instrument admitted to trading on a regulated market or in respect of which a request for admission to trading had been made. It was repealed and replaced by the Market Abuse Regulation with effect from 3 July 2016.
Manipulating devices refers to trading, or placing orders to trade, which employs fictitious devices or any other form of deception or contrivance.
Manipulating transactions is trading, or placing orders to trade, that gives a false or misleading impression of the supply of, or demand for, one or more investments, raising the price of the investment to an abnormal or artificial level.
Stands for Market Abuse Regulation. It repealed and replaced the Market Abuse Directive and its implementing legislation. MAR establishes a new, common regulatory framework on market abuse, as well as measures to prevent market abuse to ensure the integrity of the EU financial markets and enhance investor protection and confidence in those markets (Article 1, MAR).
Market abuse consists, inter alia, of market manipulation and insider dealing, which could arise from distributing false information, distorting prices or improper use of insider information.
General trading phenomenon which results in the market prices differing from those that would result exclusively from supply and demand.
Market efficiency refers to the extent to which prices in a market fully reflect all the information available to investors. If a market is very efficient, then no investors should have more information than any other investor, and they should not be able to predict the price better than another investor.
Market fragmentation refers to the dispersion of business across different trading venues. It is considered to reduce readily access to liquidity.
Market integrity is the fair and safe operation of markets, without misleading information or inside trades, so that investors can have confidence and be sufficiently protected.
A market maker is a firm that will buy and sell a particular security on a regular and continuous basis by posting or executing orders at a publicly quoted price. They ensure that an investor can always trade the particular security and in doing so enhance liquidity in that security.
A firm responsible for setting up and maintaining a trading venue such as a regulated market or a multi-lateral trading facility.
Stands for Markets in Financial Instruments Directive. It is a law that was created by the European Union for the purpose of regulating all investment services in member states of the European Economic Area.
Misuse of information
Misuse of information is behaviour based on information that is not generally available but would affect an investor’s decision about the terms on which to deal.
Stands for Money Laundering. The process of concealing or disguising the existence, source, movement, destination or illegal application of illicitly derived property or funds to make them appear legitimate. It usually involves a three-part system:
1. Placement of funds into a financial system,
2. layering of transactions to disguise the source, ownership and location of the funds, and
3. integration of the funds into society in the form of holdings that appear legitimate.
Stands for Money Laundering / Terrorist Financing
MOKAS or The Unit
MOKAS is The Unit for Combating Money Laundering which is established according to Article 54 of the Prevention and Suppression of Money Laundering Activities Law. It is a national centre (in Cyprus) for receiving, requesting, analysing and disseminating disclosures of suspicious transactions reports and other relevant information concerning suspected ML or financing of terrorism activities.
It is the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism of the Council of Europe. It was established to conduct self and mutual assessments of AML (see AML) measures in place in Council of Europe countries that are not FATF (see FATF) members. It is a permanent monitoring body of the Council of Europe entrusted with the task of
– assessing compliance with the principal international standards (FATF Recommendations) to counter ML and the financing of terrorism and the effectiveness of their implementation and
– making recommendations to national authorities in respect of necessary improvements to their systems.
Stands for Money Transfer Business
Stands for Multilateral Trading Facility. MiFID introduced the concept of Multilateral Trading Facilities (MTFs) to replace Alternative Trading Systems (ATSs) (which had been established prior to MiFID but were not subject to specific European legislation). An MTF is a system, or “venue”, which brings together multiple third-party buying and selling interests in financial instruments in a way that results in a contract, MTFs can be operated by investment firms or market operators and are subject to broadly the same overarching regulatory requirements as regulated markets (e.g. fair and orderly trading) and the same detailed transparency requirements as regulated markets; in this sense they are more like a traditional regulated market than a broker crossing network or a systematic internaliser. The most prominent MTFs are equity platforms, such as Chi-X and BATS Europe however there are a large number of smaller specialist MTFs providing trading in specific instruments examples include GFI’s Forexmatch and Energywatch MTFs.
