Large cap stock
among the largest within a market — for example, the capitalisation of one of the top 100 companies in the UK as represented by the FTSE 100 index. In the US, it is defined as a stock with a market capitalisation of over US$5 billion. (See also small cap stock, mid cap stock.)

Last look
Practice of allowing one bank the opportunity to match the pricing arrangements available from other banks in the market, as a condition for their services being employed.

Lagging Indicators
Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators. Also referred to as concurrent indicators.

Lleague table
Ranking table of the comparative performance of investment managers or funds in, for example, the Mercer MPA, Russell/Mellon or WM Company surveys. Also called peer group analysis. (See also Mercer Manager Performance Analytics.)

Lease
Written agreement under which a property owner allows a tenant to use the property for a specified rent and period of time.

Leasehold
Right to hold or use property for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract.

Laissez faire
View that markets are efficient and government intervention in the economy should be minimised.

Leverage
Use of borrowed money to over-invest a portfolio which magnifies both gains and losses. This may be achieved by derivative instruments. Also refers to the debt/equity ratio in a company’s balance sheet.

Leveraged buyout
Use of borrowed money, usually from private equity investors, to purchase a company. A leveraged management buyout (LMBO) is the purchase of a company, using leverage, by the company’s management. (See also private equity.)

Local Government Pension Scheme (LGPS)
Public sector pension scheme for individuals working in local government, local authorities and other public services.

Liabilities
Liability is a Financial obligations — for example, money owed to banks or future pension payments — that must be met to satisfy the contractual terms of the obligation. Liabilities may be time-based (i.e. payable at a specific time) or contingent upon the occurrence of a future event (e.g. retirement, death). (See also asset/liability modelling.)

Liability-driven investing (LDI)
Process whereby an investment strategy is set with explicit reference to a specific set of liabilities.

LIBID
London Interbank Bid Rate. The interest rate at which London based banks are prepared to borrow money from other banks, in a specified currency and for a specified period. (See also LIBOR.)

LIBOR
London Interbank Offered Rate. The interest rate at which London-based banks are prepared to lend money to other banks, in a specified currency and for a specified period. (See also LIBID.)

LIBOR-LIBID spread
Difference between the interest rates at which banks will lend to and borrow from one another, typically at least 12.5 bps but sometimes wider (especially for longer periods). This spread is important in swap dealing since cash deposited by companies seldom earns more than LIBID and the floating side of most swaps requires payment of LIBOR.

Life company fund
Pooled fund that is operated by a life assurance company. Such funds are similar to unit trusts except that investors own a life assurance policy rather than units.

Lifestyle/lifecycle
Adjustment of a member’s defined contribution plan asset allocation in line with set measures, for example, years to retirement. The purpose is to reduce risk of loss of pension-buying power as the member approaches retirement.

LIFFE
See London International Financial Futures and Options Exchange.
limited partnership (private equity) Structure typically used for private equity funds. Investors are limited partners. (See also general partner.)

Limited price indexation (LPI)
Method commonly used to increase pensions in payment. The increase is based on the RPI with an annual cap of usually 5% or 2.5% per annum, and pensions are not reduced if the RPI falls over the year.

Liquid market
Market with a high degree of liquidity, often resulting from a large number of buyers and sellers. There can be large variations in the liquidity of different equity markets, with the most liquid being the large international markets — New York, Tokyo and London.

Liquidity
a.Degree to which an asset or portfolio is easily marketable or turned into cash. The most liquid equity stocks are those of the large blue chip companies quoted on the large international markets. Liquidity can be measured by considering trading volume relative to a company’s issued share capital.
b.Proportion of liquid assets such as cash and short-term instruments in a portfolio.

Liquidity premium
Additional return required to compensate an investor for an investment with lower liquidity than cash. Also known as liquidity risk premium.

Listed (stock)
Stock traded on a registered stock exchange — for instance, the NYSE or the LSE.

Listing
Acceptance of a security for trading on a registered exchange.

Listing particulars
Detailed information a company is required to give about itself when it applies to be listed on a stock exchange. It is published in the form of a prospectus.

Loan stock
Another name for a bond, normally used to denote loans issued by non government bodies such as companies.
loan-to-value (real estate) Debt expressed as a percentage of property value. The greater the loan-to-value, the greater the amount of gearing employed.

London Interbank Offered Rate
See LIBOR.

London International Financial Futures and Options Exchange (LIFFE)
Largest UK futures and options market.

Long bias
Long/short fund with a net long position and therefore positive exposure to an increase in the underlying market.

Long bond
Bond that has more than 10 years to run to maturity.

Long position
State of actually owning a security, contract or commodity. (See also short position.)

Long/short fund
Hedge fund comprising a mixture of long and short positions in the same asset class or market. The net market exposure could be long or short (see market-neutral fund). A subgroup of long/short funds, also known as extension strategies and 120/20 or 130/30 funds, where the fund short sells — for example, 20% of the total value of the fund — and uses the proceeds to increase the fund’s long position.

Low grade
Bond rating of lower than BBB, indicating some uncertainty as to the issuer’s ability to meet the bond’s obligations. (See also investment grade.)

LPI
See limited price indexation.

LSE
London Stock Exchange.

Lump sum
Payment of a one-off amount as opposed to a series of periodic payments. Most pension funds allow members to take a lump sum on retirement in return for a reduced pension (a process sometimes called commutation).

Last Trading Day
According to the exchange rules, the final day when trading may occur in a given futures or options contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement (in some cases by EFPs).

Leading Indicators
Market indicators that signal the state of the economy for the coming months. Some of the leading indicators include: average manufacturing workweek, initial claims for unemployment insurance, orders for consumer goods and material, percentage of companies reporting slower deliveries, change in manufacturers’ unfilled orders for durable goods, plant and equipment orders, new building permits, index of consumer expectations, change in material prices, prices of stocks, change in money supply.

Leverage
The ability to control large dollar amounts of a commodity with a comparatively small amount of capital.

LIBOR
London Inter Bank Offer Rate. Published at www.bba.org.uk.

Limit Order
An order in which the customer sets a limit on the price and/or time of execution.

Limits
See Position Limit, Price Limit, Variable Limit.

Limit up / limit down
When an exchange enforces a temporary price ceiling or floor, suspends, restricts or closes the stock index for a set period of time in order to maintain a fair and orderly market and reduce the risk of large and sudden price movements.

Linkage
The ability to buy (sell) contracts on one exchange (such as the Chicago Mercantile Exchange) and later sell (buy) them on another exchange (such as the Singapore International Monetary Exchange).

Liquid
A characteristic of a security or commodity market with enough units outstanding/ available of the underlying, to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out liquid investments so that their trading activity will not influence the market price with high liquidity a sign of healthy transaction volume/activity.

Liquidate
Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract. See Offset.

Loan Rate
The amount lent per unit of a commodity to farmers.

Long
One who has bought futures contracts or owns a cash commodity. Long Hedge: See Purchasing Hedge.

Lot
The minimum amount that can be traded in the underlying futures or options exchange. Commonly referred to as the “lot size” or “contract size.”

Lot Size
See Contract Size.

Low
The lowest price of the day for a particular futures contract.

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