Dr P.Sravan Kumar MBA,PhD

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 - An auditor is an individual who conducts an examination and verification of a company's financial and accounting records and supporting documents.

Annual General Meeting (AGM) - 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.

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 - Bankers to the issue are entities that are registered by SEBI and act as issue and collecting centres for IPO forms and cheques.

Brokers - Companies making public issues appoint brokers to procure subscription. The managers to the issue distribute prospectuses and application forms to the brokers. These brokers form a very important link in the distribution value chain of financial products.

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.

Conditional Offer - An offer to purchase securities depending on the effectiveness of a registration statement and the pricing of an IPO.

Dematerialisation - Dematerialisation or "Demat" is a process of converting the physical securities into electronic form and stored in computers by a Depository. Securities present in the physical form are surrendered to the respective company which will then nullify them and credit the depository account.

Direct Public Offerings - Offering of securities to the public directly by an issuer without the assistance of any Investment Banking firm.

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Dr P.Sravan Kumar MBA,PhD

Draft Prospectus - A draft prospectus provides the information on the financials of the company, promoters, background, tentative issue price etc. It is filed by the Lead managers to SEBI to provide issue details. Overview of the draft prospectus can be seen on www.sebi.gov.in (SEBI’s web site). The final prospectus is printed after obtaining the clearance from SEBI and Registrar of Companies (ROC).

Bought Out Deals - 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.

Rights Issues - If a company wants to increase its subscribed capital by allotment of further shares after 1 or 2 years of first allotment, it has to offer to the existing shareholders first in proportion to the capital paid up on the shares held by them.

American depository Receipt (ADR) - 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.

Global Depository Receipt (GDR) - 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.

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 - A copy of prospectus having attached to the documents required to be submitted to the Registrar of Companies (ROC).

Flipping - The practice of subscribing to a new security offer and quickly selling it in the after-market.

Extraordinary General Meeting (EGM) - 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

Investment Banking Firm - A financial entity acting as an underwriter or agent, and serves as an intermediary between an issuer of securities and the investing public. Investment bankers perform various services: financing, facilitating mergers, corporate restructuring activities, broking and trading on their own accounts.

Issuer - An entity, like a company, municipality or government, that has the power to issue and distribute securities.

Impersonation - A person who a) uses fictitious names for acquiring or subscribing shares b) induces the company to allot or register any transfer of shares to him or any other person in a fictitious name

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 - Two or more applications submitted on a single name are considered as multiple applications.(An applicant is supposed to submit only one application irrespective of the number of shares applied for.) The applications submitted for both electronic and physical equity shares are considered as multiple applications.

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.

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 3

Dr P.Sravan Kumar MBA,PhD

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.

National Securities Depository Limited (NSDL) - This is an organization, which is an intermediary between the Registrar and the company for dematerialisation of shares.

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.

Profit Earning (P\E) ratio - P/E is the ratio of a company's share price to earnings per-share. It essentially shows the amount that an investor is willing to pay for every one rupee earned by the company.

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.

Road Show - The process by which underwriters acquaint potential institutional investors with the products, people and finances of a company planning to go public. Generally, this presentation is a face-to-face meeting. However they are emerging on online and video presentations.

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.

External Risk Factors - 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.

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Internal Risk Factors - 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.

Management Perception of Risk Factors - 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.

Rights Issue - In order to avoid dilution of stake of existing shareholders, company issues "rights" shares in proportion to their current holding. This is done when the company plans to tap the market after their IPO.

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.

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.

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.

Mutual Fund Glossary

Active Portfolio Management - 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.

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.

Asset Management Company (AMC)

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. TOP

Asset Allocation

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It is the process of allocating the overall corpus to different assets like equities, bonds, real estate, derivatives etc. TOP

Back-end Load

A kind of redemption charge that an investor has to pay for withdrawing his money from the mutual fund. It is basically imposed to discourage investors from exiting the fund. It is also popularly referred to as an Exit Load. TOP

Balanced fund

A fund that invests substantially both in debt and equity. TOP

Bottom-up Investing

It is a strategy of selecting the company for investment first and then cross checking it by evaluating factors pertaining to the industry and the economy. It is the opposite of the top-down approach to investing. TOP

Closed-ended fund

A fund where investors have to commit their money for a particular period. In India these closed- ended funds have to necessarily be listed on recognized a stock exchange which provides an exit route. TOP

Contingent deferred sales charge (CDSC)

An exit charge permitted under the regulations for a no-load scheme TOP

Continuous Offer Period

Is the date from which the units are available for sale and repurchase at a price linked to NAV of the scheme. TOP

Corpus

The total investable funds available with a mutual fund scheme at any point of time. TOP

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. TOP

Dated Security

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A debt instrument that is long term in nature and has a fixed date of redemption. TOP

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. TOP

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. TOP

Depository Participant

An authorized body who is involved in dematerialization of shares and maintaining of the investors accounts. TOP

Discount/Premium to (Net Asset Value) NAV

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. TOP

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. TOP

Dollar Cost Averaging

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. TOP

Efficient Portfolio

A portfolio which ensures maximum return for a given level of risk or a minimum level of risk for an expected return. TOP

Factor Fund

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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. TOP

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. TOP

Fixed Income Security

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. TOP

Front-End Load

An initial amount charged by a fund for its administrative expenses or for paying commissions to brokers. If the charge is made at the termination or redemption, it becomes a back-end load. TOP

Gilt-edged Security

Government securities and bonds, usually with a low interest rate. Considered safest investments, as the government security is free from default risk. Originally such certificates were edged with gold and hence the name. TOP

Gilt fund

Funds that invest predominantly in government securities and treasury bills. It is good for investors who desire safety of principal and adequate liquidity. TOP

Go-Go Fund

A mutual fund which invests in highly risky but potentially profitable investments. Such a fund usually has a short life. TOP

Equity/Growth fund

A fund that invest primarily in equities and has capital appreciation as its investment objective

Fund Manager

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A professional manager appointed by the Asset Management Company to invest money in accordance with the objects of the scheme.

Fundamental Analysis

A method of investment analysis based on the fundamentals like turnover, net profit, growth, and vision of a company. The boom or depression of the stock markets are not considered in this analysis.

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.

Index Fund

A fund whose portfolio is benchmarked against a popular index like the BSE Sensex or the BSE Natex. Such an investment philosophy reflects the belief that the market is efficient and trying to beat the market over the long term is futile

Initial Offer Period

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.

Interest Rate Risk

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.

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.

Liquid Fund

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Dr P.Sravan Kumar MBA,PhD

A fund that invests its corpus in short term instruments like call markets, treasury bills, Commercial Paper (CP), Certificate of Deposit (CD).

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.

Load

A charge by the fund when an investor buys (entry load) or sells (exit load) units in the fund.

Market Capitalization

Represents the market value of the company. It is a product of the current market price and the number of shares outstanding.

Market Instrument

A fully negotiable instrument for short-term debt.

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.

Net Asset Value (NAV)

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.

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.

Offer Price

The price at which units can be bought from a fund.

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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.

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.

Passive portfolio management

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.

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.

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.

Reinvestment Plan

It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund.

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.

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.

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.

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.

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.

SWOT Analysis

A type of fundamental analysis of the health of a company by examining its strengths(S), weakness (W), business opportunity (O), and any threat (T) or dangers it might be exposed to.

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.

Tax saving fund

Such funds allow the income tax payees to claim a rebate under the Income Tax Act.

Technical Analysis

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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.

-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.

Transfer Agents

Professional firms, now mostly computerized, which maintain the records of shareholders of their client companies.

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.

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 holds it in trust for the unit holders of the scheme.

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.

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.

Vulture Fund

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Dr P.Sravan Kumar MBA,PhD

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.

Venture Capital Fund

A limited company formed to provide venture or risk capital to new industries.

Zero Coupon Bond

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.

Derivatives 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

The simultaneous purchase and sale of identical or equivalent financial instruments or commodity futures in order to benefit from a discrepancy in their price relationship.

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

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Dr P.Sravan Kumar MBA,PhD

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

A market in which prices are declining.

Bid

The price that the market participants are willing to pay

Bull

One who expects prices to rise.

Bull Market

A market in which prices are rising.

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

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Dr P.Sravan Kumar MBA,PhD

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

A transaction in which the purchaser's intention is to reduce or eliminate a short position in a given series of options.

Closing Sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a given series of options

Commission (or Round Turn)

The one-time fee charged by a broker to a customer when a futures or options on futures position is liquidated either by offset or delivery.

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

The month in which futures contracts may be satisfied by making or accepting delivery.

Covered Call Option Writing

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.

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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

Options on shares of an individual common stock.

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.

Exercise settlement amount

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

An expiration cycle relates to the dates on which options on a particular underlying security expire. A given option, will be assigned to one of three cycles, the January cycle, the February cycle or the March cycle. LEAPS are not included in this 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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Dr P.Sravan Kumar MBA,PhD

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.

Futures Commission Merchant

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

A conservative strategy used to limit investment loss by effecting a transaction which offsets an existing position.

Holder

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

The amount by which an option is in-the-money.

LEAPS

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Dr P.Sravan Kumar MBA,PhD

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.

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 Hedge (futures)

The purchase of a futures contract in anticipation of an actual purchase in the cash market. Used by processors or exporters as protection against and advance in the cash price

Long Position

An investors position where the number of contracts bought exceeds the number of contracts sold. He is a net holder.

Maintenance Performance Bond (Previously referred to a Maintenance Margin)

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.

Margin Requirement for Options

The amount an uncovered (naked) option writer is required to deposit and maintain to cover a position. The margin requirement is calculated daily.

Mark-To-Market

The daily adjustment of margin accounts to reflect profits and losses.

Market Order

An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Maximum Price Fluctuation (futures)

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The maximum amount the contract price can change, up or down, during one trading session, as stipulated by Exchange rules.

Minimum Price Fluctuation

Smallest increment of price movement possible in trading a given contract, more commonly referred to as a "tick."

Nearby

The nearest active trading month of a futures or options on futures contract. It is also referred to as "lead month."

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

An order to a broker that is good until it is canceled or executed.

Opening Purchase

A transaction in which the purchaser's intention is to create or increase a long position in a given series of options.

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

The number of outstanding option contracts in the exchange market or in a particular class or series.

Out-Of-The-Money

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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

A situation that results when there is some confusion or error on a trade. A difference in pricing, with both traders thinking they were buying, for example, is a reason why an out-trade may occur.

Performance Bond Call

Previously referred to as Margin Call. A demand for additional funds because of adverse price movement.

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

A decline in prices following an advance. The opposite of rally. An upward movement of prices following a decline; the opposite of a 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)

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Procedure by which a long or short position is offset by an opposite transaction or by accepting or making delivery of the actual financial instrument or physical commodity.

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.

Settlement Price (futures)

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.

Short Position

An investor’s position where the number of contracts sold exceeds the number of contracts bought. The person is a net seller.

Stop Order (Stop)

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

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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.

Type

Describes either a put or call.

Uncovered call writing

A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.

Uncovered put writing

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

A measure of the fluctuation in the market price of the underlying security. Mathematically, volatility is the annualized standard deviation of returns. See the sections in 'Options' which describes implied and historical volatility.

Writer

The seller of an option contract.

Macroeconomic Glossary

Arbitrage: to buy a good in one market and then resell the good in another market for a higher price.

Budget Deficit - Budget in which expenditures is greater than revenues.

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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.

Bank, commercial - A financial institution accepts checking deposits, holds savings, sells traveler's checks and performs other financial services.

Complementary goods and services - goods or services for which there is an inverse relationship between the price of one and the demand for the other; when the price rises (falls) the demand for the other decreases (increases).

Capital formation - The use of money and other resources to increase inventories, to produce new plants, tools and equipment, which will improve productive capacity.

Comparative advantage - The principle of comparative advantage states that a country will specialize in the production of goods in which it has a lower opportunity cost than other countries.

Competition - The effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms.

Consumers - People whose wants are satisfied by consuming a good or a service.

Consumption - The total spending made on consumer goods & services by individuals or a nation during a given period. Strictly speaking, consumption should apply only to those goods totally used, enjoyed, or "eaten up" within that period. In practice, consumption expenditures include all consumer goods bought, many of which last well beyond the period in question --e.g., furniture, clothing, and automobiles.

Consumer spending - The purchase of consumer goods and services.

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.

Capitalism - An economic system, in which the means of production are privately owned, controlled and which is characterized by competition and the profit motive

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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.

Central Bank - The principal monetary authority of a nation, a central bank performs several key functions, including issuing currency and regulating the supply of credit in the economy. The RBI is the Central Bank of India.

Central Bank Intervention – The buying or selling of currency, foreign or domestic, by central banks, in order to influence market conditions or exchange rate movements.

Crowding out - The claim that an increase in government borrowing or expenditure leads to a reduction in private investment through higher interest rates.

Currency appreciation - An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.

Currency revaluation - A deliberate upward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.

