E-encyclopedia of banking, stock exchange and finance

Selected letter: S


    Savings bonds are debt securities issued by the U.S. Department of the Treasury sold in any bank, credit union, or S&L or even online through TreasuryDirect, a dedicated website for bond investors. Savings bonds are registered at the Treasury’s Bureau of the Public Debt and cannot be traded in the secondary market. U.S. savings bonds have tax advantages (it is possible to defer federal taxes, state and local taxes). In case of loss, destruction or theft, the U.S. Treasury’s Bureau of the Public Debt provides the replacement of the savings bonds registered. There are three series of savings bonds: I, EE and HH. Series I and EE Bonds pay interest for 30 years. The original investment plus all of the interest are paid at the maturity date and must be held for at least one year, and if they are sold within five years of purchase they are subject to a deduction of three months of interest. Series EE Bonds earn a fixed interest rate and are at a discount of half their face value. Series I interest rate is composed of a fixed part plus an inflation-indexed part and these bonds are sold at face value. For both series, there is a purchase limit referred to any calendar year, fixed at $5,000. Eight denominations are admitted (50, 75, 100, 200, 500, 1,000, 5,000 and 10,000 USD). Series HH Bonds are current-income securities no more available (from September 1, 2004). They earn a fixed interest rate set on the day the bond was purchased every six months until maturity (20 years) or redemption. On the tenth anniversary of the issue date, the interest rate changes to the current HH Bond rate. They can be purchased only in exchange for Series EE or E Bonds and Savings Notes, or with the proceeds from a matured Series HH Bond, at their face amount in $500 to $10,000 denominations. There is no limit on the purchase of HH savings bonds and the required holding period is of at least six months.

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • Seasonality

    It is represented by repeating short-term fluctuations of the time series, which tend to recur in an almost similar way in the different periods.

  • Second-Degree Stochastic dominance

    It is a form of stochastic ordering that means to order random result distribution. It is useful when first-degree stochastic dominance not reach to give us the best choice from two random alternatives.

    We have to assume that the agent is risk adverse and thus have a utility function of economic return, positive but decreasing slope. In the way of second-degree stochastic dominance, A is preferred to B if the following formula is true for all values of the variable x and with at least one strong inequality:

    So frequency distributions of outcomes of alternatives are compared based on areas under their cumulative distribution functions. Second-degree stochastic dominance requires that the curve of dominant cumulative distribution function that is the best choice, lies everywhere below and to the right of others alternatives.

    Bibliography Hardaker

    J. B., Huirne R. B. M.,Coping with risk in Agriculture, CABI, 2004

    MIT OpenCourseWare, Microeconomic Theory III, Spring 2010

    Editor: Giuliano DI TOMMASO


    Market in which financial instruments are traded after the initial placement among institutional/retail investors during the primary market phase. Actually, every regulated market is a secondary market and specific vigilance authorities control over the transparency of these markets.

    © 2009 ASSONEBB


    The Securities and Exchange Commission (SEC) is a U.S. government agency whose mission is to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation. The SEC was founded in 1934 after the Great Crash of 1929 and its responsibilities and authority have been redefined over time. Indeed, in the recent past, the Sarbanes-Oxley Act of 2002, which was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International and Worldcom, gave the Commission greater powers.
    The mission of the SEC is to protect investors and maintain an efficient and transparent capital market that facilitates the capital formation. Today, it is the responsibility of the Commission to: i) interpret federal securities laws; ii) issue new regulations and amend existing ones; iii) oversee the inspection of securities firms, brokers, investment advisers, and ratings agencies; iv) oversee private regulatory organisations in the securities, accounting, and auditing fields; and v) coordinate U.S. securities regulations with federal, state, and foreign authorities.
    The Commission convenes regularly at meetings that are open to the public and the news media unless the discussion pertains to confidential subjects, such as whether to begin an enforcement investigation (see International Financial markets
    The SEC consists of five presidentially appointed Commissioners, with staggered five-year terms. One of them is designated by the President as Chairman of the Commission - the Agency's chief executive. By law, no more than three of the Commissioners may belong to the same political party, thus ensuring non-partisanship. The agency's functional responsibilities are organised into four divisions and 19 offices, each of which is headquartered in Washington, DC. The Commission's approximately 3,500 staff are located in Washington and in 11 Regional Offices throughout the country.

    Ciciretti, R., Trenta, U., 2006, La Borsa Europea. Una Visione d’Insieme, in Rapporto sul Sistema Finanziario Italiano 2006, ARACNE, Roma.
    © 2009 ASSONEBB


    Securitisation is the process whereby an entity (originator) sells in the market illiquid and non-tradable assets in exchange for cash (the so-called "traditional securitisation" or "true sale securitisation") or sells only the credit risk associated with the assets (also called "synthetic securitisation"). The term securitisation derives from the core objective of the transaction, which is to obtain securities from the underlying instruments in the pool being securitised. The securitisation process includes further participants and is divided in two basic steps1. Firstly, the originator identifies the reference portfolio, a pool of assets it wants to remove from its balance sheet, and sells it to a bankruptcy-remote or insolvency-remote special purpose entity (SPE), also called special purpose vehicle (SPV). The main objective of this transaction is to obtain cash (to achieve a common cash flow pattern, the securitised assets shall have a sufficient degree of homogeneity). The creation of an SPV ensures the legal isolation of the assets from the other assets of the originator. In other words, the assets that have been transferred to the SPV will not be affected by the bankruptcy or insolvency risk of the originator. The SPE (or a trust to which the SPV transfers the assets) issues and sells tradable interest-bearing securities in the public and private markets. The purpose of the transaction is to finance the originator’s assets acquisition. The target investors are generally institutional investors, including banks, insurance companies, pension plans and portfolio managers among others. At this stage, further entities may participate in the process: a rating agency, to assess the credit quality and other characteristics of the securities issued by the SPE; an underwriter or placement agent (the "underwriter") that advices on the structure of the transaction, to allocate efficiently the securities to each class of investors. The securities that are sold to the investors are generally referred to as "asset-backed securities" or "ABS", and they can be classified according to the underlying financial asset of the originator.
    1Source: European Securitisation Forum: A Resource Guide (1999)

    G. Forestieri (2009), Corporate & investment banking, Egea, Milano
    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    Starting from the CML and assuming all the hypotheses of the CAPM, one of the fundamental results is the derivation SML. For a diversified portfolio, the relationship is expressed by the CML; while for an asset or a generic portfolio, whether located on the CML or not, perfectly or not completely diversified, we have the following relationship:
    , or

    This equation describes the Security Market Line (SML). This equation does not represent the efficient frontier as the CML does. In equilibrium, this equation represents the relation between risk and return for single assets or portfolios (diversified or not). The SML is unique in a space. It also represents the portfolios on the CMLand portfolios from the efficient frontier derived by the minimum-variance one.
    In the space, the SML and CML differ because of the SML slope that represents the correlation coefficient. The could be expressed as . The two curves are equivalent only if (i.e., portfolio i is perfectly correlated with the market portfolio); if , and E(Ri) is equal, the CML has a higher slope with respect to the SML; with , the SML will have a negative slope.
    Saltari, E., 1997, Introduzione all’Economia Finanziaria, NIS (La Nuova Italia Scientifica), Roma;
    Editor: Rocco CICIRETTI
    © 2009 ASSONEBB


    Amartya Kumar Sen (1933-) is an Indian economist and philosopher. He is currently a Thomas W. Lamont University Professor and Professor of Economics and Philosophy at Harvard University. He has taught at the University of Calcutta, New Delhi University, Trinity College, London School of Economics and Oxford. He has served as President of the Econometric Society, the Indian Economic Association, the American Economic Association and the International Economic Association. In 1998, he received the Nobel Prize in Economic Sciences for his contribution to welfare studies and to the human development theory.
    His publications include: Collective Choice and Social Welfare (1971), On Economic Inequalities (1973), Poverty and Famines: An Essay on Entitlements and Deprivation (Oxford, Clarendon Press, 1982), On Ethics and Economics (Oxford, Basil Blackwell, 1987), Inequality Reexamined (Oxford, Oxford University Press, 1992), Development as Freedom (Oxford, Oxford University Press, 1999), Identity and Violence: The Illusion of Destiny (New York, W. W. Norton, 2006), The Idea of Justice (Harvard University Press & London: Allen Lane, 2009).
    Editor: Valentina GENTILE
    © 2010 ASSONEBB


    The term seniority indicates the preference in position over other lenders. In case of bankruptcy, the subordinated lenders must respect the order of repayment by giving preference to specified creditors, but in any case senior debt ranks behind equity.
    Ross S. A., Westerfield R.W., Jaffe J.(2002), Corporate Finance, McGraw- Hill Companies, Inc.
    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    According to the Financial Stability Board, the Shadow Banking system is "the system of credit intermediation that involves entities and activities outside the regular banking system".

    Possible shadow banking entities and activities include:

    • Money Market Funds (MMFs) and other types of investment funds or products with deposit-like characteristics

    • Investment funds that provide credit or are leveraged, including Exchange Traded Funds (ETFs) and Speculative Fund (HEDGE FUND)

    • Finance companies and securities entities providing credit or credit guarantees or performing liquidity and/or maturity transformation without being regulated like a bank

    • Insurance and reinsurance undertakings which issue or guarantee credit products, and

    • Securitisation and securities lending and repurchase agreement (repo) transactions.

    The EU is trying to take action to limit it as a new source of financial instability. A green paper has been released on Shadow Banking.


    Price that shows the social value of a good or a service (see also accounting price, economic price) and that is the opportunity cost of any resource allocation.
    Editor: Carmen NOTARO
    © 2010 ASSONEBB


    The Shanghai Cooperation Organization (SCO), composed of People’s Republic of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, was formed as a confidence-building mechanism to resolve border disputes. The organization, originally called the Shanghai Five, formed in 1996 largely to demilitarize the border between China and the former Soviet Union. In 2001, the organization added Uzbekistan and renamed itself the Shanghai Cooperation Organization. It has risen in stature since then, making headlines in 2005 when it called for Washington to set a timeline for withdrawing from military bases in Central Asia. Over the past few years, the organization's activities have expanded to include increased military cooperation, intelligence sharing, and counterterrorism drills. While some experts say the organization has emerged as a powerful anti-U.S. bulwark in Central Asia, others believe frictions between its two largest members, Russia and China, effectively preclude a strong, unified SCO. The SCO signed memoranda of understanding with Association of Southeast Asian Nations (ASEAN). Though the SCO's presence in the region is growing, it is still not very strong, most experts say. As opposed to a fully developed counterpoint to the North Atlantic Treaty Organization (NATO), the SCO serves more as a forum to discuss trade and security issues, including counterterrorism and drug trafficking.

    Editor: Giovanni AVERSA


    A share in the share capital of a company.

