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1)IPO glossary
Allotment
Allotment is the distribution of shares to the public during an offer. The normal rule of
allocation is to allocate the shares in the event of oversubscription on a proportionate
basis. This however excludes the firm allotment portion.
Auditor
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The shareholders meeting, usually held at the end of each financial year, to discuss
the previous performance and future outlook.
Authorised Capital
The maximum equity capital a company can raise, which is mentioned in the
Memorandum of Association and Articles of Association of the Company. However,
share premium is excluded from the definition of authorized capital.
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Book Building
In a book building offer, the syndicate members decide the price range and the people
decide the price of the issue based on a tender method.
Bankers to the issue are entities that are registered by SEBI and act as issue and
collecting centres for IPO forms and cheques.
Brokers
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Brokerage
It is the commission paid to the brokers for the purchase and sale of shares.
Bonus Issues
They are the shares issued to capitalize on the reserves and surplus of the company
without charging the shareholders. From the accounting perspective it involves a debit
to the free reserves and a credit to the share capital.
Bridge Loan
A Bridge Loan is a loan that is used for a short duration of time until permanent
financing is put in place. Companies that come out with an IPO issue access bridge
finance for the interim period before the issue proceeds are actually realized.
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Conditional Offer
Dematerialisation
Offering of securities to the public directly by an issuer without the assistance of any
Investment Banking
firm. T
op
Draft Prospectus
A bought out deal is a process by which an investor (usually the investment banker)
buys out a significant portion of the equity of an unlisted company with a view to make
it public within an agreed time frame.
Private Placement
A type of offering, exempted from registration that allows the issuing company to avoid
registration requirements and save underwriting fees by offering company shares
directly to institutional and accredited investors.
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Rights Issues
They are negotiable certificates that represent a certain number of shares of a foreign
stock traded on a US exchange and held by a US bank.
They are negotiable certificates held by a bank of one country that represent a certain
number of shares of a foreign stock traded on another exchange, usually a European
exchange. The accounting requirements for GDRs are not as stringent as that for ADRs.
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Firm Allotment
Out of the total amount the company proposes to raise in the market, some portion is
fixed to the promoters in order to avoid diluting their stake in the company. This is
called Firm Allotment.
Filing
Flipping
The practice of subscribing to a new security offer and quickly selling it in the after-
market. Top
The meeting which is not an annual general meeting. This can be conducted by any
point of time whenever the company needs to take some crucial decisions.
Secondary Offering
The sale of newly issued securities by an issuer which already has publicly traded
securities.
Issued capital
The capital proposed by the company to be raised from the market. Out of the issued
capital the shares for which both application and allotment monies are paid in full
represents the paid-up capital.
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Guest User
A person who is not a trading member (and hence cannot subscribe a new issue) but
is eligible to view listings and prospectus of new issues.
IPO
Initial Public Offer (IPO) is a source of collecting money from the public for the first
time in the market to fund for its projects. In return, the company gives the share to
the investors in the company
Issuer
An entity, like a company, municipality or government, that has the power to issue
and distribute securities.
Impersonation
A person who
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Joint Applications
Applications can be filled in single or in joint names (more than one person). In joint
application, all payments will be made in favor of the first applicant.
Listing
The process of making the securities officially quoted on the notified stock exchange
for the trade.
Multiple Applications
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Minimum Subscription
The minimum shares the company needs to get from the public out of the total issue
by the date of closure. (Presently every company need to raise 90% of the issued
amount). Else, the company shall refund the whole amount received. This 90 % has
to be exclusive of the cheques that are not cleared.
Oversubscription
Any extra amount received by the company more than the proposed issued capital.
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Lead Managers
The lead manager is appointed by the company which desires to raise capital from the
market. The lead manager performs the following activities:
Designing the instrument
Pricing the issue
Timing the issue
Marketing
Preparing the offer document
Listing
Allotment/Refund
Merchant Bankers
Merchant Bankers facilitate the issue process.
Role of Merchant Banker:
Directing and co-ordinating the activities with under
writers, registrars and bankers.
Assuring the investors of the soundness of the issue
Promising companies/entrepreneurs/promoters to tap
resources, Complying with SEBI guidelines.
Net Offer
The rest of the issued capital after allotting to promoters, which would be raised from
the public is called Net Offer.
Paid Up capital
The part of the issued capital of a company that has been paid up by the shareholders
Preferential Shares
These are the shares issued at a fixed coupon rate to investors which entails the
foregoing of the right to participate in the management.
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Prospectus
The official offer document included in the registration statement filed with SEBI in
conjunction with a public offer. The prospectus contains information about the offer of
securities and should be given to the original purchasers no later than the written
confirmation of their purchase.
Registration Statement
A document that must be filed with SEBI before securities can be sold to the public. It
describes the business of the issuer of the securities, how the proceeds of the offering
will be used, audited financial statements, some background on the principal
executives, and other pertinent data.
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The external factors that influence the company’s performance vis-a-vis share
performance, which has to be spelt out by the company in the offer document. These
are usually factors like changes in macroeconomic variables which are outside the
control of the company.
The internal factors that influence the company’s performance vis-a-vis share
performance, which has to be spelt out by the company in the offer document. These
are usually factors pertaining to the company’s internal operations and management
which are within the control of the company.
The management’s comment on the possible impact of the risk factors and a statement
of how the company is prepared to tackle and overcome these risk factors.
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Rights Issue
Registrar
They play an administrative role in conducting a public issue. They are responsible for
collecting information from the collecting banks and report to the companies and lead
managers about the issue collections. They advise the company regarding the closure
or extension of closing date of the issue.
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Stock Option
The right to buy a stock at a specified price at a specified time in the future. Stock
options are usually given to senior managers and executives as an incentive to
continue with the company.
Underwriter
An investment banking firm which enters into a contract with the issuer of new
securities to distribute them to the investing public.
Underwriting Commission
The commission paid to the underwriter for bearing the risk of an issue.
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Venture Capital
An important source of financing used to fund start-up companies that do not have
access to capital markets. Venture Capital typically entails significant investment risk
but offers the potential for above-average future returns.
Top / Back IPO Home / Karvy Home
Is a systematic and proactive approach to investment with the goal of beating the market. This
strategy is based on the premise that markets are not efficient and that there is scope to earn
abnormal profits through an active investment strategy.
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Annualized Return
The return a fund would have generated over a year on a compounded basis. This method is the
best indicator to measure the performance of a fund.
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A Company registered with SEBI, which takes investment/ divestment decisions for the mutual
fund, and manages the assets of the mutual fund. e.g. for Sun F&C mutual fund , the AMC is Sun
F&C Asset Management (India) Pvt. Ltd.
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Asset Allocation
It is the process of allocating the overall corpus to different assets like equities, bonds, real
estate, derivatives etc.
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Credit Risk
It is the risk that the issuer of a fixed income security may default on payment of interest and
repayment of principal. It is also referred to as default risk.
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Debt fund
A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds
etc. These funds are generally preferred by investors wanting steady income and not willing to
take higher risks.
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Dematerialization
The process of converting the physical /paper shares in Electronic form. SEBI had made it
compulsory to get the shares of some companies dematerialized. In this process the investor
opens an account with a Depository Participant (DP) and the number of shares the investor holds
is shown in this account.
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Depository Participant
It is the difference between the unit price and NAV. If the price is higher than the NAV, the units
are trading at premium: if the price is lower, the units are trading at a discount.
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Diversification
It is the investment strategy of not putting all one’s eggs in one basket. By diversifying a portfolio
across different industries, overall risk of the portfolio is reduced.
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The strategy of dividing the investible amount into a number of equal parts and buying at regular
intervals to take advantage of lower prices. This strategy is more beneficial in a bear phase.
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Efficient Portfolio
A portfolio which ensures maximum return for a given level of risk or a minimum level of risk for
an expected return.
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Factor Fund
It is a mutual fund that has a core philosophy of investing in a particular factor or style in the
market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds,
Low P/E funds, Growth funds etc.
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Financial Pyramid
An investment plan in the shape of a pyramid structure where the safest investments are at the
base and the riskiest investments at the peak.
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A type of security that pays fixed interest at regular intervals. These comprise gilt-edged
securities, bonds (taxable and tax-free), preference shares and debentures. Less risky than
equity shares and have little scope for capital appreciation.
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Equity/Growth fund
A fund that invest primarily in equities and has capital appreciation as its investment objective
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Fund Manager
Income Fund
A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by
investors who wants regular income. It pays dividends to the investors out of its earnings.
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The dates on which the initial subscription to the units of the scheme can be made. It is similar to
the IPO of an equity issue. This initial offer period is followed by a continuous offer period.
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The change in the price of a debt security due to changes in the market interest rates is the
interest rate risk. For debt oriented mutual fund schemes, this interest rate risk affects the NAV of
the fund. A rise in the interest rates leads to a fall in the price of a fixed income security.
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Interim Dividend
An advance installment of the dividend finally declared. More often one, but sometimes two such
payments are made. The final dividend is often at least equal, and sometimes more. The interim
dividend is a fair indication of a company's profitability, during the working year.
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Liquid Fund
A fund that invests its corpus in short term instruments like call markets, treasury bills,
Commercial Paper (CP), Certificate of Deposit (CD).
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Liquidity Risk
It is the risk in a fixed income security as well as in equities that these securities may not be sold
in the market at close to their value. Liquidity risk is characteristic of narrow markets like India.
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Market Capitalization
Represents the market value of the company. It is a product of the current market price and the
number of shares outstanding.
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Market Instrument
Market Lot
A fixed minimum number of shares, in which or in multiples of which, shares are bought and sold
on the stock exchange. The advent of dematerialization of shares will do away the significance of
market lot.
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This is calculated as total assets minus all expenses and divided by the number of outstanding
units. This is the main performance indicator for a mutual fund, especially when viewed in terms
of appreciation over time.
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No-Load Fund
Shares of an open-ended fund, which can be bought directly from the fund without any sales
charge or brokerage. US-64 is an example of a no-load fund.
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Offer Price
Offshore Fund
A fund domiciled outside the country where investments are made. It is often a tax haven, not
subject to the tax laws of the holder's country.
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Pari Passu
Ranking equally. After conversion of debentures into shares, the new shares created carry the
same rights as the existing shares of the company to receive dividends, rights and bonus shares,
and to participate in the company's profit and loss.
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Exactly the reverse of active portfolio management. The portfolio manager assumes that markets
are efficient and all information is already analyzed and reflected in the prices of shares. This
strategy is based on the premise that it is impossible to consistently beat the market.
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Rating
Evaluation of credit risk in fixed income securities. This evaluation is specific to the security rated
and is done in India by Crisil, Icra, Care and Duff & Phelps.
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Record Date
It is the date announced by the company/mutual fund, which is a cut-off date for corporate
benefits like dividends, rights, bonus etc. Only investors whose names appear in the company’s
registers on that date are eligible for the said benefits.
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Reinvestment Plan
It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund.
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Reinvestment Risk
It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate.
This problem becomes pronounced in a falling interest rate scenario.
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Sector fund
Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For e.g.
Kothari Pioneer Infotech Fund. Sector funds are generally considered to be risky in nature.
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Securities
Financial documents which give the owner specific rights of ownership; these include: equity and
preference shares, debentures, treasury bills, government bonds, units of mutual fund, and any
other marketable documents.
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Sinking Fund
Money regularly set aside in a separate fund and invested by a company for the repayment of
debt instruments (fixed deposits, debentures, other loans) or the redemption of preference
shares, or for replacement of assets.
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Sponsor
Sponsor is the parent organization that contributes the initial capital of the asset management
company (AMC). e.g. Kotak Mahindra Finance is the sponsor for Kotak Mahindra Mutual Fund.
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Switching
Transferring from one scheme to another in a group of schemes operated by a Mutual Fund,
where the rules so permit. A switching fee may or may not be charged.
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SWOT Analysis
Systematic Risk
This is the market risk that a security faces and is essentially non-diversifiable in nature. This risk
is caused by macro level factors like changes in inflation, interest rates, budget announcements
etc.
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Such funds allow the income tax payees to claim a rebate under the Income Tax Act.
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Technical Analysis
A method of prediction of share price movements based on a study of price graphs or charts on
the assumption that share price trends are repetitive. Since investor psychology follows a certain
pattern, what is seen to have happened before is likely to be repeated. The technical analyst is
not concerned with the fundamental strength or weakness of a company or an industry; he only
studies price and volume behavior.
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Top-Down Investment
An approach to stock selection which evaluates the prospects of the economy first, then the
prospects of the industry and then finally the prospects of a particular company to take an
investment decision. It is the opposite of a bottom-up approach to investing.
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Transfer Agents
Professional firms, now mostly computerized, which maintain the records of shareholders of their
client companies.
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Treasury Bills
These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India for short-term loans,
91 days to 364 days.
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Trustee
The trustee is the legal owner of the mutual fund. The trustee takes into custody or under its
control all the capital and property of every scheme of the mutual fund and hold it in trust for the
unitholders of the scheme.
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Unsystematic Risk
This is the proportion of risk that is specific to a particular company. This diversifiable risk could
arise due to company specific factors like operational factors, financial factors, labor unrest etc.
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Value Investment
Investment in shares whose intrinsic value is above their market price. Fundamental analysts
often make recommendations of value investment, as they can spot undervalued shares.
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Vulture Fund
It is a fund that takes over the non-performing assets of bank or financial institution at a discount
and issues pass-through units to the investors.
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A coupon is an interest warrant attached to a debt instrument, and the coupon rate is the rate of
interest. A zero-coupon bond carries no interest, but is sold at a discount to its face value, which
is the maturity value. The difference between the discounted price and the maturity value
represents the interest on the bond.
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Arbitrage
Settlement of claims differences or disputes between one member and another and
between a member and his clients, authorised clerks, sub-brokers etc., through
appointed arbitrators.
Bearer Security
This is a bond or a share for which there is no other proof of ownership than the
physical possession of the security. No official record or register of ownership is kept,
the owner is the "bearer" of the share or bond certificate. This means that these
certificates are easily traded without formality. If you own bearer securities, look
after them! No dividend is paid to such shares and no interest paid to such bonds.
Instead the certificate will have several coupons attached. These must be physically
removed from the certificate and presented to the originating company for payment
of any dividend or interest to be made.
Bears
These stockmarket animals are pessimists, they expect share prices or any other
type of investment to fall. In a 'bear market' the general sentiment is that prices are
going to go lower and majority of dealers will sell as quickly as possible for fear of
holding shares which diminish in value.Bears, like 'bulls' drive the market.
