Quantitative Investments
Portfolios of equities, bonds as well as Hedge funds wherein the choice of investment is determined by applying quantitative methods and techniques to large volumes of data.
Quanto
A quanto or cross-currency derivative is an insturument where two currencies are involved. The payoff, is defined in terms of a variable that is measured in one of the currencies and which is payable in the other currency.
Rating
An evaluation of a corporate or municipal bond's relative safety, according to the issuer's ability to repay principal and make interest payments. Bonds are rated by various organizations such as Standard & Poor's and Moody's. Ratings range from AAA or Aaa (the highest) to C or D, which represents a company in default.
Rating Agencies
Agencies that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. E.g. Standard & Poor's, Moody's, and Fitch.
Recovery Rate
Estimate of the amount that a creditor would receive in final satisfaction of the claims on a defaulted credit. Expressed as a percentage of the par value of the defaulted credit.
Recovery Swap
An agreement to swap a fixed recovery rate for a real recovery rate following a credit event. Recovery swaps are usually traded as zero-premium credit default swaps with the reference price set at the fixed recovery rate rather than 100. This form of recovery swap is also called a recovery lock. Recovery swaps usually trade only on credits that are nearing default.
RED
"Markit’s Reference Entity Database (RED). Markit RED is the industry standard identifier for reference entities and reference obligations in the credit derivative market."
Reference Entity
Refers to the legal entity that is the subject of a CDS contract. The reference entity can be the issuer or the guarantor of debt.
Reference Obligation
A debt (bond, loan or other) obligation that is eligible to trigger a payout in a credit derivative. The reference obligation serves as a representative of the type of obligations that trigger a credit event.
Reference Obligation Category
In credit default swap documentation, a description of the general type of obligations, such as bond, loan or borrowed money, that can trigger a credit event. The precise features of an obligation eligible to trigger a credit event are defined in the reference obligation characteristics section.
Reference Obligation Characteristics
A key section of a credit default swap confirmation, the reference obligation characteristics list the features that an obligation must include to be eligible to trigger a credit event. This is a narrower description of the obligation than the terms used in the reference obligation category. Confusingly, some of the reference obligation characteristics are defined by comparison with the reference obligation. This reflects the fact that the credit derivatives documentation uses the term reference obligation in two slightly different ways. One is the named reference obligation the other is the broader category of obligations that can trigger a credit event.
Reference Rate
A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate. Parties to the contract choose a reference rate that neither party has power to manipulate.
Registered Shares
Shares registered in a person’s name. As required under joint stock company law, that person is registered in the share register with several personal details and the number of shares owned. Only those persons entered in the share register are deemed to be shareholders of the company and are entitled, for instance, to exercise rights at the General Meeting.
Regulatory Capital
Capital recognized for regulatory purposes according to the Basel Capital Adequacy Accord of 2004 for banks. Capital according to Basel II consists of:– Tier 1 capital: primarily share capital, reserves and certain trust preferred securities,– Tier 2 capital: primarily participatory capital, cumulative preference shares, long-term subordinated debt and unrealized gains on listed securities,– Tier 3 capital: mainly short-term subordinated debt and excess Tier 2 capital. Tier 2 capital is limited to 100 % of Tier 1 capital and the amount of long-term subordinated debt that can be recognized as Tier 2 capital is limited to 50 % of Tier 1 capital.
Regulatory Capital Ratio
Key figure for banks expressed as a percentage ratio of regulatory capital to the overall regulatory risk position, comprised of credit, market and operational risks according to Basel II. The minimum capital ratio to be complied with is 8 %. At least half of the regulatory capital principally has to be Tier 1 capital which leads to a minimum Tier 1 ratio of 4 %.
Regulatory Risk
The potential for loss stemming from changes in the regulatory environment pertaining to derivatives and financial contracts, the utility of these instruments for different counterparties, etc.
Regulatory Trading Book
The regulatory trading book is defined in Section 1a of the German Banking Act. It consists of financial instruments and commodities held with trading intent or held for the purpose of hedging the market risk of other trading book positions; repurchase transactions, lending transactions and similar transactions which relate to trading book positions; name-to-follow transactions; and receivables directly related to trading book positions. Financial instruments and commodities assigned to the trading book must be tradable or able to be hedged. The regulatory banking book comprises all positions that are not assigned to the trading book.
Reinsurance
Where an insurer transfers part of the risk which he has assumed to another insurer.
REIT
Real Estate Investment Trust is a tax designation for a corporation investing in real estate that reduces its corporate income tax. It provides a structure for investment in real estate similar to what mutual funds provide for investment stocks.
Repo
A Repo agreement , also known as a Repurchase or Sale and Repurchase Agreement , is the sale of securities together with an agreement for the seller to buy back the securities at a later date.
Repudiation/Moratorium
A credit event now used only in sovereign credit default swaps. The credit event can be triggered if the borrower issues statements repudiating its debt or declares a moratorium on debt payments. Reputational Risk Risk that publicity concerning a transaction, counterparty or business practice involving a client will negatively impact the public’s trust in the Group.
Residential Mortgage-Backed Securities (RMBS)
Mortgage-backed securities (MBS), which are backed by residential mortgage loans.
Restrictive Covenant
A restrictive covenant is an obligation which may be imposed on the owner of freehold property in the deeds to that property.
Restructuring Event
One of the types of credit events (defined above). It can be triggered when a reference entity restructures its debt. Three main definitions of restructuring are used: restructuring (old R), modified restructuring (mod R) and modified modified restructuring (mod mod R). In addition, credit default swaps written on high yield corporates are usually documented without restructuring.
Return on Average Total Shareholders' Equity (RoE)
Ratio showing the income situation of a company, setting profit (net income) in relation to capital employed.
Revenue Reserves
In addition to the reserve required by law in the financial statements of the Group parent company, this item consists mainly of the undistributed profits of Group enterprises and amounts transferred from consolidated net income.
Rho
The sensitivity of a financial contract's value to small changes in interest rates.
Risk Capital
Bank Management's view of how much buffer should be prudently held to protect the institution from volatility of value in its assets and liabilities.
Risk-weighted Assets (RWA)
Positions that carry credit, market and/or operational risk, weighted according to regulatory requirements. RWAs are regulatory capital requirements multiplied by 12.5, or in other words, capital requirements equal 8 % of RWA.
Roll-over
Reinvesting funds from a mature security into a new issue of the same or a similar security.
Rolling Hedge
A hedge with a relatively long hedge horizon in which the longer maturity contracts are added as shorter maturity contracts expire.