Currency Depreciation - A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.

Currency devaluation - A deliberate downward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.

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.

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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.

Deficit Financing - A situation in which government spending exceeds government income, with the difference covered by borrowing.

Depression - A severe decline in business activity frequently accompanied by high unemployment, low production, curtailed consumer buying restricted credit, etc.

Dumping - Exporting products to a country for sale-- at below actual market price to break down competition

Deflation - A sustained and continuous decrease in the general price level.

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.

Economic system - The collection of institutions, laws, activities, controlling values, and human motivations that collectively provide a framework for economic decision making.

Equilibrium price - The market-clearing price at which the quantity demanded by buyers equals the quantity supplied by sellers.

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.

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Economies of scale - An increase in the factors of production, as in market production resulting in a proportionate greater increase in productivity output per unit of production.

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 -

• Contractionary fiscal policy - A policy to decrease governmental expenditures and/or to increase taxes. • expansionary fiscal policy - A policy to increase governmental expenditures and/or to decrease taxes.

Fixed exchange rates system - Exchange rates between currencies, that is set at predetermined levels and doesn’t move in response to changes in supply and demand.

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.

Foreign currency operations - Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing foreign exchange rates or maintaining orderly foreign exchange markets. Also called foreign-exchange market intervention.

Forwards - A type of foreign exchange transaction whereby a contract is made to exchange one currency for another at a fixed date in the future at a specified exchange rate. By buying or selling forward exchange, businesses protect themselves against a decrease in the value of a currency they plan to sell at a future date.

Futures - Contracts that require delivery of a underlying asset of specified quality and quantity, at a specified price, on a specified future date. Futures are traded on an exchange and are used for both speculation and hedging.

Fiat money: anything that serves as a means of payment by government declaration

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.

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Functions of money - The roles played by money in an economy. These roles include medium of exchange, standard of value, and store of value.

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:

• Entrepreneurial ability - a type of labor; the human resource which combines the basic resources to produce a product, makes non - routine decisions, innovates, and bears risks. • Labor - the physical and mental talents (efforts) of humans, which can be used to produce goods and services. • Land - natural resources ("free gifts of nature") which can be used to produce goods and services. • Capital - tools used in economic production. Money is a form, or subset, of capital. Investment in capital is critical for the efficient use of land and labor. Knowledge is capital, thus, schools produce capital goods.

Goods - Objects that can satisfy people's wants.

Gross domestic product (GDP) - The value, expressed in rupees, of all final goods and services produced in a year.

Gross domestic product (GDP), real - GDP adjusted for inflation.

Gold standard - A monetary system in which currencies are defined in terms of a given weight of gold.

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.

Gross fiscal deficit – is the difference between total receipts (excluding government borrowing) & the total expenditure of the government.

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.

Imports - Goods or services bought from sellers in another nation.

Inflation - A sustained and continuous increase in the general price level.

Interest rates - The price paid for borrowing money for a period of time, usually

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Investment - The purchase of a security, such as a stock or bond is called investment. It is of 3 types -

• Investment in capital goods - Occurs when savings are used to increase the economy's productive capacity by financing the construction of new factories, machines, means of communication, and the like. • Investment in capital resources - Business purchases of new plant and equipment. • Investment in human capital - An action taken to increase the productivity of workers. These actions can include improving skills and abilities, education, health, or mobility of workers.

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.

International monetary fund - The IMF is an international organization established in 1946 to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries under adequate safeguards to help ease balance of payments adjustment.

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.

Laissez Faire - French phrase meaning to "leave alone": generally referring to nonrestrictive atmosphere for business activity; a policy of limited government regulation and interference with business and trade.

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.

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Marginal propensity to consume: the additional consumption that results from an increase in disposable income. The MPC is equal to the change in consumption spending 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 MPC from a change in permanent income is much larger than the MPC from a change in transitory income.

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.

1. The simple money multiplier is the reciprocal of the reserve-deposit ratio. A more accurate money multiplier is equal to (1 + cd)/(cd + rd), where cd denotes the currency-deposit ratio and rd denotes the reserve-deposit ratio. 2. The expenditure multiplier is a hallmark of Keynesian models. The expenditure multiplier is equal to 1/(MPS+MPI), where MPS denotes the marginal propensity to save and MPI denotes the marginal propensity to import. Expenditure multipliers do not appear in market-clearing models since the rational agents act to dampen the impact of shocks to the economy.

Market - A setting where buyers and sellers establish prices for identical or very similar products, and exchange goods and/or services.

Medium of exchange - One of the functions of money whereby people exchange goods and services for money and in turn use money to obtain other goods and services.

Mixed economy - The dominant form of economic organization in noncommunist countries. Mixed economies rely primarily on the price system for their economic organization but use a variety of government interventions (such as taxes, spending, and regulation) to handle macroeconomic instability and market failures.

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 - Anything that is generally accepted as a medium of exchange with which to buy goods and services, a good that can be used to buy all other goods and services, that serves as a standard of value, and has a store of value.

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.

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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.

National income - The amount of aggregate income earned by suppliers of resources employed to produce GNP, net national product plus government subsidies minus indirect business taxes.

Normative economics - Normative economics considers "what ought to be"--value judgments, or goals, of public policy. Positive economics, by contrast, is the analysis of facts and behavior in an economy, or "the way things are."

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.

Price elasticity of demand - the ratio of the percentage change in quantity demanded of a product to the percentage change in its price; the responsiveness or sensitivity of the quantity of a product consumers demand to a change in the price of that product.

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.

Protectionism - A policy by which governments impose trade barriers ( tariffs and quotas) on foreign products (imports) to protect domestic producers and their workers from being undersold. Protectionism means higher prices on imported goods but lower unemployment and better wages.

Revenue deficit – is the difference between Government’s revenue expenditure & revenue receipts.

Substitute goods and services - goods or services such that there is a direct relationship between the price of one and the demand for the other; when the price of one rises (falls) the demand for the other increases (decreases).

Standard of living - A minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances.

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.

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Transfer payments: payments for which no good or service is currently received in return and that therefore do not represent expenditures for the purchase of final products. E.g. – Pensions, grants from abroad etc.

Trade-off - Giving up some of one thing to get some of another thing.

Unemployment - The situation, in which people are willing and able to work at current wage rates, but do not have jobs.

Wages - The payment resource earners receive for their labor.

World Trade Organization (WTO) - An international organization established in 1995 that deals with the global rules of trade among nations. Its predecessor is the General Agreement on Tariffs and Trade (GATT). Originally envisioned in 1944, it is designed to be one of the three organizations that would help bring economic stability and growth to the world, the other two "legs" are the World Bank and the International Monetary Fund (IMF

Debt Market Glossary

Accrued interest

The interest that is due and payable at a point of time.

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.

Annual percentage yield (APY)

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:

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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

Asset liability management

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

A security with one principal payment on the settlement date.

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

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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

Interest earned on interest as well as on principal.

Convertible security

A security that can be exchanged, at a specified price, for shares of the issuer's stock.

Cross over yield

Rate of interest at which yield-to-maturity and yield-to-call of a security are equal.

Current yield

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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

The market for trading debt instruments.

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.

Discounted cash flow (DCF)

Future cash flows multiplied by discount factors to obtain present values

Duration

A common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.

Effective spread

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A spread off the floating-rate index that makes the average present value equal to the current price.

Effective annual interest rate

An annual measure of the time value of money that fully reflects the effects of compounding.

Effective annual yield

Annualized interest rate on a security computed using compound interest techniques.

Effective convexity

The convexity of a bond calculated using cash flows that change with yields.

Equivalent bond yield

Annual yield on a short-term, non-interest bearing security calculated in order to be comparable to yields quoted on coupon securities.

Equivalent taxable yield

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

Eurobonds denominated in U.S dollars.

Euroyen bonds

Eurobonds denominated in Japanese yen.

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.

Flattening of the yield curve

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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).

Floating coupon rate

Coupon rate that varies with ("floats against") a standard market benchmark or index.

Floating rate 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

Debt maturing after more than one year.

General obligation bonds

Municipal securities secured by the issuer’s pledge of its full faith, credit, and taxing power.

Hedge

A transaction that reduces the risk of an investment.

High grade bond

Bond rated triple-A or double-A by Standard & Poor's or CRISIL.

Horizon curve

A yield curve used to forecast the effects, at a particular point in the future, of interest-rate changes on an investment.

High-coupon bond refunding

Refunding of a high-coupon bond with a new, lower coupon bond.

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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.

Internal rate of return (IRR)

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.

Inverted yield curve

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.

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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

Bonds with a long current maturity.

Long-term debt

An obligation having a maturity of more than one year from the date it was issued. Also called funded debt.

Make whole provision

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

For a bond, the date on which the principal is required to be repaid

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

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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.

Net present value (NPV)

The present value of the expected future cash flows minus the cost.

Nominal rate of return

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

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Purchasing power risk

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

The date on which the holder originally purchased the security.

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

A bond that is selling for more than its par value.

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

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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

Repayment of a debt security or preferred stock issue, at or before maturity, at par or at a premium price.

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.

Relative yield spread

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

A yen-denominated bond issued in Tokyo by a non-Japanese borrower. Related: bulldog bond and Yankee bond. 42

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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

Bonds with short (less than one year) term to maturity

Single-payment bond

A bond that will make only one payment of principal and interest.

Steepening of the yield curve

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

Bonds that can be subdivided into a series of Zero-coupon Bonds.

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

Expected valuation for the selected security on the settlement date.

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Standard deviation

Standard deviation is the measurement of average variation (dispersion) of actual values about the mean.

Subsidiary general ledger (SGL)

It is the dematerialized ledger account in which accounts of government securities are held in the electronic form.

Subordinated debenture bond

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

A Eurobond issued by a Japanese corporation.

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

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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.

Yield spread strategies

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

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Depository Services Glossary

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 :

• Main business and purposes of the company • Shareholder’s voting rights • Directors duties • General working and management practices.

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

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Affix : To sign or seal, as affix a signature or a seal.

Beneficiary :

• A person who benefits from a trust set up on his / her behalf. • Anyone who benefits from the proceeds of a will • A person who benefits from a contractual or fiduciary relationship.

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.

Companies do it for the following reason :

• To increase the share price • To rationalise the capital structure – the company believes it can sustain a higher debt- equity ratio • To substitute the dividend payouts with share repurchases ( because capital gains may be taxed at lower rate than dividend income ) • To prevent the dilution of earnings caused, for example, by the issue of new shares to meet the exercise of stock options grants. • To deploy excess cash flow and return it to shareholders.

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.

Capital Structure : The components which form a company’s capital : ordinary shares, preference shares, debentures and loan stock.

Cash : Money, in the form of notes and coins, which constitutes payment for goods at the time of purchase.

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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 :

• Cash disbursement like dividend and interest on securities. • Capital increases via bonus, rights, calls, conversions etc, capital reorganisations, merger etc.

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.

Debit : An outflow of funds or securities with a bank or Depository Participant.For Example : When a person issues a cheque or delivery instruction, his / her account will subsequently be debited with the amount of cash or securities mentioned on the cheque or delivery instruction slip.

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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 : A Depository is an organisation where the securities of an investor are held in electronic form, at the request of the investor through the medium of a Depository Participant.It is a company formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under the relevant sections of the Securities and exchange Board of India Act, 1992. A depository can be compared to a bank. If an investor wants to utilise the services offered by a Depository, he has to open an account with the depository through its Depository Participant. This is similar to opening an account with any of the branches of a bank in order to utilise the services of that bank.

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Depository Participant : A Depository Participant ( DP ) is an agent of the Depository and is authorised to offer depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers etc can become Depository Participants in a Depository. Karvy is a Depository Participant of both National Securities Depositories Ltd (NSDL) and Central Depository Securities Limited ( CDSL).

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 ).

Eligible Securities : Means securities which are admitted on the Depository.

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.

Fee : A charge for services.

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.

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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 : Any real property to which one has a title.

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.

Hypothecation : The pledging of securities as collateral.A client having a beneficiary account with a DP can hypothecate securities in electronic form against loan / credit facilities extended by a pledge, who has a beneficiary account with a DP. The creation of pledge / hypothecation will be initiated by the pledgor through its DP and the pledgee will instruct its DP to confirm the creation of the pledge. The pledge / hypothecation so created can either be closed on repayment of loan or invoked on default. After the pledgor repays the loan to the pledgee the pledgor will initiate the closure of pledge / hypothecation. In case of default by the pledgor in repaying the loan to the pledgee, the pledgee may initiate invocation of pledge / hypothecation, after taking such steps as may be necessary as per the terms of the underlying agreement with the pledgor and the Bye Laws and Business Rules of NSDL and SEBI Regulations. In case of hypothecation, the pledgor will instruct its DP to confirm the invocation of the hypothecation.

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.

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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.

Issuer : Means any person making an issue of securities;

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 and several Liability : An undertaking by a group of two or more people to be responsible, either individually or jointly, for any liability which may exist after any member or members have failed to meet their obligations.

