Equity Market Basics

Investment is not number crunching and analysis.
It’s about independent thinking.
It’s about patience.
You’ve got to be ready for setbacks.
You have to be down to earth.
The market anyways teaches you to be down to earth.
- Rakesh Jhunjhunwala

That’s what the legendary Indian investor thinks about making money in the equity market. A
quick estimate states that he is worth Rs 2,800 crore upwards. This means that he is a highly
successful investor. We all know that. He has shared some wisdom to the world with the above
quote. Lets understand more.

Before that lets find out what kind of investor are you. Answering the following questions will help
you understand which risk category you fall into.

1. How would your best friend describe your risk-taking capacity?
(A) A risk-avoider (B) A gambler (C) Willing to take risk after adequate research

2. You are in the final lap of KBC and you’ve won Rs 1 crore. You aren’t fully confident of
the answer. Which of the following choices will you go in for?
(A) Go home with the winning amount (B) Play on for 50% chance of winning Rs 2 crore, risking
the amount already won

3. What is your comfort level while investing in stocks?
(A) Somewhat comfortable (B) Very comfortable (C) Not my cup of tea

4. When you think of the word risk in investment parlance, what comes to your mind first?
(A) Uncertainty (B) Thrill (C) An opportunity

5. You receive a bonus of Rs 50,000 that you wish to invest. You would:
(A) Invest in stocks, despite the turbulent market (B) Go in for balanced mutual funds (C) Deposit
it in a bank FD, earning over 9% interest per annum.

6. You have just finished saving for a once-in-a-lifetime vacation. A month before you plan
to leave, you lose your job. You would:
(A) Cancel the vacation (B) Extend your vacation because this may be your last chance to go in
first-class (C) Go as scheduled, reasoning that you may need the time to prepare for a job search

7. Which of the following job opportunities are you most likely to opt for?
(A) Extremely high salary, but does not guarantee job security (B) Job security is the first priority
(C) Fairly good salary with somewhat assured job security

8. You hold stocks of a highly-reputed company. The stock falls sharply due to a market
correction. You would:
(A) Sell it immediately before the worst happens (B) Buy more, it’s a jackpot

So, what type of investor are you?

• Aggressive: You are pretty bold with your investment strategies and believe in the ‘High Risk,
High Return’ theory. In fact, you aim for capital appreciation in all your investments. So, think of
investing around 60% or more of your portfolio in equities.


• Moderate: You don’t get carried away by huge returns generated by rather risky ventures. You
are happy with mediocre returns. You can invest 30-60% in equity.

• Conservative: You are averse to risk and must, therefore, opt for risk free investments such as
FDs and government bonds. Equity funds are best avoided.


So, now that you know what kind of investor you are lets quickly mention a bit about
equity investing.
In the long run, equity investment is the only investment avenue that can out perform returns from
any other investment avenue. If you are happy and at the same time surprised and baffled, it’s
time you got a wake up call. Welcome to the world of equities where risks are higher, so are the
returns. Imagine making a 100% return on investments in a given single year. Quite possible, but
on the flip side, the chances of making such a high return year on year are quite uncertain.
Consider the following instance. Since 2003, your money in equities almost grew 400%. Which
other easily liquid investment class offered you such returns during the same period? The answer
is none.
If you were one of those who stayed away, you may feel like you missed a good party. But don’t
berate yourself too much – there were many others like you. Less than 10% of Indians invest in
equities – either directly or through equity mutual funds. Of the total household savings in India, a
little over 4% is invested in the equity markets, as per latest estimates. But, remember equities
are long-term investments only.

Many retail investors will be more receptive to investing in equities now. That is both good and
bad. Good because as an investor you need to have some portion of equities in your investment
portfolio, bad because those who invest now have missed a sizeable run already. The thumb rule
for investment in equities is to invest your investible surplus in the ratio of ‘100 minus your age’.
But, there is no one size that fits all. You need to look at various parameters before you decide
what and where you need to put your money. Your investible surplus may be the same as your
colleague, but your risk profile may be completely different. Another thumb rule for equity
investment is probably to invest idle money only. You should have sufficient cash stacked in
assets that could be easily liquid as and when you require. Equity investments are a highly liquid
asset class, but you would not be able to get the best deal from equities if you require the money
urgently. Consider a recent instance. If you invested your investible surplus in 2007, your money
would have actually degrown and then again risen sharply. Whereas, the same investment in risk
free assets would have given you capital appreciation of around 4%. So, if you wanted some
cash urgently, encashing your equity investment while the market went down is a bad bet. In
equities, you invest and you forget, at least for some years. Therefore, it makes sense to invest
only that part of your investible surplus that you are willing to forget for quite some time.

A longer case study shows that equities have delivered 18% CAGR since January 1991 and
around 24% CAGR since inception. So are you ready to invest in equities? Good. But, don’t get
caught into the trader trap. Always remember, equity is a long-term investment. Returns from
equity will always be more than any other asset class, over time and definitely not overnight.

Right or Wrong in the Equity Market
Only time will tell if you are right or wrong in the market. Overall you may make money. But, there
are bouts of failures accompanied too along with it. So, no one can be completely right in the
equity market. The only thing is that one must continue to learn and unlearn because markets are
very dynamic.

So, here are the starters for the first time investor!!!!
Select a stockbroker
Before you even start investing you need a stock broker. This often becomes the biggest hurdle
for a first-time investor. Retail investors in smaller cities and towns have suffered at the hands of

dubious brokers and sub-brokers. Over the past decade, with the strengthening of guidelines by
the Securities and Exchange Board of India (the main regulator for the Indian financial markets), it
is difficult for the broker to vanish from the scene or commit fraud. Being a registered member of
the stock exchange, the broker carries out 'buy' and 'sell' transactions on behalf of his client (the
investor) and charges a small fee. His books and transactions are checked periodically. Further
investors can take penal action against the broker, if required. It is prudent for small and/or first
time investors to approach a broker who is known (through family or peers). Do ensure he is a
member of a major stock exchange and also registered with the SEBI. Preferably look for a
broker who not only execute trades, but also offers investment advice and some form of research.
It is prudent to give clear directions to the broker -- this is after all your money. Do not try and pick
brokers through the stock exchange member directory (several of them are inactive and some
prefer dealing with large companies).
A safe option for first-timers may be to approach a brokerage which has an online trading site.
The procedures for registration and transfer of funds/shares are simple. These brokers also offer
additional services like research, depository services and products to track your portfolio.

Trading
A person wishing to deal with a broker/sub-broker will have to fill up a client registration form. This
adds to the broker's database and is an agreement between the broker and his client. For the
investor it means that s/he wishes to trade in shares listed at the stock exchange through the
broker after being assured about his capabilities. For the broker it means he is sure of his client's
financial standing and has informed him of his own liabilities. The typical client registration form
will include your name, address, educational qualifications, occupation, residential address,
details of bank account, income tax number (PAN/GIR), proof of identity (photocopy of your
passport number/driving license/ration card/voters identity card).