Bear Market
A prolonged period of falling securities prices in a stock market.
Bond
A debt security, or an IOU, issued by a company or government agency is called a
bond. A bond investor lends money to the issuer and, in exchange, the issuer
promises to repay the loan amount on a specified maturity date; the issuer usually
pays the bondholder periodic interest payments over the period of the loan.
Badla
Carrying forward of transaction form one settlement period to the next without
effecting delivery or payment. Badla involves carrying forward of a transaction from
one settlement period to the next. The carry-forward is done at the making up price,
which is usually the closing price of the last day of settlement.
(b) contango or badla charges (interest charges) determined on the basis of demand
and supply forces.
Bargain
Transaction between two members of the exchange. The terms "dealings" and
"contracts" also have identical meanings.
Blue Chips
Blue Chips are shares of large, well established and financially sound companies with
an impressive records of earnings and dividends. Generally, Blue Chip shares provide
low to moderate current yield and moderate to high capital gains yield. The price
volatility of such shares is moderate.
Bonus
Book Closure
Dates between which a company keeps its register of members closed for updating
prior to payment of dividends or issue of new shares or debentures.
Bull
A bull is one who expects a rise in price so that he can later sell at a higher price.
Bull Market
Base Price
This is the price of a security at the beginning of the trading day which is used to
determine the Day Minimum/Maximum and the Operational ranges for that day.
Buyer
The trading member who has placed the order for the purchase of the securities
Bid is the price at which the market maker buys from the investor and offer is the
price at which he offers to sell the stock to the investor. The offer is higher than the
bid.
Brokerage
Basket Trading
Beta
It is a standard measure of risk for an individual stock. It is the sensitivity of the
movement of the past share price of a stock to the movement of the market as a
whole. The beta of the market is taken as 1. A benchmark index (the Sensex, for
instance) is taken as the proxy for the market.
Stocks with betas greater than 1 tend to amplify the movement of the market. If a
stock has a beta of 1.20, it means that if the market has moved by 1%, the stock
price would have moved by an extra 1.2%.
Bid
This is the highest price at which an investor is willing to buy a stock . Practically
speaking, this is the available price at which an investor can sell shares.
Bad delivery
When physical share certificates along with transfer deeds are delivered in the
market there are certain details to be filled in the transfer deed. Any improper
execution of these details result in a bad delivery. A bad delivery may pertain to the
transfer deed or the share certificate, and maybe because of the transfer deed being
torn, mutilated, overwritten, defaced etc.
Buy on close
An order of buying a stock, but only at the end of the trading day. Security will be
bought in the closing price range.
Breakout
When the price of a stock surpasses its initial high (resistance level) or falls below
the initial low (support level), it is termed as break out in technical analysis.
Book runner
Institution that arranges and manages the book building process for the new public
issue.
Beneficial owner
The actual owner of the security, irrespective of who is holding the security.
Best ask
The lowest price at which a stock is quoted to be sold.
Best bid
The highest price quoted for a particular stock to be bought.
Bid/Ask spread
The difference between the ask price and bid price.
Bourse
Cash Settlement
Payment for transactions on the due date as distinct from carry forward (Badla) from
one settlement period to the next.
Dates fixed in advance by the exchange for the first and last business days of each
clearance. The intervening period is called settlement period.
Clearing House
Each Exchange maintains a clearing house to act as the central agency for effecting
delivery and settlement of contracts between all members. The days on which
members pay or receive the amounts due to them are called pay-in or pay-out days
respectively.
Corner
Correction
Crisis
Cum
Means "with". A cum price includes the right to any recently declared dividend (CD)
or right share (CR) or bonus share (CB).
Closing Price
The trade price of a security at the end of a trading day. Based on the closing price
of the security, the base price at the beginning of the next trading day is calculated.
Counterparty
When a trading member enters an order, any other trading member with an order on
the opposite side is referred to as the counterparty.
Trading where the settlement of trades is postponed on the stock exchange until a
future settlement period involving payment of interest on the account. It refers to
the trading in which the settlement is postponed to the next account period on
payment of contango charges (known as ‘vyaj badla’) in which the buyer pays
interest on borrowed funds or the backwardation charges (a.k.a ‘unda badla’) in
which the short seller pays a charge for borrowing securities.
Clearing
Company objection
An investor sends the certificate along with the transfer deed to the company for
transfer. In certain cases the registration is rejected if the shares are fake, forged or
stolen or if there is a signature difference etc;. In such cases the company returns
the shares along with a letter which is termed as a company objection.
Call Option
This is the right, but not the obligation, to purchase shares at a specified price at a
specified date in the future. See Options.For this privilege, the buyer pays a premium
which would be a fraction of the price of the underlying security. You are gambling
that the share price will rise above the option price. If this happens you can buy the
shares and sell them immediately for a profit.If the share price does not rise above
your option price, you do not exercise the option and it expires - all you have lost is
the initial payment made to purchase the option.
Call
The demand by a company or any other issuer of shares for payment. It may be the
demand for full payment on the due date, such as, for example, with a rights issue.
It may, alternatively, be the demand for a further payment when the total amount is
payable by instalments.The calls are usually made several months apart by call letter
and the shares are said to be paid-up when the final call has been paid. A call by a
company should not be confused with a call option.
Capital Adequacy
The test of a securities business's ability to meet its financial obligation.Capital
adequacy rules mean that a bank/financial institution has to have enough money to
conduct its business
Capitalization
The total value of the company in the stockmarket.This value is arrived at by
multiplying the number of shares in issue by the company's share price. This market
capitalization obviously fluctuates as the share price moves up and down.It's an
important figure - if your company is worth £2 billion, you'll have more credibility
with bankers and other companies you want to take over than if you're a little
minnow with hardly any value.
Capitalization Issue
Money from a company's reserves is converted into issued capital, which is then
distributed to shareholders in place of a cash dividend. This is also known as a Scrip
Issue.
Call Risk
The risk that bonds will be redeemed (or "called") before maturity. This possibility
increases during periods of falling interest rates.
Capital Appreciation
An increase in the value of an investment, measured by the increase in a fund unit's
value from the time of purchase to the time of redemption.
Capital Gain
The amount by which an investment's selling price exceeds its purchase price.
Capital Market
A market where debt or equity securities are traded.
Commercial Paper
Debt instruments issued by corporations to meet their short-term financing needs.
Such instruments are unsecured and have maturities ranging from 15 to 365 days.
Commission
A fee charged by a broker or distributor for his/her service in facilitating a
transaction.
Coupon
Interest rate on a debt security that the issuer promises to pay to the holder until
maturity. Usually expressed as a percentage of the face value
Consideration
Consideration is the total purchase or sale amount associated with a transaction. The
amount you 'pay' or 'receive'. It may also be the basis for working out the
commission, taxes and any other charges you are asked to pay.
Contract
On any securities market this is the agreement between a buyer and a seller buy or
sell securities. The written agreement between the seller and the buyer to transfer
ownership of the property from the former to the latter.It is a legally binding
agreement for sale.In two identical parts, one signed by seller and one by purchaser.
When the two parts are exchanged (exchange of contracts) both parties are
committed to the transaction.
Convertible
Any security is described as convertible when it carries the right or option for the
holder to at some stage convert it in for another form of security at a fixed price.
Convertibles are often bonds or loan stock (but sometimes preference shares) which
carry the right to be converted into ordinary shares at some date in the future at a
previously specified price.
Corporate Bonds
A corporate bond is an IOU issued by a public company, such as HLL,ITC, TELCO etc.
When you invest in a corporate bond, you are lending money to the company. In
return you will receive interest at a fixed rate and the promise that your capital will
be repaid at a certain date in the future. The guarantee that our capital will be
returned is only as good as the company you are lending money to. While HLL, ITC,
TELCO are considered 'good risks' by investment pundits because they are blue chip
companies, other smaller companies are likely to be a less good risk.
Correction
A correction is a term to describe a downward movement in share prices. In other
words, a shake out or even a crash or mini-cash. Stockbrokers and fund managers
like the term correction, perhaps because
they believe if they use the term crash or 'heavy fall', it'll cause panic. Whatever you
decide to call a downward jolt in share prices, if you lose money, it may be described
as a correction, but you'll feel pretty sick all the same!
Clearing
Clearing refers to the process by which all transactions between members is settled
through multilateral netting.
Cum-bonus
Cum-rights
The amount to be paid by operators to the stock exchange to carry over their
transactions from one settlement period to another.
Cash Settlement
Payment for transactions on the due date as distinct from carry-forward (badla) from
one settlement period to the next
Capital loss
The negative difference between the selling price of the stock and purchase price of
the stock.
Cash markets
The markets where securities (assets) have to be delivered immediately.
A model describing the relationship between risk and expected return, and serves as
a model for the pricing of risky securities. CAPM says that the expected return of a
security or a portfolio equals the rate on a risk-free security plus a risk premium. If
this expected return does not meet or beat required return then the investment
should not be undertaken.
Circuit breaker
When a stock price increases or decreases by a certain percentage in a single day it
hits the circuit breaker. Once the stock hits the circuit breaker, trading in the stock
above (or below) that price is not allowed for that particular day.
Custodial fees
The fees charged by the custodian for keeping the securities.
Cumulative preference share
Preference shares whose dividends will get accumulated, if the issuer does not make
timely dividend payments.
CPs are negotiable, short-term, unsecured, promissory notes with fixed maturities,
issued by well rated companies generally sold on discount basis.
Counter-party risk
It is the risk that the other party to a contract may not fulfill the terms of a contract
Dividend
This is the income you receive as a shareholder from a company. When you buy an
ordinary share in a company, you become a shareholder (an owner of the business)
and to that extent you will have certain entitlements including the right to receive
dividend payments as set by the board of directors and approved by the
shareholders (sometimes called members.)A dividend is a cut of the profits earned
by the business for the year. This pay-out is not guaranteed and where it exists at
all, the amount you'll receive will vary from company to company and year to year.
Day Trading
Day trading is the buying and selling of stocks during the trading day by individuals
known as day traders on their own account. The aim is to make a profit on the day
and have no open positions at the close of the trading session, the day.
Debenture
A loan raised by a company, paying a fixed rate of interest and which is secured on
the assets of the company. Debentures are fixed interest securities in return for
long-term loans, they tend to be dated for redemption between ten and forty years
ahead of the date of issue. They may be secured by a floating charge on the
company's assets or they may be tied to specific, named assets.Debenture interest
has to be paid by a company whether it makes a profit or not - if the debenture
holders do not get paid they can legally force the company into liquidation to realise
their claims on the company's assets.
Derivatives
Instruments derived from securities or physical markets. The most common types of
derivatives that ordinary investors are likely to come across are futures , options ,
warrants and convertible bonds.
Beyond this, the range of derivatives possible is only limited by the imagination of
investment banks. In other words, new derivatives are being created all the time. It
is likely nowadays that any person who has funds invested will unwittingly perhaps
be indirectly exposed to derivatives.
Delivery
A transaction may be for "spot delivery" (delivery and payment on the same or next
day) "hand-delivery" (delivery and payment on the date stipulated by the exchange,
normally within two weeks of the contract date), special delivery (delivery and
payment beyond fourteen days limit subject to the exact date being specified at the
time of contract and authorized by the exchange) or "clearing" (clearance and
settlement through the clearing house).
The minimum/maximum price range for a security on a trading day. Buy orders
outside the Maximum of the range and sell orders outside the Minimum of the range
are not allowed to be entered into the system. It is calculated as a percentage of the
Base price.
Day order
A day order, as the name suggests, is an order which is valid for the day on which it
is entered. If the order is not matched during the day, at the end of the trading day
the order gets cancelled automatically
Dealer
A dealer can enter such an order in the system wherein only a fraction of the order
quantity is disclosed to the market. If an order has an undisclosed quantity, then it
trades in quantities of the disclosed quantity.
Demat trading
Demat trading is trading of shares that are in the electronic form or dematerialised
shares. Dematerialisation is the process by which shares in the physical form are
cancelled and credit in the form of electronic balances are maintained on highly
secure systems at the depository
Date of payment
Date on which dividend cheques are mailed.
Deferred taxes
Amount allocated during an accounting period to cover tax liabilities that have not
yet been paid and also may not have accrued. For instance, a heavy advertisement
expenditure capitalized may give significant tax break.
Delivery price
The price fixed by the clearing house at which deliveries on futures are to take place.
In practice, at this price contracts are settled by payment or receipt of the difference.
Delivery date
The date on which forward or futures contract for sale falls due.
Dividend yield
Annual dividend paid on a share of a company divided by current share price of that
company.
Eurobond
A Eurobond is a medium or long-term interest-bearing bond created in the
international capital markets. A Eurobond is denominated in a currency other than
that of the place where it is being issued. Eurobonds are only issued by major
borrowers, such as governments, other public bodies or large multinational
companies.
Ex Dividend
This is a share sold without the right to receive the declared dividend payment which
is marked as due to those shareholders who are on the share register at a pre-
announced date.The stock market authorities usually specify the date on which a
share will begin trading ex div. The share price invariably drops when the share goes
ex dividend, taking the known income of the dividend out of the share price.
Ex Coupon
A stock or bond sold without the right of receipt of the next due interest payment.
ESOP
Employee Stock Option Plan is a trust established by a company to allot some of its
paid-up equity capital to its employees over a period of time. They are used to
reward employees.
Exercise price
The pre-determined price at which the underlying future or options contract may be
bought or sold.
This is the dividend paid by a company to its shareholders out of profits at the end of
the financial year.
A motion to pay a final dividend must be approved at the shareholder's Annual
General Meeting (AGM) - where they have the option of accepting the dividend
recommended by the directors or of reducing it - they cannot vote to increase it!
Flotation
The first occasion on which a public company’s shares are offered widely to investors
on the market. Flotations are often referred to as new issues although it is possible
for companies already in the stockmarket to issue new shares
Futures
A contract for the purchase and sale of a commodity, financial instrument or index at
a fixed price at a fixed date in the future. Futures contracts were originally invented
to allow those who regularly buy and sell goods to protect themselves against future
changes in the price of those goods. In other words, the futures markets evolved to
allow producers or consumers to hedge their risk.
Firm Price
It is the price quoted by a market-maker at which he is committed to deal with a
broker or other market-maker. The only occasion in which a market-maker may vary
from offering a firm price is when the
Stock Exchange has declared a fast market.