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.

Joint Ownership : Equal ownership of property by two or more people.

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.

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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.

Mandate : An official order from an authority to implement an action.

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 ".

For further details on Trade and Settlement, please click here

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.

Negotiable Instruments : An instrument, such as a cheque or a bill of exchange, which can be transferred by one person to another by the first signing his name on the back of the instrument.

Nominee : A person or company nominated by another to hold shares on his behalf.

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

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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.

Obligation : A legal duty to pay or do something.

Online Banking : The performing of banking activities via the internet.

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.

Overseas Corporate Bodies : Overseas Corporate Bodies ( OCBs ) include overseas companies, partnership firms, trusts, societies and other corporate bodies which are owned directly or indirectly, to the extent of at least 60 % by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60 % of the beneficial interest is irrevocably held by such persons.

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.

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Paid–Up Capital : Capital subscribed by shareholders for a company’s shares.

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.

Payee : A person to whom a payment is made.

Payer : A person who makes a payment to a payee.

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.

Petitioner : A person who signs and / or files a petition.

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.

Portfolio : A group of investments held by an institution or an individual.The process of choosing which investments go into a portfolio is known as portfolio management or asset allocation, and decisions are based on : Whether the investment objective is income, growth or a balance of the two.

• How much risk the investor is prepared to accept.

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

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Dr P.Sravan Kumar MBA,PhD 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.

Public Offering : An offering of new securities 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

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Dr P.Sravan Kumar MBA,PhD 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. 57

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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.

Transferability of Shares : Shares in a company are freely transferable, subject to certain conditions, such that no share-holder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all rights of the transferor in respect of those shares.For dematerialised shares the depository participant debits and credits the account of the client with an authorisation from such client.

Transmission : Transmission of shares denotes a process by which ownership of share is transferred on legal heir or to some other person by operation of law. In case of transmission no transfer deed and no stamp duty is required. Transmission of shares generally takes place in case of death, insolvency or mental illness or purchase in case of shares by court or in case of amalgamation, where the amalgamating company holds shares in various companies.

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.

Valuation : The value or worth of a portfolio of investments recorded on a statement.

Variance : The difference between budgeted and actual costs.

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

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Dr P.Sravan Kumar MBA,PhD 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.

Insurance Glossary

AcceptanceThe act of assuming risks by the insurer when the proposer has compiled with all requirements.

Accident BenefitsPayment by the insurer an additional benefit equal to the sum assured in case of death by accident.

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.

Absolute LiabilityLiability for damages but fault or negligence cannot be proven.

Accumulation periodTime between the first premium payment and the first benefit payout under a deferred annuity.

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Actual Cash Value (ACV)Cost of replacing or restoring property at prices prevailing at the time and place of the loss less depreciation.

ActuaryProfessionally trained person to deal with technical aspects of pensions, insurance and related fields.

Adjustable Life InsuranceType of insurance allowing policyholder to change the plan of insurance, change the face amount of policy, premium and he protection period.

AdjusterPerson who investigates and settles losses/claims for an insurance carrier.

Age LimitsStipulated age frame below and above which the company may not accept applications or may not renew policies.

AgentThe authorised representative of the insurer, licensed by the Government of India to canvass insurance.

Age ProofThe document which the proposer produces to prove his date of birth. xAll-risks PolicyContract of insurance coverage that promises to cover all losses except those specifically excluded in the policy.

AmendmentFormal document changing the provisions of an insurance policy signed together by insurance company officer and the policy holder.

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.

AssetsAll property, goods, securities, funds or resources of any kind owned by an insurance company.

AssignmentThe transfer of interests in a life insurance policy to a person or an institution.

AssuranceThe act of assuring a certain sum in the event of survival or death of a human life during a specified period.

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.

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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.

BrokerA kind of marketing specialist representing buyers of property and liability insurance and deals with either agents or companies in arranging for the coverage required by the customer.

Burglary InsuranceThe insurance against loss of property by the depredations of burglars and thieves.

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.

Consumer Affairs CommitteeConstituted at the Board level with many eminent consumer activists and members of public joining as members along with the Chairman and the Managing Directors of the Corporation. This Committee looks into various areas of consumer interests and advises the Corporation.

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.

CancellationThe discontinuance of an insurance policy before its normal expiration date, either by the insured or the company for any reason.

CapacityAmount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific terms.

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Capital Retention ApproachThe method used to estimate the amount of life insurance to own. The insurance proceeds are retained and are not liquidated Under this method.

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.

ConditionsList of provisions declared in an insurance contract that qualify or place limitations on the insurer's promise to perform.

Contingent Annuity OptionThe option under which an employee may elect to receive, under certain conditions, a reduced amount of annuity with the same income or a specified fraction to be paid after his death to another person designated as his contingent annuitant for that person's lifetime.

Conversion PrivilegeThe privilege given in an insurance policy to convert to a different plan of insurance without providing evidence of insurability.

CoverageScope of protection provided under a contract of insurance or any of several risks covered by a policy.

Covered ExpensesThe type and amount of expense which will be considered in the calculation of benefits.

Credit InsuranceThe guarantee to manufacturers, wholesalers, and service organizations to pay for goods shipped or services rendered.

Dating Back of a PolicyTo commence a policy on an earlier date to avail of the younger age benefit.

Death BenefitThe payment made to a designated beneficiary upon the death of the employee annuitant.

DeclarationsThe statements in an insurance contract that provide information about the property or life to be insured and used for underwriting and rating purposes and identification of the property or life to be insured.

Deferment PeriodThe period from the date of commencement of the policy to the vesting date.

Deferred AnnuityThe annuity providing for the income payments to begin at a particular future date.

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DisabilityPhysical or a mental impairment that substantially limits(Partial or Total) one or more major life activities of an individual.

Disability BenefitFree waiver of payment of future premiums in case of total and permanent disablement due to an accident.

DividendThe amount returned to a policyholder by an insurance company out of its earnings.

Double IndemnityPolicy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.

Double Accident Benefit(DBA)The benefits provide for the payment for an additional amount equal to the sum assured in the case of death of a policy holder as a result of accident.

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.

Endowment InsuranceThe type of life insurance that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary .

Early RetirementRetirement of a participant prior to the normal retirement date, usually with a reduced amount of annuity.

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 DateThe date on which an individual member of a specified group becomes eligible to apply for insurance under the insurance plan.

Eligibility PeriodSpecified time frame following the eligibility date during which an individual member of a particular group will remain eligible to apply for insurance.

EndorsementsAn additional piece of paper which includes certain terms and which, when attached to the original contract, becomes a legal part of that contract.

EndowmentThe life insurance payable to the policyholder if living, on the maturity date declared in the policy, or to a beneficiary if the insured dies prior to that date.

EstoppelLegal doctrine preventing a person from hiding the truth of a previous representation of fact,

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Exclusive AgentThe agent who is employed by one and only one insurance company and who does business exclusively for that company.

Exclusion ratioThe portion of an annuity payment, considered by the tax law to be a return of an initial investment and will not come under income tax when received.

Expense RatioThe ratio of operating expenses to premiums of a company.

ExtortionThe surrender of property away from the premises as a result of a threat to do bodily harm to the named insured, its relatives, or invitee who is being held captive.

Extra PremiumAdditional premium charged on hazardous occupations and impaired lives.

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.

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.

FiduciaryA person who holds something in trust for another.

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.

Fixed Amount Option/Fixed Period OptionThe life insurance settlement option in which the policy proceeds are paid out in fixed amounts.

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.

Group Insurance- Insurance provided to members of a formal group such as employees of a firm or members of an association.

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General DamagesThe kind of damages awarded to an injured person for intangible loss that cannot be measured directly in terms of money.

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.

Health InsuranceThe system for the advance financing of medical expenses by means of contributions or taxes paid into a common fund to pay for all or part of health services specified in an insurance policy or law.

Indemnity Benefit — Flat payment made directly to the policyholder instead to nursing facility or any facility care agency for services rendered.

Immediate AnnuityThe annuity providing for payment to begin immediately.

Incurred ClaimsIt equals the claims paid during the policy year plus the claim reserves as of the end of the policy year, less the corresponding reserves as of the beginning of the policy year.

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.

Individual InsurancePolicies which provide protection to the policyholder and/or his/her family mamber.

InsurabilityThe acceptability to the company of an applicant for insurance.

Insurable RiskThe conditions that make a risk insurable.

InsuranceThe system under which individuals, businesses, and other organizations or entities, in exchange for payment of a sum of money (a premium) are guaranteed compensation for losses resulting from certain perils under specified conditions.

InsurerThe party to the insurance contract, promises to pay losses or benefits.

InsuredAn individual or organization covered by an insurance policy, including the "named insured" and any other parties for whom protection is provided under the policy terms and conditions.

Insurable InterestEvidence suggesting financial loss due to the occurrence of the event insured against.

Impaired LifeA proposer whose life cannot be accepted for insurance on the normal rates of premium due to health reasons.

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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.

Life ExpectancyAverage number of years of life remaining for a group of persons of a given age according to a specific table of mortality.

LiabilityAny kind of legally enforceable obligation.

LapseThe termination or discontinuance of an insurance policy due to non-payment of a premium.

Life AnnuitySeries of payments under which payments, once begun, continue throughout the remaining lifetime of the annuitant but not beyond.

Life AssuredThe individual whose risks are covered by an insurance policy.

LoanThe facility to raise loan on the mortgage of the policy based on its surrender value.

Loss RatioThe ratio calculated by dividing claims into premiums. It may be calculated in other ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active reserves.

Liability InsuranceThe insurance against claims of loss or damage for which a policyholder might have to compensate another party. The policy covers losses resulting from acts or omissions which are legally deemed to be negligent and which result in damage to the person, property, or legitimate interests of others.

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.

Material DamageThe insurance against damage to a vehicle itself. It includes automobile comprehensive, collision, fire and theft.

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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.

Marine InsuranceA contract of Marine Insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental to marine adventure.

Mutual Insurance CompanyThe insurance company in which the ownership and control is vested in the policyholders and a portion of surplus earnings may return to policyholders in the form of dividends.

Mortgage InsuranceThe insurance protecting a lender against loss from a mortgagor's default.

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.

Non-forfeiture regulationsThe provisions by which the policy benefits are not forfeited but are granted to the insured on a reduced scale in the event of discontinuance of a policy after a minimum period of three years.

NominationThe act of naming a person to receive the policy monies from the insurer in case of death of the life assured.

Non-MedicalCases where policies can be issued waiving a medical examination.

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.

Operating RatioSum of expenses and losses expressed as a percent of earned premium.

Outline Of Coverage — Description of policy benefits, exclusions, specifications and provisions to facilitate the understanding of a particular policy and compare it with others.

Paid-up InsuranceThe insurance on which all required premiums have been paid. 67

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Paid-up PolicyA policy discontinued after payment of premium for a minimum period of three years.

Pakistan SecuritiesUnder the 'Insurance Rules, 1939', securities guaranteed fully as regards principal and interest by a Provincial Government in or charged on the revenues of any part of that Dominion and Debentures, or other securities for money issued by or on behalf of the trustees of the port of Karachi shall be recognized, in the case of insurers incorporated or domiciled in India as approved securities.

Pension BenefitsThe series of payments to be provided in accordance with the plan of benefits.

Pension PlanThe plan established and maintained by an employer or a group of employers, union or any combination, primarily to provide for the payment of definitely determinable benefits to participants after retirement.

PerilThe cause of any loss insured against in a policy.

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 DividendThe refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.

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.

PolicyholderThe individual who owns a life insurance policy.

PremiumThe sum paid by a policyholder to keep an insurance policy in force.

Principal SumAn amount payable in one sum in the event of accidental death and in, some cases, accidental dismemberment.

Proof of LossThe documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.

Property InsuranceIt provides financial protection against loss or damage to the policyholder's property caused by such perils as fire, windstorm, hail, etc.

ProposalAn application for a life insurance policy.

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ProvisionThe part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.

RatePricing factor upon which the insurance buyer's premium is based.

RebateOffering any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew.

ReimbursementPayment of the expenses actually incurred as a result of an accident but not to exceed any amount specified in the policy.

Re-insuranceThe assumption by one insurance company of all or part of a risk undertaken by another insurance company.

Replacement ratioPercentage of income before retirement that is required to be replaced to maintain the same standard of living after retirement.

Retrospective DateFirst date for which claims will be paid under a claims-made policy of liability insurance.

RevivalThe act of bringing back to life a discontinued policy.

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.

Risk TransferThe Shifting of risk from one party to another.

SalvageThe recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.

Senior Citizen PoliciesThe contracts insuring individuals 65 years of age or more.

Settlement OptionThe act of drawing the claim amount in instalments.

S.S.S. Salary/Savings SchemeWhere an employer is willing to deduct premiums of his employees on monthly basis and remit it to the L.I.C. in one lump sum.