Placing orders with the broker/sub-broker
One can either go to the broker's /sub-broker's office or place an order on the phone. Do keep
track of instructions given to your broker/sub-broker.

Execution of trade
The automated trading systems at the stocks exchanges (the Bombay Stock Exchange, the
National Stock Exchange, etc) assign a unique order code number to each transaction, which the
broker gives the investor. Once the order is executed (shares bought or sold at a specific price),
this order code number is printed on the contract note. Investors can either place a trade at the
market price (the current trading price which is shown on the trading terminal of the broker at the
exchange) or a limit order (a specific price band or level decided by the investor at which the
shares should be bought or sold).

Brokerage charged
While executing the transaction at the stock exchange, the broker charges a brokerage fee based
on the transaction. Most brokers charge between 0.1% to 0.5% of the total value of the
transaction. He may also charge penalties arising out of specific default on behalf of the client
(the investor) and service tax as stipulated. Documents you receive from the broker on execution
of the transaction If dealing with a broker, it is mandatory for him to issue to you a contract note
within a stipulated period of time. If dealing with a sub-broker, he will issue a purchase or sale
note (confirmation memo) to you. These documents ensure a contractual obligation for both
parties and hence must be insisted upon. These documents also provide for the recourse before
an arbitrator for settlement of disputes arising out of a transaction.

Contract Note
It will contain the name, address and the SEBI registration number of the member broker,
contract number, date and settlement number. It will also include the client code, order code, all
details of the trade (shares bought/sold, quantity, price and time of trade), brokerage charged,
service tax rates and authorised signatures. The sub-broker's purchase/sale note includes name,

SEBI registration number of sub-broker, corresponding contract note issued by the broker for
relevant trade number along with the date of contract.

Purchase obligations/sale of shares
Investors should ensure delivery of securities/payment of money to the broker immediately upon
getting the contract note for sale/purchase and in any case, before the prescribed pay-in day.
While purchasing shares, the cheque/draft payment is required to be made prior to the pay-in
date for the relevant settlement. In case of sale of shares, the delivery of shares has to be done
prior to the pay in date for the relevant settlement. What happens if you do not get your money or
shares on the due date? In case a broker fails to deliver the timely and proper payment of
money/shares or you have a complaint against the stockbroker's conduct, you can file a
complaint with the respective stock exchange. The exchange is required to resolve all the
complaints. To resolve the dispute, the complainant can also resort to arbitration as provided on
the reverse of contract note/purchase or sale note.

How the trade/settlement takes place
The process for order execution and transfer of shares/payments is a complex one. Investors
must, however, have some information of the trading cycles. The stock exchange has a
scheduled pay-in and pay-out day. Based on these, the payment of monies (to buy shares) or
delivery of securities (to sell shares) takes place. The pay-in day is when the broker makes
payment or delivery of securities to the exchange. The pay-out day is when the exchange makes
payment or delivery of securities to the broker. With the new settlement cycle at T+2 (settlement
on the second day from trading), the pay-out of funds and securities to the clients, is done by the
broker within 24 hours of the payout.

While selling demat shares
You sell your demat securities through the broker at a stock exchanges (which is linked to a
depository).You must give instructions to your DP to debit of your depository account and credit
of your broker's clearing member account at least 24 hours prior to the pay-in date. This should
be done so that your broker's clearing account is credited at the time arranged with him. On the
pay-in day, your broker gives instruction to his DP for delivery to the clearing corporation/house of
the relevant stock exchange. The broker receives payment from the clearing corporation/house.
Following this, you receive payment from the broker for the sale.

While buying demat shares
You purchase securities through a broker at any of the stock exchanges connected to the
depository and make payment to your broker. The broker arranges payment to clearing
corporation/clearing house of the stock exchange. The broker receives credit in his clearing
account with his DP on the pay-out day. He can immediately transfer these securities to your
depository account, provided your account is already active. The broker gives instructions to his
DP to debit his clearing account and credit your depository account. To get quicker delivery of
shares into your account Investors/clients can get direct delivery of shares in their beneficiary
accounts. To ensure this, you have to give details of your beneficiary account and the DP-identity
of your depository participant to your broker. Give him instructions for 'Delivery-In' to your
depository participant to accept shares in your beneficiary account. Given these details, the
clearing corporation/house will send pay-out instructions to the depository so that you receive
pay-out of securities directly into the beneficiary account. The following details will have to be
given, details of the pool account of the broker to which the shares are to be transferred; and
details of the scrip and quantity involved.

Opening a demat account
As seen above, there are distinct advantages of trading in demat shares. Broker-members and
the clearing houses of exchanges are connected with the two leading depositories National
Securities Depository Ltd and the Central Depository Services Ltd. To avail of trading in demat
shares, you have to open an account with the depository participant. However, one must
understand that there are several DPs registered with depositories, who seek your membership

and offer various services for a fee. Investors should keep in mind that depository fees charged
by DPs are high. With effect from April 2003, the depositories charge a flat rate, which works out
costlier for retail investors dealing in few shares. The demat account works like a bank passbook
where entries are credited and debited based on the demat shares bought or sold through a
registered broker.

To open a DP account
Fill up an account opening form (available with the DP). Give your DP the filled up account
opening form with introduction documents. Sign an agreement with the DP (agreement will state
rights and obligations of both the parties). This will contain the fee structure of your DP and one
signed copy remains with you. The DP would give you a 'Client ID' account number once your
depository account is opened. This 'Client ID' number along with your 'DP ID' number should be
quoted in all future dealings with the DP and/ or depository, issuing company/their registrar &
transfer (R&T) agent. Your DP would give you instruction slips for depository services --
dematerialisation, delivery instruction for trades, etc. Preserve these.

Directions to demat shares
You have to fill up a Demat Request Form which is obtained from the DP with whom your
depository account is opened.Then deface the share certificates you want to dematerialise by
writing across 'Surrendered for dematerialisation. 'Submit the DRF and the share certificates to
the DP.The DP would forward them to the issuer/their R&T agent. After dematerialisation, your
depository account with the DP would be credited with the dematerialised securities.
Note: Look for a depository participant who is registered with one or more depositories.Also see if
he can offer additional services. Ideally select a DP which is an established financial market
player -- either a bank (public sector, private sector or foreign), or a financial institution or a full
service brokerage.

