Account closure (depositor account)
The closure of beneficiary and pool accounts by the investor and the clearing member or at the discretion of the participant, if the client has defaulted in its obligations towards the participant. Accounts Payable
A current liability showing the amounts due to others within a period of one year when such liability resulted from the purchase or manufacturing of inventory.
Any money due to a business for merchandise or securities that it has sold or for services it has rendered. This is a key determinant in analyzing a company’s liquidity.
A description applicable to a range of instruments, e.g. caps, swaps, collars and swaptions, where the notional amount on which the instrument is based increases successively during its life.
The interest accruing on a security since the previous coupon date. If a security is sold between two payment dates, the buyer usually compensates the seller for the interest accrued, either within the price or as a separate payment.
Acid Test Ratio
The value of cash equivalents and accounts receivable (the quick assets) divided by current liabilities. Also known as quick asset ratio or liquidity ratio, it is a measurement of corporate liquidity.
Any individual/company/any other legal entity, which intends to acquire or acquires substantial quantity of shares or voting rights of target company or acquires or agrees to acquire control over the target company along with the persons acting in concert.
Active portfolio Strategy
A strategy that uses available information and forecasting techniques to seek a better performance than a portfolio that is simply diversified broadly.
Margin collected by the Stock Exchange from the members having unduly large outstanding position or the margin levied on volatile scrips based on adhoc basis keeping in view the risk perspective.
Term for an exchange rate regime where a country’s exchange rate is pegged (i.e. fixed) in relation to another currency (normally the dollar), but where the rate may be changed from time to time.
The estimation of a security’s future beta, which is derived from historical date, but is modified assuming that the security’s real beta has tendency to move towards the market average of one.
Admission to Dealing
The process of granting permission to the securities of a company to be listed in a Stock Exchange and to provide trading facilities for the securities in the market.
A technical analysis tool representing the total of differences between advances and declines of security prices. The advance/decline line is considered the best indicator of market movement as a whole. Stock indices such as Dow-Jones Industrial Average only tell us the strength of 30 stocks where as the Advance/Decline line provides much more insight.
A financial planner or financial intermediary who offers advice on personal financial matters. Advisers may be paid an upfront or an ongoing commission for the investments that they recommend.
Orders that a broker dealer executes for the account of a customer with another professional or retail investor.
A letter sent to the successful applicant by the company stating allotment of shares or debentures or other securities against his application. The advice is not negotiable in the market.
Document of title issued to investors by companies stating allotment of shares/debentures /other securities to applicants subscribing for such securities or in pursuance of certain contracts entered into in that behalf. These letters are negotiable in the market.
In a Jensen Index, a factor to represent the portfolio’s performance that diverges from its beta, representing a measure of the manager’s performance.
Association of Merchant Bankers in India
American Depository Receipts (ADR) (U.S.)
A certificate issued in the United States in lieu of a foreign security. The original securities are lodged in Bank/Custodian abroad, and the American Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock. An ADR dividend is paid in US dollars, so it provides a way for American investors to buy foreign securities without having to go abroad, and without having to switch in and out of foreign currencies.
A put or call that can be exercised at any time prior to expiration. Most listed stock options, including those on European exchanges are US style options. Important exceptions are certain low strike price options and options on shares with restricted transferability. Most listed options on other instruments are also US-style options, but a number of European style options have been introduced in recent years, particularly on stock indices and currencies.
Association of Mutual Funds in India
A firm / company / an individual who is engaged either on his own behalf or on behalf of any other firm or organization that is regularly publishing securities recommendations based on research either through print media and /or electronic media. Appreciation A rise in the price of a security or in the value of one currency in terms of another.
A person duly registered by the SEBI Board under the Securities Lending Scheme , 1997 through whom the lender of securities will deposit the securities and the borrower will borrow the securities.
(1) Technically, arbitrage consists of purchasing a commodity or security in one market for immediate sale in another market (deterministic arbitrage).
(2) Popular usage has expanded the meaning of the term to include any activity which attempts to buy a relatively underpriced item and sell a similar, relatively overpriced item, expecting to profit when the prices resume a more appropriate theoretical or historical relationship (statistical arbitrage).
(3) In trading options, convertible securities, and futures, arbitrage techniques can be applied whenever a strategy involves buying and selling packages of related instruments.