Standard RiskThe individual who, according to a company's underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.

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Sum AssuredThe basic amount payable as per the contract of insurance.

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.

TableDifferent plans of insurance marketed by L.I.C. - each plan is called a table.

Term InsuranceThe life insurance payable to a beneficiary only when an insured dies within a specified period.

Third PartyA claimant under a liability policy.

Third party claimThe demand made by an individual against a policyholder of another company and any payment that will be made by that company.

Travel Accident PolicyThe limited contract covering only accidents while an insured person is traveling.

TermThe period of insurance.

Umbrella LiabilityThis insures losses in excess of amounts covered by other liability insurance policies.

Unallocated BenefitThe policy provision providing reimbursement up to a maximum unspecified amount for the cost of all extra miscellaneous hospital services.

UnderwritingProcess of selecting risks for insurance and determining in what amounts and on what conditions the insurance company will accept the risk.

Unearned PremiumThe portion of the premium that a company has collected but has not yet earn because the policy still has unexpired time to run.

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.

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Stock Market Glossary

All or None (AON) Order

An order with this condition should be matched either with the entire order quantity or none at all.

Arbitrage

The business of taking advantage of difference in price of a security traded on two or more stock exchanges, by buying in one and selling in the other (or vice versa). Quite simply it means you try to buy something cheap in one place, to make a profit selling it somewhere else.Given the speed at which the financial markets now operate, in practice the simultaneous purchase of foreign exchange, securities, commodities or any other financial instrument in one market and the sale in another at a higher price.

American Depository Receipt (ADR)

A stock representing a specified number of shares in a foreign corporation. ADR's are bought and sold in the American markets just like regular stocks. An ADR is issued by a U.S. Bank, consisting of a bundle of shares of a foreign corporation that are being held in custody overseas. The foreign entity must provide financial information to the sponsor bank. ADR's are listed on either the NYSE, AMEX, or NASDAQ.

American Depository Share (ADS)

A share issued under deposit agreement that represents an underlying security in the issuer's home country. The term ADR and ADS are thought to be the same, they sort of are. ADS is the actual share trading while ADR represents a bundle of ADSs.

At best

An instruction from the client to the broker authorising him to use his discretion and try to execute an order at the best possible price. An 'at best' order is valid only for the day it is placed.

Averaging

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

Arbitration

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Settlement of claims differences or disputes between one member and another and between a member and his clients, authorized 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.

Basis Point (BP) The smallest measure used in quoting yields on fixed income securities. One basis point is one percent of one percent, or 0.01%.

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.

A badla transaction attracts the following payments / charges :

(a) ‘margin money’ specified by the stock exchange board; and

(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.

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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

A free allotment of shares made in proportion to existing shares out of accumulated reserves. A bonus share does not constitute additional wealth to shareholders. It merely signifies recapitalization of reserves into equity capital. However, the expectation of bonus shares has a bullish impact on market sentiment and causes share prices to go up.

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

A rising market with abundance of buyers and few sellers.

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 and offer

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

Brokerage is the commission charged by the broker. The maximum brokerage chargeable is determined by SEBI.

Basket Trading

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Basket trading is a facility by which investors are in a position to buy/sell all 30 scrips of Sensex in the proportion of current weights in the Sensex, in one go.

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 limit order An order of buying a security with a condition that order will not be executed above the specific mentioned price.

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.

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Bid/Ask spread The difference between the ask price and bid price.

Bourse

The floor of a Stock Exchange.

Cash Settlement

Payment for transactions on the due date as distinct from carry forward (Badla) from one settlement period to the next.

Clearing Days or Settlement Days

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

A situation where by an individual or a group acquires such control on a security that it cannot be obtained or delivered for performance of existing contracts except at exorbitant prices. In such situations, the Governing Board may intervene to regulate or even prohibit further dealings in that security.

Correction

Temporary reversal of trend in share prices. This could be a reaction (a decrease following a consistent rise in prices) or a rally (an increase following a consistent fall in prices).

Crisis

Reckless heavy short-sales leading to unduly depressed prices. In such a situation, the Governing Board may prohibit short sales, fix minimum prices below which sells or purchases are not permitted and limit further dealings only to closing out of existing contracts.

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

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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.

Carry forward trading

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

Clearing refers to the process by which mutual indebtedness among members is settled. The clearing corporation matches the final buyers and sellers through multilateral netting. The members of the clearing corporation also known as clearing members settle their dues with the clearing house that is operated by the clearing corporation. The clearing corporation is the legal counter-party to both legs of every trade.

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.

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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

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Dr P.Sravan Kumar MBA,PhD 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

The share is described as cum-bonus when a potential purchaser is entitled to receive the current bonus.

Cum-rights

The share is described as cum-rights when a potential purchaser is entitled to receive the current rights.

Carry Over Margin

The amount to be paid by operators to the stock exchange to carry over their transactions from one settlement period to another.

Cash Settlement

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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.

Capital Asset Pricing Model (CAPM)

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.

Convertible preference shares Preference shares that can be converted into equity shares at the option of the holder.

Commercial Paper (CP)

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.

Deep Discount Bond

It is loan instrument different from an ordinary debenture which is usually offered at its face value and earns periodic interest till redemption and is redeemed with or without premium. Deep discount bond is offered at a discount and fetches no periodic interest and is redeemed at the face value

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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).

Day Minimum/Maximum range

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

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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 user belonging to a Trading Member. Dealers can participate in the market on behalf of the Trading Member.

Disclosed Quantity (DQ)

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.

Diversification- Investing in a basket of shares with different risk-reward profile and correlation so as to minimize unsystematic risk.

Discounted payback period Period in which future discounted cash in- flows equal the initial outflow.

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Discount factor :- Expected rate of return by which, future cash flows are deflated. The discount rate is annual rate and deflating future cash flow takes place in a compounded manner.

Downgrade Refers to lowering of ratings for a share by analysts, intermediaries or investors.

DV

Disclosed Value (DV) orders allows 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.

Ex

Means "without". A price so quoted excludes recently declared dividend right or bonus shares.

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

The share is described as ex-rights when a potential purchaser is not entitled to receive the current rights, the right of which remains with the seller.

Earnings Per Share (EPS) It is the most important measure of how well (or otherwise) the board of directors are doing for the shareholders. This measure expresses how much the company is earning for every share held. The calculation is 'pre-tax profit dividend by the number of shares in issue'. Earnings per share is more important than the overall reported profit figure ! The reason is that EPS provides a more pure measure of profitability.

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-

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Dr P.Sravan Kumar MBA,PhD 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.

Exercising the option The act of buying or selling the underlying asset via the option contract.

Efficient capital market :- A market in which all the players have all the material information at their disposal at the same time.

Final Dividend

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

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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

A forward purchase is when one agrees to purchase shares at a future period at a certain price. He does this in the belief that the prices will fall in future.

Foreign Institutional Investor (FII)

An overseas institutional investor permitted under Securities and Exchange Board of India (SEBI) guidelines to trade in Indian bourses.

Freeze

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

Fully paid shares are those shares which have been fully paid for (the face value).

Good Till Cancelled (GTC) orders

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.

Good Till Date (GTD) orders

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. 84

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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.

Global Depositary Receipt (GDR) These are negotiable certificates which prove ownership of a company's shares.They are marketed internationally, mainly to financial institutions. GDRs allow purchasers to gain exposure to companies which are listed on foreign markets without having to purchase the shares directly in the market in which they are listed.

Grey market Trading in shares outside a recognized market.This has come to mean trading in shares ahead of their issue on the stockmarket.

Growth stock Investing

Growth stock investing focuses on well-managed companies whose earnings and dividends are expected to grow faster than both inflation and the overall economy. The real test for a growth company is its ability to sustain earnings momentum even during economic slowdowns. Such companies will provide long-term growth of capital, preserving the investor's purchasing power against erosion from rising prices.

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.

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A mutual funds which invests only in equity shares which offer chances of good capital growth, rather than current income.

Hedging

Offsetting or guarding against investment risk. A perfect hedge is a no-risk-no gain precaution.A conservative strategy for reduction of risk through futures, options or some other derivative, by opening an opposite position to that already held in the underlying market. Taking positions in securities so that each offsets the other.

Holding Period Return (HPR)

The rate of return for the period of holding of an investment.

Holder

The buyer of an option.

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.

Insider Someone who trades a security on the back of knowledge which is not available to the world at large and who, thereby, makes a profit.

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.

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Issued Share Capital This is the total number of shares a company has made publicly available multiplied by the total nominal value of the shares.

Immediate or Cancel (IOC)

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

A jumbo share certificate is a single composite share certificate formed by consolidating/aggregating a large number of market lots. This is issued by the company in favour of the custodian of the shares and is used to reduce the problems of multiple share certificates for large trades.

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

A position in which a person's interest in a particular series of options is as a net holder, meaning that the number of contracts bought is more than the number of contracts sold. It is similar for the futures contracts. A bull position in a security.

Listed Company

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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

Is an order for which no price has been specified at order entry.

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.

Minimum Fill (MF) Order

This is one of the special conditions where a minimum quantity is specified for an order. The quantity of the trade involving an order with a MF attribute should at least be this minimum quantity specified.

Market lot

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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

The membership of the exchange consists of such number of members as the exchange in general meeting may from time to time determine. According to the stock exchange rules, no person shall be a member if he is less than 21 years or is not an Indian citizen or has been adjudged bankrupt or proved an insolvent or has been compounded by this creditors or has been convicted of an offence involving fraud or dishonesty or is engaged as principal or employee in any business other than that of securities.

Moorat Trading

Auspicious trading on Diwali day during specified hours.

Market capitalization

Market capitalisation is the market value of the equity of a company.Simply put, it is the number of outstanding shares multiplied by the market price of the company. The total market value at the current stock exchange list prices of the total number of equity shares issued by company It is also the currency which can be used in case of acquisitions (in terms of stock swaps).

Margin

The amount a buyer/seller of a futures contractor an uncovered (naked) option seller (writer) is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra day price changes.

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.

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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

National Association of Securities Dealers Automatic Quotation SystemAn American stock exchange. It’s also known as the technology heaven for companies in that category.

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

Whenever a book closure or record date is announced by a company, the Exchange sets a no-delivery period for that security. During this period, trading is permitted in 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 market

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

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Dr P.Sravan Kumar MBA,PhD 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.

Order Quantity Freeze percentage

A percentage of the outstanding quantity of a security is ascertained. An order with quantity exceeding this percentage causes a freeze and is sent to the Exchange for approval.

One For One

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.

Order Driven Trading

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.

Over The Counter (OTC)Trading

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.

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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

An entity responsible for the settlement of a trade is deemed to be a participant. Every order in the trading system has a participant associated with it.

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.

Price Time Priority

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

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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

Price sensitive information Price sensitive information is information about a company's trading or other affairs which would, if generally known, be expected to have an influence on its share price.

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.

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).

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.

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Quote Driven Trading

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.

Regular Lot 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.

Real Interest Rate

Current interest rate less the rate of inflation.

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

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A position in which a person's interest in a particular series of options is as a net seller (writer) meaning that the number of contracts sold exceeds the number of contracts bought. It is similar in case of futures contracts.

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.

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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

Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades. This implies that the trade will be settled even if one of the parties to the trade viz; the buyer or the seller defaults. This prevents a cascading effect in the market due to the default of one party. The clearing corporation has set up a settlement guarantee fund through contributions from the members which is used for this purpose.

Splitting/Consolidation

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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

For the purpose of trading, a security is categorised either as a 'specified' shares or a 'non-specified' shares. This is done by stock exchange authorities.

Stamp Duty

The ad valorem duty of 1/2 per cent payable by buyers for transfer of shares in their name. share swap

An arrangement by which shares of one company are swapped for another in a specified ratio stock option

An option given to a person to buy stock at a predetermined price at a future date

Screen Based Trading

Screen based trading uses modern telecommunications and computer technology to combine information transmission with trading in financial assets. Trading members are connected to the Exchange from their workstations to the central computer located at the Exchange via satellite using VSATs (Very Small Aperture Terminals). 97

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Buy and sell orders from the brokers reach the central computer located at NSE and are matched by the computer.

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.

Trading for delivery

Trading conducted with an intention to deliver shares as opposed to taking up a position and squaring off within the settlement.

Transfer deed

A transfer deed is a form that is prescribed by the Registar of Companies for effecting share transfer and is valid for a specified period. This transfer deed is the instrument that accompanies the share certificate while registering a transfer with a company. The transfer deed must be duly stamped and signed by or on behalf of the transferor and be complete in all respects.

Time Conditions

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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.

4. IOC - 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.

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

It refers to a member of the BSE/NSE who is authorised to place orders in the Capital Market System. The term Broker or Brokerage house is also used to convey the same meaning.

Transmission

Transmission is the lawful process by which the ownership of securities is transferred to the legal heir/s of the deceased.

