Investing

Glossary

Here’s a handy glossary of the key terms you’ll come across in the world of corporate bonds and XTBs.

TERM DEFINITION
Accrued Interest Interest that has accumulated since the last coupon payment date, but has not yet been paid. Bonds accrue interest daily during coupon periods and then pay the interest (or the coupon) on the last day of the interest period.
AQUA Rules ASX Operating Rules that apply to the quotation on ASX of funds, ETFs and other structured securities and products such as the XTBs.
ASX Quotation The act of ASX agreeing to, and subsequent ability of prices in a security or other product to be ‘quoted’ on ASX markets.
ASX Trading Participant(s) Participant of the ASX under its rules that is authorised to directly engage in trading activity on ASX markets.  An ASX broker or Market Maker is an ASX Trading participant.
Authorised Participant(s) ASX Trading Participants and other entities who are acting as principal and have been approved by the Responsible Entity for the purpose of applying for and redeeming XTBs.
Automatic Redemption The process of redeeming XTBs without any further action being taken by the XTB Holder.  Automatic Redemption occurs on the Maturity Date of XTBs
Base Terms The base document that describes the generic terms of issue of a program of debt capital issuance. The Base Terms do not include the specific terms of an issue of bonds. The Base terms are often contained in the Information Memorandum or Offering Circular.
Basis Point A basis point equals one hundredth of a percentage point. The relationship between percentage changes and the basis points can be summarized as: 1% change = 100 basis points, and 0.01% = 1 basis point. So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.
BBSW Is the Bank Bill Swap (BBSW) Benchmark Rate published in accordance with Australian Financial Markets Association conventions.  An example is the 3 Month BBSW, which is an interest rate payable in respect of borrowings amongst banks for loans with a 3 month tenor.
Bid/Ask The bid price is the price offered by a buyer. The ask (or offer) price is the price offered by the seller. The bid/offer spread is the amount by which the ask price exceeds the bid. It is the difference in price between the highest price that a buyer is willing to pay for the bond and the lowest price for which a seller is willing to sell it.
Bond Denomination The minimum increments bonds are issued in – e.g., $1,000, $10,000, $100,000 or $500,000.
Bond Issuer(s) The ASX listed entity or subsidiary of an ASX listed entity that issues the Underlying Bonds.
Business day(s) The days identified by ASX upon which settlement occurs.
Non-business day(s) In addition to weekends, a number of public holidays are also declared by ASX to be non-business days.
Carry Carry is the net benefit or loss acquired from an investment (or investment portfolio) as a result of the passage of time, all other things being equal. For example, if an investment yields 4% and money can be borrowed at 3% then the carry on the net position is 1%.
CHESS Clearing House Electronic Sub-register System, the Australian settlement system for equities and other issued products traded on ASX and other exchanges.  CHESS is owned by ASX Ltd
Class A Class of XTBs in respect of a separate tranche or series of Underlying Bonds by a Bond Issuer.
Clean Price The price of a bond not including any accrued interest. Immediately following each coupon payment, the clean price will equal the Market (dirty) price. See Market Price.
Constitution The Constitution of the Trust.
Corporations Act Corporations Act 2001 (Cth).
Coupon Payment Any payments made by a Bond Issuer in respect of an Underlying Bond including any coupons, interest payments or other payments in relation to an Underlying Bond.
Coupon Payment Date(s) The date or dates on which the Bond Issuer has agreed to make Coupon Payments, which may be annually, semi-annually, quarterly or monthly.
Coupon Period The period between two adjacent Coupon Payment Dates (and including the second Coupon Payment Date) in which interest is accruing for the benefit of the holder of an Underlying Bond.
Coupon Rate The interest rate the Bond Issuer has agreed to pay on the Face Value of the bond.