Online trading
In a paper and documentation crazy country like India, carrying out sensitive financial
transactions through the Internet appears incredible. When online trading first came to India in the
mid-1990s, market players and experts were sceptical of its role and success. While most online
brokerage firms are still to make profits, they do command a growing client base and offer wide
ranging products and services which the average Dalal Street broker would not be able to offer to
investors. It is the mindset which has kept first-time investors away from tapping the Internet to
trade at the stock markets. Investors do not seem to accept a faceless financial advisor and
would prefer a constant dialogue with the broker (even if it were fruitless).Is online trading through
the Internet safe? The safety of transactions on the Internet depends on the encryption system
used. Most leading online trading sites, including those in India, offer the 128-bit encryption,
which is considered safe and difficult to hack into. Secondly, most online trading sites provide a
secure user ID and password, so that secrecy is maintained. Is there security of funds/money,
demat shares and transaction documents? In systems where the broking, banking and demat
accounts are completely integrated, your money remains in your own bank account, and does not
get transferred to the broker's pool account. Most leading online broking sites provide a system
wherein your broking account, bank account and demat account are linked electronically. So
while buying/selling shares, the system checks the funds/ shares availability and automatically
credits/debits the accounts once the order is executed by the exchange.

Its Simple
Trading on an established financial portal makes online trading easy. One does not need to be an
expert. Most portals offer a free demonstration of the online trading site. And online trading sites
are not very costly, as brokerage fees are low due to less back-office cost and paperless trading.

Accuracy
The advantage in online trading is that one is not at the mercy of the broker to see the latest
buy/sell quotes. The stock prices through the ticker are available with most online trading sites

and the good ones offer live quotes (having direct data feeds from the stock exchange). Hence
accuracy is maintained.

Note: Considering the networking and constant contact which one needs to keep with one's
broker, a first-time investor who has other interests should look at online trading as a simple and
safe solution. It is important to look for an Internet site which belongs to an established financial
market intermediary -- whether a private sector bank, financial institution or a full service Indian
brokerage. The advantage is that these financial portals provide various products and services,
including equity research, demat trading, financial market news and reports and a comprehensive
learning centre. Leading online trading sites offer alternatives like investing in mutual funds and
government securities. The only risk factor to watch for is for technology outages (slowdown) and
Internet site glitches which could make placing of trading orders difficult and investors may lose
on making investments at the right time or price.


Glossary

Active portfolio Strategy
A strategy that uses available information and forecasting techniques to seek a better
performance than a portfolio that is simply diversified broadly.

Appreciation
A rise in the price of a security or in the value of one currency in terms of another.

Approved intermediary
A person duly registered by the SEBI Board under the Securities Lending Scheme , 1997 through
whom the lender of securities will deposit the securities and the borrower will borrow the
securities.

Arbitrage
(1) Technically, arbitrage consists of purchasing a commodity or security in one market for
immediate sale in another market (deterministic arbitrage).
(2) Popular usage has expanded the meaning of the term to include any activity which attempts to
buy a relatively underpriced item and sell a similar, relatively overpriced item, expecting to profit
when the prices resume a more appropriate theoretical or historical relationship (statistical
arbitrage).
(3) In trading options, convertible securities, and futures, arbitrage techniques can be applied
whenever a strategy involves buying and selling packages of related instruments.
(4) Risk arbitrage applies the principles of risk offset to mergers and other major corporate
developments. The risk offsetting position(s) do not insulate the investor from certain event risks
(such as termination of a merger agreement on the risk of completion of a transaction within a
certain time) so that the arbitrage is incomplete.
(5) Tax arbitrage transactions are undertaken to share the benefit of differential tax rates or
circumstances of two or more parties to a transaction.
(6) Regulatory arbitrage transactions are designed to provide indirect access to a risk
management market where one party is denied direct access by law or regulation.
(7) Swap driven arbitrage transactions are motivated by the comparative advantages which swap
counter-parties enjoy in different debt and currency markets. One counterparty may borrow at a
relatively lower rate in the intermediate or long term United States dollar market, while the other
may have a comparative advantage in floating rate sterling.

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.


Backwardation/Ulta Badla/Undha Badla
The payment of money charges made by a seller of shares which he borrows to deliver against
his sale. These charges become payable only when there are more sellers who are not in a
position to deliver against their sale. These charges become payable to the buyer, when the
seller is not in a position to deliver the documents to the buyers who demand delivery.

Badla
Carrying forward of transactions from one settlement period to another without effective delivery.
This is permitted only in specified securities and is done at the making up price which is usually
the closing price of the last day of settlement.

Badla Charge/ Contango
Consideration or interest paid to the seller by the buyer for carrying over a transaction from one
settlement period to another.

Bear
A pessimist market operator who expects the market price of shares to decline. The term also
refers to the one who has sold shares which he does not possess, in the hope of buying them
back at a lower price, when the market price of the shares come down in the near future.

Bear Market
A weak or falling market characterized by the dominance of sellers.

Bear Trap
A false signal indicating that the rising trend of a stock or index has reversed when in fact it has
not. This can occur during a bear market reversal when short sellers believe the markets will sink
back to its declining ways. If the market continues to rise, the shorters get trapped and are forced
to cover their position at higher prices.

Bellweather
A security that is seen as a significant indicator of the direction in which a market’s price is
moving.

Beta
A measure of the volatility of a stock relative to the market index in which the stock is included. A
low beta indicates relatively low risk; a high beta indicates a high risk.

Block Trading
Buying and selling a block of securities usually takes place when restructuring or liquidating a
large portfolio.

Blue Chip
The best rated shares with the highest status as investment based on return, yield, safety,
marketability and liquidity.

Bonus Shares
Shares issued by companies to their shareholders free of cost by capitalization of accumulated
reserves from the profits earned in the earlier years.

Book building process
A process undertaken by which a demand for the securities proposed to be issued by a corporate
body is elicited and built up and the price for such securities is assessed for the determination of
the quantum of such securities to be issued by means of a notice, circular, advertisement,
document or information memoranda or offer document



Book Closure
The periodic closure of the Register of Members and Transfer Books of the company, to take a
record of the shareholders to determine their entitlement to dividends or to bonus or right shares
or any other rights pertaining to shares.

Book Runner
A Lead Merchant Banker who has been appointed by the issuer company for maintaining the
book. The name of the Book Running Lead Manager will be mentioned in the offer document of
the Issuer Company.

Book Value
The net amount shown in the books or in the accounts for any asset, liability or owners’ equity
item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less
accumulated depreciation. Also called carrying value. The book value of a firm is its total net
assets, i.e. the excess of total assets over total liabilities

Boom
A condition of the market denoting increased activity with rising prices and higher volume of
business resulting from greater demand of securities. It is a state where enlarged business, both
investment and speculative, has been taking place for a sufficiently reasonable period of time.

Breadth of the Market
The number of securities listed on the market in which there is regular trading.

Break
A rapid and sharp decline in a security or index.

Break Even Point
The stock price (or price) at which a particular strategy of transaction neither makes nor loses
money. In options, the result is at the expiration date in the strategy. A dynamic break-even point
changes as time passes.

Broker
A member of a Stock Exchange who acts as an agent for clients and buys and sells shares on
their behalf in the market. Though strictly a stock broker is an agent, yet for the performance of
his part of the contract both in the market and with the client, he is deemed as a principal, a
peculiar position of dual responsibility.