Unit of Trading

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

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User

A person is recognised as a user of the Capital Market system, when he or she possess a valid user identifier and password, both of which are essential requirements for accessing the system.

Underwrite

Under writing is effectively a guarantee wherein the underwriter (usually a bank, broker or financial institution) agrees to purchase a certain number of shares in the event the issue is under-subscribed for a certain fee.

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

Payment made in order to restore or maintain initial margin on adverse positions resulting from price movements in futures/options transactions undertaken.

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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.

Warning Quantity Percentage

It refers to a percentage which reflects the quantity outstanding on a certain security. An order with quantity exceeding this percentage causes the system to force the dealer to confirm the entered order.

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.

Yield Yield is the annual return you receive from holding a stock, share or unit trust - it is expressed as a percentage of its price.In the case of shares, the yield is calculated by expressing the dividend as a percentage of the cost of the investment. To calculate a yield on a share, take the dividend paid (this will be net of the basic rate of tax), add back the tax to get the gross yield and then divide by the share price and multiply by 100

Yield Curve A graph depicting yield vis-a-vis maturity. If short-term rates are lower than long- term rates, it is a positive yield curve, if short-term rates are higher, it is a negative or inverted yield curve. If there is isn't much difference, it is a flat yield curve.

Yield To Maturity (YTM) The yield earned by a bond if held to maturity.

Zero Coupon Bond A bond issued at a discount which accrues interest that is paid in full at maturity.

MORTGAGE GLOSSARY

A Abstract (of title) A written summary of the title history of a particular piece of real estate. Acceleration Clause A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default. ARM (Adjustable Rate Mortgage)

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A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index. Amortization Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed. APR (Annual Percentage Rate) The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate. Application Fee That part of the closing costs pre-paid to the lender at time of application to cover initial expenses. Appraisal A report made by a qualified person as to the value of a property as of a given date. Assessed Value The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment. Assumption of Mortgage The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.

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B Balloon Mortgage A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term. Bridge Loan A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold. Broker The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. Buydown Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.

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C Cap (interest rate) The maximum interest rate increase allowable on an adjustable rate mortgage. Does not result in negative amortization. See Negative amortization. Cap (payment rate) The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization. See Negative amortization. Certificate Of Title A statement that shows ownership of property, stating that the seller has clear legal title. Closing The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs. Closing Costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs." Closing Statement A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account. Commission An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee. Commitment

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An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions. Comparables Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined. Condominium Ownership of a single unit in a multiunit building or complex of buildings. Along with this goes a share of ownership of the common areas. Contingency A condition that must be met for a contract or a commitment to remain binding. Conventional Mortgage Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant. Convey To transfer real estate from one person to another. Credit Report The report to a prospective lender on the credit standing of a prospective borrower.

D Deed A legal written document by which title to property is transferred. Default Failure to fulfill the terms as agreed to in the mortgage of note. Down Payment The difference between the sale price of a property and the mortgage amount. Due-On-Sale A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.

E Earnest Money The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment. Easement A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property. Encumbrance Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid property taxes. Equity The value in which the owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property. Escrow Funds and/or deed left in trust to a third party. Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance and yearly mortgage insurance premiums.

F First Mortgage A mortgage that has a primary lien against a property. Fixed-Rates Mortgage

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A mortgage with an interest rate and monthly payments that remain constant over the life of the loan. Fixture Property, such as a hot water heater or plumbing fixture, that has become permanently attached to piece of real estate and goes with the property when it is sold. Flood Certification An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy. Foreclosure A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

G Graduated Payment Mortgage A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan. Gross Income Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.

H Hazard Insurance Insurance protection against damage to a property from fire, windstorms, and other common hazards. Homeowner's Insurance An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability. HUD-1 Form See Real Estate Settlement Statement.

I Income Property Real estate that is owned for investment purposes and not used as the owner's residence. Interest A charge paid for the use of money. Interim Financing See Bridge Loan.

J

No terms listed.

K

No terms listed.

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L Land Contract When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement. The buyer becomes the owner of equity in this type of sale. (Also see Owner Financing.) Lien A legal claim on a property used as security for a debt. Loan-To-Value Ratio The relationship between the amount of the mortgage and property value, usually shown as a percentage.

M Market Value The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure. Mortgage A contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis. Mortgage Note A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage. Mortgagee The lender in a mortgage contract. Mortgagor The borrower in a mortgage contract.

N Negative Amortization A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.

O Offer to Purchase A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract. Origination Fee A fee charged for the work involved in the evaluation preparation and submission of a proposed mortgage loan. Owner Financing A purchase in which the seller provides all or part of the financing.

P PITI An acronym for payments to lender that cover principal, interest, taxes and insurance on a property. Plat A map of a piece of land showing boundary lines, streets, actual measurements and easements. Point A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.

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Prepayment Penalty A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over. Pre-Approval A commitment by a lender to extend credit provided that specific conditions are met. Pre-Qualification A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit. Prime Rate The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates. Principal The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage. PMI (Private Mortgage Insurance) Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.

Q Qualifying Ratios Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).

R Real Estate Settlement Statement Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing. Realtor A real estate broker or sales associate affiliated with the National Association of Realtors. Recording Fee The charges made by the register of deeds to record the legal documents. Refinancing Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.

S Second Mortgage A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first. Secondary Mortgage Market The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors. Survey A map prepared by an engineer or surveyor charting a particular piece of real estate.

T Title Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title. Title Insurance Policy

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A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase. Title Search A check of public record to disclose the past and current facts regarding ownership of a particular piece of property. Transfer Tax In some areas city, county or state taxes imposed when property passes from one person to another. Truth-In-Lending Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.

U Underwriting The process of evaluating a loan application to determine the risk involved for the lender.

Captive Finance Company:

A subsidiary whose purpose is to provide financing to customers, who are buying the parent company's product.

The captive finance company is usually wholly owned by the parent company. Although there are numerous examples of these, the best ones occur in the automotive industry. Each of the "big three" automakers has a captive finance company. General Motors has General Motors Acceptance Corporation (GMAC), Daimler Chrysler has Chrysler Financial, and the Ford Motor Company has Ford Motor Credit Company (FMCC).

CAMELS Rating System:

An international bank-rating system where bank supervisory authorities rate institutions according to six factors.

The six factors are represented by the acronym "CAMELS."

The six factors examined are as follows:

C - Capital adequacy A - Asset quality M - Management quality E – Earnings L – Liquidity S - Sensitivity to Market Risk

Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for

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Dr P.Sravan Kumar MBA,PhD each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

Asset Quality Rating:

A review or evaluation assessing the credit risk associated with a particular asset. These assets usually require interest payments - such as a loans and investment portfolios. How effective management is in controlling and monitoring credit risk can also have an affect on the what kind of credit rating is given.

Many factors are considered when rating asset quality. For example, consideration must be put into whether or not a portfolio is appropriately diversified, what regulations or rules have been put in to place to limit credit risks and how efficiently operations are being utilized. Typically, a rating of one show that asset quality is good and there is very little credit risk, while a rating of five can signify that there are major asset quality problems and issues that need to be managed.

Accredited Investor:

A term used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings.

Also known as "qualified purchaser".

In order for an individual to qualify as an accredited investor, he or she must accomplish at least one of the following:

1) Earn an individual income of more than $200,000 per year, or a joint income of $300,000, in each of the last two years and expect to reasonably maintain the same level of income.

2) Have a net worth exceeding $1 million, either individually or jointly with his or her spouse.

3) Be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.

These investors are considered to be fully functional without all the restrictions of the SEC.

Paired Shares:

Stock of two companies under the same management that is sold as one unit and usually appears on one certificate.

These are also known as Siamese Shares.

Dematerialization (Demat): Dematerialization is a process by which the physical certificates of an investor are taken back by the company and actually destroyed and an equivalent number of securities are credited in the depository account of that investor. This is done at the request of the investor. Depository: A depository is an organization where the securities of a shareholder are held in the electronic form at the request of the shareholder through the medium of a depository participant.

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A depository can be compared to a bank. If an investor wants to utilize the service offered by depository, the investor has to open an account with the depository through depository participant. The main objective of the depository is to minimize the paper work involved with the ownership, trading and transfer of securities. Presently, there are two depositories exists in India. They are: 1. The National Securities Depository Limited (NSDL), and 2. Central Depository Services (India) Limited (CDSL). Depository Participant: Depository Participant acts as an agent of the investor in depository system. He will maintain the securities account balances of the investors and intimate the status of holdings from time to time. Rematerialization: Rematerialization is a process by which the shares held in electronic form (demat mode) are converted into physical certificates at the option of the shareholder. Book Building:

Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

Reverse Book Building:

The Reverse Book Building is a mechanism provided for capturing the sell orders on online basis from the share holders through respective Book Running Lead Managers (BRLMs) which can be used by companies intending to delist its shares through buy back process. In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from the share holders. The Reverse Book Building is basically a process used for efficient price discovery. It is a mechanism where, during the period for which the Reverse Book Building is open, offers are collected from the share holders at various prices, which are above or equal to the floor price. The buy back price is determined after the offer closing date. Clearing House:

An agency or separate corporation of an exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all securities contracts carried out through stock exchange. It acts as a buyer to every clearing member seller and a seller to every clearing member buyer.

Each stock exchange has its own clearing house. All members of an exchange are required to clear their trades through the clearing house at the end of each trading session

Clearing Member:

Clearing Member is a member of the clearing house. Each clearing member must also be a member of the exchange. All trades of a non-clearing member must be registered with, and eventually settled through, a clearing member Back Stop:

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The act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares. A company will try and raise capital through an issuance and to guarantee the amount received through the issue, the company will get a back stop from an underwriter or major shareholder to buy any of the unsubscribed shares.

Backpricing:

A pricing method used in specific futures contracts whereby the price of the commodity to be delivered is priced by the purchaser at some future date after entering into the position.

The price at which the purchaser can set the deliverable commodity must be relative to any monthly or periodic price found in the futures market for that particular actual.

Transfer of shares: One of the most important features of a company is that its shares are transferable. Transfer is a process, in which the ownership in shares of a person is transferred to the other person at the will of the shareholder. Transmission of shares: It is a process, in which shares are transferred by the legal action. Transmission takes place in the following instances: 1. When the registered shareholder dies, 2. When the shareholder becomes insolvent, and 3. Where the shareholder is a company and it goes into liquidation. On the death of the shareholder, his shares will be transmitted to his legal representatives and when the shareholder becomes insolvent his shares will be transmitted to the legal assignees. In case of liquidation of a shareholder, the shares will go to those persons, as decided by the liquidator.

Gross Domestic Product – GDP:

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = C + G + I + NX

Where:

"C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on Capital. "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living.

GDP Gap:

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The forfeited output of a country's economy resulting from the failure to create sufficient jobs for all those willing to work.

A GDP gap denotes the amount of production that is irretrievably lost. The potential for higher production levels is wasted because there aren't enough jobs supplied. LIBOR:

Stands for London Interbank Offered Rate. This is very popular bench mark and is issued for US Dollar, GB Pound, Euro, Swiss Franc, Canadian Dollar and the Japanese Yen. The maturity covers overnight to 12 months. The methodology – very briefly – The British Bankers Association (BBA) at 1100hrs GMT (Greenwich Mean Time) asks 16 bankers to contribute the LIBOR for each maturity and for each currency. The BBA weeds out the best four and the worst four, calculates the average of the remaining eight and value is published as LIBOR.

MIBOR:

Stands for Mumbai Interbank Offered Rate, it is closely modeled on the LIBOR. Currently there are two calculating agents for the benchmark - Reuters and National Stock Exchange (NSE). The FIMMDA NSE MIBOR benchmark is the more popular of the two, reflected by the larger number of deals that are transacted using this benchmark.

Mutual Funds:

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund.

By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. The biggest advantage to mutual funds is diversification.

Family of Funds:

A group of mutual funds offered by one investment or fund company. Each mutual fund has different characteristics and can range depending on investment objective.

Also referred to as a "Mutual Fund Family" or simply a "Fund Family".

Most fund companies today offer a wide range of mutual funds for investors to choose from. A benefit to fund families is they often allow investors to transfer money between funds for a nominal charge or no charge at all. Therefore, an investor who decides to switch from a growth fund to a balanced fund could do so without any new sales charges if each of these funds were part of the same fund family European Union – EU:

A group of European countries that participates in the world economy as one economic unit and operates under one official currency, the Euro. The EU's goal is to create a barrier-free trade zone and to enhance economic wealth by creating more efficiency within its marketplace.

The current formalized incarnation of the European Union was created in 1993 with 12 initial members. Since then, many additional countries have since joined. The EU has become one of the largest producers in the world, in terms of GDP, and the Euro has maintained a competitive value against the U.S. dollar.

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EU and non-EU members must agree to many legal requirements in order to trade with the EU member states.

Forex – FX:

The foreign exchange (also known as "forex" or "FX") market is the place where currencies are traded.