Stands for National Competent Authority. The competent authorities designated as single contact points by EU Member States for purposes of Article 56 of the Directive 2004/39/EC on Markets in Financial Instruments (MiFID I) are:
– Austria Finanzmarktaufsicht (FMA)
– Belgium Financial Services and Markets Authority (FSMA)
– Bulgaria Комисията за финансов надзор / Financial Supervision Commission (FSC)
– Croatia Hrvatska agencija za nadzor financijskih usluga / Croatian Financial Services
– Cyprus Cyprus Securities and Exchange Commission (CySEC)
– Czech Republic Česká národní banka / Czech National Bank (CNB)
– Denmark Finanstilsynet (Danish FSA)
– Estonia Finantsinspektsioon (FSA)
– Finland Finanssivalvonta / Financial Supervisory Authority (FIN-FSA)
– France Autorité des Marchés Financiers (AMF)
– Germany Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
– Greece Ελληνική Επιτροπή Κεφαλαιαγοράς / Hellenic Capital Market Commission (HCMC)
– Hungary Magyar Nemzeti Bank (MNB)
– Ireland Central Bank of Ireland
– Italy Commissione Nazionale per le Società e la Borsa (Consob)
– Latvia Finansu un Kapitala Tirgus Komisija / Financial and Capital Market Commission (FKTK)
– Lithuania Lietuvos Bankas / Bank of Lithuania
– Luxembourg Commission de Surveillance du Secteur Financier (CSSF)
– Malta Malta Financial Services Authority (MFSA)
– Netherlands Autoriteit Financiele Markten (AFM)
– Poland Komisji Nadzoru Finansowego / Polish Financial Supervision Authority (KNF)
– Portugal Comissão do Mercado de Valores Mobiliários (CMVM)
– Romania Autoritatea de Supraveghere Financiară (ASF)
– Slovakia Národná Banka Slovenska / National Bank of Slovakia (NBS)
– Slovenia Agencija za trg Vrednostnih Papirjev/Securities Market Agency
– Spain Comisión Nacional del Mercado de Valores (CNMV)
– Sweden Finansinspektionen (FI)
-United Kingdom Financial Conduct Authority (FCA)
Stands for National Risk Assessment. It refers to the Cyprus National Assessment of Money Laundering and Terrorist Financing Risks of October 2018. It is an assessment on a national scale of the ML and TF risks that undermine the integrity and stability of the Cypriot economy, financial system and society in general, with a view to understand these risks and form an appropriate and targeted action plan with remediation measures.
A natural or legal person who is shown as the registered owner and holds shares on behalf of the beneficial owner (actual owner) under a custodial agreement.
Stands for Non-Profit Organisation
Obliged entities include credit institutions, financial institutions, real estate agents, providers of gambling services, casinos, auditors, external accountants and tax advisors, independent legal professionals acting on behalf of their customer, assisting or carrying out financial transactions, natural or legal persons providing a number of activities to trust or company service providers.
Stands for Offshore Financial Centre. It is defined as a country or jurisdiction that provides financial services to non-residents, on a scale that is incommensurate with the size and the financing of its domestic economy.
See dark pool.
Order matching is the process by which offer and demand for the same security at the same price and size are brought together, which takes place in venues such as broker crossing networks, where the orders of one party are matched to the bids of another, allowing them to conclude transactions at mid-point, therefore saving on the bid offer spread.
Order resting period
The time an order waits on a trading system before it is executed. Similar to latency period.
Stands for Over the Counter. Over the counter, or OTC, trading is a method of trading that does not take place on an organised venue such as a regulated market or an MTF. It can take various shapes from bilateral trading to via permanent structures (such as systematic internalisers and broker networks).
Stands for Organised trading facility. Any facility or system operated by an investment firm or a market operator that on an organised basis brings together third party buying and selling interests or orders relating to financial instruments. It excludes facilities or systems that are already regulated as a regulated market, MTF or a systematic internaliser. Examples of organised trading facilities would include broker crossing systems and inter-dealer broker systems bringing together third-party interests and orders by way of voice and/or hybrid voice/electronic execution.
A payment institution that provides services such as enabling cash placements and cash withdrawals on a payment account or execution of payment transactions such as credit transfers.
Stands for Politically Exposed Persons means a natural person who is or who has been entrusted with a prominent public function in their country, a close family member of that persons as well as a person known to be a close associated of such person
Stands for Payment Initiation Service Providers. These are TPPs (see TPP) that do not hold a customer’s payment account and are authorized to initiate a payment from the customer’s account held with another institution (see ASPSP) without the need for a credit card. PISPs can initiate a payment on behalf of a client with his explicit consent.
Placing refers to the process of underwriting and selling an offer of shares.
A position limit is a pre-defined limit on the amount of a given instrument that an entity can hold.
Position management refers to monitoring the positions held by different entities and ensuring that the position limits are adhered to.
A requirement on financial firms to regularly display their exposure to a certain market. Under MiFID, it relates to the aggregated reporting by the operators of platforms on which commodity derivatives are traded of the positions that types of traders have taken on that platform.
Post trade transparency refers to the obligation to publish a trade report every time a transaction of a share has been concluded. This provides information that enables users to compare trading results across trading venues and check for best execution.