    ©2012 Editor: House of Lords


    The Sharpe Index allows us to calculate the risk premium of an investment fund for each unit of risk. Therefore, in theory, at any time, the investor can choose to allocate his/her money to a "risk-free" asset, or opt for an alternative investment as long as the increase in risk is well-compensated for by the extra return to get. Even if the concept of an appropriate remuneration of an investment belongs to the bigger and better explained notion of the risk/return profile of the investor, what is important to know here is that for similar products with the same level of risk, it is possible to work out a ratio (Sharpe Index) from which we can gather information regarding the capability of a fund to generate a return for each unit of risk.
    This ratio is expressed as:

    Risk Premium () equals the difference between the average return of the fund () and the return of an operation that is free of risk (), whereas the risk of the fund is equal to its volatility ().
    The Sharpe Index gives information on how much extra return (risk premium) a fund is capable of giving for each unit of risk (volatility), and thus making it possible to compare investment funds that have the same benchmark. As a result, funds with higher Sharpe ratios have a preference over others, as they are capable of generating greater returns for each unit of risk.

    Editor: Mirko IORI
    © 2009 ASSONEBB


    After 2001 the demand for liquid safe assets increased so much that the supply has been insufficient; the demand of such low risk-low return securities has been driven by oil producers, exporters countries and wealth managers that look for short term securities at very low risk (INTERNATIONAL CASH POOL - ICP).
    The globalisation of financial markets and the portfolio diversification have increased the demand for safe assets, i.e. assets guaranteed by sound sovereign states with positive return, all tough not high, in portfolio of global financial players, like hedge funds, sovereign wealth funds, pension funds, institutional investors and assets managers.
    The safest asset in this category is considered to be the US TREASURY BILL, together with the German BUND. The supply of Treasury Bills has not increased in the last decade at the same pace of the demand for safe assets. The gap between demand and supply has been filled by shadow banking securities, such as repo, assets backed commercial papers, and other short term DERIVATIVE(credit related).


    Pozsar Zoltan (2011) Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System, IMF Working Paper n. 190, August.


    The Singapore Exchange established in 1984 as the first financial futures exchange in Asia. Since its start, the SIMEX (Singapore International Monetary Exchange) has been playing a key role in relation to all the financial instruments traded within the context of the total financial and business services over the southwest of Asia. It covers a broad range of futures and options contracts, such as interest rates, stock index, energy and gold in the Asia-Pacific. During its history, the SIMEX has showed a dedicated approach to innovation, like when it has developed, with the Chicago Exchange (CME), the first step towards an exchange system able to manage a 24-hour bargaining session in two different continents called "Mutual Offset System" (MOS). Through this mechanism (MOS) between the SIMEX and the International Petroleum Exchange (IPE) in London, the futures on crude oil can now be exchanged in 18-hour non-stop negotiations in different geographic areas.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    The “Singapore Issues” have been the most controversial issues discussed or negotiated in the World Trade Organization (WTO) since its establishment in 1995. These issues were pushed by the European Union and opposed by most developing countries. The “Singapore Issues” are four subjects identified during the Singapore Ministerial Conference in 1996, but they were also included on the Doha Development Agenda (DDA) and Doha Round. The issues are:

    1) Investment: The issue focuses on the idea to create rules for the investors rights against any interference of the host country.

    2) Competition policy: The issue focuses in creating rules to ensure fair competition, without discrimination between foreign and domestic companies, including for government monopolies.

    3) Government procurement: It refers to the transparency to allow foreign companies to participate in a non-discriminated competitions.

    4)Trade facilitation: It refers to the creation of new rules that require governments to simplify and reduce the cost of transactions.

    Editor: Giovanni AVERSA


    The Single Euro Payments Area (SEPA) is a project designed to extend the European integration to non-cash euro retail payments by eliminating the distinction between domestic and cross-border payments within the euro area. The SEPA takes its origin from an initiative by the European banking association. In particular, the "SEPA vision" was set out in a White Paper entitled, "Euroland: Our Single Payments Area!" distributed in May 2002 to the participants in a workshop on this issue. The workshop took place in Brussels between 25 and 26 March 2002 and was attended by 42 banks, the Euro Banking Association and the three European Credit Sector Associations (ECSAs), namely the EACB, EBF and ESBG, representing all geographic areas and all types of institutions. The European Payments Council (EPC), a self-regulatory payments body, was entrusted to realise the Single Euro Payments Area (SEPA). The project started after the cash changeover to the single currency in 2002, as it was considered a further step in the achievement of the monetary union. The European Central Bank (ECB) and the Commission actively support and promote the creation of a harmonised market, among others EU institutions. At national level, the SEPA project management entails a coordinated approach involving institutions (Central Banks, Public Administrations,...) and all stakeholders (banking sector, payment service provides, users, ...). The SEPA encompasses 31 European countries: the 16 EU members that have adopted the euro as the national currency (Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Slovenia, Spain, Slovakia, Cyprus and Malta); the 11 countries that have not yet adopted the euro as the national currency, but that make payments in euro (Bulgaria, Romania, Poland, the Czech Republic, Denmark, Estonia, Hungary, Latvia, Lithuania, Monaco, the United Kingdom, Sweden); the remaining 4 countries also included are Iceland, Liechtenstein, Norway and Switzerland.
    The specific goal of the SEPA framework was defined in the Lisbon Agenda, that is to say, the full integration of euro payments markets that results in greater efficiency and competition in the euro area payments services sector to the benefit of customers. The strategy for the fulfilment of this goal was based on the implementation of different "schemes" for the introduction of the SEPA payment instruments, as defined by the EPC Roadmap 2004-2010 approved in December 2004. A different framework, the PEACH, was adopted to define the SEPA infrastructures. The first phase according to the EPC timeline consisted in the scheme design and preparation stage. The second phase concluded in 2007 regarded the implementation and deployment. Finally, from 2007 to 2010, the EPC was defined as a transitional period with the coexistence of national and pan-European schemes and the gradual adoption of the latter. In each stage, there were a number of agents playing an active role for the fulfilment of the SEPA program, which carried out different activities such as programme management, lobbying, monitoring and support. Central National Banks, the National Migration Committee, national banks, their associations and the regulators are particularly involved in the implementation of the SEPA project

    Source: EPC

    The SEPA has been officially launched on 28 January 2008; since then, SEPA credit transfers and SEPA payment cards have been made available. Since November 2009, the SEPA direct debit under the SEPA Direct Debit Scheme is also available. This launch date coincides with the deadline for the Payment Service Directive (PSD) adoption in all EU member states’ legal systems. These have been the preliminary steps torwards the completion of the migration of a critical mass of different payment instruments, with the target date of 2010. The migration implies the replacement of national payment products and standards with the corresponding SEPA products.


    European Payment Council (2009), Making SEPA a Reality … the definitive Guide to the Single Euro Payments Area, EPC publications, September 2009
    European Payment Council (2004), EPC Roadmap 2004-2010, EPC publications, December 2005

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB



    In order to consolidate the economic, financial and fiscal process of the European Union, in September 2012, the European Commission presented some legislative proposals to enhance the robustness of the euro area banking system. The Single Supervision Mechanism (SSM) was established by the EU regulation n.1024/2013 and promotes the single rulebook approach to the prudential supervision of credit institutions (see also Banking Union project). As a result, in April 16 2014, the EU Regulation 468/2014 and the Regulation 469/2014 of the European Central Bank (ECB) completed the framework for cooperation between the ECB and the national competent authorities (see also Banking Supervision: ECB guide). The SSMl officially entered into operation in November 2014.

    Why a Single Supervision Mechanism?

    After the U.S. subprime mortgage crisis in 2007, a radical revision of the bank control systems became manifestly visible in the EU regulatory framework. When the financial crisis spread in 2008, Europe had 27 different regulatory systems for banks in place, largely based on national rules and national rescue measures, although some limited European minimum rules and coordination mechanisms already existed. According to the European legislator, the financial crisis has revealed weaknesses in the European banking supervision and the vulnerability of a regulatory framework that has not been able to respond in uniform way. To remedy these shortcomings, after the economic crisis, the European Commission has tabled around 30 proposals to create, piece-by-piece, a more effective financial sector in order to avoid new recessions in the euro area and to break the connection between financial crises and national public debts. In the idea of the European legislator, the SSM, responsible for the prudential supervision of all credit institutions, is the one of the pillars of this new project and includes the ECB and the national competent authorities (NCAs) of the participating Member States.

    Overview: Separation of Powers Between the ECB and National Authorities (NCAs)

    The SSM is based on the competence of the ECB in the macroeconomic and financial area and on the knowledge and skills of the NCAs on the supervision of banks in their jurisdictions. To ensure efficient supervision, the respective supervisory roles and responsibilities of the ECB and the NCAs are allocated on the basis of the significance of the supervised entities. The SSM framework regulation contain several criteria according to which credit institutions are classified as either significant or less significant:

    - The total value of its assets exceeds € 30 billion or, unless the total value of its assets is below €5 billion, exceeds 20% of national GDP;

    - It is one of the three most significant credit institutions established in a Member State;

    - It is a recipient of direct assistance from the European Stability Mechanism (ESM);

    - The total value of its assets exceeds €5 billion and the ratio of its cross-border assets/liabilities in more than one other participating Member State to its total assets/liabilities is above 20%.

    The ECB directly supervises all institutions that are classified as significant, around 120 groups representing approximately 1,200 supervised entities, with the assistance of the NCAs while the NCAs continue to conduct the direct supervision of less significant institutions, around 3,700 entities, subject to the oversight of the ECB. The ECB can also take on the direct supervision of less significant institutions if this is necessary. But the creation of SSM requires similar key processes for all credit institutions, both "significant" and "not significant".

    The ECB has established four dedicated Directorates General (DGs) to perform the supervisory tasks conferred on the ECB in cooperation with NCAs (as shown in figure 1):

    -DGs Micro-Prudential Supervision I and II are responsible for the direct day-to-day supervision of significant institutions;

    -DG Micro-Prudential Supervision III is responsible for the oversight of the supervision of less significant institutions performed by NCAs;

    -DG Micro-Prudential Supervision IV performshorizontal and specialised tasks in respect of allcredit institutions under the SSM’s supervision and provides specialised expertise on specific aspects of supervision, for example internal models and on-site inspections;

    -Additionally, a dedicated Secretariat supports the activities of the Supervisory Board by assisting in meeting preparations and related legal issues.

    Fig. 1: SSM Directorates General (DGs)

    Source: ECB

    Decision Making and Structure

    The SSM will be composed of the ECB and the national authorities (NCAs) but, according to Art. 6 of Regulation n.1024 / 2013, only the ECB will be responsible for the operation "effective and consistent" of SSM. The execution of supervisory tasks assigned to the ECB will be carried out by the Supervisory Board that will be composed by a chairman and a vice-president, four representatives of the ECB and representative of the national competent authority of each participating Member State. In the organizational structure of the SSM, in addition to the Supervisory Board and the General Districts, there are a Mediation Panel and an Administrative Board of Review.