There is no central marketplace for currency exchange, rather, trade is conducted over- the-counter. The forex market is open 24 hours a day, five days a week, with currencies being traded worldwide.

The forex is the largest market in the world in terms of the total cash value traded, and any person, firm, or country may participate in this market.

Repo and Reverse Repo: Definition: A Repo or Reverse Repo is transaction in which two parties agree to sell and repurchase the same security. Under such an agreement the seller sells specified securities with an agreement to repurchase the same at a mutually decided future date and price. Similarly, the buy er purchases the securities with an agreement to resell the same to the seller on an agreed date at a predetermined price. Such a transaction is called a Repo when viewed from the perspective of the seller of the securities and Reverse Repo when viewed fr om the perspective of the buyer of the securities. Thus, whether a given agreement is termed as a Repo or Reverse Repo depends on which party initiated the transaction. Repos/Reverse Repos are used: • to meet shortfall in cash position, • augment returns on funds held, • to borrow securities to meet regulatory requirement • An SLR surplus bank and a CRR deficit bank can use the Repo deals as a convenient way of adjusting CRR/SLR positions simultaneously. • RBI uses Repo and Reverse Repo deals as a convenient way of adjusting liquidity in the system. The securities eligible for trading are: • Govt. of India & State Govt. Securities • Treasury Bills • PSU bonds, FI bonds & Corporate bonds held in Dematerialised form Issuer: In India, only RBI, Banks and Primary Dealers are allowed to enter into Repos. Financial institutions and others specified can only do reverse Repos. Buck the Trend:

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When a security goes against the prevailing trend of the overall market is called bucking the trend. It goes up during a bear market and it comes down during the bull market."

Contrarian:

An investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well.

Bucket Shop:

This term can be referred to the following two types of practices:

1. 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 they sell are typically poor investment opportunities, and almost always penny stocks.

2. 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.

Pump and Dump:

A scheme attempting to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company's stock, sell their position after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.

The victims of this scheme will often lose a considerable amount of their investment as the stock often falls back down after the process is complete.

Heavy Industry:

Relates to a type of business that typically carries a high capital cost (capital-intensive), high barriers to entry and low transportability. The term "heavy" refers to the fact that the items produced by "heavy industry" used to be products such as iron, coal, oil, ships, etc. Today the reference also refers industries that cause disruption to the environment in the form of pollution, deforestation, etc.

Industries that are typically considered heavy include:

1. Chemicals and plastics 2. Steel and oil refining, production 3. Mining 4. Industrial machinery 5. Mass transit (railways, airlines, shipbuilders)

Another trait of heavy industry is that it most often sells its goods to other industrial customers, rather than to the end consumer. Heavy industries tend to be a part of the

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Dr P.Sravan Kumar MBA,PhD supply chain of other products. As a result, their stocks will often rally at the beginning of an economic upturn and are often the first to benefit from an increase in demand.

Capital Expenditure – CAPEX:

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operation. These expenditures can include everything from repairing a roof to building a brand new factory.

In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.

Zero Based Budgeting:

It is a technique that sets all budgets to nil at the beginning of the year or period and requires each department to justify all of their expenditures. Money is allocated to those departments based on merits and not based on the previous year budget plus or minus some percentage such as in many traditional budgeting systems.

Incremental Budgeting:

This is a budget prepared using a previous period’s budget or actual performance as a basis with incremental amounts added for the new budget period. The allocation of resources is based upon allocations from the previous period. This approach is not recommended as it fails to take into account changing circumstances Call money:

The ‘call money rate’ is the interest rate in the call money market, where money is lent (by one bank to another, typically) for short durations, ranging from ‘overnight’ to 14 days.

At call:

Any transaction which occurs in the call money market is called as “At call”.

Call money rate: The interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge. It is also called as “broker loan rate”.

Recession:

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A recession is traditionally defined in macroeconomics as a decline in a country's real Gross Domestic Product (GDP) for two or more successive quarters of a year. However this definition is not universally accepted. The National Bureau of Economic Research defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. A severe or long recession is referred to as an economic depression.

Economic collapse:

An economic collapse is a devastating breakdown of a national, regional, or territorial economy.

A full or near-full economic collapse is often quickly followed by months, years, or even decades of economic depression, social chaos, and civil unrest. Usually this is eventually corrected at least in part by recovery measures implemented by the government, although some economists believe that often government intervention and over-regulation of the economy can lead to the conditions for collapse

Market Maven:

Slang used to describe a good investor who is "in-the-know." It also implies opinion leadership.

In general, the term is used to describe consumers who have up-to-date information about products, places to shop, and different markets. This definition makes sense when talking in the context of the stock market.

Day Trader:

A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day. Most trades are entered and closed out within the same day. This is a highly speculative practice in the stock market.

Market/Corporate Cannibalization:

The negative impact of a company's new product on the sales performance of its existing related products

If a company is practicing market cannibalization, it is eating its own market. For example, say Coca Cola puts out a new product called Coke2, and customers buy Coke2 instead of regular Coke. Although sales may be up for the new product, these sales may be eating into Coke's original market, in which case the overall company sales would not be increasing. Because of the possibility of market cannibalization, investors should always dig deeper, analyzing the source and impact of the success of a company's new but similar product.

Market Capitalization:

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A measure of a company's total value. It is estimated by determining the cost of buying an entire business in its current state.

Often referred to as "market cap", it is the total value of all outstanding shares. It is calculated by multiplying the number of shares outstanding by the current market price of one share Market Maker:

A broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.

Market Maker Spread:

The difference between the price at which a Market Maker is willing to buy a security and the price at which it is willing to sell it (the difference between the bid and ask for a given security). Since each market maker can either buy or sell a stock at any given time, the spread represents the market maker's profit on each trade.

Market makers are limited as to the size of spread they offer. The bid/ask spread has a maximum size, this is to prevent cheating and manipulation of stock prices.

Lot:

In general, Lot means any group of goods or services making up a transaction. In the financial markets, a lot represents the standardized quantity of a financial instrument as set out by an exchange or similar regulatory body. For exchange-traded securities, a lot may represent the minimum quantity of that security that may be traded.

In terms of stocks, the lot is the number of shares you purchase in one transaction. In terms of options, a lot represents the number of contracts contained in one derivative security.

Odd Lot:

An amount of a security that is less than the normal unit of trading for that particular security. Sale and Lease Back:

It is a sub-part of finance lease. Under this, the owner of an asset sells the asset to a party (the buyer), who in turn leases back the same asset to the owner in consideration of lease rentals. However, under this arrangement, the assets are not physically exchanged but it all happens in records only. This is nothing but a paper transaction.

Sale and lease back transaction is suitable for those assets, which are not subjected to depreciation but appreciation, say land. The advantage of this method is that the lessee

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Leveraged Leasing:

Under leveraged leasing arrangement, a third party is involved beside lessor and lessee. The lessor borrows a part of the purchase cost (say 80%) of the asset from the third party i.e., lender and the asset so purchased is held as security against the loan. The lender is paid off from the lease rentals directly by the lessee and the surplus after meeting the claims of the lender goes to the lessor. The lessor, the owner of the asset is entitled to depreciation allowance associated with the asset.

Lease:

A lease transaction is a commercial arrangement whereby an equipment owner or Manufacturer conveys to the equipment user the right to use the equipment in return for a rental. In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period in return for a mutually agreed periodic payment (the lease rentals). The important feature of a lease contract is separation of the ownership of the asset from its usage.

Lease Finance:

Lease financing denotes procurement of assets through lease.

Lease as a concept involves a contract whereby the ownership, financing and risk taking of any equipment or asset are separated and shared by two or more parties. Thus, the lessor may finance and lessee may accept the risk through the use of it while a third party may own it. Alternatively the lessor may finance and own it while the lessee enjoys the use of it and bears the risk. There are various combinations in which the above characteristics are shared by the lessor and lessee. Long-term, non-cancellable lease contracts are known as financial leases.

The essential point of financial lease agreement is that it contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost. At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair value of the asset as lease rentals and the lease period is 75% of the economic life of the asset. The lease agreement is irrevocable

War Chest:

Slang for the reserve of cash a corporation sets aside to attempt a takeover or to defend against a hostile takeover.

War Babies:

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A name given to securities in companies that are defense contractors. Also known as defense stocks.

A good example of this is firms that build aircrafts and ammunition. When a war is imminent, these stocks tend to outperform the market because of the potential for increased business.

War Bond:

Debt securities issued by a government for the purpose of financing military operations during times of war. It is an emotional appeal to patriotic citizens to lend the government their money because these bonds offer a rate of return below the market rate.

What is an SPV?

The acronym stands for special purpose vehicle. The SPV is given to an entity which is formed for a single, well-defined and narrow purpose. An SPV can be formed for any lawful purpose. No SPV can be formed for an unlawful purpose, or for undertaking activities which are contrary to the provisions of law or public policy.

Is there a difference between a special purpose vehicle and a company?

SPVs are mostly formed to raise funds from the market. Technically, an SPV is a company. It has to follow the rules of formation of a company laid down in the Companies Act. Like a company, the SPV is an artificial person. It has all the attributes of a legal person. It is independent of members subscribing to the shares of the SPV. The SPV has an existence of its own in the eyes of law. It can sue and be sued in its name. The SPV has to adhere to all the regulations laid down in the Companies Act. Members of an SPV are mostly the companies and individuals sponsoring the entity. An SPV can also be a partnership firm. This, however, is unusual.

The company, as distinguished from an SPV, may be called a general purpose vehicle. A company may do many things which are mentioned in the memorandum of association (MoA) or permitted by the Companies Act. An SPV may also do the same, but its scope of operation is limited and focused. If it is not so, the SPV had better be called a company. The MoA is quite narrow in the case of an SPV.

What are the advantages of setting up an SPV?

The biggest advantage is that it helps in separating the risk and freeing up the capital. As a result, the SPV and the sponsoring company are protected against risks like insolvency, which may arise during the course of operation.

Beneficiary: A person or entity named in a will or a financial contract as the inheritor of property when the property owner dies.

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A beneficiary can be a spouse, child, charity or any entity or person to whom the property owner would like to leave his or her possessions and assets.

Grantor/Trustor: An individual or organization that gifts funds or assets to others by transferring fiduciary duty to a third party trustee that will maintain the assets for the benefit of the beneficiaries.

Also referred to as a grantor, the trustor is the party that generally donates or gifts assets to others.

Trustee: An individual who holds or manages assets for the benefit of another

Irrevocable Trust: A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the trust, effectively removes all of his or her rights of ownership to the assets and the trust.

This is the opposite of a "revocable trust", which allows the grantor to modify the trust.

Revocable Trust: A trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries.

Also referred to as a "revocable living trust".

This type of agreement provides flexibility and income to the living grantor; he or she is able to adjust the provisions of the trust and earn income, all the while knowing that the estate will be transferred upon death.

Escheat: When property and/or an estate is transferred to the government because a person has died without a will or an heir to his or her estate.

Shadow Pricing:

The arbitrary assignment of dollar values to non-marketed goods.

When performing different types of cost-benefit analyses, certain costs or benefits are intangible and, in order for full analysis of the scenario, all these variables must be assigned values.

Shadow Rating:

The name given to a bond rating performed on an issuing company by a credit rating institution, but without any public announcement of the results.

Shadow ratings are useful for companies trying to assess how much a debt issue might be worth to investors. Rather than publicly releasing the results of a credit analysis by a third party, companies might wish to first know what the results are before it is released to the public.

These ratings were given to determine the credit worthiness of bonds with no secondary market.

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Golden Hello:

A signing bonus offered by a securities firm to a key executive from a competing firm.

The firm offering the golden hello hopes the executive of the competing company will be persuaded to leave his or her existing employer and join the firm giving the offer.

Golden Boot:

An inducement, using maximum incentives and financial benefits, for an older worker to take "voluntary" early retirement.

A golden boot is usually offered by companies planning on downsizing or hiring new employees. The goal for these companies is to avoid potential lawsuits stemming from labor laws that protect employees from age discrimination.

Leveraged Buyout – LBO:

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds usually are not investment grade and are referred to as junk bonds.

Management Buyout – MBO:

When the managers and/or executives of a company purchase controlling interest in a company from existing shareholders.

In most cases, the management will buy out all the outstanding shareholders and then take the company private because it feels it has the expertise to grow the business better if it controls the ownership.

Panic Buying

High volume buying brought about by sharp price increases.

The main problem with panic buying is that investors do not evaluate fundamentals. Instead, they blindly buy before prices rise even more.

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Panic Selling

Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.

The main problem with panic selling is that investors sell in reaction to pure emotion and fear, rather than evaluating fundamentals. Almost every market crash is a result of panic selling. Most major stock exchanges use trading curbs and halts to limit panic selling, to allow people to digest any information on why the selling is occurring, and to restore some degree of normalcy to the market.