Brokerage
Commission payable to the stockbroker for arranging sale or purchase of securities. Scale of
brokerage is officially fixed by the Stock Exchange. Brokerage scales fixed in India are the
maximum chargeable commission.

Broker dealer
Any person, other than a bank engaged in the business of buying or selling securities on its own
behalf or for others.

Bubble
A speculative sharp rise in share prices which like the bubble is expected to suddenly burst.

Bull
A market player who believes prices will rise and would, therefore, purchase a financial
instrument with a view to selling it at a higher price. Opposite of a bear.

Bull Market
A rising market with abundance of buyers and relatively few sellers.


Buying - In
When a seller fails to deliver shares to a buyer on the stipulated date, the buyer can enforce
delivery by buying - in against the seller in an auction.

Buy on margin
To buy shares with money borrowed from the stockbroker, who maintains a margin account for
the customer.

Carry Over Margin
The margin fixed by the Stock Exchange and payable by the members for carrying over the
transactions from one settlement period to another.

Cash List
List of non-specified securities, traded usually for hand delivery and also for special delivery and
spot delivery.

Cash Market
A market for sale of security against immediate delivery, as opposed to the futures market.

Cash Settlement
The settlement provision on some options and futures contracts that do not require delivery of the
underlying security. For options, the difference between the settlement price on the underlying
asset and the option’s exercise price is paid to the option holder at exercise. For futures
contracts, the exchange establishes a settlement price on the final day of trading and all
remaining open positions are marked to market at that price.

Cats and Dogs
Stocks in companies that are small, new, poorly financed or in trouble.

Chalu Upla
Adjustment of position between two brokers either to avoid margin or to cross the trading or
exposure
limit.

Churning
An unethical practice employed by some brokers to increase their commissions by excessively
trading in a client’s account. In the context of the stock market, churning refers to a period of
heavy trading with few sustained price trends and little movement in stock market indices.

Circuit Breaker
A system to curb excessive speculation in the stock market, applied by the Stock Exchange
authorities, when the index spurts or plunges by more than a specified per cent. Trading is then
suspended for some time to let the market cool down.

Circular trading
A fraudulent trading scheme where sell or buy orders are entered by a person who knows that the
same number of shares at the same time and for the same price either have been or will be
entered. These trades do not represent a real change in the beneficial ownership of the security.
These trades are entered with the intention of raising or depressing the prices of securities.

Clearing
Settlement or clearance of accounts, for a fixed period in a Stock Exchange.




Clearing House
A department of an exchange or a separate legal entity that provides a range of services related
to the clearance and settlement of trades and the management of risks associated with the
resulting contracts. A clearing house is often central counterparty to all trades, that is, the buyer
to every seller and the seller to every buyer.

Clearing member
A member of a clearing corporation or clearing house of the derivatives exchange or derivatives
segment of an exchange, who may clear and settle transactions in securities.

Close-out-netting
An arrangement to settle all contracted but not yet due obligations to and claims on a
counterparty by one single payment, immediately upon the occurrence of one of the defined
events of default.

Closing Out
Where a party to a contract does not make delivery against sale or payment against delivery of
documents, the other party can close out the transaction against the defaulting party. The gain or
loss arising from the closing out is borne by the defaulter.

Closing Price
The rate at which the last transaction in a security is struck before the close of the trading hours.

Common stock
Units of ownership of a public corporation. Holders of common stock typically have voting rights
and receive dividends, but there is no guarantee of dividend payment.

Compulsory delisting
Permanent removal of securities of a listed company from a stock exchange as a penalizing
measure at the behest of the stock exchange for not making submissions / complying with
various requirements set out in the Listing agreement within the time frames prescribed.

Continuous disclosure
Procedure where certain companies are required to make disclosures on a continuing basis of
their business activities by filing documents.

Continuous net settlement
Automated book-entry accounting system that centralizes the settlement of compared security
transactions and maintains an orderly flow of security and money balances.

Contract Note
A note issued by a broker to his constituent setting out the number of securities bought or sold in
the market along with the rate, time and date of contract.

Corners
A corner occurs when a person buys up a substantial volume of a security knowing that other
market participants will be forced to buy from him at a higher price. An example of this would be
when the other market participants hold short positions in the security which must be settled. A
similar practice is the “abusive squeeze” where a person takes advantage of a shortage in an
asset by controlling the demand side and creating artificial prices.

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).



Counter party risk
The risk that between the time a transaction has been arranged and the time of actual settlement,
the counterparty to the transaction will fail to make the appropriate payment.

Cross margining
An arrangement between and among custodial and clearing organizations to partially offset
excess risk-adjusted margin deposited with one entity against margin requirements with another.

Cum
Means ‘with’ A cum price includes the right to any declared dividend (cd) or bonus (cb).

Dabba trading
Trading of securities outside the stock exchanges. The broker instead of routing the trade of his
clients in the system of stock exchanges, matches or executes the trades of its clients in a system
provided by him outside the stock exchange.

Daily Margin
The amount that has to be deposited at the Stock Exchange on a daily basis for the purchase or
sale of a security. This amount is decided by the stock exchange.

Daisy chain
A kind of fictitious trading, or wash selling, whereby a group of unscrupulous investors artificially
inflate the price of a security so that they sell it at a profit. As a stock price rises due to increased
volume, investors who didn’t do all their homework may be attracted to the stock in order to
participate in the rising price. These investors are typically caught owning a stock that continues
to depreciate long after the daisy chain sells out their positions for a profit.

Dalal Street
Street on which The Stock Exchange, Mumbai is situated. Used synonymously for The Stock
Exchange, Mumbai.

Day Order
An order that is placed for execution if possible, during only one trading session. If the order
cannot be executed that day it is automatically cancelled.

Day Trader
A new breed of retail investor, found mostly in the United States who deals on the stock market
via online brokers from dawn to dusk. A day trader undertakes many different buy and sell
transactions during the day. Previously trading could only be carried out by stock broking
professionals with access to expensive trading terminals. Day traders love the Internet–related
dotcom stock and have been blamed for some of the volatility that these stocks have been prone
to.

Dealer
A firm that enters into transactions as a counterparty on both sides of the market in one or more
products.

Delisting of securities
Permanent removal of securities of a listed company from a stock exchange. As a consequence
of delisting, the securities of that company would no longer be traded at that stock exchange.

Delivery
Presentation of securities with transfer deeds in fulfillment of a transaction.




Delivery Order
An output given to each member of the Stock Exchange at the end of a settlement period
containing particulars such as number of shares, value of shares, names of the receiving
members etc. to enable him to deliver such shares in time.

Delivery Price
The price fixed by the Stock Exchange at which deliveries on futures are invoiced. Also the price
at which the future contract is settled when deliveries are made.

Dematerialise
The process of transforming securities holdings in physical form to those in electronic form
through a Depository Participant.

Depository
A system of organisation, which keeps records of securities, deposited by its depositors. The
records may be physical or simply electronic records.