    Decision-making is based on the “non-objection” procedure (as shown in figure 2). The Supervisory Board proposes complete draft decisions to the ECB’s Governing Council. If the Governing Council does not object within a defined period of time, the decision is deemed adopted. In addition, in order to ensure a separation between monetary policy and supervisory tasks, the ECB will create a group of experts in mediation (Mediation Panel) to resolve objections by the Governing Council on a decision of the Supervisory Board. Finally, the Administrative Board of Review carrying out, on request, independent internal administrative reviews of the ECB’s supervisory decisions, ensuring that such decisions are compliant with the rules and procedures.

    Fig. 2: Non-objection procedure

    Source: ECB

    About to the measures to be taken, the supervisory authority may impose sanctions. The ECB may impose, at credit institutions, administrative sanctions even twice the amount of the profits gained or losses avoided through the violations.

    Finally, the SSM cooperates closely with the other European institutions such as the European Systemic Risk Board (ESRB), the European Banking Authority (EBA), the Single Resolution Mechanism (SRM) and the European Stability Mechanism (ESM).


    BANCA CENTRALE EUROPEA (2014) Progress in the operational implementation of the Single Supervisory Mechanism regulation, SSM Quarterly report, 3 maggio (http://www.ecb.europa.eu/pub/pdf/other/ssmqr20142en.pdf)

    BANCA CENTRALE EUROPEA (2014) Regolamento UE n.468/2014 (http://www.ecb.europa.eu/ecb/legal/pdf/celex_32014r0468_en_txt.pdf)

    BANKING SUPERVISION, website https://www.bankingsupervision.europa.eu/home/html/index.en.html

    BCE, “Guida alla Vigilanza Bancaria”, (https://www.ecb.europa.eu/pub/pdf/other/ssmguidebankingsupervision201409it.pdf?fdd36c36a7fd62b4d36e1c8bf1d9bb85)

    BCE, Website, https://www.ecb.europa.eu/ssm/html/index.it.html

    CONSIGLIO EUROPEO, (2013), Regolamento n.1024/2013 (http://eur-lex.europa.eu/legal-content/IT/TXT/?uri=CELEX:32013R1024)

    MANCINI M. (2013) Dalla vigilanza nazionale armonizzata alla Banking Union, Quaderni di ricerca giuridica Banca d’Italia, N. 73, Settembre (http://www.bancaditalia.it/pubblicazioni/quarigi/qeg_73/qrg_73)

    Editor: Giovanni AVERSA


    It is the axial symmetry of the density function of a random variable. A probability distribution is symmetrical when its probability density function is symmetrical with respect to a fixed value x0:
    In the unimodal distributions, the asymmetry is right when the values that you move away more from the average are the highest ones (on the right on the horizontal axis), located to the right of the three measures of central tendency (mode, median, mean); other way the asymmetry is said left.
    Guseo R., Statistica, CEDAM, 2006
    Leti G., Statistica descrittiva, Il Mulino, 1999
    Editor: Giuliano DI TOMMASO


    Entrepreneurial organisations with a limited number of employees and/or with fixed financial parameters. In general, it is difficult to find a definition for small and medium sized enterprises that is unanimously accepted, given the fact that there are classifications that take into account only quantitative parameters, or exclusively qualitative ones, or even a combination of both. With regards to the quantitative classification parameters, primarily the following ones should be mentioned: staff headcount, annual turnover, invested capital, market share and value added. Concerning the qualitative criteria which are used to characterise SMEs, there are mainly four elements to be listed: there is often a coincidence of ownership and management, as well as a simple organisational structure, often a non-leading position in the market the company operates in, and finally a predominant reliance on self-financing to sustain entrepreneurial development.

    1. European SME definition

    By issuing Recommendation n° 1442 (6 May 2003), the Commission provided a revision of rules with effect from 1 January 2005 concerning the new SME definition. This definition is applied to all Community policies, programmes and measures launched by the European Commission to support and facilitate SMEs. According to this definition, an economic actor that wants to be defined as such has to fulfil the following requirements:
    - Be an entity engaged in an economic activity;
    - Have less than 250 employees (micro-enterprises employ fewer than 10 people, small enterprises fewer than 50, and medium sized enterprises fewer than 250 people). The headcount has to include all employees, people working for the enterprise being subordinated to it and considered to be employees under national law, owner-managers, and partners engaged in a regular activity in the enterprise, whereas apprentices or students engaged in vocational training, as well as colleagues on parental leave or maternity are not to be considered in the headcount.
    - Have either an annual turnover not exceeding 50 million euros, or a total annual balance sheet not exceeding 43 million euros (for micro-enterprises, an annual turnover or an annual balance sheet not exceeding 2 million euros; with regard to small enterprises, an annual turnover or an annual balance sheet not exceeding 10 million euros; for medium sized enterprises, an annual turnover not exceeding 50 million euros or an annual balance sheet not exceeding 43 million euros).
    One of the principal objectives of the new definition is to ensure that support measures are granted only to those companies that genuinely have a need. This is the reason why this definition introduces some methods on how to calculate the effective rates and the financial thresholds to obtain a more realistic picture of the economic status of the company. To reach this goal, a distinction between different types of enterprises was introduced: autonomous companies (enterprises with a participation that does not imply controlling positions), partner companies (enterprises which establish major financial partnerships with other enterprises, without one exercising effective direct or indirect control over the other) and linked companies (enterprises which form a group through the direct or indirect control of the majority of capital or voting rights). (For a more detailed definition of SMEs, please have a look at http://ec.europa.eu/enterprise/enterprise_policy/sme_definition/index_en.htm).
    For the member states, the application of this definition is on a voluntary basis but the Commission together with the European Investment Bank (EIB) and the European Investment Fund (EIF) has invited them to apply it as extensively as possible.

    2. SME definition in Italy and in the world

    In Italy for example, one can find different definitions referring to statistical data based only on one quantitative parameter with an organisational nature (those companies which have a headcount up to 250 employees are considered to be SMEs), or, given the strict legal definition which applies to the Community recommendation 2003/361 EC and to the headcount criteria, other two quantitative parameters with structural nature, namely annual turnover and balance sheet, also in conjunction with an assessment carried out by Unioncamere (where the definition of SMEs includes also those companies with up to 500 staff members), are added. While there are multiple official definitions for SMEs worldwide, which led the OECD to declare that "the characteristics of a SME definition reflects not only the economic, but also the social and cultural dimension of a Country"1, the international organisation has contemporaneously committed itself in these years to bring the requirements to be a SME in different countries to a common and homogeneous level. Just to give some examples, we referred to the recommendation for the legal SME definition in the European Union based on three quantitative criteria; also in the United States of America the headcount of staff members is of paramount importance, with the exception of the business sectors that do not produce goods where the annual turnover is taken into consideration, but this is conveniently differentiated by macro-sectors; in Brazil, different criteria and thresholds are utilised for various legal and fiscal aims; in Japan, work force and capital or investments determine the dimension even if the thresholds vary with regard to the business sector (like in Korea).

    1OECD, SME Statistics: towards a more systematic statistical measurement of SME behaviour, 2nd OECD CONFERENCE OF MINISTERS RESPONSIBLE FOR SMEs, Istanbul 3-5 June 2004, pages 11-12.

    Editor: Annalisa CECCARELLI
    © 2010 ASSONEBB


    A process whereby HFT traders post attractive limit orders to attract slow traders then rapidly revise these orders onto less generous terms, hoping to execute profitably against the incoming flow of slow traders’ market orders.

    ©2012 Editor: House of Lords



    The term socialist market economy indicates the Chinese economic structure, characterized by a mixed system presenting the typical features both of market and planning economies. In this type of system, the political authoritarianism, due to the 1949 socialist regime, matches with a market economy developed by the reform process of the eighties. The similarity can be especially identified in the gradualism with which China has started restructuring a Marxist economic kind of system according to the market rules. This gradualism has undoubtedly been an essential factor in order to achieve any kind of success as a consequence of these reforms, but it has also caused some instability factors. For instance, it has created a system in which private and public companies, market prices and planning prices, protection of private property and communist ideology, competition and state intervention, simultaneously coexist.

    The term "socialist market economy" was used for the first time in 1992, during the XIV Congress of the Chinese Communist Party to outline the new goals of the economic reforms.

    This concept was institutionalized by the introduction of constitutional changes and so, the socialist market economy became the official term to define the current Chinese economic and social system.

    China's economy can be considered as a closed and planned one, inspired by the Soviet model of development1: starting from the Chinese Communist revolution in 1949 until the Maoist era2 and up to 1978.

    The birth of the socialist market economy, which dated back since the modernization processes in 1978, represented a breakthrough for the Maoist period, in the changing international background of the seventies and of the eighties which testified the failure of Soviet Communists regimes. The integration of developing countries into the world economy, forced the CCP to start seeking for a national path which would have led to socialism.

    Since the eighties, although the firm intention to maintain a socialist economic system, it was launched a program of structural reforms that generated a gradual abandonment of the Marxist planned system. In the following twenty years, China would have undertaken radical changes in the economic system.

    The structural reforms, started in 1978, did not directly lead to a capitalist and market economy, but eventually to a mixed system that kept being characterized by an autonomy from the market that continuously collided with the omnipresence of the bureaucracy of the Party, in all of the territorial aspects.

    This also led to a "double face" of the Country: the first one was characterized by a Party-State with the role of manager and controller of the economic life; while the second one was represented by the social economic changes that occurred over time, and which could be considered as an expression of a more and more dynamic society as a direct consequence of these reforms.

    The Chinese socialist market economy overcame the dichotomous schema of mere juxtaposition (aut ...aut) between socialism and capitalism by reaching an approach which could be compatible with both. In the institutional framework of a communist regime, this kind of compatibility took place, at the very beginning, only in certain areas, like trade and services, but afterwards, in an ever more widespread way, in the development focused on prices, markets, businesses and profits. These are the basic elements for the existence of a market economy. The promulgation of the "Law on industrial property of the people " in 1988, can be considered as a case in point. In fact, it adjusted the model of corporate governance of Chinese enterprises to the standards of the Western market economy by binding them to the achievement of the capitalist profit "but also" to the satisfaction of the socialist planning duties.

    Elements of different ideological nature merged in the term socialist market economy, prima facie contradictory, by forcing the hammer and sickle symbol to walk hand in hand with the surplus value, profit and financial returns.

    Another aspect of the compatibility between the market logic and the Marxist ideology concerns the distribution of wealth. In fact, this concept has occupied a key role in the economic theory since the nineteenth century. In literature, a closed and planned economy, tends to have a more egalitarian distribution of wealth; on the contrary, in an open and liberal economy the effects of the market distort such distribution.

    The Chinese case is emblematic. As a nation that declares itself as a Communist one, it has the highest income inequality of the world. As a matter of fact, in 2010, the Gini index amounted to 0.61 upwards of the world average level of 0.44.