Financial risk
Shareholders risk resulting from the use of debt. Debt causes financial risk by
increase of the variability of shareholders return and threatening the solvency of the
firm.
Forward trading
Forward trading refers to trading where contracts traded today are settled at some
future date at prices decided today. Thus a contract to buy dollars at Rs.42 per dollar
after 3 months is a forward contract. The price is fixed today but the settlement will
be after 3 months.
Floating Stock
The fraction of the paid-up equity capital of a company which normally participates in
day to day trading.
Forward Purchase
Orders entered into the system with price outside the Operational range and orders
with quantity greater than the Order Quantity Freeze percentage is sent to the
Exchange for approval. Such orders are not reflected in the books and are 'frozen' till
the Exchange approves them.
Fully paid shares are those shares which have been fully paid for (the face value).
A Good Till Cancelled (GTC) order remains in the system until it is cancelled by the
user. It will therefore be able to span trading days if it does not get matched. The
Exchange may however set an upper limit to the number of working days an order
can stay in the trading system. At the end of this period, GTC orders are cancelled
automatically from the system.
A Good Till Day (GTD) order allows the user to specify the number of days up to
which the order should stay in the trading system. At the end of this period, the
order gets flushed out from the system if it is not traded or is not cancelled by the
trading member.
Governing Board
A stock exchange functions under the direction and supervision of its Governing
Board. It generally consists of a specified number of elected members, a whole time
Executive Director and representatives of the Government, SEBI, and public. The
size and structure of the board varies from exchange to exchange.
Gap
When the market opens above or below the previous day's close the price on a bar
chart will show a "gap". This may then be "closed" if the market trades at prices
between the opening level and the previous day's close.
Gilts
Gilts, sometimes referred to as Government bonds are those used by the
Government to raise money from large financial institutions like pension funds and
from private investors. Money is needed by the Government because the Treasury so
often finds that its expenses exceed its income. Gilts are sometimes referred to as
'gilt edged securities' or 'bonds' or 'fixed interest securities'. In any event, gilts are
issued by the Treasury and in nearly all cases, the investor hands over his cash and
then receives a fixed rate
of interest for the life of the gilt. When the gilt matures, its capital value is repaid at
par value.
Gilts are bought at their par value or at face value.
Good Delivery
A share certificate together with its transfer form which meet all the requirements of
transfer, e.g., unmutilated certificate, the necessary endorsements, signature of the
transferor tallying with what is registered with the company, etc. The buying broker
is obliged to accept such a delivery.
Growth Fund
A mutual funds which invests only in equity shares which offer chances of good
capital growth, rather than current income.
Hedging
Holder
Initiator
The Initiator is the trading member who starts the auction. The Initiator can be a
buyer or a seller.
Insider trading
Trading on information which is not really available to the general public. Trading in
a Company's shares by a connected person having non-public, price sensitive
information, such as expansion plans, financial results, takeover bids, etc., by virtue
of his association with that Company, is called insider trading.
Illiquid
An investment is said to be illiquid if it cannot easily be turned back into cash quickly
and at a low cost.
Shares in smaller companies are more likely to be illiquid than those in larger
companies; they will be less easy to sell and you are likely to find that the spread or
difference between the buying and selling price is much wider.So, in other words
blue chip shares are more liquid than unquoted companies.
Issuing house
This is a member of the Issuing Houses Association, responsible for sponsoring the
issue of a new security on the Stock Exchange or an over the counter market.The
definition has also spread to include any merchant bank or dealer in securities which
is involved in such an issue.The issuing house will have been closely involved in the
process leading up to the flotation and will have advised the company on its timing,
pricing, etc.
An Immediate or Cancel (IOC) order allows a user to buy or sell a security as soon as
the order is released into the market, failing which the order is removed from the
market. There could be a partial match for such an order resulting in one or more
trades, in which case the balance order will be removed from the market.
Inactive Shares
Shares which are seldom bought and sold in the stock exchange, although they are
listed. A share which is transacted less than four times a year may be called inactive
or dead. It is quite difficult to find a buyer or a seller for such shares. The Spread
between buying and selling prices can be large.
Jumbo certificate
Jobbers
Member brokers of a stock exchange who specialise in buying and selling of specific
securities from and to fellow members. Jobbers do not have any direct contact with
the public, but they render a useful function of imparting liquidity to the market. A
jobber quotes his ‘bid’ price (the price at which he is willing to buy) and ‘ask’ price
(the price at which he is willing to sell ).
Jobber's Spread
The difference between the price at which a jobber is prepared to sell and the price
at which he is prepared to buy. A large difference reflects an imbalance between
supply and demand.
Kerb Dealings
Transactions done among members after the closing of the official trading hours.
Long position
Listed Company
A public limited company which satisfies certain listings conditions and signs a listing
agreement wit the stock exchange for trading in it securities. One important listing
condition is that 25% of its issued capital should be offered to the public.
Limit order
Is an order for which the price (limit price) has been specified at the time of making
the order entry. A limit order describes the instruction an investor gives to his broker
setting out how much he's prepared to pay for shares (or any other asset for that
matter).
LIBOR
LIBOR stands for London Inter Bank Offer Rate. It's the rate of interest at which
banks offer to lend money to one another in the so-called wholesale money markets
in the City of London. Money can be borrowed overnight or for a period of in excess
of five years.
LIBID
Banks also offer to borrow money in the wholesale money markets. The rate is called
the London Inter Bank Bid Rate (LIBID).
Market maker
Market makers are players in the stockmarket who trade as principals and may
actively try to encourage/discourage trading by changing the prices they quote to
tempt buyers and sellers into the market.
Member Firm
A member firm is a trading firm which has membership of the stock exchange.The
firm is permitted to deal in shares on behalf of its clients or on behalf of the firm
itself.
Market order
Matching
When a buy and a sell order satisfy the price - time priority, they can result in a
trade. This process is called as matching. The match can be full or partial depending
on the order conditions.
Market lot
Market lot is the minimum number of shares of a particular security that must be
transacted on the Exchange. Multiples of the market lot may also be transacted.
Members
Moorat Trading
Market capitalization
Margin
MF
Minimum Fill (MF) orders allow the user to specify the minimum amount by which an
order should be filled. For example, an order of Rs. 1000 lakhs with Minimum Fill Rs.
200 lakhs will require that each trade be for at least Rs. 200 lakhs. This could result
in a partial match or a maximum of 5 possible trades of Rs. 200 lakhs each and a
minimum of one trade of Rs.1000 lakhs.
Market risk
This arises whenever one invests in a specific market. This is the risk that every
business operating in that market must bear - and is thus not avoidable by
diversification. The only way to evade market risk is by moving to alternate forms of
investment or exiting that specific market.
Nominal Value
The nominal value is the face value of share. If the face value of a share is Rs. 10
then it may also be stated that its nominal value is Rs. 10.
Non-Cleared Securities
Shares traded directly between brokers, and not cleared through the stock exchange
clearing house. Also called non-specified Securities, B-group Securities, or Cash
Shares.
Nasdaq
Negotiated Trade
Two Trading members can negotiate a trade outside the system. However this trade
is accepted by the system only if Control approves. Both the parties enter each side
of their trade in the system specifying each other's identity.
Normal Market
The orders entered in the system for normal trade matching depends primarily on a
price/time priority. These orders can be Regular Lot, Special Terms, Stop Loss orders
or Negotiated Trade entries. Each order must be equal to or be a multiple of the
regular lot for that security.
No-delivery period
The market in which odd lot orders are recorded. Odd Lot orders have a quantity less
than one regular lot. A number of shares that are less than the market lot are known
as odd lots. These shares are illiquid in nature, as they cannot be transacted on the
Exchange.
Open
A time period in the trading day for the different markets that the exchange deals in.
Order entry, matching, inquiries and other functions at the workstation will be
allowed during this period.
Operational range
The price range for a security on a trading day such that buy orders outside the
Maximum of the range and sell orders outside the Minimum of the range causes a
price freeze and are sent to the Exchange for approval. It is calculated as a
percentage of the Base price.
Order
A buy or a sell offer/bid for any of the Capital Market securities entered by the dealer
in the system. The system generates a unique order number for each order entry.
This is meant to denote that in a bonus issue declared a bonus share has been given
for every share held. In effect the share capital of the company doubles. Other terms
commonly used to denote the proportion of bonus shares issued are two for three,
three for five and the like.
Options
The holder of an option contract has the right but not the obligation to buy (call
option) or sell (put option) a specific quantity of a given asset at a specified price at
or before a specified date in the future. The purchaser pays a non-refundable, one
time fee (option premium) to the seller (writer) to acquire this right. If the holder
chooses to exercise the right to buy or sell the asset, the writer of the option has to
deliver or take delivery of the asset. The potential loss to the option writer is
therefore unlimited.
In an order driven system, only different types of orders supply liquidity to the
market without the intervention of a market maker or jobber. Order execution
follows a strict price time, priority unlike a quote driven system, where preference is
given to jobber orders at the expense of public orders. This reduces the problems of
high spreads, monopoly power and market manipulation. Orders which are allowed
into the system are conditional upon price (market and limit orders), time (GTD,
GTC, etc.), quantitity (AON, MF, etc.) and other special conditions such as IOC, etc.
A secondary market in which shares are bought and sold to the general public by
jobbers and brokers outside an organised market place. Generally, the OTC market
consists of geographically diffused dealers.
Oversubscribed
A company may offer for sale a certain number of shares. If applications are received
for shares in excess of the number offered, the issue is termed as oversubscribed.
Panic Selling
A condition of the stock market in which not only inexperienced investors, but also
sturdy bulls, take fright and start selling. It may be caused by sudden unfavourable
news or rumour, or a Random Walk by shares downwards, or simply, in bear market
conditions, the absence of financial institutions from the market.
Pari Passu
This is a Latin term and it means, "having equal rights". When shares (bonus or
otherwise) are issued pari passu with existing shares it means that the new shares
would be equal to and have identical rights with the existing shares.
Passed Dividend
A company is termed to have "passed dividend" if it has not declared its usual annual
dividend. P/E Ratio or Price-Earnings Ratio: An indicator of how highly a share is
valued in the market. Arrived at by dividing the price or a share by the earnings per
share (EPS).
Premium
The price of an option (call or put) contract, determined in the competitive market
place, which the buyer (holder) of the option pays to its seller (writer) for the rights
granted to the former by the option contract.
Participant
Pre-Open
A time period in the trading day for the Normal market. Trading members are
allowed to enter orders during this period. These orders in the system take part in
the algorithm for the calculation of the opening price during this period.
All orders received on the system are sorted with the best priced order getting the
first priority for matching i.e. the best buy order matches the best sell order. Within
similar priced orders, they are sorted on time i.e. the one that came in early gets
priority over the later one.
Pay-in
Pay-in day is the designated day on which the securities or funds are paid in by the
members to the clearing house of the Exchange.
Pay-out
Pay-out day is the designated day on which securities and funds are paid out to the
members by the clearing house of the Exchange.
Price band
Price bands set te upper and lower limit within which a security price can fluctuate on
a given day/settlement. In case of intra-day, the price band is determined over the
closing price of the previous day and in the case of intra-settlement, the price bands
are determined over the closing price of the last day of the previous settlement
cycle. Orders outside these price bands will not be executed by the system.
Price rigging
When persons acting In concert with each other collude to artificially increase or
decrease the prices of a security, that process is called price rigging.
Portfolio
The group name for the entire collection of investments belonging to an investor or
held by a financial organization such as a bank, pension fund or investment trust.The
idea of a portfolio is that you should invest in a diversifed selection of investments.
Don't have all your eggs in one basket
Primary market
a place where money is raised by companies to pay for expansion or pay off existing
investors.In the futures markets, the primary market is the main underlying market
for the financial instrument on which the futures contract is based.
Print/Report Circuit
This is a virtual circuit through which the system can download report data to all
workstations. In this mode, the system does not await the response from the
workstations.
An indicator of how highly a share is valued in the market. Arrived at by dividing the
price or a share by the earnings per share (EPS).
Put Option
The right to sell stock at an agreed price at or before a stated future time. Contrast
this will call options.
Price risk
It arises from the variability of prices of shares in the market. The share prices can
move either way and are extremely volatile. The risk arising from the fact that your
portfolio value may decrease or increase is the price risk.
This is a trading system where a market maker offers two-way quotes for each
security. A buy quote and a sell quote are provided by the market maker. Thus the
price at which a trade will be executed is known at the time of placing the order.
The minimum quantity of an order entered into the Normal, Spot and Auction
markets. The order that does not carry any special conditions (Minimum Fill, All or
None) is treated as a regular lot order.
Record date
Record date is the date on which the beneficial ownership of an investor is entered
into the register of members. Such a member is entitled to get all the corporate
benefits.
Rights Issues
The issues of new shares to existing shareholders in a fixed ratio to those already
held at a price which is generally below the market price of the old shares.These are
the relatively rare occasions in a company's life when it will create new shares, the
proceeds of which will go directly into its bank account, instead of giving a profit (or
a loss) to an existing shareholder. The issue of additional equity shares to the
existing shareholders on a pre-emptive basis. Typically, the subscription price of a
rights issue is significantly below the market price of the old shares.
Real Return
The rate return earned on an investment after adjusting for the rate of inflation.
Rolling Settlement
This is the system by which shares are bought, sold and paid for. Rolling Settlements
is a mechanism of settling trades. in Rolling Settlements, trades done on a single day
are settled separately from the trades of other day on Trade day + 5 days. As such
netting of trades is done only for the day and not for multiple days. As such, in
Rolling Settlement, settlement is carried out on a daily basis.
Repos
Short- term money market instrument; transaction where one party agrees to sell a
security to another party for cash. The seller agrees to repurchase the security later.
Short Position
Short Sale
A Short sale occurs when a person believing that the prices of shares will fall, sells
shares that he does not own with the intention of purchasing the shares at lower
price at the time delivery has to be made. This is also known as forward sale.
Slump
The bottom of a trade cycle when prices and employment are at their lowest,
reflected in the downward movement of share prices, Recovery from a slump is often
slow.
Spot
Spot purchase or sale implies that the deal is for immediate cash and the shares are
to be delivered immediately.
Spreads
Options and futures transactions involving two or more series of the underlying
asset.
Stag
A stag is an investor or speculator who subscribes to a new issue with the intention
of selling them soon after allotment to realise a quick profit.