(4) Risk arbitrage applies the principles of risk offset to mergers and other major corporate developments. The risk offsetting position(s) do not insulate the investor from certain event risks (such as termination of a merger agreement on the risk of completion of a transaction within a certain time) so that the arbitrage is incomplete.
(5) Tax arbitrage transactions are undertaken to share the benefit of differential tax rates or circumstances of two or more parties to a transaction.
(6) Regulatory arbitrage transactions are designed to provide indirect access to a risk management market where one party is denied direct access by law or regulation.
(7) Swap driven arbitrage transactions are motivated by the comparative advantages which swap counter-parties enjoy in different debt and currency markets. One counterparty may borrow at a relatively lower rate in the intermediate or long term United States dollar market, while the other may have a comparative advantage in floating rate sterling.
An alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.
An option whose pay-off depends on the average value of an underlier over a specified period.
The process of determining the optimal division of an investor’s portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash
Asset allocation fund
A mutual fund that splits its investment assets among stocks, bonds, and other vehicles in an attempt to provide a consistent return for the investor.
Securities backed by assets that are not mortgage loans. Examples include assets backed by automobile loans, credit card receivables and others.
Asset based securitization
A process that creates a series of securities which is collaterised by assets mortgaged against loans, assets leased out, trade receivables, or assets sold on hire purchase basis or installment contracts on personal property.
The function of managing assets on behalf of a customer, usually for a fee.
Asset Management Company
The company which handles the day to day operations and investment decisions of a unit trust.
A person who buys a company in order to make profit by peeling off its assets bit by bit, and then selling them. These assets may be separate subsidiaries or plant and equipment or property. This process invariably involves the stripping of another sort of asset (the employees) of a number of jobs. This has been largely responsible for giving asset strippers a bad name. The asset stripper relies on there being a difference in the price of the business as a whole (as valued by a stock market, for example) and the sum of the amounts that can be raised from its parts sold separately. Such a possibility arises most commonly when a company is making losses or a much smaller profit than seems to be justified by its size.
A situation where access to information by one party (or parties) to a transaction is better than access by another party (or parties). Asymmetric information can be used as a source of power in determining the outcome of the transaction.
An instruction from the client to the broker authorizing him to use his discretion so as to execute an order at the best possible market price.
Term used to describe an option or a warrant with an exercise price equal to the current market price of the underlying asset
When a seller is not in a position to deliver the securities he has sold, the buyer sends in his applications for buying-in, so that the securities can be bought from the market and delivered to him. This process by which the securities are procured on behalf of the defaulter is known as Auction.
A person who is professionally qualified to examine and scrutinize accounts. He/she inspects records and reports on the profitability and financial position of the company.
Aunt Jane/Aunt Agatha
A passive long term investor.
Assistants or clerks of members who are authorized by them to do business on their behalf in the market. The member has to take responsibility of fulfilling all the transactions and business commitments of the authorized assistants entered into on behalf of the members.
The amount of capital that a company has been authorized to raise by way of equity and preference shares, as mentioned in the Articles of Association / Memorandum of Association of the company.
A fund service giving unit holders/ shareholders the option to purchase additional units/ shares using dividend and capital gain distributions.
Average Annual Growth Rate – AAGR
The average increase in the value of a portfolio over the period of a year .
The process of gradually buying more and more securities in a declining market (or selling in a rising market) in order to level out the purchase (or sale) price.
Baby Bond (U.S)
A bond with a face value of less than $1000 usually in $100 denominations.
The part of a firm that is responsible for post-trade activities. Depending upon the organisational structure of the firm, the back office can be a single department or multiple units (such as documentation, risk management, accounting or settlements). Some firms have combined a portion of these responsibilities, usually found in the back office, particularly those related to risk management, into what they term as a middle office function.
Backwardation/Ulta Badla/Undha Badla
The payment of money charges made by a seller of shares which he borrows to deliver against his sale. These charges become payable only when there are more sellers who are not in a position to deliver against their sale. These charges become payable to the buyer, when the seller is not in a position to deliver the documents to the buyers who demand delivery.
Carrying forward of transactions from one settlement period to another without effective delivery. This is permitted only in specified securities and is done at the making up price which is usually the closing price of the last day of settlement.
Badla Charge/ Contango
Consideration or interest paid to the seller by the buyer for carrying over a transaction from one settlement period to another.
A financier who lends money to both buyers and sellers of shares when they are not able to pay or deliver.