    These elements, along with the institutionalization of private property protection in a socialist system, the presence of both public and private companies together with the price system "dual track"- that managed to merge capitalist matrix elements (market prices) with others of socialist nature (planned prices)- represent some of the peculiarities of the socialist market economy.

    This kind of economic policy strategies, in the Chinese developmental model, exhibits many similarities but also many aspects that deviate from the traditional economic and political strategies of the liberal States as well as from those characterized by a “Developmental” State.

    The aspects that distinguish the socialist market economy can be found in pragmatism, gradualism, in the authority of the state intervention in the economy and in the market needs, which take priority over the creation of a democratic system. Besides, for this reason, it is not possible to regard China just as a Country in transition, because considering all of the former socialist economies, China's economic modernization is not characterized by any kind of institutional modernization3, in contrast with the Western model, which requires a free market system combined with a liberal democratic one.

    The Chinese institutions repeat some of the successful factors typical of a system in an open economy, such as the adaptation of the system of market prices, the acquisition of corporate governance models of enterprises, exports and receiving of foreign investments. However, these institutions also adapt and safeguard the socialist ideology in favor of the legitimacy of the CCP, finding a meeting point between economic growth and political stability.

    The new Chinese ruling class understands that just a part of the western modernity can be considered useful, since it guarantees to the authoritarian regime the possibility to gain legitimacy and consensus to be effectively used in the markets to create wealth.

    The State is in China the main "helmsman" that leads the country straight towards the economic modernization, in a historical period in which it is losing its role as the main actor in the international system. The integration into the world economy has been carried out thanks to the initiative of the Chinese party-state and under its control, mainly by denying the neoclassical paradigm which states that it is hard to assert that deviations from the perfect market model may be beneficial in the long run, for any economic system.

    The current China's political-economic structure is a mixed system in which, in addition to the growing position reserved for the market and the role played by the authorities at the national level, keeps being present and relevant, especially locally speaking.

    Major economic reforms of the new developmental model

    The choices of economic policy adopted in China since 1978, have contributed to change the Maoist socialist model introducing a gradual restructuring of the traditional planned economic system about the market rules.

    This gradual process invests mainly the sector of state-owned enterprises, the agricultural sector, banking, foreign markets and devolution.

    In the public enterprises sector, the compatibility of private initiative with socialist ideals has been recognized at a constitutional level, paving the way to a system of non-state firms devoted to profit maximization and no longer characterized by a soft budget constraint,4 exonerating administrators from any kind of responsibility. The general policy in this field has gradually reduced the weight of public enterprises, by allowing the private or collective companies to quickly increase their market share.

    In the agricultural sector, communes5 have been gradually abolished since 1978, proceeding to the redistribution of lands, which up to that moment, were totally owned by the State and finally creating a family responsibility system. These agricultural reforms represented a great incentive for peasantry, who could finally benefit from land concession as well as from the possibility to privately sell part of the agricultural production directly on the market . The liberalization of rural markets has led to a partial abandonment of the old prices system, which had to coexist with different system of market prices, the so-called "dual track" system.

    In 1983, the “dual track” also became a two-tier China's banking system. China separated the Central Bank (People’s Bank of China-PBOC) from the second-tier banks. The Central Bank has been entrusted exclusively with macroeconomics tasks, while the second-tier banks are: the Agricultural Bank of China (ABC), the Industrial and Commercial Bank of China (ICBC), the Bank of China (BOC) and China Construction Bank (CCB). These are the four main public banks that are allowed to compete in different sectors since 1986. As a result of these reforms, the banking system has become the primary channel to achieve funding for investment, since the modernization process significantly reduces the ability of the state budget to mobilize and allocate resources.

    However, in the foreign markets sector, the opening takes place under the pressure of international exports and through the establishment of Special Economic Zones6 for the import of capitalist models and foreign direct investments. The exports have become one of the main causes of China's growth, spreading the competitiveness of exported products from intensive work sectors, to the ones with an higher degree of specialization, such as electronics. The Chinese economy shifted from being mostly a "factory of the world"7 towards occupying the brand-new role of exporter of High Tech.

    Furthermore, in the eighties, it took place a transition from an highly centralized economy, to a more decentralized one, in which the local politicians of the main cities of each province, as well as private and foreign operators, had a considerable action-taking faculty. The businesses and local administrative authorities established the profits to be realized, and also the state contributions. Not only did not this administrative decentralization limit the strong public power on the economic processes based on the programming of the central state, but also on those based on the control of local political authorities, such as provinces, cities and villages. At the end of the eighties, the majority of the public enterprises were under the direct control of local authorities. In China, therefore, everything is now formalized with a dual government system of the Country at peripheral, central, local and national level. Therefore, there is not a real separation between the State and the Party.

    Private ownership and socialist economy. Legal adjustment to market needs

    The characteristics of the new Chinese model of development emphasize the importance of private economic initiative carried out through the institution of private ownership which is generally considered the fundamental basis of two contrasting market representations: capitalism and socialism. The first emphasizes the sacredness of private ownership in opposition to the public good, while the second aims to its total abolition.

    The institution of property right is the cornerstone of the main changes in the Chinese economic system as it represents the link between a planned economy and the choice of a socialist market one.

    In 1982, thirty years after the Communist revolution of 1949, the Constitution incorporated into its system, the fundamental principles regarding the economy and the property system. The Articles 10, 11, 13 and 15 of the constitution were gradually modified, introducing, for the first time ever, the strengthening of each kind of promotion and protection of private enterprise, the right transfer to exploit the lands. The State was also entrusted with the task of carrying out a system based on the socialist market economy.

    The existence of private enterprises and their development were finally recognized to be accessory to the socialist public economy. Property rights were also protected.

    The presupposition of this constitutional adjustment process lies in China's interest to facilitate, even through legal instruments, the transition from a centrally planned economy to a socialist market one. With Articles 11, 12, 13 and 15 of the Chinese Constitution, it was introduced for the very first time, the concept of private property, which used to be considered as a dangerous institution for the consolidation of the socialist ideology, becoming the most obvious example of a "mixed" system defined, by the Chinese constitution, as a socialist market economy.

    1Model based on central planning and allocation of administrative resources.
    2Mao Tse-tung’s CCP leadership (1943-1976).
    3The institutional framework is defined by the Chinese constitution "people's democratic dictatorship."
    4Kornai (1979) defines soft budget constraint the typical situation of socialist economies, in which the State participates to cover the excess of expenses over the incomes of public enterprises.
    5Basic structures of Chinese society established in the Country in 1958 because of the initiative of Mao Tse-tung. They were mostly based on the collective ownership of lands, where they used to carry out mainly agricultural activities.
    6Special Economic Zones were created in order to attract foreign investments and located in the eastern part of the country.
    7China is often defined as the "factory of the world" especially in regard to some sectors, such as toys or textiles and clothing; the local manufacturing ability merge with the foreign technology, creating products at more favorable prices than in the Western markets.


    AMINGHI A.- CHIARLONE S. (2007) L’economia della Cina. Dalla pianificazione al mercato, Roma, Carocci.
    ARRIGHI G. (2008) Adam Smith a Pechino. Genealogie del ventunesimo secolo, Bologna, Feltrinelli.
    BALCET G.-VALLI V. (2012) Potenze economiche emergenti. Cina e India a confronto, Bologna, il Mulino.
    HONGBO L. (2011) Cina: le istituzioni, l’economia, la finanza, Soveria Mannelli, Rubbettino.
    JOHNSON C. (1982) MITI and Japanese Miracle, Stanford, Stanford University Press.
    LEMOINE F. (2005) L' economia cinese, Bologna, il Mulino.
    MIRANDA M.-SPALLETTA A. (2011) Il Modello Cina. Quadro politico e sviluppo economico, Roma, L’Asino d’oro.
    PICCININI I. … RINELLA A. (2010) La costituzione economica cinese, Bologna, il Mulino.
    POMERAZ K. (2004) La grande divergenza. La Cina, l’Europa e la nascita dell’economia mondiale moderna, Bologna, il Mulino.
    ROBERTS J. A. G. (2013) Storia della Cina, Bologna, il Mulino.
    SAICH T. (2004) Governance and politics of China, New York, Palgrave Macmillan.

    SAMARANI G.-SCARPARI M. (2012) La Cina: verso la modernità, Milano, Mondadori.

    WU J., (2006) Understanding and Interpreting Chinese Economic Reform, New York, Cengage Learning.

    Editor: Giovanni AVERSA


    Società per azioni, anche senza fini di lucro, che operano sotto la vigilanza della Consob e della Banca d’Italia che hanno per oggetto esclusivo la prestazione del servizio di gestione accentrata di strumenti finanziari (v. strumenti finanziari), compresi quelli dematerializzati (v. dematerializzazione), attraverso semplici registrazioni contabili. Possono svolgere anche attività connesse e strumentali all’oggetto sociale. L’esercizio dell’attività è subordinata al rilascio di una autorizzazione da parte della Consob, d’intesa con la Banca d’Italia, dopo aver accertato la sussistenza dei presupposti necessari. La gestione accentrata degli strumenti finanziari è sorta spontaneamente su iniziativa degli operatori di borsa attraverso la costituzione di una apposita società, la Monte titoli spa e successivamente disciplinata dalla l.19.6.1986 n.289 che attribuiva alla stessa la gestione in regime monopolistico del sistema. Oggi il sistema è regolato dal TUF e dal d.lg. 24.6.1998 n. 213 che hanno spersonalizzato e liberalizzato l’attività, consentendo la libera costituzione di società per la gestione accentrata, facendo così venir meno il monopolio legale della Monte Titoli spa anche se attualmente quest’ultima è l’unica società operante sul mercato.


    Società di Intermediazione Mobiliare (SIM) are, as set out by their statute “Testo unico in materia di intermediazione finanziaria” (Rules and regulations concerning stock market trading)1, investment companies that are different from banks and other regulated financial bodies. These companies can trade for themselves (brokerage) or for third parties (dealing). SIMs are also allowed to offer other related or secondary financial services to the public. As opposed to SGRs, SIMs must seek permission from the Consob, which, with the approval of the Bank of Italy, then authorizes the SIM to carry out investment services.
    1Please see art. 26 of decree-law D. lgs. n.58 of 25 February 1998, "Testo unico delle disposizioni in materia di intermediazione finanziaria, ai sensi degli articoli 8 e 21 della legge 6 febbraio 1996, n. 52".

    © 2009 ASSONEBB


    Bonds issued by a sovereign state.

    ©2012 Editor: House of Lords


    While there is no universally accepted definition, a sovereign debt restructuring can be defined as an exchange of outstanding sovereign debt instruments, such as loans or bonds, for new debt instruments or cash through a legal process. Sovereign debt, refers to debt issued or guaranteed by the government of a sovereign state. The debt restructuring is based on agreements with the creditor countries (see the Paris Club, London Club, International Monetary Fund - IMF).