Strike Price
also called exercise price. The price for which the underlying stock index or other
asset may be purchased (in the case of a call) or sold (in the case of a put) by the
option buyer (holder) upon exercise of the option contract.
Secondary Market
The market in existing securities provided by the Stock Exchange.The secondary
market, by providing a method of buying and selling securities, overcomes the basic
mis-match between the needs of
savers/investors who provide new money and the requirements of capital
raisers/borrowers.
Settlement
The payment of cash for securities and, conversely, the delivery of securities against
payment - the conclusion of a securities transaction by delivery. Settlement is the
payment or receipt of an outstanding due at the end of the settlement period.
Settlement Day
The day on which bought securities are due for delivery to the buyer and the
appropriate consideration to the seller.
Share certificate
This is a legal document which can be used as proof of ownership of a shareholding.
But with 30,000 plus share transactions a day going through the London stockmarket
in the early 1990's, a lot of paper was being
generated. A more efficient way of handling share settlements is to do it
electronically as happens in many other countries.
Security
A Security is a valid and unique combination of Symbol and Series. Securities are
traded in the Capital Market. Shares and Debentures are some examples of
securities.
Seller
The trading member who has placed the order for selling the security.
Special Terms
The dealer can place an order that carries special conditions and restrictions
regarding the way the order value can be matched. These terms are called Special
Terms. The typical special terms are Minimum Fill and All or None.
Spot market
Orders that have spot settlement are entered into the Spot market.
Stop Loss
The dealer can enter a regular lot or a special term order with a 'trigger' price. Such
orders are called Stop Loss orders. The stop loss orders are not taken for matching
unless the trigger price is either reached or if it is surpassed by the last traded price
for the security. Once the market price reaches or surpasses the trigger price, the
'stop loss' attribute is removed and the order is taken up for regular matching
process.
Settlement guarantee
Splitting/Consolidation
The process of splitting shares that have a high face value into shares of a lower face
value is known as splitting. For e.g: A share with a face value of Rs 100/- may be
split into ten shares of Rs 10/- each. The reverse process of combining shares that
have a low face value into one share of higher value is known as consolidation.
Spot trading
A market in which securities are traded for immediate delivery, as distinct from a
forward market. Spot in this context means ‘immediately effective’, so that spot price
is the price for immediate delivery. The actual delivery of securities takes place
either on the same day of the contract or on the next day. Trading by delivery of
shares and payment for the same on the date of purchase or on the next day.
Stop transfer
The instruction given by a registered holder of shares to the company to stop the
transfer of shares as a result of theft, loss etc,. This is done in order that the shares
are not unlawfully transferred in the event of loss or theft of the share certificates.
Settlement Period
For administrative convenience, the stock exchange divides the year into a number
of settlement periods each of generally one week duration. The first and the last day
trading of each settlement period are fixed in advance and so are settlement days for
delivery and payment.
Specified Shares
The ad valorem duty of 1/2 per cent payable by buyers for transfer of shares in their
name.
share swap
stock option
Solicitor
A Solicitor is the auction participant who is on the opposite side of the Initiator's
order. If the Initiator is a buyer then the solicitor will enter sell orders for the same
security.
Stock split
Splits are about as exciting as getting change for a Rs100 note. Depending upon the
split ratio one share of a company is split into the decided number. This is done by
reducing the face value of the scrip. Stock splits are expected to improve liquidity in
a stock.
Trade
When a buy order matches with a sell order following the price-time priority logic, a
trade takes place. The system generates a unique trade number for each trade.
Turnover Limit
This indicates the aggregate trade value limit on a daily basis set for a trading
member. The Exchange sets the limit for each trading member of the Capital Market.
The trade value for both buy and sell for a day are accumulated and the total is
checked against this upper limit after every potential trade match.
Trade guarantee
Trade guarantee is the guarantee provided by the clearing corporation for all trades
that are executed on the Exchange. In contrast the settlement guarantee guarantees
the settlement of trade after multilateral netting.
Transfer deed
Time Conditions
1. DAY - A day order, as the name suggests is an order which is valid for the
day on which it is entered. If the order is not matched during the day, the
order gets cancelled automatically at the end of the trading day.
2. GTC - A Good Till Cancelled (GTC) order remains in the system until it is
cancelled by the user. It will therefore be able to span trading days if it does
not get matched. The Exchange may however set an upper limit to the
number of working days an order can stay in the trading system. At the end
of this period, GTC orders are cancelled automatically from the system.
3. GTD - A Good Till Day (GTD) order allows the user to specify the number of
days up to which the order should stay in the trading system. At the end of
this period, the order gets flushed out from the system if it is not traded or is
not cancelled by the trading member.
All reference to days in the trading system would refer to working days. Thus, each
day is counted on a working day basis i.e. intervening holidays are not considered.
The days counted are inclusive of the day on which the order is placed. However, for
Repo term, days are counted on a calendar basis.
Trader Workstation
A dealer can participate in the Capital Market only from the trader workstation,
where the trading functions are available.
Trading Member
Transmission
The minimum number of shares of a company which are accepted for normal trading
on the stock exchange. All transactions are generally done in multiple of trading
units. Odd lots are generally traded at a small discount.
Unquoted Shares
Shares in some companies, often smaller ones, are not traded on any stock
exchange. Companies are not quoted (or listed) because either: they do not wish to
be and prefer to run their businesses in relative privacy, orThey do not meet the
listing requirements, such as minimum market capitalisation. In other words they are
too small to join a stockmarket.For people interested in investing in unquoted
shares, there are investment trusts which specialise in this area.
User
Underwrite
Volatility
The rate by which the price of a security fluctuates in changing market conditions.
Volume of Trading
The total number of shares which change hands in a particular company's securities.
It is the sum of either purchases or sales which necessarily equal. This information is
useful in explaining and interpreting fluctuations in share prices.
Volume Conditions
1. DV - Disclosed Value (DV) orders allow the user to disclose only a portion of
the order value to the market. For example, an order of Rs. 1000 lakhs with a
disclosed value condition of Rs. 200 lakhs will mean that Rs. 200 lakhs is
released into the market. After this is traded, another Rs. 200 lakhs is
released and so on till the full order is exhausted. Every time a fresh lot of the
disclosed value is released, it is time-stamped (becomes an active order)
again at the time of its release into the market and not the time at which the
original DV order was placed.
2. MF - Minimum Fill (MF) orders allow the user to specify the minimum amount
by which an order should be filled. For example, an order of Rs. 1000 lakhs
with Minimum Fill Rs. 200 lakhs will require that each trade be for at least Rs.
200 lakhs. This could result in a partial match or a maximum of 5 possible
trades of Rs. 200 lakhs each and a minimum of one trade of Rs.1000 lakhs.
3. AON - All Or None order allows the user to avoid multiple trades i.e. partial
match against one order. However, if the full order cannot be matched at the
same time, it stays as an outstanding order (passive order) in the market till
cancelled or till it is fully matched at the same time.
Variation Margin
Wash Sale
In a wash sale, the seller repurchases the security immediately. The purpose of a
wash sale, which is not a genuine sale, is merely to establish a record of sale for tax
purposes or for misleading others by creating a false impression of rise or fall in
prices.
Watered
A company that has issued shares in excess of the real value of the business is said
to have watered its capital. It is in effect similar to the deficit financing done by some
governments.
Account Closure : A Client wanting to close a security account held with any Depository
Participant shall make an application, in the format specified to that effect. The client may close
its account if no balances are standing to its credit in the account. In case any balance exist, then
the account may be closed by rematerialisation of all its existing balances in its account and /
or, by transferring its security balances to its other account held either with the same Participant
or with a different Participant. The Depository Participant ensures that all pending transactions as
well as suspended accounts have been adjusted before closing such account. After ensuring that
there are no balances in the Client account, the Participant executes the request for closure of
the Client’s account.
Account Freezing: The Depository Participant may freeze the account of a client maintained
with him on written instructions received by the Participant in that regard from the client
concerned in the form specified under the Business Rules.
Account Opening : Any person willing to avail the services offered by a Depository shall open an
account with a Depository Participant.
Account Payee: Also " account payee only ". Words written on the face of a cheque between two
parallel diagonal lines. The purpose is to ensure that the cheque may only be paid into an
account in the name of the payee, that is the person to whom the cheque is made payable. This
means that the payee cannot sign it in favour of another person.
( General Finance ). The charges for using our Depository services may be paid by an Account
Payee cheque.
Amend : Is to alter or change by adding, subtracting or substituting. The Depositories Act, NSDL
Bye laws and Business Rules may be amended from time to time. Similarly Karvy’s charges are
also liable to be amended from time to time.
Annual Report : The Annual Report to the shareholders is the principle document used by most
public companies to disclose corporate information to the shareholders. It is usually a company
report including an opening letter from the CEO, financial data, market segment
information, new product plans, subsidiary activities and research and development activities on
future programs.
Articles of Association : The document, which lists the regulations that govern the running of a
company. Articles of Association covers things like :
They are registered with the memorandum of association when the company is formed.
Attest: To confirm (usually in writing) that a document is genuine. To bear witness that someone
actually signed a document, such as a will.
Affidavit : Is any written document in which the signer swears under oath before a notary public
or someone authorised to take oaths that the statements in the document are true.
Beneficiary :
Beneficial Owner : The true owner of a security or property which may be registered in another
name. Means a person whose name appears as such on the records of the Depository.
Buy–Back of shares : The purchase by a listed company of its own shares either in the open
market or by tender offers.
BSE : Bombay Stock exchange is one of the oldest stock exchanges in Asia with over 6,000
stocks listed.
Beneficiary Account : An investor or a broker who wants to hold shares in dematerialised (
demat ) form and undertake scripless trading must have a depository account called beneficiary
account with Depository Participant of his choice.
Bye-Laws : The written rules for conduct of a corporation, association, partnership or any
organisation. In exercise of the rights conferred by the Depository’s Act NSDL has framed its Bye
– laws. These Bye – laws defines the scope of functioning of NSDL and its business partners.
Business Partner : A Depository like NSDL carries out its activities through various functionaries
called Business Partners who include Depository participants, Issuing corporates and their
Registrars and Transfer Agents, Clearing Corporations / Clearing Houses etc.
Business Rules : In exercise of the powers conferred by the Depositories Act, NSDL has
framed its Business Rules. These Business Rules outline the operational procedures to be
followed by NSDL and its Business Partners.
Cash : Money, in the form of notes and coins, which constitutes payment for goods at the time
of purchase.
CDSL : Central Depository Securities Ltd is an organisation promoted by the stock exchange
Mumbai, ( BSE ) in association with Bank of India, Bank of Baroda, State Bank of India and
HDFC Bank to provide electronic depository facilities for securities traded in the equity and the
debt market.CDSL is the second depository in India.Karvy is one of the Depository Participants of
CDSL.
Compliance : The act of complying with rules and regulations. In financial markets, compliance
with the rules of SEBI, NSDL and various Acts is an important issue for banks, brokers and fund
managers. All of these should have dedicated compliance staff whose job is to make sure that the
procedures used in the company’s operations follow the prescribed rules. Every depository
Participant must appoint one Compliance Officer whose duty is to ensure that all rules and
regulations are complied with
Client Id : Whenever any client opens an account with a Depository Participant he /she is
provided with an account number which is known as the beneficiary account number or the Client
Id. The combination of the Client Id and the Depository Participant Id is unique.
CM-Pool Account : Member brokers of those stock exchanges which have established electronic
connectivity with NSDL need to open a clearing member account, also known as CM-Pool
Account with a Depository Participant of his choice, to clear and settle trades in the demat
form.This account is meant only to transfer shares to and receive shares from the clearing
corporation / house and hence, the member broker does not have any ownership ( beneficiary )
rights over the shares held in such an account.
Corporate Action : Corporate actions are benefits given by a company to its investors.It deals
with :
The Depositories ( NSDL and CDSL ) along with their network of Participants facilitates
distribution of corporate benefits. The Issuer announces a record date / book closure period for
the purpose of entitlement of corporate benefits. In case of monetary or cash benefits, the
depository gives the beneficiary ownership details to the Issuer / R & T Agent. The Issuer / R & T
Agent then carries out the necessary processing and the distribution of such benefits which shall
be outside the Depository system.
In case of non-monetary benefits, the Depositories ( NSDL and CDSL ) gives the beneficial
ownership details to the Issuer / R & T Agent. The Issuer / R & T Agent then carries out the
necessary processing and upload the beneficiary ownership details to the Depositories ( NSDL
and CDSL ). The Depositories ( NSDL and CDSL ) then credits the beneficiary owner’s accounts
by downloading the data to the respective Depository Participants.
Company Law Board : "Company Law Board" means the Board of Company Law Administration
constituted under section prescribed section of the Companies Act, 1956.
Complainant: A person or entity who begins a lawsuit by filing a complaint and is usually called
the plaintiff, or in some cases the petitioner.
Deface : The client ( registered owner ) shall submit a request to the DP in the DRF for
dematerialisation along with the certificates of securities to be dematerialised. Before
submission, the client has to deface or cancel the certificates by writing " SURRENDERED FOR
DEMATERIALISATION.
Defreezing of an account : The client can request his depository participant to release the
suspension order and defreeze the account for regular operations. The Depostiory participant
shall defreeze the account only after receipt of the application for defreezing signed by all the
account holders.
Delivery : The transfer of title of a security such as stock from buyer to seller.
Delivery Instructions by client : In order to transfer securities from his account to another a
beneficial account owner must give an instruction to his / her Depository Participant.A beneficial
account owner must give instruction to his / her DP to transfer
Dematerialisation : Is the process by which a client can get physical certificates converted into
electronic balances maintained in its account with the Depository Participant. Securities held in
dematerialised form are fungible i.e. they do not bear any distinguishing features.
DRF : In order to dematerialise his physical shares the client ( registered owner ) submits a
request to the Depository Participant in the Dematerialisation Request Form ( DRF ) along with
the certificates of securities to be dematerialised. The DRF should be submitted in triplicate. One
copy of the DRF is sent by the Depository Participant to the respective company or
Registrar, one copy is retained by the Depository Participant for its records and the third copy is
returned back to the clients.
DRN : When the securities are found in order with the details of the request as mentioned in the
form, the depository participant enters the details in the DPM ( Depository participant
Module, provided by NSDL to the DP ) a Dematerialisation Request Number ( DRN ) is
generated by the system.The DRN so generated is entered in the space provided for the purpose
in the Dematerialisation Request Form. The request is then released to DM ( Depository Module
– Depository’s software system ).The DM forwards the requests to the Issuer / R & T agent
electronically. Once the DRN is confirmed or accepted by the Issuer / R & T agent the DM
electronically authorise the creation of appropriate credit balances in the client’s account. The
DPM shall credit the client’s account automatically.