Trading Halt :

A temporary suspension in the trading of a particular security on one or more exchanges, usually in anticipation of a news announcement or to correct an order imbalance. A trading halt may also be imposed for purely regulatory reasons. During a trading halt, open orders may be canceled and options may be exercised.

A trading halt gives all investors equal opportunity to evaluate news and make buy, sell or hold decisions on that basis. The stock exchange can also halt a stock at any time if it suspects unusual activity related to a stock's price. The stock will typically resume trading after 30 minutes, once news from the issuing company has been disseminated.

Trading Curb :

A temporary restriction on program trading in a particular security or market, usually to reduce dramatic price movements. Also known as a collar or circuit breaker.

When the "curbs are in" at the NYSE, it means that certain types of trading are restricted to prevent volatility. Depending on the situation, this can mean that either all trading is halted or that certain sales can be executed only on an uptick.

Trade Resumption :

To resume trading activities after having been shut down (halted) for some period of time. This can relate to trading between nations, or the resumption of open-market trading in a security such as a common stock or even an entire exchange.

Outside Director Any member of a company's board of directors who is not an employee or stakeholder in the company.

Inside Director Any member of a company's board of directors who is either an employee or stakeholder in the company

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Lead Investor A company's principal provider of capital, such as the entity which originates and structures a syndicated deal.

Angel Investor An individual who provides capital to one or more startup companies. The individual is usually affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment.

Horizontal Merger A merger occurring between companies producing similar goods or offering similar services. This type of merger occurs frequently as a result of larger companies attempting to create more efficient economies of scale.

Vertical Merger When one Firm acquires another firm that is in the same Industry but at another stage in the production cycle. For example, one firm acquires another firm which serves as a material supplier to the acquiring firm.

Penny stock: A stock that is low-priced, typically selling for less than $1 a share, and is not listed on a major exchange such as the New York Stock Exchange. Penny stocks are highly volatile and risky investments, but are popular among speculators.

Pink Sheets: A daily publication compiled by the National Quotation Bureau with bid and ask prices of over-the-counter stocks, including the market makers who trade them. Unlike companies on a stock exchange, companies quoted on the pink sheets system do not need to meet minimum requirements or file with the SEC. Pink sheets also refers to OTC trading.

Over-the-counter: A security traded in some context other than on a formal exchange (such as the NYSE, TSX, AMEX, etc.. in US). The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.

Asset Bubble: A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly. Echo Bubble: A post-bubble rally that becomes another, smaller bubble. The echo bubble usually occurs in the sector in which the preceding bubble was most prominent, but the echo is less dramatic. People point to the rally that occurred after the market crash of 10500 points of SENSEX in May, 2006 as an example of an echo bubble. Just like its more- prominent predecessor, the smaller echo bubble eventually burst.

Speculative Bubble:

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A temporary market condition created through excessive buying (more demand and less supply), and an unfounded run-up in prices occurs. Speculative bubbles are generally a result of the "bandwagon effect." Investors, seeing an upward trend in prices, quickly enter long positions in an attempt to participate in the stocks' profitability. Typically, these bubbles are followed by even faster sell-offs once the prices begin to decline.

Congeneric Merger: A merger of firms in the same general industry, but for which no customer or supplier relationship exists

Conglomerate Merger: A merger of companies in totally different industries

Golden handshake: A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses their job through firing, restructuring, or even scheduled retirement. This can be in the form of cash, equity, and other benefits, and is often accompanied by an accelerated vesting of stock options.

Typically, "golden handshakes" are offered only to high-ranking executives by major corporations and may entail a value measured in millions of dollars. Golden handshakes are given to offset the risk inherent in taking the new job, since high-ranking executives have a high likelihood of being fired and since a company requiring an outsider to come in at such a high level may be in a precarious financial position.

Golden Parachute: Golden parachute is a clause (or several) in an executive's employment contract specifying that they will receive certain large benefits if their employment is terminated by the employer. These benefits can be severance pay, cash bonuses, stock options or a combination of the items. The benefits are designed to reduce perverse incentives.

Slump sale The transfer of one or more undertakings as a result of the sale for a lumpsum consideration without values being assigned to the individual assets and liabilities in such sales.

Restructuring: A significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business. When a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt in a debt restructuring. After a debt restructuring, the payments on debt are more manageable for the company and the likelihood of payment to bondholders increases. A company restructures its operations or structure by cutting costs, such as payroll, or reducing its size through the sale of assets. This is often seen

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Transaction exposure: The risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms.

Often, when a company identifies such exposure to changing exchange rates, it will choose to implement a hedging strategy, using forward rates to lock in an exchange rate and thus eliminate the exposure to the risk.

Translation exposure: The risk that a company's equities, assets, liabilities or income will change in value as a result of exchange rate changes. This occurs when a firm denominates a portion of its equities, assets, liabilities or income in a foreign currency. It is also known as "accounting exposure".

Accountants use various methods to insulate firms from these types of risks, such as consolidation techniques for the firm's financial statements and the use of the most effective cost accounting evaluation procedures. In many cases, this exposure will be recorded in the financial statements as an exchange rate gain (or loss).

Brand: A name, symbol, or design (or combination of these) that identifies the goods and services of one seller or group of sellers and distinguishes them from those of competitors

Brand awareness: The likelihood that consumers recognize the existence and availability of a company's product or service. Creating brand awareness is one of the key steps in promoting a product.

Brand awareness is an important way of promoting commodity-related products. This is because for these products, there are very few factors that differentiate one product from its competitors. Therefore, the product that maintains the highest brand awareness compared to its competitors will usually get the most sales.

For example, in the soft drink industry, very little separates a generic soda from a brand- name soda, in terms of taste. However, consumers are very aware of the brands Pepsi and Coca Cola, in terms of their images and names. This higher rate of brand awareness equates to higher sales and also serves as an economic moat that prevents competitors from gaining more market share.

Brand equity: Combination of factors such as awareness, loyalty, perceived quality, the feeling and images, and any other emotion people associate with a brand name

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Open-End Contract A contract in which the quantity and/or duration is not specified.

Open-End Lease: A lease in which the lessee assumes the risk for depreciation at the end of the lease. That is, if the equipment is worth less at the end of the lease than the residual value set at the beginning of the lease, the lessee must pay the difference.

Open-End Mortgage: A mortgage where the amount that can be borrowed with the property as security can be increased, i.e., there is no fixed amount of principal

SWOT analysis: SWOT stands for Strengths, Weaknesses, Opportunities and Threats, and can be used to analyse a current situation and plan future action accordingly.

The model first identifies current strengths and weaknesses, and then, leading on from that, opportunities to be maximised, and threats to be minimised or avoided. SWOT is a flexible tool which can be applied to organisations or individuals, and provides an objective analytical framework for decision making and planning.

PESTLE analysis: PESTLE is an analytical tool which considers external factors and helps you to think about their impact. The factors in a PESTLE analysis are Political, Environmental, Social, Technological, Legal and Economic (you may sometimes see this referred to simply as PEST, which uses just the first four factors). In contrast to a SWOT, PESTLE encourages you to think about the wider environment and what might be happening now and in the future which will either benefit or disadvantage the organisation, individual etc – a kind of radar which picks up trends and developments in the outside world which can be used to inform longer term planning and strategy making.

B2B Business to Business - marketing, advertising, communications, sales and other activities perpetrated between businesses.

B2C Business to Consumer - marketing, advertising, communications, sales and other activities inflicted by a business on consumers

Predatory pricing: Reducing prices below fair market value as a competitive weapon to drive weaker competitors out of the market.

Price discrimination: The practice of charging different prices for the same product in different markets.

Professional promoter: A professional promoter is one who promotes the companies and then hands over the control and management to the Boards of Directors. Her/his interest lies only in the process of promoting companies.

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Occasional promoter: She/he promotes companies once in a while. It is not his regular activities unlike the professional promoter. Once the task is accomplished she/he returns to her/his original occupation

Entrepreneur promoter: One who conceives the idea of a new business unit, does the groundwork to establish it and subsequently becomes a part of the management is known as an entrepreneur promoter.

Balance of Payments: Accounting of a country's economic transactions with foreign countries in a stated period of time, normally one year. The balance of payments for any country is divided into two broad categories: the Current Account representing import and export trade, plus income from tourism, profits earned overseas, and interest payments; and the Capital account, representing the sum of bank deposits, investments by private investors, and debt securities sold by a central bank or official government agencies.

Balance of payments may be used as an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that there is significant foreign investment within that country. It may also mean that the country does not export much of its currency.

Balance of Trade: It is the largest component of a country's balance of payments. It is the difference between exports and imports. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.

The balance of trade is one of the most misunderstood indicators of the economy. For example, many people believe that a trade deficit is a bad thing. However, whether a trade deficit is bad thing or not is relative to the business cycle and economy. In a recession, countries like to export more, creating jobs and demand. In a strong expansion, countries like to import more, providing price competition, which limits inflation and, without increasing prices, provides goods beyond the economy's ability to meet supply. Thus, a trade deficit is not a good thing during a recession but may help during an expansion.

Distressed Securities: A financial instrument in a company that is near or is currently going through bankruptcy. This usually results from a company's inability to meet its financial obligations. As a result, these financial instruments have suffered a substantial reduction in value. Distressed securities can include common and preferred shares, bank debt, trade claims (goods owed) and corporate bonds.

Due to their reduction in value, distressed securities often become attractive to investors who are looking for a bargain and are willing to accept a risk.

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The logic behind this investment is that the company's situation is not as bad as the market believes it to be and either the company will survive or there will be enough money upon liquidation to cover the original investment.

Watered Stock: Stock that is issued with a value much greater than the value of the issuing company's assets. Watered stock can be caused by excessive stock dividends, overvalued assets and/or large operating losses.

Assets can be overvalued for several reasons, including inflated accounting values or excessive issue of stock (through a dividend or employee stock-option program). This term is thought to originate from ranchers who would feed their cattle large amounts of water before market day to make them heavier, fetching a price higher than their worth.

Bull: An investor who thinks the market, a specific security or an industry will rise.

Bulls are optimistic investors who are presently predicting good things for the market, and are attempting to profit from this upward movement.

Bull market: A financial market of a certain group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used in respect to the stock market, but really can be applied to anything that is traded, such as bonds, currencies, commodities, etc…

Bear: An investor who believes that a particular security or market is headed downward. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.

Bear market: A market condition in which the prices of securities are falling or are expected to fall.

Credit Rating

What is credit rating?

Credit rating is, essentially, the opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligations as and when they arise.

Why is credit rating necessary at all?

Credit rating is an opinion expressed by an independent professional organisation, after making a detailed study of all relevant factors. Such an opinion will be of great assistance to investors in making investment decisions. It also helps the issuers of debt instruments to price their issues correctly and to reach out to new investors.

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Regulators like Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) often use credit rating to determine eligibility criteria for some instruments. For example, the RBI has stipulated a minimum credit rating by an approved agency for issue of Commerce Paper. In general, credit rating is expected to improve quality consciousness in the market and establish, over a period of time, a more meaningful relationship between the quality of debt and the yield from it. Credit Rating is also a valuable input in establishing business relationships of various types

Does credit rating constitute an advice to the investors to buy?

It does not. The reason is that some factors, which are of significance to an investor in arriving at an investment decision, are not taken into account by rating agencies. These include reasonableness of the issue price or the coupon rate, secondary market liquidity and pre-payment risk. Further, different investors have different views regarding the level of risk to be taken and rating agencies can only express their views on the relative risk.

Black: A description of a positive balance on a company's financial statements. The phrase "in the black" is widely used to refer to the condition of companies that have been profitable in their last accounting period. This term is derived from the color of ink used by accountants to enter a positive figure on a company's financial statements.

Red: A term relating to a negative balance on a company's financial statements.

The phrase "in the red" is used widely to refer to companies that have not been profitable within their last accounting period. This term is derived from the color of ink used to by accountants to enter a negative figure on a company's financial statements.

Seed Capital

Money used for the initial investment in a project or startup company, for proof- of-concept, market research, or initial product development. Also called seed financing or seed money.

Lead Investor A company's principal provider of capital, such as the entity which originates and structures a syndicated deal.

Angel Investor

An individual who provides capital to one or more startup companies. The individual is usually affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment.

Hedge

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An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.

Treasury Stock

Stock reacquired by a corporation to be retired or resold to the public. Treasury stock is issued but not outstanding, and is not taken into consideration when calculating earnings per share or dividends, or for voting purposes.

Eating Stock

What an underwriter does when he/she can't find enough buyers and is forced to purchase the stock for his/her own account. To cover for risk associated with not being able to find enough buyers for an issue, underwriters charge an underwriting fee. Thus, even in an underwriter is "eating" stock, he/she might still make a profit on the deal. However, in the situation that a new issue is severely undersubscribed, the underwriter might make a loss on the deal.