Credit Spread Means the Yield differential between a reference or benchmark rate and the Yield payable on an Underlying Bond.  In Australia, useful reference rates, for a particular maturity, are the Australian government bond interest rate or BBSW.
Current Yield Is the interest payments as a percentage of the Market price of a bond, it is a short term metric in respect of bonds, as it does not take into account the capital gain or loss that may be suffered on bonds purchased in the secondary and which are held to maturity.
Custodian The organisation that holds the Underlying Bonds for safekeeping in the securities depositary Austraclear on behalf of the Responsible Entity.  The Custodian for the XTBs is Australian Executor Trustees Limited. (ABN 84 007 869 794).
Distribution A distribution made by the Responsible Entity in respect of a Class of XTBs as a result of the receipt of a Coupon Payment in cleared funds from the Bond Issuer.
Distribution Date The date on which a Distribution is to be paid in respect of a Class of XTBs and which is expected to be within 10 Business Days of receipt of a Coupon Payment from the Bond Issuer that corresponds to that Underlying Bond. It is expected that the Distribution Date will not be the same for different Classes of XTBs.
Early Redemption The redemption of the XTBs prior to the Maturity Date.  The XTBs may be redeemed early if  the Underlying Bonds are redeemed, cancelled, bought back, subject to early maturity or otherwise terminated, or if the Responsible Entity accepts an application from an Authorised Participant for Early Redemption of the XTBs.
Extraordinary Expenses Expenses that neither the Responsible Entity nor the Securities Manager have foreseen and which are not part of the expected normal expenses for the operation and administration of the Trust (for example legal costs to defend a court action brought against the Trust or Responsible Entity) (refer to Section 9.3.4).
Face value The denomination of a bond, often $100, $1,000, $10,000, $100,000 or $500,000.
FRN A Floating Rate Note, where the interest payable on the bond is determined by a Reference Rate plus the Interest Margin.
Hybrids Securities with both equity and fixed income features that may convert into equity securities in accordance with their terms.
Interest Margin The fixed spread or premium above the Reference Rate that is payable on the Face Value of an FRN. The Interest Margin is set at the time of the pricing of the bond.
Market Maker An Authorised Participant that has agreed to provide buy and sell orders in the XTBs on ASX in accordance with the ASX AQUA Rules, to provide an opportunity for investors to buy and sell XTBs on ASX.  The Market Maker may also be an ASX Participant.
Material Adverse Effect In relation to an Underlying Bond an event or change that significantly affects the Bond Issuer’s ability to perform their obligations under an Underlying Bond.
Maturity Date The fixed date on which the Underlying Bonds are scheduled to be redeemed by the Bond Issuer (other than by way of an Early Redemption), the Principal is to be repaid and any final coupon is to be paid.
Market Price The price of a bond, including the interest accrued on the next coupon payment; sometimes referred to as the ‘dirty’ price.
Minimum Redemption Amount The Minimum Redemption Amount is 10 XTBs where the Face Value of the Underlying Bond is $1,000, 100 XTBs where the Face Value of the Underlying Bond is $10,000 and 1,000 XTBs where the Face Value of the Underlying Bond is $100,000, or such lesser amount as otherwise agreed with the Securities Manager.
Nominal Value Another term for Face Value or PAR.
OTC ‘Over the Counter’, a market term relating to trading, meaning not traded on an exchange or other formal market. For example, bonds traded over the phone between two banks.
Outstanding Net Asset Value The number of Underlying Bonds held in a sub-trust relating to a Class multiplied by the Market Price for that Underlying Bond calculated at the end of the day using the closing Market Price.
PDS A product disclosure statement as amended or supplemented from time to time.
View all XTB PDSs.
Par The Face Value of a bond at issue date.
Payment Frequency The frequency of coupon payments by the Bond Issuer. Typically semi-annual.
Premium and Discount Bonds

