Glossary of Financial Terms
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OECD
Short for Organization for Economic Co-operation and Development which is headquartered in Paris. It was established in 1961 by 18 European countries and the U.S. and Canada. The OECD has grown to a body of more than 30 country members at present. As the name suggests, the organization’s mandate is to promote co-operations among member countries in economic policies such that the world economy can develop at an orderly, balanced and optimal fashion. Since it is a co-operative organization, the OECD doesn’t have much supervisory power. As a byproduct of economic coordination, the OECD publishes a large quantity of statistics and analyses on things such as standard of living around the world.
Because of its European root, some key economic players in the world are still not members of the OECD. China, India, Russia and Brazil are all non-members at the time of writing, although Russia is getting close to joining the organization.
Office of the Superintendent of Financial Institutions (OSFI)
OSFI, headquartered in Ottawa, is the watchdog of the Canadian financial institutions. It regulates and supervises banks, insurance companies, trust companies and all other financial institutions (e.g., private pension funds) that are under the jurisdiction of the federal government. It makes sure that financial institutions are well capitalized and follow all the rules. For instance, OSFI goes after all the Canadian banks to ensure that they satisfy the capital and liquidity requirements dictated by the Basel Accords.
Take note that stock exchanges such as the TSX are not regulated by OSFI since security regulations are under provincial jurisdictions in Canada (which is uncommon in the world since most other developed countries have a central regulator for security listing, trading, and the like).
See “Basel Accords” and “TSX.”
Ontario Securities Commission (OSC)
It is a provincial Crown corporation that administers and implements securities law in Ontario. It regulates every aspect of capital markets in Ontario that is related to securities such as bonds, stocks, commodities and mutual funds. When a company wants to list its shares on the TSX, it needs to apply to OSC. Once the shares are formally traded, the company must periodically report to OSC about its financial status. Aside from regulating listing firms on the TSX, an additional important mandate of OSC is to monitor and regulate the trading of financial securities. OSC charges and prosecutes individuals that engage in illegal trading activities such as front running and trading on inside information. It also runs after fraudsters such as those running a Ponzi scheme.
Evidently, the ultimate mandate of OSC is to protect investors and at the same time ensure a smooth and orderly operation of the capital markets.
Regulations of capital markets in Canada fall under the provincial or territorial jurisdictions. To name a few, there is Alberta Securities Commission, Manitoba Securities Commission, British Columbia Securities Commission. In contrast, in most other developed countries, capital market regulations are carried out by a single, national body such as the Securities and Exchange Commission (SEC) in the U.S.
See “Crown Corporation,” “Front Running,” “Insider Trading,” “Ponzi Scheme,” “TSX” and “SEC.”
Open-end Fund
A mutual fund that creates new shares continuously and redeem existing ones on demand. An open-end fund values its portfolio holdings at the end of each day, and then calculate the net asset value (NAV), which is basically the total value of portfolio holdings divided by the number of shares outstanding. Sales of new shares or redemptions of existing ones will then be based on the calculated NAV.
Dissimilar to that of a closed-end fund’s shares, the value of open-end fund’s shares will go up and down purely because of the changes in the value of the securities held in the fund. The reality is, majority of mutual funds are open-end funds.
See also “Closed-end Fund,” “Mutual Fund” and “NAV.”
Open Interest
You must to first look up “Option.” It is the number of contracts outstanding for a specific option. In nature, it is very much the same as the total number of shares outstanding for a stock. But the similarity ends there. For a stock, the number of shares outstanding normally stays the same (barring share repurchase or additional issuance). Although, the open interest for an option can potentially change daily since more contracts could be created or existing contracts are closed out. Notice that, trading volume is typically lower than open interest, just as a stock’s trading volume is usually lower than its number of shares outstanding. On some days though, trading volume could possibly be higher than open interest, which means some option contracts change hands more than once in a day.
See “Share Repurchase.”
Option
An option is the right to purchase or sell a stock at a particular price on a specific future date. An option is not like a forward contract which is an obligation, it will lead to a transaction on the specified future date only if it is actually favorable to the option holder.
See also “Call Option,” “Put Option,” “European Option,” “American Option,” “Asian Option,” “Currency Option” and “Index Option.”
Out-of-the-money
A term used to outline the relative magnitude between the current underlying asset price and the exercise price of an option. An option is said to be “out-of-the-money” if the immediate exercise value is negative. Thus, a call option is “out-of-the-money” when the current underlying asset price is lower than the exercise price; a put option is said to be “out-of-the-money” whenever the current underlying asset price is higher than the exercise price.
Please see “Call Option,” “Put Option,” “Exercise Price,” “At-the-money,” and “In-the- money.”
Over-the-Counter (OTC) Market
A market wherein securities such as stocks and bonds are traded among dealers and brokers linked through telephone and computer networks. The key difference between a formal exchange and an OTC market is that a formal exchange has a physical location (e.g. NYSE) or an open-to-public platform (e.g., Nasdaq) to perform trades and the prices and trading volumes are known. OTC markets generally do not possess these traits. Bonds as well as foreign currencies are traded on OTC markets.