    One can generally distinguish two main elements in a debt restructuring:

    -Debt rescheduling, which can be defined as a lengthening of maturities of the old debt, possibly involving lower interest rates. Debt reschedulings imply debt relief, as they shift contractual payments into the future;

    -Debt relief, which can be defined as a reduction in the face (nominal) value of the old instruments.

    Editor: Giovanni AVERSA


    "Investment funds whose capital can be invested in alternative financial operations, which can be riskier than those foreseen for open or closed investment funds, in derogation of the prudential restrictions and limiting regulations established by the Bank of Italy to contain levels of risk1 ".
    Hedge Funds, otherwise known in Italy as "speculative funds", represent a class of OICRs (Italian acronym for Investment Organisms of Collective Savings) that do not belong to the conventional class of investment funds. Their non-conformity is both regulated and operational. In their regulatory aspect2, hedge funds enjoy a greater freedom as far as investment limitations and criteria are concerned, and therefore their capital can be invested regardless of the prudential laws of containment and diversification of risk established by the Bank of Italy.
    This freedom of action, however, has resulted in special regulations concerning the nature and possibility of subscribing to these units: the legislation limits investors (or subscribers) of a speculative fund to a maximum of 200 units; the minimal initial investment cannot be less than 500,000 Euros, and these funds cannot campaign for investors. The subjects involved in speculative funds are more or less the same as those involved in investment funds: there are Società di Gestione del Risparmio (SGR), investment funds, depositary banks and prime brokers. Prime brokers, however, are a characteristic feature of speculative funds, as they provide services that are necessary to implement the strategies adopted by "hedge" funds.
    From an operative point of view, the strategies of hedge funds are completely different from those of conventional funds, if we consider, for instance, that hedge funds do not have benchmarks since their goal is to achieve positive results regardless of the stock market direction. The very word "hedge" means "to cover" or in other words, trying to protect a fund from the risks of financial markets (especially the systematic risk).
    Whereas classical investment funds differ from one another according to their asset allocation (please see explanation), hedge funds are characterised by the different strategies that they use to achieve their performance. It is not easy to clearly classify hedge funds; nonetheless, the following is an explanation of four of the most-commonly adopted strategies3.

    1. Long/Short Equity

    If we consider a classical investment fund where the fund manager varies the incorporated assets in order to outperform his/her benchmark of reference, what is the fund manager’s goal? His/her goal is to buy stocks that will increase in value with the course of time. How can he/she do better than the benchmark? The fund manager tries to beat the benchmark by overweighing/underweighing stocks that he/she believes to be under/overvalued. Regardless of his/her intentions, the fund manager is in a buy (or a long) position on shares. With the long/short equity strategy, a hedge fund manager can adopt a long (buy) or short (sell) position on stock market shares. By taking a short position, the fund manager makes a profit when the share value falls. In conclusion, if the fund manager is capable of spotting equity that is under/overvalued, with long or short positions, he/she can make money even when the market drops.

    2. Event-Driven

    With event-driven strategies, a fund manager attempts to make a gain by betting on the stocks and shares of companies that are undergoing particular situations or that are involved in special events. The difficulty in implementing such trading strategies is in understanding the information related to such events before the market does, and before the market incorporates the value of this information into these stocks. Distressed and merger arbitrage also belong to the event-driven category.
    In distressed strategies, the fund manager bets on the equity of companies that are going through a difficult financial period, but which the fund manager believes to have a good chance of making a recovery.
    In merger arbitrage strategies, the fund manager bets on the equity of companies that are involved in important financial operations such as mergers and acquisitions.

    3. Relative Value

    Relative value strategies are concerned with arbitrage operations based on the variation of the spread between two shares and/or the difference in price of a share compared to its theoretical price. In the first case, fund managers try to take advantage of the variation in prices of two shares that, up until a certain point in time, had always shown a strong correlation. In these strategies, the fund manager attempts to make a gain from the temporary and abnormal movement of the share price of a stock away from its theoretical value before the share prices are realigned again.

    4. Global Macro

    Speculative funds that use a global macro strategy probably represent the class of OICRs that differ the most from traditional investment funds. Apart from being different for the same reasons as other types of hedge funds (the absence of a benchmark; freedom from investment limitations, etc.), it is not possible to assign to these funds any type of classification in connection to the type of financial operations, geographical area or foreign currency that they invest in. Managers of global macro funds have an extremely wide range of possibilities for the investments that they can make. Their choices, indeed, are based on macroeconomic data from any country around the world (GDP, deficit statistics, employment figures, inflation levels, etc.) and so they are able to invest in almost any financial instrument (equity, bonds, foreign currencies, interest rates, etc.) and in any geographic region. Global macro funds can also replicate any other fund without any form of restriction. Normally, because of such a wide scope of choices, fund managers invest in large financial markets where they can quickly sell the positions that they have taken.
    1Please see "Glossario della finanza" on
    2Please see decree-law D.lgs n. 228 of 24 May 1999 of the Ministero del Tesoro and the Regulations of the Bank of Italy of 20 September 1999 and all subsequent modifications introduced by decree-law D.lgs n.47 of the Ministero del Tesoro of 31 January 2003.
    3Connor G., Mason W., (2003), "An Introduction to Hedge Funds", working paper, Financial Markets Group, London School of Economics.

    © 2009 ASSONEBB


    Since 2009, the Stability Law (l.n. 196/2009) officially replaces the Finance Act (l.n. 468/1978). The Stability Law and the Budget Law, constitute the public finance measures for the three-year period and they are the main instrument for implementing the policy goals defined by the Public Finance Decision (DFP). The Government must submit the Stability Law and Budget Law to the Parliament by 15 October. These deadlines were extremely close to DFP in order to reduce the risk of misalignment caused by definition of economic goals and respective interventions. The Stability Law must consider the principle of balanced budget introduced by the Constitutional Law of 20 April 2012 n.1. This change is inspired by the need to strengthen the Italian commitment to the fiscal consolidation for the constraints imposed by the Fiscal Compact.

    The Stability Law avoids vagueness in the measures content and the inclusion of rules whose financial effects are produced over the three-year program. It is a measure simplified compared to previous Financial Acts.

    Editor: Giovanni AVERSA

  • Standard Deviation

    It's defined as the root mean square of weighted deviations from the arithmetic mean.

    Where X is the observed value and ? is the mean value. The standard deviation has the same unit of measurement of the observed values.It's a measure of the dispersion of the variable around its mean value, and expresses what is the error that you make on average taking the average value in place of the observed values.


    Leti G., Statistica descrittiva, Il Mulino, 1999

    Guseo R., Statistica, CEDAM, 2006

    Editor: Giuliano DI TOMMASO


    The Standard Eurobarometer was introduced in 1973 by the European Commission (EC) to monitor the European public opinion in the member states and candidate countries, on several issues regarding the integration process and the policies implemented at European level. The survey is carried out twice a year, in spring and summer, and is based on 1000 face-to-face interviews, except Germany (1500), Luxembourg (600), and the UK (1300), conducted in the appropriate national language. The sample selected for the in-home interviews are resident of each member state and are at least 15 years old. Moreover, the sample is representative of the entire national territory (divided into metropolitan, urban and rural areas) and socio-demographic analyses for specific issues are often reported(i.e. the European citizens' opinion about the EU future), as well as the reference to sex, age, and respondent occupation scale (student, self-employed, managers, other white collars, etc.). Since 2004, the EC has committed the surveys at European scale to TNS Opinion & Social.
    Link: Eurobarometer website: http://ec.europa.eu/public_opinion/index_en.htm
    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • Stationary/weak stationary stochastic process:

    It’s a stochastic process where its mathematical expression (i.e. Probability density function) dependent by a parameter (i.e. information) doesn’t change by time (strong stationary) or by time interval (weak stationary).

  • Stochastic process

    Instrument, process, theory, model designed to describe and study situations which vary according to probabilistic laws. In finance, quantities that govern the prices are random functions, so Stochastic processes have become a stable core of economic theories and the subject of intensive research involving mathematicians and economists in a common attempt to formalize and refine more and more realistic models of developments in the financial market.

  • STOCK (Encyclopedia)

    Stock represents a portion of the ownership in a corporation. Each stock gives the holder the status of shareholder. This status gives rights and obligations.
    Stocks are one way to generate financial capital for companies. Stock return defines the way investors decide to allocate financial savings. From a strictly economic point of view, the shareholder has a risk that is directly related to the return. This risk is defined as the random return depending on company performance. The shareholder is also entitled to a reimbursement after the settlement of a company.
    When agents in the market buy a stock, they are implicitly buying the following expected return:
    where the first right-hand side value is the dividend per share in t=1, and the second-right hand side is the capital gain/loss () in . These two values must be equal to the expected return in equilibrium (left-hand side). This generates the risk related to the expected stock return. This risk is zero for fixed income assets and is positive for stocks.
    The equation (1) comes from the buy strategy in t=0, when agents in the market decide to buy (-Po) a stock and then sell it in t=1, where it is possible to obtain . These two values have a present value when is applied. This generates the equilibrium in (1).
    Stocks can be divided into ordinary stock and preferred stock. The main difference between the two groups of stock is in the right to vote and the dividend. Preferred stock gives up the right to vote for a defined dividend.
    Becchetti, L., Ciciretti, R., Trenta, U., 2007, Modelli di Asset Pricing I: Titoli Azionari, in Il Sistema Finanziario Internazionale, Michele Bagella, a cura di, Giappichelli, Torino
    Editor: Rocco CICIRETTI
    © 2009 ASSONEBB


    Stock Index is a summary of one or more stock markets and it may represent one or more stock markets. The performance of the stock market/s is summarised in the index. The Stock Index can also represent more than one market in different countries.

    Graph. Trend of Stock Index Standard & Poor’s 500 Composite that represents the NYSE and NASDAQ stock markets.