Bail out of issue
When the public issue do not get good response from the public or fails to garner minimum subscription ,the issuer or promoters approaches the financiers or some persons to arrange subscription to bail out the issue for consideration of buy-back shares subsequent from the financiers at higher price or compensating the financier by payment of interest on the amount of the subscription money paid in the public issue.
An accounting statement of a company’s assets and liabilities, provided for the benefit of shareholders and regulators. It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed.
Funds which aim to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.
The phenomenon whereby a financial institution combines the selling of banking products and insurance products through the same distribution channel. Popular in the early 1990s bancassurance rested on the premise that it is easy to cross-sell banking and insurance services because customers feel confident buying insurance from the same institution where they keep their savings.
Band Ke Bhao
Unauthorized trading in securities done outside official hours.
A short-term credit investment created by a non-financial firm and guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market
Bank investment contract
A security with an interest rate guaranteed by a bank. It provides a specific yield on a portfolio over a specified period.
Banker to an issue
A scheduled bank carrying on all or any of the issue related activities namely acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of dividend or interest warrants.
In a futures market, basis is defined as the cash price (or spot price) of whatever is being traded minus its futures price for the contract in question. It is important because changes in the relationship between cash and futures prices affect the values of using futures as a hedge. A hedge, however, will always reduce risk as long as the volatility of the basis is less than the volatility of the price of whatever is being hedged.
One hundredth of a percentage point. Basis points are used in currency and bond markets where the size of trades mean that large amounts of money can change hands on small price movements . Thus if the yield on a Treasury bill rose from 5.25% to 5.33% the change would have been eight basis points.
The risk that the relationship between the prices of a security and the instrument used to hedge it will change, thereby reducing the effectiveness of the hedge. In other words ,risk of varying fluctuations of the spot and the futures price between the moment at which a position is opened and the moment at which it is closed.
Basis of Allotment
An allotment pattern of an issue among different categories of applicant
A pessimist market operator who expects the market price of shares to decline. The term also refers 8 to the one who has sold shares which he does not possess, in the hope of buying them back at a lower price, when the market price of the shares come down in the near future.
A variety of takeover strategy that seeks to hurry target company managements to recommend acceptance of a tender offer in a short period of time.
A weak or falling market characterized by the dominance of sellers.
A false signal indicating that the rising trend of a stock or index has reversed when in fact it has not. This can occur during a bear market reversal when short sellers believe the markets will sink back to its declining ways. If the market continues to rise, the shorters get trapped and are forced to cover their position at higher prices.
Bearer Securities/Bearer Bonds
Securities which do not require registration of the name of the owner in the books of the company. Both the interest and the principal whenever they become due are paid to anyone who has possession of the securities. No endorsement is required for changing the ownership of such securities.
Combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications (i.e. irrational behavior).
A security that is seen as a significant indicator of the direction in which a market’s price is moving.
Security used as the basis for interest rate calculations and for pricing other securities. Also denotes the most heavily traded and liquid security of a particular class
Indicators used to provide a point of reference for evaluating a fund’s performance
The true owner of a security. Registered holder of the shares may act as a nominee to the true shareholders/owners.
Benefit cost ratio
A ratio attempting to clearly identify the relationship between the cost and benefits of a proposed project. This ratio is used to measure both quantitative and qualitative projects, as sometimes benefits and costs cannot be measured exclusively on financial terms.
A measure of the volatility of a stock relative to the market index in which the stock is included. A low beta indicates relatively low risk; a high beta indicates a high risk. Bid An offer of a price to buy as in an auction. Business on the Stock Exchange is done through bids. Bid also refers to the price one is willing to pay for a security.
The difference between the stated and /or displayed price at which a market maker is willing to sell a security and the price at which he is willing to buy it.
Bid – Ask spread
The difference between the bid price and the ask price.
An arrangement between two parties in which they exchange only the net difference in their obligations to each other. The primary purpose of netting is to reduce exposure to credit/settlement risk.
A mathematical model that provides a valuation technique for options. The model was adapted to provide a framework for valuing options in futures contracts.
Where the name of the transferee is left blank on share transfer form, it constitutes a blank transfer. A person depositing shares with a stock broker for immediate or eventual sale, has to sign a blank transfer form. It is also done when shares are mortgaged, so that in the event of non payment the mortgager can fill in his own name in the transferee column and sell the share.
