Samurai market Japan’s foreign market. The market in Japan for securities that non Japanese companies and governments issue. Example: Some shares of General Motors trade in the Samurai market. Scalper, Scalp-beggar A exchange floor trader who is a market maker. Scalping Disseminating (e.g., via a newsletter, press release, web page, or “spam”) false, favorable information ...


Samurai market

Japan’s foreign market. The market in Japan for securities that non Japanese companies and governments issue. Example: Some shares of General Motors trade in the Samurai market.

Scalper, Scalp-beggar

A exchange floor trader who is a market maker.


Disseminating (e.g., via a newsletter, press release, web page, or “spam”) false, favorable information about a stock to boost its price, while unloading your position in it. Also known as “pumping and dumping”


German Federal Treasury Bills (BundesSCHATZanweisungen).

SCHATZ Futures

The DTB Futures contract on a notional short term (1 3/4 – 2 1/4 years) debt security of the German Federal Government or the Treuhandanstalt, with a notional interest rate of 6%.

Securitization Conduit

A Special Purpose Vehicle (SPV), with a remote chance of bankruptcy, that a bank forms. The Conduit purchases or originates loans and finances them with various sorts of Asset Backed Securities. The underlying loans provide the collateral for the ABS’s. Typically, the sponsoring bank guarantees the payments of the ABS’s, which the security holders demand. The guarantee may come from a standby letter of credit or from the bank’s purchase of the Conduit’s junior securities. In return for its guarantees, the bank receives the residual coupon spread of the underlying securities over that of the conduit’s securities.

Second generation structured assets

Bonds and notes incorporating design complexity in addition to simple embedded options. These include notes containing index maturity to reset frequency mismatch (such as a CMT FRN with coupons linked to 10-year Treasury rates but that are reset and paid on a quarterly basis), notes that pay a coupon based on the differential or sum of a number of indices, notes that include embedded exotic options, notes incorporating quantization and notes containing very highly leveraged formulae.

Settlement date

The date on which the buyer pays (the seller receives) cash and the seller delivers (the buyer receives) property. In the Eurobond market, this is the “value date” (q.v.). (J.P. Morgan Glossary of terms for global sovereign bond markets.)

Sharpe ratio

A measure of investment performance, namely, the investment’s average excess rate of return (investment’s rate of return minus riskless rate of return), divided by its standard deviation of rate of return. Thus, the Sharpe ratio measures how many standard deviations the average rate of return is from the riskless rate of return. If the distribution of rate of return were normal and we knew its mean and variance exactly, the Sharpe ratio would provide an idea of the probability that the risky investment would beat a riskless investment. William Sharpe, creator of the Sharpe model of capital market equilibrium (1964) and subsequently Nobel Prize Winner in Economics, devised the Sharpe ratio.

Short-short rule

A part of the U.S. federal tax code (from 1936 to 1997) that imposed corporate income tax (hence double taxation of income) on a mutual fund that received more than 30 percent of its gross income (i.e., before deducting losses) from gains on positions held less than three months. A mutual fund that violated the short-short rule would owe corporate income tax on all its income for that year. Also known as the 30% Rule.

Its advocates argued that the rule would discourage funds from short-term trading that might destabilize the markets. Its opponents pointed out that it discouraged short selling and trading in derivatives.

Short-rate volatilities by mean reversion

short rates tend to be pulled back towards a long-term average. The volatilities of each spot rate are modelled to produce a term structure of volatility – that is volatility plotted against term to maturity. This is an important input into term structure pricing models. The term structure of volatility is also sometimes a reference to the differing implied volatilities of options with different maturities. The implied volatilities of short-dated options change faster than those of longer-dated options. Volatility itself also exhibits mean reversion.

Spot rate

In currency markets, today’s market exchange rate for a transaction now with standard immediate delivery (usually two business days after trade date). In interest rate markets, the spot rate is the rate at which a single future payment is discounted back to the present. That is, where observable, the n-year spot rate is the yield to maturity of a zero coupon bond with a maturity of n-years. For maturities at which zero coupon bonds are not available, the spot rates can be bootstrapped from coupon paying bonds at those maturities since the price of these bonds is the present value of all their cash flows with each cash flow discounted at the appropriate spot rate. See bootstrap.