    From the graph, it is possible to observe that the index accurately summarises the market’s behaviour. The indices need to perfectly reflect the entire market with a restricted number of representative stocks. In this way, a well-constructed index is representative of the market’s benchmark. The index S&P 500 COMPOSITE in the graph is a weighted index of the top 500 companies in two stock markets: the NYSE and the NASDAQ. It was created for the first time in 1926, even if between 1928 and 1957 it was known as S&P 90.
    Another well-known stock index that represents the world stock markets is the Morgan Stanley Composite Index -MSCI World. This index has top stocks from each stock market in the world
    in its basket. The trend of this index represents the weighted trend of the entire world stock market.
    Differently from a single stock, the stock index is an index number. The stock index can also be traded in the market like any other asset. The return of the index is calculated by multiplying the change in the index number by the index divisor number. The index formula is different for each index, and it takes into account the stock split, as well as the stock dividend.
    Becchetti, L., Ciciretti, R., Trenta, U., 2007, Modelli di Asset Pricing I: Titoli Azionari, in Il Sistema Finanziario Internazionale, Michele Bagella, a cura di, Giappichelli, Torino
    Editor: Rocco CICIRETTI
    © 2009 ASSONEBB


    The stock market is the place where the stocks are traded. The stock market is a secondary market where stocks, already issued, are traded. The stock market can be either an organised and regulated financial market ((Official) Exchange trading) or not (OTC (Over-the-Counter) trading).
    Some examples of exchanges are the New York Stock Exchange, the Borsa Valori SpA, the London Stock Exchange-LSE, while the biggest OTC market is the NASDAQ (National Association of Securities Dealers Automated Quotation), which is certainly the most liquid market for volume traded in the world. It was set up by the National Association of Securities Dealers (NASD) as an OTC market in which trading was completely electronic.
    Stocks issued by listed companies are traded on these OTC markets, where different modalities and regulations apply. These markets are different from one another owing to the different regulations that apply to them, which consequently leads to a different liquidity in the market itself.
    The stock market is physically located in the Official Exchange. The stock market is one of the most important components of the more complex system called the financial market.
    The stock market can be summarised through its stock index, which is the statistical indicator used for measuring and reporting changes in the market value of a group of stocks/shares.
    Stock market trend through the representative stock index.

    From the graph, it is possible to see that the stock market is fully represented by the stock index. Via the index, it is possible to immediately understand whether the market has had a positive/negative daily return.
    Becchetti, L., Ciciretti, R., Trenta, U., 2007, Modelli di Asset Pricing I: Titoli Azionari, in Il Sistema Finanziario Internazionale, Michele Bagella, a cura di, Giappichelli, Torino
    Editor: Rocco CICIRETTI
    © 2009 ASSONEBB


    It is a long-term strategy set out in 2001 during the European Summit held in Gothenburg. It complements the previous Lisbon Strategy (March 2000) by adding the missing environmental element to it. In 2004, the European Commission, with the aim of merging all the economic, environmental, and social policies oriented towards sustainable development, started an extensive review process of the entire European Sustainable Development Strategy (EU-SDS). After reviewing the Gothenburg Strategy in 2005, the European Council adopted a comprehensive renewed SDS for an Enlarged Europe in 2006.
    Editor: Melania MICHETTI
    © 2009 ASSONEBB



    The European capital market remains fundamentally distinct to the US, and Europe lags behind the US in many regards, for example, the use of equity to finance firms, the prevalence of venture capital, and the relative share of IPOs.
    Six principles should guide the development of Europe’s capital market



    Together with Asset Quality Review (AQR) by the ECB, the Stress Tests (ST) scenarios will be defined. The two analyses are preliminary tools to building an integrated banking system (European Banking Union), with common rules for all European banks and supervision which will be assigned to the ECB through a single supervisory mechanism (SSM).

    The European Banking Authority (EBA) assessing the strength of the European Banking System

    The Stress Test will be performed by the European Banking Authority (EBA) to assess the banks’ soundness in case of crisis (as shown in Table 2) to estimate the need for additional capital. In particular, these tests will be performed by the EBA in conjunction with the national supervisory authorities of the Member States, with the European Systemic Risk Board (ESRB), the ECB and the European Commission.

    Tab. 2: Stress Test (ST)

    In 2011 Europe had started the risks assessment through the national supervisory authorities to proceed in a rapid reinforcement of capital. If because of the AQR and Stress Test liquidity shortage emerges, banks should increase their capital. In particular, the minimum capital required for banks in the event of adverse scenario to overcome the stress test is equivalent to a Common Equity Tier 1 of 5.5%, while the baseline scenario has a level of 8%.

    The resilience of EU banks will be assessed over a period of three years (2014-2016), but the results of these stress tests will be available in October 2014.

    Specifically, the stress scenarios include a number of risk factors that will influence the economic and financial indicators:

    - Collapse of the global financial markets

    - Collapse of domestic and foreign demand in EU countries;

    - Devaluation of the currency in Eastern Europe countries;

    - Collapse of property prices;

    - Shock on bonds (banking, corporate and sovereign), with a corresponding interest rates increase;

    - Stalemate on political and economic reforms and an interest rates increase in the short term of the EU Member.


    BANCA D’ITALIA (2014) La recente analisi dei prestiti deteriorati condotta dalla Banca d’Italia: principali caratteristiche e risultati, Banca d’Italia (http://www.ilsole24ore.com/pdf2010/SoleOnLine5/_Oggetti_Correlati/Documenti/Finanza%20e%20Mercati/2013/07/Nota-Provisioni.pdf?uuid=1cf49f18-f87d-11e2-b0d2-9290ada7c4f9)

    EUROPEAN CENTRAL BANK (2014) Asset Quality Review Phase 2 Manual, ECB, March (http://www.ecb.europa.eu/pub/pdf/other/assetqualityreviewphase2manual201403en.pdf?e8cc41ce0e4ee40222cbe148574e4af7)

    EUROPEAN CENTRAL BANK (2013) La BCE da inizio alla valutazione approfondita in vista dell’assunzione delle funzioni di vigilanza, Comunicato stampa BCE, 23 Ottobre (http://www.bancaditalia.it/media/comunicati_bce/com_bce/2013/pr-20131023/PR_2013-10-23-comprehensive-assessment_it.pdf)

    HENRY J. … KOK C. (2013) A macro stress testing framework for assessing systemic risks in the banking sector, ECB Occasional paper series no 152 / October (http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp152.pdf)

    OTTOLINI R. … UBALDI E. (2014) Liquidity Stress Test: da utili a necessari, FinRiskAlert.it (https://www.finriskalert.it/wp-content/pdf/Newsletter-5-2014.pdf)

    QUAGLIARIELLO M. (2013) Dall’analisi della qualità degli attivi allo stress test europeo, Contributi Bancaria n.9 (http://www.bancaria.it/assets/PDF/2013-09.pdf)

    Editor: Giovanni AVERSA


    Stripped US Treasury Zero Bonds are zero-coupon Treasury receipts. Typically, the zero-coupon or notes are not issued directly by the U.S. Department of Treasury, therefore the most important investment banking firms have created this synthetic zero-coupon Treasury receipts. The first Stripped Securities were launched in 1982 by Merrill Lynch (the so-called TIGRs - Treasury Income Growth Receipts) and Salomon Brothers (the so-called CATS - Certificates of Accrual on Treasury Securities). More in general, all types of zero-coupon treasuries were associated to a particular firm, so they were referred to as trademark zero-coupon Treasury securities. However, since February 1985, the U.S. Treasury has introduced the STRIP (Separate Trading of Registered Interest and Principal of Securities) program to facilitate the creation of Treasury strips. Treasury strips are direct obligations of the U.S. government that have completely replaced the trademarks. The zero-coupon are created by firms through the process of coupon stripping. Following this process, investors are allowed to hold and trade the components of eligible Treasury notes and bonds as separate securities. First, firms buy Treasury bonds and deposit them in a bank custody account. Then, notes or bonds are ‘‘stripped’’: the firm issues a receipt representing an ownership interest in each coupon payment and a separate receipt for the ownership of the principal (called the corpus). Currently, all new Treasury bonds and notes with maturities of 10 years and longer are eligible for STRIP.

    Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    A structured bond is a debt instrument that is made of Bonds and Derivatives, its financial structured is complex. Interests can be paid at expiration (zero coupon) or at given dates, and the principal can be reimbursed at expiration or at given dates.

    Financial complexity of structured bonds provides higher risks and returns (see Capital Asset Pricing Model (CAPM) (Encyclopedia) for further details).


    A product, other than a derivative, whose value is linked by a pre-set formula to the performance of an index, basket of securities or other conditions.

    ©2012 Editor: House of Lords


    Subprime refers to those creditors who cannot be considered as "prime" lenders, because their credit status does not allow the bank to assess their creditworthiness as "prime". Subprime credit refers to various credit tools: credit cards, mortgages, and consumer credit.
    From a technical point of view, a subprime creditor has a credit score lower than 620, according to the definition given by the US Federal Reserve. The low credit score can be the result of a bad credit history, or of its absence. The opportunity to lend to sub-prime creditors allows the bank to earn higher fees and interest rates.
    Thanks to subprime mortgages, nine million US families were able to buy a house during the period 1996-2003 (Gramlich, 2004).
    In 2007, it was estimated that the subprime market reached US$1.3 trillion, when the entire US mortgage market reached around US$10 trillion.
    Subprime credit was allowed by the US Federal Reserve, out of prudential banking regulation, because of the special function this credit plays. In particular, this credit plays the function of social housing (through Fannie and Freddie), which is absent in the US.

    1. Critics

    Subprime credit should give free access to credit without any risk-weighting component (on assets owned by the bank). Other similar initiatives, like the credit to low-income students and micro-credit, play the same function, but they guarantee far smaller returns for intermediates. After 2006, critics to the subprime system soared because of the real estate market crisis, which increased the delinquency rate. The subprime credit is characterised by a very high negative correlation between real estate prices and delinquency; when prices start to slow down, delinquency accelerates. As observed by the Fed, after real estate prices started to slow down, thousand of families lost their house, contributing to the difficulties of the credit system. The critics to the subprime system argue that certain predatory practices have been allowed, regardless of the concrete ability to pay back credit. Some mortgages produced an amount of interests far exceeding the income of households, without any possibility to re-negotiate the debt. These practices are against any prudent and wealthy management of the credit system, which is the objective of the US Federal Reserve.
    Editor: Chiara OLDANI
    © 2010 ASSONEBB


    At the end of 2006, US real estate prices started to slow down.

    On July 2007, BNP Paribas, a French global bank, declared it was unable to evaluate its funds because of a default rate of subprime credit, which had been put into these funds by means of securitisation. In August 2007, massive selling flowed into the market, and this created tension and problems for the operators who had a small amount of capital (contagion). In August, the US president Bush announced a plan to help households in trouble with their mortgages, but this plan did not help intermediaries. Interbank interest rates spiked, like Euribor and Libor, and the market dried up. In fall 2007, the US Federal Reserve started to cut short-term interest rates, from 4% to 1%. In March 2008, Bear Sterns, a financial non-banking intermediate, was purchased for the symbolic amount of
    $ 2 per share by JP Morgan, after authorisation from the US Federal Reserve. The cause of the default was the loss of value of its subprime credits, in the absence of adequate capital. After Bear Sterns, the Fed decided to enter directly the market and to act as counterpart for troubling intermediaries; interbank interest rates started to decrease only in 2009. In September 2008, Fannie Mae and Freddie Mac, two public mortgage agencies, bankrupted and the Government nationalised them. They had purchased an amount of subprime mortgages ranging from 40 to 80 billion dollars per year in the period 2001-8. On Friday 13 September 2008, Lehman Brothers bankrupted and it was not rescued. Fifty thousand people lost their jobs, and no public plan to help was put in place. The Asian and European branches (independent from the American firm) were bought by Nomura, a Japanese investment bank. During 2009, the negative effects of the crisis produced a strong reduction in production, employment, consumption, and income, generating a bitter economic crisis. The World GDP slowed down to unexpected levels. So far, rescue plans by governments have been based on massive public spending, to avoid a hard landing. The G20 has been trying to find a consensus over the global legal standard on financial markets and operators.
    The US Federal Reserve in its statistical division of St. Louis gives interesting updated statistics on the economic situation (http://research.stlouisfed.org/economy/). Because of the massive public spending and excessive debt, two European countries have almost bankrupted in 2010 (Ireland and Greece), and the EU and the International Monetary Fund (www.imf.org) have intervened to save them. In 2011, central banks will have to figure out what is the exit strategy to avoid soaring inflation, which finally hits the productive system that has already paid the cost of banks and country rescues.
    B. Bernanke,
    The Subprime Mortgage Market, speech at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, Chicago, Illinois, May 17, 2007.
    S. Chomsisengphet, A. Pennington-Cross,The evolution of the subprime market, St Louis Federal Reserve Review, January 2006.
    E. Gramlich,
    Subprime Mortgage Lending: Benefits, Costs, and Challenges, remarks at the Financial Services Roundtable Annual Housing Policy Meeting, Chicago, Illinois, May 21, 2004.
    Editor: Chiara OLDANI
    © 2010 ASSONEBB


    The substitution effect is the change in consumption patterns due to a change in the relative prices of goods/services. It is an important feature in the anaysis of consumption.

