Glossary - R

Rainbow option
Options with more than one underlying asset, where these assets cannot be conveniently interpreted as a single composite asset. Examples include spread options which substitute for a single underlying asset the spread or difference between the prices at expiration of tow underlying assets, exchange or outperform options. Also known as basket options.

Rating agency
Independent agencies such as Moody’s, Standard and Poor’s and Fitch IBCA that assess the credit quality and likelihood of default of an issue or issuer and subsequently assign a rating code to that issue or issuer.

Real-time
Without any delay. Some stockbroking systems only allow you to access delayed prices, which can be up to 20 minutes behind the actual prices at any given moment. Others offer real-time prices, which are the prices at which buying and selling is actually taking place in the market at that moment.

Real estate investment trust (REIT)
REITs may invest in commercial and/or residential property and often benefit from favourable tax treatment.

Rebate option
An option that pays a fixed amount if it would otherwise have expired worthless due to some barrier event. So a knock in rebate option pays a preset fixed amount if it has never been knocked in, and a knock out rebate option pays the option holder a preset fixed amount if it is knocked out.

Recognised Investment Exchange (RIE)
A status that is achieved once recognised by the FSA.

Record date
The date on which the registrar of a company physically loses its books for the purpose of distributing a benefit to shareholders. This is not the date at which the entitlement is determined.

Recovery value
The market value of the reference obligation following a default on that obligation.

Redeemable preference
Provisions for the redemption of shares at a predetermined date.

Redemption
In relation to shares, when a company purchases back some of its own shares.

Redemption yield
Gives a total return on the investment, taking into account both interest earned and the capital gain or loss made by owning the bond to completion.

Reference equity
The borrower or issuer of a loan or bond.

Reference obligation
The specifically defined loan or bond of the reference entity that underlies the credit derivative or total return swap.

Registered bond
A bond that is recorded in the holder’s name in the books of an issuer or issuer’s registrar and which can only be transferred when the name of the new holder is recorded.

Registered holder
The name that appears on the company register as the holder of the stock.

Registrar
An organisation that takes responsibility for maintaining a company’s share register, which lists the registered holders of the stock.

Reinvestment unit trusts
These are a type of income unit trusts where the dividend is used by the fund managers to purchase additional units. This payment carries an associated tax credit.

REIT
See real estate investment trust.

Retail Prices Index (RPI)
Measures inflation based upon the price of a selection of family goods.

Retail Service Provider (RSP)
A securities house that provides competing quotes to stockbrokers for their retail customers.

Return
The amount by which your investment increases as a result of interest or dividend income and capital growth.

Return on capital employed (ROCE)
Assesses a company’s profitability, usually expressed as a percentage. It is calculated as profit divided by capital multiplied by 100.

Reverse Barrier Option
A barrier option whose barrier is in the money relative to the strike – i.e. above the strike for a call and below for a put. These are priced and behave very differently to standard barrier options, since they have intrinsic value when they are knocked in or out, making knock ins relatively more expensive and knock outs relatively cheaper for a given proximity to the strike. So, unlike standard options, which become more valuable as volatility increases, in the money knock outs become cheaper. That is, they have negative vega: the probability of knock out increases with increasing volatility, reducing the chance that the option will pay out and make them cheaper.

Reverse takeover
The process of a smaller company taking over a larger one, or when the company being bought will be the dominant part of the new company.

Rho
The rho of an option is rate of change that option price with respect to the interest rate. It only becomes important when considering long dated options.

RIE
See Recognised Investment Exchange

Rights issue
The issue of new shares by a company to raise cash. These shares are normally offered to existing shareholders in proportion to their existing holdings.

Risk adjusted performance
Gives an indication of the performance taking into account the risk level.

ROCE
See return on capital employed

RSP
See Retail Service Provider

Rule 144a
Permits a limited distribution within the US of securities without registration with the SEC. Distribution is limited to professional investors of a specified standing known as qualified institutional buyers.

Running a book
Firms who are buying and selling stock for themselves hoping to profit from price differences are said to run a book in that stock.