CAPITAL MARKET AND MERCHNAT BANKING TERMS
CAPITAL MARKET AND MERCHNAT BANKING TERMS
Average: is a strategy of gradually buying more and more securities in a declining market or selling in a rising market in order to level out/rationalise the purchase or sale price.
Allotment letter: document issued evidencing allotment or distribution of shares in response to application therefore, or in pursuance of contacts entered into in that connection.
Amortization: An accounting procedure that gradually reduces the cost value of a limited life or intangible asset through periodical charges to income e.g. depreciation on a fixed assets.
Arbitrage: denotes simultaneous purchase or sale of the same or equivalent securities in order to profit from price variation. The operators at the stock exchange make a profit from price variation or out of the difference in prices of the same security at different stock exchanges.
Bear: is a very popular term indicating the behaviour of some one who anticipates that prices will fall in the capital market. He sells securities which he does not own in the belief that he could buy them at lower rates when he was to deliver the shares. BEAR MARKET is a weak or falling market characterised by absence of buyers.
Blue chip: is an American expression used to describe equity shares of higher/highest investment calibre.
BOLT: is a system that provides a quote driven automated trading facility to members of exchange working on direct connection to broker office and through telephone leased lines. It stands for Bombay (stock exchange) on line trading and currently supports those members who have offices in the vicinity of BSE.
Bonus shares: is a free allotment of shares made in proportion to existing shares out of accumulated reserves of a company.
Blank transfer: means the transfer of a security without specifying the transferee.
Bad delivery: is a delivery of share in pursuance of a transaction considered bad, when there is some defect in share certificate to transfer deed.
Bid and offer: bid is a price of share a prospective buyer is prepared to pay for a particular scrip. Offer is the price at which a share is offered for sale.
Brokerage: is the commission charged by the broker for purchase/sale transaction through him. the maximum brokerage chargeable, is stipulated by SEBI.
Bearer securities: are those that do not require registration of the owner`s name in the company`s books and are freely transferable.
Boom: denotes increasing activity in a market arising out of greater demand
Bull: a term given to speculator on stock exchange who buys securities in expectation of a rise in their prices. A market is bullish when buyer predominates over seller.
Circuit brakers: is a mechanism by which exchanges temporarily suspend the trading in a security when its prices are volatile and tend to breach the price band.
Clearing: refers to the process by which all transactions between the members are settled through multilateral netting.
Clearing days: are the days fixed in advance by the stock exchange. The intervening period is called settlement period.
Clearing house: is an agency to act as a central agency for delivery and settlement of contracts between all members and pay or receive the amount.
Current yield: is the annual interest on bond divided by the market price.
Call: the instalment of the capital of a company which a shareholder is called upon to pay.
Cover: is buying of security previously sold short.
Capital Gain: is the difference between an asset`s purchase price and selling price when the difference is positive.
Cross listing: refers to listing of instruments of a company on the stock exchange abroad. The number of such firms in India is still very small although cross listing is growing. Stringent regulatory and accounting process and high listing feed act as impediments for cross listing. US and japan are the two largest capital markets and cost of listing on NYSE or in japan runs into hundreds of thousands dollars. The objective of cross listing are to increase visibility and create a demand for the company products as well as securities, diversify investors` base and attain decreased cots of capital and enhance employee relationship in the form of stock ownership.
Coupons: are tokens for payments of interest attached to bearer securities.
Coupons rate: is interest rate on a debt security which the issuer promises to pay to holder periodical till maturity.
Cum-Bonus: is the situation when a potential purchaser is entitled to receive the current bonus.
Cum-rights: the share is cum-rights when a potential purchaser is entitled to receive the current rights.
Cantago: is the consideration paid to seller for carrying over a transaction from one settlement to the next.
Cash settlement: is payment for transaction on the due date as distinct from carry forward (badla) from one settlement period to the next.
Circular trading : circular trading is where the members of an exchange form a cartel and trade among themselves creating huge false volumes and rigging the price of shares, thus misleading the common investors.
Day order: 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.
Day trading: is buying and selling the same share during the day.
Dematerialzation: is the process by which shares in the physical/paper form are cancelled and credit in the form of electronic balances are maintained on highly secure systems at the depository.
Defensive share: is the share that cannot be bought or sold for some time period.
Dividend stripping: is the booking of a notional loss, by which one buys a MF unit before the dividend record date, the date on which the person eligible for dividends are announced and sells them at a lower price thereafter, taking home, a tax free dividend while still registering a notional loss on sale of MF units. A person shopping around for a short-term loss buys a mutual fund unit when it is pregnant i.e. just before the dividend is to be announced. Once it is announced, the market price of the unit dives. The unit holder sells this unit and as a result he earns not only a tax free dividend but also booked a short term loss. The loss so booked = L 2 + public deposits of NBFCs, is then used on set off other short term capital gains, resulting in bringing down the taxable income of investors in the high tax bracket.
Ex – bonus: the share is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, the right to which remains with the seller.
Ex-rights: when a potential purchaser is not entitled to receive the current rights, the right of which remains with the seller.
Futures market: is a market in which contracts for future delivery of commodity or security, are bought or sold.
Forward trading: refers to trading where contracts traded today are settled at some future date at prices decided today.
Face value: is the value as it appears on the facts of the instruments as normal or par value.
Floor: is the trading hall of a stock exchange.
Gilt edged: are the securities issued by govt.
Good – bad delivery: A share certificate together with its transfer from which meets all the requirements of title transfer from seller to buyer is called good delivery in the market. Delivery of a share certificate, together with a deed of transfer, which does not meet the requirements of title transfer from seller to buyer, is called a bad delivery in the market.