The generic term used to denote all processes which take place from the moment that a transaction is concluded to the moment the legal transfer of ownership occurs. This includes clearing, settlement, and other financial firm back-office activities.
Pre-trade transparency refers to the obligation to publish (in real-time) current orders and quotes (i.e. prices and amounts for selling and buying interest) relating to shares. This provides users with information about current trading opportunities. Therefore, it facilitates price formation and assists firms to provide best execution to their clients.
Pre-trade transparency waiver
A pre-trade transparency waiver is specified in MiFID (article 29) as a way for the competent authorities to waive the obligation for operators of Regulated Markets and Multilateral Trading Facilities (MTFs) regarding pre-trade transparency requirements for shares in respect of certain market models, types of orders and sizes of orders.
Price discovery refers to the mechanism of price formation on a market, based on the activity of buyers and sellers agreeing on prices for transactions. Price discovery is affected by factors such as: supply and demand, liquidity, information availability and so on.
Primary Market Operation
Primary Market Operations are transactions related to the issuance of new securities. They differ from secondary market operations which deal with the trading of securities already issued and admitted to trading.
A prospectus is a document that describes a financial security for potential buyers. A prospectus provides investors with information about the security or offers concerned such as a description of the company’s business and financial statements, a list of material properties and any other material information. In the context of an individual securities offering, such as an initial public offering, a prospectus is distributed by underwriters or brokerages to potential investors.
Directive 2003/71/EC of the European Parliament and of the Council, which lays down rules for information to be made publicly available when offering financial instruments to the public.
Stands for Payments Service Directive 1. It was introduced in 2007 to create a single market for electronic payments in the EEA. PSD1 was covering two-leg transactions of electronic payments in euro currency where both, the payer’s bank and the payee’s bank were in the EEA. It was revised by PSD2 (see PSD2).
Stands for Payment Service Directive 2. It is a revision of the PSD1 (see PSD1) and it was entered into force in 2016 and by January 2018 all members of the EEA (see EEA) had to transpose PSD2 into national regulation. The PSD2 has extended PSD1 scope to cover two-leg transactions in all EEA currencies. Additionally, it covers transactions that only one of the two parties are in the EEA, one-leg transactions, only for the part of the transaction that takes place in the EEA.
Stands for Payment Service Provider.
Under PSD1 (see PSD1) PSPs were categorized as:
– Credit Institutions – a financial institution that may receive deposits from the public and grant credits,
– Electronic Money Institutions (see EMI) – a financial institution that is not a credit institution and can issue electronic money,
– Payment Institutions (see PI) – institutions that provide and execute payment services throughout the EU,
– Central Banks,
– Post Office Giro Institutions and
– Government Ministries – local entities authorized by national law to supervise or provide payment services.
Under PSD2 (see PSD2) PSPs are classified as:
– Account Servicing Payment Service Providers (see ASPSP) and
– Third Party Providers (see TPP).
Pump And Dump
Pump and dump is where persons who already hold a long position in an instrument aim to increase its value by spreading false, misleading or exaggerated information about it. The position is then sold at the higher price and a profit is made.
Refers to a report required by all Investment Firms (IF) authorised by CySEC to submit every quarter using Form QST-CIF.
Stands for Risk-Based Approach. An approach whereby competent authorities and Obliged Entities identify, assess and understand the ML/TF (see ML/TF) risks to which firms are exposed and take AML/CFT (see AML/CFT) measures that are proportionate to those risks.
Reasonable commercial basis
The obligation of a financial firm to do business with other market participants willing to pay a prevailing market fee, and not to impose unnecessary conditions on them.
A regulated market is a multilateral system, defined by MiFID (article 4),
– operated and/or managed by a market operator,
– which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments – in the system and in accordance with its non-discretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and
– which is licensed to operate and operates regularly in accordance with the law of any other EU Member State Jurisdiction which is in accordance with Title III of the Directive 2014/65/EU. Please refer to Article 2 of the Investment Services and Activities and Regulated Markets Law,
which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in a way that results in a contract. Examples: the traditional stock exchanges such as the Frankfurt and London Stock Exchanges.
Regulatory arbitrage is exploiting differences in the regulatory situation in different jurisdictions or markets in order to make a profit.
The proposed Regulation on Energy Market Integrity and Transparency, laying down rules on the trading in wholesale energy products and information pertaining to those products that needs to be disclosed.
A mechanism that gathers information on financial contracts, storing the essential characteristics of those contracts for future reference.
A bank for which another financial institution establishes, maintains, administers or manages a correspondent account.
A person investing his own money on a non-professional basis. Retail client is defined by MiFID as a non-professional client and is one of the three categories of investors set by this Directive, besides professional clients and eligible counterparties.