    For example, if some banks increase their fees by 10% and others increase their tuition by only 2%, then it is very likely that we would see a shift from the first group of banks to the second one (at least amongst customers eligible for the services of both banks). The same can be said for brands, goods, and even categories of goods. Examples would be the relative price of Pepsi vs. Coke, Clothes vs. Entertainment, Mortadella vs. Prosciutto, Parmiggiano cheese vs. Grana cheese.


    Technical Analysis. A level of prices at which the purchasing pressure increases enough to stop a fall in prices. It can be static or dynamic. The term breakout indicates the moment in which the level of support is violated, and it is generally accompanied by an increase in trade volume. See also resistance.

    Editors: Antonio SERRA, Liliana PINTUS, Bianca GIANNINI
    © 2010 ASSONEB


    The sustanability rating agency is a research center specialised in collecting data and information on the environmental, social, governance and ethic behavior of firms, to be provided to investors.

    Source: Il Sole 24 Ore, Il risparmio sociale, Le guide di Plus 24


    The idea of sustainable development was born with the Brundtland Report in 1987 (Our Common Future1), where the word was used for the first time. The initial anthropogenically-oriented definition indicated the specific form of development which provides the satisfaction of the current generation’s needs, without compromising the capability of future generations to create value and preserving the accumulated resources, in its economic, social, and environmental dimensions. The participation of all people to satisfy the basic needs assumes then a big relevance: it is not possible to reach a sustainable growth if the majority of people live in a condition of permanent poverty and have no access to the amount of resources needed to contribute to the national economic growth.
    The aim of sustainable development is to make the growth concept coherent with the idea of social equity and to reach a balanced coexistence between the human being and the overall ecosystem. More specifically, the human expansion has to be coherent with the exploitation of resources, the investment directions, the orientation of technological development, and with the institutional changes. The frameworks where the "sustainable development" word is applicable are therefore three: economic, social, and environmental.
    A more comprehensive vision of sustainable development was provided in 1991 by the World Conservation Union, UN Environmental Programme and by the World Wide Fund for Nature, which describe the concept as an improvement of the life quality that does not exceed the exploiting capacity of ecosystems.
    After that (in 2001), the UNESCO extended the connotation to the notion of cultural diversity (the forth pillar of sustainable development), which is essential to stimulate economic growth by its being a means to conduct a better life, both emotionally and spiritually.
    2The idea of improving life quality has been recalled within Amartya Sen’s "Capability Approach" (1979, 1985, 1999)3, which revolutionised the welfare state economy, by considering ideas that were not considered until then. Several possible activities which lead the human being toward happiness, the wellbeing distribution in the society, the importance of the real freedom - which is characterized by his/her capacity to choose - and the reduction of materialism in human development are related to Sen’s concept of sustainable development.
    Environmental commitment towards the achievement of sustainable development was raised in 1992 with the Earth Summit on Environment and Development, held in Rio de Janeiro (the first historical global conference on sustainable development). From the debates raised in the summit, it was decided to proceed with the writing of the known United Nations Framework Convention on Climate Change4 , ratified by 152 countries in 1994, which indicates the important general objective of not overstating a precise level of CO2 concentration in the atmosphere to maintain constant the medium global temperature. The subsequent Conferences of the Parties (Berlin 1995, Geneva 1996, Kyoto 1997, etc.), organised by the members of the above mentioned Convention, were of the same importanceand gave rise to important results in environmental issues. Nowadays, the most important example of international commitment and cooperation for sustainable development in environmental issues is the Kyoto Protocol, ratified in 1997 and entered into force in 2005, which stabilises, by 2008-2012, the reduction of 5.2% in global CO2 emissions as compared to 1990 emissions.5
    A relevant number of countries in the world (Annex B) are committed to reduce GHG emissions that are partly responsible for global warming. The aim is to contain the dangerous consequences for humans, which would derive from the rise in the medium global temperature. Several initiatives may be implemented to achieve this reduction. Firstly, energy saving allows the control of the amount of energy implied in production processes; the improvement of energy efficiency supported by the technological development implies the production of the same amount of output with a lesser amount of energy resources, as well as the use of alternative energy sources to diminish the exploitation of fossil fuels; in addition, to favour energy efficiency eco-compatible buildings might be built, and families and individuals should consume energy in a more conscious and responsible manner. Firms can assist in the environmental protection also through the enlargement of carbon sinks, natural reserves which accumulate and stock carbon. Forests, for example, allow to sequester an important quantity of CO2 by the natural respiration process of the trees.
    Within the socio-economic framework, there is a special attention to the concept of sustainable development at firm level (named Corporate Social Responsibility, or CSR). The compiling of the Social and Environmental Reporting are example of voluntary initiatives, which … aside from the creation of economic value … describe the most important networks between environment and society. Other than these accountability instruments, many other standards exist to realise the same communication purpose. Shortly, the standard ISO 26000 "Guide on Social Responsibility" will
    be published with the aim of increasing firms’ consciousness and responsibility for the impact of their activity on the environment and on the whole society.
    With respect to firm organisational models, the standard ISO 9004 can be taken as an example of "Guidelines for the improvement of services", which will be renamed in the next revision, "Managing for sustainability". This change underlines the effort needed by firms and other organisations towards a more long-term oriented commitment that can improve the balance of all stakeholders’ interests. Among the factors that influence the debate on CSR are:
    - the current transformations of economic systems;
    - the influence of social and environmental criteria on consumers’ and investors’ choices;
    - available information on the firms’ activity thanks to transparency derived from the means of communication and the modern information technology;6
    - the increasing attention paid to life quality, security and health;
    - the interest towards natural resources;
    - the consciousness of human influence on the environment;
    These and many other factors have generated new economic thoughts which support the idea that the liberal philosophy … which has the final aim of maximising profits … should progressively give higher importance to qualitative, social and environmental objectives, and to sustainable growth.
    Even though the majority of people agree on the idea of sustainable development, this concept has encountered important critiques within supporters of the ‘Degrowth Theory’ or the ‘Sustainable Degrowth’ which generated great interest during the International Convention ‘Défaire le développement, refaire le monde’ (take down the development, re-build the world), held in 2002 in the UNESCO buildings. In 2003, a second convention was organised in Lion by a group of ecologists. Some of the supporters of this critique are for example Serge Latouche, Maurizio Pallante, and Jacques Grinevald. Latouche and Pallante criticise the theory from an historical as well as a socio-economic point of view, which is based on the realisation of the failure of the current development model, which has left behind the South of the world and has driven the existing social inequalities. Jacques Grinevald suggests a different critique that highlights the limits that natural laws impose to the concept of economic growth. It is not possible to develop a growth process based on continuous production increases, which is at the same time compatible with environmental sustainability. Sustainable growth meets its limitations in the ability of the biosphere to absorb the effects of human activity … waste and pollution … without compromising the environmental equilibrium on which depends the survival of humans. Both streams suggest an alternative model of development, which invites to change direction with respect to the occidental model of development: not growth then, but sustainable ‘degrowth’. The South of the world, in their growth processes, do not have to follow the paths traced by more advanced countries, but they must draw other directions.
    1Our common future (1987). The World Commission on Environment and Development, General Assembly of ONU
    Art 1 and 3, Universal Declaration on Cultural Diversity, UNESCO, 2001
    3Sen, Amartya K. (1979). Utilitarianism and Welfarism. The Journal of Philosophy, LXXVI (1979), 463-489;
    Sen, Amartya K. (1985). Commodities and Capabilities. Oxford: Oxford University Press;
    Sen, Amartya K. (1999). Development As Freedom. New York: Knopf;
    4See: http://unfccc.int/2860.php
    5The Kyoto Protocol. Downloadable at:
    6Green Paper of the Commission of the European Communities (2001), Promoting a European framework for Corporate Social Responsibility, Brussels, COM (2001) 366 final.

    Editor: Melania MICHETTI
    © 2009 ASSONEBB

  • Sustainable development goal

    One of the main outcomes of the Rio+20 Conference that took place in Brazil in June 2012 was the agreement by member States to launch a process to develop a set of Sustainable Development Goals (SDGs), which will build upon the Millennium Development Goals (MDGs) and converge with the post 2015 development agenda. It was decided to establish an "inclusive and transparent intergovernmental process open to all stakeholders, with a view to developing global sustainable development goals to be agreed by the General Assembly".
    The main ambition of the SDGs is to be useful for pursuing focused and coherent action on sustainable development and to address and be focused on priority areas for its achievement.
    In the Rio+20 outcome document, member States agreed that sustainable development goals (SDGs) must:

    1. Be based on Agenda 21 and the Johannesburg Plan of Implementation.
    2. Fully respect all the Rio Principles.
    3. Be consistent with international law.
    4. Build upon commitments already made.
    5. Contribute to the full implementation of the outcomes of all major summits in the economic, social and environmental fields.
    6. Focus on priority areas for the achievement of sustainable development, being guided by the outcome document.
    7. Address and incorporate in a balanced way all three dimensions of sustainable development and their interlinkages.
    8. Be coherent with and integrated into the United Nations development agenda beyond 2015.
    9. Not divert focus or effort from the achievement of the Millennium Development Goals.
    10. Include active involvement of all relevant stakeholders, as appropriate, in the process.

    It was further agreed that SDGs must be action-oriented, concise, easy to communicate, limited in number, aspirational, global in nature, universally applicable to all countries while taking into account different national realities, capacities and levels of development and respecting national policies and priorities.