Demerger : A corporate restructuring in which one part of a company is spun off as a new
company. Like their opposite – mergers – demergers tend to go in and out of fashion. When
share prices are rising, companies like to use their shares to acquire other companies, so their
advisers encourage merger activity. In a market of falling prices, mergers and IPOs are less
popular, and demerger possibilities are looked at.
Depository System : The depository system is similar to the Banking system with the exception
that banks handle funds whereas a depository handles securities of the investors. A depository
can therefore be conceived of as a " Bank " for securities. An investor wishing to utilise the
services offered by a depository, has to open an account with the depository through the
Depository Participant. This is very similar to opening an account with any of the branches of a
bank in order to utilise the services of that bank.
Depreciation : The charge in a company’s accounts which reflects the reduction in value of an
asset over time as its useable life is exhausted.
Depreciation is charged before calculation of profit, on the grounds that the use of capital assets
is one of the costs of being in business and one of the contributors to profit.
Depreciation has no effect on cash flow. It is just an accounting procedure.
Dividend : Is a portion of the profit, usually based on the number of shares of stock in a
corporation and the rate of distribution approved by the board of directors or management, that is
paid to shareholders for each share they own. Dividends may also be paid in shares of
stock, known as a stock dividend.
Electronic Public Offering ( EPO ) : An initial public offering, or new issue of shares, in which
the process of applying for shares is handled electronically ( via websites ).
Equity : The amount which shareholders own in a publicly quoted company. Equity is the risk-
bearing part of the company’s capital and contrasts with debt capital which is usually secured in
some way and which has priority over shareholders if the company becomes insolvent and its
assets are distributed.
Face Value : The value of a bond, note or other security as printed on the document. Throughout
the life of a security, its market price will fluctuate but at maturity the face value amount is
payable.
Financial Institution : An institution which accepts funds from the public and reinvests in bank
deposits, bonds and stocks etc. These include banks and insurance companies.
Freezing of an account : Any client can give instructions, in the prescribed form, to his
Depository Participant to freeze his account either for debit or for all operations. Only after receipt
of the application for freezing the account signed by all the account holders the Depository
Participant shall freeze the account till further notice received from the client in this regard.
Fungible : Dematerialised shares do not have any distinctive numbers or certificate numbers.
These shares are fungible – which means that 100 shares of a security are the same as any
other 100 shares of that security.
Guardian: A person who has been appointed by a judge to take care of a minor child or
incompetent adult (both called ward) personally and / or manage that person’s affairs. To become
a guardian of a child either the party intending to be the guardian or another family member, a
close friend or a local official responsible for a minor’s welfare will petition the court to appoint the
guardian. In the case of a minor, the guardianship remains under court supervision until the child
reaches majority at 18.
Heir : One who acquires property upon the death of another, based on the rules of descent and
distribution, namely, being the child, descendent or other closest relative of the dear departed.
Holder : A general term for anyone in possession of property, but usually referring to anyone
holding a promissory note, check, bond, share, either handed to the holder ( delivery ) or
signed over by endorsement, for which he / she / it is entitled to receive payment as stated in the
document.
Holding Company : A company, usually a corporation, which holds the stock of other
corporations, thereby often controlling the management and policies of all of them.
Indemnity : An agreement in which one person is answerable for compensating the losses of
another. Indemnities are common features of many commercial contracts.
Initial Public Offering ( IPO ) : The first offering of a company’s shares to the public. The shares
offered may be existing ones held privately, or the company may issue new shares to the public.
Inter Depository Instructions : Inter-Depository Transfer means transfer of securities which are
admitted for dematerialisation on both the depositories from an account held in one depository to
an account held in the other depository.
Interim Dividend : A dividend which is declared and paid before annual earnings have been
determined.
Intermediary Account : Any person desiring to act as an approved intermediary needs to open
an intermediary account with any Depository Participant of his choice. An intermediary account
may be opened with the Depository Participant only after the intermediary has obtained
registration from Securities and Exchange Board of India and with the prior approval of NSDL.
This account is meant only to deposit the securities received from the lender and lend them to the
borrower. The intermediary does not have any ownership ( beneficiary ) rights over the shares
held in such an account.
ISIN : International Securities Identification Number ( ISIN ) is a code that uniquely identifies a
specific securities issue.
Issue : The number of shares of a company on sale to the public at a given time.
Issue Price : The price at which a company’s shares are offered to the market for the first time.
When they begin to be traded, the market price may be above or below the issue price.
Issued Share Capital : The amount of authorised share capital that shareholders have actually
subscribed to a company for share ownership.
Joint Account : A bank or a security account in the names of two ( or more ) people.All the
account holders must give their signature to operate a security account held jointly.
Joint Liability : The legal liability of two or more people for claims against or debts incurred by
them joint liability and are indebted to another party, they may only be sued as a group and not
individually.
Know Your Client : The ethical principle relating to broker dealers, Depository and other
financial advisers that all reasonable steps have been taken to gather sufficient relevant financial
and personal information regarding the customer and that subsequent investment
recommendations will take full account of that information.
Liability : The legal obligation to pay a debt. Recorded on the balance sheet, current liabilities
are debts payable within one year while long-term liabilities are debts payable over a longer
period.
Lien : When a creditor or bank has the right to sell mortgaged or collateral property of those who
fail to meet the obligations of their loan contract.
Limited Company : A company whose shareholder’s maximum liability is limited to their share
capital in the event of winding up.
Listed Company : A company that has satisfied the requirements for its shares to be listed on a
recognised stock exchange like NSE, BSE, CSE etc
Listed Security : Securities such as shares, stocks, bonds which are quoted on a recognised
stock exchange such as National Stock Exchange, Calcutta Stock exchange etc.
Listing : The process by which a company’s shares become tradable on a stock exchange. An
unlisted company’s shares are tradable privately between the shareholders and the pricing of the
shares is difficult to determine. A listed share on the other hand gets a daily price
quotation, anybody can buy and sell the shares through brokers and market makes, and if the
company wishes to raise new capital it has the option of issuing new shares.
Locked-in : A specified time period that an investor is locked into an investment. For example a
period following a flotation when major shareholders agree not to sell their holdings. The objective
is to give investors confidence that the management and key shareholders do not intend to cash
in their stock the moment the market opens.
Margin : The difference between the cost price of a product and the selling price. In trading, the
amount deposited with a broker in order to obtain credit for purchase of shares or futures. The
margin is the price of a security less credit advanced by the broker.
Market Capitalisation : The market value of a quoted company which is calculated by multiplying
its current share price by number of shares in issue.
Market Trade : Trades which are settled through the Clearing Corporation / Clearing House of an
exchange are classified as " Market Trades ".
Market Value : In relation to a listed security, the rate as derived from the Daily Official list as on
a relevant date.
Memorandum of association : Those details which a company, when formed, must submit to
the Registrar of Companies together with its Articles of Association. They include company
name, registered office, objectives, authorised share capital and a statement of limited liability.
Merchant Banker : A bank which offers a range of services to corporate clients including advice
on :
Investment banking, international banking, mergers and acquisitions, flotations, new issues
and capital restructuring.
Merger : The process by which two companies become one. If the companies are listed, the
merger may be by agreement, or hostile. A hostile bid is one in which the directors of the target
company reject the approach, but it is still possible for the predator company to obtain control if
enough of the target’s shareholders accept its offer.
NASDAQ : The first electronic stock market, which uses computers and telecommunications to
trade shares rather than a traditional trading floor. NASDAQ is owned and operated by the
National Association of Securities Dealers ( NASD ). It is the fastest growing major stock market
in the world with well over 5,000 companies listed.
Nomination : Every holder of shares in, or holder of debentures of, a company may, at any
time, nominate, in the prescribed manner, a person to whom his shares in, or debentures of
the company shall vest in the event of his death.Where the shares in, or debentures of a
company are held by more than one person jointly, the joint holders may together nominate, in
the prescribed manner, a person to whom all the rights in the shares or debentures of the
company shall vest in the event of death of all the joint holders.For any shares and debentures of
the company, where a nomination is made in the prescribed manner, in the event of death of the
shareholder/s the nominee shall be entitled to all rights in the shares or debentures.
NSDL : The National Securities Depository Limited is an organisation promoted by the Industrial
Development Bank of India, the Unit Trust of India and the National Stock Exchange of India
Limited to provide electronic depository facilities for securities traded in the equity and the debt
market. NSDL commenced its operations in the year 1996 and is the first depository in India.
NSE : National Stock Exchange is one of the leading stock exchanges in India. The NSE has
been set up by leading institutions to provide a modern, fully automated screen – based trading
system with national reach.
NRI : As per the Foreign Exchange Management Act, 1999 ( FEMA ), an Indian citizen is
considered as NRI when he / she stays abroad :
For employment
For Carrying on business or vocation outside India
Under circumstances indicating an intention of an uncertain duration of stay abroad.
The definition of NRI’s includes :
Persons posted in U.N. Organisations
Officials deputed abroad by Central / State Governments and Public Sector Undertakings on
temporary assignments
Non – resident foreign citizens of Indian Origin for the purpose of certain facilities
For tax purposes, Income Tax Act, 1961 defines an NRI as " A person whose stay in India
during a financial year ( April 1st to March 31st ) is less than 182 days either continuously or
otherwise.
NAV : Net Asset Value in mutual value is the total value of the portfolio less liabilities. In
corporate valuations, the book value of assets less liabilities.
NEST : NSDL is electronically linked to its Business Partners via a satellite link through Very
Small Aperture Terminals ( VSATs ). The entire integrated system ( including the VSAT linkups
and the software at NSDL and each Business Partner’s end ) has been named the " NEST " {
National Electronic Settlement & Transfer } system.
Off Market Trade : Trades which are not settled through the Clearing Corporation / Clearing
House of an exchange are classified as " Off Market Trades ". Negotiated trades which are not
cleared and settled through the Clearing Corporation / Clearing House are off-market trades.
Oversubscribed : A term referring to an offer for sale where applications for shares exceed the
number of shares available. When this happens, the allocation of shares will depend on the rules
set out in the company’s prospectus mostly on a prorata basis.
Par Value : The issued price of a security ( share, bond ). Par value is the same as " nominal
value " and bears no relation to the market price. An ordinary share might have a par value of Rs
100, but its market value will be determined by supply and demand in the market place, not by
its par value.
Pari Pasu : Ranking equally. For example, in a new issue of shares which carry equal rights with
existing shares they are said to rank pari pasu.
Partly Paid Shares : The shareholders are usually asked to pay for their shares in two or three
instalments. Until the final instalment is made the shares are only partly paid.
Persons of Indian Origin : A person is deemed to be of Indian origin if he at any time held an
Indian passport or he or either of his parents or any of his grandparents was an Indian and a
permanent resident in undivided India at any time.
A wife of citizen of Indian or of a person of Indian origin is also deemed to be of Indian origin
even though she may be of non-Indian parentage. For the purpose of the facility of opening and
maintenance of various types of bank accounts and making investments in shares and securities
in India a foreign citizen ( not being a citizen of pakistan or Bangladesh ) is deemed to be a
person of Indian origin if (1) he, at anytime, held an Indian passport, or ( 2 ) he, or either of his
parents or any of his grandparents was a citizen of India by virtue of the constitution of India.
A spouse ( not being of citizen of Pakistan or Bangladesh ) of an Indian citizen or of a person of
Indian origin is also treated as a person of Indian origin for the above purpose provided the bank
accounts are opened or investments in shares and securities in India are made by such persons
jointly with their NRI spouses only.
Pledge : To deposit personal property as security for a personal loan of money. If the loan is not
repaid when due, the personal property pledged shall be forfeit to the lender. A client ( pledgor )
having a beneficiary account with a Depository Participant can pledge securities in electronic form
against loan / credit facilities extended by a pledgee, who too has a beneficiary account with a
Depository Participant.
Based on the above the portfolio manager decides how to allocate funds between different
classes of investment ( bonds, shares ), how to diversify between sectors, how much cash to
hold and when to make changes in the composition of the portfolio.
Preference shares : Means, with reference to any company limited by shares, that part of the
share capital of the company which fulfils both the following requirements :
That as respects dividends it carries or will carry a preferential right to be paid a fixed amount or
an amount calculated at a fixed rate That as respect capital, it carries or will carry, on a winding
up or repayment of capital, a preferential right to be repaid the amount of the capital paid-up or
deemed to have been paid up whether or not there is a right to the payment.
Prospectus : The document which companies have to publish before issuing new shares to the
public. The prospectus sets out the company’s business, its financial
history, performance, capital structure and future prospects, and the content has to comply with
certain specified rules.
Protection of Data : The Depository takes necessary steps to protect the transmission and
storage of data under the Depository system. The data is protected from the unauthorised
access, manipulation and destruction. The transmission of data is in encrypted form and has to
be decrypted at the user’s end so as to eliminate the possibility of unauthorised interception of
data. The backup of data stored under the Depository system by the Depository and the
participants is kept by the Depository and the participants respectively. The Depository ensures
sufficient security measures, to prevent the access of unauthorised persons to the data of the
Depository operations.
Proxy : A person who acts on behalf of a member of a company for the purpose of voting at a
company meeting.
Public Limited Company : A company registered as a public company which has an unlimited
number of shareholders, and can offer its shares to the public.
Quoted Company : A company that has satisfied the requirements for its shares to be listed on a
Recognised Stock Exchange.
Receipt Instruction : The instruction given by the buying client to his depository participant in
order to receive securities from the selling client’s depository account is known as a receipt
instruction. In order to avoid giving receipt instruction for each receipt the client may give a
standing receipt instruction to his Depository Participant.
Redeemable : A security which can be bought back by the original issuer from the purchaser.
Redeemable Preference Shares : Preference shares which the issuing company reserves the
right to redeem.The shares may, or may not have a specific redemption date or dates.
Redemption : The re – purchase of a security, such as a bond or preferred stock, by the issuing
company at or before maturity.
Registered Owner : Registered owner means a depository whose name is entered as such in
the register of the issuer.