Variables that, either on their own or in combination, may increase or decrease the ML/TF (see ML/TF) risk posed by an individual business relationship or occasional transaction
The risk premium is the smallest return that investors would accept above the amount that a ‘risk-free’ asset would return. A risk-free asset is a theoretical asset that would never default. So, the risk premium is the amount that an investor wants to be paid for taking risk.
Stands for Regulatory Technical Standard.
A penalty, either administrative or criminal, imposed as punishment.
A secondary listing is the listing of an issuer’s shares on an exchange other than its primary exchange.
Stands for Suspicious Activity Reporting
It is a digital asset that derives its value from another asset or assets (see Asset Tokenisation) and is issued on the blockchain network. Security tokens can derive their value from real world assets like real estate or gold and non-material assets like the shares of a company. The process of generating security tokens is called Asset Tokenisation and it is part of a Security Token Offering (see STO).
Stands for Swap Execution Facility. A swap execution facility is a US trading venue similar but not identical to an exchange, whereby many different buyers and sellers can make bids and offers on swaps. The SEF must also publish relevant data.
Stands for Single Europe Payments Area. It is a payment-integration initiative of the European Union for simplification of bank transfers denominated in euro.
The completion of a transaction or of processing with the aim of discharging participants’ obligations through the transfer of money and/or securities.
Stands for Simplified due diligence
A corporation that has had no activity. It has been created and put on the “shelf.” This corporation is then later usually sold to someone who would prefer to have a previously registered corporation than a new one. A company that at the time of incorporation has no significant assets or operations. The term “shell company/entity” refers to a limited liability company or any other legal/business entity bearing the following characteristics:
– Has no physical presence or activity in the country of incorporation/registration (other than a postal address);
– It has no established business activity, little or no independent economic value and no evidence to the contrary.
Short And Distort
Short and distort is the opposite of Pump and Dump and is where a person short-sells an instrument and then spreads negative rumours in an attempt to drive down the instrument’s price and realized profit.
The single rulebook is the concept of a single set of rules for all Member States of the Union so that there is no possibility of regulatory arbitrage between the different markets.
Source of funds
The origin of the funds involved in a business relationship or occasional transaction. It includes both the activity that generated the funds used in the business relationship, for example the customer’s salary, as well as the means through which the customer’s funds were transferred.
Source of wealth
The origin of the customer’s total wealth, for example inheritance or savings.
Spoofing and Layering
Spoofing is a form of order book manipulation and involves putting apparent trades on order books to create a misleading impression of the stock price or liquidity. Layering is a form of spoofing by which a trader enters several orders to improve the price of a trade in the opposite direction. For example, an abuser will:
1. submit multiple orders at different prices on one side of the order book slightly away from the touch;
2. then submit an order to the other side of the order book (which reflected the true intention to trade);
3. and following the execution of the latter order, rapidly removing the multiple initial orders from the book.
By submitting the false orders, the abuser gives the market a misleading impression which may encourage them to trade with the intended order.
A market on which goods are bought and sold for immediate delivery.
This can refer to the bid ask spread (see separate entry).
A standardised derivative is one with regular features based on a standard contract.
Stands for Security Token Offering. It is a type of fundraising that is performed with a company tokenising its assets (see Asset Tokenisation) and then offering tokens as securities representing the tokenised assets. It has parallels to an IPO (see IPO) offering shares.
Stands for Suspicious Transaction Reporting
A structured bond’s value is linked to an underlying index or instrument, so that the bond would pay a coupon in the same way as an ordinary bond, but the actual value of the bond to be repaid would depend on the underlying performance that it is linked to.
A structured deposit’s return may be linked to some index or underlying instrument, so that the amount repaid is dependent on this underlying performance.
Syndication is a process through which a group of banks are providing a loan to a debtor, usually with the division of risk and financing across the different banks which are part of the process (syndicate).
Stands for Systematic Internalisers. Introduced by MiFID in 2007 Systematic Internalisers (SIs) are institutions large enough to match client orders internally, or against their own books (unlike a broker crossing network, which may route orders between a number of institutions). They are defined in MiFID as an investment firm which, “on an organised, frequent and systematic basis, deals on own account by executing client orders outside a regulated market or an MTF”. A firm does not need specific authorisation from its competent authority to carry out systematic internalisation; however similar to MTFs and RMs, they are required to conform to some transparency requirements, such as providing public quotes. Only a few, generally large firms have set up Sis.
A systemic failure refers either to the failure of a whole market or market segment, or the failure of a significant entity that could cause a large number of failures as a result.