Depository participant (DP)
An agent of the depository through which it interfaces with the investor. A DP can offer depository
services only after it gets proper registration from SEBI.

Depreciation
A fall in value of a security or security index or a currency in terms of others or its purchasing
power.

Depth of Market
The number of shares of a security that can be bought or sold at the best bid or offer price.

Discount
When a security is quoted at a price below its nominal or face value, it is said to be at a discount.

Dividend
Payment made to shareholders, usually once or twice a year out of a company’s profit after tax.
Dividend payments do not distribute the entire net profit of a company, a part or substantial part
of which is held back as reserves for the company’s expansion. Dividend is declared on the face
value or par value of a share, and not on its market price.

Dividend Cover
Denotes the number of times equity earnings per share covers the equity dividend per share.

Dividend Notification
A requirement that companies notify the Stock Exchange immediately that the company intends
to declare dividend so that it can set the ex dividend date.

Dividend Payable
A current liability showing the amount due to stock holders/shareholders for dividend declared but
not paid.

Downside risk
An estimate of the amount of loss the holder of a security might suffer if there is a fall in its value.

Dumping
In the securities market the offering of large amounts of stock without regard for the effect on
prices on the market. In the international trade, the selling of goods overseas below cost to get rid
of a surplus or to gain a competitive edge over the foreign firms.


Dutch Auction
An auction in which the auctioneer’s prices fall rather than rise. In such an auction, the first
person to bid wins whatever it is that the auctioneer is selling. The system is used in the Dutch
flower markets and also, occasionally, as a method of selling securities.

Equity
The ownership interest in a company of holders of its common and preferred stock.

Equity premium
The difference between the expected return from holding stock and from holding riskless bonds.

Ex
Means ‘Without’. A price so quoted excludes recently declared dividends (xd) rights (xr) or bonus
shares (xb).

Ex-Dividend Date
The date on or after which the buyer of a security is not entitled to the dividend already declared.

Ex-Right Date
The date on which the official quotation for a share is marked XR i.e. ex rights, in the daily official
list.

Expected Return
The return an investor might expect on an investment if the same investment were made many
times over an extended period. The return is found through the use of mathematical analysis.

Face Value
The value that appears on the face of the scrip, same as nominal or par value of
share/debentures.

Foreign institutional investor
An institution established or incorporated outside India which proposes to make investment in
India in securities; provided that a domestic asset management company or domestic portfolio
manager who manages funds raised or collected or brought from outside India for investment in
India on behalf of a sub-account, shall be deemed to be a Foreign Institutional Investor.

Front Running
An unethical practice where brokers trade an equity based on information from the analysis
department before their clients have been given the information. Fund manager /broker buys or
sells securities in advance of a substantial client order or whereby a futures or options position
position is taken about an impending transaction in the same or related futures or options
contract.

Galla
Cutting in rates. It is the practice of depriving a client a higher rate while selling or lowest rate
while buying over and above the brokerage.

Golden Share
A share with special voting rights that give it peculiar power vis-a-vis other share.The term applies
particularly to share retained by a government after privatisation. If a government wishes to sell
off a company in a sensitive industry (defence, say) and yet retain control, it can hold on to a
golden share. This might give it the right to veto any takeover bid.

Good Delivery
Proper delivery by a seller to the buyer of the securities without any defect so that they can be
transferred without any additional documentation.


Green shoe option
Green Shoe option means an option of allocating shares in excess of the shares included in the
public issue and operating a post-listing price stabilizing mechanism in accordance with the
specific provisions in DIP Guidelines, which is granted to a company to be exercised through a
stabilizing Agent

Hammering The Market
Intensive sale of stocks to drive prices down.

Hand Delivery
Delivery and payment on the date stipulated by the Stock Exchange.

Hedge
An asset, liability or financial commitment that protects against adverse changes in the value of or
cash flows from another investment or liability. An unhedged investment or liability is called an
“exposure”. A perfectly matched hedge will gain in value what the underlying exposure loses or
lose what the underlying exposure gains.

Hedge Funds
Private investment pools that invest aggressively in all types of markets, with managers of the
fund receiving a percentage of the investment profits. The name is something of a misnomer
since a hedge fund’s raison d’etre is quite the opposite of hedging.

Hedge Ratio
The proportion of one asset required to hedge against movements in the price of another.

Hostile Bid
An effort to gain control of a target company that has not been agreed to by the target’s
management and board, usually through a tender offer or an unsolicited proposal to the board.
Sometimes called an unsolicited bid.

Hot Money
Short term international capital movements, motivated by interest rate differential or revaluation
hopes/devaluation fears.

Hybrid
Any security which has the character of more than one type of security, including their derivatives.

Hypothecation
Pledging assets against a loan. The ownership of the asset or the income from the asset is not
transferred, except that in default of repayment of loan the asset may be sold to realize its value.
Brokers will accept shares as collateral for loans to finance purchase of shares or to cover short
sales.

Indian Depository Receipt
A receipt, evidencing an underlying foreign security, issued in India by a foreign company which
has entered into an agreement with the issuer and depository, custodian and depository or
underwriters and depository, in accordance with the terms of prospectus or letter of offer, as may
be prescribed.

Initial margin
The initial amount which customers have to put in before taking up a futures contract to
guarantee the transaction.



Initial Public Offering (IPO)
The first public issue by a public limited company.

Insider
Any person who, is or was connected with the company or is deemed to have been connected
with the company, and who is reasonably expected to have access, connection, to unpublished
price sensitive information in respect of securities of a company, or who has received or has had
access to such unpublished price sensitive information

Insider trading
Practice of corporate agents buying or selling their corporation’s securities without disclosing to
the public significant information which is known to them but which has not yet affected the price.

Institutional Investors
Organizations those invest, including insurance companies, depository institutions, pension
funds, investment companies, and endowment funds.

Interim Dividend
A dividend payment made during the course of a company’s financial year. Interim dividend,
unlike the final dividend, does not have to be agreed in a general meeting.

Internal Rate of Return (IRR)
The rate at which future cash flows must be discounted in order to equal the cash cost of the
investment.

Investment banker
Financial conglomerate which conducts a full range of investment related activities from advising
clients on securities issues, acquisitions and disposal of businesses, arranging and underwriting
new securities, distributing the securities etc.

Jobber
Member brokers of a stock exchange who specialize, by giving two way quotations, in buying and
selling of securities from and to fellow members. Jobbers do not have any direct contact with the
public but they serve the useful function of imparting liquidity to the market.

Jobbers 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.

Lagging indicators
Market indicators showing the general direction of the economy and confirming or denying the
trend implied by the leading indicators or concurrent indicators.

Lame Duck
A defaulter on a Stock Exchange who is not able to meet his market commitment and financial
obligations of his business.

Leading indicators
Market indicators that signal the state of the economy for the coming months.

Lead Manager
The merchant banker(s) associated with the issue and responsible for due diligence and other
associated issue related activities.