Rematerialisation : It is the process by which a client can get his electronic holdings converted
into physical certificates. The client has to submit the rematerialisation request to the DP with
whom he has an account. The DP enters the request in its system which blocks the client’s
holdings to that extent automatically. The Issuer / R& T agent then prints the
certificates, despatches the same to the client and simultaneously electronically confirms the
acceptance of the request to NSDL. Thereafter, the client’s blocked balances are debited.
Registrar and Transfer Agent ( RTA ) : A transfer agent and registrar for a publicly held
company keeps record of every outstanding share certificate and the name of the person to
whom it is registered. When the share changes hands, the transfer agent transfers the ownership
of the stock from the seller’s name to the buyer’s name. The registrar reconciles all transfer
records and makes sure that the number of shares debited is equal to the number of shares
credited.
Rolling Settlement ( T + 5 ) Cycle : Settlement is the process by which investors pay for shares
they have bought and receive payment for shares they have sold. In this case, the trading period
( T ) is one day. For the trading period comprising one day, settlement of trades on the basis of
netted obligations is on the 5th working day from the trade day i.e. on T + 5 basis.
The significance of rolling settlement and of shortened settlement times is that when investors
sell shares, the proceeds get paid into their account quicker, and when they buy shares they
have to pay for them quicker. It requires careful money management on the part of the investor.
For list of Scrips under Rolling Settlement, please click here.
SEBI : Securities and Exchange Board of India is an independent body formed under the SEBI
Act, 1992. The duty of SEBI is to protect the interest of investors in securities and to promote the
development of and to regulate the securities market through appropriate measures.
Security : A financial asset such as a share or bond. An asset which is offered by a borrower to a
lender to safeguard a loan.
Securities held in Suspense : The Depository may place any balance of relevant securities in a
suspense account held with the depository if it is unable to effect or give credit of a security to the
account of a participant and / or the client ad a result of incorrect electronic intimation received
from the Issuer or its Registrar and Transfer Agent. Such balances are reconciled within a period
of fifteen days failing which the Depository authorises the Issuer or its Registrar and Transfer
Agent to issue physical securities to the concerned investors.
Sell – n – Cash : This gives the investor the cash against sale of his shares on the very same
day itself. In the present scenario, the proceeds against sale actualize between 7th and the 16th
day from the date of sale in the Indian Stock Exchanges. The settlement mechanism today does
not allow much leverage on that count. Sell-n-cash actually flanks out traditional cycle and
relieves the investor from short term liquidity crunch.
Karvy provides this facility to all its demat account holders to effect much faster turnaround of
their portfolio, and get the cheque the same day for immediate needs.
Settlement : It is the process by which investors pay for shares they have bought and receive
payment for shares they have sold. It is also the process by which the investor delivers the
shares he has sold to the clearing house and receives the shares which he has purchased from
the clearing house of a recognised stock exchange.
Settlement Day : The day on which purchased securities are due for delivery to the buyer and
payment is due to be made to the seller.
SPEED : Securities Position Easy Electronic Dissemination service, is a new service launched
by NSDL, which is an Internet based facility for the brokers ( Clearing Members ). SPEED
enables the brokers to view the securities balances and transactions relating to their CM Pool
Accounts directly on the Internet. SPEED is a secured access with multi-layered security. Access
to SPEED is possible only by using User Id and Password.
Statement of Holding : A statement of Holding details out the current balance in a depository
account. At least once every fortnight the Depository participant sends a statement of Holdings to
its clients.
Karvy’s Online Demat services enables its clients to view their statement of holdings on the net.
In order to view your holdings now, please click here.
Statement of transaction : A statement of transaction details out the various transactions done
through that depository account. At least once in every fortnight the Depository Participant sends
a statement of transaction to its clients. Karvy’s Online Demat services enables its clients to view
their statement of transactions on the net. To view your transaction details now, please click
here.
Suspension of an Account : Any client can give instructions, in the prescribed form, to his
Depository Participant to suspend his account either for debit or for all activities. Only after
receiving the application for freezing an account the Depository Participant shall suspend the
client’s account. The Depository Participant may also suspend the account of any client on the
basis of any court order or any notice issued by the Income Tax authority. The account is
released for regular operations only after relevant orders from the court or notice from the Income
Tax authority.
Unlisted Securities : Shares which are not listed on a Recognised Stock Exchange.
Unpaid Dividend : A dividend which has been declared by a company but has not yet been paid.
Unpublished Price Sensitive Information : Means any information which is material and
unpublished i.e. generally not known or published by the company for general information
but, which if published or known, is likely to materially affect the price of the securities of the
company in the stock market. This will include, but shall not be limited to, financial
results, intended declaration of dividends, issue of securities, any major expansion plans or
execution of new projects, amalgamation, mergers and take-overs, disposal of the whole or
substantially the whole of the undertaking, such other information as may affect the earnings of
the company, any changes in policies, plans or operations of the company etc.
Unsecured Loan : A loan where the lender has no entitlement to any of the borrower’s assets in
the event of the borrower failing to make the loan repayments.
Venture Capital : Capital invested into small and young companies in return for equity
ownership. Venture capitalists supply capital to companies that are small, may be start-ups, are
high risk, and which could not get the funds by listing on the stock market or borrowing from
banks.
Volume : The number of shares traded on a stock exchange for a given period, also known as
market turnover.
Weak market : A stock market where volume is low and the spread is high.
Will : A document which sets out how a person wishes his / her estate or property to be
dispersed after his / her death. The document must be signed by the person making the will (
testator ) in the presence of two witnesses who must also sign. An executor or executors are
usually appointed by the testator to ensure that his / her wishes are carried out.
Winding Up : Means an order granted by a court under the Companies Act to wind up the
business of a company. The assets of a company are sold to settle as far as possible the debts to
its creditors.
Year End Dividend : The dividend paid at the end of the trading year and based on company’s
profits.
Yield : The annual dividend income per share received from a company divided by its current
share price. In simple words, it is the income you are getting out of the company for the capital
you’ve locked up in it. Dividend yields are calculated on the net dividend.
Yield to Maturity : An indication of the overall return of a fixed interest security if held to
redemption. It takes into account both the current yield and the capital gain or loss divided by the
number of years remaining to redemption.
Zero balance : Also known as Nil balance, a situation when a depository account has no
securities in it. A beneficiary account may be opened with any Depository Participant even with
zero balance.
Accrued interest
Accrual Bond
A Bond on which interest accrues, but is not paid to the investor during the time of accrual. The
amount of accrued interest is added to the principal of the bond and is paid at the time of
maturity.
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one
year, taking into account the affect of compounding. The APY is calculated by taking one plus the
periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.0112 -1). This is similar to the concept of Annual Rate of Return.
Annuity
A regular periodic payment made under agreement for a specified period of time.
Arbitrage:
The simultaneous buying and selling of a security at two different prices in two different markets,
resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities.
However, arbitrage opportunities are often precluded because of transaction costs
It is a technique of liquidity management to ensure that the tenure of liabilities more or less match
with the average tenure of the assets. This concept is of utmost importance to banks and financial
institutions in the spreads business.
Balloon
Scheduled final principal repayment that is substantially larger than the preceding scheduled
principal repayments.
Benchmark rate
A standard interest rate used for comparison. Globally the LIBOR is considered as a benchmark
rate. In India the Government T-Bill rate is considered as a benchmark rate. All variable rate
instruments are expressed as a spread over the benchmark rate.
Basis Point
It represents 1/100th of a percentage point. In other words, 100 basis points is equal to one
percent
Beta
A measure of a security's sensitivity to changes in the overall market. It is the extent to which
changes in security returns can be explained by the market. A beta of 0.9 means that a 1 %
change in the market in the short run implies a 0.9 % change in the value of the security.
Securities with a beta greater than unity are classified as aggressive securities.
Bullet
Bearer bond
These are bonds that are not registered in the books of the issuer. Such bonds are held in
physical form by the owner, who receives interest payments by physically detaching coupons
from the bond certificate and delivering them to the paying agent.
Bond
A bond is a contract between two parties where the owner of the bond is promised interest and
principal repayment in exchange for the money paid for the bond. When an investor buys bonds,
he or she is lending money.
Bond indenture
It is the contract that sets forth the promises of a corporate bond issuer and the rights of
investors.
Bond indexing
It is the designing of a bond portfolio so that its performance will match the performance of some
bond index.
Brady bonds
These are bonds issued by emerging countries under a debt reduction plan.
Callable Bonds
These are bonds that give the right to the issuer to redeem the bonds before the maturity after an
agreed period of time from the issue date. The issuer in the event of a falling interest regime,
which permits them to raise funds at a lower rate, exercises these call options.
Call price
Price at which a callable security can be redeemed by the issuer.
Cap/ceiling
An interest rate cap/ceiling agreement whereby one party agrees to compensate the other if the
reference rate exceeds a predetermined level.
Credit rating
A published ranking, based on detailed financial analysis by a credit bureau, of one's financial
soundness, specifically relating to one's ability to service debt obligations. The highest rating is
usually AAA, and the lowest is D. In India Crisil is the largest credit rating agency.
Convexity
It measures the sensitivity of the yield to maturity (YTM) of a bond to changes in duration of the
bond.
Compound interest
Convertible security
A security that can be exchanged, at a specified price, for shares of the issuer's stock.
Current yield
The ratio of coupon interest to the current market price. It reflects the interest yield at the point of
entry.
Delay
For asset backed securities, the period between issuance and the first payment of coupon and
principal.
Debenture
An unsecured bond whose holder has the claim of a general creditor on all assets of the issuer
not pledged specifically to secure other debt. Usually issued by corporates.
Debt market
Debt service
Interest payment plus repayments of principal to creditors, that is, retirement of debt.
Deep-discount bond
A bond issued with a very low coupon or no coupon and selling at a price far below par value.
When the bond has no coupon, it is called a Zero coupon bond.
Default
Failure to make timely payment of interest or principal on a debt security or to otherwise comply
with the provisions of a bond indenture.
Default premium
A differential in promised yield that compensates the investor for the risk inherent in purchasing a
corporate bond that entails some risk of default.
Default risk
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an issuer
of a bond may be unable to make timely principal and interest payments.
Duration
A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in
interest rates.
Effective spread
A spread off the floating-rate index that makes the average present value equal to the current
price.
An annual measure of the time value of money that fully reflects the effects of compounding.
Effective convexity
The convexity of a bond calculated using cash flows that change with yields.
The yield that must be offered on a taxable bond issue to give the same after-tax yield as a tax-
exempt issue.
Eurobond
A bond that is (1) underwritten by an international syndicate, (2) issued simultaneously to
investors in a number of countries, and (3) issued outside the jurisdiction of any single country.
Eurodollar bonds
Euroyen bonds
Extendable bond
Bond whose maturity can be extended at the option of the lender or issuer.
Financial risk
The risk that the cash flows of an issuer will not be adequate to meet his financial obligations.
Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt
and equity.
A change in the yield curve where the spread between the yield on a long-term and short-term
treasury has decreased.
Flat price
Price of a bond without accrued interest. Bond traders typically quote flat price, although
purchasers pay the full price (full price = flat price + accrued interest).
Coupon rate that varies with ("floats against") a standard market benchmark or index.
A basket of bonds, Treasuries, currencies, or other financial instruments used as a benchmark for
floating rate notes.
Floating rate-note
Government or agency security with a floating coupon, reset periodically against a short-term
index such as the three-month or six-month LIBOR.
Floor
An interest rate floor agreement whereby one party agrees to pay the other if the reference rate
falls below a predetermined level.
Funded debt
Hedge
Horizon curve
A yield curve used to forecast the effects, at a particular point in the future, of interest-rate
changes on an investment.
Indenture
Agreement between lender and borrower which details specific terms of the bond issuance.
Specifies legal obligations of bond issuer and rights of the bondholder. Document spelling out the
specific terms of a bond as well as the rights and responsibilities of both the issuer of the security
and the holder
Insured bond
A municipal bond backed both by the credit of the municipal issuer and by commercial insurance
policies.
Discount rate at which Net present value (NPV) of the investment is zero. The rate at which a
bond’s future cash flows, discounted back to today, equals its current price.
Yield curve in which short-term rates are higher than long-term rates. This usually reflects
diminishing confidence in the future and is a sign of impending recession in the economy.
Junk bond
A bond with a speculative credit rating of BB (S&P) or BA (Moody's) or lower is a junk or high
yield bond. Such bonds offer investors higher yields than bonds of financially sound companies.
Lead managers
The leading member of the syndicate issuing a new security such as a corporate bond. The lead
manager administers the marketing, allocation, and delivery of the security. The lead manager--in
consultation with the borrower--also selects co-managers; determines the initial and final terms of
the issue; selects the underwriters; and selects the selling group.
Lien
A legal claim against an asset which is used to secure a loan and which must be paid when the
property is sold.
LIBOR
London Interbank Offered Rate. The LIBOR is "the average of interbank offered rates for dollar
deposits in the London market based on quotations at five major banks." The rate is published
daily in the Wall Street Journal "Money Rates" section. This rate forms the benchmark for most
floating rate debt issues.
Laddering strategy
A bond portfolio strategy in which the portfolio is constructed to have approximately equal
amounts invested in every maturity within a given range. It is an example of a passive investment
strategy.
Liquidity
A market is liquid when it has a high level of trading activity, allowing buying and selling with
minimum price disturbance. Also a market characterized by the ability to buy and sell with relative
ease. When there are many securities then the market is liquid in the broad sense and when
these securities have sufficient volumes then the market is liquid in deep sense.
Long bonds
Long-term debt
An obligation having a maturity of more than one year from the date it was issued. Also called
funded debt.
Is related to the lump sum payments made when a loan or bond is called, equal to the NPV of
future loan or coupon payments not paid because of the call. The payment can be significant and
negate the attractiveness of a call.
Mark-to-market
The process whereby the book value or collateral value of a security is adjusted to reflect current
market value.
Marked-to-market
An arrangement whereby the profits or losses on a futures contract are settled each day.
Maturity
Maturity date
Usually used for bonds. Date that the bond finishes and is paid off. Date on which the principal
amount of a note, draft, acceptance, bond, or other debt instrument becomes due and payable.
Maturity spread
The spread between any two maturity sectors of the bond market.
MIBID/MIBOR
Mumbai Interbank Bid and Offer rates. Calculated by the average of the interbank offer rates
based on quotations at nearly 30 Major banks.
Market index
Also called "index." Statistical composite that measures changes in the economy or financial
markets. Often expressed in percentage changes from a base year or from the previous month.
Mismatch bond
Floating rate note whose interest rate is reset at more frequent intervals than the rollover period
(e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).