Buying and selling a block of securities usually takes place when restructuring or liquidating a large portfolio.
A security offering that sells out almost immediately.
The best rated shares with the highest status as investment based on return, yield, safety, marketability and liquidity.
Blue Sky Laws (U.S)
Laws passed by the states in the U.S. to protect investors. The term traces its origin to a remark made by a Kansas legislator that unless a state passed effective legislation promoters would try to sell shares in the blue sky to unsuspecting investors.
Boiler Room (U.S)
It is a practice of using high pressure sales tactics.This practice is sometimes used by stock brokers who try to sell investors the firm’s house stock. A broker using boiler room tactics only gives customers promising information about the company and discourages them from doing any outside research.
A negotiable certificate evidencing indebtedness – a debt security or IOU, issued by a company, municipality or government agency. 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 life of the loan.
Public unit trust which invests in government fixed interest or corporate fixed interest securities and investments.
Shares issued by companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.
Book building process
A process undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document
The periodic closure of the Register of Members and Transfer Books of the company, to take a record of the shareholders to determine their entitlement to dividends or to bonus or right shares or any other rights pertaining to shares.
A Lead Merchant Banker who has been appointed by the issuer company for maintaining the book. The name of the Book Running Lead Manager will be mentioned in the offer document of the Issuer Company.
The net amount shown in the books or in the accounts for any asset, liability or owners’ equity item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less accumulated depreciation. Also called carrying value. The book value of a firm is its total net assets, i.e. the excess of total assets over total liabilities
A condition of the market denoting increased activity with rising prices and higher volume of business resulting from greater demand of securities. It is a state where enlarged business, both investment and speculative, has been taking place for a sufficiently reasonable period of time.
Breadth of the Market
The number of securities listed on the market in which there is regular trading.
A rapid and sharp decline in a security or index.
Break Even Point
The stock price (or price) at which a particular strategy of transaction neither makes nor loses money. In options, the result is at the expiration date in the strategy. A dynamic break-even point changes as time passes.
Broad based Fund (sub account)
A fund which has at least 20 shareholders and no single investor holds more than 10% of shares and units of the Fund. In case, if any investor holds more than 10% of shares or units of the fund, then it should be broad based.
A member of a Stock Exchange who acts as an agent for clients and buys and sells shares on their behalf in the market. Though strictly a stock broker is an agent, yet for the performance of his part of the contract both in the market and with the client, he is deemed as a principal, a peculiar position of dual responsibility
Commission payable to the stockbroker for arranging sale or purchase of securities. Scale of brokerage is officially fixed by the Stock Exchange. Brokerage scales fixed in India are the maximum chargeable commission. Broker dealer Any person, other than a bank engaged in the business of buying or selling securities on its own behalf or for others.
A speculative sharp rise in share prices which like the bubble is expected to suddenly burst.
Bucket Shop (U.S)
A fraudulent brokerage firm that uses aggressive telephone sales tactics to sell securities that the brokerage owns and wants to get rid of. The securities that they sell are typically poor investment opportunities, almost always penny stocks.
A brokerage that makes trades on a client’s behalf and promises a certain price. The brokerage, however, waits until a different price arises and then makes the trade, keeping the difference as profit.
A stock brokerage operation in which the broker accepts the client’s money without ever buying the stock ordered. Instead the money is used for another purpose, the broker gambling that the customer is wrong and that the market price will decline and the stock can be bought at a lower price.
A situation where, in an attempt to make a short-term profit, a broker confirms an order to a client without actually executing it. If the eventual price that the order is executed at is higher than the price available when the order was submitted, the customer simply pays the higher price. On the other hand, if the execution price is lower than the price available when the order was submitted, the customer pays the higher price and the brokerage firm pockets the difference. It also means directly or indirectly taking the opposite side of client’s order into the brokers own account or into an account in which the broker has interest, without open and competitive execution of the order on an exchange.
A market player who believes prices will rise and would, therefore, purchase a financial instrument with a view to selling it at a higher price. Opposite of a bear.
A rising market with abundance of buyers and relatively few sellers.
A bond denominated in sterling but issued by a non British borrower.
A rising trend in prices.
A day on which the Stock Exchange is open for business and trading in securities.
An option strategy involving the simultaneous sale of an at the money straddle and purchase of an out of the money strangle. Potential gains will be seen if the underlying remains stable while the risk is limited should the underlying move dramatically. It’s also the simultaneous buying and selling of call options at different exercise prices or at different expiry dates.