Guaranteed stock: is a stock guaranteed by a party other than issuer, as to dividend, interest or principal.
Hot money: are the investible funds
Are the investible funds seeking short term gains from investment in stock, bullion and currencies, commodities or real estate.
Index: is the statistical composition that measures change in the economy of financial market often expressed in percentage change from the base year.
Intrinsic: is the method of valuation of a stock, using data input such as sale, profit, debt, assets etc. to determine a price, value of a stock.
Insider trading refers to the act of buying or selling of securities by a person with access to privileged information ( to which none else in the market has access to), usually don with the motive of making profits or avoiding losses. The information should be of such a nature that would affect the pricing of the security in the market, either way. An insider is a person who is or was connected and who is reasonably expected to have access, by virtue of such connection, to unpublished price-sensitive information in respect of the securities of the company or who received or has had access to such unpublished price-sensitive information ( say an employee, director, merchant banker, share transfer agent, register, debenture trustee or broker).
Initial public offering (IPO): is the first offer of stock to the public by a corporate.
Jobber: is member broker of a stock exchange who specialise in buying or selling of specific securities form and to fellow members. He does not have any direct contract with the public but serves as functioning for imparting liquidity to the market.
Jumbo certificate: is a transaction done between members after the official closing of the trading hours.
Listing: means the admission of securities for trading purposes on a stock exchange which is intended to provide marketability and impart liquidity to the securities. Market value of securities listed on SE is marked in the official list of quotations.
Listed company: is a joint stock company which satisfies certain listing conditions a d signs a listing agreement with a stock exchange for trading in its securities.
Letter of right: is the document which is sent to a shareholder, offering him the right to subscribe at a stated minimum price.
Long position: Is a bull position in a security.
Market lot: is the minimum number of shares of a particular security that must be transacted on the exchange. Multiples of market lot may also be transacted.
Margin: in an advance payment of a portion of the value of stock.
Marking to market: is the process of recalculating the exposure in a trading position in securities contracts. In exchange traded contracts, the clearing house marks the positions of members to market each day, using the closing market prices.
Moorat: is the auspicious trading on a special day, say Diwali, during specified hours..
No delivery: whenever a book closure or record date is announced by a company, the exchange sets a no delivery period for that security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor`s entitlement for corporate benefits is clearly determined.
Odd 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.
Overbought: is the term used to describe a security or a market that has just experienced an unexpectedly sharp price rise and is therefore, vulnerable to prosperity. Over-sold is a term used to describe a stock or market that has experienced an unexpected share price decline and is, therefore, due for imminent rise.
Pay-in: 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: is the designated day on which the securities or funds are paid in by the members by the clearing house of the exchange.
Price band: the daily/weekly price limits within which the price of a security is allowed to rise or fall.
Price rigging: when persons acting in concept with each other collude to artificially increase or decrease the prices of a security, that process is called price rigging.
Private placement: with the introduction of major reforms since 1991, capital market has become an important source of meeting the growing needs of corporate. In addition to traditional methods of raising resources through public issues and rights issues, private placement has also gained ground, wherein resources are raised through arrangers ( merchant banking intermediaries) who place securities with a small number of financial institutions, corporate, high net worth individuals. The process is cost and time effective method of raising funds. It can be structured to meet the needs of the entrepreneurs. It does not require detailed compliance of formalities as required n oublic or rights issues.
Primary market: It is the segment in which new issues are traded which are made in three ways i.e. public issue, rights issue and private placement. While public issue involves sale of securities to members of the public, the rights issue involves sale of securities to existing shareholders or debenture holders.
Par value: means the face value of a security.
Premium: is the amount above the par value of a stock.
Proxy: is a person who acts for another in a company`s general meeting. A proxy has no right to speak at a meeting.
Record date: is the date on which the beneficial ownership of any investor is entered into the register of members. Such a member is entitled to get all the corporate benefits
Rally: is a brisk risk following a fall.
Rigged market: is a situation in which the price of a security is manipulated to unsuspecting buyer or seller.
Right issue: is the issue 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.
Screen based trading: when buying or selling of the securities is done using computers and matching of traders is done by a stock exchange computer.
Secondary market: this also known as stock market is a segment where existing issues are traded. The secondary market enables the investors to exchange holding with other investor for liquidity and this is done through stock exchanges including NSE and OTCEI.
Settlement: refers to the scrip-wise netting of trades by a broker after the trading period is over.
Settlement guarantee: is the guarantee provided by the clearing corporation for settlement of all trades even if a party defaults to deliver securities or pay cash.
Splitting consolidation: the process of splitting shares that have a high face value into shares of a lower face value, is known as splitting . the reverse of process of combining shares that have a low face value into one share of higher value is known as consolidation.
Spot trading: trading by delivery of shares and payment for the same on the date of purchase or on the next day.
Short covering: is buying of stock by a seller to complete his previous commitments.
Split: is the sub-division of a share of large denomination into shares of smaller denominators.
Speculation: is the deployment of funds by a person who assumes a relatively large risk in the hope of gain.
Swap: is an agreement between two parties to exchange cash flow in future according to predetermined formula.
Trade guarantee: is the guarantee provided by the clearing corporation for all trades that are executed on the exchange. In contrast, in the settlement guarantee, the settlement of trade after multilateral netting.
Transfer deed: is a form that is used for effecting transfer of shares or debentures and is valid for a specified period. It should be sent to the company along with the share certificate for registering the transfer. The deed must be duly stamped and signed by or on behalf of the transfer and transferee and complete in all respects.
Z –group: shares of those companies which are not complying with the stock exchange listing agreement.