Spot yield curve

The curve that plots spot rates against term to maturity.


The difference between the yields or volatility on two financial assets (aside from the bid-offer). For example, in the oil markets, the crack spread is the spread between the price of crude oil and the refined (‘cracked’) distillates such as gasoil and naphtha. In fixed income markets the credit spread is the difference in yields between fixed-income instruments of different credit qualities.In the options markets an option spread, sometimes just called a spread, is the purchase of one or more options and sale of others on the same underlying.

Spread trade

In derivatives either a trade designed to profit from movements in the spread between two or more underlying indices or an options trade involving the simultaneous purchase and sale of different options on the same underlying.

Step-up {-down}

A general concept that can be applied to any of the terms of a contract which determine the size of payments but not their timing, step-up or step-down features involve a schedule of values indexed in time which determine how payments will vary. So a bond with a step-up or step-down coupon will have a schedule of coupons which increase or decrease over time. Similarly a step-up or down barrier option is a barrier option whose barrier increases or decreases over time.


When used for bonds denotes a bond with a fixed first coupon which then reverts to a predetermined floating rate formula. Differs from a step-up coupon in that only the first coupon acts as a step. Usually this first coupon is extremely attractive in comparison with vanilla FRN rates and is an encouragement to the investor to buy highly structured assets that take strong directional views. For example, leveraged inverse floaters and leveraged floaters often have a fixed first coupon.

Structured note

Bonds/notes whose performance is linked to that of a conventional security and an embedded derivative. Also known as embeddos, derivative-linked securities.

Swap rate

(i) The yield to maturity of the swap. That is, the price of the swap which, when used both as a fixed-rate payment and an internal rate of return, will equate the present value of the two payment streams. On a vanilla interest rate swap, the bid swap rate is the fixed rate a marketmaker will pay to receive Libor and the offer is the fixed rate a counterparty must pay to receive Libor. Swap rates are mathematically equal to the weighted average of all relevant FRAs and so are determined by the term structure of interest rates, credit and transaction costs. (ii) In currency markets, the swap rate is the forward points on a currency rate that is, the adjustment to the spot exchange rate that has to be made to compensate for interest rate parity differences between currencies. When it refers to the difference between spot and forward foreign exchange rates the swap rate is also known as the forward exchange margin.

Swap spread

The difference (positive) between swap rates and the relevant government bond market. The spread reflects the credit differential between the swap and government markets but in practice is also heavily influenced by supply and demand factors in the swap market. A glut of fixed payers will widen the spread. A glut of swapped new issuance will reduce it. The spread in any individual transaction will also be affected by the relative credit qualities of the counterparties to the transaction: a triple-A bank marketmaker will quote a wider swap spread to a single-B corporate than to a double-A supranational entity.


In financial contexts used for any instrument constructed from others so that its cashflows and sometimes risk-reward characteristics replicate those of another asset or liability. Such instruments are created either because certain users cannot buy the components separately or because an arbitrage opportunity allows the synthetic to be purchased {sold} more >cheaply {expensively} than the straightforward product. Almost any position or instrument can be constructed in this way. For example: a synthetic call option can be constructed by the simultaneous purchase of a put option and the underlying; a synthetic put from a long call and short position in the underlying; and a synthetic forward from a long European-style call and short European put with the same expiration and strike price. See conversion [arbitrage], put-call parity, static replication, synthetic forward, delta hedging.

Systemic risk

The risk that derivatives permit the transmission of risk across previously unrelated markets, thus making it more likely that a large shock in one will be transmitted (with negative consequences) to others. The term is also used for the risk supposedly inherent in the concentration of derivatives business at a small number of large financial institutions. If – so the argument runs – one of these were to fail, the whole financial system would be threatened.

Technical Analysis

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