Leverage
The use of borrowed money to finance an investment.


Limit Order
An order to buy or sell a specified number of shares of a security when a specified price is
reached.

Listed Company
A company which has any of its securities offered through an offer document listed on a
recognized stock exchange and also includes Public Sector Undertakings whose securities are
listed on a recognised stock exchange.

Listing
Formal admission of a security into a public trading system

Listing Agreement
An agreement which has to be entered into by companies when they seek listing for their shares
on a Stock Exchange. Companies are called upon to keep the stock exchange fully informed of
all corporate developments having a bearing on the market price of shares like dividend, rights,
bonus shares, etc.

Long Position
A position showing a purchase or a greater number of purchases than sales in anticipation of a
rise in prices. A long position can be closed out through the sale of an equivalent amount.

Margin
An advance payment of a portion of the value of a stock transaction. The amount of credit a
broker or lender extends to a customer for stock purchase.

Markdown
A charge levied by a broker when buying securities on its own account from a customer. (These
purchases as principals from customer take place at the best bid prices minus a commission
equivalent to markdown).

Marked to market basis
The process whereby the book value or collateral value of a security is adjusted to reflect current
market value.

Market capitalization
The market value of a company, calculated by multiplying the number of shares issued and
outstanding by their current market price.

Market Maker
A member firm who give two way quotation for particular security (ies) and who is under an
obligation to buy and sell them subject to certain conditions such as overall exposure, spread etc.

Market Model
This relationship is sometimes called the single-index model. The market model says that the
return on a security depends on the return on the market portfolio and the extent of the security’s
responsiveness as measured by beta (b). In addition, the return will also depend on conditions
that are unique to the firm. Graphically, the market model can be depicted as a line fitted to a plot
of asset returns against returns on the market portfolio.

Market Price
The last reported sale price for an exchange traded security.




Marketable Lot
A fixed minimum number, in which or in multiples of which, shares are bought and sold on the
stock exchange. For shares whose face value is Rs. 10, the marketable or trading lot may be 50
or 100. For Rs. 100 shares the market lot is usually 5 or 10. Companies may, however, decide on
other lots, such as 1 share for Rs. 500, although it is now rare. Any number of share less than the
marketable lot makes an odd lot, difficult to buy and disadvantageous to sell. When companies
issue bonus or rights shares in less than 1:1 ratio, odd lots are often the result.

Marking Up Prices
Prices fixed by the Stock Exchange to facilitate settlement of bargains in the specified securities,
particularly at the end of the settlement period.

Mark to market margin (MTM)
Collected in cash for all Futures contracts and adjusted against the available Liquid Net worth for
option positions. In the case of Futures Contracts MTM may be considered as Mark to Market
Settlement.

Marking Up Prices
Prices fixed by the Stock Exchange to facilitate settlement of bargains in the specified securities,
particularly at the end of the settlement period.

Markup
A charge levied by a broker when selling securities from its own account to a customer. These
sales as principals to a customer take place at the best ask price plus a commission equivalent to
markup.

Matched Transaction
A check is carried out on the computer to find out whether purchases and sales as reported by
the members match. The transactions, thus compared are called matched transactions.

Merchant Banker
Any person who is engaged in the business of issue management either by making arrangement
regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or
rendering corporate advisory service in relation to such issue management.

Money laundering
Process of converting the proceeds of illegal activities – disclosure of which would trigger
financial losses or criminal prosecution – into real or financial assets whose origins remain
effectively hidden from law enforcement officials and from society in general.

Moving Average
The average of security or commodity prices over a period of few days or up to several years
showing the trends up to the last interval. Each time the average is taken , the oldest price is
dropped and the latest price is added. Thus the average is moving one.

Ombudsman
An independent person appointed to hear and act upon citizen’s complaint about government
services. Invented in Sweden, the idea has been widely adopted. For example, groups of banks,
mortgage lenders and insurance companies in various countries have appointed ombudsmen to
attend to the complaints of their customers. Customers who use the ombudsman’s (free) service
retain their full right to take legal action should they not agree with the ombudsman’s decision .

Overtrading
A broker/dealer overpays a customer for a security to enable the customer to subscribe to
another security offered by that broker/dealer at a higher markup than the loss to be sustained
when the firm sells the customer’s first security at prevailing market prices.


Paid in Capital
The difference between par or book-keeping, value of a security and the amount realized from the
sale or distribution of those shares by the company.

Paid up Capital
The amount of capital, both equity and preference, paid up by the shareholders against the
capital subscribed to by them.

Par Value
Means the face value of securities.

Pari Passu
A term used to describe new issue of securities which have same rights as similar issues already
in existence.

Partly Paid
Shares on which full nominal value has not been called up.

Pay In/Pay Out
The days on which the members of a Stock Exchange pay or receive the amounts due to them
are called pay in or pay out days respectively.

Payment netting
Settling payments due on the same date and in the same currency on a net basis.

Penny Stocks
Generic term for very low priced stocks- sometimes selling at a few pennies per share sometimes
for a dollar or two- in speculative companies.

Persons acting in concert (PAC)
Individual(s) /company(ies)/ any other legal entity(ies) who are acting together for a common
objective or for a purpose of substantial acquisition of shares or voting rights or gaining control
over the target company pursuant to an agreement or understanding whether formal or informal.

Pig
Operators who get killed by the speculators.

Plain vanilla transactions
The most common and generally the simplest types of derivatives transaction. Plain vanilla is a
relative concept, and no precise list of plain vanilla transactions exists. Transactions that have
unusual or less common features are often called exotic or structured.

Players
A diverse range of intermediaries and institutional investors active in the capital market. This
includes securities firms, broker dealers, commercial banks, merchant banks, unit trust/mutual
fund etc.

Ponzi Scheme
A classic contrick that has been repeated many times both before and since Charles( Carlo)
Ponzi gave it its name in the 1920s. The scheme begins with a crook setting up as a deposit
taking institution. The crook invites the public to place deposits with the institution, and offers
them a generous rate of interest. The interest is then paid out of new depositors’ money, and the
crook lives well off the old deposits.The whole scheme collapses when there are not enough new
deposits coming in to cover the interest payment due on the old ones. By that time the modern
day Ponzi hopes to be living under an alias in a hot country with few extradition laws.


Pooling
The basic concept behind mutual funds in which a fund aggregates the assets of investors who
share common financial goals. A fund uses the investment pool to buy a diversified portfolio of
investments and each mutual fund share purchased represents ownership in all the funds
underlying securities.

Pools
A pool is essentially the same type of practice as a matched order, but involves more than one
person colluding to generate artificial market activity.

Poop and scoop
A highly illegal practice occurring mainly on the Internet A small group of informed people attempt
to push down a stock by spreading false information and rumors. If they are successful, they can
purchase the stock at bargain prices.

Portfolio
A collection of securities owned by an individual or an institution (such as a mutual fund) that may
include stocks, bonds and money market securities.

