Glossary

ABCP

Asset-backed commercial paper (ABCP) is a form of commercial paper that is collateralised by financial assets. ABCP is a short-term instrument with an initial maturity of between 1 and 360 days (usually around 30 days). It is issued from an asset-backed commercial paper programme, also known as a conduit.

Call account

‘Call account' is a bank deposit where funds can be withdrawn at any time.

CD

‘Certificate of deposit', or CD, is a bank deposit with a set maturity date and pre-determined, fixed interest rate. Investors receive a bearer certificate which can be bought or sold.

CP

Commercial paper is an unsecured promissory note with a fixed maturity usually between 1 day and 1 year. The bulk of paper issued has a maturity or less than 3 months. It is typically issued by a wide range of sovereigns, supranationals, larger corporations and banks.

Credit rating agency

A credit rating agency (CRA) is a company that opines on a debtor's ability to make timely interest payments and to pay back their debt. The degree of confidence is expressed in terms of a scale with alphanumeric gradings. The inverse of the confidence of repayment is the probability that the debt issuer will not pay as due and default on its undertakings. Some CRAs have methodologies which they apply to funds of various types to express opinions on aspects of their operation.

EC

The European Commission - www.ec.europa.eu

ECB

The European Central Bank - www.ecb.int

EONIA

Eonia (Euro OverNight Index Average) is an effective overnight interest rate computed as a weighted average of all overnight unsecured lending transactions in the interbank market. The rates are calculated by the European Central Bank (ECB), based on all overnight interbank assets created before the close of real time gross settlement systems (RTGS) at 6pm Central European Time (CET).

ESMA

The European Securities and Markets Authority - successor to Committee of European Securities Regulators (CESR) - www.esma.europa.eu

ESRB

The European Systemic Risk Board - www.esrb.europa.eu

FRN

Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, such as LIBOR or federal funds rate, plus a quoted spread (a.k.a. quoted margin). The spread is a rate that remains constant. Almost all FRNs have quarterly coupons, i.e. they pay out interest every three months. At the beginning of each coupon period, the coupon is calculated by taking the fixing of the reference rate for that day and adding the spread.

FSB

The Financial Stability Board - www.financialstabilityboard.org

IOSCO

The International Organisation of Securities Commissions - www.iosco.org

LIBOR

The London Interbank Offered Rate (LIBOR) is the interest rate that the leading banks in London would be charged if borrowing from other banks.

MMF

A money market fund (MMF, also known as money market mutual fund) is an open-ended mutual fund that invests in short-term debt securities.

Prime money market fund

A ‘Prime' money market fund is a money market fund (MMF) which principally invests in non-government securities.

Repo and Reverse-Repo

A repurchase transaction is an agreement to sell a security, or portfolio of securities, and subsequently buy it back at an agreed price. The terms of the sale and the repurchase (repo) are both agreed at the start of the trade, thereby producing the rate of interest which will be paid for the loan of the cash. A reverse repurchase agreement, or reverse repo, is a means of investing cash. A security is purchased and held as collateral against the loan of the cash subject to an agreement to resell it at the specified price and time in the future.

Rule 2a-7

Money market funds in the United States are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act defines the quality, maturity and diversity of investments by money market funds.

SEC

The U.S. Securities and Exchange Commission - www.sec.gov

SONIA

SONIA is the Sterling Overnight Index Average, the reference rate for brokered, overnight, unsecured transactions in the Sterling market. The SONIA fixing is calculated as the weighted average rate of all relevant unsecured overnight sterling transactions. From March 2018 the transaction base used for calculating SONIA will be broadened to include non-brokered transactions, and the basis of calculation will be revised.

TD

‘Time deposit', or TD, is a generic term for a bank deposit where funds cannot be withdrawn for a fixed period of time.

Treasury bills

‘Treasury bills' are short-term Government debt, usually with a maturity of one year or less.

Treasury money market fund

‘Treasury' or 'Government' money market fund is a money market fund which exclusively invests in government securities.

UCITS

Undertakings for Collective Investment in Transferable Securities (UCITS) are investment funds that have been established in accordance with the UCITS Directive, initially adopted in 1985.

WAL/WAFM

‘Weighted average life' (WAL) or ‘Weighted average final maturity' (WAFM) is a measure of credit risk. WAL is calculated by taking the final maturity of the underlying money market instruments held by the fund, weighted according to the relative holdings per instrument.

WAM

‘Weighted average maturity', or WAM, is used to measure interest rate risk. WAM is calculated by taking the average length of time to maturity (fixed rate) or the next interest rate reset (floating rate) for each underlying money market instrument.