Lead Manager

The commercial or investment bank which has primary responsibility for organizing a given credit or bond issuance. This bank will find other lending organizations or underwriters to create the syndicate, negotiate terms with the issuer, and assess market conditions. also called syndicate manager, managing underwriter or lead underwriter.

Red Herring same as preliminary prospectus. Its name comes from the warning, printed in red, that information in the document is still being reviewed by the SEC and is subject to change.

Pari Passu

Often seen in venture capital term sheets, indicating that one series of equity will have the same rights and privileges as another series of equity.

Forex

An over-the-counter market where buyers and sellers conduct foreign exchange transactions. also called foreign exchange market.

Bullion

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Gold, silver, platinum, or palladium, in the form of bars or ingots. Some central banks use bullion for settlement of international debt, and some investors purchase bullion as a hedge against inflation.

Derivative

A financial instrument whose characteristics and value depend upon the characteristics and value of an underlier, typically a commodity, bond, equity or currency.

Dividend Payout Ratio

Dividends paid divided by company earnings over some period of time, expressed as a percentage. also called payout ratio.

Shadow Stock

First, a public company may create a stock that strips out the market wide movements for the purpose of rewarding managers. That is, the management might have done a great job - but the traded stock plummets because the market as a whole plummets.

A second interpretation of shadow stock is a phantom stock that is created by a private company (i.e. that does not have stock traded either on exchange or over the counter) again for the purpose of performance evaluation and rewards.

Surplus Funds

Cash flow available after payment of taxes in a project.

Sunk Cost

Costs that have been incurred and can not be reversed.

Strong Currency

A currency whose value compared to other currencies is improving, as indicated by a decrease in the direct exchange rates for the currency.

Striking Price

The price at which an option can be exercised.

Strategic alliance

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Collaboration between two or more companies designed to achieve some corporate objective. May include international licensing agreements, management contracts, or joint ventures.

Stock Split

Occurs when a firm issues new shares of stock and in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices.

For example, if IBM trades at $100 before a two-for-one split, after the split it will trade at $50, and holders of the stock will have twice as many shares as they had before the split.

Stock Insurance Company

An insurance company owned by a group of stockholders, who are not necessarily policyholders.

Capital Budgeting

The process of choosing the firm`s long-term Capital assets.

Clone Fund

A new fund Set up in a Fund family to emulate another successful fund.

Closed fund

A mutual fund that is no longer issuing shares, mainly because it has grown too large.

Collateral

Asset than can be repossessed if a borrower defaults.

Consignment

Transfer of goods to a seller while title to the Merchandise is retained by the owner.

Consortium

A group of companies that cooperate and share resources in Order to achieve a common objective.

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Custodian bank

Bank or other Financial institution that keeps custody of Stock certificates and other Assets of a mutual fund, individual, or corporate client.

Margin of Profit

Gross Profit divided by Net sales. Used to measure a firm`s operating Efficiency and pricing policies in Order to determine how competitive the Firm is within the industry.

Monte Carlo simulation

An analytical technique for solving a problem by performing a large number of trail runs, called simulations, and inferring a solution from the collective results of the trial runs. Method for calculating the probability Distribution of possible outcomes.

Public limited partnership

A limited Partnership with an unlimited number of partners that is registered with the SEC and is available for public Trading by broker/dealers.

Portfolio A Collection of investments, Real and/or financial.

Phantom stock plan

An incentive scheme that awards Management bonuses based On increases in The Market price of the company`s stock.

Performance shares

Shares of Stock given to managers On the Basis of performance as measured by Earnings per share and similar criteria. A Control device shareholders sometimes use to tie Management to the self-interest of shareholders.

Venture capital

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An Investment in a Start-up business that is perceived to have excellent growth prospects but does not have access to Capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

Vertical acquisition

Buying or taking over a Firm in the same Industry in which the acquired firm and the acquiring firm represent different steps in the production process.

Vertical merger

When one Firm acquires another firm that is in the same Industry but at another stage in the production cycle. For example, the firm being acquired serves as a supplier to the firm doing the acquiring.

Open-end fund

Used in the context of general equities. Mutual fund that continually creates new Shares on demand. Mutual fund shareholders Buy the funds at Net asset value and may redeem them at any time at the prevailing Market prices. Antithesis of closed-end fund.

Opportunity costs

The difference in the performance of an actual Investment and a desired investment adjusted for fixed costs and Execution costs. When not all desired trades can be implemented. Most valuable alternative that is given up.

Owner’s equity

Paid-in Capital plus donated capital Plus retained Earnings less liabilities. Outside director

A director of a Company who is not an employee of that company and brings in outside experience to help make board decisions.

Breakup Value

The value of a company if each of its parts were independent, publicly traded entities. Companies often consider the breakup value of targets when evaluating a possible takeover. Also called Private Market Value (PMV).

Suspense Account

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An account used temporarily to record receipts and disbursements that have yet to be classified.

SurTax

A tax added to the normal tax paid by corporations or individuals who have earned income above a certain level.

Generally Accepted Accounting Principals (GAAP)

The overall conventions, rules, and procedures that define accepted accounting practice at a particular time in the U.S.

Gold bond

Bonds issued by gold-mining companies and backed by gold. The Bonds make Interest payments based On the level of gold prices.

EDGAR: The term "EDGAR" – Electronic Data Gathering, Analysis, and Retrieval – refers to the computer system for the receipt, acceptance, review and dissemination of documents submitted to the SEC in electronic format.

PUBLIC FLOAT: The portion of a company's outstanding shares that is in the hands of public investors, as opposed to company officers, directors, or controlling-interest investors.

FLOAT: The number of shares of a security that are outstanding and available for trading by the public.

Seed Capital

Money used for the initial investment in a project or startup company, for proof- of-concept, market research, or initial product development. Also called seed financing or seed money.

Lead Investor A company's principal provider of capital, such as the entity which originates and structures a syndicated deal.

Angel Investor

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An individual who provides capital to one or more startup companies. The individual is usually affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment.

Hedge

An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.

Treasury Stock

Stock reacquired by a corporation to be retired or resold to the public. Treasury stock is issued but not outstanding, and is not taken into consideration when calculating earnings per share or dividends, or for voting purposes.

Eating Stock

What an underwriter does when he/she can't find enough buyers and is forced to purchase the stock for his/her own account. To cover for risk associated with not being able to find enough buyers for an issue, underwriters charge an underwriting fee. Thus, even in an underwriter is "eating" stock, he/she might still make a profit on the deal. However, in the situation that a new issue is severely undersubscribed, the underwriter might make a loss on the deal.

Lead Manager

The commercial or investment bank which has primary responsibility for organizing a given credit or bond issuance. This bank will find other lending organizations or underwriters to create the syndicate, negotiate terms with the issuer, and assess market conditions. also called syndicate manager, managing underwriter or lead underwriter.

Red Herring same as preliminary prospectus. Its name comes from the warning, printed in red, that information in the document is still being reviewed by the SEC and is subject to change.

Pari Passu

Often seen in venture capital term sheets, indicating that one series of equity will have the same rights and privileges as another series of equity.

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An over-the-counter market where buyers and sellers conduct foreign exchange transactions. also called foreign exchange market.

Bullion

Gold, silver, platinum, or palladium, in the form of bars or ingots. Some central banks use bullion for settlement of international debt, and some investors purchase bullion as a hedge against inflation.

Derivative

A financial instrument whose characteristics and value depend upon the characteristics and value of an underlier, typically a commodity, bond, equity or currency.

Dividend Payout Ratio

Dividends paid divided by company earnings over some period of time, expressed as a percentage. also called payout ratio.

Shadow Stock

First, a public company may create a stock that strips out the market wide movements for the purpose of rewarding managers. That is, the management might have done a great job - but the traded stock plummets because the market as a whole plummets.

A second interpretation of shadow stock is a phantom stock that is created by a private company (i.e. that does not have stock traded either on exchange or over the counter) again for the purpose of performance evaluation and rewards.

Surplus Funds

Cash flow available after payment of taxes in a project.

Sunk Cost

Costs that have been incurred and can not be reversed.

Strong Currency

A currency whose value compared to other currencies is improving, as indicated by a decrease in the direct exchange rates for the currency.

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Striking Price

The price at which an option can be exercised.

Strategic alliance

Collaboration between two or more companies designed to achieve some corporate objective. May include international licensing agreements, management contracts, or joint ventures.

Stock Split

Occurs when a firm issues new shares of stock and in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices.

For example, if IBM trades at $100 before a two-for-one split, after the split it will trade at $50, and holders of the stock will have twice as many shares as they had before the split.

Stock Insurance Company

An insurance company owned by a group of stockholders, who are not necessarily policyholders.

Capital Budgeting

The process of choosing the firm`s long-term Capital assets.

Clone Fund

A new fund Set up in a Fund family to emulate another successful fund.

Closed fund

A mutual fund that is no longer issuing shares, mainly because it has grown too large.

Collateral

Asset than can be repossessed if a borrower defaults.

Consignment

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Transfer of goods to a seller while title to the Merchandise is retained by the owner.

Consortium

A group of companies that cooperate and share resources in Order to achieve a common objective.

Custodian bank

Bank or other Financial institution that keeps custody of Stock certificates and other Assets of a mutual fund, individual, or corporate client.

Margin of Profit

Gross Profit divided by Net sales. Used to measure a firm`s operating Efficiency and pricing policies in Order to determine how competitive the Firm is within the industry.

Monte Carlo simulation

An analytical technique for solving a problem by performing a large number of trail runs, called simulations, and inferring a solution from the collective results of the trial runs. Method for calculating the probability Distribution of possible outcomes.

Public limited partnership

A limited Partnership with an unlimited number of partners that is registered with the SEC and is available for public Trading by broker/dealers.

Portfolio A Collection of investments, Real and/or financial.

Phantom stock plan

An incentive scheme that awards Management bonuses based On increases in The Market price of the company`s stock.

Performance shares

Shares of Stock given to managers On the Basis of performance as measured by Earnings per share and similar criteria. A Control device shareholders sometimes use to tie Management to the self-interest of shareholders.

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Venture capital

An Investment in a Start-up business that is perceived to have excellent growth prospects but does not have access to Capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

Vertical acquisition

Buying or taking over a Firm in the same Industry in which the acquired firm and the acquiring firm represent different steps in the production process.

Vertical merger

When one Firm acquires another firm that is in the same Industry but at another stage in the production cycle. For example, the firm being acquired serves as a supplier to the firm doing the acquiring.

Open-end fund

Used in the context of general equities. Mutual fund that continually creates new Shares on demand. Mutual fund shareholders Buy the funds at Net asset value and may redeem them at any time at the prevailing Market prices. Antithesis of closed-end fund.

Opportunity costs

The difference in the performance of an actual Investment and a desired investment adjusted for fixed costs and Execution costs. When not all desired trades can be implemented. Most valuable alternative that is given up.

Owner’s equity

Paid-in Capital plus donated capital Plus retained Earnings less liabilities. Outside director

A director of a Company who is not an employee of that company and brings in outside experience to help make board decisions.

Breakup Value

The value of a company if each of its parts were independent, publicly traded entities. Companies often consider the breakup value of targets when evaluating a possible takeover. Also called Private Market Value (PMV).

Suspense Account

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An account used temporarily to record receipts and disbursements that have yet to be classified.

SurTax

A tax added to the normal tax paid by corporations or individuals who have earned income above a certain level.

Generally Accepted Accounting Principals (GAAP)

The overall conventions, rules, and procedures that define accepted accounting practice at a particular time in the U.S.

Gold bond

Bonds issued by gold-mining companies and backed by gold. The Bonds make Interest payments based On the level of gold prices.

GDR

Global Depositary Receipt. A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on an exchange of another country. American Depositary Receipts make it easier for individuals to invest in foreign companies, due to the widespread availability of price information, lower transaction costs, and timely dividend distributions. also called European Depositary Receipt.

American Depositary Receipt.

A negotiable certificate issued by a U.S. bank representing a specific number of shares of a foreign stock traded on a U.S. stock exchange. ADRs make it easier for Americans to invest in foreign companies, due to the widespread availability of dollar-denominated price information, lower transaction costs, and timely dividend distributions.

Private Placement

The sale of securities directly to institutional investors, such as banks, mutual funds, insurance companies, pension funds, and foundations. Does not require SEC registration, provided the securities are bought for investment purposes rather than resale, as specified in the investment letter.

Public Company

A company which has issued securities through an offering, and which are now traded on the open market. also called publicly held or publicly traded. opposite of private company

Initial Public Offering

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The first sale of stock by a company to the public.

Going Private

The repurchasing of all of a company's outstanding stock by employees or a private investor. As a result of such an initiative, the company stops being publicly traded. Sometimes, the company might have to take on significant debt to finance the change in ownership structure. Companies might want to go private in order to restructure their businesses (when they feel that the process might affect their stock prices poorly in the short run). They might also want to go private to avoid the expense and regulations associated with remaining listed on a stock exchange. opposite of going public.

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