    Editor: Barbara PANCINO; Emanuele BLASI

  • SUSTAINABLE FINANCE (Encyclopedia)

    The rational of sustainable finance stays in the achievement of sustainable development (a growth in which the needs of the current generation are satisfied without compromising the ability to create values for future generations). At company level, sustainable development (SD) can be identified with the so-called Corporate Social Responsibility (CSR), which is realised by maintaining an entrepreneurially responsible behaviour towards other economic agents with whom the company holds direct and indirect relations (the stakeholders). A sector where the implementation of CSR and the support of SD play a big role is the banking sector, whose activity is able to promote local growth, environmental protection, employment, and financial and social inclusion. Among all the possible CSR activities for the banking sector, ethical finance (or sustainable finance, or also alternative finance) is a potential expression. It represents the set of possible ways of managing funds for which the traditional referential parameters for evaluation (risk and performance) are supported by the use of social and environmental criteria that capture how specific investments reflect on the real economy. Sustainable finance builds on two principal dimensions. The former concerns Social Responsible Investments (SRI), namely all the activities based on projects with high social and economic values which often support organisations working in the field of international cooperation, the environment, and social services. Concretely, this dimension of alternative finance turns into an increase in the number of "ethical" investment opportunities, or into a reduction of investments in companies working in segments such as tobacco, alcohol, army, pornography, etc. So far, ethical funds represent small market shares and only a little part of the economic system. However, the interest of the system towards these forms of investments is growing. The increase in sustainable finance was essentially stimulated by three factors:
    1. Companies observe that operating in a responsible manner may generate competitive advantages;
    2. Climate change represents today an important challenge where the financial sector realises that it also has opportunities;
    3. Managerial personnel in the financial area are aware of the implications of sustainable investment decisions and choose to incorporate CSR in their investment strategies.
    Another application of sustainable finance is microfinance, directed to the poorest groups of people. This instrument arose in order to collect credit and saving needs of people not otherwise bankable, or rationed from the traditional credit channels, for whom it would be impossible to provide collateral or returns from investments. One of the aims of ethical finance is thus evident: the promotion of the human person. Microcredit1 is an important part of the microfinance from which it differs in that it involves the supply of credit and not saving services. It consists of the credit grant to micro companies or single agents for very small amounts, without requiring any particular collateral. There are several benefits that may come out of this initiative, that can be summarised in the opportunity of generating a work income which assures in some cases the survival (food and medicines) of poor people, or in better cases their children’s education. In addition, it may turn into the reduction of cases of human exploitation and into a higher level of local wellbeing.
    In the financial environment, characterised by the presence of speculative interests and the need to associate a markedly positive financial return on every operation, sustainable finance builds not only on criteria of economic vitality, but on those of social utility as well. The aim is to bring finance back to its original function of guarantor of savings, and of supporter of real economic growth. It is its duty to avoid investment only for the speculative purposes and to guarantee that savings management favours social equity as well as the respect and protection of the environment. These are instrumental steps to achieve sustainable development. According to the "Manifesto della Finanza Etica", the principles of sustainable finance can be summarised in the following points2:
    - Credit grant in all its forms is a right (and it does not discriminate against gender, ethnicity, and salary);
    - Efficiency is considered as an element of ethical responsibility;
    - Enrichment based only on the possession of money or on exclusively speculative operations is not legitimate;
    - Finance is transparent;
    - Not only members but money savers as well take part in the important choices of the company;
    - Reference criteria for investment are environmental and social as well as economic;
    - The brokers direct all the financial activity to sustainable finance principles (and they declare themselves liable to be monitored by money savers and guarantor institutions).
    The consensus on sustainable finance has been growing over the last years and its inspiring principles assume more and more value in a reorganisation period such as the one we are going through. The current challenge of sustainable development requires financial operators to be strategic and organised in order to radically adjust the current attitude towards the environment, the human person, and society.
    1In December 1997, the United Nations approved a resolution (52/194) on the importance of microcredit as an instrument to reduce poverty.
    2See the "Manifesto della Finanza Etica", Elisa Baldessone and Marco Ghiberti (Edited by), "L'Euro Solidale", EMI, pp. 20-22, 1998. The "Manifesto" was promoted in the convention "Verso una carta d’intenti per la finanza etica italiana", Firenze 1998.

    © 2009 ASSONEBB

  • SWAP

    Derivative contract to exchange flows of payments over a predetermined length of time.

    There are many types of swaps: interest rate swap, currency swap, credit default swap, commodity swap (which fixes the price of a commodity over a certain period of time), real-estate swap, and equity swap.
    Swaps are risky operations because they are tailored on customers needs, they are not standardised, there is no compensation system, and usually there is no secondary market to sell.

    Swaps contracts that are easier to price and trade are called Plain Vanilla (fig. 1). In this example (link:
    http://en.wikipedia.org/wiki/Swap_(finance)), A pays the floating interest rate, while B pays the fixed one, and they want to swap their rates. Both have the same notional amount of debt, on which interest rates are computed. By means of the swap contract, A will pay the fixed rate and B the floating rate. Usually, the parties underwrite the swap with a bank, which does not act as a clearing house.

    The value of a swap contract can be computed at expiration of the contracts, as the difference between financial flows for the two parties.


    Hull J. (2008) Options, futures and other derivatives, Prentice Hall.
    Oldani C. (2008) Governing Global Derivatives, Ashgate, London.

    Editor: Chiara OLDANI

    © 2010 ASSONEBB

  • SWAP (Encyclopedia)

    A swap contract is an agreement in which two counterparties exchange financial flows that are calculated according to a specific criterion and at specific dates.
    The first type of swap we analyse is the "interest rate swap" (IRS), a contract in which two counterparties exchange interests according to a specific notional amount.
    In this category, we put the fixed versus the floater IRS. With this agreement, one counterparty pays flows of interest related to a specific fixed rate on a specific notional amount, whereas the other counterparty pays flows of interest related to a floating rate (in general, plus or minus a margin). Let’s do an example so that we can understand the utility of IRSs.
    Let’s consider a small/medium-size company. In case of new investments, let’s suppose that the company prefers to pay interests on its debt according to a fixed rate, so that the firm knows exactly the cash flows related to this debt at the beginning of the agreement (it is useful if a business plan has to be prepared). Actually, it is hard for a small or medium-size company to have debt at a fixed rate. Furthermore, if the debt is related to a floating rate, in case of an increase in interest rates, the company would face unexpected cash flows (because the rate is not known since it is not fixed from the beginning) that could compromise earning results.
    Let’s consider, on the other hand, a bank that has a fixed rate debt component (e.g., fixed rate bonds issued by the banks, or products sold to retail clients in which the bank has to guarantee a specific yield). Yet, the interbanking market is tipically floating rate oriented (banking loans are indexed to Libor mainly). Therefore, in case of a decrease in interest rates, the bank will continue to pay the higher fixed rate but, in the interbanking money market, rates will have gone down in the meanwhile (in other terms, it receives a lower flow of interest because it is related to floating rates, and it has to pay a fixed rate that is quite high with respect to the new shape of the interest rate curve).
    Let’s imagine an agreement between the small/medium-size company and the bank.
    The debt is 1 million Euros for both, but the small/medium-size company pays floating rate interests, whereas the bank pays a fixed rate. As mentioned before, they could enter into a swap with a notional amount of one million euros, in which they exchange flows of interests.

    In this way, the bank with fixed rate inflows can repay the exposure at fixed rate (i.e., as we have said before, fixed rate bonds issued by the banks, or products sold to retail clients in which the bank has to guarantee a specific yield), protecting itself from a decrease in interest rates; the small/medium-size company, on the other hand, receives variable flows that match its outflows. As a result, the bank actually pays a floating rate, whereas the company pays a fixed rate.

    By the way, we must consider the counterparty risk that is implied in an IRS agreement. The spread is the remuneration for this counterparty credit risk. Still considering the previous example, let’s suppose that the company has a worse credit profile than the bank. If this is the case, the bank will claim a higher interest from the firm (e.g., fixed rate plus 25 or 50 bp) or demand to pay a lower floating rate.
    Swap market has incredibly grown over time and IRSs represent only one category of a wide range of possibilities.
    In a "currency swap", for instance, two counterparties exchange capital and interests expressed in a specific currency into another currency. Let’s clarify this concept with an example. An Italian manufacturing company sells products in the U.S. area for a global amount of $ 10 million to be received in 90 days. Furthermore, in three months the company will have to pay (in Euros) for materials and workers. If during this three month period, there is a depreciation of the U.S. dollar in the currency market (or Euro appreciation), the company will get $ 10 million and will convert this money into Euros, but in the end it will receive less than what it expected three months earlier, thus compromising the expenses for materials and workers.
    By entering into a currency swap and supposing that at the start date 1 euro buys 1.27 U.S. dollars, the Italian company will pay interests calculated on a notional amount of $ 10 million and pay at maturity to the counterparty the notional amount that actually equals the inflows the company will receive in 90 days (from sales, as we have written before). The company will receive interests calculated on a notional of 787,400.00 Euros ($ 1million at 1.27 exchange rate, i.e. 1,000,000/1.27) and the notional amount (i.e., capital component) at maturity. In this way, the currency risk no longer exists for the Italian company. Remember that with IRSs, we want to protect from interest rate risk instead (movements in the rate curve).
    We call "basis swap" an agreement in which counterparties pay interests on two different floating rates on the same notional amount (e.g., the first one pays interests indexed to Libor, whereas the other one considers a floating rate linked to commercial paper). It is mainly adopted by banks and factoring companies.
    With an "equity swap", instead, we exchange a specific fixed rate or floating rate versus dividends and capital gain over an equity asset (specific stock or equity index). This is mainly adopted by fund managers and pension funds with a speculative perspective.
    Swaps are extremely flexible instruments and can be easily adapted to specific circumstances.
    The categories we have explained are the most standardised.


    Hull, J. C., "Options, futures and other derivatives" 7th edition, Prentice Hall, 2008
    Fabozzi, F. J., "Bond markets, analysis and strategies", 2004, Pearson Education
    Baxter, M., Rennie, A., "Financial Calculus: An Introduction to Derivative Pricing", Cambridge University Press, 2006

    © 2009 ASSONEBB

  • Systematic Internaliser - SI

    Systematic Internalisers, meaning investment firms which, on an organised, frequent and systematic basis, deal on own account by executing client orders outside a regulated market or an MTF or an OTF.

    ©2012 Editor: House of Lords


    Pursuant to Directive 2004/39/EC-MiFID, a systematic internaliser is defined as an investment firm that “[…] on an organised, frequent and systematic basis deals on its own account by executing client orders outside a regulated market or an MTF ” (article 4, paragraph 1, number 7). Article 1, paragraph 5-ter, of the Italian Law Decree of 24 February 1998, no. 58 (Consolidated Law on Financial Intermediation, or TUF) faithfully repeats the Directive's definition.
    Editor: Maria Giovanni CERINI
    © 2010 ASSONEBB

Selected letter: S English version

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