Stands for Trust and Company Service Providers
The Combating of Terrorism Law of 2010 (No. 110(I)/2010) was enacted and came into force on 22 November 2010, to provide a comprehensive legal framework in the area of terrorism. This law criminalises the provision of support in any manner to terrorist groups or persons, including financing.
Stands for Terrorist Financing. The provision or gathering of funds by any means, directly or indirectly, with the intention to use such funds or knowing that they will be used in whole or in part for the commission of an offence within the meaning given to the term by section 4 of the International Convention for the Suppression of the Financing of Terrorism (Ratification and Other Provisions) Law and by article 5 to 13 of the Combating of Terrorism Law.
The Bureau de Change services
Bureaux de Change services in Cyprus may only be provided by a Bureau de Change business which has been granted a license by the CBC, in accordance with the provisions of the Bureau de Change Business Directive of 2014. These services relate to buying or selling foreign currency for immediate delivery.
The Risk Factors Guidelines
Joint Guidelines under Articles 17 and 18(4) of Directive (EU) 2015/849 on simplified and enhanced customer due diligence and the factors credit and financial institutions should consider when assessing the ML and TF risk associated with individual business relationships and occasional transactions.
The risk management and procedures manual
This refers to the manual that sets out the processes and procedures to identify, assess, manage and mitigate an organization’s potential risks relating to AML/CFT (see AML/CFT) events or situations.
It means a country not a member of the European Union or contracting party to the agreement of the European Economic Area signed in Porto on the 2nd of May 1992 and was adjusted with the Protocol signed in Brussels on 17 May 1993, as amended.
A company or salesperson who can only promote the service of one particular provider (generally their direct employer).
It means an improper or illegal act of notifying a suspect that is the subject of a suspicious transaction reporting or is otherwise being investigated or pursued by the authorities.
Stands for Third Party Providers. They can access clients’ payment accounts held with ASPSP (see ASPSP). TPPs fall under two categories:
1. Payment Initiation Service Providers (see PISP)
2. Account Information Service Providers (see AISP)
A centralised registry that maintains an electronic database of information on open OTC derivative contracts.
A trading venue is an official venue where securities are exchanged; it includes MTFs and regulated markets.
Investment firms are required to report to competent authorities all trades in all financial instruments admitted to trading on a regulated market, regardless of whether the trade takes place on that market or not. It covers all transactions on these instruments, including OTC trades. Transaction reporting is not public and contains more details about the transaction than pre and post trade transparency.
The disclosure of information related to prices quoted (pre trade transparency) or transactions (post trade transparency) relevant to market participants for identifying trading opportunities and checking best execution and to regulators for monitoring the behaviour of market participants.
Directive 2004/109/EC of the European Parliament and of the Council which lays down rules for the publication of financial information and major holdings.
It means a written legal arrangement with which the settlor transfers assets to one or more trustees who hold it for the benefit of one or more persons/beneficiaries.
Stands for Undertakings for Collective Investment in Transferable Securities Directives. Undertakings for Collective Investment in Transferable Securities Directives, a standardised and regulated type of asset pooling, subject to harmonised EU rules and typically devised for and marketed to retail investors.
UCITS which provide investors, at certain predetermined dates, with algorithm-based dividends that are linked, for example, to the performance of certain products or the evolution of a product index or reference portfolio.
It is a collective investment scheme that exists as a single legal entity and has several distinct compartments (see Fund Compartment) also known as sub-funds which trade as individual investment funds.
Underwriting can refer to the process of checks that a lender carries out before granting a loan or issuing an insurance policy. It can also refer to the process of taking responsibility for selling an allotment of a public offering.
Means a transaction that appears designed to circumvent reporting requirements that is inconsistent with the account’s transaction patterns or deviates from the activity expected for that type of account.
These are tokens that give the holder future access to the features, products or services offered by the company issuing the utility tokens. They are a form of voucher and are not created to be an investment in the way security tokens (see Security Token) are.
Vertical integration model
A business model in which all steps of a production process are carried out by a single firm, for instance trading, clearing, and settlement services.
In accordance with the 5th AMLD (see 5th AMLD), virtual currency means a digital representation of value that is not issued or guaranteed by a central bank or a public authority, it is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.
Volatility refers to the change in value of an instrument in a period. This includes rises and falls in value or the general fluctuation of prices or markets. It is usually expressed as a percentage.
We hope both the content and format used are of value to you. In most cases, we left the terms unchanged as explained by ESMA and other bodies, only adding or modifying explanations where in our experience it was needed. When writing an article at SALVUS we try to present the abbreviation in full the first time it appears in the text and explain terms within the context of the piece.
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