If a bond is trading at a higher price than its face value, it is called a premium bond. If a bond is trading at a lower price than its face value, it is referred to as a discount bond.

 

Principal The amount of capital to be repaid at the scheduled maturity of a Bond and is generally equal to the Face Value.
Redeem, Redemption, Redeeming Market term for what may occur when certain securities mature or expire after a certain date or in certain circumstances. Securities are redeemed in accordance with their terms of issue.  This may occur automatically at the end of their lifetime, such as with the XTBs, or when certain trigger events occur during their lifetime that causes them to be redeemed under their terms of issue.
Reference Rate Is the variable component of the interest rate payable on an FRN. In Australia a common Reference Rate is 3 month BBSW.
Registrar Registry Direct, a business of ShareandFund Pty Ltd (ABN 35 160 181 840).  The entity that will operate the registry for the XTBs including recording the names of investors on the XTB registry and ensuring investors receive any Distributions and redemption monies.
Responsible Entity Theta Asset Management Limited (ABN 37 071 807 684).  The entity licenced under the Corporations Act to undertake the role of Responsible Entity of the Trust in accordance with the provisions of the Corporations Act.
Running Yield The coupon payments as a percentage of the price (less accrued interest).
Securities Manager Australian Corporate Bond Company Limited (ABN 34 169 442 657 and Authorised Representative No. 469037).  The entity that manages the day-to-day operations of the Trust and all of the education and marketing activities around XTBs.
Semi-annual When the coupon payment frequency is on a semi-annual basis, or two coupons per annum paid at six month intervals in arrears.
Senior Bonds Bonds are called ‘Senior Bonds’ to give investors an indication of where they rank in terms of payment in a default situation.  Senior Bonds, if unsecured, rank first for all ‘Unsecured’ indebtedness of the bond issuer (i.e., paid first in a default).  There may be other senior unsecured bonds on issue that rank alongside the bonds in question, and other indebtedness of the bond issuer that is also senior e.g. bank loans.  Senior unsecured means the bonds rank ahead of any ‘subordinated’ securities or loans and any hybrids and equity.  Senior unsecured bonds rank behind any ‘Secured’ indebtedness of the bond issuer and any mandatorily preferred creditors.  The wholesale market in corporate bonds is generally dealing in the issue by corporates and trading between institutional investors of senior unsecured bonds. Some issuers may issue senior secured bonds. Senior secured bonds will generally be secured by particular assets of the Bond Issuer, in such circumstances those assets are used to satisfy the obligations to the secured bond holders. If the claims of secured bondholders are not satisfied by the secured assets, then the bondholder may claim for the residual amount as an unsecured creditor
Swap Rate Is estimate of average future Reference Rates based on various tenors.
Ticker Code Market vernacular for the ASX code under which a security trades.  ASX codes may be three to six alpha-numeric characters long.
Total Class Assets All of the assets held in an Underlying Bond Sub-Trust on behalf of XTB Holders in the Class, including without limitation, any Coupon Payments, Principal repayments, and, where applicable, an amount equal to the nominal face value of any Underlying Bonds currently held in the Underlying Bond Sub-Trust.
Trading Margin Is the measure of estimated average margin above the Reference Rate over the life of an FRN, based on the relevant Swap Rate applicable to the time period to maturity of an FRN. The Trading Margin is generally used by the wholesale market to price FRNs.
Trust Australian Corporate Bond Trust.
Trustee Means Valuestream Investment Management Limited (ABN 66 094 107 034, AFSL No. 246621) in its capacity as trustee of each Underlying Bond Sub-Trust.
Underlying Bond(s) Senior secured or unsecured unsubordinated bonds issued by an ASX listed entity or a subsidiary of an ASX listed entity, and to which the performance of the XTBs is linked.
Underlying Bond Sub-Trust A sub-trust of the Trust that holds the Underlying Bonds of a particular Bond Issuer against the Class of XTBs tracking the performance of those Underlying Bonds after fees and expenses.
XTBs Exchange traded bond units on offer under the available PDSs.  The beneficial interest of a holder in the Underlying Bond Sub-Trust. View all available XTBs.
XTB Holder(s) Person or entity holding XTBs in the Trust.
Yield to Maturity The return an investor will receive if they buy a bond and hold the bond to maturity, based upon the purchase price and assuming that all coupons can be reinvested at the same yield.

 

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