Modified duration
The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is inversely
related to the approximate percentage change in price for a given change in yield.
Municipal bond
State or local governments offer municipal bonds or municipals, as they are called, to pay for
special projects such as highways or sewers. The interest that investors receive is exempt from
some income taxes.
The present value of the expected future cash flows minus the cost.
The total percentage increase in the value of an investment over the holding period.
Nominal yield
The annual amount of income from the security divided by the face amount of the security. The
result is stated as a percentage. When the security is sold at par, the nominal yield and actual
yield are the same.
Notional principal
The amount used as a base for computations. Notional principal plays a conceptual role in
determining the amount of the interest payments. This is not the principal amount that is actually
transferred from one party to another.
Open-market operation
Purchase or sale of government securities by the monetary authorities (RBI in India) to increase
or decrease the domestic money supply. A sale of government securities is a sign of a dear
money policy while a purchase of government securities is a sign of a cheap money policy.
Par
Equal to the nominal or face value of a security. A bond selling at "par," for instance, is worth an
amount equivalent to its original issue value or its value upon redemption at maturity
The risk of loss in the value of an asset’s cash flow due to inflation. Also referred to as inflation
risk
Put option
An option that gives the option buyer the right, but not the obligation, to sell (go "short") the
underlying futures contract at the strike price on or before the expiration date.
Purchase date
Purchase price
The flat price of the security paid when originally purchased by the holder.
Par value
Also called the maturity value or face value, the amount that the issuer agrees to pay at the
maturity date.
Pass-through securities
A pool of fixed-income securities backed by a package of assets (i.e. mortgages) where the
holder receives the principal and interest payments.
Premium bond
Principal amount
The face amount of debt; the amount borrowed or lent. Often called principal.
Pure-discount bond
A bond that will make only one payment of principal and interest.
Put bond
Relatively uncommon type of bond which allows the bondholder to redeem the bond at a
specified price prior to maturity.
Rate risk
In banking, the risk that profits may decline or losses occur because a rise in interest rates forces
up the cost of funding fixed rate loans or other fixed-rate assets.
Realized return
The return that is actually earned over a given time period. For a bond that is held to maturity and
does not default on interest payments, the realized yield is equal to the YTM.
Redemption
Reinvestment risk
The risk that intermediate cash flows like interest may not be reinvested at the YTM. This problem
becomes more acute in a falling interest rate scenario.
The ratio of the yield spread to the yield level. Used for bonds.
Required yield
Generally referring to bonds, the yield required by the marketplace to match available expected
returns for financial instruments with comparable risk.
Revenue bond
A bond issued by a municipality to finance either a project or an enterprise where the issuer
pledges to the bondholder the revenues generated by the operating projects financed, for
instance, hospital revenue bonds and sewer revenue bonds.
Rate duration
The flat price of the security paid when originally purchased by the holder.
Reference bond
The bond that serves as a benchmark against which the yield spreads to other deliverable bonds
are held constant. It is used to analyze parallel shifts in the yield curve.
Repo rate
Repurchase agreement rate. The rate at which a holder of securities sells them to an investor
with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer," in
effect, lends the "seller" money for the period of the agreement
Rollover
A process that switches your holdings in a user-defined security to a newly issued or newly
available security. A rollover also switches user-security offerings, if any, to the new security.
Samurai bond
Secured debt
Debt that, in the event of default, has first claim on specified assets.
Security
Piece of paper that proves ownership of stocks, bonds and other investments.
Serial bonds
Corporate bonds arranged so that specified principal amounts become due on specified dates.
Series bond
Bond that may be issued in several series under the same indenture.
Short bonds
Single-payment bond
A bond that will make only one payment of principal and interest.
A change in the yield curve where the spread between the yield on a long-term and short-term
Treasury has increased.
Step-up bond
A bond that pays a lower coupon rate for an initial period which then increases to a higher coupon
rate.
Stripped bond
Structured debt
Debt that has been customized for the buyer, often by incorporating unusual options.
Settlement date
Date on which cash payments for purchases are due and for which accrued interest and
price/yield relationships are computed.
Settlement price
Standard deviation
Standard deviation is the measurement of average variation (dispersion) of actual values about
the mean.
An unsecured bond that ranks after secured debt, after debenture bonds, and often after some
general creditors in its claim on assets and earnings. Related: Debenture bond, Mortgage bond,
and Collateral trust bonds.
Sushi bond
Tax shield
The reduction in income taxes that results from taking an allowable deduction from taxable
income.
Term bonds
Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is
payable at maturity. Related: serial bonds
Term premiums
Excess of the yields to maturity on long-term bonds over those of short-term bonds
Term to maturity
The time remaining on a bond’s life or the date on which the debt will cease to exist and the
borrower will have completely paid off the amount borrowed. See: Maturity
Term premium
A premium (of higher yield) that bondholders expect to receive for securities with longer maturity
dates.
Terminal value
The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm)
on some specified future valuation date.
Unsecured debt
Debt that does not identify specific assets that can be taken over by the debtholder in case of
default.
Volatility
A measure of risk based on the standard deviation of the asset return. Also, volatility is a variable
that appears in option pricing formulas. In the option pricing formula, it denotes the volatility of the
underlying asset’s return from now to the expiration of the option. Some have created volatility
indices.
When-issued security
An authorized but not yet issued security that is traded conditionally ("when, as, and if issued") in
the period between the announcement date and the auction date. New corporate-bond and
Treasury-security issues are often traded on a when-issued basis.
Yankee bonds
Foreign bonds denominated in US dollars issued in the United States by foreign banks and
corporations. These bonds are usually registered with the Securities Exchange Commission
(SEC). For example, bonds issued by originators with roots in Japan are called Samurai bonds.
Yield
The percentage rate of return paid on a stock in the form of dividends, or the effective rate of
interest paid on a bond or note.
Yield curve
The graphical depiction of the relationship between the yield on bonds of the same credit quality
but different maturities. The yield curve can fairly forecast the turning points of the business cycle.
Strategies that involve positioning a portfolio capitalize on expected changes in yield spreads
between sectors of the bond market.
Yield to call
The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
This yield is valid only if the security is called prior to maturity. Generally bonds are callable over
several years and normally are called at a slight premium. The calculation of yield to call is based
on the coupon rate, length of time to the call and the market price.
Yield to maturity
The percentage rate of return paid on a bond, note or other fixed income security if you buy and
hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to
maturity and market price. It assumes that coupon interest paid over the life of the bond will be
reinvested at the same rate.
7)Insurance Glossory
AcceptanceThe act of assuming risks by the insurer when the proposer has
compiled with all requirements.
Advance DepositThe amount paid with the proposal equal to the first premium is
called an advance deposit till the acceptance of risk by the insurer.
TOP
Age LimitsStipulated age frame below and above which the company may not
accept applications or may not renew policies.
Age ProofThe document which the proposer produces to prove his date of birth.
Annuitant The person to receive the annuity or the person during whose life an
annuity is payable.
AnnuityThe contract that provides an income for a specified period of time, such as
a number of years or for life.
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Automatic Premium LoanThe cash borrowed from a life insurance policy's cash
value to pay an overdue premium after the grace period for paying the premium has
expired.
Accelerated Death Benefits — Life insurance policies with a special feature that
allows payment of the death benefit when the insured person is still alive. Such
payment is usually limited to situations in which the policy holder is terminally ill.
BenefitsAmount payable by the insurance company to a claimant, beneficiary or
assignee under each coverage.
BonusThe yearly share of a policy holder's profit declared by L.I.C. based on its
profit which gets added to the policy amount and is payable upon its maturity.
Collision insurance- It pays for damage to the insured car if it collides with another
vehicle or object.
Comprehensive insurance- It pays for damage to the insured car resulting from
fire or theft and also from many other causes.
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Citizens' Charter- LIC has adopted a Citizens Charter through which it reiterates its
commitments to the customers and the standards for general procedures and policy
servicing.
Complaint Cell- For those customers who are not in a position to meet the
Grievance Redressal Officers in person, a Complaint Cell is functioning at the Central,
Zonal and Divisional Offices. They can send their written complaints to these Offices.
Such complaints are registered and monitored with the respective servicing units for
proper redressal.
Claims Review Committee-In a few cases of death claims, LIC is put to the
necessity of repudiating them to safeguard the interest of the genuine policyholders.
Claimants who are dissatisfied with the decision of repudiation of claim can approach
the Claims Review Committees set up at all the seven Zonal Offices and at the
Central Office.
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Certificate of InsuranceThe statement of coverage issued to an individual insured
under a group insurance contract, including the insurance benefits and principal
provisions applicable to the member.
ClaimA request for payment of a loss that may come under the terms of an
insurance contract.
Covered ExpensesThe type and amount of expense which will be considered in the
calculation of benefits.
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Death BenefitThe payment made to a designated beneficiary upon the death of the
employee annuitant.
Deferment PeriodThe period from the date of commencement of the policy to the
vesting date.
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Due DateThe date on which the installment premium is due to be paid by the
insured.
Exclusion — Any condition or any expense for which the policy will not pay.
Earned PremiumThe part of the total premium which applied to the portion of the
policy period which has already expired.
Effective DateThe particular date on which the insurance under a policy begins.
Eligibility PeriodSpecified time frame following the eligibility date during which an
individual member of a particular group will remain eligible to apply for insurance.
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EndorsementsAn additional piece of paper which includes certain terms and which,
when attached to the original contract, becomes a legal part of that contract.
Exclusive AgentThe agent who is employed by one and only one insurance
company and who does business exclusively for that company.
Endowment Assurance PlanA plan where the Sum Assured is payable on the date
of maturity or on death of the life assured, whichever is earlier.
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Face AmountThe amount stated on the face of the policy that will be paid in case of
death or at the maturity of the policy.
Final average formulaThe kind of pension plan formula that bases retirement
benefits on earnings during recent years of employment.
Fire InsuranceCoverage for losses caused by fire and lightning with resultant
damage caused by smoke and water.
First Party CoverageThe insurance coverage under which the policyholder collects
compensation for losses from the policyholder's own insurer rather than from the
insurer of the person who caused the accident.
Free Disability BenefitUnlike the Double Accident Benefit, The Free Disability
Benefit is, as the name suggests, a benefit automatically available to every policy
holder without any extra charge.
Guaranteed Renewable — As per policy provision, the insurance company can not
cancel a policy unless the individual fail to pay due premiums.
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Grace PeriodThe specified period after a premium payment is due, in which the
policyholder may make such payment and during which the protection of the policy
continues.
IndemnityLegal provisions that specifies an insured should not collect more than
the actual cash value of a loss but should be restored to approximately the same
financial position as existed before the loss.
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Impaired LifeA proposer whose life cannot be accepted for insurance on the normal
rates of premium due to health reasons.
Keyman Insurance This is taken by a business firm on the life of key employee(s)
to project the firm against the finance loss which may occur due to the premature
demise of the Keyman.
LicenseA type of surety guaranteeing that the person licensed will comply with all
laws and regulations that govern his or her activities.
Life Insurance- A contract for payment of a sum of money to the person assured
(or failing him/her, to the person entitled to receive the same) on the happening of
the event insured against. Usually the contract provides for the payment of an
amount on the date of maturity or at specified dates at periodic intervals or at
unfortunate death, if it occurs earlier.
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LoanThe facility to raise loan on the mortgage of the policy based on its surrender
value.
Motor vehicle insurance- A contract by which the insurer assumes the risk of any
loss the owner or operator of a motor vehicle may incur through damage to property
or persons as the result of an accident.
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MaturityThe policy amount becoming due for payment upon the completion of the
term of a policy.
Mode of PaymentThe frequency of which the premiums are being paid, i.e yearly,
half-yearly, quarterly or monthly.
Moral HazardThe danger faced by the insurer in some cases due to certain hidden
factors when there is no genuine need for insurance for a proposer or the object of
taking out the insurance would be speculative in a proportion of cases.
NegligenceThe kind of failure to use the care that a reasonable individual would
have used under the same or similar circumstances.
Net PremiumPortion of the premium rate which is designed to cover benefits of the
policy, but not expenses, contingencies, or profit.
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NominationThe act of naming a person to receive the policy monies from the
insurer in case of death of the life assured.
Occurrence policyThe liability insurance policy which covers claims arising out of
occurrences that take place during the policy period, regardless of when the claim is
filed.
Paid-up InsuranceThe insurance on which all required premiums have been paid.
Physical DamageDamage to the loss of the auto resulting from collision, fire, theft
or other perils.
PolicyThe evidence of contract between the insurer and the insured. A stamped,
sealed and signed document issued by the insurer to the insured in proof of insuring
his life.
Policy LoanThe loan made by a life insurance company from its general funds to a
policyholder on the security of the cash value of a policy.
Policy TermThat period for which an insurance policy provides coverage.
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Principal SumAn amount payable in one sum in the event of accidental death and
in, some cases, accidental dismemberment.
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Retrospective DateFirst date for which claims will be paid under a claims-made
policy of liability insurance.
RiskThe chance of loss. But also used to refer to the insured or to property covered
by a policy.
Risk ClassificationThe process to decide the premium rates for life insurance
according to the risk characteristics of individuals insured (e.g., age, occupation, sex,
state of health etc.) and then applies the resulting rules to individual applications.
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SubrogationDoctrine in insurance law by which the insurer holds the insured for
enforcement of all rights against strangers or third persons who may primarily be
liable for the loss incurred when the former indemnifies the latter in respect of the
latter's loss.
Surrender ValueThe cash value payable by the insurer in full settlement of the
account of a policy on any date before the maturity date.
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Travel Accident PolicyThe limited contract covering only accidents while an insured
person is traveling.
Uninsurable RiskThe offer/term not acceptable for insurance due to excessive risk.
Vesting Date The policy anniversary on which the age nearer birthday of the life
assured is 21 years.
Waiver The kind of agreement attached to a policy which exempts from coverage
certain disabilities or injuries that otherwise would be covered by the policy.
8)Options glossary
American-Style Option
An option contract that may be exercised at any time between the date of purchase
and the expiration date. Most exchange-traded options in the United States are
American-style.
Arbitrage
Assignment
The receipt of an exercise notice by an option writer (seller) that obligates him to sell
(in the case of a call) or purchase (in the case of a put) the underlying security at
the specified strike price.
At-The-Money
An option is at-the-money if the strike price of the option is equal to the market price
of the underlying security.
Back Months
The futures or options on futures months being traded that are furthest from
expiration. Bear One who believes prices will move lower.
