Guide to Analysing Companies

C
CLASS ACTION
75
01 Essential Finance 10/11/06 2:21 PM Page 75

---

Clean price
A price for a bond which does not include any interest that
may have accrued on it between the date of the most recent in-
terest payment and the date of the price quotation. (See also
dirty price.)
Clearing bank
A type of commercial bank in the UK with authority to clear
cheques. Into this category fall the country’s largest high-street
banks as well as a handful of others with specialist pedigrees.
(See cheque clearing.)
Clearing house
A firm or agency that handles the processes involved in trans-
ferring money or securities from one owner to another. A
clearing house enables those institutions that use it to net off
their credits and debits against each other at the end of each
working day. So between two parties there needs to be only one
consolidated transfer each day. As stock exchanges have
merged and become bigger, so clearing houses have followed
suit. In 2002, euroclear and crest joined forces to create
Europe’s largest clearing house. The combined operation covers
about 60% of trades in European equities and around half of
all deals in fixed-income securities. (See also auto-
mated clearing house.)
Clearstream
A company that clears, settles and holds securities for finan-
cial organisations around the world. Clearstream is Europe’s
biggest clearing and settlement house. Each day it handles hun-
dreds of thousands of transactions involving investors in 80 lo-
cations. For a fee, it makes sure that, when an investor buys or
C
76
CLEAN PRICE
01 Essential Finance 10/11/06 2:21 PM Page 76

---

sells an equity or a bond, the correct payment is made and
cleared with the buyer’s bank, and any certificate or documen-
tary evidence is transferred. Clearstream will also hold securi-
ties for institutions and credit any dividends or interest
paid on them.
Although considered unglamorous by many dealers and
investors, clearing and settlement has become an increasingly
important link in the smooth running of markets. With more
and more deals done electronically, the chances of fraud or
simple mistakes have become much greater.
Closed-end fund
A fund that has a fixed number of shares that can be bought
and sold like those of any other company listed on a stock ex-
change. So investors who want to buy into the fund have to
purchase its shares in the secondary market. Like an open-
ended fund (such as a unit trust or mutual fund), a
closed-end fund offers investors a spread of assets managed
by a professional team. However, unlike an open-ended fund,
which simply issues new units whenever a new investor comes
along, a closed-end fund must seek approval from its share-
holders to increase the number of shares in issue. As a result, the
shares can trade at either a premium or a discount to the
value of the underlying assets that the company owns. This is
because investors’ perceptions of the prospects for a particular
fund do not always square with the value placed by the market
on the underlying assets. In the UK, a close-end fund is called an
investment trust.
Closing price
The official stock exchange price of a share, bond or
other security at the close of the exchange’s trading day. Such
prices can still change in after-hours trading, and any
changes are treated as though they occurred the following day.