Portfolio investment
Investment which goes into the financial sector in the form of treasury bonds and notes, stocks,
money market placements, and bank deposits. Portfolio investment involves neither control of
operations nor ownership of physical assets.

Portfolio manager
Any person who pursuant to a contract or agreement with a client ,advises or directs or
undertakes on behalf of the client (whether as discretionary portfolio manager or otherwise) the
management or administration of a portfolio of securities or the funds of the client as the case
may be.

Portfolio Turnover
A measure of the trading activity in a funds investment portfolio – how often securities are bought
and sold by a fund.

Position limit
The maximum number of listed option contracts on a single security which can be held by an
investor or group of investors acting jointly.

Position netting
The netting of payment instructions in respect of obligations between two or more parties, but
which neither satisfies nor discharges those original obligations.

Position trading
Type of trading involving the holding of open positions for an extended period of time.

Preferred Stock / Preference Shares
Owners of this kind of stock are entitled to a fixed dividend to be paid regularly before dividend
can be paid on common stock .They also exercise claims to assets, in the event of liquidation,
senior to holders of common stock but junior to bondholders. Holders of preferred stock normally
do not have a voice management.

Preferential allotment
Further issue of shares / securities convertible into equity shares at a later date, to a select group
of persons in preference to all the existing shareholders of the company.


Premium
If an investor buys a security for a price above its eventual value at maturity he has paid a
premium for it.

Price Band
The range within which the price of a security or the index of a currency is permitted to move
within a given period.

Price discovery
A general term for the process by which financial markets attain an equilibrium price, especially in
the primary market. Usually refers to the incorporation of information into the price

Price Earning Ratio
The ratio of the market price of the share to earnings per share. This measure is used by
investment experts to compare the relative merits of a number of securities.

Price rigging
When persons acting in concert with each other collude to artificially increase or decrease the
prices of a security, the process is called price rigging.

Price sensitive information
Any information which relates directly or indirectly to a company and which if published is likely to
materially affect the price of securities of the company.

Profit Taking
Realizing profits by closing out an existing position.

Programme Trading
A technique, which uses decision rules, usually programmed on a computer, to generate trading
decisions automatically.

Prospectus
Any document described or issued as a prospectus and includes any notice, circular,
advertisement or other document inviting deposits from the public or inviting offers from the public
for the subscription or purchase of any shares in, or debentures of, a body corporate.

Public Announcement
A public announcement is an announcement made in the newspapers by the acquirer primarily
disclosing his intention to acquire shares of the target company from existing shareholders by
means of an open offer.

Public Issue
An invitation by a company to public to subscribe to the securities offered through a prospectus.

Puffing advertisement
Advertising or planting some news in the newspaper or in any media in respect of a proposed
corporate action and later taking the stand that the Board of directors did not approve the
proposed corporate action or news about financial results, given in misleading or distorted
manner intended to generate or induce trading in the scrip.

Pump and dump
A highly illegal practice occurring mainly on the internet. A small group of informed people buy a
stock before they recommend it to thousands of investors. The result is a quick spike in the price
followed by an equally quick downfall. The people who have bought the stock early sell off when
the price peaks.


Record Date
A date on which the records of a company are closed for the purpose of determining the
stockholders to whom dividends, proxies rights etc., are to be sent.

Red Herring
A preliminary prospectus filed with the Securities and Exchange Commission in the United States
in order to test the market’s reaction to a proposed new issue of securities. In Indian scenario,
Red Herring is a draft prospectus which is used in book built issues. It contains all disclosures
except the price and is used for testing the market reaction to the proposed issue.

Registrar to an issue
The person appointed by a body corporate or any person or group of persons to carry on the
activities of collecting applications from investors in respect of an issue; keeping a proper record
of applications and monies received from investors or paid to the seller of the securities and
assisting body corporate or person or group of persons in- determining the basis of allotment of
securities in consultation with the stock exchange; finalising of the list of persons entitled to
allotment of securities; processing and despatching allotment letters, refund orders or certificates
and other related documents in respect of the issue.

Regulatory arbitrage
A financial contract or a series of transactions undertaken, entirely or in part, because the
transaction(s) enable(s) one or more of the counterparties to accomplish a financial or operating
objective which is unavailable to them directly because of regulatory obstacles.

Rematerialisation
The process of converting electronic holdings into physical securities through a Depository
Participant.

Reverse book building
Reverse book building is similar to the process of book building, which is aimed at securing the
optimum price for a company’s share. In reverse book building the investors’ aim is to sell the
shares to exit the company.

Rigged Market
Manipulation of share price to attract buyers and sellers to the riggers advantage.

Rights Issue/ Rights Shares
The issue of new securities to existing shareholders in a fixed ratio to those already held.

Rolling settlement
The practice on many stock markets of settling a transaction a fixed number of days after the
trade is agreed.

Run
A run involves a person creating activity in a security by successively buying or selling that
security. The intention is that the increased activity would, in case where the person is buying,
attract others to buy and push up the price. At that point, those organizing the run would then
attempt to sell out at a financial gain. This is sometimes known as “pumping and dumping.”

Secondary Market
The market for previously issued securities or financial instruments.

Securities Lending Scheme
A scheme formed in 1997 for lending of securities through an approved intermediary to a
borrower under an agreement for a specified period with the condition that the borrower will return

equivalent securities of the same type or class at the end of the specified period along with the
corporate benefits accruing on the securities borrowed.

Securitization
The process of homogenizing and packaging financial instruments into a new fungible one.
Acquisition, classification, collateralization, composition, pooling and distribution are functions
within this process.

Selling Short
A manner in which an investor sells securities he does not posses in the hope of buying them
back later at a lower price.

Sensitive Index
A share price index based on 30 active scrips developed by the Bombay Stock Exchange with
1978-79 as the base year.

Settlement Date
The date specified for delivery of securities between securities firms.

Settlement Period
For administrative convenience, a Stock Exchange divides the year into a number of settlement
periods so as to enable members to settle their trades. All transactions executed during the
settlement period are settled at the end of the settlement period.

Settlement risk (principal risk)
The risk that the seller of a security or funds delivers its obligation but does not receive payment
or that the buyer of a security or funds makes payment but does not receive delivery. In this
event, the full principal value of the securities or funds transferred is at risk.

Short Covering
Buying of stocks by a seller to complete his previous commitments.

Short position
In futures, the short has sold the commodity or security for future delivery; in options, the short
has sold the call or the put and is obligated to take a futures position if he or she is assigned for
exercise.

Short squeeze
A situation in which a lack of supply and an excess demand for a traded stock forces the price
upward. If a stock price starts to rise rapidly, the trend may continue to escalate because the
short sellers will likely want out. For example, say a stock rises 15% in one day, those with short
positions may be forced to liquidate and cover their position by purchasing the stock. If enough
short sellers buy back the stock, the price is pushed even higher.