Call
An Option contract that gives the holder the right to buy the underlying security at a
specified price for a certain, fixed period of time.
Bear Market
Bid
The price that the market participants are willing to pay
Bull
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Bull Market
Buy On Close
To buy at the end of a trading session at a price within the closing range.
Buy On Opening
To buy at the beginning of a trading session at a price within the opening range.
Capped-Style Option
A capped option is an option with an established profit cap. The cap price is equal to
the option's strike price plus a cap interval for a call option or the strike price minus
a cap interval for a put option. A capped option is automatically exercised when the
underlying security closes at or above (for a call) or at or below (for a put) the
Option's cap price.
Class Of Options
Option contracts of the same type (call or put) and Style (American, European or
Capped) that cover the same underlying security.
Close
The period at the end of the trading session. Sometimes used to refer to the Closing
Range (or Range)
The high and low prices, or bids and offers, recorded during the period designated as
the official close
Closing Purchase
Closing Sale
Contract
Unit of trading for a financial or commodity future. Also, actual bilateral agreement
between the parties (buyer and seller) of a futures or options on futures transaction
as defined by an exchange.
Contract Month
Top
A strategy in which one sells call options while simultaneously owning an equivalent
position in the underlying security or strategy in which one sells put options and
simultaneously is short an equivalent position in the underlying security.
Day Order
An order that is placed for execution during only one trading session. If the order
cannot be executed that day, it is automatically cancelled.
Day Trading
Establishing and liquidating the same position or positions within one day's trading.
The day is ended with no established position in the market.
Deferred
Another term for "back months." Delivery The tender and receipt of an actual
commodity or financial instrument, or cash in settlement of a futures contract.
Derivative Security
A financial security whose value is determined in part from the value and
characteristics of another security. The other security is referred to as the underlying
security.
Equity Options
European-Style Options
An option contract that may be exercised only during a specified period of time just
prior to its expiration.
Exercise
To implement the right under which the holder of an option is entitled to buy (in the
case of a call) or sell (in the case of a put) the underlying security.
The difference between the exercise price of the option and the exercise settlement
value of the index on the day an exercise notice is tendered, multiplied by the index
multiplier.
Expiration Cycle
Expiration Date
Date on which an option and the right to exercise it, cease to exist.
Expiration Time
The time of day by which all exercise notices must be received on the expiration
date.
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Floor Broker
An exchange member who is paid a fee for executing orders for Clearing Members or
their customers. A Floor Broker executing orders must be licensed by the exchange
he is working on.
Floor Trader
An exchange member who generally trades only for his/her own account or for an
account controlled by him/her. Also referred to as a "local."
Futures
A term used to designate all contracts covering the purchase and sale of financial
instruments or physical commodities for future delivery on a commodity futures
exchange.
A firm or person engaged in soliciting or accepting and handling orders for the
purchase or sale of futures contracts, subject to the rules of a futures exchange and,
who, in connection with solicitation or acceptance of orders, accepts any money or
securities to margin any resulting trades or contracts. The FCM must be licensed by
the CFTC.
Hedge
The party who purchased an option. Initial Performance Bond The funds required
when a futures position (or a short options on futures position) is opened.
Sometimes referred to as Initial Margin)
In-the-money
A call option is in-the-money if the strike price is less than the market price of the
underlying security. A put option is in-the-money if the strike price is greater than
the market price of the underlying security.
Intrinsic Value
LEAPS
Long-Term Equity Anticipation Securities are long-term stock or index options. LEAPS
are available in two types, calls and puts. They have expiration dates up to three
years in the future.
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Limit Order
An order given to a broker by a customer that specifies a price; the order can be
executed only if the market reaches or betters that price.
Liquidation
Any transaction that offsets or closes out a long or short futures or options position.
Long Position
An investors position where the number of contracts bought exceeds the number of
contracts sold. He is a net holder.
A sum, usually smaller than, but part of, the initial performance bond, which must be
maintained on deposit in the customer's account at all times. If a customer's equity
in any futures position drops to, or under, the maintenance performance bond level,
a "performance bond call" is issued for the amount of money required to restore the
customer's equity in the account to the initial margin level.
Mark-To-Market
Market Order
An order for immediate execution given to a broker to buy or sell at the best
obtainable price.
The maximum amount the contract price can change, up or down, during one trading
session, as stipulated by Exchange rules.
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Nearby
Offer
The price at which an investor is willing to sell a futures or options contract. Offset
buying if one has sold, or selling if one has bought, a futures or options on futures
contract.
Open Interest
Total number of futures or options on futures contracts that have not yet been offset
or fulfilled by delivery. An indicator of the depth or liquidity of a market (the ability
to buy or sell at or near a given price) and of the use of a market for risk- and/or
asset-management.
Open Order
Opening Purchase
Opening Sale
A transaction in which the seller's intention is to create or increase a short position in
a given series of options.
Open interest
Out-Of-The-Money
A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less
than the market price of the underlying security.
Out-Trades
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Premium (options)
An options price has two components. They are the intrinsic value and time value.
Premium is often referred to as time value. In the money call option - option strike
65. Underlying security is 67. Option price is 3. This is two points of intrinsic value
and 1 point of premium. An out of the money call where the strike price is 65 and
the underlying security is at 63 and the price of the option is 1-1/2. The premium
would be 1-1/2. As there is no intrinsic value.
Premium (futures)
The excess of one futures contract price over that of another, or over the cash
market price. Or, The amount agreed upon between the purchaser and seller for the
purchase or sale of a futures option. Remember that purchasers pay the premium
and sellers (writers) receive the premium.
Put
An option contract that gives the holder the right to sell the underlying security at a
specified price for a fixed period of time.
Rally Reaction
Registered Representative
A person employed by, and soliciting business for, a commission house or a broker
dealer. Many times referred to as a broker.
Round-Turn (futures)
Scalp
To trade for small gains. Scalping normally involves establishing and liquidating a
position quickly, usually within the same day, hour or even just a few minutes.
Secondary Market
A market that provides for the purchase or sale of previously sold or bought options
through closing transactions. Stock exchanges and the Over The Counter market are
examples of the secondary market.
Series
All option contracts of the same class that also have the same unit of trade,
expiration date and strike price.
A figure determined by the closing range that is used to calculate gains and losses in
futures market accounts. Settlement prices are used to determine gains, losses,
margin calls, and invoice prices for deliveries.
Short Hedge
The sale of a futures contract in anticipation of a later cash market sale. Used to
eliminate or lessen the possible decline in value of ownership of an approximately
equal amount of the cash financial instrument or physical commodity.
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Short Position
An investor’s position where the number of contracts sold exceeds the number of
contracts bought. The person is a net seller.
An order to buy or sell at the market when and if a specified price is reached.
Strike price
The stated price per share for which the underlying security may be purchased in the
case of a call, or sold in the case of a put, by the option holder upon exercise of the
option contract.
Time value
The portion of the option premium that is attributable to the amount of time
remaining until the expiration of the option contract. Time value is whatever value
the option has in addition to its intrinsic value. This is often referred to as premium.
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Type
A short call option position in which the writer does not own an equivalent position in
the underlying security represented by his option contracts.
A short put option position in which the writer does not have a corresponding short
position in the underlying security or has not deposited, in a cash account, cash or
cash equivalents equal to the exercise value of the put.
Underlying security
The security subject to being purchased or sold upon exercise of the option contract.
Volatility
Writer
9) Macroeconomic Glossary
Arbitrage: to buy a good in one market and then resell the good in another market
for a higher price.
Balance of trade - That part of a nation's balance of payments dealing with imports
and exports, that is trade in goods and services, over a given period. If exports of
goods exceed imports, the trade balance is said to be 'favorable'; if imports exceed
exports, the trade balance is said to be 'unfavorable.'
Barter – The trade in which merchandise is exchanged directly for other
merchandise. No money is used. Barter is important in countries using currency not
readily convertible to another form of currency.
Budget - a plan for the use of money based on goals and expected income and
expenditures.
Capital formation - The use of money and other resources to increase inventories,
to produce new plants, tools and equipment, which will improve productive capacity.
Competition - The effort of two or more parties acting independently to secure the
business of a third party by offering the most favorable terms.
Costs of production - All resources used in producing goods and services, for which
owners receive payments.
Credit - In monetary theory, the use of someone else's funds in exchange for a
promise to pay (usually with interest) at a later date. The major examples are short-
term loans from a bank, credit extended by suppliers, and commercial paper. In
balance-of-payments accounting, an item such as exports that earns a country
foreign currency.
Cost push inflation - Price increases stemming from production cost increases
rather than increased demand
Cartel: a group of firms acting together to coordinate output decisions and control
prices as if they were a monopoly firm
Ceteris paribus: a Latin phrase meaning "other things being equal." It is used to
remind the reader that all variables other than the ones being studied are assumed
to be constant.
Consumer price index (CPI): the price index most commonly used to measure the
impact of changes in prices on households. The index is based on a standard market
basket of goods and services purchased by a typical urban family.
Capital Markets - The market in which corporate equity and longer-term debt
securities (those maturing in more than one year) are issued and traded.
Current account balance - The difference between the nation's total exports of
goods, services, and transfers and its total imports of them. Current account balance
calculations exclude transactions in financial assets and liabilities.
Deficit - The amount each year by which government spending is greater than
government income.
Dirty Float - A type of floating exchange rate that is not completely freely floating
because central banks intervene from time to time to alter the rate from its free-
market level. It is still a floating rate because it has not been pegged at a
predetermined par value.
Division of labor - The process whereby workers perform only a single or a very
few steps of a major production task (as when working on an assembly line) & they
become specialized in that particular task.
Demand - the various quantities of product consumers are willing able to purchase
across a range of prices during a specified period of time. A table (demand schedule)
or a graph (demand curve) may represent demand.
Demand curve - a curve (set of points on a graph) which shows the various
amounts of a product consumers are willing and able to purchase across a range of
prices during a specified period of time.
Economics - the social science concerned with using scarce resources to obtain the
maximum satisfaction of the unlimited wants of society; the study of using limited
resources to meet unlimited wants.
Economic growth - An increase in the total output of a nation over a period of time
is called economic growth. Economic growth is usually measured as the annual rate
of increase in a nation's real GDP.
Exchange rates - The rate, or price, at which one country's currency is exchanged
for the currency of another country.
Exports - Goods or services produced in one nation but sold to buyers in another
nation.
Eurodollars - U.S. dollars placed on deposit in banks outside the United States
Economic shocks - Events that impact the economy, come from outside it, are
unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices
by OPEC).
Fiscal policy - The federal government's decisions about the amount of money it
spends and collects in taxes to achieve a full employment and non-inflationary
economy. It is of two types -
Flexible Exchange rate system - The flexible exchange rate system in which the
exchange rate is determined by the market forces of supply and demand without
intervention.
Free trade - Absence of tariffs and regulations designed to curtail or prevent trade
among nations, an atmosphere in which impediments to trade among nations are
removed.
Full employment - A term that is used in many senses. Historically, it was taken to
be that level of employment at which no (or minimal) involuntary unemployment
exists. Today economists rely upon the concept of the natural rate of unemployment
to indicate the highest sustainable level of employment over the long run.
Factors of production – are the resources that are used for producing goods &
services. Following are the factors of production in an economy:
Gresham's law: the tendency of the inferior of two forms of currency to circulate
more freely than the superior form of money because people hoard the superior
form.
Hyperinflation: inflation at a very high rate. Usually reserved for annual inflation
rates exceeding 200 percent.
Households - Individuals and family units which as consumers, buy goods and
services from firms and, as resource owners, sell or rent productive resources to
business firms.
Interest rates - The price paid for borrowing money for a period of time, usually
expressed as a percentage of the principal per year.
Income effect: The change in consumption or leisure that results from a change in
an individual's purchasing power after a change in relative prices or income. Also
called the wealth effect.
Law of demand - All else being constant, as price rises, quantity demanded falls; as
price falls, quantity demanded rises. In other words, there is an inverse relationship
between price and quantity demanded.
Law of diminishing marginal utility - as more of a good or service is consumed
within a given period of time, after some point, the additional satisfaction derived
from each additional unit will begin to decline.
Law of supply - The principle that price and quantity supplied are directly related.
Monetized deficit – is that part of fiscal deficit that is financed by the RBI. In other
words, the increase in net RBI credit to the Government is called Monetized deficit.
Marginal benefit: the rupee value placed on the satisfaction obtained from another
unit of an item
Marginal cost: the sacrifice made to obtain an additional unit of an item; the cost of
producing an additional unit of an item.
Marginal product (of an input): the increase in output that results from using one
more unit of an input when the quantity of all other inputs is unchanged.
Marginal propensity to save: the additional saving that results from an increase in
disposable income. The MPS is equal to the change in saving divided by the change
in disposable income. Often times, it is advantageous to think of an income change
as either permanent or transitory. In this framework, the MPS from transitory
income changes is much larger than the MPS from permanent income changes.
Marginal revenue: the extra revenue obtained from selling an additional unit of a
good
Multiplier: The two types of multipliers that most frequently appear in economics
are the money multiplier and the expenditure multiplier.
Market - A setting where buyers and sellers establish prices for identical or very
similar products, and exchange goods and/or services.
Monetary policy - The objectives of the central bank in exercising its control over
money, interest rates, and credit conditions. The instruments of monetary policy are
primarily open-market operations, reserve requirements, and the discount rate.
Money supply – is the amount of money available in the economy at any given
point of time. It includes currency notes & coins with the public, time & deposits of
the bank & money in the post office savings account.
Money market - A term denoting the set of institutions that handle the purchase or
sale of short-term credit instruments like Treasury bills and commercial paper.
Opportunity cost - The benefit from next best alternative that must be given up
when a choice is made.
Price - the quantity of money (or other goods and services) paid by the consumer
and received by the producer for a unit of a good or service.
Public goods - A commodity whose benefits are indivisibly spread among the entire
community, whether or not particular individuals desire to consume the public good.
For example, a public-health measure that eradicates smallpox protects all, not just
those paying for the vaccinations. The government often provides these goods.
Surplus - The situation resulting when the quantity supplied exceeds the quantity
demanded of a good or service, usually because the price is for some reason below
the equilibrium price in the market.
Say's law: the idea that total spending will always be sufficient to purchase the total
output produced. That is, supply creates its own demand.
Unemployment - The situation, in which people are willing and able to work at
current wage rates, but do not have jobs.