The repurchase by a company of its own stock or bonds
Buyer’s Comparison Memo/Objection Statement
Since normally comparison memos are only issued to the seller, the buyer figuring in the memo may not have any idea about the rejection by the computer of that transaction till the seller contacts him. Therefore, he is issued a Buyers Comparison Memo.
Buying – In
When a seller fails to deliver shares to a buyer on the stipulated date, the buyer can enforce delivery by buying – in against the seller in an auction.
Buy on margin
To buy shares with money borrowed from the stockbroker, who maintains a margin account for the customer.
One of the two major organizations in the Eurobond market which clears or handles the physical exchange of, securities and stores securities. Based in Luxembourg, the company is owned by several shareholding banks and operates through a network of agents.
The simultaneous sale and purchase of either calls or puts with the same strike price but different expiration months.
The unpaid installment of the share capital of a company, which a shareholder is called upon to pay.
An agreement that gives an investor the right, but not the obligation, to buy an instrument at a known price by a specified date. For this privilege, the investor pays a premium, usually a fraction of the price of the underlying security.
Capital Asset Pricing Model (CAPM)
An economic theory that describes the relationship between risk and expected return and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because it cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium.
Capital Gain Distribution
Profits distributed to unit holders / shareholders resulting from the sale of securities held in the fund’s portfolio for more than one year.
Carry Over Margin
The margin fixed by the Stock Exchange and payable by the members for carrying over the transactions from one settlement period to another.
List of non-specified securities, traded usually for hand delivery and also for special delivery and spot delivery.
A market for sale of security against immediate delivery, as opposed to the futures market.
The settlement provision on some options and futures contracts that do not require delivery of the underlying security. For options, the difference between the settlement price on the underlying asset
and the option’s exercise price is paid to the option holder at exercise. For futures contracts, the exchange establishes a settlement price on the final day of trading and all remaining open positions are marked to market at that price.
Cats and Dogs (U.S)
Stocks in companies that are small, new, poorly financed or in trouble.
CDSC (Contingent deferred sales charge)
A type of back end load sales charge, a contingent deferred sales charge is a fee charged when shares are redeemed within a specific period following their purchase. These charges are usually assessed on a sliding scale, with the fee reduced each year during which the shares are held.
Central Listing Authority
The authority set up to address the issue of multiple listing of the same security and to bring about uniformity in the due diligence exercise in scrutinising all listing applications on any stock exchanges. The functions include processing the application made by any body corporate, Mutual Fund or collective investment scheme for the letter of recommendation to get listed at the stock exchange, making recommendations as to listing conditions and any other functions as may be specified by SEBI Board from time to time.
Certificate of Deposit
A negotiable certificate issued by a bank, usually for a period of one month to a year, as evidence of an interest bearing time deposit. This may also be offered at a discount.
Adjustment of position between two brokers either to avoid margin or to cross the trading or exposure limit.
Using charts of financial asset price movements (often with the aid of additional descriptive statistics) to try to infer the likely course of future prices and thus construct forecasts and trading strategies.
Cheapest to Deliver Issue
The acceptable Treasury security with the highest implied repo rate. It is the rate that a seller of a futures contract can earn by buying an issue and then delivering it at the settlement date.
Artificial barriers to the flow of information set up in large firms to prevent the movement of sensitive information between departments.
An unethical practice employed by some brokers to increase their commissions by excessively trading in a client’s account. In the context of the stock market, churning refers to a period of heavy trading with few sustained price trends and little movement in stock market indices.
A system to curb excessive speculation in the stock market, applied by the Stock Exchange authorities, when the index spurts or plunges by more than a specified per cent. Trading is then suspended for some time to let the market cool down.
A fraudulent trading scheme where sell or buy orders are entered by a person who knows that the same number of shares at the same time and for the same price either have been or will be entered. These trades do not represent a real change in the beneficial ownership of the security. These trades are entered with the intention of raising or depressing the prices of securities.
Where there is no official intervention – the price is permitted to vary in line with the market forces
Settlement or clearance of accounts, for a fixed period in a Stock Exchange.
A department of an exchange or a separate legal entity that provides a range of services related to the clearance and settlement of trades and the management of risks associated with the resulting contracts. A clearing house is often central counter party to all trades, that is, the buyer to every seller and the seller to every buyer.