Sleeping Beauty
A desirable company, often with considerable cash on its balance sheet, that is vulnerable to a
takeover attempt by another company.

Small firm effect
The tendency of small firms (in terms of total market capitalization) to outperform the stock
market (consisting of both large and small firms).

Spin off
When a company decides that a subsidiary needs to stand on its own, it might do a spin-off,
distributing shares of the new entity to existing shareholders, or selling the new business to its
managers or even its employees.


Split
Sub-division of a share of large denomination into shares of smaller denominations. Also means
subdivision of holdings.

Spoofing
Placing a limit order at a better price than the current market price for purchase or sale of thinly
traded scrips and then endeavouring to cancel the initial limit order in order to induce buy or sell.

Spot Delivery Contract
A contract which provides for
(a) actual delivery of securities and the payment of a price therefore either on the same day as
the date of the contract or on the next day, the actual period taken for the despatch of the
securities or the remittance of money therefore through the post being excluded from the
computation of the period aforesaid if the parties to the contract do not reside in the same town or
locality;
(b) transfer of the securities by the depository from the account of a beneficial owner to the
account of another beneficial owner when such securities are dealt with by a depository.

Stag
i. An applicant, for a new issue of shares, who hopes to sell the shares on allotment at a profit
once trading commences in the secondary market. ii. A speculator who buys and sells stocks
rapidly for fast profits.

Stamp Duty
The ad valorem duty payable by buyer for transfer of shares in his name. Also payable on
contracts issued by a stock-broker.

Standard Price
The standard price of a security is generally worked out as a weighted average price of all
recorded transactions for that security adjusted to the nearest rupee.

Stock dividend
A dividend paid to stockholders in shares of stock of the issuing corporation, issued to
stockholders or record out of the unissued stock of the corporation, involving no payment of cash,
and used to reflect positive interest in the security.

Straight through processing (STP)
The processing of a trade, whose data is compliant with internal and external requirements,
through systems from post-execution through settlement without manual intervention.Simply put it
means seamless integration of trades from initiation to settlement without manual intervention.

Sub broker
Any person not being a member of a stock exchange who acts on behalf of a stock-broker as an
agent or otherwise for assisting the investors in buying, selling or dealing in securities through
such stock-brokers.

Subscribed Capital
The amount of equity and preference capital subscribed to by the shareholders either fully or
partly paid up with calls in arrears.

Synchronized or Pre-arranged trading
Trading on the electronic screen in such a way that trades are put simultaneously in the system of
the stock exchange with prior understanding with counterparty by synchronizing the logging in or
of trades so that desired quantity matches at desired price.


Systemic risk
Risk that affects an entire financial market or system, and not just specific participants. It is not
possible to avoid systemic risk through diversification.

Thin markets
Characterized by relatively few transactions per unit of time and where price fluctuations are high
relative to the volume of trade.

Underlying
The designated financial instrument which must be delivered in completion of an option or futures
contract.

Underwriter
One who does underwriting. A financial organization that handles sales of new securities which a
company or municipality wishes to sell in order to raise money. Typically the underwriters will
guarantee subscription to securities say, an issue of equity from the company at a stated price,
and are under an obligation to purchase securities upto the amount they have underwritten,
should the public not subscribe for the issue.

Underwriting
An agreement with or without conditions to subscribe to the securities of a body corporate when
the existing shareholders of such body corporate or the public do not subscribe to the securities
offered to them.

Unmatched Transactions
A check is carried out to find out whether the purchases and sales as reported by the members
match. A list of those transactions which do not match are called unmatched transactions.

Unsystematic Risk
Also called the diversifiable risk, residual risk, or company-specific risk, the risk that is unique to a
company such as a strike, the outcome of unfavourable litigation, or a natural catastrophe.

Upstairs market
A network of trading desks for the major brokerage firms and institutional investors that
communicate with each other by means of electronic display systems and telephones to facilitate
block trades and program traders.

Value investing
The investment style of attempting to buy underpriced stocks that have the potential to perform
well and appreciate in terms of price.

Value at Risk (VAR)
VAR is the maximum loss over a target horizon such that there is a low, prespecified probability
that the actual loss will be larger.

Value investing
The investment style of attempting to buy underpriced stocks that have the potential to perform
well and appreciate in terms of price.

Value at Risk (VAR)
VAR is the maximum loss over a target horizon such that there is a low, prespecified probability
that the actual loss will be larger.

Vanilla Issue
A straight fixed rate issue which has terms and conditions usually accepted as being conventional
to a particular securities market.


Vanishing companies
Companies which have not complied with specific provisions of the listing agreement and
regulations of the stock exchanges, and are not physically traceable at the registered address
mentioned in the offer document.

Venture Capital
Professional moneys co-invested with the entrepreneur usually to fund an early stage, more risky
venture. Offsetting the high risk is the promise of higher return that the investor takes. A venture
capitalist not only brings in moneys as “equity capital” (i.e. without security/charge on assets) but
also brings on to the table extremely valuable domain knowledge ,business contacts, brand
equity, strategic advice, etc. He is a fixed interval investor, whom the entrepreneurs approach
without the risk of “takeover”.

Venture Capital Fund
A fund established in the form of a trust or a company including a body corporate and registered
under the SEBI venture capital fund regulations which - has a dedicated pool of capital, raised in
a manner specified in the regulations and invests in venture capital undertaking in accordance
with the regulations.

Venture Capital Undertaking
A domestic company whose shares are not listed an a recognised stock exchange in India and
which is engaged in the business for providing services, production or manufacture of article or
things or does not include such activities or sectors which are specified in the negative list by the
Board with the approval of the Central Government.

Volatility
Volatility equates to the variability of returns from an investment. It is an acceptable substitute for
risk; the greater the volatility, the greater is the risk that an investment will not turn out as hoped
because its market price happens to be on the downswing of a bounce at the time that it needs to
be cashed in. The problem is that future volatility is hard to predict and measures of past volatility
can, themselves, be variable, depending on how frequently returns are measured (weekly or
monthly, for example) and for how long. Therefore, putting expectations of future volatility into
predictive models is of limited use, but resorting to using past levels of volatility is equally limited.

Volume of Trading
The total number of shares which changes hands in a particular company’s securities. This
information is useful in explaining and interpreting fluctuation in share prices.

Voluntary delisting
Delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any other
person other than the stock exchange

Voting Rights
The entitlement of a shareholder to exercise vote in the general meeting of a company.

Wash sales
A wash sale involves a person, either directly or indirectly, being both the buyer and seller of
securities in the same transaction, so that there is no actual change in ownership of the
securities. The manipulator will undertake frequent trades hoping to attract other investors who
note the increased turn over in the security. The manipulator aims to gain financially through
creating a small price differential between the buy and sell rates of the security in question.

Wolf
Speculators who make a kill in the market.


X Dividend
A term meaning ‘without dividend’. A stock bought on or after the X- dividend day will not pay the
purchaser the dividend already declared.

Source: Internet