What is a “dividend”?

A dividend is the distribution of profits by a company to its shareholders, usually in the form of cash. This is how the shareholders of a business, who are its owners, receive a reward for an investment they’ve made.

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What is “administration”?

Administration as we know it today started out as “administrative receivership”. If a company owed a debt that it couldn’t pay, the person or company it owed the debt to would appoint a person, known as an administrative receiver, to take control of the company. The administrative receiver usually sold the company’s assets, to make as much money as possible for the creditor. This typically led to the winding up of the company. In 1982, the Cork Committee found that many companies were being wound up unnecessarily because of the administrative receivership procedure. Acting on this, the Enterprise Act 2002 was passed, introducing modern administration which focuses more on rescuing companies.

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What is a “legal fiction”?

The term “legal fiction” can be traced all the way back to ancient Rome where there was a strict requirement that every family needed a male heir. In the absence of a male heir, the legal fiction of adoption was used to circumvent the situation. A legal fiction can be defined as a “statement which is accepted as true in a legal context, but is not necessarily true or in fact proven” and is usually applied by the courts. At first, it may seem shocking to think that the courts have adopted a principle which seeks to overcome legal obstacles by simply denying their existence, but its application to various bewildering legal issues has shown its uses and misuses.

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What is a “dark pool”?

In 2017, according to the CFA Institute, 40% of stock trades in the US occurred off public stock exchanges. This represented a surge, from the 2010 level of 16%. A significant portion of this happened within ominous sounding dark pools, so named for their lack of transparency.

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What is the “Stock Connect”?

The Shanghai-Hong Kong Stock Connect was launched in November 2016, as a way to link the markets of mainland China with that of Hong Kong. It has since been extended to include the tech-heavy Shenzhen Stock Exchange, in 2016. Hong Kong has, since being returned to China by the United Kingdom in 1999, been ruled under a “one country, two systems” model. This has allowed Hong Kong for much of that period to be much more independent and pro-democracy than mainland China, though this has changed significantly over the last few years. Similarly, it has allowed its markets to attract more foreign investment, as they have been more open and less subject to party control.

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What is (legal) “frustration”?

Frustration is a contract law doctrine that was first formally recognised in the 1863 case of Taylor v Caldwell. Imagine you’ve hired a village hall to have a concert in, but a few days before your hire date, the place burns down. Frustrating, right? But in legal terms, Taylor v Caldwell essentially established that when the subject matter of a contract ceases to exist, the contract cannot go ahead. In other words, a contract is frustrated due to an occurrence that makes it impossible for one party to perform their contractual obligations.

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What is “beta”?

Beta refers to a numeric coefficient that measures the volatility or fluctuations of a stock’s price in relation to the changes in the overall market. It is also referred to as an asset’s systematic risk, market risk or hedge ratio. A stock’s volatility is the amount of uncertainty related to the size of changes in the stock’s value. When volatility is high, the stock’s value is spread out over a higher range. Generally, the S&P 500 benchmark of 1 is used to calculate the beta.

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What is a “class action lawsuit”?

Sometimes, an individual can be wronged by another party, but they do not have the means to bring a successful claim. This typically applies to consumers or workers who are powerless compared to the large companies who have mis-sold or mistreated them. Could you afford to rival the legal resources and expertise available to a global corporation?

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What is a “derivative”?

Derivative transactions go way back… the first recorded transaction took place in around 600BC when the Greek philosopher Thales predicted a bumper olive harvest. He placed a deposit on the right to hire the local olive presses at a low rate in the future. The harvest was successful that year, which meant that demand for the presses was high. Thales profited by charging a higher price for their usage, whilst paying the low rate that he had initially agreed to hire them for. Crucially, in his initial arrangement, the philosopher’s deposit paid for the right but not the obligation to hire the presses. If the harvest had failed, he wouldn’t have had to hire the presses, and lose the entire cost of hiring them, he would only have lost the initial deposit. This is what is effectively known as an “option” today, a type of derivative.

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What is a “venture capital”?

The roots of venture capital date back to the times of Christopher Columbus, when states would spend vast amounts on funding voyages in the hopes that explorers might make extraordinary discoveries. From high-risk investments and high-risk entrepreneurs, venture capital itself evolved at the end of the Second World War to encourage private sector investment in businesses run by returning soldiers. The very first venture capital firm was the American Research and Development Corporation founded in 1946 by Harvard Business School professor, George Doriot. He is known as “the father figure of venture capital”. Doriot’s firm saw its first major success story in its investment into the Digital Equipment Corporation, which changed the course of computer technology. The investment of $6m yielded a $400m return, and the financial opportunities of venture capitalism became known worldwide. The dot com boom also brought the industry into sharp focus, as venture capitalists seized opportunities to go after quick returns from highly-valued Internet companies. Today, whether you are catching an Uber, or booking an Airbnb, you are using services and products from venture capital-backed companies each day.

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